39–008 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–35 

PROVIDING FOR CONSIDERATION OF H.R. 8, DEATH TAX 

REPEAL PERMANENCY ACT OF 2005 

APRIL 12, 2005.—Referred to the House Calendar and ordered to be printed 

Mr. HASTINGS of Washington, from the Committee on Rules, 

submitted the following 

R E P O R T 

[To accompany H. Res. 202] 

The Committee on Rules, having had under consideration House 

Resolution 202, by a nonrecord vote, report the same to the House 

with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for the consideration of H.R. 8, the Death 

Tax Repeal Permanency Act of 2005, under a structured rule. The 

rule provides one hour of debate in the House equally divided and 

controlled by the chairman and ranking minority member of the 

Committee on Ways and Means. 

The rule provides for consideration of the amendment in the nature of a substitute printed in this report, if offered by Representative Pomeroy or his designee, which shall be considered as read 

and shall be separately debatable for one hour equally divided and 

controlled by the proponent and an opponent. The rule waives all 

points of order against the amendment printed in this report. 

Finally, the rule provides one motion to recommit with or without instructions. 

EXPLANATION OF WAIVERS

The Committee is not aware of any points of order against the 

amendment printed in this report. The waiver of all points of order 

against the amendment is prophylactic in nature. 

SUMMARY OF AMENDMENT MADE IN ORDER

Pomeroy: Amendment in the Nature of a Substitute. Immediately 

eliminates the estate tax for most estates. Increases the estate tax 

exclusion to $3 million, effective January 1, 2004. Partially offsets 

2 

the cost of increasing the exclusion by freezing existing estate tax 

rates, eliminating the ability to claim valuation discounts by holding property through partnerships, and restoring the prior law 

phaseout of the benefit of the graduated rates and exclusion. Repeals the carryover basis rules contained in the 2001 tax bill, in 

doing so the substitute would continue the favorable current law 

step-up in basis rules that eliminate capital gains taxes on increases in value before death. 

TEXT OF AMENDMENT MADE IN ORDER 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Certain and Immediate Estate Tax 

Relief Act of 2005’’. 

SEC. 2. RETENTION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS. 

(a) IN GENERAL.—Subtitles A and E of title V of the Economic 

Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such subtitles, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such subtitles, and 

amendments, had never been enacted. 

(b) SUNSET NOT TO APPLY.—Section 901 of the Economic Growth 

and Tax Relief Reconciliation Act of 2001 shall not apply to title 

V of such Act. 

(c) CONFORMING AMENDMENTS.—Subsections (d) and (e) of section 511 of the Economic Growth and Tax Relief Reconciliation Act 

of 2001, and the amendments made by such subsections, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such subsections, and amendments, had never been enacted. 

SEC. 3. MODIFICATIONS TO ESTATE TAX. 

(a) IMMEDIATE INCREASE IN EXCLUSION EQUIVALENT OF UNIFIED

CREDIT.—Subsection (c) of section 2010 of the Internal Revenue 

Code of 1986 (relating to applicable credit amount) is amended by 

striking all that follows ‘‘the applicable exclusion amount’’ and inserting ‘‘. For purposes of the preceding sentence, the applicable exclusion amount is $3,500,000 ($3,000,000 in the case of estates of 

decedents dying before 2009).’’. 

(b) FREEZE MAXIMUM ESTATE TAX RATE AT 47 PERCENT; RESTORATION OF PHASEOUT OF GRADUATED RATES AND UNIFIED CREDIT.— 

(1) Paragraph (1) of section 2001(c) of such Code is amended 

by striking the last 2 items in the table and inserting the following new item: 

‘‘Over $2,000,000 ........................................ $780,800, plus 47 percent of the excess 

of such amount over $2,000,000.’’. 

(2) Paragraph (2) of section 2001(c) of such Code is amended 

to read as follows: 

‘‘(2) PHASEOUT OF GRADUATED RATES AND UNIFIED CREDIT.— 

The tentative tax determined under paragraph (1) shall be increased by an amount equal to 5 percent of so much of the 

amount (with respect to which the tentative tax is to be computed) as exceeds $10,000,000. The amount of the increase 

3 

under the preceding sentence shall not exceed the sum of the 

applicable credit amount under section 2010(c) and $159,200.’’. 

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

shall apply to estates of decedents dying, and gifts made, after December 31, 2005. 

SEC. 4. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; LIMITATION ON MINORITY DISCOUNTS. 

(a) IN GENERAL.—Section 2031 of the Internal Revenue Code of 

1986 (relating to definition of gross estate) is amended by redesignating subsection (d) as subsection (f) and by inserting after subsection (c) the following new subsections: 

‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS

ASSETS.—For purposes of this chapter and chapter 12— 

‘‘(1) IN GENERAL.—In the case of the transfer of any interest 

in an entity other than an interest which is actively traded 

(within the meaning of section 1092)— 

‘‘(A) the value of any nonbusiness assets held by the entity shall be determined as if the transferor had transferred such assets directly to the transferee (and no valuation discount shall be allowed with respect to such nonbusiness assets), and 

‘‘(B) the nonbusiness assets shall not be taken into account in determining the value of the interest in the entity. 

‘‘(2) NONBUSINESS ASSETS.—For purposes of this subsection— 

‘‘(A) IN GENERAL.—The term ‘nonbusiness asset’ means 

any asset which is not used in the active conduct of 1 or 

more trades or businesses. 

‘‘(B) EXCEPTION FOR CERTAIN PASSIVE ASSETS.—Except as 

provided in subparagraph (C), a passive asset shall not be 

treated for purposes of subparagraph (A) as used in the active conduct of a trade or business unless— 

‘‘(i) the asset is property described in paragraph (1) 

or (4) of section 1221(a) or is a hedge with respect to 

such property, or 

‘‘(ii) the asset is real property used in the active conduct of 1 or more real property trades or businesses 

(within the meaning of section 469(c)(7)(C)) in which 

the transferor materially participates and with respect 

to which the transferor meets the requirements of section 469(c)(7)(B)(ii). 

For purposes of clause (ii), material participation shall be 

determined under the rules of section 469(h), except that 

section 469(h)(3) shall be applied without regard to the 

limitation to farming activity. 

‘‘(C) EXCEPTION FOR WORKING CAPITAL.—Any asset (including a passive asset) which is held as a part of the reasonably required working capital needs of a trade or business shall be treated as used in the active conduct of a 

trade or business. 

‘‘(3) PASSIVE ASSET.—For purposes of this subsection, the 

term ‘passive asset’ means any— 

‘‘(A) cash or cash equivalents, 

4 

‘‘(B) except to the extent provided by the Secretary, stock 

in a corporation or any other equity, profits, or capital interest in any entity, 

‘‘(C) evidence of indebtedness, option, forward or futures 

contract, notional principal contract, or derivative, 

‘‘(D) asset described in clause (iii), (iv), or (v) of section 

351(e)(1)(B), 

‘‘(E) annuity, 

‘‘(F) real property used in 1 or more real property trades 

or businesses (as defined in section 469(c)(7)(C)), 

‘‘(G) asset (other than a patent, trademark, or copyright) 

which produces royalty income, 

‘‘(H) commodity, 

‘‘(I) collectible (within the meaning of section 401(m)), or 

‘‘(J) any other asset specified in regulations prescribed 

by the Secretary. 

‘‘(4) LOOK-THRU RULES.— 

‘‘(A) IN GENERAL.—If a nonbusiness asset of an entity 

consists of a 10-percent interest in any other entity, this 

subsection shall be applied by disregarding the 10-percent 

interest and by treating the entity as holding directly its 

ratable share of the assets of the other entity. This subparagraph shall be applied successively to any 10-percent 

interest of such other entity in any other entity. 

‘‘(B) 10-PERCENT INTEREST.—The term ‘10-percent interest’ means— 

‘‘(i) in the case of an interest in a corporation, ownership of at least 10 percent (by vote or value) of the 

stock in such corporation, 

‘‘(ii) in the case of an interest in a partnership, ownership of at least 10 percent of the capital or profits 

interest in the partnership, and 

‘‘(iii) in any other case, ownership of at least 10 percent of the beneficial interests in the entity. 

‘‘(5) COORDINATION WITH SUBSECTION (B).—Subsection (b) 

shall apply after the application of this subsection. 

‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For purposes of this 

chapter and chapter 12, in the case of the transfer of any interest 

in an entity other than an interest which is actively traded (within 

the meaning of section 1092), no discount shall be allowed by reason of the fact that the transferee does not have control of such entity if the transferee and members of the family (as defined in section 2032A(e)(2)) of the transferee have control of such entity.’’. 

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

shall apply to transfers after the date of the enactment of this Act. 

Amend the title so as to read: ‘‘A bill to amend the Internal Revenue Code of 1986 to retain the estate tax with an immediate increase in the exemption, to repeal the new carryover basis rules in 

order to prevent tax increases and the imposition of compliance 

burdens on many more estates than would benefit from repeal, and 

for other purposes.’’. 

Æ