Family Enterprise Estate and Gift Tax Equity and Reduction Act

Family Enterprise Estate and Gift Tax Equity and Reduction Act - Amends the Internal Revenue Code to reduce the estate and gift tax rates. Increases the unified credit against the estate and gift taxes from $47,000 to $103,500 by specified annual increments through 1985. Increases from $175,000 to $600,000, by specified annual increments through 1985, the minimum gross estate requirement for filing of a return.

Repeals the existing limitations on the marital deduction for gift and estate taxes. Permits an election by an executor to take into account a life estate which passes to a surviving spouse for purposes of determining the marital deduction. Includes amounts equal to the value of such interests in the estate of the surviving spouse for purposes of imposition of the estate tax.

Increases from $3,000 to $10,000 the annual gift tax exclusion.

Revises the definition of "qualified real property," for purposes of the special use valuation, to include: (1) real property which is put to a qualified use by a member of the decedent's family; (2) certain future interests; and (3) timber.

Qualifies estates of decedents who were disabled or retired for the special use valuation if such decedents materially participated in the operation of the farm or business for five out of eight years preceding the year in which they became disabled or eligible for disability benefits, under title II (Old Age, Survivors and Disability Insurance) of the Social Security Act. Permits the spouse of a decedent to use such valuation if the spouse has managed the farm or business for ten years preceding the decedent's death or takes over active management upon the decedent's death. Qualifies the owner of a woodland for the special use valuation if the owner or a member of the owner's family actively managed the property for ten years prior to the owner's death. Includes as property qualified for the valuation certain future and partial interests. Reduces from 15 to ten years the length of time a qualified property must be held and put to a qualified use following the decedent's death before it can be disposed of without incurring a recapture of estate tax benefits. Permits active management rather than material participation as a test for qualification of the estate for spouses, children under 21, students, and disabled individuals who receive property from a decedent who qualified for special use valuation.

Modifies the formula for recapture upon partial disposition of qualified property to include in the calculation of the additional tax imposed the adjusted tax difference attributable to the property disposed of or ceased to be used for a qualified use.

Repeals the $500,000 limitation on the aggregate decrease in the value of property to which the special use valuation is applied.

Allows the like kind exchange of property without loss of special use valuation eligibility. Permits, for purposes of calculating the five-year period required for qualification of real property, the aggregation of periods with respect to exchange property with those with respect to property included in the gross estate. Repeals the requirement that an heir elect special treatment for involuntary conversions of qualified real property, thus making such treatment automatic upon such conversion.

Applies the special use valuation provisions to: (1) property which passes to a trust all of the beneficiaries of which are members of the decedent's family without regard to whether any beneficiary has a present interest in the trust; and (2) property held by a trust in which the decedent has an interest which is includible in the decedent's estate and which passes to a qualified heir as though the decedent had a direct interest in the property.

Alters the method of valuing farms and woodlands and provides an alternate discount method of valuation.

Expands the definition of "member of the family," for purposes of determining special use valuation eligibility, to include members of a spouse's family.

Permits a parent or fiduciary of a person under a legal disability to sign an agreement to the application of recapture provisions on behalf of such person.

Specifies that the estate tax deduction for certain indebtedness of an estate shall not be reduced if the value of the property is determined by applying the special use valuation.

States that gifts made within three years of a decedent's death shall be valued as of the time of transfer rather than as of the date of death.

Allows an individual to elect to pay a gift tax rather than use the unified tax credit.

Modifies the alternate extension of time for payment of the estate tax where the estate consists largely of an interest in a closely held business to: (1) allow an installment payment election if the value of the interest in the closely held business is either 25 percent of the value of the gross estate or 35 percent of the taxable estate; (2) alter the definition of "interest in a closely held business"; (3) increase to 50 percent the value of an interest disposed of which will accelerate the payment of tax; and (4) permit payment, but with a penalty, of an installment within six months after the due date. Revises rules for determining whether property qualifies as an interest in a closely held business with respect to property included in the gross estate which is transferred prior to death and ownership of assets leased to or used by a family-owned business.

Revises rules regarding the qualification of corporate distributions of property in redemption of stock which is included in a decedent's gross estate. Removes the limitation on substantially disproportionate redemptions of stock of a corporation which is a closely held business. Revises the formula for determining whether such redemptions are substantially disproportionate and the rule for determining whether a shareholder's interest in a corporation is terminated.

Applies the four percent rate of interest on estate tax payments extended under the alternate extension of time provisions to the entire amount of the tax to be paid.

Permits an election to value at 50 percent of its value an interest in a closely held business the net equity of which is less than $50,000,000. Imposes an additional estate tax if such interest is disposed of within ten years after the decedent's death.

Allows a disclaimer of an interest in property for estate tax purposes in specified circumstances where such disclaimer does not result in the passing of the interest concerned under the applicable State law.