II 

109TH CONGRESS 

1ST SESSION S. 928 

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 SENATE OF THE UNITED STATES 

APRIL 27, 2005 

Mrs. LINCOLN 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 

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 Ac5 celeration (ExTRA) for Family-Owned Businesses and 

6 Farms Act’’. 
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1 SEC. 2. REPEAL OF ESTATE TAX ON FAMILY-OWNED BUSI2 NESSES AND FARMS. 

3 (a) CARRYOVER BUSINESS INTEREST EXCLUSION.— 

4 Part IV of subchapter A of chapter 11 of the Internal 

5 Revenue Code of 1986 (relating to taxable estate) is 

6 amended by inserting after section 2058 the following new 

7 section: 

8 ‘‘SEC. 2059. CARRYOVER BUSINESS INTERESTS. 

9 ‘‘(a) GENERAL RULES.— 

10 ‘‘(1) ALLOWANCE OF DEDUCTION.—For pur11 poses of the tax imposed by section 2001, in the 

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

13 applies, the value of the taxable estate shall be de14 termined by deducting from the value of the gross 

15 estate the adjusted value of the carryover business 

16 interests of the decedent which are described in sub17 section (b)(2). 

18 ‘‘(2) APPLICATION OF CARRYOVER BASIS

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

20 carryover business interests of the decedent which 

21 are described in subsection (b)(2), the rules of sec22 tion 1023 shall apply. 

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

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

25 an estate if— 
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1 ‘‘(A) the decedent was (at the date of the 

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

3 United States, 

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

5 this section under rules similar to the rules of 

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

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

8 and 

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

10 the date of the decedent’s death there have 

11 been periods aggregating 5 years or more dur12 ing which— 

13 ‘‘(i) the carryover business interests 

14 described in paragraph (2) were owned by 

15 the decedent or a member of the dece16 dent’s family, and 

17 ‘‘(ii) there was material participation 

18 (within the meaning of section 

19 2032A(e)(6)) by the decedent, a member 

20 of the decedent’s family, or a qualified heir 

21 in the operation of the business to which 

22 such interests relate. 

23 ‘‘(2) INCLUDIBLE CARRYOVER BUSINESS INTER24 ESTS.—The carryover business interests described in 

25 this paragraph are the interests which— 
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1 ‘‘(A) are included in determining the value 

2 of the gross estate, 

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

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

5 decedent (within the meaning of section 

6 2032A(e)(9)), and 

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

8 paragraph (1)(B). 

9 ‘‘(3) RULES REGARDING MATERIAL PARTICIPA10 TION.—For purposes of paragraph (1)(C)(ii)— 

11 ‘‘(A) in the case a surviving spouse, mate12 rial participation by such spouse may be satis13 fied under rules similar to the rules under sec14 tion 2032A(b)(5), 

15 ‘‘(B) in the case of a carryover business in16 terest in an entity carrying on multiple trades 

17 or businesses, material participation in each 

18 trade or business is satisfied by material par19 ticipation in the entity or in 1 or more of the 

20 multiple trades or businesses, and 

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

22 business (as defined in section 

23 6166(b)(10)(B)(ii)), material participation is 

24 satisfied under the rules under subclause (I) or 

25 (II) of section 6166(b)(10)(B)(i). 
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1 ‘‘(c) ADJUSTED VALUE OF THE CARRYOVER BUSI2 NESS INTERESTS.—For purposes of this section— 

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

4 carryover business interest is the value of such inter5 est for purposes of this chapter (determined without 

6 regard to this section), as adjusted under paragraph 

7 (2). 

8 ‘‘(2) ADJUSTMENT FOR PREVIOUS TRANS9 FERS.—The Secretary may increase the value of any 

10 carryover business interest by that portion of those 

11 assets transferred from such carryover business in12 terest to the decedent’s taxable estate within 3 years 

13 before the date of the decedent’s death. 

14 ‘‘(d) CARRYOVER BUSINESS INTEREST.— 

15 ‘‘(1) IN GENERAL.—For purposes of this sec16 tion, the term ‘carryover business interest’ means— 

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

18 or business carried on as a proprietorship, or 

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

20 a trade or business, if— 

21 ‘‘(i) at least— 

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

23 owned (directly or indirectly) by the 

24 decedent and members of the dece25 dent’s family, 
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1 ‘‘(II) 70 percent of such entity is 

2 so owned by members of 2 families, or 

3 ‘‘(III) 90 percent of such entity 

4 is so owned by members of 3 families, 

5 and 

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

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

8 such entity is so owned by the decedent 

9 and members of the decedent’s family. 

10 For purposes of the preceding sentence, a decedent 

11 shall be treated as engaged in a trade or business 

12 if any member of the decedent’s family is engaged 

13 in such trade or business. 

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

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

16 and finance business (as defined in section 

17 6166(b)(10)(B)(ii)) shall be treated as an asset 

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

19 ‘‘(3) LIMITATION.—Such term shall not in20 clude— 

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

22 the principal place of business of which is not 

23 located in the United States, 

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

25 or debt of such entity or a controlled group (as 
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1 defined in section 267(f)(1)) of which such enti2 ty was a member was readily tradable on an es3 tablished securities market or secondary market 

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

5 ‘‘(C) that portion of an interest in an enti6 ty transferred by gift to such interest within 3 

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

8 and 

9 ‘‘(D) that portion of an interest in an enti10 ty which is attributable to cash or marketable 

11 securities, or both, in any amount in excess of 

12 the reasonably anticipated business needs of 

13 such entity. 

14 In any proceeding before the United States Tax 

15 Court involving a notice of deficiency based in whole 

16 or in part on the allegation that cash or marketable 

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

18 excess of the reasonably anticipated business needs 

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

20 such allegation shall be on the Secretary to the ex21 tent such cash or marketable securities are less than 

22 35 percent of the value of the interest in such entity. 

23 ‘‘(4) RULES REGARDING OWNERSHIP.— 

24 ‘‘(A) OWNERSHIP OF ENTITIES.—For pur25 poses of paragraph (1)(B)— 
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1 ‘‘(i) CORPORATIONS.—Ownership of a 

2 corporation shall be determined by the 

3 holding of stock possessing the appropriate 

4 percentage of the total combined voting 

5 power of all classes of stock entitled to vote 

6 and the appropriate percentage of the total 

7 value of shares of all classes of stock. 

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

9 partnership shall be determined by the 

10 owning of the appropriate percentage of 

11 the capital interest in such partnership. 

12 ‘‘(B) OWNERSHIP OF TIERED ENTITIES.— 

13 For purposes of this section, if by reason of 

14 holding an interest in a trade or business, a de15 cedent, any member of the decedent’s family, 

16 any qualified heir, or any member of any quali17 fied heir’s family is treated as holding an inter18 est in any other trade or business— 

19 ‘‘(i) such ownership interest in the 

20 other trade or business shall be dis21 regarded in determining if the ownership 

22 interest in the first trade or business is a 

23 carryover business interest, and 

24 ‘‘(ii) this section shall be applied sepa25 rately in determining if such interest in 
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1 any other trade or business is a carryover 

2 business interest. 

3 ‘‘(C) INDIVIDUAL OWNERSHIP RULES.— 

4 For purposes of this section, an interest owned, 

5 directly or indirectly, by or for an entity de6 scribed in paragraph (1)(B) shall be considered 

7 as being owned proportionately by or for the en8 tity’s shareholders, partners, or beneficiaries. A 

9 person shall be treated as a beneficiary of any 

10 trust only if such person has a present interest 

11 in such trust. 

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

13 this subsection is a written agreement signed by each per14 son in being who has an interest (whether or not in posses15 sion) in any property designated in such agreement con16 senting to the application of this section with respect to 

17 such property. 

18 ‘‘(f) OTHER DEFINITIONS AND APPLICABLE

19 RULES.—For purposes of this section— 

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

21 heir’ means a United States citizen who is— 

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

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

24 business to which the carryover business inter25 est relates if such employee has been employed 
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1 by such trade or business for a period of at 

2 least 10 years before the date of the decedent’s 

3 death. 

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

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

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

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

8 following rules shall apply: 

9 ‘‘(A) Section 2032A(b)(4) (relating to de10 cedents who are retired or disabled). 

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

12 community property). 

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

14 treatment of replacement property acquired in 

15 section 1031 or 1033 transactions). 

16 ‘‘(D) Section 2032A(g) (relating to appli17 cation to interests in partnerships, corporations, 

18 and trusts). 

19 ‘‘(4) SAFE HARBOR FOR ACTIVE ENTITIES

20 HELD BY ENTITY CARRYING ON A TRADE OR BUSI21 NESS.—For purposes of this section, if— 

22 ‘‘(A) an entity carrying on a trade or busi23 ness owns 20 percent or more in value of the 

24 voting interests of another entity, or such other 

25 entity has 15 or fewer owners, and 
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1 ‘‘(B) 80 percent or more of the value of 

2 the assets of each such entity is attributable to 

3 assets used in an active business operation, 

4 then the requirements under subsections 

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

6 respect to an interest in such an entity.’’. 

7 (b) CARRYOVER BASIS RULES FOR CARRYOVER

8 BUSINESS INTERESTS.—Part II of subchapter O of chap9 ter 1 of the Internal Revenue Code of 1986 (relating to 

10 basis rules of general application) is amended by inserting 

11 after section 1022 the following new section: 

12 ‘‘SEC. 1023. TREATMENT OF CARRYOVER BUSINESS INTER13 ESTS. 

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

15 this section— 

16 ‘‘(1) qualified property acquired from a dece17 dent shall be treated for purposes of this subtitle as 

18 transferred by gift, and 

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

20 property from such a decedent shall be the lesser 

21 of— 

22 ‘‘(A) the adjusted basis of the decedent, or 

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

24 at the date of the decedent’s death. 
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1 ‘‘(b) QUALIFIED PROPERTY.—For purposes of this 

2 section, the term ‘qualified property’ means the carryover 

3 business interests of the decedent with respect to which 

4 an election is made under section 2059(b)(1)(B). 

5 ‘‘(c) PROPERTY ACQUIRED FROM THE DECEDENT.— 

6 For purposes of this section, the following property shall 

7 be considered to have been acquired from the decedent: 

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

9 inheritance, or by the decedent’s estate from the de10 cedent. 

11 ‘‘(2) Property transferred by the decedent dur12 ing his lifetime— 

13 ‘‘(A) to a qualified revocable trust (as de14 fined in section 645(b)(1)), or 

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

16 which the decedent reserved the right to make 

17 any change in the enjoyment thereof through 

18 the exercise of a power to alter, amend, or ter19 minate the trust. 

20 ‘‘(3) Any other property passing from the dece21 dent by reason of death to the extent that such 

22 property passed without consideration. 

23 ‘‘(d) COORDINATION WITH SECTION 691.—This sec24 tion shall not apply to property which constitutes a right 
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1 to receive an item of income in respect of a decedent under 

2 section 691. 

3 ‘‘(e) CERTAIN LIABILITIES DISREGARDED.— 

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

5 gain is recognized on the acquisition of property— 

6 ‘‘(A) from a decedent by a decedent’s es7 tate or any beneficiary other than a tax-exempt 

8 beneficiary, and 

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

10 beneficiary other than a tax-exempt beneficiary, 

11 and in determining the adjusted basis of such 

12 property, liabilities in excess of basis shall be 

13 disregarded. 

14 ‘‘(2) TAX-EXEMPT BENEFICIARY.—For pur15 poses of paragraph (1), the term ‘tax-exempt bene16 ficiary’ means— 

17 ‘‘(A) the United States, any State or polit18 ical subdivision thereof, any possession of the 

19 United States, any Indian tribal government 

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

21 agency or instrumentality of any of the fore22 going, 

23 ‘‘(B) an organization (other than a cooper24 ative described in section 521) which is exempt 

25 from tax imposed by chapter 1, 
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1 ‘‘(C) any foreign person or entity (within 

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

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

4 any person to whom property is transferred for 

5 the principal purpose of tax avoidance. 

6 ‘‘(f) REGULATIONS.—The Secretary shall prescribe 

7 such regulations as may be necessary to carry out the pur8 poses of this section.’’. 

9 (c) CLERICAL AMENDMENTS.— 

10 (1) The table of sections for part IV of sub11 chapter A of chapter 11 of the Internal Revenue 

12 Code of 1986 is amended by inserting after the item 

13 relating to section 2058 the following new item: 

‘‘Sec. 2059. Carryover business exclusion.’’. 

14 (2) The table of sections for part II of sub15 chapter O of chapter 1 of such Code is amended by 

16 inserting after the item relating to section 1022 the 

17 following new item: 

‘‘Sec. 1023. Treatment of carryover business interests.’’. 

18 (d) EFFECTIVE DATES.—The amendments made by 

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

20 gifts made— 

21 (1) after the date of the enactment of this Act, 

22 and before January 1, 2010, and 

23 (2) after December 31, 2010. 

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