I
105TH CONGRESS
1ST SESSION
H. R. 2117
To amend the Internal Revenue Code of 1986 to exclude from gross income
gain on the sale or exchange of farmland which by covenant is restricted
to use as farmland and to exclude the value of such farmland from
estate taxes.
IN THE HOUSE OF REPRESENTATIVES
JULY 8, 1997
Mr. PITTS 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 or exchange of farm-
land which by covenant is restricted to use as farmland
and to exclude the value of such farmland from estate
taxes.
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 ‘‘Farm Preservation Act
of 1997’’.
SEC. 2. EXCLUSION OF GAIN FROM SALE OF CERTAIN
FARMLAND.
(a) GENERAL RULE.—Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 (relating
to items specifically excluded from gross income) is
amended by redesignating section 138 as section 139 and
by inserting after section 137 the following new section:
‘‘SEC. 138. SALES AND EXCHANGES OF FARMLAND THE USE
OF WHICH IS RESTRICTED TO FARMING.
‘‘(a) GENERAL RULE.—In the case of an operator of
farmland, gross income does not include gain from the sale
or exchange of farmland if there is in effect on the date
of such sale or exchange a qualified covenant which does
not permit any use of such farmland for any purpose other
than use as farmland.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) FARMLAND.—The term ‘farmland’ means
any real property—
‘‘(A) which is located in the United States,
and
‘‘(B) which is used as a farm for farming
purposes (within the meaning of section
2032A(e)).
‘‘(2) QUALIFIED COVENANT—The term ‘quali-
fied covenant’ means a covenant—
‘‘(A) which may not be revoked,
‘‘(B) which, with respect to farmland to
which such covenant applies, is entered into by
all persons having any ownership interest in
such farmland, and
‘‘(C) which binds all future owners of the
farmland to which such covenant applies.
‘‘(c) APPLICATION WITH PRINCIPAL RESIDENCES.—
For purposes of this section, use as farmland includes use
as the principal residence of the operator of such farm-
land.
‘‘(d) VERIFICATION OF COVENANT.—Subsection (a)
shall not apply by reason of any covenant unless such per-
son—
‘‘(1) notifies (in such form and manner as the
Secretary may by regulations prescribe) both the
Secretary and the Secretary of Agriculture of the
political subdivision of the State in which such cov-
enant is recorded, and
‘‘(2) submits to the Secretary a copy of such
covenant.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such part is amended by striking the last item and
inserting the following new items:
‘‘Sec. 138. Sales and exchanges of farmland the use of which is
restricted to farming.
‘‘Sec. 139. Cross references to other Acts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to covenants first recorded after
December 31, 1996, and to sales and exchanges after such
date.
SEC. 3. EXCLUSION FROM GROSS ESTATE OF FARMLAND
WHICH BY COVENANT IS RESTRICTED TO USE
AS FARMLAND.
(a) IN GENERAL.—Part III of subchapter A of chap-
ter 11 of the Internal Revenue Code of 1986 (relating to
gross estate) is amended by inserting after section 2033
the following new section:
‘‘SEC. 2033A. EXCLUSION OF FARMLAND WHICH BY COV-
ENANT IS RESTRICTED TO USE AS FARM-
LAND.
‘‘(a) IN GENERAL.—In the case of an estate of a de-
cedent to which this section applies, the value of the gross
estate shall not include the adjusted value of farmland in-
cluded in the estate if there is in effect on the date of
death a qualified covenant which does not permit any use
of such farmland for any purpose other than use as farm-
land.
‘‘(b) ESTATES TO WHICH SECTION APPLIES.—This
section shall apply to an estate if—
‘‘(1) the decedent was (at the date of the dece-
dent’s death) a citizen or resident of the United
States, and
‘‘(2) during the 8-year period ending on the
date of the decedent’s death there have been periods
aggregating 5 years or more during which—
‘‘(A) the farmland were owned by the dece-
dent or a member of the decedent’s family, and
‘‘(B) there was material participation
(within the meaning of section 2032A(e)(6)) by
the decedent or a member of the decedent’s
family in the operation of the farmland.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) FARMLAND.—The term ‘farmland’ means
any real property—
‘‘(A) which is located in the United States,
and
‘‘(B) which is used as a farm for farming
purposes (within the meaning of section
2032A(e)).
‘‘(2) QUALIFIED COVENANT.—The term ‘quali-
fied covenant’ means a covenant—
‘‘(A) which may not be revoked,
‘‘(B) which, with respect to farmland to
which such covenant applies, is entered into by
all persons having any ownership interest in
such farmland, and
‘‘(C) which binds all future owners of the
farmland to which such covenant applies.
‘‘(3) ADJUSTED
VALUE.—The term ‘adjusted
value’ means the value of farmland for purposes of
this chapter (determined without regard to this sec-
tion), reduced by the amount deductible under para-
graph (3) or (4) of section 2053(a).
‘‘(d) APPLICATION WITH PRINCIPAL RESIDENCES.—
For purposes of this section, use as farmland includes use
as the principal residence of the operator of such farm-
land.
‘‘(e) VERIFICATION OF COVENANT.—Subsection (a)
shall not apply by reason of any covenant unless such per-
son—
‘‘(1) notifies (in such form and manner as the
Secretary may by regulations prescribe) both the
Secretary and the Secretary of Agriculture of the
political subdivision of the State in which such cov-
enant is recorded, and
‘‘(2) submits to the Secretary a copy of such
covenant.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter A of chapter 11 of such Code
is amended by inserting after the item relating to section
2033 the following new item:
‘‘Sec. 2033A. Exclusion of farmland which by covenant is re-
stricted to use as farmland.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to covenants first recorded after
December 31, 1996, with respect to estates of decedents
dying after such date.
Æ