I

103D CONGRESS

2D SESSION H. R. 5023

To amend the Internal Revenue Code of 1986 to reduce the lowest rate

of income tax imposed on taxpayers other than corporations from 15

percent to 12.5 percent, to provide for a carryover basis of property

acquired from a decedent, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

SEPTEMBER 12, 1994

Mr. OWENS introduced the following bill; which was referred to the Committee

on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to reduce

the lowest rate of income tax imposed on taxpayers other

than corporations from 15 percent to 12.5 percent, to

provide for a carryover basis of property acquired from

a decedent, and for other purposes.

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 ‘‘Citizens’ Tax Relief

5 Act of 1994’’.
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1 SEC. 2. REDUCTION OF LOWEST RATE OF INCOME TAX IM2 POSED ON TAXPAYERS OTHER THAN COR3 PORATIONS.

4 (a) IN GENERAL.—Each of the tables contained in

5 subsections (a), (b), (c), (d), and (e) of section 1 of the

6 Internal Revenue Code of 1986 is amended by striking

7 ‘‘15%’’ and inserting ‘‘12.5%’’.

8 (b) EFFECTIVE DATE.—The amendment made by

9 subsection (a) shall apply to taxable years beginning after

10 December 31, 1994.

11 (c) SECTION 15 NOT TO APPLY.—The amendment

12 made by subsection (a) shall not be treated as a change

13 in the rate of a tax imposed by chapter 1 of the Internal

14 Revenue Code of 1986 for purposes of section 15 of such

15 Code.

16 SEC. 3. REPEAL OF INCREASE IN BASIS OF PROPERTY AC17 QUIRED FROM A DECEDENT.

18 (a) IN GENERAL.—Section 1014 of the Internal Rev19 enue Code of 1986 (relating to basis of property acquired

20 from a decedent) is hereby repealed.

21 (b) BASIS TO BE DETERMINED UNDER RULES AP22 PLICABLE TO GIFTS.—Section 1015 of such Code (relat23 ing to basis of property acquired by gifts and transfers

24 in trusts) is amended by adding at the end the following

25 new subsection:
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1 ‘‘(f) PROPERTY ACQUIRED FROM OR PASSING FROM

2 A DECEDENT.—

3 ‘‘(1) IN GENERAL.—Property acquired from a

4 decedent dying after December 31, 1994, or passed

5 from such a decedent shall be treated for purposes

6 of subsection (a) as acquired by gift for purposes of

7 this section.

8 ‘‘(2) PROPERTY ACQUIRED FROM A DECE9 DENT.—Section 1014(b) (as in effect on the day be10 fore the date of the enactment of the Citizens’ Tax

11 Relief Act of 1994) shall apply for purposes of

12 whether property is considered to have been acquired

13 from or to have passed from the decedent.

14 ‘‘(3) INCREASE IN BASIS FOR ESTATE TAX

15 PAID.—

16 ‘‘(A) IN GENERAL.—The basis of any

17 property which this subsection applies shall be

18 the basis determined under subsection (a) in19 creased by the portion of the aggregate death

20 tax adjustment which is allocated to the prop21 erty pursuant to this paragraph.

22 ‘‘(B) LIMITATION.—The death tax adjust23 ment for any property shall not exceed—

24 ‘‘(i) the net appreciation in such prop25 erty, multiplied by
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1 ‘‘(ii) the Federal marginal estate tax

2 rate.

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

4 of this paragraph, the net appreciation in value

5 of any property is the amount by which—

6 ‘‘(i) the fair market value of such

7 property, exceeds

8 ‘‘(ii) the initial basis of such property

9 increased by the minimum basis adjust10 ment of such property.

11 ‘‘(4) AGGREGATE DEATH TAX ADJUSTMENT.—

12 In the case of any estate—

13 ‘‘(A) IN GENERAL.—The aggregate death

14 tax adjustment is the product of—

15 ‘‘(i) the aggregate net appreciation of

16 all properties which have net appreciation,

17 and

18 ‘‘(ii) the Federal marginal estate tax

19 rate.

20 ‘‘(B) LIMITATION.—The amount taken

21 into account under subparagraph (A)(i) shall

22 not exceed the taxable estate.

23 ‘‘(C) FEDERAL MARGINAL ESTATE TAX

24 RATE.—The term ‘Federal marginal estate tax
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1 rate’ means the highest rate in the rate sched2 ule set forth in section 2001(c)—

3 ‘‘(i) which is used in determining the

4 tentative tax under section 2001(b)(1) with

5 respect to the estate of the decedent, and

6 ‘‘(ii) the amount subject to which is at

7 least $50,000.

8 In no event shall the Federal marginal estate

9 tax rate be less than 30 percent.

10 ‘‘(5) ALLOCATION RULES.—The executor shall

11 allocate the adjustments under this subsection

12 among the properties on the return of the tax im13 posed by chapter 11.’’.

14 (c) CONFORMING AMENDMENTS.—

15 (1) The table of sections for part II of sub16 chapter O of chapter 1 of such Code is amended by

17 striking the item relating to section 1014.

18 (2) The heading of section 1015 of such Code

19 is amended to read as follows:

20 ‘‘SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM

21 A DECEDENT, OR TRANSFERRED IN TRUST.’’.

22 (3) The table of sections for part II of sub23 chapter O of chapter 1 of such Code is amended by

24 striking the item relating to section 1015 and insert25 ing the following new item:
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‘‘Sec. 1015. Basis of property acquired by gift, from a decedent,

or transferred in trust.’’.

1 (d) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to decedents dying after December

3 31, 1994.

4 SEC. 4. PHASEIN OF CAPITAL GAINS TAX ON INHERITED

5 PROPERTY.

6 (a) IN GENERAL.—Subsection (h) of section 1 of the

7 Internal Revenue Code of 1986 (relating to maximum cap8 ital gains rate) is amended to read as follows:

9 ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—

10 ‘‘(1) IN GENERAL.—If a taxpayer has a net

11 capital gain for any taxable year, then the tax im12 posed by this section shall not exceed the sum of—

13 ‘‘(A) a tax computed at the rates and in

14 the same manner as if this subsection had not

15 been enacted on the greater of—

16 ‘‘(i) taxable income reduced by the

17 amount of the net capital gain, or

18 ‘‘(ii) the amount of taxable income

19 taxed at a rate below 28 percent, plus

20 ‘‘(B) a tax equal to the sum of—

21 ‘‘(i) the applicable percentage of so

22 much of such net capital gain as is attrib23 utable to property acquired by the tax24 payer from a decedent dying after Decem-
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1 ber 31, 1994 (or passed to the taxpayer

2 from such a decedent), and

3 ‘‘(ii) 28 percent of the amount of the

4 taxable income in excess of the sum of the

5 amount determined under subparagraph

6 (A) and the net capital gain described in

7 clause (i) of this subparagraph.

8 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

9 of paragraph (1), the term ‘applicable percentage’

10 means—

11 ‘‘(A) 10 percent in the case of taxable

12 years beginning after December 31, 1993, and

13 before January 1, 1996,

14 ‘‘(B) 15 percent in the case of taxable

15 years beginning during 1996,

16 ‘‘(C) 20 percent in the case of taxable

17 years beginning during 1997, and

18 ‘‘(D) 25 percent in the case of taxable

19 years beginning during 1998.

20 ‘‘(3) ELECTION TO MARK-TO-MARKET PROP21 ERTY ACQUIRED FROM A DECEDENT.—If the tax22 payer elects this paragraph with respect to any prop23 erty described in paragraph (1)(B)(i), such property

24 shall be treated as sold (for its fair market value as

25 of the first day of the taxpayer year) and any gain
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1 or loss shall be treated as received or accrued on

2 such day.’’.

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

4 this section shall apply to taxable years ending after De5 cember 31, 1994.

6 SEC. 5. ADDITIONAL EXCLUSION OF GAIN ON SALE OF

7 PRINCIPAL RESIDENCE ACQUIRED FROM A

8 DECEDENT.

9 (a) IN GENERAL.—Subsection (d) of section 121 of

10 the Internal Revenue Code of 1986 (relating to one-time

11 exclusion of gain from sale of principal residence by indi12 vidual who has attained age 55) is amended by adding

13 at the end the following new paragraph:

14 ‘‘(10) SPECIAL RULES FOR RESIDENCE AC15 QUIRED FROM DECEDENT.—

16 ‘‘(A) IN GENERAL.—In the case of a resi17 dence which was acquired by the taxpayer from

18 a decedent dying after December 31, 1994, or

19 to whom such residence passed from such a de20 cedent (within the meaning of section

21 1015(f)(2))—

22 ‘‘(i) subsection (a)(1) shall not apply,

23 and

24 ‘‘(ii) the requirement of subsection

25 (a)(2) shall be treated as met if the dece-
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1 dent satisfied such requirement as of the

2 date of death or the taxpayer satisfies such

3 requirement.

4 ‘‘(B) ADDITIONAL ELECTION.—Any elec5 tion under this section with respect to any resi6 dence to which subparagraph (A) applies shall

7 not be taken into account in determining

8 whether any other election may be made under

9 this section.’’.

10 (b) EFFECTIVE DATE.—The amendment made by

11 this section shall apply to sales and exchanges after De12 cember 31, 1994, in taxable years ending after such date.

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