II

Calendar No. 608

106TH CONGRESS

2D SESSION H. R. 8

IN THE SENATE OF THE UNITED STATES

JUNE 12, 2000

Received

JUNE 19, 2000

Read twice and ordered placed on the calendar

AN ACT

To amend the Internal Revenue Code of 1986 to phaseout

the estate and gift taxes over a 10-year period.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; ETC.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Death Tax Elimination Act of 2000’’.

4 (b) AMENDMENT OF 1986 CODE.—Except as other5 wise expressly provided, whenever in this Act an amend6 ment or repeal is expressed in terms of an amendment

7 to, or repeal of, a section or other provision, the reference

8 shall be considered to be made to a section or other provi9 sion of the Internal Revenue Code of 1986.

10 TITLE I—REPEAL OF ESTATE,

11 GIFT, AND GENERATION-SKIP12 PING TAXES; REPEAL OF

13 STEP UP IN BASIS AT DEATH

14 SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION15 SKIPPING TAXES.

16 (a) IN GENERAL.—Subtitle B is hereby repealed.

17 (b) EFFECTIVE DATE.—The repeal made by sub18 section (a) shall apply to the estates of decedents dying,

19 and gifts and generation-skipping transfers made, after

20 December 31, 2009.

21 SEC. 102. TERMINATION OF STEP UP IN BASIS AT DEATH.

22 (a) TERMINATION OF APPLICATION OF SECTION

23 1014.—Section 1014 (relating to basis of property ac24 quired from a decedent) is amended by adding at the end

25 the following:
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1 ‘‘(f) TERMINATION.—In the case of a decedent dying

2 after December 31, 2009, this section shall not apply to

3 property for which basis is provided by section 1022.’’.

4 (b) CONFORMING AMENDMENT.—Subsection (a) of

5 section 1016 (relating to adjustments to basis) is amended

6 by striking ‘‘and’’ at the end of paragraph (26), by strik7 ing the period at the end of paragraph (27) and inserting

8 ‘‘, and’’, and by adding at the end the following:

9 ‘‘(28) to the extent provided in section 1022

10 (relating to basis for certain property acquired from

11 a decedent dying after December 31, 2009).’’.

12 SEC. 103. CARRYOVER BASIS AT DEATH.

13 (a) GENERAL RULE.—Part II of subchapter O of

14 chapter 1 (relating to basis rules of general application)

15 is amended by inserting after section 1021 the following

16 new section:

17 ‘‘SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY

18 ACQUIRED FROM A DECEDENT DYING AFTER

19 DECEMBER 31, 2009.

20 ‘‘(a) CARRYOVER BASIS.—Except as otherwise pro21 vided in this section, the basis of carryover basis property

22 in the hands of a person acquiring such property from a

23 decedent shall be determined under section 1015.

24 ‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—
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1 ‘‘(1) IN GENERAL.—For purposes of this sec2 tion, the term ‘carryover basis property’ means any

3 property—

4 ‘‘(A) which is acquired from or passed

5 from a decedent who died after December 31,

6 2009, and

7 ‘‘(B) which is not excluded pursuant to

8 paragraph (2).

9 The property taken into account under subpara10 graph (A) shall be determined under section 1014(b)

11 without regard to subparagraph (A) of the last sen12 tence of paragraph (9) thereof.

13 ‘‘(2) CERTAIN PROPERTY NOT CARRYOVER

14 BASIS PROPERTY.—The term ‘carryover basis prop15 erty’ does not include—

16 ‘‘(A) any item of gross income in respect

17 of a decedent described in section 691,

18 ‘‘(B) property of the decedent to the extent

19 that the aggregate adjusted fair market value

20 of such property does not exceed $1,300,000,

21 and

22 ‘‘(C) property which was acquired from the

23 decedent by the surviving spouse of the dece24 dent (and which would be carryover basis prop25 erty without regard to this subparagraph) but
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1 only if the value of such property would have

2 been deductible from the value of the taxable

3 estate of the decedent under section 2056, as in

4 effect on the day before the date of the enact5 ment of the Death Tax Elimination Act of

6 2000.

7 For purposes of this subsection, the term ‘adjusted

8 fair market value’ means, with respect to any prop9 erty, fair market value reduced by any indebtedness

10 secured by such property.

11 ‘‘(3) LIMITATION ON EXCEPTION FOR PROP12 ERTY ACQUIRED BY SURVIVING SPOUSE.—The ad13 justed fair market value of property which is not

14 carryover basis property by reason of paragraph

15 (2)(C) shall not exceed $3,000,000.

16 ‘‘(4) ALLOCATION OF EXCEPTED AMOUNTS.—

17 The executor shall allocate the limitations under

18 paragraphs (2)(B) and (3).

19 ‘‘(5) INFLATION ADJUSTMENT OF EXCEPTED

20 AMOUNTS.—In the case of decedents dying in a cal21 endar year after 2010, the dollar amounts in para22 graphs (2)(B) and (3) shall each be increased by an

23 amount equal to the product of—

24 ‘‘(A) such dollar amount, and
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1 ‘‘(B) the cost-of-living adjustment deter2 mined under section 1(f)(3) for such calendar

3 year, determined by substituting ‘2009’ for

4 ‘1992’ in subparagraph (B) thereof.

5 If any increase determined under the preceding sen6 tence is not a multiple of $10,000, such increase

7 shall be rounded to the nearest multiple of $10,000.

8 ‘‘(c) REGULATIONS.—The Secretary shall prescribe

9 such regulations as may be necessary to carry out the pur10 poses of this section.’’.

11 (b) MISCELLANEOUS AMENDMENTS RELATED TO

12 CARRYOVER BASIS.—

13 (1) CAPITAL GAIN TREATMENT FOR INHERITED

14 ART WORK OR SIMILAR PROPERTY.—

15 (A) IN GENERAL.—Subparagraph (C) of

16 section 1221(a)(3) (defining capital asset) is

17 amended by inserting ‘‘(other than by reason of

18 section 1022)’’ after ‘‘is determined’’.

19 (B) COORDINATION WITH SECTION 170.—

20 Paragraph (1) of section 170(e) (relating to

21 certain contributions of ordinary income and

22 capital gain property) is amended by adding at

23 the end the following: ‘‘For purposes of this

24 paragraph, the determination of whether prop25 erty is a capital asset shall be made without re-
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1 gard to the exception contained in section

2 1221(a)(3)(C) for basis determined under sec3 tion 1022.’’.

4 (2) DEFINITION OF EXECUTOR.—Section

5 7701(a) (relating to definitions) is amended by add6 ing at the end the following:

7 ‘‘(47) EXECUTOR.—The term ‘executor’ means

8 the executor or administrator of the decedent, or, if

9 there is no executor or administrator appointed,

10 qualified, and acting within the United States, then

11 any person in actual or constructive possession of

12 any property of the decedent.’’.

13 (3) CLERICAL AMENDMENT.—The table of sec14 tions for part II of subchapter O of chapter 1 is

15 amended by adding at the end the following new

16 item:

‘‘Sec. 1022. Carryover basis for certain property acquired from a

decedent dying after December 31, 2009.’’.

17 (c) EFFECTIVE DATE.—The amendments made by

18 this section shall apply to estates of decedents dying after

19 December 31, 2009.
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1 TITLE II—REDUCTIONS OF ES2 TATE AND GIFT TAX RATES

3 PRIOR TO REPEAL

4 SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT

5 TAX RATES.

6 (a) MAXIMUM RATE OF TAX REDUCED TO 50 PER7 CENT.—

8 (1) IN GENERAL.—The table contained in sec9 tion 2001(c)(1) is amended by striking the two high10 est brackets and inserting the following:

‘‘Over $2,500,000 .......................... $1,025,800, plus 50% of the excess

over $2,500,000.’’.

11 (2) PHASE-IN OF REDUCED RATE.—Subsection

12 (c) of section 2001 is amended by adding at the end

13 the following new paragraph:

14 ‘‘(3) PHASE-IN OF REDUCED RATE.—In the

15 case of decedents dying, and gifts made, during

16 2001, the last item in the table contained in para17 graph (1) shall be applied by substituting ‘53%’ for

18 ‘50%’.’’.

19 (b) REPEAL OF PHASEOUT OF GRADUATED

20 RATES.—Subsection (c) of section 2001 is amended by

21 striking paragraph (2) and redesignating paragraph (3),

22 as added by subsection (a), as paragraph (2).
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1 (c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—

2 Subsection (c) of section 2001, as so amended, is amended

3 by adding at the end the following new paragraph:

4 ‘‘(3) PHASEDOWN OF TAX.—In the case of es5 tates of decedents dying, and gifts made, during any

6 calendar year after 2002 and before 2010—

7 ‘‘(A) IN GENERAL.—Except as provided in

8 subparagraph (C), the tentative tax under this

9 subsection shall be determined by using a table

10 prescribed by the Secretary (in lieu of using the

11 table contained in paragraph (1)) which is the

12 same as such table; except that—

13 ‘‘(i) each of the rates of tax shall be

14 reduced by the number of percentage

15 points determined under subparagraph

16 (B), and

17 ‘‘(ii) the amounts setting forth the tax

18 shall be adjusted to the extent necessary to

19 reflect the adjustments under clause (i).

20 ‘‘(B) PERCENTAGE POINTS OF REDUC21 TION.— The number of

‘‘For calendar year: percentage points is:

2003 ............................................................................. 1.0

2004 ............................................................................. 2.0

2005 ............................................................................. 3.0

2006 ............................................................................. 4.0

2007 ............................................................................. 5.5

2008 ............................................................................. 7.5

2009 ............................................................................. 9.5.
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1 ‘‘(C) COORDINATION WITH INCOME TAX

2 RATES.—The reductions under subparagraph

3 (A)—

4 ‘‘(i) shall not reduce any rate under

5 paragraph (1) below the lowest rate in sec6 tion 1(c), and

7 ‘‘(ii) shall not reduce the highest rate

8 under paragraph (1) below the highest rate

9 in section 1(c).

10 ‘‘(D) COORDINATION WITH CREDIT FOR

11 STATE DEATH TAXES.—Rules similar to the

12 rules of subparagraph (A) shall apply to the

13 table contained in section 2011(b) except that

14 the Secretary shall prescribe percentage point

15 reductions which maintain the proportionate re16 lationship (as in effect before any reduction

17 under this paragraph) between the credit under

18 section 2011 and the tax rates under subsection

19 (c).’’.

20 (d) EFFECTIVE DATES.—

21 (1) SUBSECTIONS (a) AND (b).—The amend22 ments made by subsections (a) and (b) shall apply

23 to estates of decedents dying, and gifts made, after

24 December 31, 2000.
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1 (2) SUBSECTION (c).—The amendment made by

2 subsection (c) shall apply to estates of decedents

3 dying, and gifts made, after December 31, 2002.

4 TITLE III—UNIFIED CREDIT RE5 PLACED WITH UNIFIED EX6 EMPTION AMOUNT

7 SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT

8 TAXES REPLACED WITH UNIFIED EXEMPTION

9 AMOUNT.

10 (a) IN GENERAL.—

11 (1) ESTATE TAX.—Subsection (b) of section

12 2001 (relating to computation of tax) is amended to

13 read as follows:

14 ‘‘(b) COMPUTATION OF TAX.—

15 ‘‘(1) IN GENERAL.—The tax imposed by this

16 section shall be the amount equal to the excess (if

17 any) of—

18 ‘‘(A) the tentative tax determined under

19 paragraph (2), over

20 ‘‘(B) the aggregate amount of tax which

21 would have been payable under chapter 12 with

22 respect to gifts made by the decedent after De23 cember 31, 1976, if the provisions of subsection

24 (c) (as in effect at the decedent’s death) had

25 been applicable at the time of such gifts.
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1 ‘‘(2) TENTATIVE TAX.—For purposes of para2 graph (1), the tentative tax determined under this

3 paragraph is a tax computed under subsection (c) on

4 the excess of—

5 ‘‘(A) the sum of—

6 ‘‘(i) the amount of the taxable estate,

7 and

8 ‘‘(ii) the amount of the adjusted tax9 able gifts, over

10 ‘‘(B) the exemption amount for the cal11 endar year in which the decedent died.

12 ‘‘(3) EXEMPTION AMOUNT.—For purposes of

13 paragraph (2), the term ‘exemption amount’ means

14 the amount determined in accordance with the fol15 lowing table:

‘‘In the case of The exemption

calendar year: amount is:

2001 .......................................................................... $675,000

2002 and 2003 .......................................................... $700,000

2004 .......................................................................... $850,000

2005 .......................................................................... $950,000

2006 or thereafter ..................................................... $1,000,000.

16 ‘‘(4) ADJUSTED TAXABLE GIFTS.—For pur17 poses of paragraph (2), the term ‘adjusted taxable

18 gifts’ means the total amount of the taxable gifts

19 (within the meaning of section 2503) made by the

20 decedent after December 31, 1976, other than gifts

21 which are includible in the gross estate of the dece22 dent.’’.
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1 (2) GIFT TAX.—Subsection (a) of section 2502

2 (relating to computation of tax) is amended to read

3 as follows:

4 ‘‘(a) COMPUTATION OF TAX.—

5 ‘‘(1) IN GENERAL.—The tax imposed by section

6 2501 for each calendar year shall be the amount

7 equal to the excess (if any) of—

8 ‘‘(A) the tentative tax determined under

9 paragraph (2), over

10 ‘‘(B) the tax paid under this section for all

11 prior calendar periods.

12 ‘‘(2) TENTATIVE TAX.—For purposes of para13 graph (1), the tentative tax determined under this

14 paragraph for a calendar year is a tax computed

15 under section 2001(c) on the excess of—

16 ‘‘(A) the aggregate sum of the taxable gifts

17 for such calendar year and for each of the pre18 ceding calendar periods, over

19 ‘‘(B) the exemption amount under section

20 2001(b)(3) for such calendar year.’’.

21 (b) REPEAL OF UNIFIED CREDITS.—

22 (1) Section 2010 (relating to unified credit

23 against estate tax) is hereby repealed.

24 (2) Section 2505 (relating to unified credit

25 against gift tax) is hereby repealed.
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1 (c) CONFORMING AMENDMENTS.—

2 (1)(A) Subsection (b) of section 2011 is

3 amended—

4 (i) by striking ‘‘adjusted’’ in the table; and

5 (ii) by striking the last sentence.

6 (B) Subsection (f) of section 2011 is amended

7 by striking ‘‘, reduced by the amount of the unified

8 credit provided by section 2010’’.

9 (2) Subsection (a) of section 2012 is amended

10 by striking ‘‘and the unified credit provided by sec11 tion 2010’’.

12 (3) Subparagraph (A) of section 2013(c)(1) is

13 amended by striking ‘‘2010,’’.

14 (4) Paragraph (2) of section 2014(b) is amend15 ed by striking ‘‘2010, 2011,’’ and inserting ‘‘2011’’.

16 (5) Clause (ii) of section 2056A(b)(12)(C) is

17 amended to read as follows:

18 ‘‘(ii) to treat any reduction in the tax

19 imposed by paragraph (1)(A) by reason of

20 the credit allowable under section 2010 (as

21 in effect on the day before the date of the

22 enactment of the Death Tax Elimination

23 Act of 2000) or the exemption amount al24 lowable under section 2001(b) with respect

25 to the decedent as a credit under section
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1 2505 (as so in effect) or exemption under

2 section 2521 (as the case may be) allow3 able to such surviving spouse for purposes

4 of determining the amount of the exemp5 tion allowable under section 2521 with re6 spect to taxable gifts made by the sur7 viving spouse during the year in which the

8 spouse becomes a citizen or any subse9 quent year,’’.

10 (6) Subsection (a) of section 2057 is amended

11 by striking paragraphs (2) and (3) and inserting the

12 following new paragraph:

13 ‘‘(2) MAXIMUM DEDUCTION.—The deduction al14 lowed by this section shall not exceed the excess of

15 $1,300,000 over the exemption amount (as defined

16 in section 2001(b)(3)).’’.

17 (7)(A) Subsection (b) of section 2101 is amend18 ed to read as follows:

19 ‘‘(b) COMPUTATION OF TAX.—

20 ‘‘(1) IN GENERAL.—The tax imposed by this

21 section shall be the amount equal to the excess (if

22 any) of—

23 ‘‘(A) the tentative tax determined under

24 paragraph (2), over
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1 ‘‘(B) a tentative tax computed under sec2 tion 2001(c) on the amount of the adjusted tax3 able gifts.

4 ‘‘(2) TENTATIVE TAX.—For purposes of para5 graph (1), the tentative tax determined under this

6 paragraph is a tax computed under section 2001(c)

7 on the excess of—

8 ‘‘(A) the sum of—

9 ‘‘(i) the amount of the taxable estate,

10 and

11 ‘‘(ii) the amount of the adjusted tax12 able gifts, over

13 ‘‘(B) the exemption amount for the cal14 endar year in which the decedent died.

15 ‘‘(3) EXEMPTION AMOUNT.—

16 ‘‘(A) IN GENERAL.—The term ‘exemption

17 amount’ means $60,000.

18 ‘‘(B) RESIDENTS OF POSSESSIONS OF THE

19 UNITED STATES.—In the case of a decedent

20 who is considered to be a nonresident not a cit21 izen of the United States under section 2209,

22 the exemption amount under this paragraph

23 shall be the greater of—

24 ‘‘(i) $60,000, or
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1 ‘‘(ii) that proportion of $175,000

2 which the value of that part of the dece3 dent’s gross estate which at the time of his

4 death is situated in the United States

5 bears to the value of his entire gross estate

6 wherever situated.

7 ‘‘(C) SPECIAL RULES.—

8 ‘‘(i) COORDINATION WITH TREA9 TIES.—To the extent required under any

10 treaty obligation of the United States, the

11 exemption amount allowed under this para12 graph shall be equal to the amount which

13 bears the same ratio to the exemption

14 amount under section 2001(b)(3) (for the

15 calendar year in which the decedent died)

16 as the value of the part of the decedent’s

17 gross estate which at the time of his death

18 is situated in the United States bears to

19 the value of his entire gross estate wher20 ever situated. For purposes of the pre21 ceding sentence, property shall not be

22 treated as situated in the United States if

23 such property is exempt from the tax im24 posed by this subchapter under any treaty

25 obligation of the United States.
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1 ‘‘(ii) COORDINATION WITH GIFT TAX

2 EXEMPTION AND UNIFIED CREDIT.—If an

3 exemption has been allowed under section

4 2521 (or a credit has been allowed under

5 section 2505 as in effect on the day before

6 the date of the enactment of the Death

7 Tax Elimination Act of 2000) with respect

8 to any gift made by the decedent, each dol9 lar amount contained in subparagraph (A)

10 or (B) or the exemption amount applicable

11 under clause (i) of this subparagraph

12 (whichever applies) shall be reduced by the

13 exemption so allowed under section 2521

14 (or, in the case of such a credit, by the

15 amount of the gift for which the credit was

16 so allowed).’’.

17 (8) Section 2102 is amended by striking sub18 section (c).

19 (9)(A) Subsection (a) of section 2107 is amend20 ed by adding at the end the following new para21 graph:

22 ‘‘(3) LIMITATION ON EXEMPTION AMOUNT.—

23 Subparagraphs (B) and (C) of section 2101(b)(3)

24 shall not apply in applying section 2101 for purposes

25 of this section.’’.
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1 (B) Subsection (c) of section 2107 is

2 amended—

3 (i) by striking paragraph (1) and by redes4 ignating paragraphs (2) and (3) as paragraphs

5 (1) and (2), respectively; and

6 (ii) by striking the second sentence of

7 paragraph (2) (as so redesignated).

8 (10) Paragraph (1) of section 6018(a) is

9 amended by striking ‘‘the applicable exclusion

10 amount in effect under section 2010(c)’’ and insert11 ing ‘‘the exemption amount under section

12 2001(b)(3)’’.

13 (11) Subparagraph (A) of section 6601(j)(2) is

14 amended to read as follows:

15 ‘‘(A) the amount of the tentative tax which

16 would be determined under the rate schedule

17 set forth in section 2001(c) if the amount with

18 respect to which such tentative tax is to be

19 computed were $1,000,000, or’’.

20 (12) The table of sections for part II of sub21 chapter A of chapter 11 is amended by striking the

22 item relating to section 2010.

23 (13) The table of sections for subchapter A of

24 chapter 12 is amended by striking the item relating

25 to section 2505.
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1 (d) EFFECTIVE DATE.—The amendments made by

2 this section—

3 (1) insofar as they relate to the tax imposed by

4 chapter 11 of the Internal Revenue Code of 1986,

5 shall apply to estates of decedents dying after De6 cember 31, 2000; and

7 (2) insofar as they relate to the tax imposed by

8 chapter 12 of such Code, shall apply to gifts made

9 after December 31, 2000.

10 TITLE IV—MODIFICATIONS OF

11 GENERATION-SKIPPING

12 TRANSFER TAX

13 SEC. 401. DEEMED ALLOCATION OF GST EXEMPTION TO

14 LIFETIME TRANSFERS TO TRUSTS; RETRO15 ACTIVE ALLOCATIONS.

16 (a) IN GENERAL.—Section 2632 (relating to special

17 rules for allocation of GST exemption) is amended by re18 designating subsection (c) as subsection (e) and by insert19 ing after subsection (b) the following new subsections:

20 ‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME

21 TRANSFERS TO GST TRUSTS.—

22 ‘‘(1) IN GENERAL.—If any individual makes an

23 indirect skip during such individual’s lifetime, any

24 unused portion of such individual’s GST exemption

25 shall be allocated to the property transferred to the
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1 extent necessary to make the inclusion ratio for such

2 property zero. If the amount of the indirect skip ex3 ceeds such unused portion, the entire unused portion

4 shall be allocated to the property transferred.

5 ‘‘(2) UNUSED PORTION.—For purposes of para6 graph (1), the unused portion of an individual’s

7 GST exemption is that portion of such exemption

8 which has not previously been—

9 ‘‘(A) allocated by such individual,

10 ‘‘(B) treated as allocated under subsection

11 (b) with respect to a direct skip occurring dur12 ing or before the calendar year in which the in13 direct skip is made, or

14 ‘‘(C) treated as allocated under paragraph

15 (1) with respect to a prior indirect skip.

16 ‘‘(3) DEFINITIONS.—

17 ‘‘(A) INDIRECT SKIP.—For purposes of

18 this subsection, the term ‘indirect skip’ means

19 any transfer of property (other than a direct

20 skip) subject to the tax imposed by chapter 12

21 made to a GST trust.

22 ‘‘(B) GST TRUST.—The term ‘GST trust’

23 means a trust that could have a generation24 skipping transfer with respect to the transferor

25 unless—
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1 ‘‘(i) the trust instrument provides that

2 more than 25 percent of the trust corpus

3 must be distributed to or may be with4 drawn by one or more individuals who are

5 non-skip persons—

6 ‘‘(I) before the date that the indi7 vidual attains age 46,

8 ‘‘(II) on or before one or more

9 dates specified in the trust instrument

10 that will occur before the date that

11 such individual attains age 46, or

12 ‘‘(III) upon the occurrence of an

13 event that, in accordance with regula14 tions prescribed by the Secretary, may

15 reasonably be expected to occur before

16 the date that such individual attains

17 age 46;

18 ‘‘(ii) the trust instrument provides

19 that more than 25 percent of the trust cor20 pus must be distributed to or may be with21 drawn by one or more individuals who are

22 non-skip persons and who are living on the

23 date of death of another person identified

24 in the instrument (by name or by class)
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1 who is more than 10 years older than such

2 individuals;

3 ‘‘(iii) the trust instrument provides

4 that, if one or more individuals who are

5 non-skip persons die on or before a date or

6 event described in clause (i) or (ii), more

7 than 25 percent of the trust corpus either

8 must be distributed to the estate or estates

9 of one or more of such individuals or is

10 subject to a general power of appointment

11 exercisable by one or more of such individ12 uals;

13 ‘‘(iv) the trust is a trust any portion

14 of which would be included in the gross es15 tate of a non-skip person (other than the

16 transferor) if such person died immediately

17 after the transfer;

18 ‘‘(v) the trust is a charitable lead an19 nuity trust (within the meaning of section

20 2642(e)(3)(A)) or a charitable remainder

21 annuity trust or a charitable remainder

22 unitrust (within the meaning of section

23 664(d)); or

24 ‘‘(vi) the trust is a trust with respect

25 to which a deduction was allowed under
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1 section 2522 for the amount of an interest

2 in the form of the right to receive annual

3 payments of a fixed percentage of the net

4 fair market value of the trust property (de5 termined yearly) and which is required to

6 pay principal to a non-skip person if such

7 person is alive when the yearly payments

8 for which the deduction was allowed termi9 nate.

10 For purposes of this subparagraph, the value of

11 transferred property shall not be considered to

12 be includible in the gross estate of a non-skip

13 person or subject to a right of withdrawal by

14 reason of such person holding a right to with15 draw so much of such property as does not ex16 ceed the amount referred to in section 2503(b)

17 with respect to any transferor, and it shall be

18 assumed that powers of appointment held by

19 non-skip persons will not be exercised.

20 ‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN

21 GST TRUSTS.—For purposes of this subsection, an

22 indirect skip to which section 2642(f) applies shall

23 be deemed to have been made only at the close of

24 the estate tax inclusion period. The fair market

25 value of such transfer shall be the fair market value
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1 of the trust property at the close of the estate tax

2 inclusion period.

3 ‘‘(5) APPLICABILITY AND EFFECT.—

4 ‘‘(A) IN GENERAL.—An individual—

5 ‘‘(i) may elect to have this subsection

6 not apply to—

7 ‘‘(I) an indirect skip, or

8 ‘‘(II) any or all transfers made

9 by such individual to a particular

10 trust, and

11 ‘‘(ii) may elect to treat any trust as a

12 GST trust for purposes of this subsection

13 with respect to any or all transfers made

14 by such individual to such trust.

15 ‘‘(B) ELECTIONS.—

16 ‘‘(i) ELECTIONS WITH RESPECT TO

17 INDIRECT SKIPS.—An election under sub18 paragraph (A)(i)(I) shall be deemed to be

19 timely if filed on a timely filed gift tax re20 turn for the calendar year in which the

21 transfer was made or deemed to have been

22 made pursuant to paragraph (4) or on

23 such later date or dates as may be pre24 scribed by the Secretary.
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1 ‘‘(ii) OTHER ELECTIONS.—An election

2 under clause (i)(II) or (ii) of subparagraph

3 (A) may be made on a timely filed gift tax

4 return for the calendar year for which the

5 election is to become effective.

6 ‘‘(d) RETROACTIVE ALLOCATIONS.—

7 ‘‘(1) IN GENERAL.—If—

8 ‘‘(A) a non-skip person has an interest or

9 a future interest in a trust to which any trans10 fer has been made,

11 ‘‘(B) such person—

12 ‘‘(i) is a lineal descendant of a grand13 parent of the transferor or of a grand14 parent of the transferor’s spouse or former

15 spouse, and

16 ‘‘(ii) is assigned to a generation below

17 the generation assignment of the trans18 feror, and

19 ‘‘(C) such person predeceases the trans20 feror,

21 then the transferor may make an allocation of any

22 of such transferor’s unused GST exemption to any

23 previous transfer or transfers to the trust on a

24 chronological basis.
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1 ‘‘(2) SPECIAL RULES.—If the allocation under

2 paragraph (1) by the transferor is made on a gift

3 tax return filed on or before the date prescribed by

4 section 6075(b) for gifts made within the calendar

5 year within which the non-skip person’s death

6 occurred—

7 ‘‘(A) the value of such transfer or trans8 fers for purposes of section 2642(a) shall be de9 termined as if such allocation had been made

10 on a timely filed gift tax return for each cal11 endar year within which each transfer was

12 made,

13 ‘‘(B) such allocation shall be effective im14 mediately before such death, and

15 ‘‘(C) the amount of the transferor’s unused

16 GST exemption available to be allocated shall

17 be determined immediately before such death.

18 ‘‘(3) FUTURE INTEREST.—For purposes of this

19 subsection, a person has a future interest in a trust

20 if the trust may permit income or corpus to be paid

21 to such person on a date or dates in the future.’’.

22 (b) CONFORMING AMENDMENT.—Paragraph (2) of

23 section 2632(b) is amended by striking ‘‘with respect to

24 a direct skip’’ and inserting ‘‘or subsection (c)(1)’’.

25 (c) EFFECTIVE DATES.—
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1 (1) DEEMED ALLOCATION.—Section 2632(c) of

2 the Internal Revenue Code of 1986 (as added by

3 subsection (a)), and the amendment made by sub4 section (b), shall apply to transfers subject to chap5 ter 11 or 12 made after December 31, 1999, and to

6 estate tax inclusion periods ending after December

7 31, 1999.

8 (2) RETROACTIVE ALLOCATIONS.—Section

9 2632(d) of the Internal Revenue Code of 1986 (as

10 added by subsection (a)) shall apply to deaths of

11 non-skip persons occurring after December 31,

12 1999.

13 SEC. 402. SEVERING OF TRUSTS.

14 (a) IN GENERAL.—Subsection (a) of section 2642

15 (relating to inclusion ratio) is amended by adding at the

16 end the following new paragraph:

17 ‘‘(3) SEVERING OF TRUSTS.—

18 ‘‘(A) IN GENERAL.—If a trust is severed in

19 a qualified severance, the trusts resulting from

20 such severance shall be treated as separate

21 trusts thereafter for purposes of this chapter.

22 ‘‘(B) QUALIFIED SEVERANCE.—For pur23 poses of subparagraph (A)—

24 ‘‘(i) IN GENERAL.—The term ‘quali25 fied severance’ means the division of a sin-
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1 gle trust and the creation (by any means

2 available under the governing instrument

3 or under local law) of two or more trusts

4 if—

5 ‘‘(I) the single trust was divided

6 on a fractional basis, and

7 ‘‘(II) the terms of the new trusts,

8 in the aggregate, provide for the same

9 succession of interests of beneficiaries

10 as are provided in the original trust.

11 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

12 GREATER THAN ZERO.—If a trust has an

13 inclusion ratio of greater than zero and

14 less than 1, a severance is a qualified sev15 erance only if the single trust is divided

16 into two trusts, one of which receives a

17 fractional share of the total value of all

18 trust assets equal to the applicable fraction

19 of the single trust immediately before the

20 severance. In such case, the trust receiving

21 such fractional share shall have an inclu22 sion ratio of zero and the other trust shall

23 have an inclusion ratio of 1.

24 ‘‘(iii) REGULATIONS.—The term

25 ‘qualified severance’ includes any other
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1 severance permitted under regulations pre2 scribed by the Secretary.

3 ‘‘(C) TIMING AND MANNER OF

4 SEVERANCES.—A severance pursuant to this

5 paragraph may be made at any time. The Sec6 retary shall prescribe by forms or regulations

7 the manner in which the qualified severance

8 shall be reported to the Secretary.’’.

9 (b) EFFECTIVE DATE.—The amendment made by

10 this section shall apply to severances after December 31,

11 1999.

12 SEC. 403. MODIFICATION OF CERTAIN VALUATION RULES.

13 (a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR

14 DEEMED ALLOCATION MADE.—Paragraph (1) of section

15 2642(b) (relating to valuation rules, etc.) is amended to

16 read as follows:

17 ‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN

18 FILED OR DEEMED ALLOCATION MADE.—If the allo19 cation of the GST exemption to any transfers of

20 property is made on a gift tax return filed on or be21 fore the date prescribed by section 6075(b) for such

22 transfer or is deemed to be made under section 2632

23 (b)(1) or (c)(1)—

24 ‘‘(A) the value of such property for pur25 poses of subsection (a) shall be its value as fi-
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1 nally determined for purposes of chapter 12

2 (within the meaning of section 2001(f)(2)), or,

3 in the case of an allocation deemed to have been

4 made at the close of an estate tax inclusion pe5 riod, its value at the time of the close of the es6 tate tax inclusion period, and

7 ‘‘(B) such allocation shall be effective on

8 and after the date of such transfer, or, in the

9 case of an allocation deemed to have been made

10 at the close of an estate tax inclusion period, on

11 and after the close of such estate tax inclusion

12 period.’’.

13 (b) TRANSFERS AT DEATH.—Subparagraph (A) of

14 section 2642(b)(2) is amended to read as follows:

15 ‘‘(A) TRANSFERS AT DEATH.—If property

16 is transferred as a result of the death of the

17 transferor, the value of such property for pur18 poses of subsection (a) shall be its value as fi19 nally determined for purposes of chapter 11; ex20 cept that, if the requirements prescribed by the

21 Secretary respecting allocation of post-death

22 changes in value are not met, the value of such

23 property shall be determined as of the time of

24 the distribution concerned.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to transfers subject to chapter 11

3 or 12 of the Internal Revenue Code of 1986 made after

4 December 31, 1999.

5 SEC. 404. RELIEF PROVISIONS.

6 (a) IN GENERAL.—Section 2642 is amended by add7 ing at the end the following new subsection:

8 ‘‘(g) RELIEF PROVISIONS.—

9 ‘‘(1) RELIEF FROM LATE ELECTIONS.—

10 ‘‘(A) IN GENERAL.—The Secretary shall by

11 regulation prescribe such circumstances and

12 procedures under which extensions of time will

13 be granted to make—

14 ‘‘(i) an allocation of GST exemption

15 described in paragraph (1) or (2) of sub16 section (b), and

17 ‘‘(ii) an election under subsection

18 (b)(3) or (c)(5) of section 2632.

19 Such regulations shall include procedures for

20 requesting comparable relief with respect to

21 transfers made before the date of the enactment

22 of this paragraph.

23 ‘‘(B) BASIS FOR DETERMINATIONS.—In

24 determining whether to grant relief under this

25 paragraph, the Secretary shall take into ac-
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1 count all relevant circumstances, including evi2 dence of intent contained in the trust instru3 ment or instrument of transfer and such other

4 factors as the Secretary deems relevant. For

5 purposes of determining whether to grant relief

6 under this paragraph, the time for making the

7 allocation (or election) shall be treated as if not

8 expressly prescribed by statute.

9 ‘‘(2) SUBSTANTIAL COMPLIANCE.—An alloca10 tion of GST exemption under section 2632 that

11 demonstrates an intent to have the lowest possible

12 inclusion ratio with respect to a transfer or a trust

13 shall be deemed to be an allocation of so much of

14 the transferor’s unused GST exemption as produces

15 the lowest possible inclusion ratio. In determining

16 whether there has been substantial compliance, all

17 relevant circumstances shall be taken into account,

18 including evidence of intent contained in the trust

19 instrument or instrument of transfer and such other

20 factors as the Secretary deems relevant.’’.

21 (b) EFFECTIVE DATES.—

22 (1) RELIEF FROM LATE ELECTIONS.—Section

23 2642(g)(1) of the Internal Revenue Code of 1986

24 (as added by subsection (a)) shall apply to requests

25 pending on, or filed after, December 31, 1999.
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1 (2) SUBSTANTIAL COMPLIANCE.—Section

2 2642(g)(2) of such Code (as so added) shall apply

3 to transfers subject to chapter 11 or 12 of the Inter4 nal Revenue Code of 1986 made after December 31,

5 1999. No implication is intended with respect to the

6 availability of relief from late elections or the appli7 cation of a rule of substantial compliance on or be8 fore such date.

9 TITLE V—CONSERVATION

10 EASEMENTS

11 SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON12 SERVATION EASEMENTS.

13 (a) WHERE LAND IS LOCATED.—

14 (1) IN GENERAL.—Clause (i) of section

15 2031(c)(8)(A) (defining land subject to a conserva16 tion easement) is amended—

17 (A) by striking ‘‘25 miles’’ both places it

18 appears and inserting ‘‘50 miles’’; and

19 (B) striking ‘‘10 miles’’ and inserting ‘‘25

20 miles’’.

21 (2) EFFECTIVE DATE.—The amendments made

22 by this subsection shall apply to estates of decedents

23 dying after December 31, 1999.

24 (b) CLARIFICATION OF DATE FOR DETERMINING

25 VALUE OF LAND AND EASEMENT.—
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1 (1) IN GENERAL.—Section 2031(c)(2) (defining

2 applicable percentage) is amended by adding at the

3 end the following new sentence: ‘‘The values taken

4 into account under the preceding sentence shall be

5 such values as of the date of the contribution re6 ferred to in paragraph (8)(B).’’.

7 (2) EFFECTIVE DATE.—The amendment made

8 by this subsection shall apply to estates of decedents

9 dying after December 31, 1997.

Passed the House of Representatives June 9, 2000.

Attest: Jeff Trandahl,

Clerk.
Calendar No. 608

106TH CONGRESS

2D SESSION H. R. 8

AN ACT

To amend the Internal Revenue Code of 1986 to

phaseout the estate and gift taxes over a 10-yearperiod.

JUNE 19, 2000

Read twice and ordered placed on the calendar