2 SECTION 1. RATE OF INTEREST ON ESTATE TAX ATTRIBUTABLE TO REVERSIONARY OR REMAINDER INTERESTS IN PROPERTY. (a) IN GENERAL. - Section 6601 of the Internal Revenue Code of 1986 (relating to interest on underpayment, nonpayment, or extension of time for payment, of tax) is amended by redesignating subsection (k) as subsection (1) and by inserting after subsection (j) the following new subsection: (k) RATE OF INTEREST ON PORTION OF ESTATE TAX POSTPONED UNDER SECTION 6163 (A). (1) IN GENERAL. - If the time for payment of an amount of tax imposed by chapter 11 is postponed as provided in section 6163(1), interest on the amount so postponed shall (in lieu of the annual rate provided by subsection (a)) be paid at the discount rate (and compounded annually) for the period of the postponement under section 6163 (a). the term (2) DISCOUNT RATE.-- For purposes of paragraph (1), discount rate means the rate used for purposes of chapter 11 to value the reversionary or remainder interest in property included in the gross estate. (1) IN GENERAL. The amendment made by this section shall apply to interest on taxes payable by estates in which the value of the reversionary or remainder interest in property included in the gross estate exceeds 45 percent of the value of the gross estate and the payment of which is 1 2 3 7 10 11 12 13 . 3 postponed until after October 6, 1988, under section 6163 of the Internal Revenue Code of 1986. (2) EXCEPTION FOR INTEREST PAID.--The interest required to be paid with respect to an estate tax postponed under section 6163 of such Code after the application of the amendment made by this section shall not be less than the interest paid on or before October 6, 1988, with respect to the estate tax so postponed. (3) EXCEPTION FOR INTEREST FOR PERIODS TO WHICH 4 PERCENT RATE APPLIED.--The amendment made by this section shall not apply to interest for periods to which section 6601(b) of the Internal Revenue Code of 1954 applied (as in effect before its repeal by Public Law 93-625). 14 SEC. 2. LIMITATION ON ESTATES ELIGIBLE TO POSTPONE PAYMENT OF TAX BY REASON OF INCLUDIBLE REVERSIONARY OR 13 REMAINDER INTEREST. GENERAL.--Subsection (1) of section stil of the 13 Internal Ravenue Code of 1386 is amended- 19 20 2: 22 23 24 25 (i) by striking the 3:083 estats, and inserting .''the grass estata and the value of such interests exceeds 30 percent of the value of the gross estate, ́ and (2) by striking 'such interest ́ ́ and inserting such incares:3 (5) Effective DATE.--The amendment made by subsection (a) 1 shall apply to estates with respect to which an election is 2 made under section 6163(a) of the Internal Revenue Code of 3 1986 after the date of the enactment of this Act. The National Association of Industrial and Office Parks respectfully offers the following comment regarding the Discussion Draft on Section 2036 (c) relates to transfers with retained life estates. Estate Freezes NAIOP supports the repeal of Section 2036 (c) qualification. as it without Although said Section, together with many others of the Internal Revenue Code, seeks to protect against tax abuse, the ripple effect of this Section is the systemic destruction of small businesses (and in this instance, family-owned businesses) and entrepreneurial activity, forcing the businesses to either be ceded to. larger companies or simply go out of business, to pay death taxes. We believe that the effect of this Section is far more inimical to the societal and economic fabric of this country than any revenue that can possibly be generated by its existence. The National Association of Industrial and Office Parks (NAIOP) represents over 7,500 professionals involved in developing, master planning, designing, constructing, financing and managing industrial and office properties. The Association's national headquarters are in Arlington, Virginia, (703) 979-3400. Thank you for your consideration. Sincerely, Frank D. Visceglia "Building Better Workplaces" The National Federation of Independent Business (NFIB) appreciates this opportunity to explain the problems small family businesses are having with section 2036 (c) and to comment on the discussion draft released by this Committee to replace this law with more workable estate tax rules. NFIB is the nation's largest small business advocacy organization, representing the interests of more than 570,000 small and independent business owners throughout the country. Our members appreciate the efforts of the Treasury Department and Members of this Committee who have made great efforts to address the problems created by section 2036(c). ESTATE TAXES BEFORE SECTION 2036(c) Section 2036(c) has exacerbated a problem faced by parents that have spent their lives building a family business that could be passed along to their children. Even before the arrival of section 2036 (c), the owners of small family businesses were forced to sell off some or all of their assets upon the death of the parent for two reasons: (1) business assets are treated by the law as if they are liquid; and (2) the estate tax rate taxpayers must pay is too high, hitting a maximum of 55 percent. Under current law, a business is valued when the owner dies, and the estate has to pay estate taxes on that value even if very few of the business's assets are liquid. If the business owns a building or a large amount of inventory, the taxes on these non-liquid assets can only be paid by selling part or all of the assets. Current law already recognizes the problems this creates for family farms, and allows the owners of family farms to value them on their "current" use instead of their "highest and best" use. This distinction allows farmers to avoid paying tax on their land as if it was used for Washington, DC 2002+ development. Distinguishing between current and highest and best use is also allowed for closely held businesses, but there is usually little difference between the two and the protection from estate taxes small business owners receive from this rule is minimal. To better protect family businesses from devastating estate taxes, this Committee should consider legislating: (1) special valuation rules which would lower the value of family Suite 700 600 Maryland Ave. S.W The Guardian of Small Business |