Family Business and Family Farm Preservation Act of 1998 - Amends the Internal Revenue Code to provide that the $675,000 limitation on the estate tax deduction shall not apply to interests in a business owned by a single family. Establishes a reinvestment requirement on estates to which such limitation did not apply.
[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4521 Introduced in House (IH)]
105th CONGRESS
2d Session
H. R. 4521
To amend the Internal Revenue Code of 1986 to provide that the dollar
limitation on the estate tax deduction for family-owned business
interests shall not apply to interests in a business owned by a single
family.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
August 7, 1998
Mr. Weller 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 that the dollar
limitation on the estate tax deduction for family-owned business
interests shall not apply to interests in a business owned by a single
family.
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 and Family Farm
Preservation Act of 1998''.
SEC. 2. LIMITATION ON ESTATE TAX DEDUCTION FOR FAMILY-OWNED BUSINESS
INTERESTS NOT TO APPLY TO INTERESTS IN A BUSINESS OWNED
BY A SINGLE FAMILY.
(a) In General.--Subsection (a) of section 2057 of the Internal
Revenue Code of 1986 (relating to family-owned business interests) is
amended by adding at the end the following new paragraph:
``(4) Limitation not to apply to single family
businesses.--Paragraph (2) shall be applied by not taking into
account any deduction under this section for interests in--
``(A) any sole proprietorship, or
``(B) any entity if 100 percent of such entity is
owned (directly or indirectly) by the decedent and
members of the decedent's family.''
(b) Additional Estate Tax Deduction Recaptured if Reinvestment
Requirement Not Met.--Subsection (f) of section 2057 of such Code
(relating to tax treatment of failure to materially participate in
business or dispositions of interest) is amended by adding at the end
the following new paragraphs:
``(3) Reinvestment requirement on estates to which dollar
limitation on deduction did not apply.--
``(A) In general.--In the case of an estate with
respect to which the deduction under this section
exceeded $675,000 by reason of subsection (a)(4), the
failure to meet the reinvestment requirement of
paragraph (4) shall be treated as referred to in a
subparagraph of paragraph (1) of this subsection.
``(B) Amount of tax.--If tax is imposed by this
subsection by reason of a failure to meet the
reinvestment requirement of paragraph (4) for any
taxable year--
``(i) the applicable percentage shall be 10
percent (in lieu of the percentage determined
under paragraph (2)), and
``(ii) the adjusted tax difference shall be
determined by taking into account only that
portion of the value of the qualified family-
owned business interests involved which bears
the same ratio to such value as the excess for
such year of the adjusted net earnings over the
reinvestment amount bears to the reinvestment
amount.
``(C) Special rule.--Tax shall be imposed by this
subsection by reason of a failure only to the extent
that the value (for purposes of this chapter) of the
qualified family-owned business interests involved in
such event, when increased by the value (for such
purposes) of qualified family-owned business interests
with respect to which prior recapture events have
occurred (whether or not tax was imposed by this
subsection on such prior events), exceeds $675,000.
``(D) Extension of 10-year period.--
``(i) Increase in reinvestment requirement
by reason of audit.--In the case that the
reinvestment amount is increased for a taxable
year after examination or assessment by the
Secretary, the 10-year period referred to in
paragraph (1) shall be extended for an
additional year.
``(ii) Reinvestment requirement impossible
to meet due to unforeseen circumstances.--In
the case of a failure to meet the reinvestment
requirement of paragraph (4) due to unforeseen
circumstances, the Secretary may extend the 10-
year period referred to in paragraph (1) for a
reasonable period in accordance with section
6161.
``(4) Reinvestment requirement.--
``(A) In general.--The reinvestment requirement of
this paragraph is met with respect to a sole
proprietorship or entity for any taxable year if the
reinvestment amount for such year is not less than the
adjusted net earnings of the proprietorship or entity
for such year.
``(B) Reinvestment amount.--For purposes of this
paragraph, the term `reinvestment amount' means, with
respect to any taxable year, the sum of--
``(i) the increase during the taxable year
in net asset investment in the same trade or
business, and
``(ii) the increase during the taxable year
in working capital of the same trade or
business.
``(C) Increase in net asset investment.--For
purposes of this paragraph--
``(i) Determination of increase.--The
increase during the taxable year in net asset
investment is an amount equal to the excess (if
any) of--
``(I) the net asset investment as
of the close of the taxable year, over
``(II) the net asset investment as
of the close of the preceding taxable
year.
``(ii) Net asset investment.--The term `net
asset investment' means the excess (if any)
of--
``(I) the aggregate adjusted bases
of qualified assets held by the
taxpayer for use in the active conduct
of a trade or business, over
``(II) the aggregate outstanding
amount of indebtedness of the taxpayer
which was incurred to acquire or
improve qualified assets so held.
``(iii) Qualified asset.--The term
`qualified asset' means any tangible or
intangible property other than property
described in subsection (e)(2)(D).
``(D) Adjusted net earnings.--For purposes of this
paragraph, the term `adjusted net earnings' means
taxable income--
``(i) increased by the sum of--
``(I) the amount of interest
received or accrued by the taxpayer
during the taxable year which is exempt
from tax, and
``(II) the amount allowed for
depreciation or amortization, and
``(ii) decreased by the tax imposed by
chapter 1 for the taxable year.''
(c) Effective Date.--The amendments made by this section shall
apply to estates of decedents dying after the date of enactment of this
Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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