IB

Union Calendar No. 361

106TH CONGRESS

2D SESSION H. R. 8

[Report No. 106–651]

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

gift taxes over a 10-year period.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 25, 1999

Ms. DUNN (for herself and Mr. TANNER) introduced the following bill; which

was referred to the Committee on Ways and Means

JUNE 6, 2000

Additional sponsors: Mr. HERGER, Mr. MCCRERY, Mr. HAYWORTH, Mr.

ENGLISH, Mr. ADERHOLT, Mr. TALENT, Mr. HALL of Texas, Mrs.

MYRICK, Mr. FOLEY, Mr. DEUTSCH, Mr. DREIER, Mr. SENSENBRENNER,

Mr. GOODE, Mr. WICKER, Mr. SHAW, Mr. BOUCHER, Mr. NETHERCUTT,

Ms. DANNER, Mr. MCCOLLUM, Mrs. EMERSON, Mr. WATTS of Oklahoma,

Mr. CONDIT, Mr. ROYCE, Mr. SCHAFFER, Mr. NEY, Mr. CUNNINGHAM,

Mr. HUTCHINSON, Mr. FORBES, Mr. MCINTYRE, Mr. HASTINGS of Washington, Mr. MANZULLO, Mr. CRANE, Mr. LOBIONDO, Mr. REYNOLDS,

Mr. TANCREDO, Mr. JOHN, Mr. SALMON, Mr. DICKEY, Mr. SESSIONS,

Mr. BARCIA, Mr. CHAMBLISS, Mr. HEFLEY, Mr. RAHALL, Mr. LAHOOD,

Mr. KASICH, Mr. CRAMER, Mr. HOSTETTLER, Mr. CALLAHAN, Mr.

BACHUS, Mr. BISHOP, Mr. SKEEN, Mrs. CHENOWETH-HAGE, Mr. LUCAS

of Kentucky, Mr. BOEHNER, Mr. BILBRAY, Mr. PACKARD, Mrs. CUBIN,

Mr. WELLER, Mr. RAMSTAD, Mr. MILLER of Florida, Mrs. BONO, Ms.

EDDIE BERNICE JOHNSON of Texas, Mrs. NORTHUP, Mr. COOK, Mr.

DEMINT, Mr. COBLE, Ms. PRYCE of Ohio, Mr. WATKINS, Ms. ROSLEHTINEN, Mr. GARY MILLER of California, Mr. GORDON, Mr. FRANKS

of New Jersey, Mr. GALLEGLY, Mr. WALDEN of Oregon, Mr. KOLBE, Mr.

BURTON of Indiana, Mr. RILEY, Mr. JENKINS, Mr. WOLF, Mr. PEASE,

Mr. GOODLATTE, Mr. GOSS, Mr. YOUNG of Alaska, Mr. LEWIS of California, Mr. PHELPS, Mr. PITTS, Mr. MCINNIS, Mr. METCALF, Mr. LUCAS

of Oklahoma, Mr. KUYKENDALL, Mr. OSE, Mr. HILL of Montana, Mr.

SIMPSON, Mr. COLLINS, Mr. COX, Mr. THOMAS, Mr. LEWIS of Kentucky,

Mr. HULSHOF, Mr. HAYES, Mr. SWEENEY, Mr. BRYANT, Mr. HOUGH-
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TON, Mr. CLEMENT, Ms. LOFGREN, Mr. RADANOVICH, Mr. GIBBONS, Mr.

FLETCHER, Mr. WAMP, Mr. PETERSON of Pennsylvania, Mr. LINDER,

Mr. ARMEY, Mr. MCKEON, Mr. TIAHRT, Mr. EWING, Mr. BARRETT of

Nebraska, Mr. KNOLLENBERG, Mr. SHERWOOD, Mr. SHOWS, Mr.

SANDLIN, Mr. FORD, Mr. SHUSTER, Mr. HYDE, Mr. PAUL, Mr. CALVERT, Mr. TERRY, Mr. MCINTOSH, Mr. ROHRABACHER, Mr. DOOLITTLE,

Mr. CANADY of Florida, Mr. POMBO, Mr. ROGERS, Mr. WELDON of Florida, Mr. BAIRD, Mr. ANDREWS, Mr. ISAKSON, Mr. GRAHAM, Mr. RYUN

of Kansas, Mr. MORAN of Kansas, Mrs. FOWLER, Mr. BLUNT, Mr. PICKERING, Mr. PORTMAN, Mr. NUSSLE, Mr. WALSH, Mr. KINGSTON, Mr.

EVERETT, Mr. CAMPBELL, Mr. STUMP, Mrs. CLAYTON, Mr. LARGENT,

Mr. HUNTER, Mr. LATHAM, Mr. DUNCAN, Mr. HILLEARY, Mr. HOEKSTRA, Mr. TAYLOR of North Carolina, Mr. EHLERS, Mr. ROGAN, Mr.

SCARBOROUGH, Mr. SAXTON, Mr. GREEN of Wisconsin, Mr. DEAL of

Georgia, Mr. BASS, Mr. BOEHLERT, Mrs. BIGGERT, Mr. SAM JOHNSON

of Texas, Mr. SUNUNU, Mr. WHITFIELD, Mr. MICA, Mr. LATOURETTE,

Mr. GILLMOR, Mrs. MCCARTHY of New York, Mr. BLILEY, Mr. SPENCE,

Mr. SHIMKUS, Mr. CAMP, Mr. THUNE, Mr. TOOMEY, Mr. SOUDER, Mr.

EHRLICH, Mr. HANSEN, Mr. PORTER, Mr. BRADY of Texas, Mr. JONES

of North Carolina, Mr. BILIRAKIS, Mr. JEFFERSON, Mr. ABERCROMBIE,

Mr. CHABOT, Mrs. WILSON, Mr. DOOLEY of California, Mr. ENGEL, Mr.

LAMPSON, Ms. GRANGER, Mr. BAKER, Mr. BONILLA, Mr. BURR of North

Carolina, Mr. CANNON, Mr. TOWNS, Mr. COMBEST, Mr. GEKAS, Mr.

BARTON of Texas, Mr. COOKSEY, Mr. GREENWOOD, Mr. COBURN, Mr.

DELAY, Mr. FOSSELLA, Mr. BARTLETT of Maryland, Mr. BARR of Georgia, Mr. RYAN of Wisconsin, Mr. SHADEGG, Mr. GILMAN, Mr. HORN, Mr.

OXLEY, Mr. NORWOOD, Mrs. ROUKEMA, Mrs. KELLY, Mr. KLINK, Mr.

SMITH of Texas, Mr. KING, Mr. ISTOOK, Mr. WELDON of Pennsylvania,

Mr. SMITH of Washington, Mr. THORNBERRY, Ms. VELA ́

ZQUEZ, Mr. PASTOR, Mr. CLAY, Mr. MASCARA, Ms. ESHOO, Ms. BERKLEY, Mr. MEEKS

of New York, Mr. GILCHREST, Mrs. MORELLA, Mr. MCHUGH, Mr.

BLAGOJEVICH, Mr. BERRY, Mr. WYNN, Mr. VITTER, Mr. TAUZIN, Mrs.

TAUSCHER, Mr. DAVIS of Virginia, Mr. TRAFICANT, Mr. MALONEY of

Connecticut, and Mr. SMITH of New Jersey

JUNE 6, 2000

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on February 25, 1999]

A BILL

To amend the Internal Revenue Code of 1986 to phaseout

the estate and gift taxes over a 10-year period.
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1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE; ETC.

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

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

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

7 expressly provided, whenever in this Act an amendment or

8 repeal is expressed in terms of an amendment to, or repeal

9 of, a section or other provision, the reference shall be consid10 ered to be made to a section or other provision of the Inter11 nal Revenue Code of 1986.

12 TITLE I—REPEAL OF ESTATE,

13 GIFT, AND GENERATION-SKIP14 PING TAXES; REPEAL OF STEP

15 UP IN BASIS AT DEATH

16 SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION17 SKIPPING TAXES.

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

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

20 (a) shall apply to the estates of decedents dying, and gifts

21 and generation-skipping transfers made, after December 31,

22 2009.

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

24 (a) TERMINATION OF APPLICATION OF SECTION

25 1014.—Section 1014 (relating to basis of property acquired
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1 from a decedent) is amended by adding at the end the fol2 lowing:

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

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

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

6 (b) CONFORMING AMENDMENT.—Subsection (a) of sec7 tion 1016 (relating to adjustments to basis) is amended by

8 striking ‘‘and’’ at the end of paragraph (26), by striking

9 the period at the end of paragraph (27) and inserting ‘‘,

10 and’’, and by adding at the end the following:

11 ‘‘(28) to the extent provided in section 1022 (re12 lating to basis for certain property acquired from a

13 decedent dying after December 31, 2009).’’.

14 SEC. 103. CARRYOVER BASIS AT DEATH.

15 (a) GENERAL RULE.—Part II of subchapter O of chap16 ter 1 (relating to basis rules of general application) is

17 amended by inserting after section 1021 the following new

18 section:

19 ‘‘SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY AC20 QUIRED FROM A DECEDENT DYING AFTER DE21 CEMBER 31, 2009.

22 ‘‘(a) CARRYOVER BASIS.—Except as otherwise pro23 vided in this section, the basis of carryover basis property

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

25 decedent shall be determined under section 1015.
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1 ‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—

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

3 the term ‘carryover basis property’ means any

4 property—

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

6 a decedent who died after December 31, 2009,

7 and

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

9 paragraph (2).

10 The property taken into account under subparagraph

11 (A) shall be determined under section 1014(b) without

12 regard to subparagraph (A) of the last sentence of

13 paragraph (9) thereof.

14 ‘‘(2) CERTAIN PROPERTY NOT CARRYOVER BASIS

15 PROPERTY.—The term ‘carryover basis property’ does

16 not include—

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

18 a decedent described in section 691,

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

20 that the aggregate adjusted fair market value of

21 such property does not exceed $1,300,000, and

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

23 decedent by the surviving spouse of the decedent

24 (and which would be carryover basis property

25 without regard to this subparagraph) but only if
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1 the value of such property would have been de2 ductible from the value of the taxable estate of

3 the decedent under section 2056, as in effect on

4 the day before the date of the enactment of the

5 Death Tax Elimination Act of 2000.

6 For purposes of this subsection, the term ‘adjusted

7 fair market value’ means, with respect to any prop8 erty, fair market value reduced by any indebtedness

9 secured by such property.

10 ‘‘(3) LIMITATION ON EXCEPTION FOR PROPERTY

11 ACQUIRED BY SURVIVING SPOUSE.—The adjusted fair

12 market value of property which is not carryover basis

13 property by reason of paragraph (2)(C) shall not ex14 ceed $3,000,000.

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

16 executor shall allocate the limitations under para17 graphs (2)(B) and (3).

18 ‘‘(5) INFLATION ADJUSTMENT OF EXCEPTED

19 AMOUNTS.—In the case of decedents dying in a cal20 endar year after 2010, the dollar amounts in para21 graphs (2)(B) and (3) shall each be increased by an

22 amount equal to the product of—

23 ‘‘(A) such dollar amount, and

24 ‘‘(B) the cost-of-living adjustment deter25 mined under section 1(f)(3) for such calendar
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1 year, determined by substituting ‘2009’ for

2 ‘1992’ in subparagraph (B) thereof.

3 If any increase determined under the preceding sen4 tence is not a multiple of $10,000, such increase shall

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

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

7 such regulations as may be necessary to carry out the pur8 poses of this section.’’.

9 (b) MISCELLANEOUS AMENDMENTS RELATED TO CAR10 RYOVER BASIS.—

11 (1) CAPITAL GAIN TREATMENT FOR INHERITED

12 ART WORK OR SIMILAR PROPERTY.—

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

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

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

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

17 (B) COORDINATION WITH SECTION 170.—

18 Paragraph (1) of section 170(e) (relating to cer19 tain contributions of ordinary income and cap20 ital gain property) is amended by adding at the

21 end the following: ‘‘For purposes of this para22 graph, the determination of whether property is

23 a capital asset shall be made without regard to

24 the exception contained in section 1221(a)(3)(C)

25 for basis determined under section 1022.’’.
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1 (2) DEFINITION OF EXECUTOR.—Section 7701(a)

2 (relating to definitions) is amended by adding at the

3 end the following:

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

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

6 there is no executor or administrator appointed,

7 qualified, and acting within the United States, then

8 any person in actual or constructive possession of any

9 property of the decedent.’’.

10 (3) CLERICAL AMENDMENT.—The table of sec11 tions for part II of subchapter O of chapter 1 is

12 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.’’.

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

14 section shall apply to estates of decedents dying after De15 cember 31, 2009.

16 TITLE II—REDUCTIONS OF ES17 TATE AND GIFT TAX RATES

18 PRIOR TO REPEAL

19 SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT

20 TAX RATES.

21 (a) MAXIMUM RATE OF TAX REDUCED TO 50 PER22 CENT.—
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1 (1) IN GENERAL.—The table contained in section

2 2001(c)(1) is amended by striking the two highest

3 brackets and inserting the following:

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

$2,500,000.’’.

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

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

6 the following new paragraph:

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

8 of decedents dying, and gifts made, during 2001, the

9 last item in the table contained in paragraph (1)

10 shall be applied by substituting ‘53%’ for ‘50%’.’’.

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

12 Subsection (c) of section 2001 is amended by striking para13 graph (2) and redesignating paragraph (3), as added by

14 subsection (a), as paragraph (2).

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

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

17 by adding at the end the following new paragraph:

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

19 of decedents dying, and gifts made, during any cal20 endar year after 2002 and before 2010—

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

22 subparagraph (C), the tentative tax under this

23 subsection shall be determined by using a table

24 prescribed by the Secretary (in lieu of using the
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1 table contained in paragraph (1)) which is the

2 same as such table; except that—

3 ‘‘(i) each of the rates of tax shall be re4 duced by the number of percentage points

5 determined under subparagraph (B), and

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

7 shall be adjusted to the extent necessary to

8 reflect the adjustments under clause (i).

9 ‘‘(B) PERCENTAGE POINTS OF REDUC10 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.

11 ‘‘(C) COORDINATION WITH INCOME TAX

12 RATES.—The reductions under subparagraph

13 (A)—

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

15 paragraph (1) below the lowest rate in sec16 tion 1(c), and

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

18 under paragraph (1) below the highest rate

19 in section 1(c).

20 ‘‘(D) COORDINATION WITH CREDIT FOR

21 STATE DEATH TAXES.—Rules similar to the rules
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1 of subparagraph (A) shall apply to the table con2 tained in section 2011(b) except that the Sec3 retary shall prescribe percentage point reductions

4 which maintain the proportionate relationship

5 (as in effect before any reduction under this

6 paragraph) between the credit under section

7 2011 and the tax rates under subsection (c).’’.

8 (d) EFFECTIVE DATES.—

9 (1) SUBSECTIONS (a) AND (b).—The amend10 ments made by subsections (a) and (b) shall apply to

11 estates of decedents dying, and gifts made, after De12 cember 31, 2000.

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

14 subsection (c) shall apply to estates of decedents

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

16 TITLE III—UNIFIED CREDIT RE17 PLACED WITH UNIFIED EX18 EMPTION AMOUNT

19 SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT

20 TAXES REPLACED WITH UNIFIED EXEMPTION

21 AMOUNT.

22 (a) IN GENERAL.—

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

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

25 as follows:
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1 ‘‘(b) COMPUTATION OF TAX.—

2 ‘‘(1) IN GENERAL.—The tax imposed by this sec3 tion shall be the amount equal to the excess (if any)

4 of—

5 ‘‘(A) the tentative tax determined under

6 paragraph (2), over

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

8 would have been payable under chapter 12 with

9 respect to gifts made by the decedent after De10 cember 31, 1976, if the provisions of subsection

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

12 applicable at the time of such gifts.

13 ‘‘(2) TENTATIVE TAX.—For purposes of para14 graph (1), the tentative tax determined under this

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

16 the excess of—

17 ‘‘(A) the sum of—

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

19 and

20 ‘‘(ii) the amount of the adjusted tax21 able gifts, over

22 ‘‘(B) the exemption amount for the calendar

23 year in which the decedent died.

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

25 paragraph (2), the term ‘exemption amount’ means
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1 the amount determined in accordance with the fol2 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.

3 ‘‘(4) ADJUSTED TAXABLE GIFTS.—For purposes

4 of paragraph (2), the term ‘adjusted taxable gifts’

5 means the total amount of the taxable gifts (within

6 the meaning of section 2503) made by the decedent

7 after December 31, 1976, other than gifts which are

8 includible in the gross estate of the decedent.’’

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

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

11 as follows:

12 ‘‘(a) COMPUTATION OF TAX.—

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

14 2501 for each calendar year shall be the amount equal

15 to the excess (if any) of—

16 ‘‘(A) the tentative tax determined under

17 paragraph (2), over

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

19 prior calendar periods.

20 ‘‘(2) TENTATIVE TAX.—For purposes of para21 graph (1), the tentative tax determined under this
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1 paragraph for a calendar year is a tax computed

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

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

4 for such calendar year and for each of the pre5 ceding calendar periods, over

6 ‘‘(B) the exemption amount under section

7 2001(b)(3) for such calendar year.’’

8 (b) REPEAL OF UNIFIED CREDITS.—

9 (1) Section 2010 (relating to unified credit

10 against estate tax) is hereby repealed.

11 (2) Section 2505 (relating to unified credit

12 against gift tax) is hereby repealed.

13 (c) CONFORMING AMENDMENTS.—

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

15 amended—

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

17 (ii) by striking the last sentence.

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

19 striking ‘‘, reduced by the amount of the unified cred20 it provided by section 2010’’.

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

22 striking ‘‘and the unified credit provided by section

23 2010’’.

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

25 amended by striking ‘‘2010,’’.
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1 (4) Paragraph (2) of section 2014(b) is amended

2 by striking ‘‘2010, 2011,’’ and inserting ‘‘2011’’.

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

4 amended to read as follows:

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

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

7 the credit allowable under section 2010 (as

8 in effect on the day before the date of the en9 actment of the Death Tax Elimination Act

10 of 2000) or the exemption amount allowable

11 under section 2001(b) with respect to the de12 cedent as a credit under section 2505 (as so

13 in effect) or exemption under section 2521

14 (as the case may be) allowable to such sur15 viving spouse for purposes of determining

16 the amount of the exemption allowable

17 under section 2521 with respect to taxable

18 gifts made by the surviving spouse during

19 the year in which the spouse becomes a cit20 izen or any subsequent year,’’.

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

22 striking paragraphs (2) and (3) and inserting the fol23 lowing new paragraph:

24 ‘‘(2) MAXIMUM DEDUCTION.—The deduction al25 lowed by this section shall not exceed the excess of
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1 $1,300,000 over the exemption amount (as defined in

2 section 2001(b)(3)).’’

3 (7)(A) Subsection (b) of section 2101 is amended

4 to read as follows:

5 ‘‘(b) COMPUTATION OF TAX.—

6 ‘‘(1) IN GENERAL.—The tax imposed by this sec7 tion shall be the amount equal to the excess (if any)

8 of—

9 ‘‘(A) the tentative tax determined under

10 paragraph (2), over

11 ‘‘(B) a tentative tax computed under section

12 2001(c) on the amount of the adjusted taxable

13 gifts.

14 ‘‘(2) TENTATIVE TAX.—For purposes of para15 graph (1), the tentative tax determined under this

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

17 on the excess of—

18 ‘‘(A) the sum of—

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

20 and

21 ‘‘(ii) the amount of the adjusted tax22 able gifts, over

23 ‘‘(B) the exemption amount for the calendar

24 year in which the decedent died.

25 ‘‘(3) EXEMPTION AMOUNT.—
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1 ‘‘(A) IN GENERAL.—The term ‘exemption

2 amount’ means $60,000.

3 ‘‘(B) RESIDENTS OF POSSESSIONS OF THE

4 UNITED STATES.—In the case of a decedent who

5 is considered to be a nonresident not a citizen of

6 the United States under section 2209, the exemp7 tion amount under this paragraph shall be the

8 greater of—

9 ‘‘(i) $60,000, or

10 ‘‘(ii) that proportion of $175,000

11 which the value of that part of the dece12 dent’s gross estate which at the time of his

13 death is situated in the United States bears

14 to the value of his entire gross estate wher15 ever situated.

16 ‘‘(C) SPECIAL RULES.—

17 ‘‘(i) COORDINATION WITH TREATIES.—

18 To the extent required under any treaty ob19 ligation of the United States, the exemption

20 amount allowed under this paragraph shall

21 be equal to the amount which bears the

22 same ratio to the exemption amount under

23 section 2001(b)(3) (for the calendar year in

24 which the decedent died) as the value of the

25 part of the decedent’s gross estate which at
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1 the time of his death is situated in the

2 United States bears to the value of his en3 tire gross estate wherever situated. For pur4 poses of the preceding sentence, property

5 shall not be treated as situated in the

6 United States if such property is exempt

7 from the tax imposed by this subchapter

8 under any treaty obligation of the United

9 States.

10 ‘‘(ii) COORDINATION WITH GIFT TAX

11 EXEMPTION AND UNIFIED CREDIT.—If an

12 exemption has been allowed under section

13 2521 (or a credit has been allowed under

14 section 2505 as in effect on the day before

15 the date of the enactment of the Death Tax

16 Elimination Act of 2000) with respect to

17 any gift made by the decedent, each dollar

18 amount contained in subparagraph (A) or

19 (B) or the exemption amount applicable

20 under clause (i) of this subparagraph

21 (whichever applies) shall be reduced by the

22 exemption so allowed under section 2521

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

24 amount of the gift for which the credit was

25 so allowed).’’.
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1 (8) Section 2102 is amended by striking sub2 section (c).

3 (9)(A) Subsection (a) of section 2107 is amended

4 by adding at the end the following new paragraph:

5 ‘‘(3) LIMITATION ON EXEMPTION AMOUNT.—Sub6 paragraphs (B) and (C) of section 2101(b)(3) shall

7 not apply in applying section 2101 for purposes of

8 this section.’’.

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

10 (i) by striking paragraph (1) and by redes11 ignating paragraphs (2) and (3) as paragraphs

12 (1) and (2), respectively, and

13 (ii) by striking the second sentence of para14 graph (2) (as so redesignated).

15 (10) Paragraph (1) of section 6018(a) is amend16 ed by striking ‘‘the applicable exclusion amount in ef17 fect under section 2010(c)’’ and inserting ‘‘the exemp18 tion amount under section 2001(b)(3)’’.

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

20 amended to read as follows:

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

22 would be determined under the rate schedule set

23 forth in section 2001(c) if the amount with re24 spect to which such tentative tax is to be com25 puted were $1,000,000, or’’.
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1 (12) The table of sections for part II of sub2 chapter A of chapter 11 is amended by striking the

3 item relating to section 2010.

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

5 chapter 12 is amended by striking the item relating

6 to section 2505.

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

8 section—

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

10 chapter 11 of the Internal Revenue Code of 1986, shall

11 apply to estates of decedents dying after December 31,

12 2000, and

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

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

15 after December 31, 2000.

16 TITLE IV—MODIFICATIONS OF

17 GENERATION-SKIPPING

18 TRANSFER TAX

19 SEC. 401. DEEMED ALLOCATION OF GST EXEMPTION TO

20 LIFETIME TRANSFERS TO TRUSTS; RETRO21 ACTIVE ALLOCATIONS.

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

23 rules for allocation of GST exemption) is amended by redes24 ignating subsection (c) as subsection (e) and by inserting

25 after subsection (b) the following new subsections:
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1 ‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME

2 TRANSFERS TO GST TRUSTS.—

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

4 indirect skip during such individual’s lifetime, any

5 unused portion of such individual’s GST exemption

6 shall be allocated to the property transferred to the ex7 tent necessary to make the inclusion ratio for such

8 property zero. If the amount of the indirect skip ex9 ceeds such unused portion, the entire unused portion

10 shall be allocated to the property transferred.

11 ‘‘(2) UNUSED PORTION.—For purposes of para12 graph (1), the unused portion of an individual’s GST

13 exemption is that portion of such exemption which

14 has not previously been—

15 ‘‘(A) allocated by such individual,

16 ‘‘(B) treated as allocated under subsection

17 (b) with respect to a direct skip occurring during

18 or before the calendar year in which the indirect

19 skip is made, or

20 ‘‘(C) treated as allocated under paragraph

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

22 ‘‘(3) DEFINITIONS.—

23 ‘‘(A) INDIRECT SKIP.—For purposes of this

24 subsection, the term ‘indirect skip’ means any

25 transfer of property (other than a direct skip)
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1 subject to the tax imposed by chapter 12 made

2 to a GST trust.

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

4 means a trust that could have a generation-skip5 ping transfer with respect to the transferor

6 unless—

7 ‘‘(i) the trust instrument provides that

8 more than 25 percent of the trust corpus

9 must be distributed to or may be withdrawn

10 by 1 or more individuals who are non-skip

11 persons—

12 ‘‘(I) before the date that the indi13 vidual attains age 46,

14 ‘‘(II) on or before one or more

15 dates specified in the trust instrument

16 that will occur before the date that

17 such individual attains age 46, or

18 ‘‘(III) upon the occurrence of an

19 event that, in accordance with regula20 tions prescribed by the Secretary, may

21 reasonably be expected to occur before

22 the date that such individual attains

23 age 46;

24 ‘‘(ii) the trust instrument provides that

25 more than 25 percent of the trust corpus
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1 must be distributed to or may be withdrawn

2 by one or more individuals who are non3 skip persons and who are living on the date

4 of death of another person identified in the

5 instrument (by name or by class) who is

6 more than 10 years older than such individ7 uals;

8 ‘‘(iii) the trust instrument provides

9 that, if one or more individuals who are

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

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

12 than 25 percent of the trust corpus either

13 must be distributed to the estate or estates

14 of one or more of such individuals or is sub15 ject to a general power of appointment exer16 cisable by one or more of such individuals;

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

18 of which would be included in the gross es19 tate of a non-skip person (other than the

20 transferor) if such person died immediately

21 after the transfer;

22 ‘‘(v) the trust is a charitable lead an23 nuity trust (within the meaning of section

24 2642(e)(3)(A)) or a charitable remainder

25 annuity trust or a charitable remainder
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1 unitrust (within the meaning of section

2 664(d)); or

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

4 to which a deduction was allowed under sec5 tion 2522 for the amount of an interest in

6 the form of the right to receive annual pay7 ments of a fixed percentage of the net fair

8 market value of the trust property (deter9 mined yearly) and which is required to pay

10 principal to a non-skip person if such per11 son is alive when the yearly payments for

12 which the deduction was allowed terminate.

13 For purposes of this subparagraph, the value of

14 transferred property shall not be considered to be

15 includible in the gross estate of a non-skip per16 son or subject to a right of withdrawal by reason

17 of such person holding a right to withdraw so

18 much of such property as does not exceed the

19 amount referred to in section 2503(b) with re20 spect to any transferor, and it shall be assumed

21 that powers of appointment held by non-skip

22 persons will not be exercised.

23 ‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST

24 TRUSTS.—For purposes of this subsection, an indirect

25 skip to which section 2642(f ) applies shall be deemed
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1 to have been made only at the close of the estate tax

2 inclusion period. The fair market value of such trans3 fer shall be the fair market value of the trust property

4 at the close of the estate tax inclusion period.

5 ‘‘(5) APPLICABILITY AND EFFECT.—

6 ‘‘(A) IN GENERAL.—An individual—

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

8 not apply to—

9 ‘‘(I) an indirect skip, or

10 ‘‘(II) any or all transfers made by

11 such individual to a particular trust,

12 and

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

14 GST trust for purposes of this subsection

15 with respect to any or all transfers made by

16 such individual to such trust.

17 ‘‘(B) ELECTIONS.—

18 ‘‘(i) ELECTIONS WITH RESPECT TO IN19 DIRECT SKIPS.—An election under subpara20 graph (A)(i)(I) shall be deemed to be timely

21 if filed on a timely filed gift tax return for

22 the calendar year in which the transfer was

23 made or deemed to have been made pursu24 ant to paragraph (4) or on such later date
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1 or dates as may be prescribed by the Sec2 retary.

3 ‘‘(ii) OTHER ELECTIONS.—An election

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

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

6 return for the calendar year for which the

7 election is to become effective.

8 ‘‘(d) RETROACTIVE ALLOCATIONS.—

9 ‘‘(1) IN GENERAL.—If—

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

11 future interest in a trust to which any transfer

12 has been made,

13 ‘‘(B) such person—

14 ‘‘(i) is a lineal descendant of a grand15 parent of the transferor or of a grandparent

16 of the transferor’s spouse or former spouse,

17 and

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

19 the generation assignment of the transferor,

20 and

21 ‘‘(C) such person predeceases the transferor,

22 then the transferor may make an allocation of any of

23 such transferor’s unused GST exemption to any pre24 vious transfer or transfers to the trust on a chrono25 logical basis.
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1 ‘‘(2) SPECIAL RULES.—If the allocation under

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

3 return filed on or before the date prescribed by section

4 6075(b) for gifts made within the calendar year with5 in which the non-skip person’s death occurred—

6 ‘‘(A) the value of such transfer or transfers

7 for purposes of section 2642(a) shall be deter8 mined as if such allocation had been made on a

9 timely filed gift tax return for each calendar

10 year within which each transfer was made,

11 ‘‘(B) such allocation shall be effective imme12 diately before such death, and

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

14 GST exemption available to be allocated shall be

15 determined immediately before such death.

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

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

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

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

20 (b) CONFORMING AMENDMENT.—Paragraph (2) of sec21 tion 2632(b) is amended by striking ‘‘with respect to a di22 rect skip’’ and inserting ‘‘or subsection (c)(1)’’.

23 (c) EFFECTIVE DATES.—

24 (1) DEEMED ALLOCATION.—Section 2632(c) of

25 the Internal Revenue Code of 1986 (as added by sub-
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1 section (a)), and the amendment made by subsection

2 (b), shall apply to transfers subject to chapter 11 or

3 12 made after December 31, 1999, and to estate tax

4 inclusion periods ending after December 31, 1999.

5 (2) RETROACTIVE ALLOCATIONS.—Section

6 2632(d) of the Internal Revenue Code of 1986 (as

7 added by subsection (a)) shall apply to deaths of non8 skip persons occurring after December 31, 1999.

9 SEC. 402. SEVERING OF TRUSTS.

10 (a) IN GENERAL.—Subsection (a) of section 2642 (re11 lating to inclusion ratio) is amended by adding at the end

12 the following new paragraph:

13 ‘‘(3) SEVERING OF TRUSTS.—

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

15 a qualified severance, the trusts resulting from

16 such severance shall be treated as separate trusts

17 thereafter for purposes of this chapter.

18 ‘‘(B) QUALIFIED SEVERANCE.—For pur19 poses of subparagraph (A)—

20 ‘‘(i) IN GENERAL.—The term ‘qualified

21 severance’ means the division of a single

22 trust and the creation (by any means avail23 able under the governing instrument or

24 under local law) of two or more trusts if—
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1 ‘‘(I) the single trust was divided

2 on a fractional basis, and

3 ‘‘(II) the terms of the new trusts,

4 in the aggregate, provide for the same

5 succession of interests of beneficiaries

6 as are provided in the original trust.

7 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

8 GREATER THAN ZERO.—If a trust has an

9 inclusion ratio of greater than zero and less

10 than 1, a severance is a qualified severance

11 only if the single trust is divided into two

12 trusts, one of which receives a fractional

13 share of the total value of all trust assets

14 equal to the applicable fraction of the single

15 trust immediately before the severance. In

16 such case, the trust receiving such fractional

17 share shall have an inclusion ratio of zero

18 and the other trust shall have an inclusion

19 ratio of 1.

20 ‘‘(iii) REGULATIONS.—The term

21 ‘qualified severance’ includes any other sev22 erance permitted under regulations pre23 scribed by the Secretary.

24 ‘‘(C) TIMING AND MANNER OF

25 SEVERANCES.—A severance pursuant to this
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1 paragraph may be made at any time. The Sec2 retary shall prescribe by forms or regulations the

3 manner in which the qualified severance shall be

4 reported to the Secretary.’’.

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

6 section shall apply to severances after December 31, 1999.

7 SEC. 403. MODIFICATION OF CERTAIN VALUATION RULES.

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

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

10 2642(b) (relating to valuation rules, etc.) is amended to

11 read as follows:

12 ‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN FILED

13 OR DEEMED ALLOCATION MADE.—If the allocation of

14 the GST exemption to any transfers of property is

15 made on a gift tax return filed on or before the date

16 prescribed by section 6075(b) for such transfer or is

17 deemed to be made under section 2632 (b)(1) or

18 (c)(1)—

19 ‘‘(A) the value of such property for purposes

20 of subsection (a) shall be its value as finally de21 termined for purposes of chapter 12 (within the

22 meaning of section 2001(f )(2)), or, in the case of

23 an allocation deemed to have been made at the

24 close of an estate tax inclusion period, its value
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1 at the time of the close of the estate tax inclusion

2 period, and

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

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

5 case of an allocation deemed to have been made

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

7 and after the close of such estate tax inclusion

8 period.’’.

9 (b) TRANSFERS AT DEATH.—Subparagraph (A) of sec10 tion 2642(b)(2) is amended to read as follows:

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

12 transferred as a result of the death of the trans13 feror, the value of such property for purposes of

14 subsection (a) shall be its value as finally deter15 mined for purposes of chapter 11; except that, if

16 the requirements prescribed by the Secretary re17 specting allocation of post-death changes in value

18 are not met, the value of such property shall be

19 determined as of the time of the distribution con20 cerned.’’.

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

22 section shall apply to transfers subject to chapter 11 or 12

23 of the Internal Revenue Code of 1986 made after December

24 31, 1999.
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1 SEC. 404. RELIEF PROVISIONS.

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

3 at the end the following new subsection:

4 ‘‘(g) RELIEF PROVISIONS.—

5 ‘‘(1) RELIEF FROM LATE ELECTIONS.—

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

7 regulation prescribe such circumstances and pro8 cedures under which extensions of time will be

9 granted to make—

10 ‘‘(i) an allocation of GST exemption

11 described in paragraph (1) or (2) of sub12 section (b), and

13 ‘‘(ii) an election under subsection

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

15 Such regulations shall include procedures for re16 questing comparable relief with respect to trans17 fers made before the date of the enactment of this

18 paragraph.

19 ‘‘(B) BASIS FOR DETERMINATIONS.—In de20 termining whether to grant relief under this

21 paragraph, the Secretary shall take into account

22 all relevant circumstances, including evidence of

23 intent contained in the trust instrument or in24 strument of transfer and such other factors as the

25 Secretary deems relevant. For purposes of deter26 mining whether to grant relief under this para-
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1 graph, the time for making the allocation (or

2 election) shall be treated as if not expressly pre3 scribed by statute.

4 ‘‘(2) SUBSTANTIAL COMPLIANCE.—An allocation

5 of GST exemption under section 2632 that dem6 onstrates an intent to have the lowest possible inclu7 sion ratio with respect to a transfer or a trust shall

8 be deemed to be an allocation of so much of the

9 transferor’s unused GST exemption as produces the

10 lowest possible inclusion ratio. In determining wheth11 er there has been substantial compliance, all relevant

12 circumstances shall be taken into account, including

13 evidence of intent contained in the trust instrument

14 or instrument of transfer and such other factors as the

15 Secretary deems relevant.’’.

16 (b) EFFECTIVE DATES.—

17 (1) RELIEF FROM LATE ELECTIONS.—Section

18 2642(g)(1) of the Internal Revenue Code of 1986 (as

19 added by subsection (a)) shall apply to requests pend20 ing on, or filed after, December 31, 1999.

21 (2) SUBSTANTIAL COMPLIANCE.—Section

22 2642(g)(2) of such Code (as so added) shall apply to

23 transfers subject to chapter 11 or 12 of the Internal

24 Revenue Code of 1986 made after December 31, 1999.

25 No implication is intended with respect to the avail-
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1 ability of relief from late elections or the application

2 of a rule of substantial compliance on or before such

3 date.

4 TITLE V—CONSERVATION

5 EASEMENTS

6 SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON7 SERVATION EASEMENTS.

8 (a) WHERE LAND IS LOCATED.—

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

10 2031(c)(8)(A) (defining land subject to a conservation

11 easement) is amended—

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

13 appears and inserting ‘‘50 miles’’, and

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

15 miles’’.

16 (2) EFFECTIVE DATE.—The amendments made

17 by this subsection shall apply to estates of decedents

18 dying after December 31, 1999.

19 (b) CLARIFICATION OF DATE FOR DETERMINING

20 VALUE OF LAND AND EASEMENT.—

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

22 applicable percentage) is amended by adding at the

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

24 into account under the preceding sentence shall be
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1 such values as of the date of the contribution referred

2 to in paragraph (8)(B).’’.

3 (2) EFFECTIVE DATE.—The amendment made by

4 this subsection shall apply to estates of decedents

5 dying after December 31, 1997.
Union Calendar No. 361

106TH CONGRESS

2D SESSION H. R. 8

[Report No. 106–651]

A BILL

To amend the Internal Revenue Code of 1986 to

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

JUNE 6, 2000

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union,

and ordered to be printed