II

104TH CONGRESS

1ST SESSION S. 867

To amend the Internal Revenue Code of 1986 to revise the estate and

gift tax in order to preserve American family enterprises, and for other

purposes.

IN THE SENATE OF THE UNITED STATES

MAY 26 (legislative day, MAY 15), 1995

Mr. COCHRAN introduced the following bill; which was read twice and referred

to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to revise

the estate and gift tax in order to preserve American

family enterprises, 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 ‘‘National Family En5 terprise Preservation Act of 1995’’.

6 SEC. 2. INCREASE IN UNIFIED ESTATE AND GIFT TAX CRED7 ITS FOR FAMILY ENTERPRISES.

8 (a) ESTATE TAX.—Section 2010 of the Internal Rev9 enue Code of 1986 (relating to unified credit against es-
2

•S 867 IS

1 tate tax) is amended by redesignating subsections (b) and

2 (c) as subsections (c) and (d), respectively, and by insert3 ing after subsection (a) the following new subsection:

4 ‘‘(b) ADDITIONAL CREDIT FOR FAMILY ENTER5 PRISES.—The amount of the credit allowable under sub6 section (a) shall be increased by an amount equal to the

7 value of any family enterprise property included in the de8 cedent’s gross estate under section 2040A(a), to the extent

9 such value does not exceed $121,800.’’.

10 (b) GIFT TAX.—Section 2505 of the Internal Reve11 nue Code of 1986 (relating to unified credit against gift

12 tax) is amended by redesignating subsections (b) and (c)

13 as subsections (c) and (d), respectively, and by inserting

14 after subsection (a) the following new subsection:

15 ‘‘(b) ADDITIONAL CREDIT FOR FAMILY ENTER16 PRISES.—The amount of the credit allowable under sub17 section (a) for each calendar year shall be increased by

18 an amount equal to—

19 ‘‘(1) the value of gifts of family enterprise prop20 erty (as defined in section 2040A(b)(1)), to the ex21 tent such value does not exceed $121,800, reduced

22 by

23 ‘‘(2) the sum of the amounts allowable as a

24 credit to the individual under this subsection for all

25 preceding calendar periods.’’.
3

•S 867 IS

1 (c) EFFECTIVE DATES.—

2 (1) ESTATE TAX CREDIT.—The amendments

3 made by subsection (a) shall apply to the estates of

4 decedents dying after December 31, 1995.

5 (2) GIFT TAX CREDIT.—The amendments made

6 by subsection (b) shall apply to gifts made after De7 cember 31, 1995.

8 SEC. 3. INCREASE IN ANNUAL GIFT TAX EXCLUSION.

9 (a) IN GENERAL.—Section 2503 of the Internal Rev10 enue Code of 1986 (relating to taxable gifts) is amended

11 by redesignating subsection (c) as subsection (d), and by

12 inserting after subsection (b) the following new subsection:

13 ‘‘(c) ADDITIONAL EXCLUSIONS FROM GIFTS.—The

14 amount of the exclusion allowable under subsection (b)

15 during a calendar year shall be increased by an amount

16 equal to the value of gifts of family enterprise property

17 (as defined in section 2040A(b)(1)) made during such

18 year, to the extent such value does not exceed $10,000.’’.

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

20 this section shall apply to gifts made after December 31,

21 1995.

22 SEC. 4. FAMILY ENTERPRISE PROPERTY.

23 (a) IN GENERAL.—Part III of subchapter A of chap24 ter 11 of the Internal Revenue Code of 1986 (relating to
4

•S 867 IS

1 gross estate) is amended by inserting after section 2040

2 the following new section:

3 ‘‘SEC. 2040A. FAMILY ENTERPRISE PROPERTY.

4 ‘‘(a) GENERAL RULE.—The value included in the de5 cedent’s gross estate with respect to family enterprise

6 property by reason of this section shall be—

7 ‘‘(1) the value of such property, reduced by

8 ‘‘(2) the lesser of—

9 ‘‘(A) 50 percent of the value of such prop10 erty, or

11 ‘‘(B) $1,000,000.

12 ‘‘(b) FAMILY ENTERPRISE PROPERTY.—

13 ‘‘(1) IN GENERAL.—For purposes of this sec14 tion, the term ‘‘family enterprise property’’ means

15 any interest in real or personal property which is de16 voted to use as a farm or used for farming purposes

17 (within the meaning of paragraphs (4) and (5) of

18 section 2032A(e)) or is used in any other trade or

19 business, if at least 80 percent of the ownership in20 terest in such farm or other trade or business is

21 held—

22 ‘‘(A) by 5 or fewer individuals, or

23 ‘‘(B) by individuals who are members of

24 the same family (within the meaning of section

25 2032A(e)(2)).
5

•S 867 IS

1 ‘‘(2) LIMITED PARTNERSHIP INTERESTS EX2 CLUDED.—An interest in a limited partnership

3 (other than a limited partnership composed solely of

4 individuals described in paragraph (1)(B)) shall in

5 no event be treated as family enterprise property.

6 ‘‘(c) TAX TREATMENT OF DISPOSITIONS AND FAIL7 URE TO USE FOR QUALIFYING USE.—

8 ‘‘(1) IMPOSITION OF ADDITIONAL ESTATE

9 TAX.—With respect to family enterprise property in10 herited from the decedent, if within 10 years after

11 the decedent’s death and before the death of any in12 dividual described in subsection (b)(1)—

13 ‘‘(A) such individual disposes of any inter14 est in such property (other than by a disposi15 tion to a member of the individual’s family), or

16 ‘‘(B) such individual or a member of the

17 individual’s family ceases to participate in the

18 active management of such property,

19 then there is hereby imposed an additional estate

20 tax.

21 ‘‘(2) AMOUNT OF ADDITIONAL TAX.—The

22 amount of the additional tax imposed by paragraph

23 (1) with respect to any interest in family enterprise

24 property shall be the amount equal to the excess of

25 the estate tax liability attributable to such interest
6

•S 867 IS

1 (determined without regard to subsection (a)) over

2 the estate tax liability, reduced by 5 percent for each

3 year following the date of the decedent’s death in

4 which the individual described in subsection (b)(1)

5 or a member of the individual’s family participated

6 in the active management of such family enterprise

7 property.

8 ‘‘(3) ACTIVE MANAGEMENT.—For purposes of

9 this subsection, the term ‘‘active management’’

10 means the making of the management decisions of

11 a business other than the daily operating decisions.

12 ‘‘(d) ADDITIONAL RULES.—For purposes of this sec13 tion, rules similar to the rules under paragraphs (3), (4),

14 and (5) of section 2032A(c), paragraphs (7), (8), (9),

15 (10), (11), and (12) of section 2032(e), and subsections

16 (f), (g), (h), and (i) of section 2032A shall apply.’’.

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

18 for part III of subchapter A of chapter 11 of the Internal

19 Revenue Code of 1986 is amended by inserting after the

20 item relating to section 2040 the following new item:

‘‘Sec. 2040A. Family enterprise property.’’.

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

22 this section shall apply to the estates of decedents dying

23 after December 31, 1995.
7

•S 867 IS

1 SEC. 5. VALUATION OF CERTAIN FARM, ETC., REAL PROP2 ERTY.

3 (a) IN GENERAL.—Section 2032A(a)(2) of the Inter4 nal Revenue Code of 1986 (relating to limitation on aggre5 gate reduction in fair market value) is amended by strik6 ing ‘‘$750,000’’ and inserting ‘‘$1,000,000’’.

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

8 this section shall apply to the estates of decedents dying

9 after December 31, 1995.

Æ