August 18, 2010
www.gfb.org
Vol. 28 No. 33
FEINSTEIN BILL CALLS FOR ESTATE TAX DEFERMENT Sen. Dianne Feinstein (D-Calif.) is proposing the deferral of estate taxes under certain conditions in the Family Farm Estate Tax Deferral Act of 2010 (S. 3664), the latest congressional attempt to address the estate tax issue beyond 2010. The estate tax in 2010 is zero, but without congressional intervention, the federal estate tax will revert in 2011 to what it was before 2001, with a top tax rate of 55 percent and a $1 million exemption. Both the House and Senate are in recess until Sept. 13. The House is expected to adjourn Oct. 8, while the Senate has yet to set a target adjournment date. Feinstein’s bill would defer estate taxes on farms and ranches if a number of requirements are met, including that the farm must be passed on to a family member who has been materially engaged in its management and operation for at least five years, and the heirs must continue to use the land for farming purposes. The bill also requires that farm-related income of the person who dies not exceed $750,000 in any of the last three years of his or her life. Under the provisions of the Feinstein bill, if the inherited farm or ranch is sold outside the family or no longer used for farming or ranching, a “recapture tax” would be owed. The tax would be based on the value of the estate or property at the time the property is sold or ceases to be used for agriculture. The sale of timber or a conservation easement would not be subject to the recapture tax. The Feinstein bill is similar to the Family Farm Preservation and Conservation Estate Tax Act (H.R. 3524), introduced in the House last year by Rep. Mike Thompson (DCalif). Feinstein’s bill would require difficult estate-tax planning. For example, because material participation is required, a farmer no longer actively participating in the farm operation because of disability or retirement or because he rents out the land might no longer be eligible for the tax deferment. Farm Bureau continues to advocate a permanent repeal of the estate tax, and until that occurs supports a higher exemption level that is indexed to inflation. Farm Bureau supports a proposal by Sens. Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) to set the estate tax exemption rate at $5 million with a 35 percent maximum tax rate. The proposal was submitted by Lincoln and Kyl as an amendment to the Small Business Jobs Act of 2010 (H.R. 5297), one of several amendments that have been blocked by Senate Democrats. The Lincoln-Kyl amendment gives simple “no strings attached” estate tax relief.