II

106TH CONGRESS

1ST SESSION S. 1128

To amend the Internal Revenue Code of 1986 to repeal the Federal estate

and gift taxes and the tax on generation-skipping transfers, to provide

for a carryover basis at death, and to establish a partial capital gains

exclusion for inherited assets.

IN THE SENATE OF THE UNITED STATES

MAY 26, 1999

Mr. KYL (for himself, Mr. KERREY, Mr. NICKLES, Mr. BREAUX, Mr. MACK,

Mr. ROBB, and Mr. GRAMM) introduced the following bill; which was read

twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to repeal

the Federal estate and gift taxes and the tax on generation-skipping transfers, to provide for a carryover basis

at death, and to establish a partial capital gains exclusion for inherited assets.

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.

4 This Act may be cited as the ‘‘Estate Tax Elimi5 nation Act of 1999’’.
2

•S 1128 IS

1 SEC. 2. REPEAL OF CERTAIN FEDERAL TRANSFER TAXES.

2 (a) IN GENERAL.—Subtitle B of the Internal Rev3 enue Code of 1986 is hereby repealed.

4 (b) EFFECTIVE DATE.—The repeal made by sub5 section (a) shall apply to the estates of decedents dying,

6 and gifts and generation-skipping transfers made, after

7 the date of enactment of this Act.

8 (c) TECHNICAL AND CONFORMING CHANGES.—The

9 Secretary of the Treasury or the Secretary’s delegate

10 shall, as soon as practicable but in any event not later

11 than 90 days after the date of enactment of this Act, sub12 mit to the Committee on Ways and Means of the House

13 of Representatives and the Committee on Finance of the

14 Senate a draft of any technical and conforming changes

15 in the Internal Revenue Code of 1986 which are necessary

16 to reflect throughout such Code the changes in the sub17 stantive provisions of law made by this Act.

18 SEC. 3. TERMINATION OF A STEP UP IN BASIS AT DEATH.

19 (a) TERMINATION OF APPLICATION OF SECTION

20 1014.—Section 1014 of the Internal Revenue Code of

21 1986 (relating to basis of property acquired from a dece22 dent) is amended by adding at the end the following:

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

24 after the date of enactment of the Estate Tax Elimination

25 Act of 1999, this section shall not apply to property for

26 which basis is provided by section 1022.’’
3

•S 1128 IS

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

2 section 1016 of the Internal Revenue Code of 1986 (relat3 ing to adjustments to basis) is amended by striking ‘‘and’’

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

5 the end of paragraph (27) and inserting ‘‘; and’’, and by

6 adding at the end the following:

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

8 (relating to basis for certain property acquired from

9 a decedent dying after the date of enactment of the

10 Estate Tax Elimination Act of 1999.’’

11 SEC. 4. CARRYOVER BASIS AT DEATH.

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

13 chapter 1 of the Internal Revenue Code of 1986 (relating

14 to basis rules of general application) is amended by insert15 ing after section 1021 the following:

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

17 ACQUIRED FROM A DECEDENT.

18 ‘‘(a) CARRYOVER BASIS.—

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this section, the basis of carryover basis

21 property in the hands of a person acquiring such

22 property from a decedent is—

23 ‘‘(A) its initial basis, increased by
4

•S 1128 IS

1 ‘‘(B) its allowable share of the decedent’s

2 exclusion allowance determined under sub3 section (c).

4 ‘‘(2) INITIAL BASIS.—The initial basis of carry5 over basis property is its adjusted basis for purposes

6 of determining gain immediately before the death of

7 the decedent.

8 ‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—

9 ‘‘(1) IN GENERAL.—For purposes of this sec10 tion, the term ‘carryover basis property’ means any

11 property—

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

13 from a decedent who died after the date of en14 actment of the Estate Tax Elimination Act of

15 1999, and

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

17 paragraph (2) or (3).

18 The property taken into account under subpara19 graph (A) shall be determined under section 1014(b)

20 without regard to subparagraph (A) of the last sen21 tence of paragraph (9) thereof.

22 ‘‘(2) CERTAIN PROPERTY NOT CARRYOVER

23 BASIS PROPERTY.—The term ‘carryover basis prop24 erty’ does not include—

25 ‘‘(A) property which—
5

•S 1128 IS

1 ‘‘(i) was acquired from the decedent

2 before the decedent’s death, and

3 ‘‘(ii) was sold, exchanged, or otherwise

4 disposed of before the decedent’s death by

5 the person so acquiring it,

6 ‘‘(B) any item of gross income in respect

7 of a decedent described in section 691;

8 ‘‘(C) property described in section 2042

9 (relating to proceeds of life insurance), as in ef10 fect on the day before the date of enactment of

11 the Estate Tax Elimination Act of 1999;

12 ‘‘(D) property described in section

13 1014(b)(5); and

14 ‘‘(E) property which was acquired from the

15 decedent by the surviving spouse of the dece16 dent, the value of which would have been de17 ductible from the value of the taxable estate of

18 the decedent under section 2056, as in effect on

19 the day before the date of enactment of the Es20 tate Tax Elimination Act of 1999.

21 ‘‘(3) $50,000 EXCLUSION FOR TANGIBLE PER22 SONAL PROPERTY.—

23 ‘‘(A) EXCLUSION.—The term ‘carryover

24 basis property’ does not include any tangible

25 personal property—
6

•S 1128 IS

1 ‘‘(i) which, in the hands of the dece2 dent, was a capital asset, and

3 ‘‘(ii) with respect to which the execu4 tor has made an election under this para5 graph.

6 ‘‘(B) LIMITATION.—The fair market value

7 of all assets designated under this subsection

8 with respect to any decedent shall not exceed

9 $50,000.

10 ‘‘(C) ELECTION.—An election under this

11 paragraph with respect to any asset shall be

12 made by the executor not later than the date

13 prescribed for filing the return required under

14 section 6039H(a), and shall be made on such

15 return.

16 ‘‘(c) EXCLUSION ALLOWANCE.—

17 ‘‘(1) BASIS ADJUSTMENT.—

18 ‘‘(A) IN GENERAL.—The basis adjustment

19 under this subsection for any carryover basis

20 property is—

21 ‘‘(i) the portion of the decedent’s fam22 ily-owned business interest exclusion allow23 ance which is allocated to property exclu24 sively used by the qualified family-owned
7

•S 1128 IS

1 business interest pursuant to this section,

2 and

3 ‘‘(ii) the portion of the decedent’s gen4 eral exclusion allowance which is allocated

5 to property pursuant to this section (deter6 mined after the allocation under clause

7 (i)).

8 ‘‘(B) LIMITATION.—Such basis adjustment

9 for any property shall not exceed the net appre10 ciation in such property.

11 ‘‘(C) NET APPRECIATION.—For purposes

12 of this subsection, the net appreciation in value

13 of any property is the amount by which—

14 ‘‘(i) the fair market value of such

15 property, exceeds

16 ‘‘(ii) the initial basis of such property.

17 ‘‘(D) DECEDENT’S FAMILY-OWNED BUSI18 NESS INTEREST EXCLUSION ALLOWANCE.—In

19 the case of any estate, the decedent’s family20 owned business interest exclusion allowance

21 shall be equal to the lesser of—

22 ‘‘(i) the excess of—

23 ‘‘(I) $1,300,000, over

24 ‘‘(II) the applicable dollar

25 amount, or
8

•S 1128 IS

1 ‘‘(ii) the aggregate net appreciation of

2 all carryover basis property exclusively

3 used by the qualified family-owned busi4 ness interest.

5 ‘‘(E) DECEDENT’S GENERAL EXCLUSION

6 ALLOWANCE.—In the case of any estate, the de7 cedent’s general exclusion allowance shall be

8 equal to the lesser of—

9 ‘‘(i) the applicable amount, or

10 ‘‘(ii) the aggregate net appreciation of

11 all carryover basis property not described

12 in subparagraph (D)(ii).

13 ‘‘(F) APPLICABLE AMOUNT.—

14 ‘‘(i) IN GENERAL.—For purposes of

15 this subsection, the applicable amount for

16 any decedent is equal to the sum of—

17 ‘‘(I) the applicable dollar amount,

18 and

19 ‘‘(II) in the case of a decedent

20 with a deceased spouse whose dece21 dent’s allowance was less than the ap22 plicable amount for such spouse the

23 unallocated portion of such amount.

24 ‘‘(ii) APPLICABLE DOLLAR AMOUNT.—

25 For purposes of clause (i)(I), the applica-
9

•S 1128 IS

1 ble dollar amount shall be the dollar

2 amount set forth in the following table:

‘‘In the case of estates of decedents The applicable

dying, and gifts made, during: dollar amount is:

1999 ....................................................................... $650,000

2000 and 2001 ...................................................... $675,000

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

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

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

2006 ....................................................................... $1,000,000.

3 ‘‘(G) QUALIFIED FAMILY-OWNED BUSI4 NESS INTEREST.—For purposes of this section,

5 the ‘qualified family-owned business interest’

6 has the meaning given such term by section

7 2057(e), as in effect on the day before the date

8 of enactment of the Estate Tax Elimination Act

9 of 1999.

10 ‘‘(2) ALLOCATION RULES.—

11 ‘‘(A) IN GENERAL.—The executor shall al12 locate the adjustments under this subsection

13 among the carryover basis properties on the re14 turn required under section 6039H(a).

15 ‘‘(B) CHANGES IN ALLOCATION.—Any allo16 cation made pursuant to subparagraph (A) may

17 be changed at any time before the close of the

18 30th day after the initial basis finality date.

19 The allocation in effect at the close of such

20 30th day may be changed only with the consent

21 of the Secretary.
10

•S 1128 IS

1 ‘‘(C) INITIAL BASIS FINALITY DATE.—For

2 purposes of this paragraph, the term ‘initial

3 basis finality date’ means the last day on which

4 the initial basis of property may be changed in

5 an administrative or judicial proceeding re6 ferred to in section 7480.

7 ‘‘(d) SPECIAL RULES AND DEFINITIONS.—For pur8 poses of this section—

9 ‘‘(1) TREATMENT OF ITEMS ON A CLASS

10 BASIS.—Under regulations prescribed by the Sec11 retary, the holding periods, bases, and fair market

12 value of similar items falling within the same class

13 of property may be determined on a class basis rath14 er than on an individual item basis.

15 ‘‘(2) PERSONAL AND HOUSEHOLD EFFECTS.—

16 ‘‘(A) LOSS.—In the case of any carryover

17 basis property which, in the hands of the dece18 dent, was a personal or household effect, for

19 purposes of determining loss the basis of such

20 property in the hands of the person acquiring

21 such property from the decedent shall not ex22 ceed its fair market value.

23 ‘‘(B) DETERMINATION OF MINIMUM

24 BASIS.—The basis of any property which is a

25 personal or household effect shall be treated as
11

•S 1128 IS

1 not greater than the fair market value of such

2 property.

3 ‘‘(3) FAIR MARKET VALUE.—For purposes of

4 this section, when not otherwise distinctly expressed,

5 the term ‘fair market value’ means value determined

6 without regard to whether there is a mortgage on,

7 or indebtedness in respect of, the property.

8 ‘‘(4) FAIR MARKET VALUE LIMITATION.—The

9 adjustment under subsection (c) shall not increase

10 the basis of property above its fair market value.

11 ‘‘(5) PROPERTY PASSING FROM THE DECE12 DENT.—For purposes of this section, property pass13 ing from the decedent shall be treated as property

14 acquired from the decedent.

15 ‘‘(6) NONRESIDENTS NOT CITIZENS.—In the

16 case of a decedent who was (at the time of his

17 death) a nonresident not a citizen of the United

18 States—

19 ‘‘(A) subsection (b)(3) shall not apply, and

20 ‘‘(B) there shall be no basis adjustment

21 under subsection (c).

22 ‘‘(e) REGULATIONS.—The Secretary shall prescribe

23 such regulations as may be necessary to carry out the pur24 poses of this section.’’
12

•S 1128 IS

1 (b) PROCEDURE FOR BINDING DETERMINATION OF

2 INITIAL BASIS.—

3 (1) IN GENERAL.—Part IV of subchapter C of

4 chapter 76 of the Internal Revenue Code of 1986

5 (relating to declaratory judgments) is amended by

6 adding at the end the following:

7 ‘‘SEC. 7480. PROCEDURE FOR BINDING DETERMINATION OF

8 INITIAL BASIS OF CARRYOVER BASIS PROP9 ERTY.

10 ‘‘(a) ADMINISTRATIVE AUDIT.—

11 ‘‘(1) DESIGNATION BY EXECUTOR.—An execu12 tor may request the Secretary to audit the initial

13 basis of any carryover basis property which is shown

14 on the return required under section 6039H(a). Any

15 such request shall be made on such return.

16 ‘‘(2) AUTHORITY OF THE SECRETARY.—For

17 purposes of examining the correctness of the initial

18 basis of any property with respect to which an ex19 ecutor has made a request under paragraph (1), the

20 Secretary shall have the same authority as if he

21 were determining the liability of any person for a tax

22 imposed by this title.

23 ‘‘(b) JUDICIAL REVIEW.—

24 ‘‘(1) BRINGING OF ACTION.—If the executor

25 and the Secretary have not entered into an agree-
13

•S 1128 IS

1 ment described in subsection (c)(2) with respect to

2 any property for which a request has been made

3 under subsection (a)(1), the executor may bring an

4 action in the Tax Court with respect to such prop5 erty.

6 ‘‘(2) DECLARATION BY TAX COURT.—Upon the

7 filing of an appropriate pleading in an action

8 brought under paragraph (1), the Tax Court may

9 make a declaration of the initial basis of the prop10 erty with respect to which such an action is brought.

11 Any such declaration shall be final and conclusive

12 and shall not be reviewed by any other court.

13 ‘‘(3) TIME FOR BRINGING ACTION.—No action

14 may be brought under this subsection with respect

15 to any property unless the pleading is filed—

16 ‘‘(A) after the expiration of 1 year after

17 the date on which the executor made a request

18 under subsection (a)(1) with respect to such

19 property, and

20 ‘‘(B) before the 91st day after the later

21 of—

22 ‘‘(i) the day on which the Secretary

23 sends by certified or registered mail a noti24 fication of his disagreement with the initial
14

•S 1128 IS

1 basis of the property shown on the return

2 required under section 6039H(a), or

3 ‘‘(ii) the expiration of the 1-year pe4 riod referred to in subparagraph (A).

5 ‘‘(c) BINDING EFFECT OF DETERMINATIONS.—

6 ‘‘(1) NO NOTICE FROM SECRETARY.—If—

7 ‘‘(A) an executor makes a request under

8 subsection (a)(1) with respect to the initial

9 basis of any property, and

10 ‘‘(B) before the date 3 years after the day

11 on which such request is made, the Secretary

12 does not send to the executor by certified or

13 registered mail notice of his disagreement with

14 the initial basis of such property shown on the

15 return required under section 6039H(a),

16 then the initial basis so shown shall be binding and

17 conclusive on the Secretary and on any person whose

18 basis in such property is affected by such initial

19 basis unless any such person establishes a different

20 initial basis to the satisfaction of the Secretary.

21 ‘‘(2) AGREEMENT BETWEEN SECRETARY AND

22 EXECUTOR.—If the executor and the Secretary sign

23 a written agreement as to the initial basis of any

24 property with respect to which the executor made a

25 request under subsection (a)(1), such agreement
15

•S 1128 IS

1 shall be binding and conclusive on the Secretary and

2 on any person whose basis in such property is af3 fected by the initial basis in the same manner as if

4 such agreement were a closing agreement under sec5 tion 7121 between the Secretary and such person.

6 ‘‘(3) TAX COURT DECISION BINDING ON

7 HEIRS.—Any declaration of the initial basis of any

8 property made by the Tax Court which has become

9 final shall also be binding on any person whose basis

10 in the property is affected by the initial basis.

11 ‘‘(d) INTERVENTION.—Any person whose basis in any

12 property is affected by the initial basis of any property

13 shall be allowed to intervene in any administrative or judi14 cial proceeding under this section with respect to such

15 property.

16 ‘‘(e) DEFINITIONS.—Terms used in this section

17 which are also used in section 1022 shall have the mean18 ings as when used in section 1022.’’

19 (2) CLERICAL AMENDMENT.—The table of sec20 tions for part IV of subchapter C of chapter 76 of

21 such Code is amended by adding at the end the fol22 lowing:

‘‘Sec. 7480. Procedure for binding determination of initial basis

of carryover basis property.’’

23 (c) INFORMATION RETURNS; ASSESSABLE PENALTY

24 FOR NEGLIGENT OR FRAUDULENT OVERSTATEMENT OF
16

•S 1128 IS

1 INITIAL BASIS; PENALTIES FOR FAILURE TO FURNISH

2 INFORMATION.—

3 (1) INFORMATION RETURNS.—Subpart A of

4 part III of subchapter A of chapter 61 of the Inter5 nal Revenue Code of 1986 (relating to information

6 concerning persons subject to special provisions) is

7 amended by adding after section 6039G the fol8 lowing:

9 ‘‘SEC. 6039H. INFORMATION REGARDING CARRYOVER BASIS

10 PROPERTY ACQUIRED FROM A DECEDENT.

11 ‘‘(a) IN GENERAL.—Every executor shall furnish the

12 Secretary such information with respect to carryover basis

13 property to which section 1022 applies as the Secretary

14 may by regulations prescribe.

15 ‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS

16 WHO ACQUIRE PROPERTY FROM A DECEDENT.—Every

17 executor who is required to furnish information under sub18 section (a) shall furnish in writing to each person acquir19 ing an item of such property from the decedent (or to

20 whom the item passes from the decedent) the adjusted

21 basis of such item.’’

22 (2) PENALTIES.—Part I of subchapter B of

23 chapter 68 of such Code (relating to assessable pen24 alties) is amended by adding at the end the fol25 lowing:
17

•S 1128 IS

1 ‘‘SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT

2 TO CARRYOVER BASIS PROPERTY.

3 ‘‘(a) INFORMATION REQUIRED TO BE FURNISHED

4 TO THE SECRETARY.—Any executor who fails to furnish

5 information required under section 6039H(a) on the date

6 prescribed therefor (determined with regard to any exten7 sion of time for filing) shall, if such failure is due to neg8 ligence or intentional disregard of rules and regulations,

9 pay a penalty of $100 for each such failure, but the total

10 amount imposed for all such failures shall not exceed

11 $5,000.

12 ‘‘(b) INFORMATION REQUIRED TO BE FURNISHED

13 TO BENEFICIARIES.—Any executor who fails to furnish in

14 writing to each person described in section 6039H(b) the

15 information required under such section shall, if such fail16 ure is due to negligence or intentional disregard of rules

17 and regulations, pay a penalty of $50 for each such fail18 ure, but the total amount imposed for all such failures

19 shall not exceed $2,500.

20 ‘‘(c) NEGLIGENT OR FRAUDULENT OVERSTATEMENT

21 OF INITIAL BASIS.—

22 ‘‘(1) NEGLIGENT OVERSTATEMENT.—If any

23 part of an initial basis overstatement is due to neg24 ligence or intentional disregard of rules and regula25 tions (but without intent to defraud) by the execu-
18

•S 1128 IS

1 tor, such executor shall pay a penalty equal to 10

2 percent of such overstatement.

3 ‘‘(2) FRAUDULENT OVERSTATEMENT.—If any

4 part of an initial basis overstatement is due to fraud

5 by the executor, such executor shall pay a penalty

6 equal to 30 percent of such overstatement.

7 ‘‘(3) INITIAL BASIS OVERSTATEMENT DE8 FINED.—For purposes of this subsection, the term

9 ‘initial basis overstatement’ means the excess of—

10 ‘‘(A) the initial basis of any carryover basis

11 property shown on the return required under

12 section 6039H(a), over

13 ‘‘(B) the amount determined to be the ini14 tial basis of such property.

15 ‘‘(d) DEFICIENCY PROCEDURES NOT TO APPLY.—

16 Subchapter B of chapter 63 shall not apply in respect of

17 the assessment or collection of any penalty imposed by this

18 section.’’

19 (3) CLERICAL AMENDMENTS.—

20 (A) The table of sections for subpart A of

21 part III of subchapter A of chapter 61 of such

22 Code is amended by adding after the item relat23 ing to section 6039G the following:

‘‘Sec. 6039H. Information regarding carryover basis property acquired from a decedent.’’
19

•S 1128 IS

1 (B) The table of sections for part I of sub2 chapter B of chapter 68 of such Code is amend3 ed by adding at the end the following:

‘‘Sec. 6716. Failure to file information with respect to carryover

basis property.’’

4 (d) MISCELLANEOUS AMENDMENTS RELATED TO

5 CARRYOVER BASIS.—

6 (1) CAPITAL GAIN TREATMENT FOR INHERITED

7 ART WORK OR SIMILAR PROPERTY.—

8 (A) IN GENERAL.—Subparagraph (C) of

9 section 1221(3) of the Internal Revenue Code

10 of 1986 (defining capital asset) is amended by

11 inserting ‘‘(other than by reason of section

12 1022)’’ after ‘‘is determined’’.

13 (B) COORDINATION WITH SECTION 170.—

14 Paragraph (1) of section 170(e) of such Code

15 (relating to certain contributions of ordinary in16 come and capital gain property) is amended by

17 adding at the end the following: ‘‘For purposes

18 of this paragraph, the determination of whether

19 property is a capital asset shall be made with20 out regard to the exception contained in section

21 1221(3)(C) for basis determined under section

22 1022.’’
20

•S 1128 IS

1 (2) DEFINITION OF EXECUTOR.—Section

2 7701(a) of such Code (relating to definitions) is

3 amended by adding at the 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

9 any property of the decedent.’’

10 (e) EFFECTIVE DATE.—The amendments made by

11 this section shall apply to estates of decedents dying after

12 the date of enactment of this Act.

Æ