I 
108TH CONGRESS 
1ST SESSION 
H. R. 457
To amend the Internal Revenue Code of 1986 to exclude from gross income 
gain on the sale of a family farming business to a family member. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 29, 2003
Mr. GREEN of Wisconsin (for himself, Mr. KENNEDY of Minnesota, Mr. 
NETHERCUTT, Mr. BAKER, Mr. MCHUGH, and Mr. POMEROY) 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 of a family farming 
business to a family member.
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 Farm Protec-
tion Act’’.
SEC. 2. EXCLUSION OF GAIN ON SALE OF FAMILY FARMING 
BUSINESS TO FAMILY MEMBER. 
(a) IN GENERAL.—Part I of subchapter P of chapter 
1 of the Internal Revenue Code of 1986 (relating to treat-
ment of capital gains) is amended by adding at the end 
the following new section: 
‘‘SEC. 1203. EXCLUSION OF GAIN ON SALE OF FAMILY FARM 
TO FAMILY MEMBER. 
‘‘(a) IN GENERAL.—At the election of the taxpayer, 
gross income shall not include any gain from the sale of 
a qualified family farm interest to a member of the tax-
payer’s family if—
‘‘(1) at all times during the 5-year period end-
ing on the date of such sale, there was material par-
ticipation by the taxpayer or a member of the tax-
payer’s family in the operation of the farming busi-
ness to which such interest relates, and 
‘‘(2)(A) such interest is being acquired by a 
member of the taxpayer’s family, and 
‘‘(B) such member agrees—
‘‘(i) for the 5-year period beginning on the 
day after the date of such sale, to materially 
participate in the operation of the farming busi-
ness to which such interest relates, and 
‘‘(ii) to the provisions of subsection (b). 
‘‘(b) RECAPTURE OF TAX IF INTEREST CEASES TO 
BE USED IN A FARMING BUSINESS.—
‘‘(1) IN GENERAL.—If, during any year within 
the 5-year period beginning on the date of such 
sale—
‘‘(A) a qualified family farm interest with 
respect to which an election is made under sub-
section (a) is disposed of, or otherwise ceases to 
be a qualified family farm interest of the mem-
ber of the family who acquired such interest, 
other than through the bankruptcy or insol-
vency of such member of the family, or 
‘‘(B) the member of the family who ac-
quired such interest fails to materially partici-
pate (directly or through a family member of 
such member) in the operation of the farming 
business to which such interest relates, 
then the tax imposed on such member of the family 
under this subtitle for the year shall be increased by 
an amount equal to the recapture percentage of the 
excluded tax amount, plus interest on the amount of 
such increase at the underpayment rate established 
under section 6621 for the period beginning on the 
date the return of tax for the year of such sale was 
due under this chapter (without regard to extensions 
thereof) and ending on the date the increase in tax
under this subsection is due (without regard to ex-
tensions thereof). 
‘‘(2) RECAPTURE PERCENTAGE.—For purposes 
of paragraph (1), the recapture percentage shall be 
determined under the following table:
‘‘If the event described 
in paragraph (1) occurs 
in the following years 
The recapture 
after such sale: 
percentage is:
1 .............................................
100
2 .............................................
3 .............................................
4 .............................................
5 .............................................
20.
‘‘(3) EXCLUDED TAX AMOUNT.—For purposes 
of paragraph (1), the term ‘excluded tax amount’ 
means the excess of—
‘‘(A) the amount of tax that would have 
been imposed on the taxpayer under this sub-
title for the taxable year ending with or within 
which the sale for which an election was made 
under subsection (a), over 
‘‘(B) the amount of tax imposed on the 
taxpayer under this subtitle for such taxable 
year. 
This paragraph shall be applied without regard to 
the installment method of accounting or averaging of 
farm income under section 1301. 
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
FAMILY
FARM
INTEREST.—
The term ‘qualified family farm interest’ means an 
interest which is a qualified family-owned business 
interest in a farming business. 
‘‘(2) QUALIFIED FAMILY-OWNED BUSINESS IN-
TEREST.—The term ‘qualified family-owned business 
interest’ has the meaning given such term by section 
2057(e), determined by substituting ‘taxpayer’ for 
‘decedent’ each place it appears. 
‘‘(3) FARMING BUSINESS.—The term ‘farming 
business’ has the meaning given such term by sec-
tion 263A(e)(4). 
‘‘(4) MEMBER
OF
THE
FAMILY.—The term 
‘member of the family’ has the meaning given such 
term by section 2032A(e). 
‘‘(5) MATERIAL
PARTICIPATION.—The term 
‘material participation’ has the meaning given such 
term by section 2032A(e)(6).’’. 
(b) CLERICAL AMENDMENT.—The table of sections 
for part I of subchapter P of chapter 1 of the Internal 
Revenue Code of 1986 is amended by adding at the end 
the following new item:
‘‘Sec. 1203. Exclusion of gain on sale of family farm to family member.’’.