Internal Revenue Code:Sec. 2032A. Valuation of certain farm, etc., real property
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 11 - ESTATE TAX
Subchapter A - Estates of Citizens or Residents
PART III - GROSS ESTATE
Statute
Sec. 2032A. Valuation of certain farm, etc., real property
(a) Value based on use under which property qualifies
(1) General rule
If -
(A) the decedent was (at the time of his death) a citizen or
resident of the United States, and
(B) the executor elects the application of this section and
files the agreement referred to in subsection (d)(2),
then, for purposes of this chapter, the value of qualified real
property shall be its value for the use under which it qualifies,
under subsection (b), as qualified real property.
(2) Limitation on aggregate reduction in fair market value
The aggregate decrease in the value of qualified real property
taken into account for purposes of this chapter which results
from the application of paragraph (1) with respect to any
decedent shall not exceed $750,000.
(3) Inflation adjustment
In the case of estates of decedents dying in a calendar year
after 1998, the $750,000 amount contained in paragraph (2) shall
be increased by an amount equal to -
(A) $750,000, multiplied by
(B) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting ''calendar year
1997'' for ''calendar year 1992'' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.
(b) Qualified real property
(1) In general
For purposes of this section, the term ''qualified real
property'' means real property located in the United States which
was acquired from or passed from the decedent to a qualified heir
of the decedent and which, on the date of the decedent's death,
was being used for a qualified use by the decedent or a member of
the decedent's family, but only if -
(A) 50 percent or more of the adjusted value of the gross
estate consists of the adjusted value of real or personal
property which -
(i) on the date of the decedent's death, was being used for
a qualified use by the decedent or a member of the decedent's
family, and
(ii) was acquired from or passed from the decedent to a
qualified heir of the decedent.
(B) 25 percent or more of the adjusted value of the gross
estate consists of the adjusted value of real property which
meets the requirements of subparagraphs (A)(ii) and (C),
(C) 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 real property was owned by the decedent or a
member of the decedent's family and used for a qualified use
by the decedent or a member of the decedent's family, and
(ii) there was material participation by the decedent or a
member of the decedent's family in the operation of the farm
or other business, and
(D) such real property is designated in the agreement
referred to in subsection (d)(2).
(2) Qualified use
For purposes of this section, the term ''qualified use'' means
the devotion of the property to any of the following:
(A) use as a farm for farming purposes, or
(B) use in a trade or business other than the trade or
business of farming.
(3) Adjusted value
For purposes of paragraph (1), the term ''adjusted value''
means -
(A) in the case of the gross estate, the value of the gross
estate for purposes of this chapter (determined without regard
to this section), reduced by any amounts allowable as a
deduction under paragraph (4) of section 2053(a), or
(B) in the case of any real or personal property, the value
of such property for purposes of this chapter (determined
without regard to this section), reduced by any amounts
allowable as a deduction in respect of such property under
paragraph (4) of section 2053(a).
(4) Decedents who are retired or disabled
(A) In general
If, on the date of the decedent's death, the requirements of
paragraph (1)(C)(ii) with respect to the decedent for any
property are not met, and the decedent -
(i) was receiving old-age benefits under title II of the
Social Security Act for a continuous period ending on such
date, or
(ii) was disabled for a continuous period ending on such
date,
then paragraph (1)(C)(ii) shall be applied with respect to such
property by substituting ''the date on which the longer of such
continuous periods began'' for ''the date of the decedent's
death'' in paragraph (1)(C).
(B) Disabled defined
For purposes of subparagraph (A), an individual shall be
disabled if such individual has a mental or physical impairment
which renders him unable to materially participate in the
operation of the farm or other business.
(C) Coordination with recapture
For purposes of subsection (c)(6)(B)(i), if the requirements
of paragraph (1)(C)(ii) are met with respect to any decedent by
reason of subparagraph (A), the period ending on the date on
which the continuous period taken into account under
subparagraph (A) began shall be treated as the period
immediately before the decedent's death.
(5) Special rules for surviving spouses
(A) In general
If property is qualified real property with respect to a
decedent (hereinafter in this paragraph referred to as the
''first decedent'') and such property was acquired from or
passed from the first decedent to the surviving spouse of the
first decedent, for purposes of applying this subsection and
subsection (c) in the case of the estate of such surviving
spouse, active management of the farm or other business by the
surviving spouse shall be treated as material participation by
such surviving spouse in the operation of such farm or
business.
(B) Special rule
For the purposes of subparagraph (A), the determination of
whether property is qualified real property with respect to the
first decedent shall be made without regard to subparagraph (D)
of paragraph (1) and without regard to whether an election
under this section was made.
(C) Coordination with paragraph (4)
In any case in which to do so will enable the requirements of
paragraph (1)(C)(ii) to be met with respect to the surviving
spouse, this subsection and subsection (c) shall be applied by
taking into account any application of paragraph (4).
(c) Tax treatment of dispositions and failures to use for qualified
use
(1) Imposition of additional estate tax
If, within 10 years after the decedent's death and before the
death of the qualified heir -
(A) the qualified heir disposes of any interest in qualified
real property (other than by a disposition to a member of his
family), or
(B) the qualified heir ceases to use for the qualified use
the qualified real property which was acquired (or passed) from
the decedent,
then, there is hereby imposed an additional estate tax.
(2) Amount of additional tax
(A) In general
The amount of the additional tax imposed by paragraph (1)
with respect to any interest shall be the amount equal to the
lesser of -
(i) the adjusted tax difference attributable to such
interest, or
(ii) the excess of the amount realized with respect to the
interest (or, in any case other than a sale or exchange at
arm's length, the fair market value of the interest) over the
value of the interest determined under subsection (a).
(B) Adjusted tax difference attributable to interest
For purposes of subparagraph (A), the adjusted tax difference
attributable to an interest is the amount which bears the same
ratio to the adjusted tax difference with respect to the estate
(determined under subparagraph (C)) as -
(i) the excess of the value of such interest for purposes
of this chapter (determined without regard to subsection (a))
over the value of such interest determined under subsection
(a), bears to
(ii) a similar excess determined for all qualified real
property.
(C) Adjusted tax difference with respect to the estate
For purposes of subparagraph (B), the term ''adjusted tax
difference with respect to the estate'' means the excess of
what would have been the estate tax liability but for
subsection (a) over the estate tax liability. For purposes of
this subparagraph, the term ''estate tax liability'' means the
tax imposed by section 2001 reduced by the credits allowable
against such tax.
(D) Partial dispositions
For purposes of this paragraph, where the qualified heir
disposes of a portion of the interest acquired by (or passing
to) such heir (or a predecessor qualified heir) or there is a
cessation of use of such a portion -
(i) the value determined under subsection (a) taken into
account under subparagraph (A)(ii) with respect to such
portion shall be its pro rata share of such value of such
interest, and
(ii) the adjusted tax difference attributable to the
interest taken into account with respect to the transaction
involving the second or any succeeding portion shall be
reduced by the amount of the tax imposed by this subsection
with respect to all prior transactions involving portions of
such interest.
(E) Special rule for disposition of timber
In the case of qualified woodland to which an election under
subsection (e)(13)(A) applies, if the qualified heir disposes
of (or severs) any standing timber on such qualified woodland -
(i) such disposition (or severance) shall be treated as a
disposition of a portion of the interest of the qualified
heir in such property, and
(ii) the amount of the additional tax imposed by paragraph
(1) with respect to such disposition shall be an amount equal
to the lesser of -
(I) the amount realized on such disposition (or, in any
case other than a sale or exchange at arm's length, the
fair market value of the portion of the interest disposed
or severed), or
(II) the amount of additional tax determined under this
paragraph (without regard to this subparagraph) if the
entire interest of the qualified heir in the qualified
woodland had been disposed of, less the sum of the amount
of the additional tax imposed with respect to all prior
transactions involving such woodland to which this
subparagraph applied.
For purposes of the preceding sentence, the disposition of a
right to sever shall be treated as the disposition of the
standing timber. The amount of additional tax imposed under
paragraph (1) in any case in which a qualified heir disposes of
his entire interest in the qualified woodland shall be reduced
by any amount determined under this subparagraph with respect
to such woodland.
(3) Only 1 additional tax imposed with respect to any 1 portion
In the case of an interest acquired from (or passing from) any
decedent, if subparagraph (A) or (B) of paragraph (1) applies to
any portion of an interest, subparagraph (B) or (A), as the case
may be, of paragraph (1) shall not apply with respect to the same
portion of such interest.
(4) Due date
The additional tax imposed by this subsection shall become due
and payable on the day which is 6 months after the date of the
disposition or cessation referred to in paragraph (1).
(5) Liability for tax; furnishing of bond
The qualified heir shall be personally liable for the
additional tax imposed by this subsection with respect to his
interest unless the heir has furnished bond which meets the
requirements of subsection (e)(11).
(6) Cessation of qualified use
For purposes of paragraph (1)(B), real property shall cease to
be used for the qualified use if -
(A) such property ceases to be used for the qualified use set
forth in subparagraph (A) or (B) of subsection (b)(2) under
which the property qualified under subsection (b), or
(B) during any period of 8 years ending after the date of the
decedent's death and before the date of the death of the
qualified heir, there had been periods aggregating more than 3
years during which -
(i) in the case of periods during which the property was
held by the decedent, there was no material participation by
the decedent or any member of his family in the operation of
the farm or other business, and
(ii) in the case of periods during which the property was
held by any qualified heir, there was no material
participation by such qualified heir or any member of his
family in the operation of the farm or other business.
(7) Special rules
(A) No tax if use begins within 2 years
If the date on which the qualified heir begins to use the
qualified real property (hereinafter in this subparagraph
referred to as the commencement date) is before the date 2
years after the decedent's death -
(i) no tax shall be imposed under paragraph (1) by reason
of the failure by the qualified heir to so use such property
before the commencement date, and
(ii) the 10-year period under paragraph (1) shall be
extended by the period after the decedent's death and before
the commencement date.
(B) Active management by eligible qualified heir treated as
material participation
For purposes of paragraph (6)(B)(ii), the active management
of a farm or other business by -
(i) an eligible qualified heir, or
(ii) a fiduciary of an eligible qualified heir described in
clause (ii) or (iii) of subparagraph (C),
shall be treated as material participation by such eligible
qualified heir in the operation of such farm or business. In
the case of an eligible qualified heir described in clause
(ii), (iii), or (iv) of subparagraph (C), the preceding
sentence shall apply only during periods during which such heir
meets the requirements of such clause.
(C) Eligible qualified heir
For purposes of this paragraph, the term ''eligible qualified
heir'' means a qualified heir who -
(i) is the surviving spouse of the decedent,
(ii) has not attained the age of 21,
(iii) is disabled (within the meaning of subsection
(b)(4)(B)), or
(iv) is a student.
(D) Student
For purposes of subparagraph (C), an individual shall be
treated as a student with respect to periods during any
calendar year if (and only if) such individual is a student
(within the meaning of section 152(f)(2)) for such calendar
year.
(E) Certain rents treated as qualified use
For purposes of this subsection, a surviving spouse or lineal
descendant of the decedent shall not be treated as failing to
use qualified real property in a qualified use solely because
such spouse or descendant rents such property to a member of
the family of such spouse or descendant on a net cash basis.
For purposes of the preceding sentence, a legally adopted child
of an individual shall be treated as the child of such
individual by blood.
(8) Qualified conservation contribution is not a disposition
A qualified conservation contribution (as defined in section
170(h)) by gift or otherwise shall not be deemed a disposition
under subsection (c)(1)(A).
(d) Election; agreement
(1) Election
The election under this section shall be made on the return of
the tax imposed by section 2001. Such election shall be made in
such manner as the Secretary shall by regulations prescribe.
Such an election, once made, shall be irrevocable.
(2) Agreement
The agreement referred to in this paragraph 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 (c) with
respect to such property.
(3) Modification of election and agreement to be permitted
The Secretary shall prescribe procedures which provide that in
any case in which the executor makes an election under paragraph
(1) (and submits the agreement referred to in paragraph (2))
within the time prescribed therefor, but -
(A) the notice of election, as filed, does not contain all
required information, or
(B) signatures of 1 or more persons required to enter into
the agreement described in paragraph (2) are not included on
the agreement as filed, or the agreement does not contain all
required information,
the executor will have a reasonable period of time (not exceeding
90 days) after notification of such failures to provide such
information or signatures.
(e) Definitions; special rules
For purposes of this section -
(1) Qualified heir
The term ''qualified heir'' means, with respect to any
property, a member of the decedent's family who acquired such
property (or to whom such property passed) from the decedent. If
a qualified heir disposes of any interest in qualified real
property to any member of his family, such member shall
thereafter be treated as the qualified heir with respect to such
interest.
(2) Member of family
The term ''member of the family'' means, with respect to any
individual, only -
(A) an ancestor of such individual,
(B) the spouse of such individual,
(C) a lineal descendant of such individual, of such
individual's spouse, or of a parent of such individual, or
(D) the spouse of any lineal descendant described in
subparagraph (C).
For purposes of the preceding sentence, a legally adopted child
of an individual shall be treated as the child of such individual
by blood.
(3) Certain real property included
In the case of real property which meets the requirements of
subparagraph (C) of subsection (b)(1), residential buildings and
related improvements on such real property occupied on a regular
basis by the owner or lessee of such real property or by persons
employed by such owner or lessee for the purpose of operating or
maintaining such real property, and roads, buildings, and other
structures and improvements functionally related to the qualified
use shall be treated as real property devoted to the qualified
use.
(4) Farm
The term ''farm'' includes stock, dairy, poultry, fruit,
furbearing animal, and truck farms, plantations, ranches,
nurseries, ranges, greenhouses or other similar structures used
primarily for the raising of agricultural or horticultural
commodities, and orchards and woodlands.
(5) Farming purposes
The term ''farming purposes'' means -
(A) cultivating the soil or raising or harvesting any
agricultural or horticultural commodity (including the raising,
shearing, feeding, caring for, training, and management of
animals) on a farm;
(B) handling, drying, packing, grading, or storing on a farm
any agricultural or horticultural commodity in its
unmanufactured state, but only if the owner, tenant, or
operator of the farm regularly produces more than one-half of
the commodity so treated; and
(C)(i) the planting, cultivating, caring for, or cutting of
trees, or
(ii) the preparation (other than milling) of trees for
market.
(6) Material participation
Material participation shall be determined in a manner similar
to the manner used for purposes of paragraph (1) of section
1402(a) (relating to net earnings from self-employment).
(7) Method of valuing farms
(A) In general
Except as provided in subparagraph (B), the value of a farm
for farming purposes shall be determined by dividing -
(i) the excess of the average annual gross cash rental for
comparable land used for farming purposes and located in the
locality of such farm over the average annual State and local
real estate taxes for such comparable land, by
(ii) the average annual effective interest rate for all new
Federal Land Bank loans.
For purposes of the preceding sentence, each average annual
computation shall be made on the basis of the 5 most recent
calendar years ending before the date of the decedent's death.
(B) Value based on net share rental in certain cases
(i) In general
If there is no comparable land from which the average
annual gross cash rental may be determined but there is
comparable land from which the average net share rental may
be determined, subparagraph (A)(i) shall be applied by
substituting ''average annual net share rental'' for
''average annual gross cash rental''.
(ii) Net share rental
For purposes of this paragraph, the term ''net share
rental'' means the excess of -
(I) the value of the produce received by the lessor of
the land on which such produce is grown, over
(II) the cash operating expenses of growing such produce
which, under the lease, are paid by the lessor.
(C) Exception
The formula provided by subparagraph (A) shall not be used -
(i) where it is established that there is no comparable
land from which the average annual gross cash rental may be
determined, or
(ii) where the executor elects to have the value of the
farm for farming purposes determined and that there is no
comparable land from which the average net share rental may
be determined under paragraph (8).
(8) Method of valuing closely held business interests, etc.
In any case to which paragraph (7)(A) does not apply, the
following factors shall apply in determining the value of any
qualified real property:
(A) The capitalization of income which the property can be
expected to yield for farming or closely held business purposes
over a reasonable period of time under prudent management using
traditional cropping patterns for the area, taking into account
soil capacity, terrain configuration, and similar factors,
(B) The capitalization of the fair rental value of the land
for farm land or closely held business purposes,
(C) Assessed land values in a State which provides a
differential or use value assessment law for farmland or
closely held business,
(D) Comparable sales of other farm or closely held business
land in the same geographical area far enough removed from a
metropolitan or resort area so that nonagricultural use is not
a significant factor in the sales price, and
(E) Any other factor which fairly values the farm or closely
held business value of the property.
(9) Property acquired from decedent
Property shall be considered to have been acquired from or to
have passed from the decedent if -
(A) such property is so considered under section 1014(b)
(relating to basis of property acquired from a decedent),
(B) such property is acquired by any person from the estate,
or
(C) such property is acquired by any person from a trust (to
the extent such property is includible in the gross estate of
the decedent).
(10) Community property
If the decedent and his surviving spouse at any time held
qualified real property as community property, the interest of
the surviving spouse in such property shall be taken into account
under this section to the extent necessary to provide a result
under this section with respect to such property which is
consistent with the result which would have obtained under this
section if such property had not been community property.
(11) Bond in lieu of personal liability
If the qualified heir makes written application to the
Secretary for determination of the maximum amount of the
additional tax which may be imposed by subsection (c) with
respect to the qualified heir's interest, the Secretary (as soon
as possible, and in any event within 1 year after the making of
such application) shall notify the heir of such maximum amount.
The qualified heir, on furnishing a bond in such amount and for
such period as may be required, shall be discharged from personal
liability for any additional tax imposed by subsection (c) and
shall be entitled to a receipt or writing showing such discharge.
(12) Active management
The term ''active management'' means the making of the
management decisions of a business (other than the daily
operating decisions).
(13) Special rules for woodlands
(A) In general
In the case of any qualified woodland with respect to which
the executor elects to have this subparagraph apply, trees
growing on such woodland shall not be treated as a crop.
(B) Qualified woodland
The term ''qualified woodland'' means any real property which
-
(i) is used in timber operations, and
(ii) is an identifiable area of land such as an acre or
other area for which records are normally maintained in
conducting timber operations.
(C) Timber operations
The term ''timber operations'' means -
(i) the planting, cultivating, caring for, or cutting of
trees, or
(ii) the preparation (other than milling) of trees for
market.
(D) Election
An election under subparagraph (A) shall be made on the
return of the tax imposed by section 2001. Such election shall
be made in such manner as the Secretary shall by regulations
prescribe. Such an election, once made, shall be irrevocable.
(14) Treatment of replacement property acquired in section 1031
or 1033 transactions
(A) In general
In the case of any qualified replacement property, any period
during which there was ownership, qualified use, or material
participation with respect to the replaced property by the
decedent or any member of his family shall be treated as a
period during which there was such ownership, use, or material
participation (as the case may be) with respect to the
qualified replacement property.
(B) Limitation
Subparagraph (A) shall not apply to the extent that the fair
market value of the qualified replacement property (as of the
date of its acquisition) exceeds the fair market value of the
replaced property (as of the date of its disposition).
(C) Definitions
For purposes of this paragraph -
(i) Qualified replacement property
The term ''qualified replacement property'' means any real
property which is -
(I) acquired in an exchange which qualifies under section
1031, or
(II) the acquisition of which results in the
nonrecognition of gain under section 1033.
Such term shall only include property which is used for the
same qualified use as the replaced property was being used
before the exchange.
(ii) Replaced property
The term ''replaced property means -
(I) the property transferred in the exchange which
qualifies under section 1031, or
(II) the property compulsorily or involuntarily converted
(within the meaning of section 1033).
(f) Statute of limitations
If qualified real property is disposed of or ceases to be used
for a qualified use, then -
(1) the statutory period for the assessment of any additional
tax under subsection (c) attributable to such disposition or
cessation shall not expire before the expiration of 3 years from
the date the Secretary is notified (in such manner as the
Secretary may by regulations prescribe) of such disposition or
cessation (or if later in the case of an involuntary conversion
or exchange to which subsection (h) or (i) applies, 3 years from
the date the Secretary is notified of the replacement of the
converted property or of an intention not to replace or of the
exchange of property), and
(2) such additional tax may be assessed before the expiration
of such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such assessment.
(g) Application of this section and section 6324B to interests in
partnerships, corporations, and trusts
The Secretary shall prescribe regulations setting forth the
application of this section and section 6324B in the case of an
interest in a partnership, corporation, or trust which, with
respect to the decedent, is an interest in a closely held business
(within the meaning of paragraph (1) of section 6166(b)). For
purposes of the preceding sentence, an interest in a discretionary
trust all the beneficiaries of which are qualified heirs shall be
treated as a present interest.
(h) Special rules for involuntary conversions of qualified real
property
(1) Treatment of converted property
(A) In general
If there is an involuntary conversion of an interest in
qualified real property -
(i) no tax shall be imposed by subsection (c) on such
conversion if the cost of the qualified replacement property
equals or exceeds the amount realized on such conversion, or
(ii) if clause (i) does not apply, the amount of the tax
imposed by subsection (c) on such conversion shall be the
amount determined under subparagraph (B).
(B) Amount of tax where there is not complete reinvestment
The amount determined under this subparagraph with respect to
any involuntary conversion is the amount of the tax which (but
for this subsection) would have been imposed on such conversion
reduced by an amount which -
(i) bears the same ratio to such tax, as
(ii) the cost of the qualified replacement property bears
to the amount realized on the conversion.
(2) Treatment of replacement property
For purposes of subsection (c) -
(A) any qualified replacement property shall be treated in
the same manner as if it were a portion of the interest in
qualified real property which was involuntarily converted;
except that with respect to such qualified replacement property
the 10-year period under paragraph (1) of subsection (c) shall
be extended by any period, beyond the 2-year period referred to
in section 1033(a)(2)(B)(i), during which the qualified heir
was allowed to replace the qualified real property,
(B) any tax imposed by subsection (c) on the involuntary
conversion shall be treated as a tax imposed on a partial
disposition, and
(C) paragraph (6) of subsection (c) shall be applied -
(i) by not taking into account periods after the
involuntary conversion and before the acquisition of the
qualified replacement property, and
(ii) by treating material participation with respect to the
converted property as material participation with respect to
the qualified replacement property.
(3) Definitions and special rules
For purposes of this subsection -
(A) Involuntary conversion
The term ''involuntary conversion'' means a compulsory or
involuntary conversion within the meaning of section 1033.
(B) Qualified replacement property
The term ''qualified replacement property'' means -
(i) in the case of an involuntary conversion described in
section 1033(a)(1), any real property into which the
qualified real property is converted, or
(ii) in the case of an involuntary conversion described in
section 1033(a)(2), any real property purchased by the
qualified heir during the period specified in section
1033(a)(2)(B) for purposes of replacing the qualified real
property.
Such term only includes property which is to be used for the
qualified use set forth in subparagraph (A) or (B) of subsection
(b)(2) under which the qualified real property qualified under
subsection (a).
(4) Certain rules made applicable
The rules of the last sentence of section 1033(a)(2)(A) shall
apply for purposes of paragraph (3)(B)(ii).
(i) Exchanges of qualified real property
(1) Treatment of property exchanged
(A) Exchanges solely for qualified exchange property
If an interest in qualified real property is exchanged solely
for an interest in qualified exchange property in a transaction
which qualifies under section 1031, no tax shall be imposed by
subsection (c) by reason of such exchange.
(B) Exchanges where other property received
If an interest in qualified real property is exchanged for an
interest in qualified exchange property and other property in a
transaction which qualifies under section 1031, the amount of
the tax imposed by subsection (c) by reason of such exchange
shall be the amount of tax which (but for this subparagraph)
would have been imposed on such exchange under subsection
(c)(1), reduced by an amount which -
(i) bears the same ratio to such tax, as
(ii) the fair market value of the qualified exchange
property bears to the fair market value of the qualified real
property exchanged.
For purposes of clause (ii) of the preceding sentence, fair
market value shall be determined as of the time of the
exchange.
(2) Treatment of qualified exchange property
For purposes of subsection (c) -
(A) any interest in qualified exchange property shall be
treated in the same manner as if it were a portion of the
interest in qualified real property which was exchanged,
(B) any tax imposed by subsection (c) by reason of the
exchange shall be treated as a tax imposed on a partial
disposition, and
(C) paragraph (6) of subsection (c) shall be applied by
treating material participation with respect to the exchanged
property as material participation with respect to the
qualified exchange property.
(3) Qualified exchange property
For purposes of this subsection, the term ''qualified exchange
property'' means real property which is to be used for the
qualified use set forth in subparagraph (A) or (B) of subsection
(b)(2) under which the real property exchanged therefor
originally qualified under subsection (a).
Sources
(Added Pub. L. 94-455, title XX, Sec. 2003(a), Oct. 4, 1976, 90
Stat. 1856; amended Pub. L. 95-472, Sec. 4(a), (c), Oct. 17, 1978,
92 Stat. 1334, 1336; Pub. L. 95-600, title VII, Sec. 702(d)(1),
(2), (4), (5), Nov. 6, 1978, 92 Stat. 2928, 2929; Pub. L. 97-34,
title IV, Sec. 421(a)-(d)(2)(A), (e), (f), (h)-(j)(2)(A), (3), (4),
Aug. 13, 1981, 95 Stat. 306-313; Pub. L. 97-448, title I, Sec.
104(b)(1), (2), Jan. 12, 1983, 96 Stat. 2381; Pub. L. 98-369, div.
A, title X, Sec. 1025(a), July 18, 1984, 98 Stat. 1030; Pub. L.
99-514, title I, Sec. 104(b)(3), Oct. 22, 1986, 100 Stat. 2105;
Pub. L. 100-647, title VI, Sec. 6151(a), Nov. 10, 1988, 102 Stat.
3724; Pub. L. 101-508, title XI, Sec. 11802(f)(5), Nov. 5, 1990,
104 Stat. 1388-530; Pub. L. 105-34, title V, Sec. 501(b), 504(a),
(b), 508(c), title XIII, Sec. 1313(a), Aug. 5, 1997, 111 Stat. 845,
853, 854, 860, 1045.)
Amendment of Section
ADJUSTMENT OF DECREASE IN VALUE OF QUALIFIED REAL PROPERTY FOR
DECEDENTS DYING IN CALENDAR YEAR 2002
For adjustment of aggregate decrease in value of qualified real
property resulting from election under this section for estates
of decedents dying in calendar year 2002, see section 3.18 of
Revenue Procedure 2001-59, set out as a note under section 1 of
this title.
References in Text
REFERENCES IN TEXT
The Social Security Act, referred to in subsec. (b)(4)(A)(i), is
act Aug. 14, 1935, ch. 531, 49 Stat. 620, as amended. Title II of
the Social Security Act is classified generally to subchapter II
(Sec. 401 et seq.) of chapter 7 of Title 42, The Public Health and
Welfare. For complete classification of this Act to the Code, see
section 1305 of Title 42 and Tables.
Miscellaneous
AMENDMENTS
2004 - Pub. L. 108-311 Sec. 207 (22). Section 2032A(c)(7)(D)
is amended by striking ``section 151(c)(4)'' and inserting
``section 152(f)(2)''.
1997 - Subsec. (a)(3). Pub. L. 105-34, Sec. 501(b), added par.
(3).
Subsec. (b)(5)(A). Pub. L. 105-34, Sec. 504(b), struck out at end
''For purposes of subsection (c), such surviving spouse shall not
be treated as failing to use such property in a qualified use
solely because such spouse rents such property to a member of such
spouse's family on a net cash basis.''
Subsec. (c)(7)(E). Pub. L. 105-34, Sec. 504(a), added subpar.
(E).
Subsec. (c)(8). Pub. L. 105-34, Sec. 508(c), added par. (8).
Subsec. (d)(3). Pub. L. 105-34, Sec. 1313(a), amended heading and
text of par. (3) generally. Prior to amendment, text read as
follows: ''The Secretary shall prescribe procedures which provide
that in any case in which -
''(A) the executor makes an election under paragraph (1) within
the time prescribed for filing such election, and
''(B) substantially complies with the regulations prescribed by
the Secretary with respect to such election, but -
''(i) the notice of election, as filed, does not contain all
required information, or
''(ii) signatures of 1 or more persons required to enter into
the agreement described in paragraph (2) are not included on
the agreement as filed, or the agreement does not contain all
required information,
the executor will have a reasonable period of time (not exceeding
90 days) after notification of such failures to provide such
information or agreements.''
1990 - Subsec. (a)(2). Pub. L. 101-508 amended par. (2)
generally, substituting present provisions for provisions which
established graduated increase in applicable limit on aggregate
reduction in fair market value from $600,000 in the case of
decedents dying in 1981 to $750,000 in the case of decedents dying
in 1983 or thereafter.
1988 - Subsec. (b)(5)(A). Pub. L. 100-647 inserted at end ''For
purposes of subsection (c), such surviving spouse shall not be
treated as failing to use such property in a qualified use solely
because such spouse rents such property to a member of such
spouse's family on a net cash basis.''
1986 - Subsec. (c)(7)(D). Pub. L. 99-514 substituted ''section
151(c)(4)'' for ''section 151(e)(4)''.
1984 - Subsec. (d)(3). Pub. L. 98-369 added par. (3).
1983 - Subsec. (b)(5)(C). Pub. L. 97-448, Sec. 104(b)(1), added
subpar. (C).
Subsec. (i)(1)(B)(ii). Pub. L. 97-448, Sec. 104(b)(2)(A),
substituted ''the qualified exchange property'' for ''the other
property''.
Subsec. (i)(3). Pub. L. 97-448, Sec. 104(b)(2)(B), substituted
''subparagraph (A) or (B)'' for ''subparagraph (A), (B), or (C)''.
1981 - Subsec. (a)(2). Pub. L. 97-34, Sec. 421(a), substituted
''Limit on aggregate reduction in fair market value'' for
''Limitation'' in heading ''shall not exceed the applicable limit
set forth in the following table:'' for ''shall not exceed
$500,000'' in text, and inserted table.
Subsec. (b)(1). Pub. L. 97-34, Sec. 421(b)(1), substituted
''qualified use by the decedent or a member of the decedent's
family'' for ''qualified use'' in provision preceding subpar. (A),
and in subpars. (A)(i) and (C)(i).
Subsec. (b)(4), (5). Pub. L. 97-34, Sec. 421(b)(2), added pars.
(4) and (5).
Subsec. (c)(1). Pub. L. 97-34, Sec. 421(c)(1)(A), substituted
''10 years'' for ''15 years''.
Subsec. (c)(2)(E). Pub. L. 97-34, Sec. 421(h)(2), added subpar.
(E).
Subsec. (c)(3). Pub. L. 97-34, Sec. 421(c)(1)(B)(i), redesignated
par. (4) as (3) and struck out former par. (3), which provided for
a phaseout of additional tax between the 10th and 15th years.
Subsec. (c)(4), (5). Pub. L. 97-34, Sec. 421(c)(1)(B)(i),
redesignated pars. (5) and (6) as (4) and (5), respectively.
Former par. (4) redesignated (3).
Subsec. (c)(6). Pub. L. 97-34, Sec. 421(c)(2)(B)(ii), in subpar.
(B) substituted ''more than 3 years'' for ''3 years or more''.
Pub. L. 97-34, Sec. 421(c)(1)(B)(i), redesignated par. (7) as
(6). Former par. (6) redesignated (5).
Subsec. (c)(7). Pub. L. 97-34, Sec. 421(c)(1)(B)(i), (2)(A),
added par. (7). Former par. (7) redesignated (6).
Subsec. (d)(1). Pub. L. 97-34, Sec. 421(j)(3), substituted ''The
election under this section shall be made on the return of the tax
imposed by section 2001. Such election shall be made in such manner
as the Secretary shall by regulations prescribe. Such an election,
once made, shall be irrevocable.'' for ''The election under this
section shall be made not later than the time prescribed by section
6075(a) for filing the return of tax imposed by section 2001
(including extensions thereof), and shall be made in such manner as
the Secretary shall by regulations prescribe.''
Subsec. (e)(2). Pub. L. 97-34, Sec. 421(i), substituted
provisions designated subpars. (A) through (D) for ''such
individual's ancestor or lineal descendant, a lineal descendant of
a grandparent of such individual, the spouse of such individual, or
the spouse of any such descendant''.
Subsec. (e)(7). Pub. L. 97-34, Sec. 421(f), added subpar. (B),
redesignated former subpar. (B) as (C), and inserted ''and that
there is no comparable land from which the average net share rental
may be determined'' after ''determined'' in subpar. (C), without
specifying whether the language was to be inserted in cl. (i) or
(ii) of subpar. (C). In view of H. Rept. No. 97-201, 97th Cong.,
July 14, 1981, p. 492, the language was inserted in cl. (ii) as the
probable intent of Congress.
Subsec. (e)(9). Pub. L. 97-34, Sec. 421(j)(2)(A), struck out from
subpar. (B) ''in satisfaction of the right of such person to a
pecuniary bequest'' after ''from the estate'' and in subpar. (C)
substituted ''(to the extent such property is includible in the
gross estate of the decedent)'' for ''in satisfaction of a right
(which such person has by reason of the death of the decedent) to
receive from the trust a specific dollar amount which is the
equivalent of a pecuniary bequest''.
Subsec. (e)(12). Pub. L. 97-34, Sec. 421(c)(2)(B)(i), added par.
(12).
Subsec. (e)(13), (14). Pub. L. 97-34, Sec. 421(h)(1), (j)(4),
added pars. (13) and (14).
Subsec. (f)(1). Pub. L. 97-34, Sec. 421(e)(2), substituted ''to
which subsection (h)'' for ''to which an election under subsection
(h)''.
Pub. L. 97-34, Sec. 421(d)(2)(A), substituted ''conversion or
exchange'', ''(h) or (i)'', and ''replace or of the exchange of
property'' for ''conversion'', ''(h)'', and ''replace''.
Subsec. (g). Pub. L. 97-34, Sec. 421(j)(1), inserted provision
that for purposes of the preceding sentence, an interest in a
discretionary trust all the beneficiaries of which are qualified
heirs shall be treated as a present interest.
Subsec. (h)(1)(A). Pub. L. 97-34, Sec. 421(e)(1)(A), struck out
''and the qualified heir makes an election under this subsection''
after ''qualified real property''.
Subsec. (h)(2)(A). Pub. L. 97-34, Sec. 421(c)(1)(B)(ii),
substituted ''; except that'' for '', except that'' and ''the
10-year period'' for ''the 15-year period'', deleted cl. (i)
designation, and struck out cl. (ii), which provided the phaseout
period under par. (3) of subsec. (c) be appropriately adjusted to
take into account the extension referred to in cl. (i).
Subsec. (h)(2)(C). Pub. L. 97-34, Sec. 421(c)(1)(B)(iii),
substituted ''(6)'' for ''(7)'' in provisions preceding cl. (i).
Subsec. (h)(5). Pub. L. 97-34, Sec. 421(e)(1)(B), struck out par.
(5) which provided for making a subsec. (h) election at such time
and in such manner as the Secretary may by regulations prescribe.
Subsec. (i). Pub. L. 97-34, Sec. 421(d)(1), added subsec. (i).
1978 - Subsec. (b)(1). Pub. L. 95-600, Sec. 702(d)(1), inserted
''which was acquired from or passed from the decedent to a
qualified heir of the decedent and'' after ''located in the United
States''.
Subsec. (c)(6). Pub. L. 95-600, Sec. 702(d)(5)(A), inserted
''unless the heir has furnished bond which meets the requirements
of subsection (e)(11)'' after ''respect to his interest''.
Subsec. (e)(9). Pub. L. 95-600, Sec. 702(d)(2), added par. (9).
Subsec. (e)(10). Pub. L. 95-600, Sec. 702(d)(4), added par. (10).
Subsec. (e)(11). Pub. L. 95-600, Sec. 702(d)(5)(B), added par.
(11).
Subsec. (f)(1). Pub. L. 95-472, Sec. 4(c), inserted provision
relating to the expiration of the statutory period for the
assessment of additional tax due under subsec. (c) in the case of
an involuntary conversion to which an election under subsec. (h) is
applicable.
Subsec. (h). Pub. L. 95-472, Sec. 4(a), added subsec. (h).
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by section 501(b) of Pub. L. 105-34 applicable to
estates of decedents dying, and gifts made, after Dec. 31, 1997,
see section 501(f) of Pub. L. 105-34, set out as a note under
section 2001 of this title.
Section 504(c) of Pub. L. 105-34 provided that: ''The amendments
made by this section (amending this section) shall apply with
respect to leases entered into after December 31, 1976.''
Amendment by section 508(c) of Pub. L. 105-34 applicable to
easements granted after Dec. 31, 1997, see section 508(e)(2) of
Pub. L. 105-34, set out as a note under section 170 of this title.
Section 1313(b) of Pub. L. 105-34 provided that: ''The amendment
made by subsection (a) (amending this section) shall apply to the
estates of decedents dying after the date of the enactment of this
Act (Aug. 5, 1997).''
EFFECTIVE DATE OF 1988 AMENDMENT
Section 6151(b) of Pub. L. 100-647 provided that:
''(1) In general. - The amendment made by subsection (a)
(amending this section) shall apply with respect to rentals
occurring after December 31, 1976.
''(2) Waiver of statute of limitations. - If on the date of the
enactment of this Act (Nov. 10, 1988) (or at any time within 1 year
after such date of enactment) refund or credit of any overpayment
of tax resulting from the application of the amendment made by
subsection (a) is barred by any law or rule of law, refund or
credit of such overpayment shall, nevertheless, be made or allowed
if claim therefore is filed before the date 1 year after the date
of the enactment of this Act.''
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to taxable years beginning
after Dec. 31, 1986, see section 151(a) of Pub. L. 99-514, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 1025(b) of Pub. L. 98-369, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - The amendment made by this section (amending
this section) shall apply to estates of decedents dying after
December 31, 1976.
''(2) Refund or credit of overpayment barred by statute of
limitations. - Notwithstanding section 6511(a) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954) or any other period of
limitation or lapse of time, a claim for credit or refund of
overpayment of the tax imposed by such Code which arises by reason
of this section may be filed by any person at any time within the
1-year period beginning on the date of the enactment of this Act
(July 18, 1984). Sections 6511(b) and 6514 of such Code shall not
apply to any claim for credit or refund filed under this subsection
within such 1-year period.''
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective, except as otherwise
provided, as if it had been included in the provision of the
Economic Recovery Tax Act of 1981, Pub. L. 97-34, to which such
amendment relates, see section 109 of Pub. L. 97-448, set out as a
note under section 1 of this title.
EFFECTIVE DATE OF 1981 AMENDMENT
Section 421(k) of Pub. L. 97-34, as amended by Pub. L. 97-448,
title I, Sec. 104(b)(4), Jan. 12, 1983, 96 Stat. 2382; Pub. L.
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
''(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section (amending this
section and sections 1016, 1040, and 6324B of this title) shall
apply with respect to the estates of decedents dying after December
31, 1981.
''(2) Increase in limitation. - The amendment made by subsection
(a) (amending this section) shall apply with respect to the estates
of decedents dying after December 31, 1980.
''(3) Subsection (d). - The amendments made by subsection (d)
(amending this section and section 6324B of this title) shall apply
with respect to exchanges after December 31, 1981.
''(4) Subsection (e). - The amendments made by subsection (e)
(amending this section) shall apply with respect to involuntary
conversions after December 31, 1981.
''(5) Certain amendments made retroactive to 1976. -
''(A) In general. - The amendments made by subsections (b)(1),
(j)(1), and (j)(2) (amending this section and section 1040 of
this title) and the provisions of subparagraph (A) of section
2032A(c)(7) of the Internal Revenue Code of 1986 (formerly I.R.C.
1954) (as added by subsection (c)(2)) shall apply with respect to
the estates of decedents dying after December 31, 1976.
''(B) Timely election required. - Subparagraph (A) shall only
apply in the case of an estate if a timely election under section
2032A was made with respect to such estate. If the estate of any
decedent would not qualify under section 2032A of the Internal
Revenue Code of 1986 but for the amendments described in
subparagraph (A) and the time for making an election under
section 2032A with respect to such estate would (but for this
sentence) expire after July 28, 1980, the time for making such
election shall not expire before the close of February 16, 1982.
''(C) Reinstatement of elections. - If any election under
section 2032A was revoked before the date of the enactment of
this Act (Aug. 13, 1981), such election may be reinstated at any
time before February 17, 1982.
''(D) Statute of limitations. - If on the date of the enactment
of this Act (Aug. 13, 1981) (or at any time before February 17,
1982) the making of a credit or refund of any overpayment of tax
resulting from the amendments described in subparagraph (A) is
barred by any law or rule of law, such credit or refund shall
nevertheless be made if claim therefor is made before February
17, 1982.''
EFFECTIVE DATE OF 1978 AMENDMENTS
Section 702(d)(6) of Pub. L. 95-600 provided that: ''The
amendments made by this subsection (amending this section and
section 1040 of this title) shall apply to the estates of decedents
dying after December 31, 1976.''
Amendment of section by Pub. L. 95-472 applicable with respect to
involuntary conversions after Dec. 31, 1976, see section 4(d) of
Pub. L. 95-472, set out as a note under section 1016 of this title.
EFFECTIVE DATE
Section 2003(e) of Pub. L. 94-455 provided that: ''The amendments
made by this section (enacting this section and section 6324B of
this title and amending section 2013 of this title) shall apply to
the estates of decedents dying after December 31, 1976.''
SAVINGS PROVISION
For provisions that nothing in amendment by Pub. L. 101-508 be
construed to affect treatment of certain transactions occurring,
property acquired, or items of income, loss, deduction, or credit
taken into account prior to Nov. 5, 1990, for purposes of
determining liability for tax for periods ending after Nov. 5,
1990, see section 11821(b) of Pub. L. 101-508, set out as a note
under section 29 of this title.
WAIVER OF STATUTE OF LIMITATION FOR TAXES ON CERTAIN FARM
VALUATIONS
Pub. L. 107-16, title V, Sec. 581, June 7, 2001, 115 Stat. 93,
provided that: ''If on the date of the enactment of this Act (June
7, 2001) (or at any time within 1 year after the date of the
enactment) a refund or credit of any overpayment of tax resulting
from the application of section 2032A(c)(7)(E) of the Internal
Revenue Code of 1986 is barred by any law or rule of law, the
refund or credit of such overpayment shall, nevertheless, be made
or allowed if claim therefor is filed before the date 1 year after
the date of the enactment of this Act.''
INFORMATION NECESSARY FOR VALID SPECIAL USE VALUATION ELECTION
Section 1421 of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1014(f), Nov. 10, 1988, 102 Stat. 3562, provided
that:
''(a) In General. - In the case of any decedent dying before
January 1, 1986, if the executor -
''(1) made an election under section 2032A of the Internal
Revenue Code of 1954 (now 1986) on the return of tax imposed by
section 2001 of such Code, and
''(2) provided substantially all the information with respect
to such election required on such return of tax,
such election shall be a valid election for purposes of section
2032A of such Code.
''(b) Executor Must Provide Information. - An election described
in subsection (a) shall not be valid if the Secretary of the
Treasury or his delegate after the date of the enactment of this
Act (Oct. 22, 1986) requests information from the executor with
respect to such election and the executor does not provide such
information within 90 days of receipt of such request.
''(c) Effective Date. - The provisions of this section shall not
apply to the estate of any decedent if before the date of the
enactment of this Act (Oct. 22, 1986) the statute of limitations
has expired with respect to -
''(1) the return of tax imposed by section 2001 of the Internal
Revenue Code of 1954 (now 1986), and
''(2) the period during which a claim for credit or refund may
be timely filed.
''(d) Special Rule for Certain Estate. - Notwithstanding
subsection (a)(2), the provisions of this section shall apply to
the estate of an individual who died on January 30, 1984, and with
respect to which -
''(1) a Federal estate tax return was filed on October 30,
1984, electing current use valuation, and
''(2) the agreement required under section 2032A was filed on
November 9, 1984.''
LAND DIVERTED UNDER 1983 PAYMENT-IN-KIND PROGRAM
Land diverted from production of agricultural commodities under a
1983 payment-in-kind program to be treated, for purposes of this
section, as used during the 1983 crop year by qualified taxpayers
in the active conduct of the trade or business of farming, with
qualified taxpayers who materially participate in the diversion and
devotion to conservation uses under a 1983 payment-in-kind program
to be treated as materially participating in the operation of such
land during the 1983 crop year, see section 3 of Pub. L. 98-4, set
out as a note under section 61 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 263A, 453, 453A, 469,
664, 1014, 1016, 1040, 1223, 1396, 1397C, 2013, 2031, 2035, 2056A,
2057, 2624, 2663, 6324B of this title.
