SEC. 2. ONE-TIME EXCLUSION OF GAIN FROM SALE OR EX-
CHANGE OF LAND USED IN TRADE OR BUSI-
NESS OF FARMING OR SALE OR EXCHANGE
OF CLOSELY HELD BUSINESS.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by inserting after section 121 the following new section:
‘‘SEC. 121A. ONE-TIME EXCLUSION OF GAIN FROM SALE OR
EXCHANGE OF LAND USED IN TRADE OR
BUSINESS OF FARMING OR SALE OR EX-
CHANGE OF CLOSELY HELD BUSINESS.
‘‘(a) IN GENERAL.—At the election of the taxpayer,
gross income does not include gain from the sale or ex-
change of a qualified property if—
‘‘(1) the taxpayer has attained age 55 as of the
close of the taxable year,
‘‘(2) the taxpayer or a member of the tax-
payer’s family has been actively engaged, throughout
the 10-year period ending on the date of the sale or
exchange, in the trade or business to which the
qualified property relates, and
‘‘(3) the individual acquiring the qualified prop-
erty is a qualified buyer.
‘‘(b) LIMITATIONS.—
‘‘(1) DOLLAR
LIMITATION.—The amount ex-
cluded from gross income under subsection (a) shall
not exceed $500,000 ($250,000 in the case of a sep-
arate return of a married individual).
‘‘(2) APPLICATION
TO
ONLY
SALE
OR
EX-
CHANGE.—Subsection (a) shall not apply to any sale
or exchange by the taxpayer if an election by the
taxpayer or the taxpayer’s spouse is in effect under
subsection (a) with respect to any other sale or ex-
change.
‘‘(c) ELECTION.—An election under subsection (a)
may be made or revoked at any time before the expiration
of the period for making a claim for credit or refund of
the tax imposed by this chapter for the taxable year in
which the sale or exchange referred to in subsection (a)
occurs, and shall be made or revoked in such manner as
the Secretary shall by regulations prescribe. In the case
of a taxpayer who is married, an election under subsection
(a) or a revocation thereof may be made only if his spouse
joins in such election or revocation.
‘‘(d) RECAPTURE
OF TAX BENEFIT
IN CASE
OF
EARLY CESSATION OF FARMING OR BUSINESS PARTICI-
PATION.—
‘‘(1) IN GENERAL.—If, at any time during the
10-year period beginning on the date of the sale or
exchange referred to in subsection (a), the qualified
buyer fails to actively engage in the trade or busi-
ness to which the qualified property relates, then the
taxpayer’s tax under this chapter for the taxable
year in which such failure begins shall be increased
by the recapture amount.
‘‘(2) EXCEPTIONS.—
‘‘(A) BANKRUPTCY.—Paragraph (1) shall
not apply to any failure that begins while the
qualified buyer is a debtor in a case under title
11, United States Code (relating to bank-
ruptcy), if such case is commenced after the
date of the sale or exchange referred to in sub-
section (a) and a discharge of indebtedness is
granted under such title in such case.
‘‘(B) FAILURE
TO
REDUCE
NET
TAX.—
Paragraph (1) shall not apply to the extent that
the exclusion under subsection (a) did not re-
duce the net income tax of the taxpayer for the
taxable year to which the exclusion applied.
‘‘(3) RECAPTURE AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘recapture amount’ means
the sum of—
‘‘(i) the applicable percentage of the
excess of—
‘‘(I) the amount which would
(but for subsection (a)) have been the
taxpayer’s net income tax for the tax-
able year in which the sale or ex-
change referred to in subsection (a)
occurred, over
‘‘(II) the taxpayer’s net income
tax for such taxable year, plus
‘‘(ii) interest on the applicable per-
centage of such excess at the overpayment
rate established under section 6621, for
the period beginning on the due date for
filing the return for the taxable year re-
ferred to in clause (i) and ending on the
date on which the recapture amount is
paid.
No deduction shall be allowed under this chap-
ter for interest described in clause (ii).
‘‘(B) 
APPLICABLE
PERCENTAGE.—For
purposes of this paragraph, the term ‘applicable
percentage’ means 100 percent reduced (but
not below zero) by the product of—
‘‘(i) 10 percentage points, and
‘‘(ii) the number of years (if any) oc-
curring within the period beginning on the
date of the sale or exchange referred to in
subsection (a) and ending on the earliest
subsequent date on which the qualified
buyer fails to actively engage in the trade
or business to which the qualified property
relates.
‘‘(4) STATUTE OF LIMITATIONS EXTENDED.—
The statutory period for the assessment of an in-
crease in tax under paragraph (1) shall not expire
before the close of the 3-year period beginning on
the date that the taxpayer certifies to the Secretary
that no increase applies to the taxpayer under such
subsection. Such increase may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any law or rule of law which would oth-
erwise prevent such assessment.
‘‘(e) DEFINITIONS.—For purposes of this section—
‘‘(1) MEMBER OF FAMILY.—The term ‘member
of the family’ has the meaning given such term by
section 2032A(e)(2).
‘‘(2) NET INCOME TAX.—The term ‘net income
tax’ has the meaning given such term in section
38(c)(1).
‘‘(1) all property which would be includible in
his gross estate under chapter 11 were such individ-
ual to die at the time the property is treated as sold,
‘‘(2) any other interest in a trust which the in-
dividual is treated as holding under the rules of sub-
section (f)(1), and
‘‘(3) any other interest in property specified by
the Secretary as necessary or appropriate to carry
out the purposes of this section.
‘‘(d) EXCEPTIONS.—The following property shall not
be treated as sold for purposes of this section:
‘‘(1) UNITED STATES REAL PROPERTY INTER-
ESTS.—Any United States real property interest (as
defined in section 897(c)(1)), other than stock of a
United States real property holding corporation
which does not, on the date the individual relin-
quishes his citizenship, meet the requirements of sec-
tion 897(c)(2).
‘‘(2) INTEREST
IN
CERTAIN
RETIREMENT
PLANS.—
‘‘(A) IN
GENERAL.—Any interest in a
qualified retirement plan (as defined in section
4974(c)), other than any interest attributable to
contributions which are in excess of any limita-