tribution of a qualified real property interest (as de-
fined in section 170(h)(1) and (2)(C)) is or has been
made by the decedent or a member of the decedent’s
family. For purposes of this subsection, the term
‘qualified real property interest’ shall not include
any structure or building constituting a ‘certified
historic 
structure’ 
(as 
defined 
in 
section
170(h)(4)(B)) or within the definition of a ‘histori-
cally important land area’ (as defined in section
170(h)(4)(A)(iv)). For purposes of this subsection,
the term ‘member of the decedent’s family’ shall
have the same meaning as the term ‘member of the
family’ in section 2032A.
‘‘(2) PAYMENT OF TAX UPON CERTAIN DISPOSI-
TION OF LAND SUBJECT TO RETAINED DEVELOP-
MENT RIGHT.—The exclusion described in paragraph
(1) shall not apply to the value of any development
right retained by the donor in the conveyance of
such qualified conservation easement. The tax im-
posed by section 2001, if any, attributable to any de-
velopment right so retained shall be imposed only
upon the disposition of such property. For purposes
of this paragraph, the term ‘disposition’ shall not in-
clude any gift or devise. The tax so imposed shall be
due and payable by the person so disposing of such
property on the fifteenth day of the fourth month
following the calendar year in which such disposition
occurs. For purposes of this paragraph, the term
‘development right’ shall mean the right to establish
or use, any structure and the land immediately sur-
rounding it for sale, or for rent or any other com-
mercial purpose which is not subordinate to and di-
rectly supportive of the conservation purpose identi-
fied in the easement, or the activity of farming, for-
estry, ranching, horticulture, viticulture, or recre-
ation, whether or not for profit, conducted on land
subject to the easement in which such right is
retained.
‘‘(3) ELECTION WITH RESPECT TO LAND SUB-
JECT TO QUALIFIED CONSERVATION EASEMENT.—
The election under this subsection shall be made on
the return of the tax imposed by section 2001 and
in such manner as the Secretary shall by regulations
prescribe. Such an election, once made, shall be
irrevocable.
‘‘(4) CALCULATION AND NOTICE OF POTENTIAL
ESTATE TAX DUE.—An executor making the election
described in paragraph (3) of this subsection shall
compute the amount of tax imposed by section 2001
upon any development right (as defined in para-
graph (2) of this subsection) retained by the donor
in the conveyance of such qualified conservation
easement and include such computation with the re-
turn of the tax imposed by section 2001. The execu-
tor shall also file a ‘Notice of Potential Estate Tax
Due’ in the place or places where deeds are put to
public record for the locality in which the land sub-
ject to such qualified conservation easement is lo-
cated. The report of the computation of tax on any
retained development right and the filing of the no-
tice prescribed in this paragraph shall be done in
such manner and on such forms as the Secretary
shall prescribe.’’
(b) CARRYOVER BASIS.—Section 1014(a) of the In-
ternal Revenue Code of 1986 (relating to basis of property
acquired from a decedent) is amended by striking the pe-
riod at the end of paragraph (3), inserting ‘‘, or’’ at the
end thereof, and inserting the following new paragraph:
‘‘(4) to the extent of the applicability of the ex-
clusion described in section 2031(c), the basis in the
hands of the decedent.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to gross estates including land on
which qualified conservation easements were granted after
December 31, 1994, in taxable years ending after such
date.
SEC. 3. GIFT TAX ON LAND SUBJECT TO A QUALIFIED CON-
SERVATION EASEMENT.
(a) GIFT TAX WITH RESPECT TO LAND SUBJECT TO
A QUALIFIED CONSERVATION EASEMENT.—Section 2503
of the Internal Revenue Code of 1986 (relating to taxable
gifts) is amended by adding a new subsection (h) to read
as follows:
‘‘(h) GIFT TAX WITH RESPECT TO LAND SUBJECT
TO A QUALIFIED CONSERVATION EASEMENT.—The trans-
fer by gift of land subject to a qualified conservation ease-
ment shall not be treated as a transfer of property by gift
for purposes of this chapter. For purposes of this sub-
section, the term ‘land subject to a qualified conservation
easement’ shall have the same meaning as in section
2031(c), except that references therein to ‘decedent’ shall
refer to the donor and references to ‘the date of the dece-
dent’s death’ shall refer to the date of the transfer by the
donor.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to gifts of land on which qualified
conservation easements were granted after December 31,
1994, in taxable years ending after such date.
SEC. 4. 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 137 as section 138 and
by inserting after section 136 the following new section:
‘‘SEC. 137. 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,