Farm Preservation Act of 1997

SECTION 1. SHORT TITLE.

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

SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN FARMLAND.

    (a) General Rule.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to items specifically excluded 
from gross income) is amended by redesignating section 138 as section 
139 and by inserting after section 137 the following new section:

``SEC. 138. SALES AND EXCHANGES OF FARMLAND THE USE OF WHICH IS 
              RESTRICTED TO FARMING.

    ``(a) General Rule.--In the case of an operator of farmland, gross 
income does not include gain from the sale or exchange of farmland if 
there is in effect on the date of such sale or exchange a qualified 
covenant which does not permit any use of such farmland for any purpose 
other than use as farmland.
    ``(b) Definitions.--For purposes of this section--
            ``(1) Farmland.--The term `farmland' means any real 
        property--
                    ``(A) which is located in the United States, and
                    ``(B) which is used as a farm for farming purposes 
                (within the meaning of section 2032A(e)).
            ``(2) Qualified covenant--The term `qualified covenant' 
        means a covenant--
                    ``(A) which may not be revoked,
                    ``(B) which, with respect to farmland to which such 
                covenant applies, is entered into by all persons having 
                any ownership interest in such farmland, and
                    ``(C) which binds all future owners of the farmland 
                to which such covenant applies.
    ``(c) Application With Principal Residences.--For purposes of this 
section, use as farmland includes use as the principal residence of the 
operator of such farmland.
    ``(d) Verification of Covenant.--Subsection (a) shall not apply by 
reason of any covenant unless such person--
            ``(1) notifies (in such form and manner as the Secretary 
        may by regulations prescribe) both the Secretary and the 
        Secretary of Agriculture of the political subdivision of the 
        State in which such covenant is recorded, and
            ``(2) submits to the Secretary a copy of such covenant.''
    (b) Clerical Amendment.--The table of sections for such part is 
amended by striking the last item and inserting the following new 
items:

                              ``Sec. 138. Sales and exchanges of 
                                        farmland the use of which is 
                                        restricted to farming.
                              ``Sec. 139. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to covenants first recorded after December 31, 1996, and to sales 
and exchanges after such date.

SEC. 3. EXCLUSION FROM GROSS ESTATE OF FARMLAND WHICH BY COVENANT IS 
              RESTRICTED TO USE AS FARMLAND.

    (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 OF FARMLAND WHICH BY COVENANT IS RESTRICTED TO 
              USE AS FARMLAND.

    ``(a) In General.--In the case of an estate of a decedent to which 
this section applies, the value of the gross estate shall not include 
the adjusted value of farmland included in the estate if there is in 
effect on the date of death a qualified covenant which does not permit 
any use of such farmland for any purpose other than use as farmland.
    ``(b) Estates to Which Section Applies.--This section shall apply 
to an estate if--
            ``(1) the decedent was (at the date of the decedent's 
        death) a citizen or resident of the United States, and
            ``(2) during the 8-year period ending on the date of the 
        decedent's death there have been periods aggregating 5 years or 
        more during which--
                    ``(A) the farmland were owned by the decedent or a 
                member of the decedent's family, and
                    ``(B) there was material participation (within the 
                meaning of section 2032A(e)(6)) by the decedent or a 
                member of the decedent's family in the operation of the 
                farmland.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Farmland.--The term `farmland' means any real 
        property--
                    ``(A) which is located in the United States, and
                    ``(B) which is used as a farm for farming purposes 
                (within the meaning of section 2032A(e)).
            ``(2) Qualified covenant.--The term `qualified covenant' 
        means a covenant--
                    ``(A) which may not be revoked,
                    ``(B) which, with respect to farmland to which such 
                covenant applies, is entered into by all persons having 
                any ownership interest in such farmland, and
                    ``(C) which binds all future owners of the farmland 
                to which such covenant applies.
            ``(3) Adjusted value.--The term `adjusted value' means the 
        value of farmland for purposes of this chapter (determined 
        without regard to this section), reduced by the amount 
        deductible under paragraph (3) or (4) of section 2053(a).
    ``(d) Application With Principal Residences.--For purposes of this 
section, use as farmland includes use as the principal residence of the 
operator of such farmland.
    ``(e) Verification of Covenant.--Subsection (a) shall not apply by 
reason of any covenant unless such person--
            ``(1) notifies (in such form and manner as the Secretary 
        may by regulations prescribe) both the Secretary and the 
        Secretary of Agriculture of the political subdivision of the 
        State in which such covenant is recorded, and
            ``(2) submits to the Secretary a copy of such covenant.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 of such Code is amended by inserting after 
the item relating to section 2033 the following new item:

                              ``Sec. 2033A. Exclusion of farmland which 
                                        by covenant is restricted to 
                                        use as farmland.''
    (c) Effective Date.--The amendments made by this section shall 
apply to covenants first recorded after December 31, 1996, with respect 
to estates of decedents dying after such date.

Summary: Farm Preservation Act of 1997 - Amends the Internal Revenue Code to exclude from gross income the gain from the sale or exchange of farmland if there is a covenant prohibiting any use other than as farmland. Excludes from the gross estate the value of farmland if there is a covenant prohibiting any use other than as farmland.