H. R. 8

One Hundred Sixth Congress

of the

United States of America

AT THE SECOND SESSION

Begun and held at the City of Washington on Monday,

the twenty-fourth day of January, two thousand

An Act

To amend the Internal Revenue Code of 1986 to phaseout the estate and gift

taxes over a 10-year period.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; ETC.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Death Tax

Elimination Act of 2000’’.

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly

provided, whenever in this Act an amendment or repeal is expressed

in terms of an amendment to, or repeal of, a section or other

provision, the reference shall be considered to be made to a section

or other provision of the Internal Revenue Code of 1986.

TITLE I—REPEAL OF ESTATE, GIFT, AND

GENERATION-SKIPPING TAXES; REPEAL OF STEP UP IN BASIS AT DEATH

SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING

TAXES.

(a) IN GENERAL.—Subtitle B is hereby repealed.

(b) EFFECTIVE DATE.—The repeal made by subsection (a) shall

apply to the estates of decedents dying, and gifts and generationskipping transfers made, after December 31, 2009.

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

(a) TERMINATION OF APPLICATION OF SECTION 1014.—Section

1014 (relating to basis of property acquired from a decedent) is

amended by adding at the end the following:

‘‘(f ) TERMINATION.—In the case of a decedent dying after

December 31, 2009, this section shall not apply to property for

which basis is provided by section 1022.’’.

(b) CONFORMING AMENDMENT.—Subsection (a) of section 1016

(relating to adjustments to basis) is amended by striking ‘‘and’’

at the end of paragraph (26), by striking the period at the end

of paragraph (27) and inserting ‘‘, and’’, and by adding at the

end the following:

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

basis for certain property acquired from a decedent dying after

December 31, 2009).’’.
H. R. 8—2

SEC. 103. CARRYOVER BASIS AT DEATH.

(a) GENERAL RULE.—Part II of subchapter O of chapter 1

(relating to basis rules of general application) is amended by

inserting after section 1021 the following new section:

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

FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.

‘‘(a) CARRYOVER BASIS.—Except as otherwise provided in this

section, the basis of carryover basis property in the hands of a

person acquiring such property from a decedent shall be determined

under section 1015.

‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—

‘‘(1) IN GENERAL.—For purposes of this section, the term

‘carryover basis property’ means any property—

‘‘(A) which is acquired from or passed from a decedent

who died after December 31, 2009, and

‘‘(B) which is not excluded pursuant to paragraph (2).

The property taken into account under subparagraph (A) shall

be determined under section 1014(b) without regard to subparagraph (A) of the last sentence of paragraph (9) thereof.

‘‘(2) CERTAIN PROPERTY NOT CARRYOVER BASIS PROPERTY.—

The term ‘carryover basis property’ does not include—

‘‘(A) any item of gross income in respect of a decedent

described in section 691,

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

aggregate adjusted fair market value of such property does

not exceed $1,300,000, and

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

by the surviving spouse of the decedent (and which would

be carryover basis property without regard to this subparagraph) but only if the value of such property would have

been deductible from the value of the taxable estate of

the decedent under section 2056, as in effect on the day

before the date of the enactment of the Death Tax Elimination Act of 2000.

For purposes of this subsection, the term ‘adjusted fair market

value’ means, with respect to any property, fair market value

reduced by any indebtedness secured by such property.

‘‘(3) LIMITATION ON EXCEPTION FOR PROPERTY ACQUIRED

BY SURVIVING SPOUSE.—The adjusted fair market value of property which is not carryover basis property by reason of paragraph (2)(C) shall not exceed $3,000,000.

‘‘(4) ALLOCATION OF EXCEPTED AMOUNTS.—The executor

shall allocate the limitations under paragraphs (2)(B) and (3).

‘‘(5) INFLATION ADJUSTMENT OF EXCEPTED AMOUNTS.—In

the case of decedents dying in a calendar year after 2010,

the dollar amounts in paragraphs (2)(B) and (3) shall each

be increased by an amount equal to the product of—

‘‘(A) such dollar amount, and

‘‘(B) the cost-of-living adjustment determined under

section 1(f )(3) for such calendar year, determined by substituting ‘2009’ for ‘1992’ in subparagraph (B) thereof.

If any increase determined under the preceding sentence is

not a multiple of $10,000, such increase shall be rounded to

the nearest multiple of $10,000.

‘‘(c) REGULATIONS.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.’’.
H. R. 8—3

(b) MISCELLANEOUS AMENDMENTS RELATED TO CARRYOVER

BASIS.—

(1) CAPITAL GAIN TREATMENT FOR INHERITED ART WORK

OR SIMILAR PROPERTY.—

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

1221(a)(3) (defining capital asset) is amended by inserting

‘‘(other than by reason of section 1022)’’ after ‘‘is determined’’.

(B) COORDINATION WITH SECTION 170.—Paragraph (1)

of section 170(e) (relating to certain contributions of ordinary income and capital gain property) is amended by

adding at the end the following: ‘‘For purposes of this

paragraph, the determination of whether property is a

capital asset shall be made without regard to the exception

contained in section 1221(a)(3)(C) for basis determined

under section 1022.’’.

(2) DEFINITION OF EXECUTOR.—Section 7701(a) (relating

to definitions) is amended by adding at the end the following:

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

or administrator of the decedent, or, if there is no executor

or administrator appointed, qualified, and acting within the

United States, then any person in actual or constructive possession of any property of the decedent.’’.

(3) CLERICAL AMENDMENT.—The table of sections for part

II of subchapter O of chapter 1 is amended by adding at

the end the following new item:

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

dying after December 31, 2009.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to estates of decedents dying after December 31, 2009.

TITLE II—REDUCTIONS OF ESTATE AND

GIFT TAX RATES PRIOR TO REPEAL

SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT.—

(1) IN GENERAL.—The table contained in section 2001(c)(1)

is amended by striking the two highest brackets and inserting

the following:

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

$2,500,000.’’.

(2) PHASE-IN OF REDUCED RATE.—Subsection (c) of section

2001 is amended by adding at the end the following new paragraph:

‘‘(3) PHASE-IN OF REDUCED RATE.—In the case of decedents

dying, and gifts made, during 2001, the last item in the table

contained in paragraph (1) shall be applied by substituting

‘53%’ for ‘50%’.’’.

(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—Subsection

(c) of section 2001 is amended by striking paragraph (2) and redesignating paragraph (3), as added by subsection (a), as paragraph

(2).
H. R. 8—4

(c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—Subsection (c)

of section 2001, as so amended, is amended by adding at the

end the following new paragraph:

‘‘(3) PHASEDOWN OF TAX.—In the case of estates of

decedents dying, and gifts made, during any calendar year

after 2002 and before 2010—

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

(C), the tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in

lieu of using the table contained in paragraph (1)) which

is the same as such table; except that—

‘‘(i) each of the rates of tax shall be reduced by

the number of percentage points determined under

subparagraph (B), and

‘‘(ii) the amounts setting forth the tax shall be

adjusted to the extent necessary to reflect the adjustments under clause (i).

‘‘(B) PERCENTAGE POINTS OF REDUCTION.—

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.

‘‘(C) COORDINATION WITH INCOME TAX RATES.—The

reductions under subparagraph (A)—

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

(1) below the lowest rate in section 1(c), and

‘‘(ii) shall not reduce the highest rate under paragraph (1) below the highest rate in section 1(c).

‘‘(D) COORDINATION WITH CREDIT FOR STATE DEATH

TAXES.—Rules similar to the rules of subparagraph (A)

shall apply to the table contained in section 2011(b) except

that the Secretary shall prescribe percentage point reductions which maintain the proportionate relationship (as

in effect before any reduction under this paragraph)

between the credit under section 2011 and the tax rates

under subsection (c).’’.

(d) EFFECTIVE DATES.—

(1) SUBSECTIONS (a) AND (b).—The amendments made by

subsections (a) and (b) shall apply to estates of decedents dying,

and gifts made, after December 31, 2000.

(2) SUBSECTION (c).—The amendment made by subsection

(c) shall apply to estates of decedents dying, and gifts made,

after December 31, 2002.

TITLE III—UNIFIED CREDIT REPLACED

WITH UNIFIED EXEMPTION AMOUNT

SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES

REPLACED WITH UNIFIED EXEMPTION AMOUNT.

(a) IN GENERAL.—
H. R. 8—5

(1) ESTATE TAX.—Subsection (b) of section 2001 (relating

to computation of tax) is amended to read as follows:

‘‘(b) COMPUTATION OF TAX.—

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

be the amount equal to the excess (if any) of—

‘‘(A) the tentative tax determined under paragraph

(2), over

‘‘(B) the aggregate amount of tax which would have

been payable under chapter 12 with respect to gifts made

by the decedent after December 31, 1976, if the provisions

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

been applicable at the time of such gifts.

‘‘(2) TENTATIVE TAX.—For purposes of paragraph (1), the

tentative tax determined under this paragraph is a tax computed under subsection (c) on the excess of—

‘‘(A) the sum of—

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

‘‘(ii) the amount of the adjusted taxable gifts, over

‘‘(B) the exemption amount for the calendar year in

which the decedent died.

‘‘(3) EXEMPTION AMOUNT.—For purposes of paragraph (2),

the term ‘exemption amount’ means the amount determined

in accordance with the following 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.

‘‘(4) ADJUSTED TAXABLE GIFTS.—For purposes of paragraph

(2), the term ‘adjusted taxable gifts’ means the total amount

of the taxable gifts (within the meaning of section 2503) made

by the decedent after December 31, 1976, other than gifts

which are includible in the gross estate of the decedent.’’.

(2) GIFT TAX.—Subsection (a) of section 2502 (relating to

computation of tax) is amended to read as follows:

‘‘(a) COMPUTATION OF TAX.—

‘‘(1) IN GENERAL.—The tax imposed by section 2501 for

each calendar year shall be the amount equal to the excess

(if any) of—

‘‘(A) the tentative tax determined under paragraph

(2), over

‘‘(B) the tax paid under this section for all prior calendar periods.

‘‘(2) TENTATIVE TAX.—For purposes of paragraph (1), the

tentative tax determined under this paragraph for a calendar

year is a tax computed under section 2001(c) on the excess

of—

‘‘(A) the aggregate sum of the taxable gifts for such

calendar year and for each of the preceding calendar

periods, over

‘‘(B) the exemption amount under section 2001(b)(3)

for such calendar year.’’.

(b) REPEAL OF UNIFIED CREDITS.—

(1) Section 2010 (relating to unified credit against estate

tax) is hereby repealed.
H. R. 8—6

(2) Section 2505 (relating to unified credit against gift

tax) is hereby repealed.

(c) CONFORMING AMENDMENTS.—

(1)(A) Subsection (b) of section 2011 is amended—

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

(ii) by striking the last sentence.

(B) Subsection (f ) of section 2011 is amended by striking

‘‘, reduced by the amount of the unified credit provided by

section 2010’’.

(2) Subsection (a) of section 2012 is amended by striking

‘‘and the unified credit provided by section 2010’’.

(3) Subparagraph (A) of section 2013(c)(1) is amended by

striking ‘‘2010,’’.

(4) Paragraph (2) of section 2014(b) is amended by striking

‘‘2010, 2011,’’ and inserting ‘‘2011’’.

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

read as follows:

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

by paragraph (1)(A) by reason of the credit allowable

under section 2010 (as in effect on the day before

the date of the enactment of the Death Tax Elimination

Act of 2000) or the exemption amount allowable under

section 2001(b) with respect to the decedent as a credit

under section 2505 (as so in effect) or exemption under

section 2521 (as the case may be) allowable to such

surviving spouse for purposes of determining the

amount of the exemption allowable under section 2521

with respect to taxable gifts made by the surviving

spouse during the year in which the spouse becomes

a citizen or any subsequent year,’’.

(6) Subsection (a) of section 2057 is amended by striking

paragraphs (2) and (3) and inserting the following new paragraph:

‘‘(2) MAXIMUM DEDUCTION.—The deduction allowed by this

section shall not exceed the excess of $1,300,000 over the

exemption amount (as defined in section 2001(b)(3)).’’.

(7)(A) Subsection (b) of section 2101 is amended to read

as follows:

‘‘(b) COMPUTATION OF TAX.—

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

be the amount equal to the excess (if any) of—

‘‘(A) the tentative tax determined under paragraph

(2), over

‘‘(B) a tentative tax computed under section 2001(c)

on the amount of the adjusted taxable gifts.

‘‘(2) TENTATIVE TAX.—For purposes of paragraph (1), the

tentative tax determined under this paragraph is a tax computed under section 2001(c) on the excess of—

‘‘(A) the sum of—

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

‘‘(ii) the amount of the adjusted taxable gifts, over

‘‘(B) the exemption amount for the calendar year in

which the decedent died.

‘‘(3) EXEMPTION AMOUNT.—

‘‘(A) IN GENERAL.—The term ‘exemption amount’ means

$60,000.
H. R. 8—7

‘‘(B) RESIDENTS OF POSSESSIONS OF THE UNITED

STATES.—In the case of a decedent who is considered to

be a nonresident not a citizen of the United States under

section 2209, the exemption amount under this paragraph

shall be the greater of—

‘‘(i) $60,000, or

‘‘(ii) that proportion of $175,000 which the value

of that part of the decedent’s gross estate which at

the time of his death is situated in the United States

bears to the value of his entire gross estate wherever

situated.

‘‘(C) SPECIAL RULES.—

‘‘(i) COORDINATION WITH TREATIES.—To the extent

required under any treaty obligation of the United

States, the exemption amount allowed under this paragraph shall be equal to the amount which bears the

same ratio to the exemption amount under section

2001(b)(3) (for the calendar year in which the decedent

died) as the value of the part of the decedent’s gross

estate which at the time of his death is situated in

the United States bears to the value of his entire

gross estate wherever situated. For purposes of the

preceding sentence, property shall not be treated as

situated in the United States if such property is exempt

from the tax imposed by this subchapter under any

treaty obligation of the United States.

‘‘(ii) COORDINATION WITH GIFT TAX EXEMPTION AND

UNIFIED CREDIT.—If an exemption has been allowed

under section 2521 (or a credit has been allowed under

section 2505 as in effect on the day before the date

of the enactment of the Death Tax Elimination Act

of 2000) with respect to any gift made by the decedent,

each dollar amount contained in subparagraph (A) or

(B) or the exemption amount applicable under clause

(i) of this subparagraph (whichever applies) shall be

reduced by the exemption so allowed under section

2521 (or, in the case of such a credit, by the amount

of the gift for which the credit was so allowed).’’.

(8) Section 2102 is amended by striking subsection (c).

(9)(A) Subsection (a) of section 2107 is amended by adding

at the end the following new paragraph:

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

(B) and (C) of section 2101(b)(3) shall not apply in applying

section 2101 for purposes of this section.’’.

(B) Subsection (c) of section 2107 is amended—

(i) by striking paragraph (1) and by redesignating paragraphs (2) and (3) as paragraphs (1) and (2), respectively;

and

(ii) by striking the second sentence of paragraph (2)

(as so redesignated).

(10) Paragraph (1) of section 6018(a) is amended by striking

‘‘the applicable exclusion amount in effect under section 2010(c)’’

and inserting ‘‘the exemption amount under section 2001(b)(3)’’.

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

to read as follows:

‘‘(A) the amount of the tentative tax which would be

determined under the rate schedule set forth in section
H. R. 8—8

2001(c) if the amount with respect to which such tentative

tax is to be computed were $1,000,000, or’’.

(12) The table of sections for part II of subchapter A of

chapter 11 is amended by striking the item relating to section

2010.

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

12 is amended by striking the item relating to section 2505.

(d) EFFECTIVE DATE.—The amendments made by this section—

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

11 of the Internal Revenue Code of 1986, shall apply to estates

of decedents dying after December 31, 2000; and

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

12 of such Code, shall apply to gifts made after December

31, 2000.

TITLE IV—MODIFICATIONS OF

GENERATION-SKIPPING TRANSFER TAX

SEC. 401. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME

TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.

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

allocation of GST exemption) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b)

the following new subsections:

‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO

GST TRUSTS.— ‘‘(1) IN GENERAL.—If any individual makes an indirect skip

during such individual’s lifetime, any unused portion of such

individual’s GST exemption shall be allocated to the property

transferred to the extent necessary to make the inclusion ratio

for such property zero. If the amount of the indirect skip

exceeds such unused portion, the entire unused portion shall

be allocated to the property transferred.

‘‘(2) UNUSED PORTION.—For purposes of paragraph (1), the

unused portion of an individual’s GST exemption is that portion

of such exemption which has not previously been—

‘‘(A) allocated by such individual,

‘‘(B) treated as allocated under subsection (b) with

respect to a direct skip occurring during or before the

calendar year in which the indirect skip is made, or

‘‘(C) treated as allocated under paragraph (1) with

respect to a prior indirect skip.

‘‘(3) DEFINITIONS.— ‘‘(A) INDIRECT SKIP.—For purposes of this subsection,

the term ‘indirect skip’ means any transfer of property

(other than a direct skip) subject to the tax imposed by

chapter 12 made to a GST trust.

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

that could have a generation-skipping transfer with respect

to the transferor unless—

‘‘(i) the trust instrument provides that more than

25 percent of the trust corpus must be distributed

to or may be withdrawn by one or more individuals

who are non-skip persons—

‘‘(I) before the date that the individual attains

age 46,
H. R. 8—9

‘‘(II) on or before one or more dates specified

in the trust instrument that will occur before the

date that such individual attains age 46, or

‘‘(III) upon the occurrence of an event that,

in accordance with regulations prescribed by the

Secretary, may reasonably be expected to occur

before the date that such individual attains age

46;

‘‘(ii) the trust instrument provides that more than

25 percent of the trust corpus must be distributed

to or may be withdrawn by one or more individuals

who are non-skip persons and who are living on the

date of death of another person identified in the

instrument (by name or by class) who is more than

10 years older than such individuals;

‘‘(iii) the trust instrument provides that, if one

or more individuals who are non-skip persons die on

or before a date or event described in clause (i) or

(ii), more than 25 percent of the trust corpus either

must be distributed to the estate or estates of one

or more of such individuals or is subject to a general

power of appointment exercisable by one or more of

such individuals;

‘‘(iv) the trust is a trust any portion of which

would be included in the gross estate of a non-skip

person (other than the transferor) if such person died

immediately after the transfer;

‘‘(v) the trust is a charitable lead annuity trust

(within the meaning of section 2642(e)(3)(A)) or a charitable remainder annuity trust or a charitable

remainder unitrust (within the meaning of section

664(d)); or

‘‘(vi) the trust is a trust with respect to which

a deduction was allowed under section 2522 for the

amount of an interest in the form of the right to

receive annual payments of a fixed percentage of the

net fair market value of the trust property (determined

yearly) and which is required to pay principal to a

non-skip person if such person is alive when the yearly

payments for which the deduction was allowed terminate.

For purposes of this subparagraph, the value of transferred

property shall not be considered to be includible in the

gross estate of a non-skip person or subject to a right

of withdrawal by reason of such person holding a right

to withdraw so much of such property as does not exceed

the amount referred to in section 2503(b) with respect

to any transferor, and it shall be assumed that powers

of appointment held by non-skip persons will not be exercised.

‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS.—

For purposes of this subsection, an indirect skip to which section

2642(f ) applies shall be deemed to have been made only at

the close of the estate tax inclusion period. The fair market

value of such transfer shall be the fair market value of the

trust property at the close of the estate tax inclusion period.

‘‘(5) APPLICABILITY AND EFFECT.—
H. R. 8—10

‘‘(A) IN GENERAL.—An individual—

‘‘(i) may elect to have this subsection not apply

to—

‘‘(I) an indirect skip, or

‘‘(II) any or all transfers made by such individual to a particular trust, and

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

for purposes of this subsection with respect to any

or all transfers made by such individual to such trust.

‘‘(B) ELECTIONS.—

‘‘(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS.—

An election under subparagraph (A)(i)(I) shall be

deemed to be timely if filed on a timely filed gift

tax return for the calendar year in which the transfer

was made or deemed to have been made pursuant

to paragraph (4) or on such later date or dates as

may be prescribed by the Secretary.

‘‘(ii) OTHER ELECTIONS.—An election under clause

(i)(II) or (ii) of subparagraph (A) may be made on

a timely filed gift tax return for the calendar year

for which the election is to become effective.

‘‘(d) RETROACTIVE ALLOCATIONS.—

‘‘(1) IN GENERAL.—If—

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

interest in a trust to which any transfer has been made,

‘‘(B) such person—

‘‘(i) is a lineal descendant of a grandparent of

the transferor or of a grandparent of the transferor’s

spouse or former spouse, and

‘‘(ii) is assigned to a generation below the generation assignment of the transferor, and

‘‘(C) such person predeceases the transferor,

then the transferor may make an allocation of any of such

transferor’s unused GST exemption to any previous transfer

or transfers to the trust on a chronological basis.

‘‘(2) SPECIAL RULES.—If the allocation under paragraph

(1) by the transferor is made on a gift tax return filed on

or before the date prescribed by section 6075(b) for gifts made

within the calendar year within which the non-skip person’s

death occurred—

‘‘(A) the value of such transfer or transfers for purposes

of section 2642(a) shall be determined as if such allocation

had been made on a timely filed gift tax return for each

calendar year within which each transfer was made,

‘‘(B) such allocation shall be effective immediately

before such death, and

‘‘(C) the amount of the transferor’s unused GST exemption available to be allocated shall be determined immediately before such death.

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

a person has a future interest in a trust if the trust may

permit income or corpus to be paid to such person on a date

or dates in the future.’’.

(b) CONFORMING AMENDMENT.—Paragraph (2) of section 2632(b)

is amended by striking ‘‘with respect to a direct skip’’ and inserting

‘‘or subsection (c)(1)’’.

(c) EFFECTIVE DATES.—
H. R. 8—11

(1) DEEMED ALLOCATION.—Section 2632(c) of the Internal

Revenue Code of 1986 (as added by subsection (a)), and the

amendment made by subsection (b), shall apply to transfers

subject to chapter 11 or 12 made after December 31, 1999,

and to estate tax inclusion periods ending after December 31,

1999.

(2) RETROACTIVE ALLOCATIONS.—Section 2632(d) of the

Internal Revenue Code of 1986 (as added by subsection (a))

shall apply to deaths of non-skip persons occurring after

December 31, 1999.

SEC. 402. SEVERING OF TRUSTS.

(a) IN GENERAL.—Subsection (a) of section 2642 (relating to

inclusion ratio) is amended by adding at the end the following

new paragraph:

‘‘(3) SEVERING OF TRUSTS.— ‘‘(A) IN GENERAL.—If a trust is severed in a qualified

severance, the trusts resulting from such severance shall

be treated as separate trusts thereafter for purposes of

this chapter.

‘‘(B) QUALIFIED SEVERANCE.—For purposes of subparagraph (A)—

‘‘(i) IN GENERAL.—The term ‘qualified severance’

means the division of a single trust and the creation

(by any means available under the governing

instrument or under local law) of two or more trusts

if—

‘‘(I) the single trust was divided on a fractional

basis, and

‘‘(II) the terms of the new trusts, in the aggregate, provide for the same succession of interests

of beneficiaries as are provided in the original

trust.

‘‘(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN

ZERO.—If a trust has an inclusion ratio of greater

than zero and less than 1, a severance is a qualified

severance only if the single trust is divided into two

trusts, one of which receives a fractional share of the

total value of all trust assets equal to the applicable

fraction of the single trust immediately before the

severance. In such case, the trust receiving such fractional share shall have an inclusion ratio of zero and

the other trust shall have an inclusion ratio of 1.

‘‘(iii) REGULATIONS.—The term ‘qualified severance’

includes any other severance permitted under regulations prescribed by the Secretary.

‘‘(C) TIMING AND MANNER OF SEVERANCES.—A severance pursuant to this paragraph may be made at any

time. The Secretary shall prescribe by forms or regulations

the manner in which the qualified severance shall be

reported to the Secretary.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to severances after December 31, 1999.

SEC. 403. MODIFICATION OF CERTAIN VALUATION RULES.

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

ALLOCATION MADE.—Paragraph (1) of section 2642(b) (relating to

valuation rules, etc.) is amended to read as follows:
H. R. 8—12

‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED

ALLOCATION MADE.—If the allocation of the GST exemption

to any transfers of property is made on a gift tax return

filed on or before the date prescribed by section 6075(b) for

such transfer or is deemed to be made under section 2632

(b)(1) or (c)(1)—

‘‘(A) the value of such property for purposes of subsection (a) shall be its value as finally determined for

purposes of chapter 12 (within the meaning of section

2001(f )(2)), or, in the case of an allocation deemed to have

been made at the close of an estate tax inclusion period,

its value at the time of the close of the estate tax inclusion

period, and

‘‘(B) such allocation shall be effective on and after

the date of such transfer, or, in the case of an allocation

deemed to have been made at the close of an estate tax

inclusion period, on and after the close of such estate

tax inclusion period.’’.

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

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

‘‘(A) TRANSFERS AT DEATH.—If property is transferred

as a result of the death of the transferor, the value of

such property for purposes of subsection (a) shall be its

value as finally determined for purposes of chapter 11;

except that, if the requirements prescribed by the Secretary

respecting allocation of post-death changes in value are

not met, the value of such property shall be determined

as of the time of the distribution concerned.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to transfers subject to chapter 11 or 12 of the Internal

Revenue Code of 1986 made after December 31, 1999.

SEC. 404. RELIEF PROVISIONS.

(a) IN GENERAL.—Section 2642 is amended by adding at the

end the following new subsection:

‘‘(g) RELIEF PROVISIONS.—

‘‘(1) RELIEF FROM LATE ELECTIONS.—

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

prescribe such circumstances and procedures under which

extensions of time will be granted to make—

‘‘(i) an allocation of GST exemption described in

paragraph (1) or (2) of subsection (b), and

‘‘(ii) an election under subsection (b)(3) or (c)(5)

of section 2632.

Such regulations shall include procedures for requesting

comparable relief with respect to transfers made before

the date of the enactment of this paragraph.

‘‘(B) BASIS FOR DETERMINATIONS.—In determining

whether to grant relief under this paragraph, the Secretary

shall take into account all relevant circumstances,

including evidence of intent contained in the trust

instrument or instrument of transfer and such other factors

as the Secretary deems relevant. For purposes of determining whether to grant relief under this paragraph, the

time for making the allocation (or election) shall be treated

as if not expressly prescribed by statute.
H. R. 8—13

‘‘(2) SUBSTANTIAL COMPLIANCE.—An allocation of GST

exemption under section 2632 that demonstrates an intent

to have the lowest possible inclusion ratio with respect to

a transfer or a trust shall be deemed to be an allocation

of so much of the transferor’s unused GST exemption as produces the lowest possible inclusion ratio. In determining

whether there has been substantial compliance, all relevant

circumstances shall be taken into account, including evidence

of intent contained in the trust instrument or instrument of

transfer and such other factors as the Secretary deems relevant.’’.

(b) EFFECTIVE DATES.—

(1) RELIEF FROM LATE ELECTIONS.—Section 2642(g)(1) of

the Internal Revenue Code of 1986 (as added by subsection

(a)) shall apply to requests pending on, or filed after, December

31, 1999.

(2) SUBSTANTIAL COMPLIANCE.—Section 2642(g)(2) of such

Code (as so added) shall apply to transfers subject to chapter

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

December 31, 1999. No implication is intended with respect

to the availability of relief from late elections or the application

of a rule of substantial compliance on or before such date.

TITLE V—CONSERVATION EASEMENTS

SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

(a) WHERE LAND IS LOCATED.—

(1) IN GENERAL.—Clause (i) of section 2031(c)(8)(A)

(defining land subject to a conservation easement) is amended—

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

inserting ‘‘50 miles’’; and

(B) by striking ‘‘10 miles’’ and inserting ‘‘25 miles’’.

(2) EFFECTIVE DATE.—The amendments made by this subsection shall apply to estates of decedents dying after December

31, 1999.

(b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND

AND EASEMENT.—

(1) IN GENERAL.—Section 2031(c)(2) (defining applicable

percentage) is amended by adding at the end the following

new sentence: ‘‘The values taken into account under the preceding sentence shall be such values as of the date of the

contribution referred to in paragraph (8)(B).’’.
H. R. 8—14

(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to estates of decedents dying after December

31, 1997.

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.