Agricultural Land Preservation Act of 1997

Summary: Agricultural Land Preservation Act of 1997 - Amends the Internal Revenue Code to exclude from the gross estate, if the executor so elects, the value of land subject to a qualified conservation easement, except for any debt-financed portion and reduced by any deduction taken under provisions relating to transfers for public, charitable, and religious use.  Provides for the treatment of any retained development right.  Adds references to such property to provisions controlling the basis of property acquired from a decedent. 
Prohibits treating the transfer by gift of land subject to a qualified conservation easement as a transfer of property by gift for purposes of provisions relating to gift taxes. 
Amends provisions relating to the valuation of certain farm and other real property to prohibit a qualified conservation contribution (as defined in provisions relating to charitable contributions) from being deemed a disposition unless it is subject to a conservation easement.  Declares that, if property is otherwise qualified real property, being subject to a conservation easement does not disqualify it. 
Allows a contribution to be treated as exclusively for conservation purposes if the surface estate and mineral interests have been and remain separated (currently, if the surface estate and mineral interests were separated before June 13, 1976, and remain separated) and if the probability of surface mining is so remote as to be negligible.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Agricultural Land Preservation Act 
of 1997''.

SEC. 2. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT.

    (a) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2031 of the Internal Revenue Code of 
1986 (relating to the definition of gross estate) is amended by 
redesignating subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--
            ``(1) In general.--If the executor makes the election 
        described in paragraph (4), then, except as otherwise provided 
        in this subsection, there shall be excluded from the gross 
        estate the value of land subject to a qualified conservation 
        easement, reduced by the amount of any deduction under section 
        2055(f) with respect to such land.
            ``(2) Treatment of certain indebtedness.--
                    ``(A) In general.--The exclusion provided in 
                paragraph (1) shall not apply to the extent that the 
                land is debt-financed property.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Debt-financed property.--The term 
                        `debt-financed property' means any property 
                        with respect to which there is an acquisition 
                        indebtedness (as defined in clause (ii)) on the 
                        date of the decedent's death.
                            ``(ii) Acquisition indebtedness.--The term 
                        `acquisition indebtedness' means, with respect 
                        to debt-financed property, the unpaid amount 
                        of--
                                    ``(I) the indebtedness incurred by 
                                the donor in acquiring such property,
                                    ``(II) the indebtedness incurred 
                                before the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition.
                                    ``(III) the indebtedness incurred 
                                after the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition 
                                and the incurrence of such indebtedness 
                                was reasonably foreseeable at the time 
                                of such acquisition, except that 
                                indebtedness incurred after the 
                                acquisition of such property is not 
                                acquisition indebtedness if incurred to 
                                carry on activities directly related to 
                                farming, ranching, forestry, 
                                horticulture, or viticulture, and
                                    ``(IV) the extension, renewal, or 
                                refinancing of an acquisition 
                                indebtedness.
            ``(3) Treatment of retained development right.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the value of any development right retained by the 
                donor in the conveyance of a qualified conservation 
                easement.
                    ``(B) Termination of retained development right.--
                If every person in being who has an interest (whether 
                or not in possession) in such land shall execute an 
                agreement to extinguish permanently some or all of any 
                development rights (as defined in subparagraph (D)) 
                retained by the donor on or before the date for filing 
                the return of the tax imposed by section 2001, then any 
                tax imposed by section 2001 shall be reduced 
                accordingly. Such agreement shall be filed with the 
                return of the tax imposed by section 2001. The 
                agreement shall be in such form as the Secretary shall 
                prescribe.
                    ``(C) Additional tax.--Failure to implement the 
                agreement described in subparagraph (B) within 2 years 
                of the decedent's death shall result in the imposition 
                of an additional tax in the amount of tax which would 
                have been due on the retained development rights 
                subject to such agreement. Such additional tax shall be 
                due and payable on the last day of the 6th month 
                following the end of the 2-year period.
                    ``(D) Development right defined.--For purposes of 
                this paragraph, the term `development right' means the 
                right to establish or use any structure and the land 
                immediately surrounding it for sale (other than the 
                sale of the structure as part of a sale of the entire 
                tract of land subject to the qualified conservation 
                easement), or other commercial purpose which is not 
                subordinate to and directly supportive of the activity 
                of farming, forestry, ranching, horticulture, or 
                viticulture conducted on land subject to the qualified 
                conservation easement in which such right is retained.
            ``(4) Election.--The election under this subsection shall 
        be made on the return of the tax imposed by section 2001. Such 
        an election, once made, shall be irrevocable.
            ``(5) Calculation of estate tax due.--An executor making 
        the election described in paragraph (4) shall, for purposes of 
        calculating the amount of tax imposed by section 2001, include 
        the value of any development right (as defined in paragraph 
        (3)) retained by the donor in the conveyance of such qualified 
        conservation easement. The computation of tax on any retained 
        development right prescribed in this paragraph shall be done in 
        such manner and on such forms as the Secretary shall prescribe.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Land subject to a qualified conservation 
                easement.--The term `land subject to a qualified 
                conservation easement' means land--
                            ``(i) which is located in or within 50 
                        miles of an area which, on the date of the 
                        decedent's death, is--
                                    ``(I) a metropolitan area (as 
                                defined by the Office of Management and 
                                Budget), or
                                    ``(II) a National Park, National 
                                Seashore, or wilderness area designated 
                                as part of the National Wilderness 
                                Preservation System,
                            ``(ii) which was owned by the decedent or a 
                        member of the decedent's family at all times 
                        during the 3-year period ending on the date of 
                        the decedent's death, and
                            ``(iii) with respect to which a qualified 
                        conservation easement is or has been made by 
                        the decedent or a member of the decedent's 
                        family.
                    ``(B) Qualified conservation easement.--
                            ``(i) In general.--The term `qualified 
                        conservation easement' means a qualified 
                        conservation contribution (as defined in 
                        section 170(h)(1)) of a qualified real property 
                        interest (as defined in section 170(h)(2)(C)), 
                        except that in applying section 170(h) for 
                        purposes of this subsection--
                                    ``(I) the term `qualified real 
                                property interest' shall not include 
                                any structure or building constituting 
                                a certified historic structure (as 
                                defined in section 170(h)(4)(B)), and
                                    ``(II) the restriction on the use 
                                of such interest described in section 
                                170(h)(2)(C) shall include a 
                                prohibition on commercial recreational 
                                activity, except that the leasing of 
                                fishing and hunting rights shall not be 
                                considered commercial recreational 
                                activity when such leasing is 
                                subordinate to the activities of 
                                farming, ranching, forestry, 
                                horticulture or viticulture.
                            ``(ii) Sales of qualified conservation 
                        easements to qualify.--In the case of an 
                        easement which would be a qualified 
                        conservation easement but for the fact that the 
                        easement was sold to the qualified 
                        organization--
                                    ``(I) such easement shall be 
                                treated as a qualified easement for 
                                purposes of this subsection, and
                                    ``(II) references in this 
                                subsection to the donor shall be 
                                treated as references to the owner of 
                                the land to which the easement relates.
                    ``(C) Member of family.--The term `member of the 
                decedent's family' means any member of the family (as 
                defined in section 2032A(e)(2)) of the decedent.''
            ``(7) Application of this section to interests in 
        partnerships, corporations, and trusts.--The Secretary shall 
        prescribe regulations applying this section to an interest in a 
        partnership, corporation, or trust which, with respect to the 
        decedent, is an interest in a closely held business (within the 
        meaning of paragraph (1) of section 6166(b)).''
    (b) Carryover Basis.--Section 1014(a) of such Code (relating to 
basis of property acquired from a decedent) is amended by striking the 
period at the end of paragraph (3) and inserting ``, or'' and by adding 
after paragraph (3) the following new paragraph:
            ``(4) to the extent of the applicability of the exclusion 
        described in section 2031(c), the basis in the hands of the 
        decedent.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1996.

SEC. 3. GIFT TAX ON LAND SUBJECT TO A QUALIFIED CONSERVATION EASEMENT.

    (a) Gift Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2503 of the Internal Revenue Code of 
1986 (relating to taxable gifts) is amended by adding at the end the 
following new subsection:
    ``(h) Gift Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--The transfer by gift of land subject to a 
qualified conservation easement shall not be treated as a transfer of 
property by gift for purposes of this chapter. For purposes of this 
subsection, the term `land subject to a qualified conservation 
easement' has the meaning given to such term by section 2031(c); except 
that references to the decedent shall be treated as references to the 
donor and references to the date of the decedent's death shall be 
treated as references to the date of the transfer by the donor.''
    (b) Effective Date.--The amendment made by this section shall apply 
to gifts made after December 31, 1996.

SEC. 4. TREATMENT UNDER ALTERNATE VALUATION OF FARM PROPERTY RULES OF 
              QUALIFIED CONSERVATION CONTRIBUTIONS AND LAND SUBJECT TO 
              QUALIFIED CONSERVATION EASEMENTS.

    (a) Exceptions From Recapture Rules for Land Subject To Qualified 
Conservation Easement and Qualified Conservation Contributions.--
Subsection (c) of section 2032A of the Internal Revenue Code of 1986 
(relating to alternative valuation method) is amended by adding at the 
end the following new paragraphs:
            ``(8) Exception for land subject to a qualified 
        conservation easement.--If qualified real property is land 
        subject to a qualified conservation easement (as defined in 
        section 2031(c)), the preceding paragraphs of this subsection 
        shall not apply.
            ``(9) Qualified conservation contribution is not a 
        disposition.--A qualified conservation contribution (as defined 
        in section 170(h)) by gift or otherwise shall not be deemed a 
        disposition under subsection (c)(1)(A).''
    (b) Land Subject to a Qualified Conservation Easement Is Not 
Disqualified.--Paragraph (1) of section 2032A(b) of such Code (relating 
to alternative valuation method) is amended by adding at the end the 
following new subparagraph:
                    ``(E) If property is otherwise qualified real 
                property, the fact that it is land subject to a 
                qualified conservation easement (as defined in section 
                2031(c)) shall not disqualify it under this section.''
    (c) Effective Date.--The amendments made by this section shall 
apply to contributions made, and easements granted, after December 31, 
1986.

SEC. 5. QUALIFIED CONSERVATION CONTRIBUTION WHERE SURFACE AND MINERAL 
              RIGHTS ARE SEPARATED.

    (a) In General.--Section 170(h)(5)(B)(ii) of the Internal Revenue 
Code of 1986 (relating to special rule) is amended to read as follows:
            ``(ii) Special rule.--With respect to any contribution of 
        property in which the ownership of the surface estate and 
        mineral interests has been and remains separated, subparagraph 
        (A) shall be treated as met if the probability of surface 
        mining occurring on such property is so remote as to be 
        negligible.''
    (b) Effective Date.--The amendment made by this section shall apply 
with respect to contributions made after December 31, 1992, in taxable 
years ending after such date.