I

104TH CONGRESS

1ST SESSION H. R. 12

To amend the Internal Revenue Code of 1986 to exclude from the gross

estate the value of land subject to a qualified conservation easement

if certain conditions are satisfied, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. WALKER introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to exclude

from the gross estate the value of land subject to a

qualified conservation easement if certain conditions are

satisfied, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Family Farm Protec5 tion Act’’.
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1 SEC. 2. TREATMENT OF LAND SUBJECT TO A QUALIFIED

2 CONSERVATION EASEMENT.

3 (a) ESTATE TAX WITH RESPECT TO LAND SUBJECT

4 TO A QUALIFIED CONSERVATION EASEMENT.—Section

5 2031 of the Internal Revenue Code of 1986 (relating to

6 the definition of gross estate) is amended by redesignating

7 subsection (c) as subsection (d) and by inserting after sub8 section (b) the following new subsection:

9 ‘‘(c) ESTATE TAX WITH RESPECT TO LAND SUB10 JECT TO A QUALIFIED CONSERVATION EASEMENT.—

11 ‘‘(1) IN GENERAL.—If the executor makes the

12 election described in paragraph (3) of this sub13 section, then, except as otherwise provided in this

14 subsection, there shall be excluded from the gross

15 estate the value of land subject to a qualified con16 servation easement (reduced by the amount of any

17 indebtedness to which such land is subject). For

18 purposes of this subsection, the term ‘land subject to

19 a qualified conservation easement’ means land that

20 is located in an area which, on the date of the dece21 dent’s death, is a metropolitan area (as defined by

22 the Office of Management and Budget), and which

23 was owned by the decedent or a member of the dece24 dent’s family at all times during the three-year pe25 riod ending on the date of the decedent’s death, and

26 with respect to which a qualified conservation con-
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1 tribution of a qualified real property interest (as de2 fined in section 170(h)(1) and (2)(C)) is or has been

3 made by the decedent or a member of the decedent’s

4 family. For purposes of this subsection, the term

5 ‘qualified real property interest’ shall not include

6 any structure or building constituting a ‘certified

7 historic structure’ (as defined in section

8 170(h)(4)(B)) or within the definition of a ‘histori9 cally important land area’ (as defined in section

10 170(h)(4)(A)(iv)). For purposes of this subsection,

11 the term ‘member of the decedent’s family’ shall

12 have the same meaning as the term ‘member of the

13 family’ in section 2032A.

14 ‘‘(2) PAYMENT OF TAX UPON CERTAIN DISPOSI15 TION OF LAND SUBJECT TO RETAINED DEVELOP16 MENT RIGHT.—The exclusion described in paragraph

17 (1) shall not apply to the value of any development

18 right retained by the donor in the conveyance of

19 such qualified conservation easement. The tax im20 posed by section 2001, if any, attributable to any de21 velopment right so retained shall be imposed only

22 upon the disposition of such property. For purposes

23 of this paragraph, the term ‘disposition’ shall not in24 clude any gift or devise. The tax so imposed shall be

25 due and payable by the person so disposing of such
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1 property on the fifteenth day of the fourth month

2 following the calendar year in which such disposition

3 occurs. For purposes of this paragraph, the term

4 ‘development right’ shall mean the right to establish

5 or use, any structure and the land immediately sur6 rounding it for sale, or for rent or any other com7 mercial purpose which is not subordinate to and di8 rectly supportive of the conservation purpose identi9 fied in the easement, or the activity of farming, for10 estry, ranching, horticulture, viticulture, or recre11 ation, whether or not for profit, conducted on land

12 subject to the easement in which such right is

13 retained.

14 ‘‘(3) ELECTION WITH RESPECT TO LAND SUB15 JECT TO QUALIFIED CONSERVATION EASEMENT.—

16 The election under this subsection shall be made on

17 the return of the tax imposed by section 2001 and

18 in such manner as the Secretary shall by regulations

19 prescribe. Such an election, once made, shall be

20 irrevocable.

21 ‘‘(4) CALCULATION AND NOTICE OF POTENTIAL

22 ESTATE TAX DUE.—An executor making the election

23 described in paragraph (3) of this subsection shall

24 compute the amount of tax imposed by section 2001

25 upon any development right (as defined in para-
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1 graph (2) of this subsection) retained by the donor

2 in the conveyance of such qualified conservation

3 easement and include such computation with the re4 turn of the tax imposed by section 2001. The execu5 tor shall also file a ‘Notice of Potential Estate Tax

6 Due’ in the place or places where deeds are put to

7 public record for the locality in which the land sub8 ject to such qualified conservation easement is lo9 cated. The report of the computation of tax on any

10 retained development right and the filing of the no11 tice prescribed in this paragraph shall be done in

12 such manner and on such forms as the Secretary

13 shall prescribe.’’

14 (b) CARRYOVER BASIS.—Section 1014(a) of the In15 ternal Revenue Code of 1986 (relating to basis of property

16 acquired from a decedent) is amended by striking the pe17 riod at the end of paragraph (3), inserting ‘‘, or’’ at the

18 end thereof, and inserting the following new paragraph:

19 ‘‘(4) to the extent of the applicability of the ex20 clusion described in section 2031(c), the basis in the

21 hands of the decedent.’’

22 (c) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to gross estates including land on

24 which qualified conservation easements were granted after
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1 December 31, 1994, in taxable years ending after such

2 date.

3 SEC. 3. GIFT TAX ON LAND SUBJECT TO A QUALIFIED CON4 SERVATION EASEMENT.

5 (a) GIFT TAX WITH RESPECT TO LAND SUBJECT TO

6 A QUALIFIED CONSERVATION EASEMENT.—Section 2503

7 of the Internal Revenue Code of 1986 (relating to taxable

8 gifts) is amended by adding a new subsection (h) to read

9 as follows:

10 ‘‘(h) GIFT TAX WITH RESPECT TO LAND SUBJECT

11 TO A QUALIFIED CONSERVATION EASEMENT.—The trans12 fer by gift of land subject to a qualified conservation ease13 ment shall not be treated as a transfer of property by gift

14 for purposes of this chapter. For purposes of this sub15 section, the term ‘land subject to a qualified conservation

16 easement’ shall have the same meaning as in section

17 2031(c), except that references therein to ‘decedent’ shall

18 refer to the donor and references to ‘the date of the dece19 dent’s death’ shall refer to the date of the transfer by the

20 donor.’’

21 (b) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to gifts of land on which qualified

23 conservation easements were granted after December 31,

24 1994, in taxable years ending after such date.
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1 SEC. 4. EXCLUSION OF GAIN FROM SALE OF CERTAIN

2 FARMLAND.

3 (a) GENERAL RULE.—Part III of subchapter B of

4 chapter 1 of the Internal Revenue Code of 1986 (relating

5 to items specifically excluded from gross income) is

6 amended by redesignating section 137 as section 138 and

7 by inserting after section 136 the following new section:

8 ‘‘SEC. 137. SALES AND EXCHANGES OF FARMLAND THE USE

9 OF WHICH IS RESTRICTED TO FARMING.

10 ‘‘(a) GENERAL RULE.—In the case of an operator of

11 farmland, gross income does not include gain from the sale

12 or exchange of farmland if there is in effect on the date

13 of such sale or exchange a qualified covenant which does

14 not permit any use of such farmland for any purpose other

15 than use as farmland.

16 ‘‘(b) DEFINITIONS.—For purposes of this section—

17 ‘‘(1) FARMLAND.—The term ‘farmland’ means

18 any real property—

19 ‘‘(A) which is located in the United States,

20 and

21 ‘‘(B) which is used as a farm for farming

22 purposes (within the meaning of section

23 2032A(e)).

24 ‘‘(2) QUALIFIED COVENANT—The term ‘quali25 fied covenant’ means a covenant—

26 ‘‘(A) which may not be revoked,
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1 ‘‘(B) which, with respect to farmland to

2 which such covenant applies, is entered into by

3 all persons having any ownership interest in

4 such farmland, and

5 ‘‘(C) which binds all future owners of the

6 farmland to which such covenant applies.

7 ‘‘(c) APPLICATION WITH PRINCIPAL RESIDENCES.—

8 For purposes of this section, use as farmland includes use

9 as the principal residence of the operator of such farm10 land.

11 ‘‘(d) VERIFICATION OF COVENANT.—Subsection (a)

12 shall not apply by reason of any covenant unless such per13 son—

14 ‘‘(1) notifies (in such form and manner as the

15 Secretary may by regulations prescribe) both the

16 Secretary and the Secretary of Agriculture of the

17 political subdivision of the State in which such cov18 enant is recorded, and

19 ‘‘(2) submits to the Secretary a copy of such

20 covenant.’’

21 (b) CLERICAL AMENDMENT.—The table of sections

22 for such part is amended by striking out the item relating

23 to section 137 and inserting in lieu thereof the following:

‘‘Sec. 137. Sales and exchanges of farmland the use of which is

restricted to farming.

‘‘Sec. 138. Cross references to other Acts.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to covenants first recorded after

3 December 31, 1994, in taxable years ending after such

4 date.

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