I

105TH CONGRESS

1ST SESSION H. R. 507

To amend the Internal Revenue Code of 1986 to exempt from income tax

the gain from the sale of a business closely held by an individual who

has attained age 62, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 4, 1997

Mr. ANDREWS 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 exempt

from income tax the gain from the sale of a business

closely held by an individual who has attained age 62,

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. EXCLUSION FROM INCOME TAX OF GAIN FROM

4 SALE OF CLOSELY HELD BUSINESS BY INDI5 VIDUALS WHO HAVE ATTAINED AGE 62.

6 (a) IN GENERAL.—Part III of subchapter B of chap7 ter 1 of the Internal Revenue Code of 1986 (relating to

8 items specifically excluded from gross income) is amended
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1 by redesignating section 138 as section 139 and by insert2 ing after section 137 the following new section:

3 ‘‘SEC. 138. SALE OF CLOSELY HELD BUSINESS BY INDIVID4 UALS WHO HAVE ATTAINED AGE 62.

5 ‘‘(a) IN GENERAL.—In the case of an individual,

6 gross income does not include the gain (whether received

7 in single sum or otherwise) from the sale or exchange of

8 a qualified interest in a closely held business if—

9 ‘‘(1) the individual has attained age 62 before

10 the date of such sale or exchange,

11 ‘‘(2) the adjusted gross income of the individual

12 for the tax year in which such sale or exchange oc13 curs does not exceed $1,000,000 (determined with14 out regard to such sale or exchange), and

15 ‘‘(3) the individual so elects.

16 ‘‘(b) ONE-TIME EXCLUSION.—Subsection (a) shall

17 not apply to any sale or exchange by the taxpayer if an

18 election under subsection (a) with respect to any other sale

19 or exchange is in effect.

20 ‘‘(c) QUALIFIED INTEREST IN A CLOSELY HELD

21 BUSINESS.—

22 ‘‘(1) IN GENERAL.—For purposes of subsection

23 (a), the term ‘qualified interest in a closely held

24 business’ means an interest in a closely held busi25 ness (as defined by section 6166(b)(1)) if the fair
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1 market value of the assets of such business is

2 $500,000 or less, determined at the time of such

3 sale or exchange.

4 ‘‘(2) RULE FOR APPLYING SECTION

5 6166(b)(1).—For purposes of paragraph (1), rules

6 similar to rules of paragraphs (2) and (9) of sub7 section (b) and subsection (c) of section 6166 shall

8 apply.

9 ‘‘(3) AGGREGATION RULES.—All persons treat10 ed as a single employer under subsection (a) or (b)

11 of section 52 or subsection (m) or (o) of section 414

12 shall be treated as one person for purposes of para13 graph (1).

14 ‘‘(d) ELECTION.—An election under subsection (a)

15 may be made or revoked at any time before the expiration

16 of the period for making a claim for credit or refund of

17 the tax imposed by this chapter for the taxable year in

18 which the sale or exchange occurred.’’

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

20 for part III of subchapter B of chapter 1 of such Code

21 is amended by striking the item relating to section 138

22 and inserting the following:

‘‘Sec. 138. Sale of closely held business by individuals who have

attained age 62.

‘‘Sec. 139. Cross reference to other Acts.’’
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to taxable years ending after De3 cember 31, 1996, with respect to a sale or exchange after

4 December 31, 1996.

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