SECTION 1. SMALL BUSINESS EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 of the 
Internal Revenue Code of 1986 (relating to gross estate) is amended by 
inserting after section 2033 the following new section:

``SEC. 2033A. EXCLUSION FOR SMALL BUSINESSES AND FAMILY FARMS.

    ``(a) In General.--The value of the gross estate shall not include 
the value of the qualified small business or family farm interests of 
the decedent otherwise includible in the estate.
    ``(b) Qualified Small Business or Family Farm Interest.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified small business or family farm interest' means--
                    ``(A) any interest in a closely held business which 
                is the business of farming, if the decedent was 
                actively engaged in such business, and
                    ``(B) any interest in a small business, if more 
                than 40 percent of the adjusted value of the gross 
                estate consists of the value of interests in a closely 
                held business.
            ``(2) Limitation.--Such term shall not include any interest 
        in a trade or business not described in section 542(c)(2), if 
        more than 35 percent of the adjusted ordinary gross income of 
        such trade or business for the taxable year which includes the 
        date of the decedent's death would qualify as personal holding 
        company income (as defined in section 543(a)).
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes of 
                paragraph (1)--
                            ``(i) Corporations.--Ownership of a 
                        corporation shall be determined by the holding 
                        of stock possessing the appropriate percentage 
                        of the total combined voting power of all 
                        classes of stock entitled to vote and the 
                        appropriate percentage of the total value of 
                        shares of all classes of stock.
                            ``(ii) Partnerships.--Ownership of a 
                        partnership shall be determined by the owning 
                        of the appropriate percentage of the capital 
                        interest in such partnership.
                    ``(B) Ownership of tiered entities.--For purposes 
                of this section, if by reason of holding an interest in 
                a trade or business, a decedent or any member of the 
                decedent's family is treated as holding an interest in 
                any other trade or business--
                            ``(i) such ownership interest in the other 
                        trade or business shall be disregarded in 
                        determining if the ownership interest in the 
                        first trade or business is a qualified small 
                        business interest, and
                            ``(ii) this section shall be applied 
                        separately in determining if such interest in 
                        any other trade or business is a qualified 
                        small business interest.
                    ``(C) Individual ownership rules.--For purposes of 
                this section, an interest owned, directly or 
                indirectly, by or for an entity described in paragraph 
                (1) shall be considered as being owned proportionately 
                by or for the entity's shareholders, partners, or 
                beneficiaries. A person shall be treated as a 
                beneficiary of any trust only if such person has a 
                present interest in such trust.
    ``(c) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Interest in closely held business.--The term 
        `interest in a closely held business' has the meaning given 
        such term by section 6166(b).
            ``(2) Interest in a small business.--The term `interest in 
        a small business' means an interest in a closely held business, 
        as defined in section 6166(b), provided such a business has 100 
        or fewer employees. For purposes of the preceding sentence, any 
        persons whose relationship is described in section 267(b) or 
        section 707(b) shall be treated as one business.
            ``(3) Adjusted gross estate.--The term `adjusted value of 
        the gross estate' means the value of the gross estate 
        (determined without regard to this section) reduced by any 
        amount deductible under paragraph (3) or (4) of section 
        2053(a).
            ``(4) Applicable rules.--Rules similar to the following 
        rules shall apply:
                    ``(A) Section 2032A(b)(4) (relating to decedents 
                who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to special 
                rules for surviving spouses).
                    ``(C) Section 2032A(e)(10) (relating to community 
                property).
                    ``(D) Section 2032A(e)(14) (relating to treatment 
                of replacement property acquired in section 1031 or 
                1033 transactions).
                    ``(E) Section 6166(b)(3) (relating to farmhouses 
                and certain other structures taken into account).
            ``(5) Coordination with other estate tax benefits.--If 
        there is a reduction in the value of the gross estate under 
        this section--
                    ``(A) the dollar limitation applicable under 
                section 2032A(a)(2), and
                    ``(B) the $1,000,000 dollar amount under section 
                6601(j)(2) (as adjusted),
        shall each be reduced (but not below zero) by the amount of 
        such reduction.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by inserting after the item 
relating to section 2033 the following new item:

                              ``Sec. 2033A. Exclusion for small 
                                        businesses and family farms.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2000.
Amends the Internal Revenue Code to exclude from the gross estate of an individual the value of the "qualified small business or family farm interest" (as defined by this Act) otherwise includible in the estate.  Sets forth rules regarding ownership and personal holding company limitations.
To amend the Internal Revenue Code of 1986 to repeal the death tax for family farms and small businesses.