IB

Union Calendar No. 26

107TH CONGRESS

1ST SESSION H. R. 8

[Report No. 107–37]

To amend the Internal Revenue Code of 1986 to phase out the estate

and gift taxes over a 10-year period, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 14, 2001

Ms. DUNN (for herself, Mr. TANNER, Mr. COX, Mr. ABERCROMBIE, Mr.

BROWN of South Carolina, Mr. CULBERSON, Mr. EVERETT, Mr. GOODE,

Mr. COOKSEY, Mr. BACHUS, Mr. PENCE, Mr. LAHOOD, Mr. SHADEGG,

Mr. DUNCAN, Mr. WHITFIELD, Mr. SAXTON, Mr. BONILLA, Mrs. ROUKEMA, Mrs. BIGGERT, Mr. FERGUSON, Mr. GILCHREST, Mr. RADANOVICH, Mr. SHAW, Mr. MALONEY of Connecticut, Mr. SAM JOHNSON of

Texas, Mr. TANCREDO, Mr. BOUCHER, Mr. TRAFICANT, Mr. KELLER,

Mr. BURTON of Indiana, Mr. SHOWS, Mr. GARY MILLER of California,

Mr. ROGERS of Michigan, Mr. CUNNINGHAM, Mr. ROYCE, Mr. GREENWOOD, Mr. SMITH of Texas, Mr. FOLEY, Mr. HAYWORTH, Mr. WELLER,

Mr. KIRK, Mr. YOUNG of Alaska, Mr. BAIRD, Mr. WAMP, Mr. DOOLEY

of California, Mr. EHLERS, Mr. CANTOR, Mr. POMBO, Mr. SIMMONS, Mr.

CAMP, Mr. MCINTYRE, Mr. HAYES, Mr. NETHERCUTT, Ms. HART, Mr.

BARTON of Texas, Mrs. WILSON, Mr. HALL of Texas, Mr. HYDE, Mr.

WOLF, Mr. SUNUNU, Mr. GRUCCI, Mr. CALLAHAN, Mr. RYAN of Wisconsin, Mrs. KELLY, Mr. LARGENT, Mr. DEAL of Georgia, Mr. CANNON,

Mr. ADERHOLT, Mr. CRANE, Ms. GRANGER, Mr. BLUNT, Mr. GREEN of

Wisconsin, Mr. HERGER, Mr. ENGLISH, Mr. LOBIONDO, Mr. JENKINS,

Mr. PITTS, Mr. LEWIS of California, Mr. OXLEY, Mr. RILEY, Mr.

CHAMBLISS, Mr. WATTS of Oklahoma, Mrs. NORTHUP, Mr. OSE, Mr.

SMITH of New Jersey, Mr. LEWIS of Kentucky, Mr. LUCAS of Oklahoma,

Mr. SIMPSON, Mr. PETERSON of Pennsylvania, Mr. MCCRERY, Mrs.

BONO, Mr. CALVERT, Mr. NEY, Mr. DOOLITTLE, Mr. HUNTER, Mr.

SKEEN, Mr. HOEKSTRA, Mr. LATOURETTE, Mr. SHIMKUS, Mr. FLETCHER, Mrs. CAPITO, Mr. EHRLICH, Mr. BISHOP, Mr. ROHRABACHER, Mr.

BOEHLERT, Mr. RYUN of Kansas, Mr. CRAMER, Mrs. EMERSON, Mr.

SCHAFFER, Mr. SESSIONS, Mr. ISAKSON, Ms. ROS-LEHTINEN, Mr. BURR

of North Carolina, Mr. BARR of Georgia, Mr. HASTINGS of Washington,
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Mr. MILLER of Florida, Mr. HORN, Mr. RAMSTAD, Mr. MCHUGH, Mr.

WALSH, Mr. CRENSHAW, Mr. NORWOOD, Mr. COBLE, Mr. NUSSLE, Mr.

PLATTS, Mr. JONES of North Carolina, Mr. GEKAS, Mr. ROGERS of Kentucky, Mr. BASS, Mr. TERRY, Mr. SCHROCK, Mr. GOODLATTE, Mr.

TOOMEY, Mr. WICKER, Mr. PORTMAN, Mr. TAUZIN, Mr. HANSEN, Mr.

ARMEY, Mr. HILLEARY, Mr. MCINNIS, Mr. COMBEST, Mr. DELAY, Mrs.

CUBIN, Mr. LINDER, Mr. MICA, Mrs. MCCARTHY of New York, Mr.

FRELINGHUYSEN, Mr. BERRY, Mr. JOHN, Mr. CONDIT, Mr. SANDLIN,

Mr. SWEENEY, Mr. KNOLLENBERG, Mr. PHELPS, Mr. CARSON of Oklahoma, Mr. GANSKE, Mr. THUNE, Mr. KERNS, Ms. PRYCE of Ohio, Mr.

STUMP, Mr. SENSENBRENNER, Mr. OTTER, Mr. RAHALL, Mr. SISISKY,

Mr. HULSHOF, Mr. LUCAS of Kentucky, Mr. WALDEN of Oregon, Mr.

WYNN, Mr. FORD, Mr. REYNOLDS, Mr. BRADY of Texas, Mr. PAUL, Mr.

GORDON, Mrs. JO ANN DAVIS of Virginia, Mr. COSTELLO, Mr. GILLMOR,

Mr. WATKINS, Mr. PUTNAM, Mr. GIBBONS, Mr. AKIN, Mr. ISSA, Mr.

FARR of California, Mr. BARCIA, Mrs. MYRICK, Mr. BARTLETT of Maryland, Mr. CHABOT, Mr. KINGSTON, Mr. HEFLEY, Mr. GALLEGLY, Mr.

GILMAN, Mr. GOSS, Mr. WELDON of Florida, Mr. DEMINT, Mr. SOUDER,

Mr. FOSSELLA, Mr. KOLBE, Mr. BILIRAKIS, Mr. LATHAM, Mr. TIAHRT,

Mr. TAYLOR of North Carolina, Mr. SCARBOROUGH, Mr. VITTER, Mr.

HOSTETTLER, Mr. GRAHAM, Mr. SPENCE, Mr. TOM DAVIS of Virginia,

Mr. BOEHNER, Mr. OSBORNE, Mr. BRYANT, Mr. DREIER, Mr. PICKERING, Mr. THORNBERRY, Mr. WELDON of Pennsylvania, Mr. BAKER,

Mr. KING, Mr. HUTCHINSON, Mr. MCKEON, Mr. MANZULLO, Mr. SMITH

of Washington, Mr. LAMPSON, and Mrs. CLAYTON) introduced the following bill; which was referred to the Committee on Ways and Means

APRIL 3, 2001

Additional sponsors: Ms. BERKLEY, Mr. STEARNS, Mr. THOMAS, and Mr.

HASTERT

APRIL 3, 2001

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 March 14, 2001]

A BILL

To amend the Internal Revenue Code of 1986 to phase

out the estate and gift taxes over a 10-year period,

and for other purposes.
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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 2001’’.

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 (c) TABLE OF CONTENTS.—

Sec. 1. Short title; etc.

TITLE I—REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING

TAXES

Sec. 101. Repeal of estate, gift, and generation-skipping taxes.

TITLE II—REDUCTIONS OF ESTATE AND GIFT TAX RATES PRIOR

TO REPEAL

Sec. 201. Additional reductions of estate and gift tax rates.

TITLE III—UNIFIED CREDIT REPLACED WITH UNIFIED EXEMPTION

AMOUNT

Sec. 301. Unified credit against estate and gift taxes replaced with unified exemption amount.

TITLE IV—CARRYOVER BASIS AT DEATH; OTHER CHANGES TAKING

EFFECT WITH REPEAL

Sec. 401. Termination of step-up in basis at death.

Sec. 402. Treatment of property acquired from a decedent dying after December

31, 2010.

TITLE V—CONSERVATION EASEMENTS

Sec. 501. Expansion of estate tax rule for conservation easements.
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TITLE VI—MODIFICATIONS OF GENERATION-SKIPPING TRANSFER

TAX

Sec. 601. Deemed allocation of GST exemption to lifetime transfers to trusts; retroactive allocations.

Sec. 602. Severing of trusts.

Sec. 603. Modification of certain valuation rules.

Sec. 604. Relief provisions.

TITLE VII—EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX

Sec. 701. Increase in number of allowable partners and shareholders in closely

held businesses.

1 TITLE I—REPEAL OF ESTATE,

2 GIFT, AND GENERATION-SKIP3 PING TAXES

4 SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION5 SKIPPING TAXES.

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

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

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

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

10 2010.

11 TITLE II—REDUCTIONS OF ES12 TATE AND GIFT TAX RATES

13 PRIOR TO REPEAL

14 SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT

15 TAX RATES.

16 (a) MAXIMUM RATE OF TAX REDUCED TO 50 PER17 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 2002, 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 2003 and before 2011—

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:

2004 .................................................................................... 1.0

2005 .................................................................................... 2.0

2006 .................................................................................... 3.0

2007 .................................................................................... 5.0

2008 .................................................................................... 7.0

2009 .................................................................................... 9.0

2010 .................................................................................... 11.0.

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) applicable to the taxable year

17 which includes the date of death (or, in the

18 case of a gift, the date of the gift), and

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

20 under paragraph (1) below the highest rate

21 in section 1(c) for such taxable year.
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1 ‘‘(D) COORDINATION WITH CREDIT FOR

2 STATE DEATH TAXES.—Rules similar to the rules

3 of subparagraph (A) shall apply to the table con4 tained in section 2011(b) except that the Sec5 retary shall prescribe percentage point reductions

6 which maintain the proportionate relationship

7 (as in effect before any reduction under this

8 paragraph) between the credit under section

9 2011 and the tax rates under subsection (c).’’.

10 (d) EFFECTIVE DATES.—

11 (1) SUBSECTIONS (a) AND (b).—The amend12 ments made by subsections (a) and (b) shall apply to

13 estates of decedents dying, and gifts made, after De14 cember 31, 2001.

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

16 subsection (c) shall apply to estates of decedents

17 dying, and gifts made, after December 31, 2003.

18 TITLE III—UNIFIED CREDIT RE19 PLACED WITH UNIFIED EX20 EMPTION AMOUNT

21 SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT

22 TAXES REPLACED WITH UNIFIED EXEMPTION

23 AMOUNT.

24 (a) IN GENERAL.—
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1 (1) ESTATE TAX.—Subsection (b) of section 2001

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

3 as follows:

4 ‘‘(b) COMPUTATION OF TAX.—

5 ‘‘(1) IN GENERAL.—The tax imposed by this sec6 tion shall be the amount equal to the excess (if any)

7 of—

8 ‘‘(A) the tentative tax determined under

9 paragraph (2), over

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

11 would have been payable under chapter 12 with

12 respect to gifts made by the decedent after De13 cember 31, 1976, if the provisions of subsection

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

15 applicable at the time of such gifts.

16 ‘‘(2) TENTATIVE TAX.—For purposes of para17 graph (1), the tentative tax determined under this

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

19 the excess of—

20 ‘‘(A) the sum of—

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

22 and

23 ‘‘(ii) the amount of the adjusted tax24 able gifts, over
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1 ‘‘(B) the exemption amount for the calendar

2 year in which the decedent died.

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

4 paragraph (2), the term ‘exemption amount’ means

5 the amount determined in accordance with the fol6 lowing table:

‘‘In the case of The exemption

calendar year: amount is:

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

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

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

2006 or thereafter ........................................................... $1,000,000.

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

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

9 means the total amount of the taxable gifts (within

10 the meaning of section 2503) made by the decedent

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

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

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

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

15 as follows:

16 ‘‘(a) COMPUTATION OF TAX.—

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

18 2501 for each calendar year shall be the amount equal

19 to the excess (if any) of—

20 ‘‘(A) the tentative tax determined under

21 paragraph (2) for such calendar year, over
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1 ‘‘(B) the aggregate amount of tax that

2 would have been payable under this chapter with

3 respect to gifts made by the donor in preceding

4 calendar periods if the tax had been computed

5 under the provisions of section 2001(c) as in ef6 fect for such calendar year.

7 ‘‘(2) TENTATIVE TAX.—For purposes of para8 graph (1), the tentative tax determined under this

9 paragraph for a calendar year is a tax computed

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

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

12 for such calendar year and for each of the pre13 ceding calendar periods, over

14 ‘‘(B) the exemption amount under section

15 2001(b)(3) for such calendar year.’’.

16 (b) REPEAL OF UNIFIED CREDITS.—

17 (1) Section 2010 (relating to unified credit

18 against estate tax) is hereby repealed.

19 (2) Section 2505 (relating to unified credit

20 against gift tax) is hereby repealed.

21 (c) CONFORMING AMENDMENTS.—

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

23 amended—

24 (i) by striking ‘‘adjusted’’ in the table; and

25 (ii) by striking the last sentence.
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1 (B) Subsection (f) of section 2011 is amended by

2 striking ‘‘, reduced by the amount of the unified cred3 it provided by section 2010’’.

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

5 striking ‘‘and the unified credit provided by section

6 2010’’.

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

8 amended by striking ‘‘2010,’’.

9 (4) Paragraph (2) of section 2014(b) is amended

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

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

12 amended to read as follows:

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

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

15 the credit allowable under section 2010 (as

16 in effect on the day before the date of the en17 actment of the Death Tax Elimination Act

18 of 2001) or the exemption amount allowable

19 under section 2001(b) with respect to the de20 cedent as a credit under section 2505 (as so

21 in effect) or exemption under section 2501

22 (as the case may be) allowable to such sur23 viving spouse for purposes of determining

24 the amount of the exemption allowable

25 under section 2501 with respect to taxable
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1 gifts made by the surviving spouse during

2 the year in which the spouse becomes a cit3 izen or any subsequent year,’’.

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

5 striking paragraphs (2) and (3) and inserting the fol6 lowing new paragraph:

7 ‘‘(2) MAXIMUM DEDUCTION.—The deduction al8 lowed by this section shall not exceed the excess of

9 $1,300,000 over the exemption amount (as defined in

10 section 2001(b)(3)).’’.

11 (7) Subsection (b) of section 2101 is amended to

12 read as follows:

13 ‘‘(b) COMPUTATION OF TAX.—

14 ‘‘(1) IN GENERAL.—The tax imposed by this sec15 tion shall be the amount equal to the excess (if any)

16 of—

17 ‘‘(A) the tentative tax determined under

18 paragraph (2), over

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

20 2001(c) on the amount of the adjusted taxable

21 gifts.

22 ‘‘(2) TENTATIVE TAX.—For purposes of para23 graph (1), the tentative tax determined under this

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

25 on the excess of—
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1 ‘‘(A) the sum of—

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

3 and

4 ‘‘(ii) the amount of the adjusted tax5 able gifts, over

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

7 year in which the decedent died.

8 ‘‘(3) EXEMPTION AMOUNT.—

9 ‘‘(A) IN GENERAL.—The term ‘exemption

10 amount’ means $60,000.

11 ‘‘(B) RESIDENTS OF POSSESSIONS OF THE

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

13 is considered to be a nonresident not a citizen of

14 the United States under section 2209, the exemp15 tion amount under this paragraph shall be the

16 greater of—

17 ‘‘(i) $60,000, or

18 ‘‘(ii) that proportion of $175,000

19 which the value of that part of the dece20 dent’s gross estate which at the time of his

21 death is situated in the United States bears

22 to the value of his entire gross estate wher23 ever situated.

24 ‘‘(C) SPECIAL RULES.—
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1 ‘‘(i) COORDINATION WITH TREATIES.—

2 To the extent required under any treaty ob3 ligation of the United States, the exemption

4 amount allowed under this paragraph shall

5 be equal to the amount which bears the

6 same ratio to the exemption amount under

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

8 which the decedent died) as the value of the

9 part of the decedent’s gross estate which at

10 the time of his death is situated in the

11 United States bears to the value of his en12 tire gross estate wherever situated. For pur13 poses of the preceding sentence, property

14 shall not be treated as situated in the

15 United States if such property is exempt

16 from the tax imposed by this subchapter

17 under any treaty obligation of the United

18 States.

19 ‘‘(ii) COORDINATION WITH GIFT TAX

20 EXEMPTION AND UNIFIED CREDIT.—If an

21 exemption has been allowed under section

22 2501 (or a credit has been allowed under

23 section 2505 as in effect on the day before

24 the date of the enactment of the Death Tax

25 Elimination Act of 2001) with respect to
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1 any gift made by the decedent, each dollar

2 amount contained in subparagraph (A) or

3 (B) or the exemption amount applicable

4 under clause (i) of this subparagraph

5 (whichever applies) shall be reduced by the

6 exemption so allowed under section 2501

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

8 amount of the gift for which the credit was

9 so allowed).’’.

10 (8) Section 2102 is amended by striking sub11 section (c).

12 (9)(A) Paragraph (1) of section 2107(a) is

13 amended by striking ‘‘the table contained in’’.

14 (B) Paragraph (1) of section 2107(c) is amended

15 to read as follows:

16 ‘‘(1) EXEMPTION AMOUNT.—For purposes of sub17 section (a), the exemption amount under section 2001

18 shall be $60,000.’’

19 (C) Paragraph (3) of section 2107(c) is amended

20 by striking the second sentence.

21 (D) The heading of subsection (c) of section 2107

22 is amended to read as follows:

23 ‘‘(c) EXEMPTION AMOUNT AND CREDITS.—’’.

24 (10) Paragraph (1) of section 6018(a) is amend25 ed by striking ‘‘the applicable exclusion amount in ef-
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1 fect under section 2010(c)’’ and inserting ‘‘the exemp2 tion amount under section 2001(b)(3)’’.

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

4 amended to read as follows:

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

6 would be determined under the rate schedule set

7 forth in section 2001(c) if the amount with re8 spect to which such tentative tax is to be com9 puted were $1,000,000, or’’.

10 (12) The table of sections for part II of sub11 chapter A of chapter 11 is amended by striking the

12 item relating to section 2010.

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

14 chapter 12 is amended by striking the item relating

15 to section 2505.

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

17 section shall apply to estates of decedents dying and gifts

18 made after December 31, 2001.
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1 TITLE IV—CARRYOVER BASIS AT

2 DEATH; OTHER CHANGES

3 TAKING EFFECT WITH RE4 PEAL

5 SEC. 401. TERMINATION OF STEP-UP IN BASIS AT DEATH.

6 Section 1014 (relating to basis of property acquired

7 from a decedent) is amended by adding at the end the fol8 lowing new subsection:

9 ‘‘(f) TERMINATION.—This section shall not apply with

10 respect to decedents dying after December 31, 2010.’’.

11 SEC. 402. TREATMENT OF PROPERTY ACQUIRED FROM A

12 DECEDENT DYING AFTER DECEMBER 31, 2010.

13 (a) GENERAL RULE.—Part II of subchapter O of chap14 ter 1 (relating to basis rules of general application) is

15 amended by inserting after section 1021 the following new

16 section:

17 ‘‘SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A

18 DECEDENT DYING AFTER DECEMBER 31, 2010.

19 ‘‘(a) IN GENERAL.—Except as otherwise provided in

20 this section—

21 ‘‘(1) property acquired from a decedent dying

22 after December 31, 2010, shall be treated for purposes

23 of this subtitle as transferred by gift, and

24 ‘‘(2) the basis of the person acquiring property

25 from such a decedent shall be the lesser of—
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1 ‘‘(A) the adjusted basis of the decedent, or

2 ‘‘(B) the fair market value of the property

3 at the date of the decedent’s death.

4 ‘‘(b) BASIS INCREASE FOR CERTAIN PROPERTY.—

5 ‘‘(1) IN GENERAL.—In the case of property to

6 which this subsection applies, the basis of such prop7 erty under subsection (a) shall be increased by its

8 basis increase under this subsection.

9 ‘‘(2) BASIS INCREASE.—For purposes of this

10 subsection—

11 ‘‘(A) IN GENERAL.—The basis increase

12 under this subsection for any property is the

13 portion of the aggregate basis increase which is

14 allocated to the property pursuant to this sec15 tion.

16 ‘‘(B) AGGREGATE BASIS INCREASE.—In the

17 case of any estate, the aggregate basis increase

18 under this subsection is $1,300,000.

19 ‘‘(C) LIMIT INCREASED BY UNUSED BUILT20 IN LOSSES AND LOSS CARRYOVERS.—The limita21 tion under subparagraph (B) shall be increased

22 by—

23 ‘‘(i) the sum of the amount of any cap24 ital loss carryover under section 1212(b),

25 and the amount of any net operating loss
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1 carryover under section 172, which would

2 (but for the decedent’s death) be carried

3 from the decedent’s last taxable year to a

4 later taxable year of the decedent, plus

5 ‘‘(ii) the sum of the amount of any

6 losses that would have been allowable under

7 section 165 if the property acquired from

8 the decedent had been sold at fair market

9 value immediately before the decedent’s

10 death.

11 ‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT

12 CITIZENS OF THE UNITED STATES.—In the case of a

13 decedent nonresident not a citizen of the United

14 States—

15 ‘‘(A) paragraph (2)(B) shall be applied by

16 substituting ‘$60,000’ for ‘$1,300,000’, and

17 ‘‘(B) paragraph (2)(C) shall not apply.

18 ‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY AC19 QUIRED BY SURVIVING SPOUSE.—

20 ‘‘(1) IN GENERAL.—In the case of property to

21 which this subsection applies and which is qualified

22 spousal property, the basis of such property under

23 subsection (a) (as increased, if any, under subsection

24 (b)) shall be increased by its spousal property basis

25 increase.
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1 ‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.—For

2 purposes of this subsection—

3 ‘‘(A) IN GENERAL.—The spousal property

4 basis increase for property referred to in para5 graph (1) is the portion of the aggregate spousal

6 property basis increase which is allocated to the

7 property pursuant to this section.

8 ‘‘(B) AGGREGATE SPOUSAL PROPERTY

9 BASIS INCREASE.—In the case of any estate, the

10 aggregate spousal property basis increase is

11 $3,000,000.

12 ‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For pur13 poses of this subsection, the term ‘qualified spousal

14 property’ means—

15 ‘‘(A) outright transfer property, and

16 ‘‘(B) qualified terminable interest property.

17 ‘‘(4) OUTRIGHT TRANSFER PROPERTY.—For pur18 poses of this subsection—

19 ‘‘(A) IN GENERAL.—The term ‘outright

20 transfer property’ means any interest in prop21 erty acquired from the decedent by the decedent’s

22 surviving spouse.

23 ‘‘(B) EXCEPTION.—Subparagraph (A) shall

24 not apply where, on the lapse of time, on the oc25 currence of an event or contingency, or on the
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1 failure of an event or contingency to occur, an

2 interest passing to the surviving spouse will ter3 minate or fail—

4 ‘‘(i)(I) if an interest in such property

5 passes or has passed (for less than an ade6 quate and full consideration in money or

7 money’s worth) from the decedent to any

8 person other than such surviving spouse (or

9 the estate of such spouse), and

10 ‘‘(II) if by reason of such passing such

11 person (or his heirs or assigns) may possess

12 or enjoy any part of such property after

13 such termination or failure of the interest so

14 passing to the surviving spouse, or

15 ‘‘(ii) if such interest is to be acquired

16 for the surviving spouse, pursuant to direc17 tions of the decedent, by his executor or by

18 the trustee of a trust.

19 For purposes of this subparagraph, an interest

20 shall not be considered as an interest which will

21 terminate or fail merely because it is the owner22 ship of a bond, note, or similar contractual obli23 gation, the discharge of which would not have the

24 effect of an annuity for life or for a term.
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1 ‘‘(C) INTEREST OF SPOUSE CONDITIONAL ON

2 SURVIVAL FOR LIMITED PERIOD.—For purposes

3 of this paragraph, an interest passing to the sur4 viving spouse shall not be considered as an inter5 est which will terminate or fail on the death of

6 such spouse if—

7 ‘‘(i) such death will cause a termi8 nation or failure of such interest only if it

9 occurs within a period not exceeding 6

10 months after the decedent’s death, or only if

11 it occurs as a result of a common disaster

12 resulting in the death of the decedent and

13 the surviving spouse, or only if it occurs in

14 the case of either such event; and

15 ‘‘(ii) such termination or failure does

16 not in fact occur.

17 ‘‘(5) QUALIFIED TERMINABLE INTEREST PROP18 ERTY.—For purposes of this subsection—

19 ‘‘(A) IN GENERAL.—The term ‘qualified ter20 minable interest property’ means property—

21 ‘‘(i) which passes from the decedent,

22 and

23 ‘‘(ii) in which the surviving spouse has

24 a qualifying income interest for life.
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1 ‘‘(B) QUALIFYING INCOME INTEREST FOR

2 LIFE.—The surviving spouse has a qualifying in3 come interest for life if—

4 ‘‘(i) the surviving spouse is entitled to

5 all the income from the property, payable

6 annually or at more frequent intervals, or

7 has a usufruct interest for life in the prop8 erty, and

9 ‘‘(ii) no person has a power to appoint

10 any part of the property to any person

11 other than the surviving spouse.

12 Clause (ii) shall not apply to a power exercisable

13 only at or after the death of the surviving spouse.

14 To the extent provided in regulations, an annu15 ity shall be treated in a manner similar to an

16 income interest in property (regardless of wheth17 er the property from which the annuity is pay18 able can be separately identified).

19 ‘‘(C) PROPERTY INCLUDES INTEREST

20 THEREIN.—The term ‘property’ includes an in21 terest in property.

22 ‘‘(D) SPECIFIC PORTION TREATED AS SEPA23 RATE PROPERTY.—A specific portion of property

24 shall be treated as separate property. For pur25 poses of the preceding sentence, the term ‘specific
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1 portion’ only includes a portion determined on a

2 fractional or percentage basis.

3 ‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLICA4 TION OF SUBSECTIONS (b) AND (c).—

5 ‘‘(1) PROPERTY TO WHICH SUBSECTIONS (b) AND

6 (c) APPLY.—

7 ‘‘(A) IN GENERAL.—The basis of property

8 acquired from a decedent may be increased

9 under subsection (b) or (c) only if the property

10 was owned by the decedent at the time of death.

11 ‘‘(B) RULES RELATING TO OWNERSHIP.—

12 ‘‘(i) JOINTLY HELD PROPERTY.—In the

13 case of property which was owned by the

14 decedent and another person as joint ten15 ants with right of survivorship or tenants

16 by the entirety—

17 ‘‘(I) if the only such other person

18 is the surviving spouse, the decedent

19 shall be treated as the owner of only 50

20 percent of the property,

21 ‘‘(II) in any case (to which sub22 clause (I) does not apply) in which the

23 decedent furnished consideration for

24 the acquisition of the property, the de25 cedent shall be treated as the owner to
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1 the extent of the portion of the property

2 which is proportionate to such consid3 eration, and

4 ‘‘(III) in any case (to which sub5 clause (I) does not apply) in which the

6 property has been acquired by gift, be7 quest, devise, or inheritance by the de8 cedent and any other person as joint

9 tenants with right of survivorship and

10 their interests are not otherwise speci11 fied or fixed by law, the decedent shall

12 be treated as the owner to the extent of

13 the value of a fractional part to be de14 termined by dividing the value of the

15 property by the number of joint ten16 ants with right of survivorship.

17 ‘‘(ii) REVOCABLE TRUSTS.—The dece18 dent shall be treated as owning property

19 transferred by the decedent during life to a

20 revocable trust to pay all of the income dur21 ing the decedent’s life to the decedent or at

22 the direction of the decedent.

23 ‘‘(iii) POWERS OF APPOINTMENT.—The

24 decedent shall not be treated as owning any
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1 property by reason of holding a power of

2 appointment with respect to such property.

3 ‘‘(iv) COMMUNITY PROPERTY.—Prop4 erty which represents the surviving spouse’s

5 one-half share of community property held

6 by the decedent and the surviving spouse

7 under the community property laws of any

8 State or possession of the United States or

9 any foreign country shall be treated for pur10 poses of this section as owned by, and ac11 quired from, the decedent if at least one-half

12 of the whole of the community interest in

13 such property is treated as owned by, and

14 acquired from, the decedent without regard

15 to this clause.

16 ‘‘(C) PROPERTY ACQUIRED BY DECEDENT

17 BY GIFT WITHIN 3 YEARS OF DEATH.—

18 ‘‘(i) IN GENERAL.—Subsections (b) and

19 (c) shall not apply to property acquired by

20 the decedent by gift or by inter vivos trans21 fer for less than adequate and full consider22 ation in money or money’s worth during

23 the 3-year period ending on the date of the

24 decedent’s death.
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1 ‘‘(ii) EXCEPTION FOR CERTAIN GIFTS

2 FROM SPOUSE.—Clause (i) shall not apply

3 to property acquired by the decedent from

4 the decedent’s spouse unless, during such 3-

5 year period, such spouse acquired the prop6 erty in whole or in part by gift or by inter

7 vivos transfer for less than adequate and

8 full consideration in money or money’s

9 worth.

10 ‘‘(D) STOCK OF CERTAIN ENTITIES.—Sub11 sections (b) and (c) shall not apply to—

12 ‘‘(i) stock or securities a foreign per13 sonal holding company,

14 ‘‘(ii) stock of a DISC or former DISC,

15 ‘‘(iii) stock of a foreign investment

16 company, or

17 ‘‘(iv) stock of a passive foreign invest18 ment company unless such company is a

19 qualified electing fund (as defined in section

20 1295) with respect to the decedent.

21 ‘‘(2) FAIR MARKET VALUE LIMITATION.—The ad22 justments under subsection (b) and (c) shall not in23 crease the basis of any interest in property acquired

24 from the decedent above its fair market value in the
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1 hands of the decedent as of the date of the decedent’s

2 death.

3 ‘‘(3) ALLOCATION RULES.—

4 ‘‘(A) IN GENERAL.—The executor shall allo5 cate the adjustments under subsections (b) and

6 (c) on the return required by section 6018.

7 ‘‘(B) CHANGES IN ALLOCATION.—Any allo8 cation made pursuant to subparagraph (A) may

9 be changed only as provided by the Secretary.

10 ‘‘(4) INFLATION ADJUSTMENT OF BASIS ADJUST11 MENT AMOUNTS.—

12 ‘‘(A) IN GENERAL.—In the case of decedents

13 dying in a calendar year after 2011, the

14 $1,300,000, $60,000, and $3,000,000 dollar

15 amounts in subsections (b) and (c)(2)(B) shall

16 each be increased by an amount equal to the

17 product of—

18 ‘‘(i) such dollar amount, and

19 ‘‘(ii) the cost-of-living adjustment de20 termined under section 1(f)(3) for such cal21 endar year, determined by substituting

22 ‘2010’ for ‘1992’ in subparagraph (B) there23 of.
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1 ‘‘(B) ROUNDING.—If any increase deter2 mined under subparagraph (A) is not a multiple

3 of—

4 ‘‘(i) $100,000 in the case of the

5 $1,300,000 amount,

6 ‘‘(ii) $5,000 in the case of the $60,000

7 amount, and

8 ‘‘(iii) $250,000 in the case of the

9 $3,000,000 amount,

10 such increase shall be rounded to the next lowest

11 multiple thereof.

12 ‘‘(e) PROPERTY ACQUIRED FROM THE DECEDENT.—

13 For purposes of this section, the following property shall

14 be considered to have been acquired from the decedent:

15 ‘‘(1) Property acquired by bequest, devise, or in16 heritance, or by the decedent’s estate from the dece17 dent.

18 ‘‘(2) Property transferred by the decedent during

19 his lifetime in trust to pay the income for life to or

20 on the order or direction of the decedent, with the

21 right reserved to the decedent at all times before his

22 death—

23 ‘‘(A) to revoke the trust, or
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1 ‘‘(B) to make any change in the enjoyment

2 thereof through the exercise of a power to alter,

3 amend, or terminate the trust.

4 ‘‘(3) Any other property passing from the dece5 dent by reason of death to the extent that such prop6 erty passed without consideration.

7 ‘‘(f) COORDINATION WITH SECTION 691.—This section

8 shall not apply to property which constitutes a right to re9 ceive an item of income in respect of a decedent under sec10 tion 691.

11 ‘‘(g) CERTAIN LIABILITIES DISREGARDED.—In deter12 mining whether gain is recognized on the acquisition of

13 property—

14 ‘‘(1) from a decedent by a decedent’s estate or

15 any beneficiary, and

16 ‘‘(2) from the decedent’s estate by any bene17 ficiary,

18 and in determining the adjusted basis of such property, li19 abilities in excess of basis shall be disregarded.

20 ‘‘(h) REGULATIONS.—The Secretary shall prescribe

21 such regulations as may be necessary to carry out the pur22 poses of this section.’’.

23 (b) INFORMATION RETURNS, ETC.—

24 (1) IN GENERAL.—Subpart C of part II of sub25 chapter A of chapter 61 is amended to read as follows:
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1 ‘‘Subpart C—Returns Relating to Transfers During

2 Life or at Death

‘‘Sec. 6018. Returns relating to large transfers at death.

‘‘Sec. 6019. Returns relating to large lifetime gifts.

3 ‘‘SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT

4 DEATH.

5 ‘‘(a) IN GENERAL.—If this section applies to property

6 acquired from a decedent, the executor of the estate of such

7 decedent shall make a return containing the information

8 specified in subsection (c) with respect to such property.

9 ‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—

10 ‘‘(1) LARGE TRANSFERS.—This section shall

11 apply to all property (other than cash) acquired from

12 a decedent if the fair market value of such property

13 acquired from the decedent exceeds the dollar amount

14 applicable under section 1022(b)(2)(B) (without re15 gard to section 1022(b)(2)(C)).

16 ‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED

17 BY DECEDENT WITHIN 3 YEARS OF DEATH.—This sec18 tion shall apply to any appreciated property acquired

19 from the decedent if—

20 ‘‘(A) subsections (b) and (c) of section 1022

21 do not apply to such property by reason of sec22 tion 1022(d)(1)(C), and
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1 ‘‘(B) such property was required to be in2 cluded on a return required to be filed under sec3 tion 6019.

4 ‘‘(3) NONRESIDENTS NOT CITIZENS OF THE

5 UNITED STATES.—In the case of a decedent who is a

6 nonresident not a citizen of the United States, para7 graphs (1) and (2) shall be applied—

8 ‘‘(A) by taking into account only—

9 ‘‘(i) tangible property situated in the

10 United States, and

11 ‘‘(ii) other property acquired from the

12 decedent by a United States person, and

13 ‘‘(B) by substituting the dollar amount ap14 plicable under section 1022(b)(3) for the dollar

15 amount referred to in paragraph (1).

16 ‘‘(4) RETURNS BY TRUSTEES OR BENE17 FICIARIES.—If the executor is unable to make a com18 plete return as to any property acquired from or

19 passing from the decedent, the executor shall include

20 in the return a description of such property and the

21 name of every person holding a legal or beneficial in22 terest therein. Upon notice from the Secretary such

23 person shall in like manner make a return as to such

24 property.
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1 ‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—

2 The information specified in this subsection with respect

3 to any property acquired from the decedent is—

4 ‘‘(1) the name and TIN of the recipient of such

5 property,

6 ‘‘(2) an accurate description of such property,

7 ‘‘(3) the adjusted basis of such property in the

8 hands of the decedent and its fair market value at the

9 time of death,

10 ‘‘(4) the decedent’s holding period for such prop11 erty,

12 ‘‘(5) sufficient information to determine whether

13 any gain on the sale of the property would be treated

14 as ordinary income,

15 ‘‘(6) the amount of basis increase allocated to the

16 property under subsection (b) or (c) of section 1022,

17 and

18 ‘‘(7) such other information as the Secretary

19 may by regulations prescribe.

20 ‘‘(d) PROPERTY ACQUIRED FROM DECEDENT.—For

21 purposes of this section, section 1022 shall apply for pur22 poses of determining the property acquired from a decedent.

23 ‘‘(e) STATEMENTS TO BE FURNISHED TO CERTAIN

24 PERSONS.—Every person required to make a return under

25 subsection (a) shall furnish to each person whose name is
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1 required to be set forth in such return (other than the person

2 required to make such return) a written statement

3 showing—

4 ‘‘(1) the name, address, and phone number of the

5 person required to make such return, and

6 ‘‘(2) the information specified in subsection (c)

7 with respect to property acquired from, or passing

8 from, the decedent to the person required to receive

9 such statement.

10 The written statement required under the preceding sen11 tence shall be furnished not later than 30 days after the

12 date that the return required by subsection (a) is filed.

13 ‘‘SEC. 6019. RETURNS RELATING TO LARGE LIFETIME GIFTS.

14 ‘‘(a) IN GENERAL.—If the value of the aggregate gifts

15 of property made by an individual to any United States

16 person during a calendar year exceeds $25,000, such indi17 vidual shall make a return for such year setting forth—

18 ‘‘(1) the name and TIN of the donee,

19 ‘‘(2) an accurate description of such property,

20 ‘‘(3) the adjusted basis of such property in the

21 hands of the donor at the time of the gift,

22 ‘‘(4) the donor’s holding period for such prop23 erty,
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1 ‘‘(5) sufficient information to determine whether

2 any gain on the sale of the property would be treated

3 as ordinary income, and

4 ‘‘(6) such other information as the Secretary

5 may by regulations prescribe.

6 ‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply

7 to—

8 ‘‘(1) CASH.—Any gift of cash.

9 ‘‘(2) GIFTS TO CHARITY.—Any gift to an organi10 zation described in section 501(c) and exempt from

11 tax under section 501(a) but only if no interest in the

12 property is held for the benefit of any person other

13 than such an organization.

14 ‘‘(3) WAIVER OF CERTAIN PENSION RIGHTS indi15 vidual waives, before the death of a participant, any

16 survivor benefit, or right to such benefit, under section

17 401(a)(11) or 417, subsection (a) shall not apply to

18 such waiver.

19 ‘‘(4) REPORTING ELSEWHERE.—Any gift re20 quired to be reported to the Secretary under any other

21 provision of this title.

22 ‘‘(c) STATEMENTS TO BE FURNISHED TO CERTAIN

23 PERSONS.—Every person required to make a return under

24 subsection (a) shall furnish to each person whose name is
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1 required to be set forth in such return a written statement

2 showing—

3 ‘‘(1) the name, address, and phone number of the

4 person required to make such return, and

5 ‘‘(2) the information specified in subsection (a)

6 with respect to property received by the person re7 quired to receive such statement.

8 The written statement required under the preceding sen9 tence shall be furnished on or before January 31 of the year

10 following the calendar year for which the return under sub11 section (a) was required to be made.’’

12 (2) TIME FOR FILING SECTION 6018 RETURNS.—

13 (A) RETURNS RELATING TO LARGE TRANS14 FERS AT DEATH.—Subsection (a) of section 6075

15 is amended to read as follows:

16 ‘‘(a) RETURNS RELATING TO LARGE TRANSFERS AT

17 DEATH.—The return required by section 6018 with respect

18 to a decedent shall be filed with the return of the tax im19 posed by chapter 1 for the decedent’s last taxable year or

20 such later date specified in regulations prescribed by the

21 Secretary.’’

22 (B) RETURNS RELATING TO LARGE LIFE23 TIME GIFTS.—

24 (i) The heading for section 6075(b) is

25 amended to read as follows:
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1 ‘‘(b) RETURNS RELATING TO LARGE LIFETIME

2 GIFTS.—’’.

3 (ii) Paragraph (1) of section 6075(b) is

4 amended by striking ‘‘(relating to gift

5 taxes)’’ and inserting ‘‘(relating to returns

6 relating to large lifetime gifts)’’.

7 (iii) Paragraph (3) of section 6075(b)

8 is amended—

9 (I) by striking ‘‘ESTATE TAX RE10 TURN’’ and inserting ‘‘SECTION 6018

11 RETURN’’, and

12 (II) by striking ‘‘(relating to es13 tate tax returns)’’ and inserting ‘‘(re14 lating to returns relating to large

15 transfers at death)’’.

16 (3) PENALTIES.—Part I of subchapter B of

17 chapter 68 (relating to assessable penalties) is amend18 ed by adding at the end the following new section:

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

20 TO CERTAIN TRANSFERS AT DEATH AND

21 GIFTS.

22 ‘‘(a) INFORMATION REQUIRED TO BE FURNISHED TO

23 THE SECRETARY.—Any person required to furnish any in24 formation under section 6018 or 6019 who fails to furnish

25 such information on the date prescribed therefor (deter-
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1 mined with regard to any extension of time for filing) shall

2 pay a penalty of $10,000 ($500 in the case of information

3 required to be furnished under section 6018(b)(2) or 6019)

4 for each such failure.

5 ‘‘(b) INFORMATION REQUIRED TO BE FURNISHED TO

6 BENEFICIARIES.—Any person required to furnish in writ7 ing to each person described in section 6018(e) or 6019(c)

8 the information required under such section who fails to

9 furnish such information shall pay a penalty of $50 for

10 each such failure.

11 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

12 shall be imposed under subsection (a) or (b) with respect

13 to any failure if it is shown that such failure is due to

14 reasonable cause.

15 ‘‘(d) INTENTIONAL DISREGARD.—If any failure under

16 subsection (a) or (b) is due to intentional disregard of the

17 requirements under sections 6018 and 6019, the penalty

18 under such subsection shall be 5 percent of the fair market

19 value (as of the date of death or, in the case of section 6019,

20 the date of the gift) of the property with respect to which

21 the information is required.

22 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—Sub23 chapter B of chapter 63 (relating to deficiency procedures

24 for income, estate, gift, and certain excise taxes) shall not
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1 apply in respect of the assessment or collection of any pen2 alty imposed by this section.’’

3 (4) CLERICAL AMENDMENTS.—

4 (A) The table of sections for part I of sub5 chapter B of chapter 68 is amended by adding

6 at the end the following new item:

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

transfers at death and gifts.’’

7 (B) The item relating to subpart C in the

8 table of subparts for part II of subchapter A of

9 chapter 61 is amended to read as follows:

‘‘Subpart C. Returns relating to transfers during life or at death.’’

10 (c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESI11 DENCE MADE AVAILABLE TO HEIR OF DECEDENT IN CER12 TAIN CASES.—Subsection (d) of section 121 (relating to ex13 clusion of gain from sale of principal residence) is amended

14 by adding at the end the following new paragraph:

15 ‘‘(9) PROPERTY ACQUIRED FROM A DECEDENT.—

16 The exclusion under this section shall apply to prop17 erty sold by—

18 ‘‘(A) the estate of a decedent, and

19 ‘‘(B) any individual who acquired such

20 property from the decedent (within the meaning

21 of section 1022),

22 determined by taking into account the ownership and

23 use by the decedent.’’
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1 (d) TRANSFERS OF APPRECIATED CARRYOVER BASIS

2 PROPERTY TO SATISFY PECUNIARY BEQUEST.—

3 (1) IN GENERAL.—Section 1040 (relating to

4 transfer of certain farm, etc., real property) is

5 amended to read as follows:

6 ‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROP7 ERTY TO SATISFY PECUNIARY BEQUEST.

8 ‘‘(a) IN GENERAL.—If the executor of the estate of any

9 decedent satisfies the right of any person to receive a pecu10 niary bequest with appreciated property, then gain on such

11 exchange shall be recognized to the estate only to the extent

12 that, on the date of such exchange, the fair market value

13 of such property exceeds such value on the date of death.

14 ‘‘(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the

15 extent provided in regulations prescribed by the Secretary,

16 a rule similar to the rule provided in subsection (a) shall

17 apply where—

18 ‘‘(1) by reason of the death of the decedent, a

19 person has a right to receive from a trust a specific

20 dollar amount which is the equivalent of a pecuniary

21 bequest, and

22 ‘‘(2) the trustee of a trust satisfies such right

23 with property.

24 ‘‘(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE

25 DESCRIBED IN SUBSECTION (a) OR (b).—The basis of prop-
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1 erty acquired in an exchange with respect to which gain

2 realized is not recognized by reason of subsection (a) or (b)

3 shall be the basis of such property immediately before the

4 exchange increased by the amount of the gain recognized

5 to the estate or trust on the exchange.’’

6 (2) The item relating to section 1040 in the table

7 of sections for part III of subchapter O of chapter 1

8 is amended to read as follows:

‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy

pecuniary bequest.’’

9 (e) ANTI-ABUSE RULES.—Section 7701 is amended by

10 redesignating subsection (n) as subsection (o) and by insert11 ing after subsection (m) the following new subsection:

12 ‘‘(n) PURPORTED GIFTS MAY BE DISREGARDED.—For

13 purposes of subtitle A, the Secretary may treat a transfer

14 which purports to be a gift as having never been transferred

15 if, in connection with such transfer—

16 ‘‘(1)(A) the transferor (or any person related to

17 or designated by the transferor or such person) has re18 ceived anything of value in connection with such

19 transfer from the transferee directly or indirectly, or

20 ‘‘(B) there is an understanding or expectation

21 that the transferor (or such person) will receive any22 thing of value in connection with such transfer from

23 the transferee directly or indirectly, and
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1 ‘‘(2) the Secretary determines that such treat2 ment is appropriate to prevent avoidance of tax im3 posed by subtitle A.’’

4 (f) MISCELLANEOUS AMENDMENTS RELATED TO CAR5 RYOVER BASIS.—

6 (1) RECOGNITION OF GAIN ON TRANSFERS TO

7 NONRESIDENTS.—

8 (A) Subsection (a) of section 684 is amend9 ed by inserting ‘‘or to a nonresident not a citizen

10 of the United States’’ after ‘‘or trust’’.

11 ‘‘(B) Subsection (b) of section 684 is

12 amended by striking ‘‘any person’’ and inserting

13 ‘‘any United States person’’.

14 (C) The section heading for section 684 is

15 amended by inserting ‘‘AND NONRESIDENT

16 ALIENS’’ after ‘‘ESTATES’’.

17 (D) The item relating to section 684 in the

18 table of sections for subpart F of part I of sub19 chapter J of chapter 1 is amended by inserting

20 ‘‘and nonresident aliens’’ after ‘‘estates’’.

21 (2) CAPITAL GAIN TREATMENT FOR INHERITED

22 ART WORK OR SIMILAR PROPERTY.—

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

24 section 1221(a)(3) (defining capital asset) is
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1 amended by inserting ‘‘(other than by reason of

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

3 (B) COORDINATION WITH SECTION 170.—

4 Paragraph (1) of section 170(e) (relating to cer5 tain contributions of ordinary income and cap6 ital gain property) is amended by adding at the

7 end the following: ‘‘For purposes of this para8 graph, the determination of whether property is

9 a capital asset shall be made without regard to

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

11 for basis determined under section 1022.’’.

12 (3) DEFINITION OF EXECUTOR.—Section 7701(a)

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

14 end the following:

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

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

17 there is no executor or administrator appointed,

18 qualified, and acting within the United States, then

19 any person in actual or constructive possession of any

20 property of the decedent.’’.

21 (4) CERTAIN TRUSTS.—Subparagraph (A) of sec22 tion 4947(a)(2) is amended by inserting ‘‘642(c),’’

23 after ‘‘170(f)(2)(B),’’.

24 (5) OTHER AMENDMENTS.—
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1 (A) Section 1246 is amended by striking

2 subsection (e).

3 (B) Subsection (e) of section 1291 is

4 amended—

5 (i) by striking ‘‘(e),’’, and

6 (ii) by striking ‘‘; except that’’ and all

7 that follows and inserting a period.

8 (C) Section 1296 is amended by striking

9 subsection (i).

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

12 amended by inserting after the item relating to sec13 tion 1021 the following new item:

‘‘Sec. 1022. Treatment of property acquired from a decedent dying

after December 31, 2010.’’.

14 (g) EFFECTIVE DATE.—

15 (1) IN GENERAL.—Except as provided in para16 graph (2), the amendments made by this section shall

17 apply to estates of decedents dying after December 31,

18 2010.

19 (2) PURPORTED GIFTS, ETC.—The amendments

20 made by subsections (e) and (f)(1) shall apply to

21 transfers after December 31, 2010.

22 (3) SECTION 4947.—The amendment made by

23 subsection (f)(4) shall apply to deductions for taxable

24 years beginning after December 31, 2010.
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1 (h) STUDY.—The Secretary of the Treasury or the Sec2 retary’s delegate shall conduct a study of—

3 (1) opportunities for avoidance of the income

4 tax, if any, and

5 (2) potential increases in income tax revenues,

6 by reason of the enactment of this Act. The study shall be

7 submitted to the Committee on Ways and Means of the

8 House of Representatives and the Committee on Finance

9 of the Senate not later than December 31, 2002.

10 TITLE V—CONSERVATION

11 EASEMENTS

12 SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON13 SERVATION EASEMENTS.

14 (a) WHERE LAND IS LOCATED.—Clause (i) of section

15 2031(c)(8)(A) (defining land subject to a conservation ease16 ment) is amended—

17 (1) by striking ‘‘25 miles’’ each place it appears

18 and inserting ‘‘50 miles’’; and

19 (2) striking ‘‘10 miles’’ and inserting ‘‘25 miles’’.

20 (b) CLARIFICATION OF DATE FOR DETERMINING

21 VALUE OF LAND AND EASEMENT.—Section 2031(c)(2) (de22 fining applicable percentage) is amended by adding at the

23 end the following new sentence: ‘‘The values taken into ac24 count under the preceding sentence shall be such values as
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1 of the date of the contribution referred to in paragraph

2 (8)(B).’’.

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

4 section shall apply to estates of decedents dying after De5 cember 31, 2000.

6 TITLE VI—MODIFICATIONS OF

7 GENERATION-SKIPPING

8 TRANSFER TAX

9 SEC. 601. DEEMED ALLOCATION OF GST EXEMPTION TO

10 LIFETIME TRANSFERS TO TRUSTS; RETRO11 ACTIVE ALLOCATIONS.

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

13 rules for allocation of GST exemption) is amended by redes14 ignating subsection (c) as subsection (e) and by inserting

15 after subsection (b) the following new subsections:

16 ‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME

17 TRANSFERS TO GST TRUSTS.—

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

19 indirect skip during such individual’s lifetime, any

20 unused portion of such individual’s GST exemption

21 shall be allocated to the property transferred to the ex22 tent necessary to make the inclusion ratio for such

23 property zero. If the amount of the indirect skip ex24 ceeds such unused portion, the entire unused portion

25 shall be allocated to the property transferred.
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1 ‘‘(2) UNUSED PORTION.—For purposes of para2 graph (1), the unused portion of an individual’s GST

3 exemption is that portion of such exemption which

4 has not previously been—

5 ‘‘(A) allocated by such individual,

6 ‘‘(B) treated as allocated under subsection

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

8 or before the calendar year in which the indirect

9 skip is made, or

10 ‘‘(C) treated as allocated under paragraph

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

12 ‘‘(3) DEFINITIONS.—

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

14 subsection, the term ‘indirect skip’ means any

15 transfer of property (other than a direct skip)

16 subject to the tax imposed by chapter 12 made

17 to a GST trust.

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

19 means a trust that could have a generation-skip20 ping transfer with respect to the transferor

21 unless—

22 ‘‘(i) the trust instrument provides that

23 more than 25 percent of the trust corpus

24 must be distributed to or may be withdrawn
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1 by one or more individuals who are non2 skip persons—

3 ‘‘(I) before the date that the indi4 vidual attains age 46,

5 ‘‘(II) on or before one or more

6 dates specified in the trust instrument

7 that will occur before the date that

8 such individual attains age 46, or

9 ‘‘(III) upon the occurrence of an

10 event that, in accordance with regula11 tions prescribed by the Secretary, may

12 reasonably be expected to occur before

13 the date that such individual attains

14 age 46;

15 ‘‘(ii) the trust instrument provides that

16 more than 25 percent of the trust corpus

17 must be distributed to or may be withdrawn

18 by one or more individuals who are non19 skip persons and who are living on the date

20 of death of another person identified in the

21 instrument (by name or by class) who is

22 more than 10 years older than such individ23 uals;

24 ‘‘(iii) the trust instrument provides

25 that, if one or more individuals who are
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1 non-skip persons die on or before a date or

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

3 than 25 percent of the trust corpus either

4 must be distributed to the estate or estates

5 of one or more of such individuals or is sub6 ject to a general power of appointment exer7 cisable by one or more of such individuals;

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

9 of which would be included in the gross es10 tate of a non-skip person (other than the

11 transferor) if such person died immediately

12 after the transfer;

13 ‘‘(v) the trust is a charitable lead an14 nuity trust (within the meaning of section

15 2642(e)(3)(A)) or a charitable remainder

16 annuity trust or a charitable remainder

17 unitrust (within the meaning of section

18 664(d)); or

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

20 to which a deduction was allowed under sec21 tion 2522 for the amount of an interest in

22 the form of the right to receive annual pay23 ments of a fixed percentage of the net fair

24 market value of the trust property (deter25 mined yearly) and which is required to pay
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1 principal to a non-skip person if such per2 son is alive when the yearly payments for

3 which the deduction was allowed terminate.

4 For purposes of this subparagraph, the value of

5 transferred property shall not be considered to be

6 includible in the gross estate of a non-skip per7 son or subject to a right of withdrawal by reason

8 of such person holding a right to withdraw so

9 much of such property as does not exceed the

10 amount referred to in section 2503(b) with re11 spect to any transferor, and it shall be assumed

12 that powers of appointment held by non-skip

13 persons will not be exercised.

14 ‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST

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

16 skip to which section 2642(f) applies shall be deemed

17 to have been made only at the close of the estate tax

18 inclusion period. The fair market value of such trans19 fer shall be the fair market value of the trust property

20 at the close of the estate tax inclusion period.

21 ‘‘(5) APPLICABILITY AND EFFECT.—

22 ‘‘(A) IN GENERAL.—An individual—

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

24 not apply to—

25 ‘‘(I) an indirect skip, or
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1 ‘‘(II) any or all transfers made by

2 such individual to a particular trust,

3 and

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

5 GST trust for purposes of this subsection

6 with respect to any or all transfers made by

7 such individual to such trust.

8 ‘‘(B) ELECTIONS.—

9 ‘‘(i) ELECTIONS WITH RESPECT TO IN10 DIRECT SKIPS.—An election under subpara11 graph (A)(i)(I) shall be deemed to be timely

12 if filed on a timely filed gift tax return for

13 the calendar year in which the transfer was

14 made or deemed to have been made pursu15 ant to paragraph (4) or on such later date

16 or dates as may be prescribed by the Sec17 retary.

18 ‘‘(ii) OTHER ELECTIONS.—An election

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

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

21 return for the calendar year for which the

22 election is to become effective.

23 ‘‘(d) RETROACTIVE ALLOCATIONS.—

24 ‘‘(1) IN GENERAL.—If—
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1 ‘‘(A) a non-skip person has an interest or a

2 future interest in a trust to which any transfer

3 has been made,

4 ‘‘(B) such person—

5 ‘‘(i) is a lineal descendant of a grand6 parent of the transferor or of a grandparent

7 of the transferor’s spouse or former spouse,

8 and

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

10 the generation assignment of the transferor,

11 and

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

13 then the transferor may make an allocation of any of

14 such transferor’s unused GST exemption to any pre15 vious transfer or transfers to the trust on a chrono16 logical basis.

17 ‘‘(2) SPECIAL RULES.—If the allocation under

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

19 return filed on or before the date prescribed by section

20 6075(b) for gifts made within the calendar year with21 in which the non-skip person’s death occurred—

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

23 for purposes of section 2642(a) shall be deter24 mined as if such allocation had been made on a
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1 timely filed gift tax return for each calendar

2 year within which each transfer was made,

3 ‘‘(B) such allocation shall be effective imme4 diately before such death, and

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

6 GST exemption available to be allocated shall be

7 determined immediately before such death.

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

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

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

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

12 (b) CONFORMING AMENDMENT.—Paragraph (2) of sec13 tion 2632(b) is amended by striking ‘‘with respect to a prior

14 direct skip’’ and inserting ‘‘or subsection (c)(1)’’.

15 (c) EFFECTIVE DATES.—

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

17 the Internal Revenue Code of 1986 (as added by sub18 section (a)), and the amendment made by subsection

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

20 12 made after December 31, 2000, and to estate tax

21 inclusion periods ending after December 31, 2000.

22 (2) RETROACTIVE ALLOCATIONS.—Section

23 2632(d) of the Internal Revenue Code of 1986 (as

24 added by subsection (a)) shall apply to deaths of non25 skip persons occurring after December 31, 2000.
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1 SEC. 602. SEVERING OF TRUSTS.

2 (a) IN GENERAL.—Subsection (a) of section 2642 (re3 lating to inclusion ratio) is amended by adding at the end

4 the following new paragraph:

5 ‘‘(3) SEVERING OF TRUSTS.—

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

7 a qualified severance, the trusts resulting from

8 such severance shall be treated as separate trusts

9 thereafter for purposes of this chapter.

10 ‘‘(B) QUALIFIED SEVERANCE.—For pur11 poses of subparagraph (A)—

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

13 severance’ means the division of a single

14 trust and the creation (by any means avail15 able under the governing instrument or

16 under local law) of two or more trusts if—

17 ‘‘(I) the single trust was divided

18 on a fractional basis, and

19 ‘‘(II) the terms of the new trusts,

20 in the aggregate, provide for the same

21 succession of interests of beneficiaries

22 as are provided in the original trust.

23 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

24 GREATER THAN ZERO.—If a trust has an

25 inclusion ratio of greater than zero and less

26 than 1, a severance is a qualified severance
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1 only if the single trust is divided into two

2 trusts, one of which receives a fractional

3 share of the total value of all trust assets

4 equal to the applicable fraction of the single

5 trust immediately before the severance. In

6 such case, the trust receiving such fractional

7 share shall have an inclusion ratio of zero

8 and the other trust shall have an inclusion

9 ratio of 1.

10 ‘‘(iii) REGULATIONS.—The term

11 ‘qualified severance’ includes any other sev12 erance permitted under regulations pre13 scribed by the Secretary.

14 ‘‘(C) TIMING AND MANNER OF

15 SEVERANCES.—A severance pursuant to this

16 paragraph may be made at any time. The Sec17 retary shall prescribe by forms or regulations the

18 manner in which the qualified severance shall be

19 reported to the Secretary.’’.

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

21 section shall apply to severances after December 31, 2000.

22 SEC. 603. MODIFICATION OF CERTAIN VALUATION RULES.

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

24 DEEMED ALLOCATION MADE.—Paragraph (1) of section
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1 2642(b) (relating to valuation rules, etc.) is amended to

2 read as follows:

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

4 OR DEEMED ALLOCATION MADE.—If the allocation of

5 the GST exemption to any transfers of property is

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

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

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

9 (c)(1)—

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

11 of subsection (a) shall be its value as finally de12 termined for purposes of chapter 12 (within the

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

14 an allocation deemed to have been made at the

15 close of an estate tax inclusion period, its value

16 at the time of the close of the estate tax inclusion

17 period, and

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

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

20 case of an allocation deemed to have been made

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

22 and after the close of such estate tax inclusion

23 period.’’.

24 (b) TRANSFERS AT DEATH.—Subparagraph (A) of sec25 tion 2642(b)(2) is amended to read as follows:
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1 ‘‘(A) TRANSFERS AT DEATH.—If property is

2 transferred as a result of the death of the trans3 feror, the value of such property for purposes of

4 subsection (a) shall be its value as finally deter5 mined for purposes of chapter 11; except that, if

6 the requirements prescribed by the Secretary re7 specting allocation of post-death changes in value

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

9 determined as of the time of the distribution con10 cerned.’’.

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

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

13 of the Internal Revenue Code of 1986 made after December

14 31, 2000.

15 SEC. 604. RELIEF PROVISIONS.

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

17 at the end the following new subsection:

18 ‘‘(g) RELIEF PROVISIONS.—

19 ‘‘(1) RELIEF FROM LATE ELECTIONS.—

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

21 regulation prescribe such circumstances and pro22 cedures under which extensions of time will be

23 granted to make—
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1 ‘‘(i) an allocation of GST exemption

2 described in paragraph (1) or (2) of sub3 section (b), and

4 ‘‘(ii) an election under subsection

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

6 Such regulations shall include procedures for re7 questing comparable relief with respect to trans8 fers made before the date of the enactment of this

9 paragraph.

10 ‘‘(B) BASIS FOR DETERMINATIONS.—In de11 termining whether to grant relief under this

12 paragraph, the Secretary shall take into account

13 all relevant circumstances, including evidence of

14 intent contained in the trust instrument or in15 strument of transfer and such other factors as the

16 Secretary deems relevant. For purposes of deter17 mining whether to grant relief under this para18 graph, the time for making the allocation (or

19 election) shall be treated as if not expressly pre20 scribed by statute.

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

22 of GST exemption under section 2632 that dem23 onstrates an intent to have the lowest possible inclu24 sion ratio with respect to a transfer or a trust shall

25 be deemed to be an allocation of so much of the trans-
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1 feror’s unused GST exemption as produces the lowest

2 possible inclusion ratio. In determining whether there

3 has been substantial compliance, all relevant cir4 cumstances shall be taken into account, including evi5 dence of intent contained in the trust instrument or

6 instrument of transfer and such other factors as the

7 Secretary deems relevant.’’.

8 (b) EFFECTIVE DATES.—

9 (1) RELIEF FROM LATE ELECTIONS.—Section

10 2642(g)(1) of the Internal Revenue Code of 1986 (as

11 added by subsection (a)) shall apply to requests pend12 ing on, or filed after, December 31, 2000.

13 (2) SUBSTANTIAL COMPLIANCE.—Section

14 2642(g)(2) of such Code (as so added) shall apply to

15 transfers subject to chapter 11 or 12 of the Internal

16 Revenue Code of 1986 made after December 31, 2000.

17 No implication is intended with respect to the avail18 ability of relief from late elections or the application

19 of a rule of substantial compliance on or before such

20 date.
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1 TITLE VII—EXTENSION OF TIME

2 FOR PAYMENT OF ESTATE TAX

3 SEC. 701. INCREASE IN NUMBER OF ALLOWABLE PARTNERS

4 AND SHAREHOLDERS IN CLOSELY HELD BUSI5 NESSES.

6 (a) IN GENERAL.—Paragraphs (1)(B)(ii), (1)(C)(ii),

7 and (9)(B)(iii)(I) of section 6166(b) (relating to definitions

8 and special rules) are each amended by striking ‘‘15’’ and

9 inserting ‘‘45’’.

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

11 section shall apply to estates of decedents dying after De12 cember 31, 2001.

Union Calendar No. 26

107TH CONGRESS

1ST SESSION H. R. 8

[Report No. 107–37]

A BILL

To amend the Internal Revenue Code of 1986 to

phase out the estate and gift taxes over a 10-year period, and for other purposes.

APRIL 3, 2001

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

and ordered to be printed