I 

109TH CONGRESS 

1ST SESSION H. R. 1624 

To amend the Internal Revenue Code of 1986 to provide for the immediate 

and permanent repeal of the estate tax on family-owned businesses and 

farms, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 13, 2005 

Mr. THOMPSON of California (for himself, Mr. BOSWELL, Mr. SALAZAR, Mr. 

CRAMER, Mr. BISHOP of Georgia, Ms. HERSETH, Mr. CHANDLER, Mrs. 

TAUSCHER, Mr. COSTA, Mr. ISRAEL, Mr. CARDOZA, Mr. BERRY, Mrs. 

MCCARTHY, and Ms. HOOLEY) 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 provide 

for the immediate and permanent repeal of the estate 

tax on family-owned businesses and farms, 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 ‘‘Estate Tax Repeal for 

5 Family-Owned Farms and Businesses Act of 2005’’. 
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1 SEC. 2. REPEAL OF ESTATE TAX ON FAMILY-OWNED FARMS 

2 AND BUSINESSES. 

3 (a) REPEAL OF QUALIFIED FAMILY-OWNED BUSI4 NESS INTEREST.—Part IV of subchapter A of chapter 11 

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

6 estate) is amended by striking section 2057. 

7 (b) EXCLUSION FOR QUALIFIED FAMILY-OWNED

8 BUSINESS INTERESTS.—Part IV of subchapter A of chap9 ter 11 of the Internal Revenue Code of 1986 (relating to 

10 taxable estate) is amended by inserting after section 2058 

11 the following new section: 

12 ‘‘SEC. 2059. EXCLUSION FOR QUALIFIED FAMILY-OWNED 

13 BUSINESS INTERESTS. 

14 ‘‘(a) GENERAL RULES.— 

15 ‘‘(1) ALLOWANCE OF DEDUCTION.—For pur16 poses of the tax imposed by section 2001, in the 

17 case of an estate of a decedent to which this section 

18 applies, the value of the taxable estate shall be de19 termined by deducting from the value of the gross 

20 estate the adjusted value of the qualified family21 owned business interests of the decedent which are 

22 described in subsection (b)(2). 

23 ‘‘(2) APPLICATION OF CARRYOVER BASIS

24 RULES.—With respect to the adjusted value of the 

25 qualified family-owned business interests of the dece-
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1 dent which are described in subsection (b)(2), the 

2 rules of section 1023 shall apply. 

3 ‘‘(b) ESTATES TO WHICH SECTION APPLIES.— 

4 ‘‘(1) IN GENERAL.—This section shall apply to 

5 an estate if— 

6 ‘‘(A) the decedent was (at the date of the 

7 decedent’s death) a citizen or resident of the 

8 United States, 

9 ‘‘(B) the executor elects the application of 

10 this section under rules similar to the rules of 

11 paragraphs (1) and (3) of section 2032A(d) and 

12 files the agreement referred to in subsection (e), 

13 and 

14 ‘‘(C) during the 8-year period ending on 

15 the date of the decedent’s death there have 

16 been periods aggregating 5 years or more dur17 ing which— 

18 ‘‘(i) the qualified family-owned busi19 ness interests described in paragraph (2) 

20 were owned by the decedent or a member 

21 of the decedent’s family, and 

22 ‘‘(ii) there was material participation 

23 (within the meaning of section 

24 2032A(e)(6)) by the decedent, a member 

25 of the decedent’s family, or a qualified heir 
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1 in the operation of the business to which 

2 such interests relate. 

3 ‘‘(2) INCLUDIBLE QUALIFIED FAMILY-OWNED

4 BUSINESS INTERESTS.—The qualified family-owned 

5 business interests described in this paragraph are 

6 the interests which— 

7 ‘‘(A) are included in determining the value 

8 of the gross estate (other than qualified spousal 

9 property with respect to which an aggregate 

10 spousal property basis increase is allocated 

11 under section 1023(c)), 

12 ‘‘(B) are acquired by any qualified heir 

13 from, or passed to any qualified heir from, the 

14 decedent (within the meaning of section 

15 2032A(e)(9)), and 

16 ‘‘(C) are subject to the election under 

17 paragraph (1)(B). 

18 ‘‘(3) RULES REGARDING MATERIAL PARTICIPA19 TION.—For purposes of paragraph (1)(C)(ii)— 

20 ‘‘(A) in the case a surviving spouse, mate21 rial participation by such spouse may be satis22 fied under rules similar to the rules under sec23 tion 2032A(b)(5), 

24 ‘‘(B) in the case of a qualified family25 owned business interest in an entity carrying on 
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1 multiple trades or businesses, material partici2 pation in each trade or business is satisfied by 

3 material participation in the entity or in 1 or 

4 more of the multiple trades or businesses, and 

5 ‘‘(C) in the case of a lending and finance 

6 business (as defined in section 

7 6166(b)(10)(B)(ii)), material participation is 

8 satisfied under the rules under subclause (I) or 

9 (II) of section 6166(b)(10)(B)(i). 

10 ‘‘(c) ADJUSTED VALUE OF THE QUALIFIED FAMILY11 OWNED BUSINESS INTERESTS.—For purposes of this sec12 tion— 

13 ‘‘(1) IN GENERAL.—The adjusted value of any 

14 qualified family-owned business interest is the value 

15 of such interest for purposes of this chapter (deter16 mined without regard to this section), as adjusted 

17 under paragraph (2). 

18 ‘‘(2) ADJUSTMENT FOR PREVIOUS TRANS19 FERS.—The Secretary may increase the value of any 

20 qualified family-owned business interest by that por21 tion of those assets transferred from such qualified 

22 family-owned business interest to the decedent’s tax23 able estate within 3 years before the date of the de24 cedent’s death. 
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1 ‘‘(d) QUALIFIED FAMILY-OWNED BUSINESS INTER2 EST.— 

3 ‘‘(1) IN GENERAL.—For purposes of this sec4 tion, the term ‘qualified family-owned business inter5 est’ means— 

6 ‘‘(A) an interest as a proprietor in a trade 

7 or business carried on as a proprietorship, or 

8 ‘‘(B) an interest in an entity carrying on 

9 a trade or business, if— 

10 ‘‘(i) at least— 

11 ‘‘(I) 50 percent of such entity is 

12 owned (directly or indirectly) by the 

13 decedent and members of the dece14 dent’s family, 

15 ‘‘(II) 70 percent of such entity is 

16 so owned by members of 2 families, or 

17 ‘‘(III) 90 percent of such entity 

18 is so owned by members of 3 families, 

19 and 

20 ‘‘(ii) for purposes of subclause (II) or 

21 (III) of clause (i), at least 30 percent of 

22 such entity is so owned by the decedent 

23 and members of the decedent’s family. 

24 For purposes of the preceding sentence, a decedent 

25 shall be treated as engaged in a trade or business 
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1 if any member of the decedent’s family is engaged 

2 in such trade or business. 

3 ‘‘(2) LENDING AND FINANCE BUSINESS.—For 

4 purposes of this section, any asset used in a lending 

5 and finance business (as defined in section 

6 6166(b)(10)(B)(ii)) shall be treated as an asset 

7 which is used in carrying on a trade or business. 

8 ‘‘(3) LIMITATION.—Such term shall not in9 clude— 

10 ‘‘(A) any interest in a trade or business 

11 the principal place of business of which is not 

12 located in the United States, 

13 ‘‘(B) any interest in an entity, if the stock 

14 or debt of such entity or a controlled group (as 

15 defined in section 267(f)(1)) of which such enti16 ty was a member was readily tradable on an es17 tablished securities market or secondary market 

18 (as defined by the Secretary) at any time, 

19 ‘‘(C) that portion of an interest in an enti20 ty transferred by gift to such entity within 3 

21 years before the date of the decedent’s death, 

22 and 

23 ‘‘(D) that portion of an interest in an enti24 ty which is attributable to cash or marketable 

25 securities, or both, in any amount in excess of 
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1 the reasonably anticipated business needs of 

2 such entity. 

3 In any proceeding before the United States Tax 

4 Court involving a notice of deficiency based in whole 

5 or in part on the allegation that cash or marketable 

6 securities, or both, are accumulated in an amount in 

7 excess of the reasonably anticipated business needs 

8 of such entity, the burden of proof with respect to 

9 such allegation shall be on the Secretary to the ex10 tent such cash or marketable securities are less than 

11 35 percent of the value of the interest in such entity. 

12 ‘‘(4) RULES REGARDING OWNERSHIP.— 

13 ‘‘(A) OWNERSHIP OF ENTITIES.—For pur14 poses of paragraph (1)(B)— 

15 ‘‘(i) CORPORATIONS.—Ownership of a 

16 corporation shall be determined by the 

17 holding of stock possessing the appropriate 

18 percentage of the total combined voting 

19 power of all classes of stock entitled to vote 

20 and the appropriate percentage of the total 

21 value of shares of all classes of stock. 

22 ‘‘(ii) PARTNERSHIPS.—Ownership of a 

23 partnership shall be determined by the 

24 owning of the appropriate percentage of 

25 the capital interest in such partnership. 
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1 ‘‘(B) OWNERSHIP OF TIERED ENTITIES.— 

2 For purposes of this section, if by reason of 

3 holding an interest in a trade or business, a de4 cedent, any member of the decedent’s family, 

5 any qualified heir, or any member of any quali6 fied heir’s family is treated as holding an inter7 est in any other trade or business— 

8 ‘‘(i) such ownership interest in the 

9 other trade or business shall be dis10 regarded in determining if the ownership 

11 interest in the first trade or business is a 

12 qualified family-owned business interest, 

13 and 

14 ‘‘(ii) this section shall be applied sepa15 rately in determining if such interest in 

16 any other trade or business is a qualified 

17 family-owned business interest. 

18 ‘‘(C) INDIVIDUAL OWNERSHIP RULES.— 

19 For purposes of this section, an interest owned, 

20 directly or indirectly, by or for an entity de21 scribed in paragraph (1)(B) shall be considered 

22 as being owned proportionately by or for the en23 tity’s shareholders, partners, or beneficiaries. A 

24 person shall be treated as a beneficiary of any 
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1 trust only if such person has a present interest 

2 in such trust. 

3 ‘‘(e) AGREEMENT.—The agreement referred to in 

4 this subsection is a written agreement signed by each per5 son in being who has an interest (whether or not in posses6 sion) in any property designated in such agreement con7 senting to the application of this section with respect to 

8 such property. 

9 ‘‘(f) OTHER DEFINITIONS AND APPLICABLE

10 RULES.—For purposes of this section— 

11 ‘‘(1) QUALIFIED HEIR.—The term ‘qualified 

12 heir’ means a United States citizen who is— 

13 ‘‘(A) described in section 2032A(e)(1), or 

14 ‘‘(B) an active employee of the trade or 

15 business to which the qualified family-owned 

16 business interest relates if such employee has 

17 been employed by such trade or business for a 

18 period of at least 10 years before the date of 

19 the decedent’s death. 

20 ‘‘(2) MEMBER OF THE FAMILY.—The term 

21 ‘member of the family’ has the meaning given to 

22 such term by section 2032A(e)(2). 

23 ‘‘(3) APPLICABLE RULES.—Rules similar to the 

24 following rules shall apply: 
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1 ‘‘(A) Section 2032A(b)(4) (relating to de2 cedents who are retired or disabled). 

3 ‘‘(B) Section 2032A(e)(10) (relating to 

4 community property). 

5 ‘‘(C) Section 2032A(e)(14) (relating to 

6 treatment of replacement property acquired in 

7 section 1031 or 1033 transactions). 

8 ‘‘(D) Section 2032A(g) (relating to appli9 cation to interests in partnerships, corporations, 

10 and trusts). 

11 ‘‘(4) SAFE HARBOR FOR ACTIVE ENTITIES

12 HELD BY ENTITY CARRYING ON A TRADE OR BUSI13 NESS.—For purposes of this section, if— 

14 ‘‘(A) an entity carrying on a trade or busi15 ness owns 20 percent or more in value of the 

16 voting interests of another entity, or such other 

17 entity has 15 or fewer owners, and 

18 ‘‘(B) 80 percent or more of the value of 

19 the assets of each such entity is attributable to 

20 assets used in an active business operation, 

21 then the requirements under subsections 

22 (b)(1)(C)(ii) and (d)(3)(D) shall be met with respect 

23 to an interest in such an entity.’’. 

24 (c) MODIFICATION OF TREATMENT OF MARITAL DE25 DUCTION; LIMITATION ON STEP-UP IN BASIS.—Section 
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1 2056 of the Internal Revenue Code of 1986 (relating to 

2 bequests, etc., to surviving spouses) is amended by adding 

3 at the end the following new subsection: 

4 ‘‘(e) APPLICATION OF CARRYOVER BASIS RULES.— 

5 With respect to the value of the interests of the decedent 

6 which are described in subsection (a), the rules of section 

7 1023 shall apply.’’. 

8 (d) CARRYOVER BASIS RULES FOR QUALIFIED FAM9 ILY-OWNED BUSINESS INTERESTS AND SPOUSAL PROP10 ERTY.—Part II of subchapter O of chapter 1 of the Inter11 nal Revenue Code of 1986 (relating to basis rules of gen12 eral application) is amended by redesignating section 1023 

13 as section 1024 and inserting after section 1022 the fol14 lowing new section: 

15 ‘‘SEC. 1023. TREATMENT OF QUALIFIED FAMILY-OWNED 

16 BUSINESS INTERESTS AND SPOUSAL PROP17 ERTY. 

18 ‘‘(a) IN GENERAL.—Except as otherwise provided in 

19 this section— 

20 ‘‘(1) qualified property acquired from a dece21 dent shall be treated for purposes of this subtitle as 

22 transferred by gift, and 

23 ‘‘(2) the basis of the person acquiring qualified 

24 property from such a decedent shall be the lesser 

25 of— 
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1 ‘‘(A) the adjusted basis of the decedent, or 

2 ‘‘(B) the fair market value of the property 

3 at the date of the decedent’s death. 

4 ‘‘(b) QUALIFIED PROPERTY.—For purposes of this 

5 section, the term ‘qualified property’ means— 

6 ‘‘(1) the qualified family-owned business inter7 ests of the decedent with respect to which an elec8 tion is made under section 2059(b)(1)(B), and 

9 ‘‘(2) the qualified spousal property. 

10 ‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY

11 ACQUIRED BY SURVIVING SPOUSE.— 

12 ‘‘(1) IN GENERAL.—In the case of property to 

13 which this subsection applies and which is qualified 

14 spousal property, the basis of such property under 

15 subsection (a) shall be increased by its spousal prop16 erty basis increase. 

17 ‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.— 

18 For purposes of this subsection— 

19 ‘‘(A) IN GENERAL.—The spousal property 

20 basis increase for property referred to in para21 graph (1) is the portion of the aggregate spous22 al property basis increase which is allocated to 

23 the property pursuant to this section. 

24 ‘‘(B) AGGREGATE SPOUSAL PROPERTY

25 BASIS INCREASE.—In the case of any estate, 
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1 the aggregate spousal property basis increase is 

2 $3,000,000. 

3 ‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For 

4 purposes of this section, the term ‘qualified spousal 

5 property’ means any interest in property which 

6 passes or has passed from the decedent to the dece7 dent’s surviving spouse with respect to which a de8 duction is allowed under section 2056. 

9 ‘‘(4) DEFINITIONS AND SPECIAL RULES.— 

10 ‘‘(A) PROPERTY TO WHICH SUBSECTION

11 APPLIES.—The basis of property acquired from 

12 a decedent may be increased under this sub13 section only if the property was owned by the 

14 decedent at the time of death. 

15 ‘‘(B) RULES RELATING TO OWNERSHIP.— 

16 ‘‘(i) JOINTLY HELD PROPERTY.—In 

17 the case of property which was owned by 

18 the decedent and another person as joint 

19 tenants with right of survivorship or ten20 ants by the entirety— 

21 ‘‘(I) if the only such other person 

22 is the surviving spouse, the decedent 

23 shall be treated as the owner of only 

24 50 percent of the property, 
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1 ‘‘(II) in any case (to which sub2 clause (I) does not apply) in which the 

3 decedent furnished consideration for 

4 the acquisition of the property, the de5 cedent shall be treated as the owner 

6 to the extent of the portion of the 

7 property which is proportionate to 

8 such consideration, and 

9 ‘‘(III) in any case (to which sub10 clause (I) does not apply) in which the 

11 property has been acquired by gift, 

12 bequest, devise, or inheritance by the 

13 decedent and any other person as 

14 joint tenants with right of survivor15 ship and their interests are not other16 wise specified or fixed by law, the de17 cedent shall be treated as the owner 

18 to the extent of the value of a frac19 tional part to be determined by divid20 ing the value of the property by the 

21 number of joint tenants with right of 

22 survivorship. 

23 ‘‘(ii) REVOCABLE TRUSTS.—The dece24 dent shall be treated as owning property 

25 transferred by the decedent during life to 
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1 a qualified revocable trust (as defined in 

2 section 645(b)(1)). 

3 ‘‘(iii) POWERS OF APPOINTMENT.— 

4 The decedent shall not be treated as own5 ing any property by reason of holding a 

6 power of appointment with respect to such 

7 property. 

8 ‘‘(iv) COMMUNITY PROPERTY.—Prop9 erty which represents the surviving 

10 spouse’s one-half share of community prop11 erty held by the decedent and the surviving 

12 spouse under the community property laws 

13 of any State or possession of the United 

14 States or any foreign country shall be 

15 treated for purposes of this section as 

16 owned by, and acquired from, the decedent 

17 if at least one-half of the whole of the com18 munity interest in such property is treated 

19 as owned by, and acquired from, the dece20 dent without regard to this clause. 

21 ‘‘(C) PROPERTY ACQUIRED BY DECEDENT

22 BY GIFT WITHIN 3 YEARS OF DEATH.— 

23 ‘‘(i) IN GENERAL.—This subsection 

24 shall not apply to property acquired by the 

25 decedent by gift or by inter vivos transfer 
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1 for less than adequate and full consider2 ation in money or money’s worth during 

3 the 3-year period ending on the date of the 

4 decedent’s death. 

5 ‘‘(ii) EXCEPTION FOR CERTAIN GIFTS

6 FROM SPOUSE.—Clause (i) shall not apply 

7 to property acquired by the decedent from 

8 the decedent’s spouse unless, during such 

9 3-year period, such spouse acquired the 

10 property in whole or in part by gift or by 

11 inter vivos transfer for less than adequate 

12 and full consideration in money or money’s 

13 worth. 

14 ‘‘(D) STOCK OF CERTAIN ENTITIES.—This 

15 subsection shall not apply to— 

16 ‘‘(i) stock or securities of a foreign 

17 personal holding company, 

18 ‘‘(ii) stock of a DISC or former 

19 DISC, 

20 ‘‘(iii) stock of a foreign investment 

21 company, or 

22 ‘‘(iv) stock of a passive foreign invest23 ment company unless such company is a 

24 qualified electing fund (as defined in sec25 tion 1295) with respect to the decedent. 
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1 ‘‘(E) FAIR MARKET VALUE LIMITATION.— 

2 The adjustments under this subsection shall not 

3 increase the basis of any interest in property 

4 acquired from the decedent above its fair mar5 ket value in the hands of the decedent as of the 

6 date of the decedent’s death. 

7 ‘‘(d) PROPERTY ACQUIRED FROM THE DECEDENT.— 

8 For purposes of this section, the following property shall 

9 be considered to have been acquired from the decedent: 

10 ‘‘(1) Property acquired by bequest, devise, or 

11 inheritance, or by the decedent’s estate from the de12 cedent. 

13 ‘‘(2) Property transferred by the decedent dur14 ing his lifetime— 

15 ‘‘(A) to a qualified revocable trust (as de16 fined in section 645(b)(1)), or 

17 ‘‘(B) to any other trust with respect to 

18 which the decedent reserved the right to make 

19 any change in the enjoyment thereof through 

20 the exercise of a power to alter, amend, or ter21 minate the trust. 

22 ‘‘(3) Any other property passing from the dece23 dent by reason of death to the extent that such 

24 property passed without consideration. 
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1 ‘‘(e) COORDINATION WITH SECTION 691.—This sec2 tion shall not apply to property which constitutes a right 

3 to receive an item of income in respect of a decedent under 

4 section 691. 

5 ‘‘(f) CERTAIN LIABILITIES DISREGARDED.— 

6 ‘‘(1) IN GENERAL.—In determining whether 

7 gain is recognized on the acquisition of property— 

8 ‘‘(A) from a decedent by a decedent’s es9 tate or any beneficiary other than a tax-exempt 

10 beneficiary, and 

11 ‘‘(B) from the decedent’s estate by any 

12 beneficiary other than a tax-exempt beneficiary, 

13 and in determining the adjusted basis of such prop14 erty, liabilities in excess of basis shall be dis15 regarded. 

16 ‘‘(2) TAX-EXEMPT BENEFICIARY.—For pur17 poses of paragraph (1), the term ‘tax-exempt bene18 ficiary’ means— 

19 ‘‘(A) the United States, any State or polit20 ical subdivision thereof, any possession of the 

21 United States, any Indian tribal government 

22 (within the meaning of section 7871), or any 

23 agency or instrumentality of any of the fore24 going, 
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1 ‘‘(B) an organization (other than a cooper2 ative described in section 521) which is exempt 

3 from tax imposed by chapter 1, 

4 ‘‘(C) any foreign person or entity (within 

5 the meaning of section 168(h)(2)), and 

6 ‘‘(D) to the extent provided in regulations, 

7 any person to whom property is transferred for 

8 the principal purpose of tax avoidance. 

9 ‘‘(g) REGULATIONS.—The Secretary shall prescribe 

10 such regulations as may be necessary to carry out the pur11 poses of this section.’’. 

12 (e) CLERICAL AMENDMENTS.— 

13 (1) The table of sections for part IV of sub14 chapter A of chapter 11 of the Internal Revenue 

15 Code of 1986 is amended by striking the item relat16 ing to section 2057 and by inserting after the item 

17 relating to section 2058 the following new item: 

‘‘Sec. 2059. Exclusion for qualified family-owned business interests.’’. 

18 (2) The table of sections for part II of sub19 chapter O of chapter 1 of such Code is amended by 

20 striking the item relating to section 1023 and insert21 ing the following new items: 

‘‘Sec. 1023. Treatment of qualified family-owned business interests and spousal 

property. 

‘‘Sec. 1024. Cross references.’’. 
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1 (f) EFFECTIVE DATES.—The amendments made by 

2 this section shall apply to estates of decedents dying, and 

3 gifts made— 

4 (1) after December 31, 2005, and before Janu5 ary 1, 2010, and 

6 (2) after December 31, 2011. 

Æ