I
105TH CONGRESS
2D SESSION
H. R. 4521
To amend the Internal Revenue Code of 1986 to provide that the dollar
limitation on the estate tax deduction for family-owned business interests
shall not apply to interests in a business owned by a single family.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 7, 1998
Mr. WELLER 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
that the dollar limitation on the estate tax deduction
for family-owned business interests shall not apply to
interests in a business owned by a single family.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Family Business and
Family Farm Preservation Act of 1998’’.
SEC. 2. LIMITATION ON ESTATE TAX DEDUCTION FOR FAM-
ILY-OWNED BUSINESS INTERESTS NOT TO
APPLY TO INTERESTS IN A BUSINESS OWNED
BY A SINGLE FAMILY.
(a) IN GENERAL.—Subsection (a) of section 2057 of
the Internal Revenue Code of 1986 (relating to family-
owned business interests) is amended by adding at the end
the following new paragraph:
‘‘(4) LIMITATION
NOT
TO
APPLY
TO
SINGLE
FAMILY BUSINESSES.—Paragraph (2) shall be ap-
plied by not taking into account any deduction under
this section for interests in—
‘‘(A) any sole proprietorship, or
‘‘(B) any entity if 100 percent of such en-
tity is owned (directly or indirectly) by the dece-
dent and members of the decedent’s family.’’
(b) ADDITIONAL ESTATE TAX DEDUCTION RECAP-
TURED IF REINVESTMENT REQUIREMENT NOT MET.—
Subsection (f) of section 2057 of such Code (relating to
tax treatment of failure to materially participate in busi-
ness or dispositions of interest) is amended by adding at
the end the following new paragraphs:
‘‘(3) REINVESTMENT
REQUIREMENT
ON
ES-
TATES TO WHICH DOLLAR LIMITATION ON DEDUC-
TION DID NOT APPLY.—
‘‘(A) IN GENERAL.—In the case of an es-
tate with respect to which the deduction under
this section exceeded $675,000 by reason of
subsection (a)(4), the failure to meet the rein-
vestment requirement of paragraph (4) shall be
treated as referred to in a subparagraph of
paragraph (1) of this subsection.
‘‘(B) AMOUNT OF TAX.—If tax is imposed
by this subsection by reason of a failure to meet
the reinvestment requirement of paragraph (4)
for any taxable year—
‘‘(i) the applicable percentage shall be
10 percent (in lieu of the percentage deter-
mined under paragraph (2)), and
‘‘(ii) the adjusted tax difference shall
be determined by taking into account only
that portion of the value of the qualified
family-owned business interests involved
which bears the same ratio to such value
as the excess for such year of the adjusted
net earnings over the reinvestment amount
bears to the reinvestment amount.
‘‘(C) SPECIAL
RULE.—Tax shall be im-
posed by this subsection by reason of a failure
only to the extent that the value (for purposes
of this chapter) of the qualified family-owned
business interests involved in such event, when
increased by the value (for such purposes) of
qualified family-owned business interests with
respect to which prior recapture events have oc-
curred (whether or not tax was imposed by this
subsection on such prior events), exceeds
$675,000.
‘‘(D) EXTENSION OF 10-YEAR PERIOD.—
‘‘(i) INCREASE IN REINVESTMENT RE-
QUIREMENT BY REASON OF AUDIT.—In the
case that the reinvestment amount is in-
creased for a taxable year after examina-
tion or assessment by the Secretary, the
10-year period referred to in paragraph (1)
shall be extended for an additional year.
‘‘(ii) REINVESTMENT
REQUIREMENT
IMPOSSIBLE
TO
MEET
DUE
TO
UNFORE-
SEEN CIRCUMSTANCES.—In the case of a
failure to meet the reinvestment require-
ment of paragraph (4) due to unforeseen
circumstances, the Secretary may extend
the 10-year period referred to in paragraph
(1) for a reasonable period in accordance
with section 6161.
‘‘(4) REINVESTMENT REQUIREMENT.—
‘‘(A) IN GENERAL.—The reinvestment re-
quirement of this paragraph is met with respect
to a sole proprietorship or entity for any tax-
able year if the reinvestment amount for such
year is not less than the adjusted net earnings
of the proprietorship or entity for such year.
‘‘(B) REINVESTMENT AMOUNT.—For pur-
poses of this paragraph, the term ‘reinvestment
amount’ means, with respect to any taxable
year, the sum of—
‘‘(i) the increase during the taxable
year in net asset investment in the same
trade or business, and
‘‘(ii) the increase during the taxable
year in working capital of the same trade
or business.
‘‘(C) INCREASE
IN
NET
ASSET
INVEST-
MENT.—For purposes of this paragraph—
‘‘(i) DETERMINATION OF INCREASE.—
The increase during the taxable year in net
asset investment is an amount equal to the
excess (if any) of—
‘‘(I) the net asset investment as
of the close of the taxable year, over
‘‘(II) the net asset investment as
of the close of the preceding taxable
year.
‘‘(ii) NET ASSET INVESTMENT.—The
term ‘net asset investment’ means the ex-
cess (if any) of—
‘‘(I) the aggregate adjusted bases
of qualified assets held by the tax-
payer for use in the active conduct of
a trade or business, over
‘‘(II) the aggregate outstanding
amount of indebtedness of the tax-
payer which was incurred to acquire
or improve qualified assets so held.
‘‘(iii) QUALIFIED
ASSET.—The term
‘qualified asset’ means any tangible or in-
tangible property other than property de-
scribed in subsection (e)(2)(D).
‘‘(D) ADJUSTED
NET
EARNINGS.—For
purposes of this paragraph, the term ‘adjusted
net earnings’ means taxable income—
‘‘(i) increased by the sum of—
‘‘(I) the amount of interest re-
ceived or accrued by the taxpayer dur-
ing the taxable year which is exempt
from tax, and
‘‘(II) the amount allowed for de-
preciation or amortization, and
‘‘(ii) decreased by the tax imposed by
chapter 1 for the taxable year.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
the date of enactment of this Act.
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