directly or indirectly, by or for an entity de-
scribed in paragraph (1)(B) shall be considered 
as being owned proportionately by or for the en-
tity’s shareholders, partners, or beneficiaries. A 
person shall be treated as a beneficiary of any 
trust only if such person has a present interest 
in such trust. 
‘‘(f) TAX TREATMENT OF FAILURE TO MATERIALLY 
PARTICIPATE IN BUSINESS OR DISPOSITIONS OF INTER-
ESTS.— 
‘‘(1) IN GENERAL.—There is imposed an addi-
tional estate tax if, within 10 years after the date 
of the decedent’s death and before the date of the 
qualified heir’s death— 
‘‘(A) the material participation require-
ments described in section 2032A(c)(6)(B) are 
not met with respect to the qualified family- 
owned business interest which was acquired (or 
passed) from the decedent, 
‘‘(B) the qualified heir disposes of any por-
tion of a qualified family-owned business inter-
est (other than by a disposition to a member of 
the qualified heir’s family or through a qualified 
conservation 
contribution 
under 
section 
170(h)), 
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‘‘(C) the qualified heir loses United States 
citizenship (within the meaning of section 877) 
or with respect to whom an event described in 
section 877(e)(1) occurs, and such heir does not 
comply with the requirements of subsection (g), 
or 
‘‘(D) the principal place of business of a 
trade or business of the qualified family-owned 
business interest ceases to be located in the 
United States. 
‘‘(2) ADDITIONAL ESTATE TAX.— 
‘‘(A) IN
GENERAL.—The amount of the 
additional estate tax imposed by paragraph (1) 
shall be equal to— 
‘‘(i) the applicable percentage of the 
adjusted tax difference attributable to the 
qualified family-owned business interest, 
plus 
‘‘(ii) interest on the amount deter-
mined under clause (i) at the under-
payment rate established under section 
6621 for the period beginning on the date 
the estate tax liability was due under this 
chapter and ending on the date such addi-
tional estate tax is due. 
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‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of this paragraph, the applicable per-
centage shall be determined under the following 
table: 
‘‘If the event described in 
paragraph (1) occurs in the 
following year of material 
participation: 
The applicable 
percentage is: 
1 through 6 ........................................................................................
100
7 .........................................................................................................
8 .........................................................................................................
9 .........................................................................................................
10 .......................................................................................................
20. 
‘‘(C) ADJUSTED
TAX
DIFFERENCE.—For 
purposes of subparagraph (A)— 
‘‘(i) IN GENERAL.—The adjusted tax 
difference attributable to a qualified fam-
ily-owned business interest is the amount 
which bears the same ratio to the adjusted 
tax difference with respect to the estate 
(determined under clause (ii)) as the value 
of such interest bears to the value of all 
qualified family-owned business interests 
described in subsection (b)(2). 
‘‘(ii) ADJUSTED
TAX
DIFFERENCE 
WITH
RESPECT
TO
THE
ESTATE.—For 
purposes of clause (i), the term ‘adjusted 
tax difference with respect to the estate’ 
means the excess of what would have been 
the estate tax liability but for the election 
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under this section over the estate tax liabil-
ity. For purposes of this clause, the term 
‘estate tax liability’ means the tax imposed 
by section 2001 reduced by the credits al-
lowable against such tax. 
‘‘(3) USE IN TRADE OR BUSINESS BY FAMILY 
MEMBERS.—A qualified heir shall not be treated as 
disposing of an interest described in subsection 
(e)(1)(A) by reason of ceasing to be engaged in a 
trade or business so long as the property to which 
such interest relates is used in a trade or business 
by any member of such individual’s family. 
‘‘(g) SECURITY REQUIREMENTS
FOR NONCITIZEN 
QUALIFIED HEIRS.— 
‘‘(1) IN GENERAL.—Except upon the applica-
tion of subparagraph (F) of subsection (i)(3), if a 
qualified heir is not a citizen of the United States, 
any interest under this section passing to or ac-
quired by such heir (including any interest held by 
such heir at a time described in subsection (f)(1)(C)) 
shall be treated as a qualified family-owned business 
interest only if the interest passes or is acquired (or 
is held) in a qualified trust. 
‘‘(2) QUALIFIED TRUST.—The term ‘qualified 
trust’ means a trust— 
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‘‘(A) which is organized under, and gov-
erned by, the laws of the United States or a 
State, and 
‘‘(B) except as otherwise provided in regu-
lations, with respect to which the trust instru-
ment requires that at least 1 trustee of the 
trust be an individual citizen of the United 
States or a domestic corporation. 
‘‘(h) AGREEMENT.—The agreement referred to in 
this subsection is a written agreement signed by each per-
son in being who has an interest (whether or not in posses-
sion) in any property designated in such agreement con-
senting to the application of subsection (f) with respect 
to such property. 
‘‘(i) 
OTHER
DEFINITIONS
AND
APPLICABLE 
RULES.—For purposes of this section— 
‘‘(1) QUALIFIED
HEIR.—The term ‘qualified 
heir’— 
‘‘(A) has the meaning given to such term 
by section 2032A(e)(1), and 
‘‘(B) includes any active employee of the 
trade or business to which the qualified family- 
owned business interest relates if such employee 
has been employed by such trade or business 
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for a period of at least 10 years before the date 
of the decedent’s death. 
‘‘(2) MEMBER
OF
THE
FAMILY.—The term 
‘member of the family’ has the meaning given to 
such term by section 2032A(e)(2). 
‘‘(3) APPLICABLE RULES.—Rules similar to the 
following rules shall apply: 
‘‘(A) Section 2032A(b)(4) (relating to de-
cedents who are retired or disabled). 
‘‘(B) Section 2032A(b)(5) (relating to spe-
cial rules for surviving spouses). 
‘‘(C) Section 2032A(c)(2)(D) (relating to 
partial dispositions). 
‘‘(D) Section 2032A(c)(3) (relating to only 
1 additional tax imposed with respect to any 1 
portion). 
‘‘(E) Section 2032A(c)(4) (relating to due 
date). 
‘‘(F) Section 2032A(c)(5) (relating to li-
ability for tax; furnishing of bond). 
‘‘(G) Section 2032A(c)(7) (relating to no 
tax if use begins within 2 years; active manage-
ment by eligible qualified heir treated as mate-
rial participation). 
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(2) The table of sections for part IV of sub-
chapter A of chapter 11 of such Code is amended by 
inserting after the item relating to section 2056A 
the following new item: 
‘‘Sec. 2057. Family-owned business interests.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to the estates of decedents dying 
after the date of the enactment of this Act. 
Æ 
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