I
105TH CONGRESS
1ST SESSION
H. R. 1841
To amend the Internal Revenue Code of 1986 to repeal the death tax
for family farms and small businesses.
IN THE HOUSE OF REPRESENTATIVES
JUNE 10, 1997
Mr. COX of California (for himself and Mr. CAMPBELL) 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 repeal
the death tax for family farms and small businesses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SMALL BUSINESS EXCLUSION.
(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 FOR SMALL BUSINESSES AND
FAMILY FARMS.
‘‘(a) IN GENERAL.—The value of the gross estate
shall not include the value of the qualified small business
or family farm interests of the decedent otherwise includ-
ible in the estate.
‘‘(b) QUALIFIED SMALL BUSINESS OR FAMILY FARM
INTEREST.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified small business or family
farm interest’ means—
‘‘(A) any interest in a closely held business
which is the business of farming, if the dece-
dent was actively engaged in such business, and
‘‘(B) any interest in a small business, if
more than 40 percent of the adjusted value of
the gross estate consists of the value of inter-
ests in a closely held business.
‘‘(2) LIMITATION.—Such term shall not include
any interest in a trade or business not described in
section 542(c)(2), if more than 35 percent of the ad-
justed ordinary gross income of such trade or busi-
ness for the taxable year which includes the date of
the decedent’s death would qualify as personal hold-
ing company income (as defined in section 543(a)).
‘‘(3) RULES REGARDING OWNERSHIP.—
‘‘(A) OWNERSHIP OF ENTITIES.—For pur-
poses of paragraph (1)—
‘‘(i) CORPORATIONS.—Ownership of a
corporation shall be determined by the
holding of stock possessing the appropriate
percentage of the total combined voting
power of all classes of stock entitled to vote
and the appropriate percentage of the total
value of shares of all classes of stock.
‘‘(ii) PARTNERSHIPS.—Ownership of a
partnership shall be determined by the
owning of the appropriate percentage of
the capital interest in such partnership.
‘‘(B) OWNERSHIP OF TIERED ENTITIES.—
For purposes of this section, if by reason of
holding an interest in a trade or business, a de-
cedent or any member of the decedent’s family
is treated as holding an interest in any other
trade or business—
‘‘(i) such ownership interest in the
other trade or business shall be dis-
regarded in determining if the ownership
interest in the first trade or business is a
qualified small business interest, and
‘‘(ii) this section shall be applied sepa-
rately in determining if such interest in
any other trade or business is a qualified
small business interest.
‘‘(C) INDIVIDUAL
OWNERSHIP
RULES.—
For purposes of this section, an interest owned,
directly or indirectly, by or for an entity de-
scribed in paragraph (1) shall be considered as
being owned proportionately by or for the enti-
ty’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.
‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) INTEREST IN CLOSELY HELD BUSINESS.—
The term ‘interest in a closely held business’ has the
meaning given such term by section 6166(b).
‘‘(2) INTEREST IN A SMALL BUSINESS.—The
term ‘interest in a small business’ means an interest
in a closely held business, as defined in section
6166(b), provided such a business has 100 or fewer
employees. For purposes of the preceding sentence,
any persons whose relationship is described in sec-
tion 267(b) or section 707(b) shall be treated as one
business.
‘‘(3) ADJUSTED GROSS ESTATE.—The term ‘ad-
justed value of the gross estate’ means the value of
the gross estate (determined without regard to this
section) reduced by any amount deductible under
paragraph (3) or (4) of section 2053(a).
‘‘(4) 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(e)(10) (relating to
community property).
‘‘(D) Section 2032A(e)(14) (relating to
treatment of replacement property acquired in
section 1031 or 1033 transactions).
‘‘(E) Section 6166(b)(3) (relating to farm-
houses and certain other structures taken into
account).
‘‘(5) COORDINATION WITH OTHER ESTATE TAX
BENEFITS.—If there is a reduction in the value of
the gross estate under this section—
‘‘(A) the dollar limitation applicable under
section 2032A(a)(2), and
‘‘(B) the $1,000,000 dollar amount under
section 6601(j)(2) (as adjusted),
shall each be reduced (but not below zero) by the
amount of such reduction.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part III of subchapter A of chapter 11 is amended
by inserting after the item relating to section 2033 the
following new item:
‘‘Sec. 2033A. Exclusion for small businesses and family farms.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 2000.
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