I 
108TH CONGRESS 
1ST SESSION H. R. 2513
To amend the Internal Revenue Code of 1986 to provide for the immediate 
and permanent repeal of the estate tax on family-owned businesses and 
farms, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 18, 2003
Mr. THOMPSON of California (for himself, Mrs. TAUSCHER, Mr. SANDLIN, Ms. 
WOOLSEY, Mr. ISRAEL, Mr. BOSWELL, Mr. BERRY, Mr. CASE, Mr. MAT-
SUI, Mr. BISHOP of Georgia, Mr. FARR, and Mrs. CAPPS) 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 provide 
for the immediate and permanent repeal of the estate 
tax on family-owned businesses and farms, and for other 
purposes.
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 ‘‘Estate Tax Repeal for 
Family-Owned Farms and Businesses Act of 2003’’.
SEC. 2. REPEAL OF ESTATE TAX ON FAMILY-OWNED FARMS 
AND BUSINESSES. 
(a) REPEAL OF QUALIFIED FAMILY-OWNED BUSI-
NESS INTEREST.—Part IV of subchapter A of chapter 11 
of the Internal Revenue Code of 1986 (relating to taxable 
estate) is amended by striking section 2057. 
(b) EXCLUSION
FOR QUALIFIED FAMILY-OWNED 
BUSINESS INTERESTS.—Part IV of subchapter A of chap-
ter 11 of the Internal Revenue Code of 1986 (relating to 
taxable estate) is amended by inserting after section 2058 
the following new section: 
‘‘SEC. 2059. EXCLUSION FOR QUALIFIED FAMILY-OWNED 
BUSINESS INTERESTS. 
‘‘(a) GENERAL RULES.—
‘‘(1) ALLOWANCE
OF
DEDUCTION.—For pur-
poses of the tax imposed by section 2001, in the 
case of an estate of a decedent to which this section 
applies, the value of the taxable estate shall be de-
termined by deducting from the value of the gross 
estate the adjusted value of the qualified family-
owned business interests of the decedent which are 
described in subsection (b)(2). 
‘‘(2) 
APPLICATION
OF
CARRYOVER
BASIS 
RULES.—With respect to the adjusted value of the 
qualified family-owned business interests of the dece-
dent which are described in subsection (b)(2), the 
rules of section 1023 shall apply. 
‘‘(b) ESTATES TO WHICH SECTION APPLIES.—
‘‘(1) IN GENERAL.—This section shall apply to 
an estate if—
‘‘(A) the decedent was (at the date of the 
decedent’s death) a citizen or resident of the 
United States, 
‘‘(B) the executor elects the application of 
this section under rules similar to the rules of 
paragraphs (1) and (3) of section 2032A(d) and 
files the agreement referred to in subsection (e), 
and 
‘‘(C) during the 8-year period ending on 
the date of the decedent’s death there have 
been periods aggregating 5 years or more dur-
ing which—
‘‘(i) the qualified family-owned busi-
ness interests described in paragraph (2) 
were owned by the decedent or a member 
of the decedent’s family, and 
‘‘(ii) there was material participation 
(within 
the 
meaning 
of 
section 
2032A(e)(6)) by the decedent, a member 
of the decedent’s family, or a qualified heir
in the operation of the business to which 
such interests relate. 
‘‘(2) INCLUDIBLE
QUALIFIED
FAMILY-OWNED 
BUSINESS INTERESTS.—The qualified family-owned 
business interests described in this paragraph are 
the interests which—
‘‘(A) are included in determining the value 
of the gross estate (other than qualified spousal 
property with respect to which an aggregate 
spousal property basis increase is allocated 
under section 1023(c)), 
‘‘(B) are acquired by any qualified heir 
from, or passed to any qualified heir from, the 
decedent (within the meaning of section 
2032A(e)(9)), and 
‘‘(C) are subject to the election under 
paragraph (1)(B). 
‘‘(3) RULES REGARDING MATERIAL PARTICIPA-
TION.—For purposes of paragraph (1)(C)(ii)—
‘‘(A) in the case a surviving spouse, mate-
rial participation by such spouse may be satis-
fied under rules similar to the rules under sec-
tion 2032A(b)(5), 
‘‘(B) in the case of a qualified family-
owned business interest in an entity carrying on
multiple trades or businesses, material partici-
pation in each trade or business is satisfied by 
material participation in the entity or in 1 or 
more of the multiple trades or businesses, and 
‘‘(C) in the case of a lending and finance 
business 
(as 
defined 
in 
section 
6166(b)(10)(B)(ii)), material participation is 
satisfied under the rules under subclause (I) or 
(II) of section 6166(b)(10)(B)(i). 
‘‘(c) ADJUSTED VALUE OF THE QUALIFIED FAMILY-
OWNED BUSINESS INTERESTS.—For purposes of this sec-
tion—
‘‘(1) IN GENERAL.—The adjusted value of any 
qualified family-owned business interest is the value 
of such interest for purposes of this chapter (deter-
mined without regard to this section), as adjusted 
under paragraph (2). 
‘‘(2) ADJUSTMENT
FOR
PREVIOUS
TRANS-
FERS.—The Secretary may increase the value of any 
qualified family-owned business interest by that por-
tion of those assets transferred from such qualified 
family-owned business interest to the decedent’s tax-
able estate within 3 years before the date of the de-
cedent’s death.
‘‘(d) QUALIFIED FAMILY-OWNED BUSINESS INTER-
EST.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified family-owned business inter-
est’ means—
‘‘(A) an interest as a proprietor in a trade 
or business carried on as a proprietorship, or
‘‘(B) an interest in an entity carrying on 
a trade or business, if—
‘‘(i) at least—
‘‘(I) 50 percent of such entity is 
owned (directly or indirectly) by the 
decedent and members of the dece-
dent’s family, 
‘‘(II) 70 percent of such entity is 
so owned by members of 2 families, or 
‘‘(III) 90 percent of such entity 
is so owned by members of 3 families, 
and 
‘‘(ii) for purposes of subclause (II) or 
(III) of clause (i), at least 30 percent of 
such entity is so owned by the decedent 
and members of the decedent’s family. 
For purposes of the preceding sentence, a decedent 
shall be treated as engaged in a trade or business
if any member of the decedent’s family is engaged 
in such trade or business. 
‘‘(2) LENDING AND FINANCE BUSINESS.—For 
purposes of this section, any asset used in a lending 
and finance business (as defined in section 
6166(b)(10)(B)(ii)) shall be treated as an asset 
which is used in carrying on a trade or business. 
‘‘(3) LIMITATION.—Such term shall not in-
clude—
‘‘(A) any interest in a trade or business 
the principal place of business of which is not 
located in the United States, 
‘‘(B) any interest in an entity, if the stock 
or debt of such entity or a controlled group (as 
defined in section 267(f)(1)) of which such enti-
ty was a member was readily tradable on an es-
tablished securities market or secondary market 
(as defined by the Secretary) at any time, 
‘‘(C) that portion of an interest in an enti-
ty transferred by gift to such entity within 3 
years before the date of the decedent’s death, 
and 
‘‘(D) that portion of an interest in an enti-
ty which is attributable to cash or marketable 
securities, or both, in any amount in excess of
the reasonably anticipated business needs of 
such entity. 
In any proceeding before the United States Tax 
Court involving a notice of deficiency based in whole 
or in part on the allegation that cash or marketable 
securities, or both, are accumulated in an amount in 
excess of the reasonably anticipated business needs 
of such entity, the burden of proof with respect to 
such allegation shall be on the Secretary to the ex-
tent such cash or marketable securities are less than 
35 percent of the value of the interest in such entity. 
‘‘(4) RULES REGARDING OWNERSHIP.—
‘‘(A) OWNERSHIP OF ENTITIES.—For pur-
poses of paragraph (1)(B)—
‘‘(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, any member of the decedent’s family, 
any qualified heir, or any member of any quali-
fied heir’s family is treated as holding an inter-
est 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 family-owned 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 
family-owned 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)(B) shall be considered 
as being owned proportionately by or for the en-
tity’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. 
‘‘(e) AGREEMENT.—The agreement referred to in 
this subsection is a written agreement signed by each per-
son in being who has an interest (whether or not in posses-
sion) in any property designated in such agreement con-
senting to the application of this section with respect to 
such property. 
‘‘(f) 
OTHER
DEFINITIONS
AND
APPLICABLE 
RULES.—For purposes of this section—
‘‘(1) QUALIFIED
HEIR.—The term ‘qualified 
heir’ means a United States citizen who is—
‘‘(A) described in section 2032A(e)(1), or 
‘‘(B) an active employee of the trade or 
business to which the qualified family-owned 
business interest relates if such employee has 
been employed by such trade or business for a 
period of at least 10 years before the date of 
the decedent’s death. 
‘‘(2) MEMBER
OF
THE
FAMILY.—The term 
‘member of the family’ has the meaning given to 
such term by section 2032A(e)(2). 
‘‘(3) 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(e)(10) (relating to 
community property). 
‘‘(C) Section 2032A(e)(14) (relating to 
treatment of replacement property acquired in 
section 1031 or 1033 transactions).
‘‘(D) Section 2032A(g) (relating to appli-
cation to interests in partnerships, corporations, 
and trusts). 
‘‘(4) SAFE
HARBOR
FOR
ACTIVE
ENTITIES 
HELD BY ENTITY CARRYING ON A TRADE OR BUSI-
NESS.—For purposes of this section, if—
‘‘(A) an entity carrying on a trade or busi-
ness owns 20 percent or more in value of the 
voting interests of another entity, or such other 
entity has 15 or fewer owners, and 
‘‘(B) 80 percent or more of the value of 
the assets of each such entity is attributable to 
assets used in an active business operation, 
then 
the 
requirements 
under 
subsections 
(b)(1)(C)(ii) and (d)(3)(D) shall be met with respect 
to an interest in such an entity.’’. 
(c) MODIFICATION OF TREATMENT OF MARITAL DE-
DUCTION; LIMITATION ON STEP-UP IN BASIS.—Section
2056 of the Internal Revenue Code of 1986 (relating to 
bequests, etc., to surviving spouses) is amended by adding 
at the end the following new subsection: 
‘‘(e) APPLICATION OF CARRYOVER BASIS RULES.—
With respect to the value of the interests of the decedent 
which are described in subsection (a), the rules of section 
1023 shall apply.’’. 
(d) CARRYOVER BASIS RULES FOR QUALIFIED FAM-
ILY-OWNED BUSINESS INTERESTS AND SPOUSAL PROP-
ERTY.—Part II of subchapter O of chapter 1 of the Inter-
nal Revenue Code of 1986 (relating to basis rules of gen-
eral application) is amended by redesignating section 1023 
as section 1024 and inserting after section 1022 the fol-
lowing new section: 
‘‘SEC. 1023. TREATMENT OF QUALIFIED FAMILY-OWNED 
BUSINESS INTERESTS AND SPOUSAL PROP-
ERTY. 
‘‘(a) IN GENERAL.—Except as otherwise provided in 
this section—
‘‘(1) qualified property acquired from a dece-
dent shall be treated for purposes of this subtitle as 
transferred by gift, and 
‘‘(2) the basis of the person acquiring qualified 
property from such a decedent shall be the lesser 
of—
‘‘(A) the adjusted basis of the decedent, or 
‘‘(B) the fair market value of the property 
at the date of the decedent’s death. 
‘‘(b) QUALIFIED PROPERTY.—For purposes of this 
section, the term ‘qualified property’ means—
‘‘(1) the qualified family-owned business inter-
ests of the decedent with respect to which an elec-
tion is made under section 2059(b)(1)(B), and 
‘‘(2) the qualified spousal property. 
‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY 
ACQUIRED BY SURVIVING SPOUSE.—
‘‘(1) IN GENERAL.—In the case of property to 
which this subsection applies and which is qualified 
spousal property, the basis of such property under 
subsection (a) shall be increased by its spousal prop-
erty basis increase. 
‘‘(2) SPOUSAL
PROPERTY
BASIS
INCREASE.—
For purposes of this subsection—
‘‘(A) IN GENERAL.—The spousal property 
basis increase for property referred to in para-
graph (1) is the portion of the aggregate spous-
al property basis increase which is allocated to 
the property pursuant to this section. 
‘‘(B) AGGREGATE
SPOUSAL
PROPERTY 
BASIS INCREASE.—In the case of any estate,
the aggregate spousal property basis increase is 
$3,000,000. 
‘‘(3) QUALIFIED
SPOUSAL
PROPERTY.—For 
purposes of this section, the term ‘qualified spousal 
property’ means any interest in property which 
passes or has passed from the decedent to the dece-
dent’s surviving spouse with respect to which a de-
duction is allowed under section 2056. 
‘‘(4) DEFINITIONS AND SPECIAL RULES.—
‘‘(A) PROPERTY
TO
WHICH
SUBSECTION 
APPLIES.—The basis of property acquired from 
a decedent may be increased under this sub-
section only if the property was owned by the 
decedent at the time of death. 
‘‘(B) RULES RELATING TO OWNERSHIP.—
‘‘(i) JOINTLY
HELD
PROPERTY.—In 
the case of property which was owned by 
the decedent and another person as joint 
tenants with right of survivorship or ten-
ants by the entirety—
‘‘(I) if the only such other person 
is the surviving spouse, the decedent 
shall be treated as the owner of only 
50 percent of the property,
‘‘(II) in any case (to which sub-
clause (I) does not apply) in which the 
decedent furnished consideration for 
the acquisition of the property, the de-
cedent shall be treated as the owner 
to the extent of the portion of the 
property which is proportionate to 
such consideration, and 
‘‘(III) in any case (to which sub-
clause (I) does not apply) in which the 
property has been acquired by gift, 
bequest, devise, or inheritance by the 
decedent and any other person as 
joint tenants with right of survivor-
ship and their interests are not other-
wise specified or fixed by law, the de-
cedent shall be treated as the owner 
to the extent of the value of a frac-
tional part to be determined by divid-
ing the value of the property by the 
number of joint tenants with right of 
survivorship. 
‘‘(ii) REVOCABLE TRUSTS.—The dece-
dent shall be treated as owning property 
transferred by the decedent during life to
a qualified revocable trust (as defined in 
section 645(b)(1)). 
‘‘(iii) POWERS
OF
APPOINTMENT.—
The decedent shall not be treated as own-
ing any property by reason of holding a 
power of appointment with respect to such 
property. 
‘‘(iv) COMMUNITY PROPERTY.—Prop-
erty 
which 
represents 
the 
surviving 
spouse’s one-half share of community prop-
erty held by the decedent and the surviving 
spouse under the community property laws 
of any State or possession of the United 
States or any foreign country shall be 
treated for purposes of this section as 
owned by, and acquired from, the decedent 
if at least one-half of the whole of the com-
munity interest in such property is treated 
as owned by, and acquired from, the dece-
dent without regard to this clause. 
‘‘(C) PROPERTY ACQUIRED BY DECEDENT 
BY GIFT WITHIN 3 YEARS OF DEATH.—
‘‘(i) IN
GENERAL.—This subsection 
shall not apply to property acquired by the 
decedent by gift or by inter vivos transfer
for less than adequate and full consider-
ation in money or money’s worth during 
the 3-year period ending on the date of the 
decedent’s death. 
‘‘(ii) EXCEPTION FOR CERTAIN GIFTS 
FROM SPOUSE.—Clause (i) shall not apply 
to property acquired by the decedent from 
the decedent’s spouse unless, during such 
3-year period, such spouse acquired the 
property in whole or in part by gift or by 
inter vivos transfer for less than adequate 
and full consideration in money or money’s 
worth. 
‘‘(D) STOCK OF CERTAIN ENTITIES.—This 
subsection shall not apply to—
‘‘(i) stock or securities of a foreign 
personal holding company, 
‘‘(ii) stock of a DISC or former 
DISC, 
‘‘(iii) stock of a foreign investment 
company, or 
‘‘(iv) stock of a passive foreign invest-
ment company unless such company is a 
qualified electing fund (as defined in sec-
tion 1295) with respect to the decedent.
‘‘(E) FAIR MARKET VALUE LIMITATION.—
The adjustments under this subsection shall not 
increase the basis of any interest in property 
acquired from the decedent above its fair mar-
ket value in the hands of the decedent as of the 
date of the decedent’s death. 
‘‘(d) PROPERTY ACQUIRED FROM THE DECEDENT.—
For purposes of this section, the following property shall 
be considered to have been acquired from the decedent: 
‘‘(1) Property acquired by bequest, devise, or 
inheritance, or by the decedent’s estate from the de-
cedent. 
‘‘(2) Property transferred by the decedent dur-
ing his lifetime—
‘‘(A) to a qualified revocable trust (as de-
fined in section 645(b)(1)), or 
‘‘(B) to any other trust with respect to 
which the decedent reserved the right to make 
any change in the enjoyment thereof through 
the exercise of a power to alter, amend, or ter-
minate the trust. 
‘‘(3) Any other property passing from the dece-
dent by reason of death to the extent that such 
property passed without consideration.
‘‘(e) COORDINATION WITH SECTION 691.—This sec-
tion shall not apply to property which constitutes a right 
to receive an item of income in respect of a decedent under 
section 691. 
‘‘(f) CERTAIN LIABILITIES DISREGARDED.—
‘‘(1) IN
GENERAL.—In determining whether 
gain is recognized on the acquisition of property—
‘‘(A) from a decedent by a decedent’s es-
tate or any beneficiary other than a tax-exempt 
beneficiary, and 
‘‘(B) from the decedent’s estate by any 
beneficiary other than a tax-exempt beneficiary, 
and in determining the adjusted basis of such prop-
erty, liabilities in excess of basis shall be dis-
regarded. 
‘‘(2) TAX-EXEMPT
BENEFICIARY.—For pur-
poses of paragraph (1), the term ‘tax-exempt bene-
ficiary’ means—
‘‘(A) the United States, any State or polit-
ical subdivision thereof, any possession of the 
United States, any Indian tribal government 
(within the meaning of section 7871), or any 
agency or instrumentality of any of the fore-
going,
‘‘(B) an organization (other than a cooper-
ative described in section 521) which is exempt 
from tax imposed by chapter 1, 
‘‘(C) any foreign person or entity (within 
the meaning of section 168(h)(2)), and 
‘‘(D) to the extent provided in regulations, 
any person to whom property is transferred for 
the principal purpose of tax avoidance. 
‘‘(g) REGULATIONS.—The Secretary shall prescribe 
such regulations as may be necessary to carry out the pur-
poses of this section.’’. 
(e) CLERICAL AMENDMENTS.—
(1) The table of sections for part IV of sub-
chapter A of chapter 11 of the Internal Revenue 
Code of 1986 is amended by striking the item relat-
ing to section 2057 and by inserting after the item 
relating to section 2058 the following new item:
‘‘Sec. 2059. Exclusion for qualified family-owned business inter-
ests.’’.
(2) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by 
striking the item relating to section 1023 and insert-
ing the following new items:
‘‘Sec. 1023. Treatment of qualified family-owned business inter-
ests and spousal property. 
‘‘Sec. 1024. Cross references.’’.
(f) EFFECTIVE DATES.—The amendments made by 
this section shall apply to estates of decedents dying, and 
gifts made—
(1) after December 31, 2003, and before Janu-
ary 1, 2010, and 
(2) after December 31, 2011.
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