107TH CONGRESS

1ST SESSION H. R. 8

AN ACT

To amend the Internal Revenue Code of 1986 to phaseout

the estate and gift taxes over a 10-year period, 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,
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1 SECTION 1. SHORT TITLE; ETC.

2 (a) SHORT TITLE.—This Act may be cited as the

3 ‘‘Death Tax Elimination Act of 2001’’.

4 (b) AMENDMENT OF 1986 CODE.—Except as other5 wise expressly provided, whenever in this Act an amend6 ment or repeal is expressed in terms of an amendment

7 to, or repeal of, a section or other provision, the reference

8 shall be considered to be made to a section or other provi9 sion of the Internal Revenue Code of 1986.

10 (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.

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.
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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6 (a) IN GENERAL.—Subtitle B is hereby repealed.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 sub8 section (a) shall apply to the estates of decedents dying,

9 and gifts and generation-skipping transfers made, after

10 December 31, 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.—

18 (1) IN GENERAL.—The table contained in sec19 tion 2001(c)(1) is amended by striking the two high20 est brackets and inserting the following:

‘‘Over $2,500,000 .......................... $1,025,800, plus 50% of the excess

over $2,500,000.’’.
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1 (2) PHASE-IN OF REDUCED RATE.—Subsection

2 (c) of section 2001 is amended by adding at the end

3 the following new paragraph:

4 ‘‘(3) PHASE-IN OF REDUCED RATE.—In the

5 case of decedents dying, and gifts made, during

6 2002, the last item in the table contained in para7 graph (1) shall be applied by substituting ‘53%’ for

8 ‘50%’.’’.

9 (b) REPEAL OF PHASEOUT OF GRADUATED

10 RATES.—Subsection (c) of section 2001 is amended by

11 striking paragraph (2) and redesignating paragraph (3),

12 as added by subsection (a), as paragraph (2).

13 (c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—

14 Subsection (c) of section 2001, as so amended, is amended

15 by adding at the end the following new paragraph:

16 ‘‘(3) PHASEDOWN OF TAX.—In the case of es17 tates of decedents dying, and gifts made, during any

18 calendar year after 2003 and before 2011—

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

20 subparagraph (C), the tentative tax under this

21 subsection shall be determined by using a table

22 prescribed by the Secretary (in lieu of using the

23 table contained in paragraph (1)) which is the

24 same as such table; except that—
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1 ‘‘(i) each of the rates of tax shall be

2 reduced by the number of percentage

3 points determined under subparagraph

4 (B), and

5 ‘‘(ii) the amounts setting forth the tax

6 shall be adjusted to the extent necessary to

7 reflect the adjustments under clause (i).

8 ‘‘(B) PERCENTAGE POINTS OF REDUC9 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.

10 ‘‘(C) COORDINATION WITH INCOME TAX

11 RATES.—The reductions under subparagraph

12 (A)—

13 ‘‘(i) shall not reduce any rate under

14 paragraph (1) below the lowest rate in sec15 tion 1(c) applicable to the taxable year

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

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

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

19 under paragraph (1) below the highest rate

20 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

3 rules of subparagraph (A) shall apply to the

4 table contained in section 2011(b) except that

5 the Secretary shall prescribe percentage point

6 reductions which maintain the proportionate re7 lationship (as in effect before any reduction

8 under this paragraph) between the credit under

9 section 2011 and the tax rates under subsection

10 (c).’’.

11 (d) EFFECTIVE DATES.—

12 (1) SUBSECTIONS (a) AND (b).—The amend13 ments made by subsections (a) and (b) shall apply

14 to estates of decedents dying, and gifts made, after

15 December 31, 2001.

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

17 subsection (c) shall apply to estates of decedents

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

19 TITLE III—UNIFIED CREDIT RE20 PLACED WITH UNIFIED EX21 EMPTION AMOUNT

22 SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT

23 TAXES REPLACED WITH UNIFIED EXEMPTION

24 AMOUNT.

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

2 2001 (relating to computation of tax) is amended to

3 read as follows:

4 ‘‘(b) COMPUTATION OF TAX.—

5 ‘‘(1) IN GENERAL.—The tax imposed by this

6 section shall be the amount equal to the excess (if

7 any) 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

15 been 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 cal2 endar 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 pur8 poses of paragraph (2), the term ‘adjusted taxable

9 gifts’ means the total amount of the taxable gifts

10 (within the meaning of section 2503) made by the

11 decedent after December 31, 1976, other than gifts

12 which are includible in the gross estate of the dece13 dent.’’.

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

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

16 as follows:

17 ‘‘(a) COMPUTATION OF TAX.—

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

19 2501 for each calendar year shall be the amount

20 equal to the excess (if any) of—

21 ‘‘(A) the tentative tax determined under

22 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

3 with respect to gifts made by the donor in pre4 ceding calendar periods if the tax had been

5 computed under the provisions of section

6 2001(c) as in effect 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

2 by striking ‘‘, reduced by the amount of the unified

3 credit provided by section 2010’’.

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

5 by striking ‘‘and the unified credit provided by sec6 tion 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 amend10 ed 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

17 enactment of the Death Tax Elimination

18 Act of 2001) or the exemption amount al19 lowable under section 2001(b) with respect

20 to the decedent as a credit under section

21 2505 (as so in effect) or exemption under

22 section 2501 (as the case may be) allow23 able to such surviving spouse for purposes

24 of determining the amount of the exemp25 tion allowable under section 2501 with re-
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1 spect to taxable gifts made by the sur2 viving spouse during the year in which the

3 spouse becomes a citizen or any subse4 quent year,’’.

5 (6) Subsection (a) of section 2057 is amended

6 by striking paragraphs (2) and (3) and inserting the

7 following new paragraph:

8 ‘‘(2) MAXIMUM DEDUCTION.—The deduction al9 lowed by this section shall not exceed the excess of

10 $1,300,000 over the exemption amount (as defined

11 in section 2001(b)(3)).’’.

12 (7) Subsection (b) of section 2101 is amended

13 to read as follows:

14 ‘‘(b) COMPUTATION OF TAX.—

15 ‘‘(1) IN GENERAL.—The tax imposed by this

16 section shall be the amount equal to the excess (if

17 any) of—

18 ‘‘(A) the tentative tax determined under

19 paragraph (2), over

20 ‘‘(B) a tentative tax computed under sec21 tion 2001(c) on the amount of the adjusted tax22 able gifts.

23 ‘‘(2) TENTATIVE TAX.—For purposes of para24 graph (1), the tentative tax determined under this
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1 paragraph is a tax computed under section 2001(c)

2 on the excess of—

3 ‘‘(A) the sum of—

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

5 and

6 ‘‘(ii) the amount of the adjusted tax7 able gifts, over

8 ‘‘(B) the exemption amount for the cal9 endar year in which the decedent died.

10 ‘‘(3) EXEMPTION AMOUNT.—

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

12 amount’ means $60,000.

13 ‘‘(B) RESIDENTS OF POSSESSIONS OF THE

14 UNITED STATES.—In the case of a decedent

15 who is considered to be a nonresident not a cit16 izen of the United States under section 2209,

17 the exemption amount under this paragraph

18 shall be the greater of—

19 ‘‘(i) $60,000, or

20 ‘‘(ii) that proportion of $175,000

21 which the value of that part of the dece22 dent’s gross estate which at the time of his

23 death is situated in the United States

24 bears to the value of his entire gross estate

25 wherever situated.
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1 ‘‘(C) SPECIAL RULES.—

2 ‘‘(i) COORDINATION WITH TREA3 TIES.—To the extent required under any

4 treaty obligation of the United States, the

5 exemption amount allowed under this para6 graph shall be equal to the amount which

7 bears the same ratio to the exemption

8 amount under section 2001(b)(3) (for the

9 calendar year in which the decedent died)

10 as the value of the part of the decedent’s

11 gross estate which at the time of his death

12 is situated in the United States bears to

13 the value of his entire gross estate wher14 ever situated. For purposes of the pre15 ceding sentence, property shall not be

16 treated as situated in the United States if

17 such property is exempt from the tax im18 posed by this subchapter under any treaty

19 obligation of the United States.

20 ‘‘(ii) COORDINATION WITH GIFT TAX

21 EXEMPTION AND UNIFIED CREDIT.—If an

22 exemption has been allowed under section

23 2501 (or a credit has been allowed under

24 section 2505 as in effect on the day before

25 the date of the enactment of the Death
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1 Tax Elimination Act of 2001) with respect

2 to any gift made by the decedent, each dol3 lar amount contained in subparagraph (A)

4 or (B) or the exemption amount applicable

5 under clause (i) of this subparagraph

6 (whichever applies) shall be reduced by the

7 exemption so allowed under section 2501

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

9 amount of the gift for which the credit was

10 so allowed).’’.

11 (8) Section 2102 is amended by striking sub12 section (c).

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

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

15 (B) Paragraph (1) of section 2107(c) is amend16 ed to read as follows:

17 ‘‘(1) EXEMPTION AMOUNT.—For purposes of

18 subsection (a), the exemption amount under section

19 2001 shall be $60,000.’’.

20 (C) Paragraph (3) of section 2107(c) is amend21 ed by striking the second sentence.

22 (D) The heading of subsection (c) of section

23 2107 is amended to read as follows:

24 ‘‘(c) EXEMPTION AMOUNT AND CREDITS.—’’.
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1 (10) Paragraph (1) of section 6018(a) is

2 amended by striking ‘‘the applicable exclusion

3 amount in effect under section 2010(c)’’ and insert4 ing ‘‘the exemption amount under section

5 2001(b)(3)’’.

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

7 amended to read as follows:

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

9 would be determined under the rate schedule

10 set forth in section 2001(c) if the amount with

11 respect to which such tentative tax is to be

12 computed were $1,000,000, or’’.

13 (12) The table of sections for part II of sub14 chapter A of chapter 11 is amended by striking the

15 item relating to section 2010.

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

17 chapter 12 is amended by striking the item relating

18 to section 2505.

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

20 this section shall apply to estates of decedents dying and

21 gifts 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

8 following new subsection:

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

10 with respect to decedents dying after December 31,

11 2010.’’.

12 SEC. 402. TREATMENT OF PROPERTY ACQUIRED FROM A

13 DECEDENT DYING AFTER DECEMBER 31, 2010.

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

15 chapter 1 (relating to basis rules of general application)

16 is amended by inserting after section 1021 the following

17 new section:

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

19 DECEDENT DYING AFTER DECEMBER 31, 2010.

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

21 this section—

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

23 after December 31, 2010, shall be treated for pur24 poses of this subtitle as transferred by gift, and
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1 ‘‘(2) the basis of the person acquiring property

2 from such a decedent shall be the lesser of—

3 ‘‘(A) the adjusted basis of the decedent, or

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

5 at the date of the decedent’s death.

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

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

8 which this subsection applies, the basis of such prop9 erty under subsection (a) shall be increased by its

10 basis increase under this subsection.

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

12 subsection—

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

14 under this subsection for any property is the

15 portion of the aggregate basis increase which is

16 allocated to the property pursuant to this sec17 tion.

18 ‘‘(B) AGGREGATE BASIS INCREASE.—In

19 the case of any estate, the aggregate basis in20 crease under this subsection is $1,300,000.

21 ‘‘(C) LIMIT INCREASED BY UNUSED BUILT22 IN LOSSES AND LOSS CARRYOVERS.—The limi23 tation under subparagraph (B) shall be in24 creased by—
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1 ‘‘(i) the sum of the amount of any

2 capital loss carryover under section

3 1212(b), and the amount of any net oper4 ating loss carryover under section 172,

5 which would (but for the decedent’s death)

6 be carried from the decedent’s last taxable

7 year to a later taxable year of the dece8 dent, plus

9 ‘‘(ii) the sum of the amount of any

10 losses that would have been allowable

11 under section 165 if the property acquired

12 from the decedent had been sold at fair

13 market value immediately before the dece14 dent’s death.

15 ‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT

16 CITIZENS OF THE UNITED STATES.—In the case of

17 a decedent nonresident not a citizen of the United

18 States—

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

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

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

22 ‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY

23 ACQUIRED BY SURVIVING SPOUSE.—

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

25 which this subsection applies and which is qualified
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1 spousal property, the basis of such property under

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

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

4 increase.

5 ‘‘(2) SPOUSAL PROPERTY BASIS INCREASE.—

6 For purposes of this subsection—

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

8 basis increase for property referred to in para9 graph (1) is the portion of the aggregate spous10 al property basis increase which is allocated to

11 the property pursuant to this section.

12 ‘‘(B) AGGREGATE SPOUSAL PROPERTY

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

14 the aggregate spousal property basis increase is

15 $3,000,000.

16 ‘‘(3) QUALIFIED SPOUSAL PROPERTY.—For

17 purposes of this subsection, the term ‘qualified

18 spousal property’ means—

19 ‘‘(A) outright transfer property, and

20 ‘‘(B) qualified terminable interest property.

21 ‘‘(4) OUTRIGHT TRANSFER PROPERTY.—For

22 purposes of this subsection—

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

24 transfer property’ means any interest in prop-
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1 erty acquired from the decedent by the dece2 dent’s surviving spouse.

3 ‘‘(B) EXCEPTION.—Subparagraph (A)

4 shall not apply where, on the lapse of time, on

5 the occurrence of an event or contingency, or on

6 the failure of an event or contingency to occur,

7 an interest passing to the surviving spouse will

8 terminate or fail—

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

10 passes or has passed (for less than an ade11 quate and full consideration in money or

12 money’s worth) from the decedent to any

13 person other than such surviving spouse

14 (or the estate of such spouse), and

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

16 such person (or his heirs or assigns) may

17 possess or enjoy any part of such property

18 after such termination or failure of the in19 terest so passing to the surviving spouse,

20 or

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

22 for the surviving spouse, pursuant to direc23 tions of the decedent, by his executor or by

24 the trustee of a trust.
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1 For purposes of this subparagraph, an interest

2 shall not be considered as an interest which will

3 terminate or fail merely because it is the owner4 ship of a bond, note, or similar contractual obli5 gation, the discharge of which would not have

6 the effect of an annuity for life or for a term.

7 ‘‘(C) INTEREST OF SPOUSE CONDITIONAL

8 ON SURVIVAL FOR LIMITED PERIOD.—For pur9 poses of this paragraph, an interest passing to

10 the surviving spouse shall not be considered as

11 an interest which will terminate or fail on the

12 death of such spouse if—

13 ‘‘(i) such death will cause a termi14 nation or failure of such interest only if it

15 occurs within a period not exceeding 6

16 months after the decedent’s death, or only

17 if it occurs as a result of a common dis18 aster resulting in the death of the decedent

19 and the surviving spouse, or only if it oc20 curs in the case of either such event, and

21 ‘‘(ii) such termination or failure does

22 not in fact occur.

23 ‘‘(5) QUALIFIED TERMINABLE INTEREST PROP24 ERTY.—For purposes of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified ter2 minable interest property’ means property—

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

4 and

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

6 a qualifying income interest for life.

7 ‘‘(B) QUALIFYING INCOME INTEREST FOR

8 LIFE.—The surviving spouse has a qualifying

9 income interest for life if—

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

11 all the income from the property, payable

12 annually or at more frequent intervals, or

13 has a usufruct interest for life in the prop14 erty, and

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

16 any part of the property to any person

17 other than the surviving spouse.

18 Clause (ii) shall not apply to a power exer19 cisable only at or after the death of the sur20 viving spouse. To the extent provided in regula21 tions, an annuity shall be treated in a manner

22 similar to an income interest in property (re23 gardless of whether the property from which the

24 annuity is payable can be separately identified).
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1 ‘‘(C) PROPERTY INCLUDES INTEREST

2 THEREIN.—The term ‘property’ includes an in3 terest in property.

4 ‘‘(D) SPECIFIC PORTION TREATED AS SEP5 ARATE PROPERTY.—A specific portion of prop6 erty shall be treated as separate property. For

7 purposes of the preceding sentence, the term

8 ‘specific portion’ only includes a portion deter9 mined on a fractional or percentage basis.

10 ‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLI11 CATION OF SUBSECTIONS (b) AND (c).—

12 ‘‘(1) PROPERTY TO WHICH SUBSECTIONS (b)

13 AND (c) APPLY.—

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

15 acquired from a decedent may be increased

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

17 was owned by the decedent at the time of

18 death.

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

20 ‘‘(i) JOINTLY HELD PROPERTY.—In

21 the case of property which was owned by

22 the decedent and another person as joint

23 tenants with right of survivorship or ten24 ants by the entirety—
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1 ‘‘(I) if the only such other person

2 is the surviving spouse, the decedent

3 shall be treated as the owner of only

4 50 percent of the property,

5 ‘‘(II) in any case (to which sub6 clause (I) does not apply) in which the

7 decedent furnished consideration for

8 the acquisition of the property, the de9 cedent shall be treated as the owner

10 to the extent of the portion of the

11 property which is proportionate to

12 such consideration, and

13 ‘‘(III) in any case (to which sub14 clause (I) does not apply) in which the

15 property has been acquired by gift,

16 bequest, devise, or inheritance by the

17 decedent and any other person as

18 joint tenants with right of survivor19 ship and their interests are not other20 wise specified or fixed by law, the de21 cedent shall be treated as the owner

22 to the extent of the value of a frac23 tional part to be determined by divid24 ing the value of the property by the
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1 number of joint tenants with right of

2 survivorship.

3 ‘‘(ii) REVOCABLE TRUSTS.—The dece4 dent shall be treated as owning property

5 transferred by the decedent during life to

6 a revocable trust to pay all of the income

7 during the decedent’s life to the decedent

8 or at the direction of the decedent.

9 ‘‘(iii) POWERS OF APPOINTMENT.—

10 The decedent shall not be treated as own11 ing any property by reason of holding a

12 power of appointment with respect to such

13 property.

14 ‘‘(iv) COMMUNITY PROPERTY.—Prop15 erty which represents the surviving

16 spouse’s one-half share of community prop17 erty held by the decedent and the surviving

18 spouse under the community property laws

19 of any State or possession of the United

20 States or any foreign country shall be

21 treated for purposes of this section as

22 owned by, and acquired from, the decedent

23 if at least one-half of the whole of the com24 munity interest in such property is treated
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1 as owned by, and acquired from, the dece2 dent without regard to this clause.

3 ‘‘(C) PROPERTY ACQUIRED BY DECEDENT

4 BY GIFT WITHIN 3 YEARS OF DEATH.—

5 ‘‘(i) IN GENERAL.—Subsections (b)

6 and (c) shall not apply to property ac7 quired by the decedent by gift or by inter

8 vivos transfer for less than adequate and

9 full consideration in money or money’s

10 worth during the 3-year period ending on

11 the date of the decedent’s death.

12 ‘‘(ii) EXCEPTION FOR CERTAIN GIFTS

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

14 to property acquired by the decedent from

15 the decedent’s spouse unless, during such

16 3-year period, such spouse acquired the

17 property in whole or in part by gift or by

18 inter vivos transfer for less than adequate

19 and full consideration in money or money’s

20 worth.

21 ‘‘(D) STOCK OF CERTAIN ENTITIES.—Sub22 sections (b) and (c) shall not apply to—

23 ‘‘(i) stock or securities a foreign per24 sonal holding company,
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1 ‘‘(ii) stock of a DISC or former

2 DISC,

3 ‘‘(iii) stock of a foreign investment

4 company, or

5 ‘‘(iv) stock of a passive foreign invest6 ment company unless such company is a

7 qualified electing fund (as defined in sec8 tion 1295) with respect to the decedent.

9 ‘‘(2) FAIR MARKET VALUE LIMITATION.—The

10 adjustments under subsection (b) and (c) shall not

11 increase the basis of any interest in property ac12 quired from the decedent above its fair market value

13 in the hands of the decedent as of the date of the

14 decedent’s death.

15 ‘‘(3) ALLOCATION RULES.—

16 ‘‘(A) IN GENERAL.—The executor shall al17 locate the adjustments under subsections (b)

18 and (c) on the return required by section 6018.

19 ‘‘(B) CHANGES IN ALLOCATION.—Any allo20 cation made pursuant to subparagraph (A) may

21 be changed only as provided by the Secretary.

22 ‘‘(4) INFLATION ADJUSTMENT OF BASIS AD23 JUSTMENT AMOUNTS.—

24 ‘‘(A) IN GENERAL.—In the case of dece25 dents dying in a calendar year after 2011, the
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1 $1,300,000, $60,000, and $3,000,000 dollar

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

3 each be increased by an amount equal to the

4 product of—

5 ‘‘(i) such dollar amount, and

6 ‘‘(ii) the cost-of-living adjustment de7 termined under section 1(f)(3) for such

8 calendar year, determined by substituting

9 ‘2010’ for ‘1992’ in subparagraph (B)

10 thereof.

11 ‘‘(B) ROUNDING.—If any increase deter12 mined under subparagraph (A) is not a multiple

13 of—

14 ‘‘(i) $100,000 in the case of the

15 $1,300,000 amount,

16 ‘‘(ii) $5,000 in the case of the

17 $60,000 amount, and

18 ‘‘(iii) $250,000 in the case of the

19 $3,000,000 amount,

20 such increase shall be rounded to the next low21 est multiple thereof.

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

23 For purposes of this section, the following property shall

24 be considered to have been acquired from the decedent:
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1 ‘‘(1) Property acquired by bequest, devise, or

2 inheritance, or by the decedent’s estate from the de3 cedent.

4 ‘‘(2) Property transferred by the decedent dur5 ing his lifetime in trust to pay the income for life

6 to or on the order or direction of the decedent, with

7 the right reserved to the decedent at all times before

8 his death—

9 ‘‘(A) to revoke the trust, or

10 ‘‘(B) to make any change in the enjoyment

11 thereof through the exercise of a power to alter,

12 amend, or terminate the trust.

13 ‘‘(3) Any other property passing from the dece14 dent by reason of death to the extent that such

15 property passed without consideration.

16 ‘‘(f) COORDINATION WITH SECTION 691.—This sec17 tion shall not apply to property which constitutes a right

18 to receive an item of income in respect of a decedent under

19 section 691.

20 ‘‘(g) CERTAIN LIABILITIES DISREGARDED.—In de21 termining whether gain is recognized on the acquisition

22 of property—

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

24 any beneficiary, and
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1 ‘‘(2) from the decedent’s estate by any bene2 ficiary,

3 and in determining the adjusted basis of such property,

4 liabilities in excess of basis shall be disregarded.

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

6 such regulations as may be necessary to carry out the pur7 poses of this section.’’.

8 (b) INFORMATION RETURNS, ETC.—

9 (1) IN GENERAL.—Subpart C of part II of sub10 chapter A of chapter 61 is amended to read as fol11 lows:

12 ‘‘Subpart C—Returns Relating to Transfers During

13 Life or at Death

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

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

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

15 DEATH.

16 ‘‘(a) IN GENERAL.—If this section applies to prop17 erty acquired from a decedent, the executor of the estate

18 of such decedent shall make a return containing the infor19 mation specified in subsection (c) with respect to such

20 property.

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

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

23 apply to all property (other than cash) acquired

24 from a decedent if the fair market value of such
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1 property acquired from the decedent exceeds the dol2 lar amount applicable under section 1022(b)(2)(B)

3 (without regard to section 1022(b)(2)(C)).

4 ‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED

5 BY DECEDENT WITHIN 3 YEARS OF DEATH.—This

6 section shall apply to any appreciated property ac7 quired from the decedent if—

8 ‘‘(A) subsections (b) and (c) of section

9 1022 do not apply to such property by reason

10 of section 1022(d)(1)(C), and

11 ‘‘(B) such property was required to be in12 cluded on a return required to be filed under

13 section 6019.

14 ‘‘(3) NONRESIDENTS NOT CITIZENS OF THE

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

16 a nonresident not a citizen of the United States,

17 paragraphs (1) and (2) shall be applied—

18 ‘‘(A) by taking into account only—

19 ‘‘(i) tangible property situated in the

20 United States, and

21 ‘‘(ii) other property acquired from the

22 decedent by a United States person, and

23 ‘‘(B) by substituting the dollar amount ap24 plicable under section 1022(b)(3) for the dollar

25 amount referred to in paragraph (1).
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1 ‘‘(4) RETURNS BY TRUSTEES OR BENE2 FICIARIES.—If the executor is unable to make a

3 complete return as to any property acquired from or

4 passing from the decedent, the executor shall include

5 in the return a description of such property and the

6 name of every person holding a legal or beneficial in7 terest therein. Upon notice from the Secretary such

8 person shall in like manner make a return as to

9 such property.

10 ‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—

11 The information specified in this subsection with respect

12 to any property acquired from the decedent is—

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

14 property,

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

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

17 hands of the decedent and its fair market value at

18 the time of death,

19 ‘‘(4) the decedent’s holding period for such

20 property,

21 ‘‘(5) sufficient information to determine wheth22 er any gain on the sale of the property would be

23 treated as ordinary income,
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1 ‘‘(6) the amount of basis increase allocated to

2 the property under subsection (b) or (c) of section

3 1022, and

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

5 may by regulations prescribe.

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

7 purposes of this section, section 1022 shall apply for pur8 poses of determining the property acquired from a dece9 dent.

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

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

12 subsection (a) shall furnish to each person whose name

13 is required to be set forth in such return (other than the

14 person required to make such return) a written statement

15 showing—

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

17 the person required to make such return, and

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

19 with respect to property acquired from, or passing

20 from, the decedent to the person required to receive

21 such statement.

22 The written statement required under the preceding sen23 tence shall be furnished not later than 30 days after the

24 date that the return required by subsection (a) is filed.
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1 ‘‘SEC. 6019. RETURNS RELATING TO LARGE LIFETIME

2 GIFTS.

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

4 gifts of property made by an individual to any United

5 States person during a calendar year exceeds $25,000,

6 such individual shall make a return for such year setting

7 forth—

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

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

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

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

12 ‘‘(4) the donor’s holding period for such prop13 erty,

14 ‘‘(5) sufficient information to determine wheth15 er any gain on the sale of the property would be

16 treated as ordinary income, and

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

18 may by regulations prescribe.

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

20 to—

21 ‘‘(1) CASH.—Any gift of cash.

22 ‘‘(2) GIFTS TO CHARITY.—Any gift to an orga23 nization described in section 501(c) and exempt

24 from tax under section 501(a) but only if no interest

25 in the property is held for the benefit of any person

26 other than such an organization.
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1 ‘‘(3) WAIVER OF CERTAIN PENSION RIGHTS in2 dividual waives, before the death of a participant,

3 any survivor benefit, or right to such benefit, under

4 section 401(a)(11) or 417, subsection (a) shall not

5 apply to such waiver.

6 ‘‘(4) REPORTING ELSEWHERE.—Any gift re7 quired to be reported to the Secretary under any

8 other provision of this title.

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

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

11 subsection (a) shall furnish to each person whose name

12 is required to be set forth in such return a written state13 ment showing—

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

15 the person required to make such return, and

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

17 with respect to property received by the person re18 quired to receive such statement.

19 The written statement required under the preceding sen20 tence shall be furnished on or before January 31 of the

21 year following the calendar year for which the return

22 under subsection (a) was required to be made.’’.

23 (2) TIME FOR FILING SECTION 6018 RE24 TURNS.—
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1 (A) RETURNS RELATING TO LARGE TRANS2 FERS AT DEATH.—Subsection (a) of section

3 6075 is amended to read as follows:

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

5 DEATH.—The return required by section 6018 with re6 spect to a decedent shall be filed with the return of the

7 tax imposed by chapter 1 for the decedent’s last taxable

8 year or such later date specified in regulations prescribed

9 by the Secretary.’’.

10 (B) RETURNS RELATING TO LARGE LIFE11 TIME GIFTS.—

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

13 amended to read as follows:

14 ‘‘(b) RETURNS RELATING TO LARGE LIFETIME

15 GIFTS.—’’.

16 (ii) Paragraph (1) of section 6075(b)

17 is amended by striking ‘‘(relating to gift

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

19 relating to large lifetime gifts)’’.

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

21 is amended—

22 (I) by striking ‘‘ESTATE TAX RE23 TURN’’ and inserting ‘‘SECTION 6018

24 RETURN’’, and
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1 (II) by striking ‘‘(relating to es2 tate tax returns)’’ and inserting ‘‘(re3 lating to returns relating to large

4 transfers at death)’’.

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

6 chapter 68 (relating to assessable penalties) is

7 amended by adding at the end the following new sec8 tion:

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

10 TO CERTAIN TRANSFERS AT DEATH AND

11 GIFTS.

12 ‘‘(a) INFORMATION REQUIRED TO BE FURNISHED

13 TO THE SECRETARY.—Any person required to furnish any

14 information under section 6018 or 6019 who fails to fur15 nish such information on the date prescribed therefor (de16 termined with regard to any extension of time for filing)

17 shall pay a penalty of $10,000 ($500 in the case of infor18 mation required to be furnished under section 6018(b)(2)

19 or 6019) for each such failure.

20 ‘‘(b) INFORMATION REQUIRED TO BE FURNISHED

21 TO BENEFICIARIES.—Any person required to furnish in

22 writing to each person described in section 6018(e) or

23 6019(c) the information required under such section who

24 fails to furnish such information shall pay a penalty of

25 $50 for each such failure.
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1 ‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty

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

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

4 reasonable cause.

5 ‘‘(d) INTENTIONAL DISREGARD.—If any failure

6 under subsection (a) or (b) is due to intentional disregard

7 of the requirements under sections 6018 and 6019, the

8 penalty under such subsection shall be 5 percent of the

9 fair market value (as of the date of death or, in the case

10 of section 6019, the date of the gift) of the property with

11 respect to which the information is required.

12 ‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—

13 Subchapter B of chapter 63 (relating to deficiency proce14 dures for income, estate, gift, and certain excise taxes)

15 shall not apply in respect of the assessment or collection

16 of any penalty imposed by this section.’’.

17 (4) CLERICAL AMENDMENTS.—

18 (A) The table of sections for part I of sub19 chapter B of chapter 68 is amended by adding

20 at the end the following new item:

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

transfers at death and gifts.’’.

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

22 table of subparts for part II of subchapter A of

23 chapter 61 is amended to read as follows:

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

death.’’.
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1 (c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL

2 RESIDENCE MADE AVAILABLE TO HEIR OF DECEDENT

3 IN CERTAIN CASES.—Subsection (d) of section 121 (relat4 ing to exclusion of gain from sale of principal residence)

5 is amended by adding at the end the following new para6 graph:

7 ‘‘(9) PROPERTY ACQUIRED FROM A DECE8 DENT.—The exclusion under this section shall apply

9 to property sold by—

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

11 ‘‘(B) any individual who acquired such

12 property from the decedent (within the meaning

13 of section 1022),

14 determined by taking into account the ownership

15 and use by the decedent.’’.

16 (d) TRANSFERS OF APPRECIATED CARRYOVER BASIS

17 PROPERTY TO SATISFY PECUNIARY BEQUEST.—

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

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

20 amended to read as follows:

21 ‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS

22 PROPERTY TO SATISFY PECUNIARY BE23 QUEST.

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

25 any decedent satisfies the right of any person to receive
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1 a pecuniary bequest with appreciated property, then gain

2 on such exchange shall be recognized to the estate only

3 to the extent that, on the date of such exchange, the fair

4 market value of such property exceeds such value on the

5 date of death.

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

7 extent provided in regulations prescribed by the Secretary,

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

9 apply where—

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

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

12 dollar amount which is the equivalent of a pecuniary

13 bequest, and

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

15 with property.

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

17 DESCRIBED IN SUBSECTION (a) OR (b).—The basis of

18 property acquired in an exchange with respect to which

19 gain realized is not recognized by reason of subsection (a)

20 or (b) shall be the basis of such property immediately be21 fore the exchange increased by the amount of the gain rec22 ognized to the estate or trust on the exchange.’’.

23 (2) The item relating to section 1040 in the

24 table of sections for part III of subchapter O of

25 chapter 1 is amended to read as follows:
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‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy

pecuniary bequest.’’.

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

2 by redesignating subsection (n) as subsection (o) and by

3 inserting after subsection (m) the following new sub4 section:

5 ‘‘(n) PURPORTED GIFTS MAY BE DISREGARDED.—

6 For purposes of subtitle A, the Secretary may treat a

7 transfer which purports to be a gift as having never been

8 transferred if, in connection with such transfer—

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

10 or designated by the transferor or such person) has

11 received anything of value in connection with such

12 transfer from the transferee directly or indirectly, or

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

14 that the transferor (or such person) will receive any15 thing of value in connection with such transfer from

16 the transferee directly or indirectly, and

17 ‘‘(2) the Secretary determines that such treat18 ment is appropriate to prevent avoidance of tax im19 posed by subtitle A.’’.

20 (f) MISCELLANEOUS AMENDMENTS RELATED TO

21 CARRYOVER BASIS.—

22 (1) RECOGNITION OF GAIN ON TRANSFERS TO

23 NONRESIDENTS.—
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1 (A) Subsection (a) of section 684 is

2 amended by inserting ‘‘or to a nonresident not

3 a citizen of the United States’’ after ‘‘or trust’’.

4 (B) Subsection (b) of section 684 is

5 amended by striking ‘‘any person’’ and insert6 ing ‘‘any United States person’’.

7 (C) The section heading for section 684 is

8 amended by inserting ‘‘AND NONRESIDENT

9 ALIENS’’ after ‘‘ESTATES’’.

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

11 table of sections for subpart F of part I of sub12 chapter J of chapter 1 is amended by inserting

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

14 (2) CAPITAL GAIN TREATMENT FOR INHERITED

15 ART WORK OR SIMILAR PROPERTY.—

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

17 section 1221(a)(3) (defining capital asset) is

18 amended by inserting ‘‘(other than by reason of

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

20 (B) COORDINATION WITH SECTION 170.—

21 Paragraph (1) of section 170(e) (relating to

22 certain contributions of ordinary income and

23 capital gain property) is amended by adding at

24 the end the following: ‘‘For purposes of this

25 paragraph, the determination of whether prop-
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1 erty is a capital asset shall be made without re2 gard to the exception contained in section

3 1221(a)(3)(C) for basis determined under sec4 tion 1022.’’.

5 (3) DEFINITION OF EXECUTOR.—Section

6 7701(a) (relating to definitions) is amended by add7 ing at the end the following:

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

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

10 there is no executor or administrator appointed,

11 qualified, and acting within the United States, then

12 any person in actual or constructive possession of

13 any property of the decedent.’’.

14 (4) CERTAIN TRUSTS.—Subparagraph (A) of

15 section 4947(a)(2) is amended by inserting

16 ‘‘642(c),’’ after ‘‘170(f)(2)(B),’’.

17 (5) OTHER AMENDMENTS.—

18 (A) Section 1246 is amended by striking

19 subsection (e).

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

21 amended—

22 (i) by striking ‘‘(e),’’; and

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

24 that follows and inserting a period.
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1 (C) Section 1296 is amended by striking

2 subsection (i).

3 (6) CLERICAL AMENDMENT.—The table of sec4 tions for part II of subchapter O of chapter 1 is

5 amended by inserting after the item relating to sec6 tion 1021 the following new item:

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

dying after December 31, 2010.’’.

7 (g) EFFECTIVE DATE.—

8 (1) IN GENERAL.—Except as provided in para9 graph (2), the amendments made by this section

10 shall apply to estates of decedents dying after De11 cember 31, 2010.

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

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

14 transfers after December 31, 2010.

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

16 subsection (f)(4) shall apply to deductions for tax17 able years beginning after December 31, 2010.

18 (h) STUDY.—The Secretary of the Treasury or the

19 Secretary’s delegate shall conduct a study of—

20 (1) opportunities for avoidance of the income

21 tax, if any; and

22 (2) potential increases in income tax revenues,

23 by reason of the enactment of this Act. The study shall

24 be submitted to the Committee on Ways and Means of
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1 the House of Representatives and the Committee on Fi2 nance of the Senate not later than December 31, 2002.

3 TITLE V—CONSERVATION

4 EASEMENTS

5 SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON6 SERVATION EASEMENTS.

7 (a) WHERE LAND IS LOCATED.—Clause (i) of sec8 tion 2031(c)(8)(A) (defining land subject to a conserva9 tion easement) is amended—

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

11 and inserting ‘‘50 miles’’; and

12 (2) striking ‘‘10 miles’’ and inserting ‘‘25

13 miles’’.

14 (b) CLARIFICATION OF DATE FOR DETERMINING

15 VALUE OF LAND AND EASEMENT.—Section 2031(c)(2)

16 (defining applicable percentage) is amended by adding at

17 the end the following new sentence: ‘‘The values taken into

18 account under the preceding sentence shall be such values

19 as of the date of the contribution referred to in paragraph

20 (8)(B).’’.

21 (c) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to estates of decedents dying after

23 December 31, 2000.
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1 TITLE VI—MODIFICATIONS OF

2 GENERATION-SKIPPING

3 TRANSFER TAX

4 SEC. 601. DEEMED ALLOCATION OF GST EXEMPTION TO

5 LIFETIME TRANSFERS TO TRUSTS; RETRO6 ACTIVE ALLOCATIONS.

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

8 rules for allocation of GST exemption) is amended by re9 designating subsection (c) as subsection (e) and by insert10 ing after subsection (b) the following new subsections:

11 ‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME

12 TRANSFERS TO GST TRUSTS.—

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

14 indirect skip during such individual’s lifetime, any

15 unused portion of such individual’s GST exemption

16 shall be allocated to the property transferred to the

17 extent necessary to make the inclusion ratio for such

18 property zero. If the amount of the indirect skip ex19 ceeds such unused portion, the entire unused portion

20 shall be allocated to the property transferred.

21 ‘‘(2) UNUSED PORTION.—For purposes of para22 graph (1), the unused portion of an individual’s

23 GST exemption is that portion of such exemption

24 which has not previously been—

25 ‘‘(A) allocated by such individual,
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1 ‘‘(B) treated as allocated under subsection

2 (b) with respect to a direct skip occurring dur3 ing or before the calendar year in which the in4 direct skip is made, or

5 ‘‘(C) treated as allocated under paragraph

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

7 ‘‘(3) DEFINITIONS.—

8 ‘‘(A) INDIRECT SKIP.—For purposes of

9 this subsection, the term ‘indirect skip’ means

10 any transfer of property (other than a direct

11 skip) subject to the tax imposed by chapter 12

12 made to a GST trust.

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

14 means a trust that could have a generation15 skipping transfer with respect to the transferor

16 unless—

17 ‘‘(i) the trust instrument provides that

18 more than 25 percent of the trust corpus

19 must be distributed to or may be with20 drawn by one or more individuals who are

21 non-skip persons—

22 ‘‘(I) before the date that the indi23 vidual attains age 46,

24 ‘‘(II) on or before one or more

25 dates specified in the trust instrument
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1 that will occur before the date that

2 such individual attains age 46, or

3 ‘‘(III) upon the occurrence of an

4 event that, in accordance with regula5 tions prescribed by the Secretary, may

6 reasonably be expected to occur before

7 the date that such individual attains

8 age 46,

9 ‘‘(ii) the trust instrument provides

10 that more than 25 percent of the trust cor11 pus must be distributed to or may be with12 drawn by one or more individuals who are

13 non-skip persons and who are living on the

14 date of death of another person identified

15 in the instrument (by name or by class)

16 who is more than 10 years older than such

17 individuals,

18 ‘‘(iii) the trust instrument provides

19 that, if one or more individuals who are

20 non-skip persons die on or before a date or

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

22 than 25 percent of the trust corpus either

23 must be distributed to the estate or estates

24 of one or more of such individuals or is

25 subject to a general power of appointment
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1 exercisable by one or more of such individ2 uals,

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

4 of which would be included in the gross es5 tate of a non-skip person (other than the

6 transferor) if such person died immediately

7 after the transfer,

8 ‘‘(v) the trust is a charitable lead an9 nuity trust (within the meaning of section

10 2642(e)(3)(A)) or a charitable remainder

11 annuity trust or a charitable remainder

12 unitrust (within the meaning of section

13 664(d)), or

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

15 to which a deduction was allowed under

16 section 2522 for the amount of an interest

17 in the form of the right to receive annual

18 payments of a fixed percentage of the net

19 fair market value of the trust property (de20 termined yearly) and which is required to

21 pay principal to a non-skip person if such

22 person is alive when the yearly payments

23 for which the deduction was allowed termi24 nate.
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1 For purposes of this subparagraph, the value of

2 transferred property shall not be considered to

3 be includible in the gross estate of a non-skip

4 person or subject to a right of withdrawal by

5 reason of such person holding a right to with6 draw so much of such property as does not ex7 ceed the amount referred to in section 2503(b)

8 with respect to any transferor, and it shall be

9 assumed that powers of appointment held by

10 non-skip persons will not be exercised.

11 ‘‘(4) AUTOMATIC ALLOCATIONS TO CERTAIN

12 GST TRUSTS.—For purposes of this subsection, an

13 indirect skip to which section 2642(f) applies shall

14 be deemed to have been made only at the close of

15 the estate tax inclusion period. The fair market

16 value of such transfer shall be the fair market value

17 of the trust property at the close of the estate tax

18 inclusion period.

19 ‘‘(5) APPLICABILITY AND EFFECT.—

20 ‘‘(A) IN GENERAL.—An individual—

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

22 not apply to—

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

2 by such individual to a particular

3 trust, 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

7 by such individual to such trust.

8 ‘‘(B) ELECTIONS.—

9 ‘‘(i) ELECTIONS WITH RESPECT TO

10 INDIRECT SKIPS.—An election under sub11 paragraph (A)(i)(I) shall be deemed to be

12 timely if filed on a timely filed gift tax re13 turn for the calendar year in which the

14 transfer was made or deemed to have been

15 made pursuant to paragraph (4) or on

16 such later date or dates as may be pre17 scribed by the Secretary.

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

2 a future interest in a trust to which any trans3 fer has been made,

4 ‘‘(B) such person—

5 ‘‘(i) is a lineal descendant of a grand6 parent of the transferor or of a grand7 parent of the transferor’s spouse or former

8 spouse, and

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

10 the generation assignment of the trans11 feror, and

12 ‘‘(C) such person predeceases the trans13 feror,

14 then the transferor may make an allocation of any

15 of such transferor’s unused GST exemption to any

16 previous transfer or transfers to the trust on a

17 chronological basis.

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

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

20 tax return filed on or before the date prescribed by

21 section 6075(b) for gifts made within the calendar

22 year within which the non-skip person’s death

23 occurred—

24 ‘‘(A) the value of such transfer or trans25 fers for purposes of section 2642(a) shall be de-
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1 termined as if such allocation had been made

2 on a timely filed gift tax return for each cal3 endar year within which each transfer was

4 made,

5 ‘‘(B) such allocation shall be effective im6 mediately before such death, and

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

8 GST exemption available to be allocated shall

9 be determined immediately before such death.

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

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

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

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

14 (b) CONFORMING AMENDMENT.—Paragraph (2) of

15 section 2632(b) is amended by striking ‘‘with respect to

16 a prior direct skip’’ and inserting ‘‘or subsection (c)(1)’’.

17 (c) EFFECTIVE DATES.—

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

19 the Internal Revenue Code of 1986 (as added by

20 subsection (a)), and the amendment made by sub21 section (b), shall apply to transfers subject to chap22 ter 11 or 12 made after December 31, 2000, and to

23 estate tax inclusion periods ending after December

24 31, 2000.
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1 (2) RETROACTIVE ALLOCATIONS.—Section

2 2632(d) of the Internal Revenue Code of 1986 (as

3 added by subsection (a)) shall apply to deaths of

4 non-skip persons occurring after December 31,

5 2000.

6 SEC. 602. SEVERING OF TRUSTS.

7 (a) IN GENERAL.—Subsection (a) of section 2642

8 (relating to inclusion ratio) is amended by adding at the

9 end the following new paragraph:

10 ‘‘(3) SEVERING OF TRUSTS.—

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

12 a qualified severance, the trusts resulting from

13 such severance shall be treated as separate

14 trusts thereafter for purposes of this chapter.

15 ‘‘(B) QUALIFIED SEVERANCE.—For pur16 poses of subparagraph (A)—

17 ‘‘(i) IN GENERAL.—The term ‘quali18 fied severance’ means the division of a sin19 gle trust and the creation (by any means

20 available under the governing instrument

21 or under local law) of two or more trusts

22 if—

23 ‘‘(I) the single trust was divided

24 on a fractional basis, and
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1 ‘‘(II) the terms of the new trusts,

2 in the aggregate, provide for the same

3 succession of interests of beneficiaries

4 as are provided in the original trust.

5 ‘‘(ii) TRUSTS WITH INCLUSION RATIO

6 GREATER THAN ZERO.—If a trust has an

7 inclusion ratio of greater than zero and

8 less than 1, a severance is a qualified sev9 erance only if the single trust is divided

10 into two trusts, one of which receives a

11 fractional share of the total value of all

12 trust assets equal to the applicable fraction

13 of the single trust immediately before the

14 severance. In such case, the trust receiving

15 such fractional share shall have an inclu16 sion ratio of zero and the other trust shall

17 have an inclusion ratio of 1.

18 ‘‘(iii) REGULATIONS.—The term

19 ‘qualified severance’ includes any other

20 severance permitted under regulations pre21 scribed by the Secretary.

22 ‘‘(C) TIMING AND MANNER OF

23 SEVERANCES.—A severance pursuant to this

24 paragraph may be made at any time. The Sec25 retary shall prescribe by forms or regulations
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1 the manner in which the qualified severance

2 shall be reported to the Secretary.’’.

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

4 this section shall apply to severances after December 31,

5 2000.

6 SEC. 603. MODIFICATION OF CERTAIN VALUATION RULES.

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

8 DEEMED ALLOCATION MADE.—Paragraph (1) of section

9 2642(b) (relating to valuation rules, etc.) is amended to

10 read as follows:

11 ‘‘(1) GIFTS FOR WHICH GIFT TAX RETURN

12 FILED OR DEEMED ALLOCATION MADE.—If the allo13 cation of the GST exemption to any transfers of

14 property is made on a gift tax return filed on or be15 fore the date prescribed by section 6075(b) for such

16 transfer or is deemed to be made under section 2632

17 (b)(1) or (c)(1)—

18 ‘‘(A) the value of such property for pur19 poses of subsection (a) shall be its value as fi20 nally determined for purposes of chapter 12

21 (within the meaning of section 2001(f)(2)), or,

22 in the case of an allocation deemed to have been

23 made at the close of an estate tax inclusion pe24 riod, its value at the time of the close of the es25 tate tax inclusion period, and
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1 ‘‘(B) such allocation shall be effective on

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

3 case of an allocation deemed to have been made

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

5 and after the close of such estate tax inclusion

6 period.’’.

7 (b) TRANSFERS AT DEATH.—Subparagraph (A) of

8 section 2642(b)(2) is amended to read as follows:

9 ‘‘(A) TRANSFERS AT DEATH.—If property

10 is transferred as a result of the death of the

11 transferor, the value of such property for pur12 poses of subsection (a) shall be its value as fi13 nally determined for purposes of chapter 11; ex14 cept that, if the requirements prescribed by the

15 Secretary respecting allocation of post-death

16 changes in value are not met, the value of such

17 property shall be determined as of the time of

18 the distribution concerned.’’.

19 (c) EFFECTIVE DATE.—The amendments made by

20 this section shall apply to transfers subject to chapter 11

21 or 12 of the Internal Revenue Code of 1986 made after

22 December 31, 2000.

23 SEC. 604. RELIEF PROVISIONS.

24 (a) IN GENERAL.—Section 2642 is amended by add25 ing at the end the following new subsection:
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1 ‘‘(g) RELIEF PROVISIONS.—

2 ‘‘(1) RELIEF FROM LATE ELECTIONS.—

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

4 regulation prescribe such circumstances and

5 procedures under which extensions of time will

6 be granted to make—

7 ‘‘(i) an allocation of GST exemption

8 described in paragraph (1) or (2) of sub9 section (b), and

10 ‘‘(ii) an election under subsection

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

12 Such regulations shall include procedures for

13 requesting comparable relief with respect to

14 transfers made before the date of the enactment

15 of this paragraph.

16 ‘‘(B) BASIS FOR DETERMINATIONS.—In

17 determining whether to grant relief under this

18 paragraph, the Secretary shall take into ac19 count all relevant circumstances, including evi20 dence of intent contained in the trust instru21 ment or instrument of transfer and such other

22 factors as the Secretary deems relevant. For

23 purposes of determining whether to grant relief

24 under this paragraph, the time for making the
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1 allocation (or election) shall be treated as if not

2 expressly prescribed by statute.

3 ‘‘(2) SUBSTANTIAL COMPLIANCE.—An alloca4 tion of GST exemption under section 2632 that

5 demonstrates an intent to have the lowest possible

6 inclusion ratio with respect to a transfer or a trust

7 shall be deemed to be an allocation of so much of

8 the transferor’s unused GST exemption as produces

9 the lowest possible inclusion ratio. In determining

10 whether there has been substantial compliance, all

11 relevant circumstances shall be taken into account,

12 including evidence of intent contained in the trust

13 instrument or instrument of transfer and such other

14 factors as the Secretary deems relevant.’’.

15 (b) EFFECTIVE DATES.—

16 (1) RELIEF FROM LATE ELECTIONS.—Section

17 2642(g)(1) of the Internal Revenue Code of 1986

18 (as added by subsection (a)) shall apply to requests

19 pending on, or filed after, December 31, 2000.

20 (2) SUBSTANTIAL COMPLIANCE.—Section

21 2642(g)(2) of such Code (as so added) shall apply

22 to transfers subject to chapter 11 or 12 of the Inter23 nal Revenue Code of 1986 made after December 31,

24 2000. No implication is intended with respect to the

25 availability of relief from late elections or the appli-
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1 cation of a rule of substantial compliance on or be2 fore such date.

3 TITLE VII—EXTENSION OF TIME

4 FOR PAYMENT OF ESTATE TAX

5 SEC. 701. INCREASE IN NUMBER OF ALLOWABLE PARTNERS

6 AND SHAREHOLDERS IN CLOSELY HELD

7 BUSINESSES.

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

9 and (9)(B)(iii)(I) of section 6166(b) (relating to defini10 tions and special rules) are each amended by striking ‘‘15’’

11 and inserting ‘‘45’’.

12 (b) EFFECTIVE DATE.—The amendments made by

13 this section shall apply to estates of decedents dying after

14 December 31, 2001.

Passed the House of Representatives April 4, 2001.

Attest:

Clerk.
107TH CONGRESS

1ST SESSION H. R. 8

AN ACT

To amend the Internal Revenue Code of 1986 to

phaseout the estate and gift taxes over a 10-yearperiod, and for other purposes.