,i #aaeth ,,congress #ast ,session ,h4 ,r4 #caei ,,in ,,the ,,house ,,of ,,representatives ,june #bi1 #bjag,mr4 ,thompson of ,california introduced the following bill2 which was referred to the ,committee on ,ways and ,means ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to reduce the taxable estate by the value of certain family-owned business interests4 #a4 ,short title ,this ,act may be cited as the ,family ,business ,preservation ,estate ,tax ,act4 #b4 ,taxable estate reduced by value of certain family-owned business interests 7a7 ,in general ,part ,,iv of subchapter ,a of chapter #aa of the ,internal ,revenue ,code of #aihf is amended by inserting after section #bjef;,a the following new section3 #bjeg4 ,family-owned business interests 7a7 ,general rule 7#a7 ,allowance of deduction ,for purposes of the tax imposed by section #bjja1 in the case of an estate of a decedent to which this section applies1 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 7b77#b74 7#b7 ,maximum deduction ,the deduction allowed by this section shall not exceed the greater of-- 7,a7 the basic exclusion amount in effect under section #bjaj7;c77#c7 for the calendar year which includes the date of the death of the decedent1 or 7,b7 the value of any qualified farmland which constitutes the qualified family-owned business interest 7in the case of an entity described in subsection 7e77#a77;,b71 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 entity74 7#c7 ,qualified farmland ,for purposes of paragraph 7#b77;,b71 the term qualified farmland means qualified real property as defined in section #bjcb;,a7b7 applied without regard to paragraph 7#b77;,b7 thereof4 7b7 ,estates to which section applies 7#a7 ,in general ,this section shall apply to an estate if-- 7,a7 the decedent was 7at the date of the decedent's death7 a citizen or resident of the ,united ,states1 7,b7 the executor elects the application of this section and files the agreement referred to in subsection 7h71 7,c7 the sum of-- 7i7 the adjusted value of the qualified family-owned business interests described in paragraph 7#b71 plus 7ii7 the amount of the gifts of such interests determined under paragraph 7#c71 exceeds #ej percent of the adjusted gross estate1 and 7,d7 during the #h-year period ending on the date of the decedent's death there have been periods aggregating #e years or more during which-- 7i7 such interests were owned by the decedent or a member of the decedent's family1 and 7ii7 there was material participation 7within the meaning of section #bjcb;,a7e77#f77 by the decedent or a member of the decedent's family in the operation of the business to which such interests relate4 7#b7 ,includible qualified family-owned business interests ,the qualified family-owned business interests described in this paragraph are the interests which-- 7,a7 are included in determining the value of the gross estate1 and 7,b7 are acquired by any qualified heir from1 or passed to any qualified heir from1 the decedent 7within the meaning of section #bjcb;,a7e77#i774 7#c7 ,includible gifts of interests ,the amount of the gifts of qualified family-owned business interests determined under this paragraph is the sum of-- 7,a7 the amount of such gifts from the decedent to members of the decedent's family taken into account under section #bjja7;b77#a77;,b71 plus 7,b7 the amount of such gifts otherwise excluded under section #bejc7;b71 to the extent such interests are continuously held by members of such family 7other than the decedent's spouse7 between the date of the gift and the date of the decedent's death4 7c7 ,adjusted gross estate ,for purposes of this section1 the term adjusted gross estate means the value of the gross estate-- 7#a7 reduced by any amount deductible under paragraph 7#c7 or 7#d7 of section #bjec7;a71 and 7#b7 increased by the excess of-- 7,a7 the sum of-- 7i7 the amount of gifts determined under subsection 7b77#c71 plus 7ii7 the amount 7if more than de minimis7 of other transfers from the decedent to the decedent's spouse 7at the time of the transfer7 within #aj years of the date of the decedent's death1 plus 7iii7 the amount of other gifts 7not included under clause 7i7 or 7ii77 from the decedent within #c years of such date1 other than gifts to members of the decedent's family otherwise excluded under section #bejc7;b71 over 7,b7 the sum of the amounts described in clauses 7i71 7ii71 and 7iii7 of subparagraph 7,a7 which are otherwise includible in the gross estate4 ,for purposes of the preceding sentence1 the ,secretary may provide that de minimis gifts to persons other than members of the decedent's family shall not be taken into account4 7d7 ,adjusted value of the qualified family-,owned business interests ,for purposes of this section1 the adjusted value of any qualified family-owned business interest is the value of such interest for purposes of this chapter 7determined without regard to this section71 reduced by the excess of-- 7#a7 any amount deductible under paragraph 7#c7 or 7#d7 of section #bjec7;a71 over 7#b7 the sum of-- 7,a7 any indebtedness on any qualified residence of the decedent the interest on which is deductible under section #afc7;h77#c71 plus 7,b7 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 decedent1 the decedent's spouse1 or the decedent's dependents 7within the meaning of section #aeb1 determined without regard to subsections 7b77#a71 7b77#b71 and 7d77#a77;,b7 thereof71 plus 7,c7 any indebtedness not described in subparagraph 7,a7 or 7,b71 to the extent such indebtedness does not exceed #aj1jjj4 7e7 ,qualified family-,owned business interest 7#a7 ,in general ,for purposes of this section1 the term qualified family-owned business interest means-- 7,a7 an interest as a proprietor in a trade or business carried on as a proprietorship1 or 7,b7 an interest in an entity carrying on a trade or business1 if-- 7i7 at least-- 7,i7 #ej percent of such entity is owned 7directly or indirectly7 by the decedent and members of the decedent's family1 7,,ii7 #gj percent of such entity is so owned by members of #b families1 or 7,,iii7 #ij percent of such entity is so owned by members of #c families1 and 7ii7 for purposes of subclause 7,,ii7 or 7,,iii7 of clause 7i71 at least #cj percent of such entity is so owned by the decedent and members of the decedent's family4 ,for purposes of the preceding sentence1 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 business4 7#b7 ,limitation ,such term shall not include-- 7,a7 any interest in a trade or business the principal place of business of which is not located in the ,united ,states1 7,b7 any interest in an entity1 if the stock or debt of such entity or a controlled group 7as defined in section #bfg7;f77#a77 of which such entity was a member was readily tradable on an established securities market or secondary market 7as defined by the ,secretary7 at any time within #c years of the date of the decedent's death1 7,c7 any interest in a trade or business not described in section #edb7;c77#b71 if more than #ce 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 7as defined in section #edc7;a7 without regard to paragraph 7#b77;,b7 thereof7 if such trade or business were a corporation1 and 7,d7 that portion of an interest in a trade or business that is attributable to-- 7i7 cash or marketable securities1 or both1 in excess of the reasonably expected day-to-day working capital needs of such trade or business1 and 7ii7 any other assets of the trade or business 7other than assets used in the active conduct of a trade or business described in section #edb7;c77#b771 which produce1 or are held for the production of1 personal holding company income 7as defined in subparagraph 7,c77 or income described in section #ied7;c77#a7 7determined without regard to subparagraph 7,a7 thereof and by substituting trade or business for controlled foreign corporation74 ,in the case of a lease of property on a net cash basis by the decedent to a member of the decedent's family1 income from such lease shall not be treated as personal holding company income for purposes of subparagraph 7,c71 and such property shall not be treated as an asset described in subparagraph 7,d77ii71 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 property4 7#c7 ,rules regarding ownership 7,a7 ,ownership of entities ,for purposes of paragraph 7#a77;,b7-- 7i7 ,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 stock4 7ii7 ,partnerships ,ownership of a partnership shall be determined by the owning of the appropriate percentage of the capital interest in such partnership4 7,b7 ,ownership of tiered entities ,for purposes of this section1 if by reason of holding an interest in a trade or business1 a decedent1 any member of the decedent's family1 any qualified heir1 or any member of any qualified heir's family is treated as holding an interest in any other trade or business-- 7i7 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 interest1 and 7ii7 this section shall be applied separately in determining if such interest in any other trade or business is a qualified family-owned business interest4 7,c7 ,individual ownership rules ,for purposes of this section1 an interest owned1 directly or indirectly1 by or for an entity described in paragraph 7#a77;,b7 shall be considered as being owned proportionately by or for the entity's shareholders1 partners1 or beneficiaries4 ,a person shall be treated as a beneficiary of any trust only if such person has a present interest in such trust4 7f7 ,tax treatment of failure ,to materially participate in business or dispositions of interests 7#a7 ,in general ,there is imposed an additional estate tax if1 within #aj years after the date of the decedent's death and before the date of the qualified heir's death-- 7,a7 the material participation requirements described in section #bjcb;,a7c77#f77;,b7 are not met with respect to the qualified family-owned business interest which was acquired 7or passed7 from the decedent1 7,b7 the qualified heir disposes of any portion of a qualified family-owned business interest 7other than by a disposition to a member of the qualified heir's family or through a qualified conservation contribution under section #agj7;h771 7,c7 the qualified heir loses ,united ,states citizenship 7within the meaning of section #hgg7 or with respect to whom an event described in section #hgg7;e77#a7 occurs1 and such heir does not comply with the requirements of subsection 7g71 or 7,d7 the principal place of business of a trade or business of the qualified family-owned business interest ceases to be located in the ,united ,states4 7#b7 ,additional estate tax 7,a7 ,in general ,the amount of the additional estate tax imposed by paragraph 7#a7 shall be equal to-- 7i7 the applicable percentage of the adjusted tax difference attributable to the qualified family-owned business interest1 plus 7ii7 interest on the amount determined under clause 7i7 at the underpayment rate established under section #ffba 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 due4 7,b7 ,applicable percentage ,for purposes of this paragraph1 the applicable percentage shall be determined under the following table3 ,if the event described in paragraph 7#a7 occurs in the following year of material participation3,the applicable percentage is3#a through #fajjghjhfjidjajbj4 7,c7 ,adjusted tax difference ,for purposes of subparagraph 7,a7-- 7i7 ,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 7determined under clause 7ii77 as the value of such interest bears to the value of all qualified family-owned business interests described in subsection 7b77#b74 7ii7 ,adjusted tax difference with respect to the estate ,for purposes of clause 7i71 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 liability4 ,for purposes of this clause1 the term estate tax liability means the tax imposed by section #bjja reduced by the credits allowable against such tax4 7#c7 ,use in trade or business by family members ,a qualified heir shall not be treated as disposing of an interest described in subsection 7e77#a77;,a7 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 family4 7g7 ,security requirements for noncitizen qualified heirs 7#a7 ,in general ,except upon the application of subparagraph 7,f7 of subsection 7i77#c71 if a qualified heir is not a citizen of the ,united ,states1 any interest under this section passing to or acquired by such heir 7including any interest held by such heir at a time described in subsection 7f77#a77;,c77 shall be treated as a qualified family-owned business interest only if the interest passes or is acquired 7or is held7 in a qualified trust4 7#b7 ,qualified trust ,the term qualified trust means a trust-- 7,a7 which is organized under1 and governed by1 the laws of the ,united ,states or a ,state1 and 7,b7 except as otherwise provided in regulations1 with respect to which the trust instrument requires that at least #a trustee of the trust be an individual citizen of the ,united ,states or a domestic corporation4 7h7 ,agreement ,the agreement referred to in this subsection is a written agreement signed by each person in being who has an interest 7whether or not in possession7 in any property designated in such agreement consenting to the application of subsection 7f7 with respect to such property4 7i7 ,other definitions and applicable rules ,for purposes of this section-- 7#a7 ,qualified heir ,the term qualified heir-- 7,a7 has the meaning given to such term by section #bjcb;,a7e77#a71 and 7,b7 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 #aj years before the date of the decedent's death4 7#b7 ,member of the family ,the term member of the family has the meaning given to such term by section #bjcb;,a7e77#b74 7#c7 ,applicable rules ,rules similar to the following rules shall apply3 7,a7 ,section #bjcb;,a7b77#d7 7relating to decedents who are retired or disabled74 7,b7 ,section #bjcb;,a7b77#e7 7relating to special rules for surviving spouses74 7,c7 ,section #bjcb;,a7c77#b77;,d7 7relating to partial dispositions74 7,d7 ,section #bjcb;,a7c77#c7 7relating to only #a additional tax imposed with respect to any #a portion74 7,e7 ,section #bjcb;,a7c77#d7 7relating to due date74 7,f7 ,section #bjcb;,a7c77#e7 7relating to liability for tax2 furnishing of bond74 7,g7 ,section #bjcb;,a7c77#g7 7relating to no tax if use begins within #b years2 active management by eligible qualified heir treated as material participation74 7,h7 ,section #bjcb;,a7d7 7relating to election2 agreement74 7,i7 ,section #bjcb;,a7e77#aj7 7relating to community property74 7,j7 ,section #bjcb;,a7e77#ad7 7relating to treatment of replacement property acquired in section #ajca or #ajcc transactions74 7,k7 ,section #bjcb;,a7f7 7relating to statute of limitations74 7,l7 ,section #bjcb;,a7g7 7relating to application to interests in partnerships1 corporations1 and trusts74 7,m7 ,subsections 7h7 and 7i7 of section #bjcb;,a4 7,n7 ,section #faff7;b77#c7 7relating to farmhouses and certain other structures taken into account74 7,o7 ,subparagraphs 7,b71 7,c71 and 7,d7 of section #faff7;g77#a7 7relating to acceleration of payment74 7,p7 ,section #fcbd;,b 7relating to special lien for additional estate tax74 4 7b7 ,conforming amendments 7#a7 ,section #bjca7;c77#aj7 of such ,code is amended by striking 7as in effect before its repeal74 7#b7 ,the table of sections for part ,,iv of subchapter ,a of chapter #aa of such ,code is amended by inserting after the item relating to section #bjef;,a the following new item3 ,sec4 #bjeg4 ,family-owned business interests4 4 7c7 ,effective date ,the amendments made by this section shall apply to the estates of decedents dying after the date of the enactment of this ,act4