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[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8 Placed on Calendar Senate (PCS)]

                                                       Calendar No. 608
106th CONGRESS
  2d Session
                                 H. R. 8

IN THE SENATE OF THE UNITED STATES_____________________________________

                   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.

    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    (a) In General.--Subtitle B is hereby repealed.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 generation-skipping 
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).''.

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.''.
    (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).
    (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.--
            (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.
            (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.
                    ``(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 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,
                                    ``(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.--
                    ``(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.--
            (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:
            ``(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.
            ``(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) 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).''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to estates of decedents 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-year period.

_______________________________________________________________________

                             June 19, 2000

             Read twice and ordered placed on the calendar
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