‘‘(1) IN GENERAL.—If—
‘‘(A) the applicable rate which applied
under subsection (a) to the estate of the dece-
dent was 15 percent,
‘‘(B) at any time during the 10-year period
beginning on the date of death of the decedent,
no qualified heir materially participates in the
operation of the business to which the qualified
family-owned business interests relate, and
‘‘(C) there is no recapture under sub-
section (e) on or before the earliest date during
such 10-year period that no qualified heir so
materially participated,
there is hereby imposed an additional estate tax.
‘‘(2) ADDITIONAL ESTATE TAX.—The amount
of the additional estate tax imposed by paragraph
(1) shall be the applicable percentage of the excess
of what would have been the estate tax liability but
for subsection (c)(1) over the estate tax liability.
‘‘(3) DEFINITIONS.—For purposes of paragraph
(2), the terms ‘applicable percentage’ and ‘estate tax
liability’ have the meanings given to such terms by
subsection (e).
‘‘(g) OTHER DEFINITIONS.—For purposes of this
section, the terms ‘qualified heir’ and ‘member of the fam-
ily’ have the meanings given to such terms by section
2032A(e).’’
(b) CLERICAL AMENDMENT.—The table of sections
for part I of subchapter A of chapter 11 of such Code
is amended by adding at the end the following new item:
‘‘Sec. 2003. Reduced rate on family-owned business interests.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
date of enactment.
SEC. 3. LIMITATION ON 4 PERCENT RATE OF INTEREST ON
ESTATE TAX EXTENDED UNDER SECTION 6166
NOT TO APPLY TO ESTATE TAX ATTRIB-
UTABLE TO QUALIFIED FAMILY-OWNED BUSI-
NESS INTERESTS.
(a) IN GENERAL.—Paragraph (2) of section 6601(j)
of the Internal Revenue Code of 1986 (relating to 4-per-
cent portion) is amended by adding at the end the follow-
ing new flush sentence:
‘‘Subparagraph (B) shall not take into account the
amount of the tax imposed by chapter 11 which is
attributable to qualified family-owned business inter-
ests (as defined in section 2003(b)) unless an elec-
tion is in effect under section 2032A with respect to
the estate.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
date of enactment.
SEC. 4. EXTENSION OF ALTERNATE VALUATION DATE TO 40
MONTHS WITH RESPECT TO ESTATE CON-
SISTING LARGELY OF QUALIFIED FAMILY-
OWNED BUSINESS INTERESTS.
(a) IN GENERAL.—Section 2032 of the Internal Rev-
enue Code of 1986 (relating to alternate valuation) is
amended by redesignating subsections (d) and (e) as sub-
sections (e) and (f), respectively, and by inserting after
subsection (b) the following new subsection:
‘‘(c) ESTATES LARGELY CONSISTING OF QUALIFIED
FAMILY-OWNED BUSINESS INTERESTS.—In the case of
an estate to which section 2003 applies—
‘‘(1) subsection (a) shall be applied by sub-
stituting ‘40 months’ for ‘6 months’ each place it
appears, and
‘‘(2) section 6075(a) (relating to time for filing
estate tax return) shall be applied by substituting
‘43 months’ for ‘9 months’.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
date of enactment.
SEC. 5. INCREASE IN GIFT TAX EXCLUSION.
(a) IN GENERAL.—Subsection (b) of section 2503 of
the Internal Revenue Code of 1986 (relating to taxable
gifts) is amended by adding at the end the following new
sentence: ‘‘In the case of gifts during a calendar year by
a donor to ancestors or lineal descendents of the donor,
the aggregate amount of such gifts which are not included
in the total amount of gifts by reason of this subsection
shall not be less than 15 percent of the donor’s earned
income (as defined in section 32(c)(2)) for the taxable
year ending with or within such calendar year.’’
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to gifts made in calendar years
after date of enactment.
SEC. 6. INCREASE IN UNIFIED ESTATE AND GIFT TAX
CREDITS.
(a) ESTATE TAX CREDIT.—
(1) Subsection (a) of section 2010 of the Inter-
nal Revenue Code of 1986 (relating to unified credit
against 
estate 
tax) 
is 
amended 
by 
striking
‘‘$192,800’’ and inserting ‘‘the applicable credit
amount’’.
(2) Section 2010 of such Code is amended by
redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new sub-
section:
‘‘(c) APPLICABLE CREDIT AMOUNT.—For purposes
of this section—
‘‘(1) IN
GENERAL.—The applicable credit
amount is the amount of the tentative tax which
would be determined under the rate schedule set
forth in section 2001(c) if the amount with respect
to which such tentative tax is to be computed were
$600,000.
‘‘(2) COST-OF-LIVING
ADJUSTMENTS.—In the
case of any decedent dying in a calendar year after
December 31, 1994, the $600,000 amount set forth
in paragraph (1) shall be increased by an amount
equal to—
‘‘(A) $600,000, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year by substituting ‘calendar year 1995’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
Any increase determined under the preceding sen-
tence shall be rounded to the nearest multiple of
$1,000.’’
(3) Paragraph (1) of section 6018(a) of such
Code is amended by striking ‘‘$600,000’’ and insert-
ing ‘‘$600,000 (adjusted as provided in section
2010(c)(2)’’.
(b) UNIFIED GIFT TAX CREDIT.—Paragraph (1) of
section 2505(a) of such Code is amended by striking
‘‘$192,800’’ and inserting ‘‘the applicable credit amount
in effect under section 2010(c) for such calendar year’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to the estates of decedents dying,
and gifts made, after December 31, 1994.
Æ