I 

108TH CONGRESS 

1ST SESSION H. R. 457

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

gain on the sale of a family farming business to a family member. 

IN THE HOUSE OF REPRESENTATIVES 

JANUARY 29, 2003

Mr. GREEN of Wisconsin (for himself, Mr. KENNEDY of Minnesota, Mr. 

NETHERCUTT, Mr. BAKER, Mr. MCHUGH, and Mr. POMEROY) 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 gross income gain on the sale of a family farming 

business to a family member.

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’’.

6 SEC. 2. EXCLUSION OF GAIN ON SALE OF FAMILY FARMING 

7 BUSINESS TO FAMILY MEMBER. 

8 (a) IN GENERAL.—Part I of subchapter P of chapter 

9 1 of the Internal Revenue Code of 1986 (relating to treat-
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1 ment of capital gains) is amended by adding at the end 

2 the following new section: 

3 ‘‘SEC. 1203. EXCLUSION OF GAIN ON SALE OF FAMILY FARM 

4 TO FAMILY MEMBER. 

5 ‘‘(a) IN GENERAL.—At the election of the taxpayer, 

6 gross income shall not include any gain from the sale of 

7 a qualified family farm interest to a member of the tax8 payer’s family if—

9 ‘‘(1) at all times during the 5-year period end10 ing on the date of such sale, there was material par11 ticipation by the taxpayer or a member of the tax12 payer’s family in the operation of the farming busi13 ness to which such interest relates, and 

14 ‘‘(2)(A) such interest is being acquired by a 

15 member of the taxpayer’s family, and 

16 ‘‘(B) such member agrees—

17 ‘‘(i) for the 5-year period beginning on the 

18 day after the date of such sale, to materially 

19 participate in the operation of the farming busi20 ness to which such interest relates, and 

21 ‘‘(ii) to the provisions of subsection (b). 

22 ‘‘(b) RECAPTURE OF TAX IF INTEREST CEASES TO

23 BE USED IN A FARMING BUSINESS.—
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1 ‘‘(1) IN GENERAL.—If, during any year within 

2 the 5-year period beginning on the date of such 

3 sale—

4 ‘‘(A) a qualified family farm interest with 

5 respect to which an election is made under sub6 section (a) is disposed of, or otherwise ceases to 

7 be a qualified family farm interest of the mem8 ber of the family who acquired such interest, 

9 other than through the bankruptcy or insol10 vency of such member of the family, or 

11 ‘‘(B) the member of the family who ac12 quired such interest fails to materially partici13 pate (directly or through a family member of 

14 such member) in the operation of the farming 

15 business to which such interest relates, 

16 then the tax imposed on such member of the family 

17 under this subtitle for the year shall be increased by 

18 an amount equal to the recapture percentage of the 

19 excluded tax amount, plus interest on the amount of 

20 such increase at the underpayment rate established 

21 under section 6621 for the period beginning on the 

22 date the return of tax for the year of such sale was 

23 due under this chapter (without regard to extensions 

24 thereof) and ending on the date the increase in tax 
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1 under this subsection is due (without regard to ex2 tensions thereof). 

3 ‘‘(2) RECAPTURE PERCENTAGE.—For purposes 

4 of paragraph (1), the recapture percentage shall be 

5 determined under the following table:

‘‘If the event described 

in paragraph (1) occurs 

in the following years The recapture 

after such sale: percentage is:

1 ............................................. 100

2 ............................................. 80

3 ............................................. 60

4 ............................................. 40

5 ............................................. 20.

6 ‘‘(3) EXCLUDED TAX AMOUNT.—For purposes 

7 of paragraph (1), the term ‘excluded tax amount’ 

8 means the excess of—

9 ‘‘(A) the amount of tax that would have 

10 been imposed on the taxpayer under this sub11 title for the taxable year ending with or within 

12 which the sale for which an election was made 

13 under subsection (a), over 

14 ‘‘(B) the amount of tax imposed on the 

15 taxpayer under this subtitle for such taxable 

16 year. 

17 This paragraph shall be applied without regard to 

18 the installment method of accounting or averaging of 

19 farm income under section 1301. 

20 ‘‘(c) DEFINITIONS.—For purposes of this section—
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1 ‘‘(1) QUALIFIED FAMILY FARM INTEREST.—

2 The term ‘qualified family farm interest’ means an 

3 interest which is a qualified family-owned business 

4 interest in a farming business. 

5 ‘‘(2) QUALIFIED FAMILY-OWNED BUSINESS IN6 TEREST.—The term ‘qualified family-owned business 

7 interest’ has the meaning given such term by section 

8 2057(e), determined by substituting ‘taxpayer’ for 

9 ‘decedent’ each place it appears. 

10 ‘‘(3) FARMING BUSINESS.—The term ‘farming 

11 business’ has the meaning given such term by sec12 tion 263A(e)(4). 

13 ‘‘(4) MEMBER OF THE FAMILY.—The term 

14 ‘member of the family’ has the meaning given such 

15 term by section 2032A(e). 

16 ‘‘(5) MATERIAL PARTICIPATION.—The term 

17 ‘material participation’ has the meaning given such 

18 term by section 2032A(e)(6).’’. 

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

20 for part I of subchapter P of chapter 1 of the Internal 

21 Revenue Code of 1986 is amended by adding at the end 

22 the following new item:

‘‘Sec. 1203. Exclusion of gain on sale of family farm to family member.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to sales occurring on or after the 

3 date of enactment of this Act.

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