Title: Family Business Preservation Estate Tax Act
Policy area: Taxation

Summary:
Family Business Preservation Estate Tax Act
This bill amends the Internal Revenue Code, with respect to the estate tax, to allow the value of the taxable estate to be reduced by the adjusted value of family-owned business interests that: (1) are included in determining the value of the gross estate, and (2) are acquired by or passed to an heir from the decedent.
The deduction may not exceed the greater of: (1) the basic exclusion amount in effect for the calendar year that includes the death of the decedent ($5.49 million for 2017), or (2) the value of farmland which constitutes the family-owned business interest.
The bill imposes a specified additional estate tax if, within 10 years of the decedent's death and before the heir's death: (1) material participation requirements are not met with respect to the family-owned business interest, (2) the heir disposes of any portion of the family-owned business interest (other than by a disposition to a member of the heir's family or through a qualified conservation contribution), (3) the heir loses U.S. citizenship or ceases to be a lawful permanent resident and the interest was not acquired or is not held in a qualified trust, or (4) the principal place of business of a trade or business of the family-owned business ceases to be located in the United States.

[Congressional Bills 115th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3159 Introduced in House (IH)]

<DOC>






115th CONGRESS
  1st Session
                                H. R. 3159

To amend the Internal Revenue Code of 1986 to reduce the taxable estate 
        by the value of certain family-owned business interests.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 29, 2017

  Mr. Thompson of California 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 reduce the taxable estate 
        by the value of certain family-owned business interests.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Family Business Preservation Estate 
Tax Act''.

SEC. 2. TAXABLE ESTATE REDUCED BY VALUE OF CERTAIN FAMILY-OWNED 
              BUSINESS INTERESTS.

    (a) In General.--Part IV of subchapter A of chapter 11 of the 
Internal Revenue Code of 1986 is amended by inserting after section 
2056A the following new section:

``SEC. 2057. FAMILY-OWNED BUSINESS INTERESTS.

    ``(a) General Rule.--
            ``(1) Allowance of deduction.--For purposes 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 determined 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) Maximum deduction.--The deduction allowed by this 
        section shall not exceed the greater of--
                    ``(A) the basic exclusion amount in effect under 
                section 2010(c)(3) for the calendar year which includes 
                the date of the death of the decedent, or
                    ``(B) the value of any qualified farmland which 
                constitutes the qualified family-owned business 
                interest (in the case of an entity described in 
                subsection (e)(1)(B), qualified farmland held by such 
                entity shall be treated as constituting a qualified 
                family-owned business interest in the same proportion 
                as the decedent's ownership interest in such entity).
            ``(3) Qualified farmland.--For purposes of paragraph 
        (2)(B), the term `qualified farmland' means qualified real 
        property as defined in section 2032A(b) applied without regard 
        to paragraph (2)(B) thereof.
    ``(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 and files the agreement referred to in 
                subsection (h),
                    ``(C) the sum of--
                            ``(i) the adjusted value of the qualified 
                        family-owned business interests described in 
                        paragraph (2), plus
                            ``(ii) the amount of the gifts of such 
                        interests determined under paragraph (3),
                exceeds 50 percent of the adjusted gross estate, and
                    ``(D) during the 8-year period ending on the date 
                of the decedent's death there have been periods 
                aggregating 5 years or more during which--
                            ``(i) such interests 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 or a member of the decedent's 
                        family 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, and
                    ``(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)).
            ``(3) Includible gifts of interests.--The amount of the 
        gifts of qualified family-owned business interests determined 
        under this paragraph is the sum of--
                    ``(A) the amount of such gifts from the decedent to 
                members of the decedent's family taken into account 
                under section 2001(b)(1)(B), plus
                    ``(B) the amount of such gifts otherwise excluded 
                under section 2503(b),
        to the extent such interests are continuously held by members 
        of such family (other than the decedent's spouse) between the 
        date of the gift and the date of the decedent's death.
    ``(c) Adjusted Gross Estate.--For purposes of this section, the 
term `adjusted gross estate' means the value of the gross estate--
            ``(1) reduced by any amount deductible under paragraph (3) 
        or (4) of section 2053(a), and
            ``(2) increased by the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of gifts determined under 
                        subsection (b)(3), plus
                            ``(ii) the amount (if more than de minimis) 
                        of other transfers from the decedent to the 
                        decedent's spouse (at the time of the transfer) 
                        within 10 years of the date of the decedent's 
                        death, plus
                            ``(iii) the amount of other gifts (not 
                        included under clause (i) or (ii)) from the 
                        decedent within 3 years of such date, other 
                        than gifts to members of the decedent's family 
                        otherwise excluded under section 2503(b), over
                    ``(B) the sum of the amounts described in clauses 
                (i), (ii), and (iii) of subparagraph (A) which are 
                otherwise includible in the gross estate.
        For purposes of the preceding sentence, the Secretary may 
        provide that de minimis gifts to persons other than members of 
        the decedent's family shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Business 
Interests.--For purposes of this section, the adjusted value of any 
qualified family-owned business interest is the value of such interest 
for purposes of this chapter (determined without regard to this 
section), reduced by the excess of--
            ``(1) any amount deductible under paragraph (3) or (4) of 
        section 2053(a), over
            ``(2) the sum of--
                    ``(A) any indebtedness on any qualified residence 
                of the decedent the interest on which is deductible 
                under section 163(h)(3), plus
                    ``(B) any indebtedness to the extent the taxpayer 
                establishes that the proceeds of such indebtedness were 
                used for the payment of educational and medical 
                expenses of the decedent, the decedent's spouse, or the 
                decedent's dependents (within the meaning of section 
                152, determined without regard to subsections (b)(1), 
                (b)(2), and (d)(1)(B) thereof), plus
                    ``(C) any indebtedness not described in 
                subparagraph (A) or (B), to the extent such 
                indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Business Interest.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified family-owned business interest' 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 decedent'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) Limitation.--Such term shall not include--
                    ``(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 entity was a member 
                was readily tradable on an established securities 
                market or secondary market (as defined by the 
                Secretary) at any time within 3 years of the date of 
                the decedent's death,
                    ``(C) any interest in a trade or business not 
                described in section 542(c)(2), if more than 35 percent 
                of the adjusted ordinary gross income of such trade or 
                business for the taxable year which includes the date 
                of the decedent's death would qualify as personal 
                holding company income (as defined in section 543(a) 
                without regard to paragraph (2)(B) thereof) if such 
                trade or business were a corporation, and
                    ``(D) that portion of an interest in a trade or 
                business that is attributable to--
                            ``(i) cash or marketable securities, or 
                        both, in excess of the reasonably expected day-
                        to-day working capital needs of such trade or 
                        business, and
                            ``(ii) any other assets of the trade or 
                        business (other than assets used in the active 
                        conduct of a trade or business described in 
                        section 542(c)(2)), which produce, or are held 
                        for the production of, personal holding company 
                        income (as defined in subparagraph (C)) or 
                        income described in section 954(c)(1) 
                        (determined without regard to subparagraph (A) 
                        thereof and by substituting `trade or business' 
                        for `controlled foreign corporation').
                In the case of a lease of property on a net cash basis 
                by the decedent to a member of the decedent's family, 
                income from such lease shall not be treated as personal 
                holding company income for purposes of subparagraph 
                (C), and such property shall not be treated as an asset 
                described in subparagraph (D)(ii), if such income and 
                property would not be so treated if the lessor had 
                engaged directly in the activities engaged in by the 
                lessee with respect to such property.
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes 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 decedent, any member of the 
                decedent's family, any qualified heir, or any member of 
                any qualified heir's family is treated as holding an 
                interest in any other trade or business--
                            ``(i) such ownership interest in the other 
                        trade or business shall be disregarded 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 
                        separately 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 described in paragraph 
                (1)(B) shall be considered as being owned 
                proportionately by or for the entity'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.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
            ``(1) In general.--There is imposed an additional estate 
        tax if, within 10 years after the date of the decedent's death 
        and before the date of the qualified heir's death--
                    ``(A) the material participation requirements 
                described in section 2032A(c)(6)(B) are not met with 
                respect to the qualified family-owned business interest 
                which was acquired (or passed) from the decedent,
                    ``(B) the qualified heir disposes of any portion of 
                a qualified family-owned business interest (other than 
                by a disposition to a member of the qualified heir's 
                family or through a qualified conservation contribution 
                under section 170(h)),
                    ``(C) the qualified heir loses United States 
                citizenship (within the meaning of section 877) or with 
                respect to whom an event described in section 877(e)(1) 
                occurs, and such heir does not comply with the 
                requirements of subsection (g), or
                    ``(D) the principal place of business of a trade or 
                business of the qualified family-owned business 
                interest ceases to be located in the United States.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the additional 
                estate tax imposed by paragraph (1) shall be equal to--
                            ``(i) the applicable percentage of the 
                        adjusted tax difference attributable to the 
                        qualified family-owned business interest, plus
                            ``(ii) interest on the amount determined 
                        under clause (i) at the underpayment rate 
                        established under section 6621 for the period 
                        beginning on the date the estate tax liability 
                        was due under this chapter and ending on the 
                        date such additional estate tax is due.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage shall be 
                determined under the following table:

``If the event described in                              The applicable
  paragraph (1) occurs in the                            percentage is:
  following year of material
  participation:
        1 through 6............................................    100 
        7......................................................     80 
        8......................................................     60 
        9......................................................     40 
        10.....................................................     20.
                    ``(C) Adjusted tax difference.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The adjusted tax 
                        difference attributable to a qualified family-
                        owned business interest is the amount which 
                        bears the same ratio to the adjusted tax 
                        difference with respect to the estate 
                        (determined under clause (ii)) as the value of 
                        such interest bears to the value of all 
                        qualified family-owned business interests 
                        described in subsection (b)(2).
                            ``(ii) Adjusted tax difference with respect 
                        to the estate.--For purposes of clause (i), the 
                        term `adjusted tax difference with respect to 
                        the estate' means the excess of what would have 
                        been the estate tax liability but for the 
                        election under this section over the estate tax 
                        liability. For purposes of this clause, the 
                        term `estate tax liability' means the tax 
                        imposed by section 2001 reduced by the credits 
                        allowable against such tax.
            ``(3) Use in trade or business by family members.--A 
        qualified heir shall not be treated as disposing of an interest 
        described in subsection (e)(1)(A) by reason of ceasing to be 
        engaged in a trade or business so long as the property to which 
        such interest relates is used in a trade or business by any 
        member of such individual's family.
    ``(g) Security Requirements for Noncitizen Qualified Heirs.--
            ``(1) In general.--Except upon the application of 
        subparagraph (F) of subsection (i)(3), if a qualified heir is 
        not a citizen of the United States, any interest under this 
        section passing to or acquired by such heir (including any 
        interest held by such heir at a time described in subsection 
        (f)(1)(C)) shall be treated as a qualified family-owned 
        business interest only if the interest passes or is acquired 
        (or is held) in a qualified trust.
            ``(2) Qualified trust.--The term `qualified trust' means a 
        trust--
                    ``(A) which is organized under, and governed by, 
                the laws of the United States or a State, and
                    ``(B) except as otherwise provided in regulations, 
                with respect to which the trust instrument requires 
                that at least 1 trustee of the trust be an individual 
                citizen of the United States or a domestic corporation.
    ``(h) Agreement.--The agreement referred to in this subsection is a 
written agreement signed by each person in being who has an interest 
(whether or not in possession) in any property designated in such 
agreement consenting to the application of subsection (f) with respect 
to such property.
    ``(i) Other Definitions and Applicable Rules.--For purposes of this 
section--
            ``(1) Qualified heir.--The term `qualified heir'--
                    ``(A) has the meaning given to such term by section 
                2032A(e)(1), and
                    ``(B) includes any 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 decedents 
                who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to special 
                rules for surviving spouses).
                    ``(C) Section 2032A(c)(2)(D) (relating to partial 
                dispositions).
                    ``(D) Section 2032A(c)(3) (relating to only 1 
                additional tax imposed with respect to any 1 portion).
                    ``(E) Section 2032A(c)(4) (relating to due date).
                    ``(F) Section 2032A(c)(5) (relating to liability 
                for tax; furnishing of bond).
                    ``(G) Section 2032A(c)(7) (relating to no tax if 
                use begins within 2 years; active management by 
                eligible qualified heir treated as material 
                participation).
                    ``(H) Section 2032A(d) (relating to election; 
                agreement).
                    ``(I) Section 2032A(e)(10) (relating to community 
                property).
                    ``(J) Section 2032A(e)(14) (relating to treatment 
                of replacement property acquired in section 1031 or 
                1033 transactions).
                    ``(K) Section 2032A(f) (relating to statute of 
                limitations).
                    ``(L) Section 2032A(g) (relating to application to 
                interests in partnerships, corporations, and trusts).
                    ``(M) Subsections (h) and (i) of section 2032A.
                    ``(N) Section 6166(b)(3) (relating to farmhouses 
                and certain other structures taken into account).
                    ``(O) Subparagraphs (B), (C), and (D) of section 
                6166(g)(1) (relating to acceleration of payment).
                    ``(P) Section 6324B (relating to special lien for 
                additional estate tax).''.
    (b) Conforming Amendments.--
            (1) Section 2031(c)(10) of such Code is amended by striking 
        ``(as in effect before its repeal)''.
            (2) The table of sections for part IV of subchapter A of 
        chapter 11 of such Code is amended by inserting after the item 
        relating to section 2056A the following new item:

``Sec. 2057. Family-owned business interests.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.
                                 <all>