II

104TH CONGRESS

1ST SESSION S. 910

To amend the Internal Revenue Code of 1986 to provide an election to

exclude from the gross estate of a decedent the value of certain land

subject to a qualified conservation easement, and to make technical

changes to alternative valuation rules.

IN THE SENATE OF THE UNITED STATES

JUNE 9 (legislative day, JUNE 5), 1995

Mr. CHAFEE (for himself and Mr. BAUCUS) 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 provide

an election to exclude from the gross estate of a decedent

the value of certain land subject to a qualified conservation easement, and to make technical changes to alternative valuation rules.

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 ‘‘American Farm and

5 Ranch Protection Act of 1995’’.
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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 (4), then, except as

13 otherwise provided in this subsection, there shall be

14 excluded from the gross estate the value of land sub15 ject to a qualified conservation easement.

16 ‘‘(2) TREATMENT OF CERTAIN INDEBTED17 NESS.—

18 ‘‘(A) IN GENERAL.—The exclusion pro19 vided in paragraph (1) shall not apply to the

20 extent that the land is debt-financed property.

21 ‘‘(B) DEFINITIONS.—For purposes of this

22 paragraph—

23 ‘‘(i) DEBT-FINANCED PROPERTY.—

24 The term ‘debt-financed property’ means

25 any property with respect to which there is

26 an acquisition indebtedness (as defined in
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1 clause (ii)) on the date of the decedent’s

2 death.

3 ‘‘(ii) ACQUISITION INDEBTEDNESS.—

4 The term ‘acquisition indebtedness’ means,

5 with respect to debt-financed property, the

6 unpaid amount of—

7 ‘‘(I) the indebtedness incurred by

8 the donor in acquiring such property,

9 ‘‘(II) the indebtedness incurred

10 before the acquisition of such property

11 if such indebtedness would not have

12 been incurred but for such acquisition,

13 ‘‘(III) the indebtedness incurred

14 after the acquisition of such property

15 if such indebtedness would not have

16 been incurred but for such acquisition

17 and the incurrence of such indebted18 ness was reasonably foreseeable at the

19 time of such acquisition, except that

20 indebtedness incurred after the acqui21 sition of such property is not acquisi22 tion indebtedness if incurred to carry

23 on activities directly related to farm24 ing, ranching, forestry, horticulture,

25 or viticulture, and
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1 ‘‘(IV) the extension, renewal, or

2 refinancing of an acquisition indebted3 ness.

4 ‘‘(3) TREATMENT OF RETAINED DEVELOPMENT

5 RIGHT.—

6 ‘‘(A) IN GENERAL.—Paragraph (1) shall

7 not apply to the value of any development right

8 retained by the donor in the conveyance of a

9 qualified conservation easement.

10 ‘‘(B) TERMINATION OF RETAINED DEVEL11 OPMENT RIGHT.—If every person in being who

12 has an interest (whether or not in possession)

13 in such land shall execute an agreement to ex14 tinguish permanently some or all of any devel15 opment rights (as defined in subparagraph (D))

16 retained by the donor on or before the date for

17 filing the return of the tax imposed by section

18 2001, then any tax imposed by section 2001

19 shall be reduced accordingly. Such agreement

20 shall be filed with the return of the tax imposed

21 by section 2001. The agreement shall be in

22 such form as the Secretary shall prescribe.

23 ‘‘(C) ADDITIONAL TAX.—Failure to imple24 ment the agreement described in subparagraph

25 (B) within 2 years of the decedent’s death shall
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1 result in the imposition of an additional tax in

2 the amount of the tax which would have been

3 due on the retained development rights subject

4 to such agreement. Such additional tax shall be

5 due and payable on the last day of the 6th

6 month following the end of the 2-year period.

7 ‘‘(D) DEVELOPMENT RIGHT DEFINED.—

8 For purposes of this paragraph, the term ‘de9 velopment right’ means the right to establish or

10 use any structure and the land immediately sur11 rounding it for sale (other than the sale of the

12 structure as part of a sale of the entire tract of

13 land subject to the qualified conservation ease14 ment), or other commercial purpose which is

15 not subordinate to and directly supportive of

16 the activity of farming, forestry, ranching, hor17 ticulture, or viticulture conducted on land sub18 ject to the qualified conservation easement in

19 which such right is retained.

20 ‘‘(4) ELECTION.—The election under this sub21 section shall be made on the return of the tax im22 posed by section 2001. Such an election, once made,

23 shall be irrevocable.

24 ‘‘(5) CALCULATION OF ESTATE TAX DUE.—An

25 executor making the election described in paragraph
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1 (4) shall, for purposes of calculating the amount of

2 tax imposed by section 2001, include the value of

3 any development right (as defined in paragraph (3))

4 retained by the donor in the conveyance of such

5 qualified conservation easement. The computation of

6 tax on any retained development right prescribed in

7 this paragraph shall be done in such manner and on

8 such forms as the Secretary shall prescribe.

9 ‘‘(6) DEFINITIONS.—For purposes of this sub10 section—

11 ‘‘(A) LAND SUBJECT TO A QUALIFIED

12 CONSERVATION EASEMENT.—The term ‘land

13 subject to a qualified conservation easement’

14 means land—

15 ‘‘(i) which is located in or within 50

16 miles of an area which, on the date of the

17 decedent’s death, is—

18 ‘‘(I) a metropolitan area (as de19 fined by the Office of Management

20 and Budget), or

21 ‘‘(II) a national park or wilder22 ness area designated as part of the

23 National Wilderness Preservation Sys24 tem (unless it is determined by the

25 Secretary that land in or within 50
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1 miles of such a park or wilderness

2 area is not under significant develop3 ment pressure),

4 ‘‘(ii) which was owned by the decedent

5 or a member of the decedent’s family at all

6 times during the 3-year period ending on

7 the date of the decedent’s death, and

8 ‘‘(iii) with respect to which a qualified

9 conservation easement is or has been made

10 by the decedent or a member of the dece11 dent’s family.

12 ‘‘(B) QUALIFIED CONSERVATION EASE13 MENT.—The term ‘qualified conservation ease14 ment’ means a qualified conservation contribu15 tion (as defined in section 170(h)(1)) of a quali16 fied real property interest (as defined in section

17 170(h)(2)(C)), except that clause (iv) of section

18 170(h)(4)(A) shall not apply, and the restric19 tion on the use of such interest described in

20 section 170(h)(2)(C) shall include a prohibition

21 on commercial recreational activity.

22 ‘‘(C) MEMBER OF FAMILY.—The term

23 ‘member of the decedent’s family’ means any

24 member of the family (as defined in section

25 2032A(e)(2)) of the decedent.
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1 ‘‘(7) APPLICATION OF THIS SECTION TO INTER2 ESTS IN PARTNERSHIPS, CORPORATIONS, AND

3 TRUSTS.—The Secretary shall prescribe regulations

4 applying this section to an interest in a partnership,

5 corporation, or trust which, with respect to the dece6 dent, is an interest in a closely held business (within

7 the meaning of paragraph (1) of section 6166(b)).’’

8 (b) CARRYOVER BASIS.—Section 1014(a) of such

9 Code (relating to basis of property acquired from a dece10 dent) is amended by striking the period at the end of para11 graph (3) and inserting ‘‘, or’’ and by adding after para12 graph (3) the following new paragraph:

13 ‘‘(4) to the extent of the applicability of the ex14 clusion described in section 2031(c), the basis in the

15 hands of the decedent.’’

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

17 this section shall apply to estates of decedents dying after

18 December 31, 1995.

19 SEC. 3. GIFT TAX ON LAND SUBJECT TO A QUALIFIED CON20 SERVATION EASEMENT.

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

22 A QUALIFIED CONSERVATION EASEMENT.—Section 2503

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

24 gifts) is amended by adding at the end the following new

25 subsection:
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1 ‘‘(h) GIFT TAX WITH RESPECT TO LAND SUBJECT

2 TO A QUALIFIED CONSERVATION EASEMENT.—The trans3 fer by gift of land subject to a qualified conservation ease4 ment shall not be treated as a transfer of property by gift

5 for purposes of this chapter. For purposes of this sub6 section, the term ‘land subject to a qualified conservation

7 easement’ has the meaning given to such term by section

8 2031(c), except that references to the decedent shall be

9 treated as references to the donor and references to the

10 date of the decedent’s death shall be treated as references

11 to the date of the transfer by the donor.’’

12 (b) EFFECTIVE DATE.—The amendment made by

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

14 1995.

15 SEC. 4. QUALIFIED CONSERVATION CONTRIBUTION IS NOT

16 A DISPOSITION.

17 (a) QUALIFIED CONSERVATION CONTRIBUTION IS

18 NOT A DISPOSITION.—Subsection (c) of section 2032A of

19 the Internal Revenue Code of 1986 (relating to alternative

20 valuation method) is amended by adding at the end the

21 following new paragraphs:

22 ‘‘(8) QUALIFIED CONSERVATION CONTRIBUTION

23 IS NOT A DISPOSITION.—A qualified conservation

24 contribution (as defined in section 170(h)) by gift or
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1 otherwise shall not be deemed a disposition under

2 subsection (c)(1)(A).

3 ‘‘(9) EXCEPTION FOR REAL PROPERTY IS LAND

4 SUBJECT TO A QUALIFIED CONSERVATION EASE5 MENT.—If qualified real property is land subject to

6 a qualified conservation easement (as defined in sec7 tion 2031(c)), the preceding paragraphs of this sub8 section shall not apply.’’

9 (b) LAND SUBJECT TO A QUALIFIED CONSERVATION

10 EASEMENT IS NOT DISQUALIFIED.—Subsection (b) of

11 section 2032A of such Code (relating to alternative valu12 ation method) is amended by adding at the end the follow13 ing subparagraph:

14 ‘‘(E) If property is otherwise qualified real

15 property, the fact that it is land subject to a

16 qualified conservation easement (as defined in

17 section 2031(c)) shall not disqualify it under

18 this section.’’

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

20 this section shall apply with respect to contributions made,

21 and easements granted, after December 31, 1995.
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1 SEC. 5. QUALIFIED CONSERVATION CONTRIBUTION WHERE

2 SURFACE AND MINERAL RIGHTS ARE SEPA3 RATED.

4 (a) IN GENERAL.—Section 170(h)(5)(B)(ii) of the

5 Internal Revenue Code of 1986 (relating to special rule)

6 is amended to read as follows:

7 ‘‘(ii) SPECIAL RULE.—With respect to

8 any contribution of property in which the

9 ownership of the surface estate and min10 eral interests has been and remains sepa11 rated, subparagraph (A) shall be treated as

12 met if the probability of surface mining oc13 curring on such property is so remote as to

14 be negligible.’’

15 (b) EFFECTIVE DATE.—The amendment made by

16 this section shall apply with respect to contributions made

17 after December 31, 1992, in taxable years ending after

18 such date.

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