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[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 8 Engrossed in House (EH)]

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Death Tax 
Elimination Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (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.
         TITLE VII--EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX

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

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

SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES.

    (a) In General.--Subtitle B is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) shall apply 
to the estates of decedents dying, and gifts and generation-skipping 
transfers made, after December 31, 2010.

   TITLE II--REDUCTIONS OF ESTATE AND GIFT TAX RATES PRIOR TO REPEAL

SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

    (a) Maximum Rate of Tax Reduced to 50 Percent.--
            (1) In general.--The table contained in section 2001(c)(1) 
        is amended by striking the two highest brackets and inserting 
        the following:

    ``Over $2,500,000..............
                                        $1,025,800, plus 50% of the 
                                                excess over 
                                                $2,500,000.''.
            (2) Phase-in of reduced rate.--Subsection (c) of section 
        2001 is amended by adding at the end the following new 
        paragraph:
            ``(3) Phase-in of reduced rate.--In the case of decedents 
        dying, and gifts made, during 2002, the last item in the table 
        contained in paragraph (1) shall be applied by substituting 
        `53%' for `50%'.''.
    (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of 
section 2001 is amended by striking paragraph (2) and redesignating 
paragraph (3), as added by subsection (a), as paragraph (2).
    (c) Additional Reductions of Rates of Tax.--Subsection (c) of 
section 2001, as so amended, is amended by adding at the end the 
following new paragraph:
            ``(3) Phasedown of tax.--In the case of estates of 
        decedents dying, and gifts made, during any calendar year after 
        2003 and before 2011--
                    ``(A) In general.--Except as provided in 
                subparagraph (C), the tentative tax under this 
                subsection shall be determined by using a table 
                prescribed by the Secretary (in lieu of using the table 
                contained in paragraph (1)) which is the same as such 
                table; except that--
                            ``(i) each of the rates of tax shall be 
                        reduced by the number of percentage points 
                        determined under subparagraph (B), and
                            ``(ii) the amounts setting forth the tax 
                        shall be adjusted to the extent necessary to 
                        reflect the adjustments under clause (i).
                    ``(B) Percentage points of reduction.--
                  
                                                        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.
                    ``(C) Coordination with income tax rates.--The 
                reductions under subparagraph (A)--
                            ``(i) shall not reduce any rate under 
                        paragraph (1) below the lowest rate in section 
                        1(c) applicable to the taxable year which 
                        includes the date of death (or, in the case of 
                        a gift, the date of the gift), and
                            ``(ii) shall not reduce the highest rate 
                        under paragraph (1) below the highest rate in 
                        section 1(c) for such taxable year.
                    ``(D) Coordination with credit for state death 
                taxes.--Rules similar to the rules of subparagraph (A) 
                shall apply to the table contained in section 2011(b) 
                except that the Secretary shall prescribe percentage 
                point reductions which maintain the proportionate 
                relationship (as in effect before any reduction under 
                this paragraph) between the credit under section 2011 
                and the tax rates under subsection (c).''.
    (d) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made by 
        subsections (a) and (b) shall apply to estates of decedents 
        dying, and gifts made, after December 31, 2001.
            (2) Subsection (c).--The amendment made by subsection (c) 
        shall apply to estates of decedents dying, and gifts made, 
        after December 31, 2003.

    TITLE III--UNIFIED CREDIT REPLACED WITH UNIFIED EXEMPTION AMOUNT

SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH 
              UNIFIED EXEMPTION AMOUNT.

    (a) In General.--
            (1) Estate tax.--Subsection (b) of section 2001 (relating 
        to computation of tax) is amended to read as follows:
    ``(b) Computation of Tax.--
            ``(1) In general.--The tax imposed by this section shall be 
        the amount equal to the excess (if any) of--
                    ``(A) the tentative tax determined under paragraph 
                (2), over
                    ``(B) the aggregate amount of tax which would have 
                been payable under chapter 12 with respect to gifts 
                made by the decedent after December 31, 1976, if the 
                provisions of subsection (c) (as in effect at the 
                decedent's death) had been applicable at the time of 
                such gifts.
            ``(2) Tentative tax.--For purposes of paragraph (1), the 
        tentative tax determined under this paragraph is a tax computed 
        under subsection (c) on the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of the taxable estate, and
                            ``(ii) the amount of the adjusted taxable 
                        gifts, over
                    ``(B) the exemption amount for the calendar year in 
                which the decedent died.
            ``(3) Exemption amount.--For purposes of paragraph (2), the 
        term `exemption amount' means the amount determined in 
        accordance with the following 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.
            ``(4) Adjusted taxable gifts.--For purposes of paragraph 
        (2), the term `adjusted taxable gifts' means the total amount 
        of the taxable gifts (within the meaning of section 2503) made 
        by the decedent after December 31, 1976, other than gifts which 
        are includible in the gross estate of the decedent.''.
            (2) Gift tax.--Subsection (a) of section 2502 (relating to 
        computation of tax) is amended to read as follows:
    ``(a) Computation of Tax.--
            ``(1) In general.--The tax imposed by section 2501 for each 
        calendar year shall be the amount equal to the excess (if any) 
        of--
                    ``(A) the tentative tax determined under paragraph 
                (2) for such calendar year, over
                    ``(B) the aggregate amount of tax that would have 
                been payable under this chapter with respect to gifts 
                made by the donor in preceding calendar periods if the 
                tax had been computed under the provisions of section 
                2001(c) as in effect for such calendar year.
            ``(2) Tentative tax.--For purposes of paragraph (1), the 
        tentative tax determined under this paragraph for a calendar 
        year is a tax computed under section 2001(c) on the excess of--
                    ``(A) the aggregate sum of the taxable gifts for 
                such calendar year and for each of the preceding 
                calendar periods, over
                    ``(B) the exemption amount under section 2001(b)(3) 
                for such calendar year.''.
    (b) Repeal of Unified Credits.--
            (1) Section 2010 (relating to unified credit against estate 
        tax) is hereby repealed.
            (2) Section 2505 (relating to unified credit against gift 
        tax) is hereby repealed.
    (c) Conforming Amendments.--
            (1)(A) Subsection (b) of section 2011 is amended--
                    (i) by striking ``adjusted'' in the table; and
                    (ii) by striking the last sentence.
            (B) Subsection (f) of section 2011 is amended by striking 
        ``, reduced by the amount of the unified credit provided by 
        section 2010''.
            (2) Subsection (a) of section 2012 is amended by striking 
        ``and the unified credit provided by section 2010''.
            (3) Subparagraph (A) of section 2013(c)(1) is amended by 
        striking ``2010,''.
            (4) Paragraph (2) of section 2014(b) is amended by striking 
        ``2010, 2011,'' and inserting ``2011''.
            (5) Clause (ii) of section 2056A(b)(12)(C) is amended to 
        read as follows:
                            ``(ii) to treat any reduction in the tax 
                        imposed by paragraph (1)(A) by reason of the 
                        credit allowable under section 2010 (as in 
                        effect on the day before the date of the 
                        enactment of the Death Tax Elimination Act of 
                        2001) or the exemption amount allowable under 
                        section 2001(b) with respect to the decedent as 
                        a credit under section 2505 (as so in effect) 
                        or exemption under section 2501 (as the case 
                        may be) allowable to such surviving spouse for 
                        purposes of determining the amount of the 
                        exemption allowable under section 2501 with 
                        respect to taxable gifts made by the surviving 
                        spouse during the year in which the spouse 
                        becomes a citizen or any subsequent year,''.
            (6) Subsection (a) of section 2057 is amended by striking 
        paragraphs (2) and (3) and inserting the following new 
        paragraph:
            ``(2) Maximum deduction.--The deduction allowed by this 
        section shall not exceed the excess of $1,300,000 over the 
        exemption amount (as defined in section 2001(b)(3)).''.
            (7) Subsection (b) of section 2101 is amended to read as 
        follows:
    ``(b) Computation of Tax.--
            ``(1) In general.--The tax imposed by this section shall be 
        the amount equal to the excess (if any) of--
                    ``(A) the tentative tax determined under paragraph 
                (2), over
                    ``(B) a tentative tax computed under section 
                2001(c) on the amount of the adjusted taxable gifts.
            ``(2) Tentative tax.--For purposes of paragraph (1), the 
        tentative tax determined under this paragraph is a tax computed 
        under section 2001(c) on the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of the taxable estate, and
                            ``(ii) the amount of the adjusted taxable 
                        gifts, over
                    ``(B) the exemption amount for the calendar year in 
                which the decedent died.
            ``(3) Exemption amount.--
                    ``(A) In general.--The term `exemption amount' 
                means $60,000.
                    ``(B) Residents of possessions of the united 
                states.--In the case of a decedent who is considered to 
                be a nonresident not a citizen of the United States 
                under section 2209, the exemption amount under this 
                paragraph shall be the greater of--
                            ``(i) $60,000, or
                            ``(ii) that proportion of $175,000 which 
                        the value of that part of the decedent's gross 
                        estate which at the time of his death is 
                        situated in the United States bears to the 
                        value of his entire gross estate wherever 
                        situated.
                    ``(C) Special rules.--
                            ``(i) Coordination with treaties.--To the 
                        extent required under any treaty obligation of 
                        the United States, the exemption amount allowed 
                        under this paragraph shall be equal to the 
                        amount which bears the same ratio to the 
                        exemption amount under section 2001(b)(3) (for 
                        the calendar year in which the decedent died) 
                        as the value of the part of the decedent's 
                        gross estate which at the time of his death is 
                        situated in the United States bears to the 
                        value of his entire gross estate wherever 
                        situated. For purposes of the preceding 
                        sentence, property shall not be treated as 
                        situated in the United States if such property 
                        is exempt from the tax imposed by this 
                        subchapter under any treaty obligation of the 
                        United States.
                            ``(ii) Coordination with gift tax exemption 
                        and unified credit.--If an exemption has been 
                        allowed under section 2501 (or a credit has 
                        been allowed under section 2505 as in effect on 
                        the day before the date of the enactment of the 
                        Death Tax Elimination Act of 2001) with respect 
                        to any gift made by the decedent, each dollar 
                        amount contained in subparagraph (A) or (B) or 
                        the exemption amount applicable under clause 
                        (i) of this subparagraph (whichever applies) 
                        shall be reduced by the exemption so allowed 
                        under section 2501 (or, in the case of such a 
                        credit, by the amount of the gift for which the 
                        credit was so allowed).''.
            (8) Section 2102 is amended by striking subsection (c).
            (9)(A) Paragraph (1) of section 2107(a) is amended by 
        striking ``the table contained in''.
            (B) Paragraph (1) of section 2107(c) is amended to read as 
        follows:
            ``(1) Exemption amount.--For purposes of subsection (a), 
        the exemption amount under section 2001 shall be $60,000.''.
            (C) Paragraph (3) of section 2107(c) is amended by striking 
        the second sentence.
            (D) The heading of subsection (c) of section 2107 is 
        amended to read as follows:
    ``(c) Exemption Amount and Credits.--''.
            (10) Paragraph (1) of section 6018(a) is amended by 
        striking ``the applicable exclusion amount in effect under 
        section 2010(c)'' and inserting ``the exemption amount under 
        section 2001(b)(3)''.
            (11) Subparagraph (A) of section 6601(j)(2) is amended to 
        read as follows:
                    ``(A) the amount of the tentative tax which would 
                be determined under the rate schedule set forth in 
                section 2001(c) if the amount with respect to which 
                such tentative tax is to be computed were $1,000,000, 
                or''.
            (12) The table of sections for part II of subchapter A of 
        chapter 11 is amended by striking the item relating to section 
        2010.
            (13) The table of sections for subchapter A of chapter 12 
        is amended by striking the item relating to section 2505.
    (d) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying and gifts made after December 31, 
2001.

 TITLE IV--CARRYOVER BASIS AT DEATH; OTHER CHANGES TAKING EFFECT WITH 
                                 REPEAL

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

    Section 1014 (relating to basis of property acquired from a 
decedent) is amended by adding at the end the following new subsection:
    ``(f) Termination.--This section shall not apply with respect to 
decedents dying after December 31, 2010.''.

SEC. 402. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2010.

    (a) General Rule.--Part II of subchapter O of chapter 1 (relating 
to basis rules of general application) is amended by inserting after 
section 1021 the following new section:

``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
              DECEMBER 31, 2010.

    ``(a) In General.--Except as otherwise provided in this section--
            ``(1) property acquired from a decedent dying after 
        December 31, 2010, shall be treated for purposes of this 
        subtitle as transferred by gift, and
            ``(2) the basis of the person acquiring property from such 
        a decedent shall be the lesser of--
                    ``(A) the adjusted basis of the decedent, or
                    ``(B) the fair market value of the property at the 
                date of the decedent's death.
    ``(b) Basis Increase for Certain Property.--
            ``(1) In general.--In the case of property to which this 
        subsection applies, the basis of such property under subsection 
        (a) shall be increased by its basis increase under this 
        subsection.
            ``(2) Basis increase.--For purposes of this subsection--
                    ``(A) In general.--The basis increase under this 
                subsection for any property is the portion of the 
                aggregate basis increase which is allocated to the 
                property pursuant to this section.
                    ``(B) Aggregate basis increase.--In the case of any 
                estate, the aggregate basis increase under this 
                subsection is $1,300,000.
                    ``(C) Limit increased by unused built-in losses and 
                loss carryovers.--The limitation under subparagraph (B) 
                shall be increased by--
                            ``(i) the sum of the amount of any capital 
                        loss carryover under section 1212(b), and the 
                        amount of any net operating loss carryover 
                        under section 172, which would (but for the 
                        decedent's death) be carried from the 
                        decedent's last taxable year to a later taxable 
                        year of the decedent, plus
                            ``(ii) the sum of the amount of any losses 
                        that would have been allowable under section 
                        165 if the property acquired from the decedent 
                        had been sold at fair market value immediately 
                        before the decedent's death.
            ``(3) Decedent nonresidents who are not citizens of the 
        united states.--In the case of a decedent nonresident not a 
        citizen of the United States--
                    ``(A) paragraph (2)(B) shall be applied by 
                substituting `$60,000' for `$1,300,000', and
                    ``(B) paragraph (2)(C) shall not apply.
    ``(c) Additional Basis Increase for Property Acquired by Surviving 
Spouse.--
            ``(1) In general.--In the case of property to which this 
        subsection applies and which is qualified spousal property, the 
        basis of such property under subsection (a) (as increased, if 
        any, under subsection (b)) shall be increased by its spousal 
        property basis increase.
            ``(2) Spousal property basis increase.--For purposes of 
        this subsection--
                    ``(A) In general.--The spousal property basis 
                increase for property referred to in paragraph (1) is 
                the portion of the aggregate spousal property basis 
                increase which is allocated to the property pursuant to 
                this section.
                    ``(B) Aggregate spousal property basis increase.--
                In the case of any estate, the aggregate spousal 
                property basis increase is $3,000,000.
            ``(3) Qualified spousal property.--For purposes of this 
        subsection, the term `qualified spousal property' means--
                    ``(A) outright transfer property, and
                    ``(B) qualified terminable interest property.
            ``(4) Outright transfer property.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `outright transfer 
                property' means any interest in property acquired from 
                the decedent by the decedent's surviving spouse.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                where, on the lapse of time, on the occurrence of an 
                event or contingency, or on the failure of an event or 
                contingency to occur, an interest passing to the 
                surviving spouse will terminate or fail--
                            ``(i)(I) if an interest in such property 
                        passes or has passed (for less than an adequate 
                        and full consideration in money or money's 
                        worth) from the decedent to any person other 
                        than such surviving spouse (or the estate of 
                        such spouse), and
                            ``(II) if by reason of such passing such 
                        person (or his heirs or assigns) may possess or 
                        enjoy any part of such property after such 
                        termination or failure of the interest so 
                        passing to the surviving spouse, or
                            ``(ii) if such interest is to be acquired 
                        for the surviving spouse, pursuant to 
                        directions of the decedent, by his executor or 
                        by the trustee of a trust.
                For purposes of this subparagraph, an interest shall 
                not be considered as an interest which will terminate 
                or fail merely because it is the ownership of a bond, 
                note, or similar contractual obligation, the discharge 
                of which would not have the effect of an annuity for 
                life or for a term.
                    ``(C) Interest of spouse conditional on survival 
                for limited period.--For purposes of this paragraph, an 
                interest passing to the surviving spouse shall not be 
                considered as an interest which will terminate or fail 
                on the death of such spouse if--
                            ``(i) such death will cause a termination 
                        or failure of such interest only if it occurs 
                        within a period not exceeding 6 months after 
                        the decedent's death, or only if it occurs as a 
                        result of a common disaster resulting in the 
                        death of the decedent and the surviving spouse, 
                        or only if it occurs in the case of either such 
                        event, and
                            ``(ii) such termination or failure does not 
                        in fact occur.
            ``(5) Qualified terminable interest property.--For purposes 
        of this subsection--
                  ``(A) In general.--The term `qualified terminable 
                interest property' means property--
                            ``(i) which passes from the decedent, and
                            ``(ii) in which the surviving spouse has a 
                        qualifying income interest for life.
                    ``(B) Qualifying income interest for life.--The 
                surviving spouse has a qualifying income interest for 
                life if--
                            ``(i) the surviving spouse is entitled to 
                        all the income from the property, payable 
                        annually or at more frequent intervals, or has 
                        a usufruct interest for life in the property, 
                        and
                            ``(ii) no person has a power to appoint any 
                        part of the property to any person other than 
                        the surviving spouse.
                Clause (ii) shall not apply to a power exercisable only 
                at or after the death of the surviving spouse. To the 
                extent provided in regulations, an annuity shall be 
                treated in a manner similar to an income interest in 
                property (regardless of whether the property from which 
                the annuity is payable can be separately identified).
                    ``(C) Property includes interest therein.--The term 
                `property' includes an interest in property.
                    ``(D) Specific portion treated as separate 
                property.--A specific portion of property shall be 
                treated as separate property. For purposes of the 
                preceding sentence, the term `specific portion' only 
                includes a portion determined on a fractional or 
                percentage basis.
    ``(d) Definitions and Special Rules for Application of Subsections 
(b) and (c).--
            ``(1) Property to which subsections (b) and (c) apply.--
                    ``(A) In general.--The basis of property acquired 
                from a decedent may be increased under subsection (b) 
                or (c) only if the property was owned by the decedent 
                at the time of death.
                    ``(B) Rules relating to ownership.--
                            ``(i) Jointly held property.--In the case 
                        of property which was owned by the decedent and 
                        another person as joint tenants with right of 
                        survivorship or tenants by the entirety--
                                    ``(I) if the only such other person 
                                is the surviving spouse, the decedent 
                                shall be treated as the owner of only 
                                50 percent of the property,
                                    ``(II) in any case (to which 
                                subclause (I) does not apply) in which 
                                the decedent furnished consideration 
                                for the acquisition of the property, 
                                the decedent shall be treated as the 
                                owner to the extent of the portion of 
                                the property which is proportionate to 
                                such consideration, and
                                    ``(III) in any case (to which 
                                subclause (I) does not apply) in which 
                                the property has been acquired by gift, 
                                bequest, devise, or inheritance by the 
                                decedent and any other person as joint 
                                tenants with right of survivorship and 
                                their interests are not otherwise 
                                specified or fixed by law, the decedent 
                                shall be treated as the owner to the 
                                extent of the value of a fractional 
                                part to be determined by dividing the 
                                value of the property by the number of 
                                joint tenants with right of 
                                survivorship.
                            ``(ii) Revocable trusts.--The decedent 
                        shall be treated as owning property transferred 
                        by the decedent during life to a revocable 
                        trust to pay all of the income during the 
                        decedent's life to the decedent or at the 
                        direction of the decedent.
                            ``(iii) Powers of appointment.--The 
                        decedent shall not be treated as owning any 
                        property by reason of holding a power of 
                        appointment with respect to such property.
                            ``(iv) Community property.--Property which 
                        represents the surviving spouse's one-half 
                        share of community property held by the 
                        decedent and the surviving spouse under the 
                        community property laws of any State or 
                        possession of the United States or any foreign 
                        country shall be treated for purposes of this 
                        section as owned by, and acquired from, the 
                        decedent if at least one-half of the whole of 
                        the community interest in such property is 
                        treated as owned by, and acquired from, the 
                        decedent without regard to this clause.
                    ``(C) Property acquired by decedent by gift within 
                3 years of death.--
                            ``(i) In general.--Subsections (b) and (c) 
                        shall not apply to property acquired by the 
                        decedent by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth during the 3-year period 
                        ending on the date of the decedent's death.
                            ``(ii) Exception for certain gifts from 
                        spouse.--Clause (i) shall not apply to property 
                        acquired by the decedent from the decedent's 
                        spouse unless, during such 3-year period, such 
                        spouse acquired the property in whole or in 
                        part by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth.
                    ``(D) Stock of certain entities.--Subsections (b) 
                and (c) shall not apply to--
                            ``(i) stock or securities a foreign 
                        personal holding company,
                            ``(ii) stock of a DISC or former DISC,
                            ``(iii) stock of a foreign investment 
                        company, or
                            ``(iv) stock of a passive foreign 
                        investment company unless such company is a 
                        qualified electing fund (as defined in section 
                        1295) with respect to the decedent.
            ``(2) Fair market value limitation.--The adjustments under 
        subsection (b) and (c) shall not increase the basis of any 
        interest in property acquired from the decedent above its fair 
        market value in the hands of the decedent as of the date of the 
        decedent's death.
            ``(3) Allocation rules.--
                    ``(A) In general.--The executor shall allocate the 
                adjustments under subsections (b) and (c) on the return 
                required by section 6018.
                    ``(B) Changes in allocation.--Any allocation made 
                pursuant to subparagraph (A) may be changed only as 
                provided by the Secretary.
            ``(4) Inflation adjustment of basis adjustment amounts.--
                    ``(A) In general.--In the case of decedents dying 
                in a calendar year after 2011, the $1,300,000, $60,000, 
                and $3,000,000 dollar amounts in subsections (b) and 
                (c)(2)(B) shall each be increased by an amount equal to 
                the product of--
                            ``(i) such dollar amount, and
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year, determined by substituting 
                        `2010' for `1992' in subparagraph (B) thereof.
                    ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of--
                            ``(i) $100,000 in the case of the 
                        $1,300,000 amount,
                            ``(ii) $5,000 in the case of the $60,000 
                        amount, and
                            ``(iii) $250,000 in the case of the 
                        $3,000,000 amount,
                such increase shall be rounded to the next lowest 
                multiple thereof.
    ``(e) Property Acquired From the Decedent.--For purposes of this 
section, the following property shall be considered to have been 
acquired from the decedent:
            ``(1) Property acquired by bequest, devise, or inheritance, 
        or by the decedent's estate from the decedent.
            ``(2) Property transferred by the decedent during his 
        lifetime in trust to pay the income for life to or on the order 
        or direction of the decedent, with the right reserved to the 
        decedent at all times before his death--
                    ``(A) to revoke the trust, or
                    ``(B) to make any change in the enjoyment thereof 
                through the exercise of a power to alter, amend, or 
                terminate the trust.
            ``(3) Any other property passing from the decedent by 
        reason of death to the extent that such property passed without 
        consideration.
    ``(f) Coordination With Section 691.--This section shall not apply 
to property which constitutes a right to receive an item of income in 
respect of a decedent under section 691.
    ``(g) Certain Liabilities Disregarded.--In determining whether gain 
is recognized on the acquisition of property--
            ``(1) from a decedent by a decedent's estate or any 
        beneficiary, and
            ``(2) from the decedent's estate by any beneficiary,
and in determining the adjusted basis of such property, liabilities in 
excess of basis shall be disregarded.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''.
    (b) Information Returns, Etc.--
            (1) In general.--Subpart C of part II of subchapter A of 
        chapter 61 is amended to read as follows:

   ``Subpart C--Returns Relating to Transfers During Life or at Death

                              ``Sec. 6018. Returns relating to large 
                                        transfers at death.
                              ``Sec. 6019. Returns relating to large 
                                        lifetime gifts.

``SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.

    ``(a) In General.--If this section applies to property acquired 
from a decedent, the executor of the estate of such decedent shall make 
a return containing the information specified in subsection (c) with 
respect to such property.
    ``(b) Property to Which Section Applies.--
            ``(1) Large transfers.--This section shall apply to all 
        property (other than cash) acquired from a decedent if the fair 
        market value of such property acquired from the decedent 
        exceeds the dollar amount applicable under section 
        1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
            ``(2) Transfers of certain gifts received by decedent 
        within 3 years of death.--This section shall apply to any 
        appreciated property acquired from the decedent if--
                    ``(A) subsections (b) and (c) of section 1022 do 
                not apply to such property by reason of section 
                1022(d)(1)(C), and
                    ``(B) such property was required to be included on 
                a return required to be filed under section 6019.
            ``(3) Nonresidents not citizens of the united states.--In 
        the case of a decedent who is a nonresident not a citizen of 
        the United States, paragraphs (1) and (2) shall be applied--
                    ``(A) by taking into account only--
                            ``(i) tangible property situated in the 
                        United States, and
                            ``(ii) other property acquired from the 
                        decedent by a United States person, and
                    ``(B) by substituting the dollar amount applicable 
                under section 1022(b)(3) for the dollar amount referred 
                to in paragraph (1).
            ``(4) Returns by trustees or beneficiaries.--If the 
        executor is unable to make a complete return as to any property 
        acquired from or passing from the decedent, the executor shall 
        include in the return a description of such property and the 
        name of every person holding a legal or beneficial interest 
        therein. Upon notice from the Secretary such person shall in 
        like manner make a return as to such property.
    ``(c) Information Required To Be Furnished.--The information 
specified in this subsection with respect to any property acquired from 
the decedent is--
            ``(1) the name and TIN of the recipient of such property,
            ``(2) an accurate description of such property,
            ``(3) the adjusted basis of such property in the hands of 
        the decedent and its fair market value at the time of death,
            ``(4) the decedent's holding period for such property,
            ``(5) sufficient information to determine whether any gain 
        on the sale of the property would be treated as ordinary 
        income,
            ``(6) the amount of basis increase allocated to the 
        property under subsection (b) or (c) of section 1022, and
            ``(7) such other information as the Secretary may by 
        regulations prescribe.
    ``(d) Property Acquired From Decedent.--For purposes of this 
section, section 1022 shall apply for purposes of determining the 
property acquired from a decedent.
    ``(e) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
            ``(1) the name, address, and phone number of the person 
        required to make such return, and
            ``(2) the information specified in subsection (c) with 
        respect to property acquired from, or passing from, the 
        decedent to the person required to receive such statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.

``SEC. 6019. RETURNS RELATING TO LARGE LIFETIME GIFTS.

    ``(a) In General.--If the value of the aggregate gifts of property 
made by an individual to any United States person during a calendar 
year exceeds $25,000, such individual shall make a return for such year 
setting forth--
            ``(1) the name and TIN of the donee,
            ``(2) an accurate description of such property,
            ``(3) the adjusted basis of such property in the hands of 
        the donor at the time of the gift,
            ``(4) the donor's holding period for such property,
            ``(5) sufficient information to determine whether any gain 
        on the sale of the property would be treated as ordinary 
        income, and
            ``(6) such other information as the Secretary may by 
        regulations prescribe.
    ``(b) Exceptions.--Subsection (a) shall not apply to--
            ``(1) Cash.--Any gift of cash.
            ``(2) Gifts to charity.--Any gift to an organization 
        described in section 501(c) and exempt from tax under section 
        501(a) but only if no interest in the property is held for the 
        benefit of any person other than such an organization.
            ``(3) Waiver of certain pension rights individual waives, 
        before the death of a participant, any survivor benefit, or 
        right to such benefit, under section 401(a)(11) or 417, 
        subsection (a) shall not apply to such waiver.
            ``(4) Reporting elsewhere.--Any gift required to be 
        reported to the Secretary under any other provision of this 
        title.
    ``(c) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return a written 
statement showing--
            ``(1) the name, address, and phone number of the person 
        required to make such return, and
            ``(2) the information specified in subsection (a) with 
        respect to property received by the person required to receive 
        such statement.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) was required to be 
made.''.
            (2) Time for filing section 6018 returns.--
                    (A) Returns relating to large transfers at death.--
                Subsection (a) of section 6075 is amended to read as 
                follows:
    ``(a) Returns Relating to Large Transfers at Death.--The return 
required by section 6018 with respect to a decedent shall be filed with 
the return of the tax imposed by chapter 1 for the decedent's last 
taxable year or such later date specified in regulations prescribed by 
the Secretary.''.
                    (B) Returns relating to large lifetime gifts.--
                            (i) The heading for section 6075(b) is 
                        amended to read as follows:
    ``(b) Returns Relating to Large Lifetime Gifts.--''.
                            (ii) Paragraph (1) of section 6075(b) is 
                        amended by striking ``(relating to gift 
                        taxes)'' and inserting ``(relating to returns 
                        relating to large lifetime gifts)''.
                            (iii) Paragraph (3) of section 6075(b) is 
                        amended--
                                    (I) by striking ``estate tax 
                                return'' and inserting ``section 6018 
                                return'', and
                                    (II) by striking ``(relating to 
                                estate tax returns)'' and inserting 
                                ``(relating to returns relating to 
                                large transfers at death)''.
            (3) Penalties.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by adding at the 
        end the following new section:

``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
              TRANSFERS AT DEATH AND GIFTS.

    ``(a) Information Required To Be Furnished to the Secretary.--Any 
person required to furnish any information under section 6018 or 6019 
who fails to furnish such information on the date prescribed therefor 
(determined with regard to any extension of time for filing) shall pay 
a penalty of $10,000 ($500 in the case of information required to be 
furnished under section 6018(b)(2) or 6019) for each such failure.
    ``(b) Information Required To Be Furnished to Beneficiaries.--Any 
person required to furnish in writing to each person described in 
section 6018(e) or 6019(c) the information required under such section 
who fails to furnish such information shall pay a penalty of $50 for 
each such failure.
    ``(c) Reasonable Cause Exception.--No penalty shall be imposed 
under subsection (a) or (b) with respect to any failure if it is shown 
that such failure is due to reasonable cause.
    ``(d) Intentional Disregard.--If any failure under subsection (a) 
or (b) is due to intentional disregard of the requirements under 
sections 6018 and 6019, the penalty under such subsection shall be 5 
percent of the fair market value (as of the date of death or, in the 
case of section 6019, the date of the gift) of the property with 
respect to which the information is required.
    ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 (relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by this section.''.
            (4) Clerical amendments.--
                    (A) The table of sections for part I of subchapter 
                B of chapter 68 is amended by adding at the end the 
                following new item:

                              ``Sec. 6716. Failure to file information 
                                        with respect to certain 
                                        transfers at death and 
                                        gifts.''.
                    (B) The item relating to subpart C in the table of 
                subparts for part II of subchapter A of chapter 61 is 
                amended to read as follows:

                              ``Subpart C. Returns relating to 
                                        transfers during life or at 
                                        death.''.
    (c) Exclusion of Gain on Sale of Principal Residence Made Available 
to Heir of Decedent in Certain Cases.--Subsection (d) of section 121 
(relating to exclusion of gain from sale of principal residence) is 
amended by adding at the end the following new paragraph:
            ``(9) Property acquired from a decedent.--The exclusion 
        under this section shall apply to property sold by--
                    ``(A) the estate of a decedent, and
                    ``(B) any individual who acquired such property 
                from the decedent (within the meaning of section 1022),
        determined by taking into account the ownership and use by the 
        decedent.''.
    (d) Transfers of Appreciated Carryover Basis Property To Satisfy 
Pecuniary Bequest.--
            (1) In general.--Section 1040 (relating to transfer of 
        certain farm, etc., real property) is amended to read as 
        follows:

``SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY 
              PECUNIARY BEQUEST.

    ``(a) In General.--If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest with 
appreciated property, then gain on such exchange shall be recognized to 
the estate only to the extent that, on the date of such exchange, the 
fair market value of such property exceeds such value on the date of 
death.
    ``(b) Similar Rule for Certain Trusts.--To the extent provided in 
regulations prescribed by the Secretary, a rule similar to the rule 
provided in subsection (a) shall apply where--
            ``(1) by reason of the death of the decedent, a person has 
        a right to receive from a trust a specific dollar amount which 
        is the equivalent of a pecuniary bequest, and
            ``(2) the trustee of a trust satisfies such right with 
        property.
    ``(c) Basis of Property Acquired in Exchange Described in 
Subsection (a) or (b).--The basis of property acquired in an exchange 
with respect to which gain realized is not recognized by reason of 
subsection (a) or (b) shall be the basis of such property immediately 
before the exchange increased by the amount of the gain recognized to 
the estate or trust on the exchange.''.
            (2) The item relating to section 1040 in the table of 
        sections for part III of subchapter O of chapter 1 is amended 
        to read as follows:

                              ``Sec. 1040. Use of appreciated carryover 
                                        basis property to satisfy 
                                        pecuniary bequest.''.
    (e) Anti-Abuse Rules.--Section 7701 is amended by redesignating 
subsection (n) as subsection (o) and by inserting after subsection (m) 
the following new subsection:
    ``(n) Purported Gifts May Be Disregarded.--For purposes of subtitle 
A, the Secretary may treat a transfer which purports to be a gift as 
having never been transferred if, in connection with such transfer--
            ``(1)(A) the transferor (or any person related to or 
        designated by the transferor or such person) has received 
        anything of value in connection with such transfer from the 
        transferee directly or indirectly, or
            ``(B) there is an understanding or expectation that the 
        transferor (or such person) will receive anything of value in 
        connection with such transfer from the transferee directly or 
        indirectly, and
            ``(2) the Secretary determines that such treatment is 
        appropriate to prevent avoidance of tax imposed by subtitle 
        A.''.
    (f) Miscellaneous Amendments Related to Carryover Basis.--
            (1) Recognition of gain on transfers to nonresidents.--
                    (A) Subsection (a) of section 684 is amended by 
                inserting ``or to a nonresident not a citizen of the 
                United States'' after ``or trust''.
                    (B) Subsection (b) of section 684 is amended by 
                striking ``any person'' and inserting ``any United 
                States person''.
                    (C) The section heading for section 684 is amended 
                by inserting ``and nonresident aliens'' after 
                ``estates''.
                    (D) The item relating to section 684 in the table 
                of sections for subpart F of part I of subchapter J of 
                chapter 1 is amended by inserting ``and nonresident 
                aliens'' after ``estates''.
            (2) Capital gain treatment for inherited art work or 
        similar property.--
                    (A) In general.--Subparagraph (C) of section 
                1221(a)(3) (defining capital asset) is amended by 
                inserting ``(other than by reason of section 1022)'' 
                after ``is determined''.
                    (B) Coordination with section 170.--Paragraph (1) 
                of section 170(e) (relating to certain contributions of 
                ordinary income and capital gain property) is amended 
                by adding at the end the following: ``For purposes of 
                this paragraph, the determination of whether property 
                is a capital asset shall be made without regard to the 
                exception contained in section 1221(a)(3)(C) for basis 
                determined under section 1022.''.
            (3) Definition of executor.--Section 7701(a) (relating to 
        definitions) is amended by adding at the end the following:
            ``(47) Executor.--The term `executor' means the executor or 
        administrator of the decedent, or, if there is no executor or 
        administrator appointed, qualified, and acting within the 
        United States, then any person in actual or constructive 
        possession of any property of the decedent.''.
            (4) Certain trusts.--Subparagraph (A) of section 4947(a)(2) 
        is amended by inserting ``642(c),'' after ``170(f)(2)(B),''.
            (5) Other amendments.--
                    (A) Section 1246 is amended by striking subsection 
                (e).
                    (B) Subsection (e) of section 1291 is amended--
                            (i) by striking ``(e),''; and
                            (ii) by striking ``; except that'' and all 
                        that follows and inserting a period.
                    (C) Section 1296 is amended by striking subsection 
                (i).
            (6) Clerical amendment.--The table of sections for part II 
        of subchapter O of chapter 1 is amended by inserting after the 
        item relating to section 1021 the following new item:

                              ``Sec. 1022. Treatment of property 
                                        acquired from a decedent dying 
                                        after December 31, 2010.''.
    (g) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to estates of 
        decedents dying after December 31, 2010.
            (2) Purported gifts, etc.--The amendments made by 
        subsections (e) and (f)(1) shall apply to transfers after 
        December 31, 2010.
            (3) Section 4947.--The amendment made by subsection (f)(4) 
        shall apply to deductions for taxable years beginning after 
        December 31, 2010.
    (h) Study.--The Secretary of the Treasury or the Secretary's 
delegate shall conduct a study of--
            (1) opportunities for avoidance of the income tax, if any; 
        and
            (2) potential increases in income tax revenues,
by reason of the enactment of this Act. The study shall be submitted to 
the Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate not later than December 31, 2002.

                    TITLE V--CONSERVATION EASEMENTS

SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

    (a) Where Land Is Located.--Clause (i) of section 2031(c)(8)(A) 
(defining land subject to a conservation easement) is amended--
            (1) by striking ``25 miles'' each place it appears and 
        inserting ``50 miles''; and
            (2) striking ``10 miles'' and inserting ``25 miles''.
    (b) Clarification of Date for Determining Value of Land and 
Easement.--Section 2031(c)(2) (defining applicable percentage) is 
amended by adding at the end the following new sentence: ``The values 
taken into account under the preceding sentence shall be such values as 
of the date of the contribution referred to in paragraph (8)(B).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 2000.

      TITLE VI--MODIFICATIONS OF GENERATION-SKIPPING TRANSFER TAX

SEC. 601. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO 
              TRUSTS; RETROACTIVE ALLOCATIONS.

    (a) In General.--Section 2632 (relating to special rules for 
allocation of GST exemption) is amended by redesignating subsection (c) 
as subsection (e) and by inserting after subsection (b) the following 
new subsections:
    ``(c) Deemed Allocation to Certain Lifetime Transfers to GST 
Trusts.--
            ``(1) In general.--If any individual makes an indirect skip 
        during such individual's lifetime, any unused portion of such 
        individual's GST exemption shall be allocated to the property 
        transferred to the extent necessary to make the inclusion ratio 
        for such property zero. If the amount of the indirect skip 
        exceeds such unused portion, the entire unused portion shall be 
        allocated to the property transferred.
            ``(2) Unused portion.--For purposes of paragraph (1), the 
        unused portion of an individual's GST exemption is that portion 
        of such exemption which has not previously been--
                    ``(A) allocated by such individual,
                    ``(B) treated as allocated under subsection (b) 
                with respect to a direct skip occurring during or 
                before the calendar year in which the indirect skip is 
                made, or
                    ``(C) treated as allocated under paragraph (1) with 
                respect to a prior indirect skip.
            ``(3) Definitions.--
                    ``(A) Indirect skip.--For purposes of this 
                subsection, the term `indirect skip' means any transfer 
                of property (other than a direct skip) subject to the 
                tax imposed by chapter 12 made to a GST trust.
                    ``(B) GST trust.--The term `GST trust' means a 
                trust that could have a generation-skipping transfer 
                with respect to the transferor unless--
                            ``(i) the trust instrument provides that 
                        more than 25 percent of the trust corpus must 
                        be distributed to or may be withdrawn by one or 
                        more individuals who are non-skip persons--
                                    ``(I) before the date that the 
                                individual attains age 46,
                                    ``(II) on or before one or more 
                                dates specified in the trust instrument 
                                that will occur before the date that 
                                such individual attains age 46, or
                                    ``(III) upon the occurrence of an 
                                event that, in accordance with 
                                regulations prescribed by the 
                                Secretary, may reasonably be expected 
                                to occur before the date that such 
                                individual attains age 46,
                            ``(ii) the trust instrument provides that 
                        more than 25 percent of the trust corpus must 
                        be distributed to or may be withdrawn by one or 
                        more individuals who are non-skip persons and 
                        who are living on the date of death of another 
                        person identified in the instrument (by name or 
                        by class) who is more than 10 years older than 
                        such individuals,
                            ``(iii) the trust instrument provides that, 
                        if one or more individuals who are non-skip 
                        persons die on or before a date or event 
                        described in clause (i) or (ii), more than 25 
                        percent of the trust corpus either must be 
                        distributed to the estate or estates of one or 
                        more of such individuals or is subject to a 
                        general power of appointment exercisable by one 
                        or more of such individuals,
                            ``(iv) the trust is a trust any portion of 
                        which would be included in the gross estate of 
                        a non-skip person (other than the transferor) 
                        if such person died immediately after the 
                        transfer,
                            ``(v) the trust is a charitable lead 
                        annuity trust (within the meaning of section 
                        2642(e)(3)(A)) or a charitable remainder 
                        annuity trust or a charitable remainder 
                        unitrust (within the meaning of section 
                        664(d)), or
                            ``(vi) the trust is a trust with respect to 
                        which a deduction was allowed under section 
                        2522 for the amount of an interest in the form 
                        of the right to receive annual payments of a 
                        fixed percentage of the net fair market value 
                        of the trust property (determined yearly) and 
                        which is required to pay principal to a non-
                        skip person if such person is alive when the 
                        yearly payments for which the deduction was 
                        allowed terminate.
                For purposes of this subparagraph, the value of 
                transferred property shall not be considered to be 
                includible in the gross estate of a non-skip person or 
                subject to a right of withdrawal by reason of such 
                person holding a right to withdraw so much of such 
                property as does not exceed the amount referred to in 
                section 2503(b) with respect to any transferor, and it 
                shall be assumed that powers of appointment held by 
                non-skip persons will not be exercised.
            ``(4) Automatic allocations to certain gst trusts.--For 
        purposes of this subsection, an indirect skip to which section 
        2642(f) applies shall be deemed to have been made only at the 
        close of the estate tax inclusion period. The fair market value 
        of such transfer shall be the fair market value of the trust 
        property at the close of the estate tax inclusion period.
            ``(5) Applicability and effect.--
                    ``(A) In general.--An individual--
                            ``(i) may elect to have this subsection not 
                        apply to--
                                    ``(I) an indirect skip, or
                                    ``(II) any or all transfers made by 
                                such individual to a particular trust, 
                                and
                            ``(ii) may elect to treat any trust as a 
                        GST trust for purposes of this subsection with 
                        respect to any or all transfers made by such 
                        individual to such trust.
                    ``(B) Elections.--
                            ``(i) Elections with respect to indirect 
                        skips.--An election under subparagraph 
                        (A)(i)(I) shall be deemed to be timely if filed 
                        on a timely filed gift tax return for the 
                        calendar year in which the transfer was made or 
                        deemed to have been made pursuant to paragraph 
                        (4) or on such later date or dates as may be 
                        prescribed by the Secretary.
                            ``(ii) Other elections.--An election under 
                        clause (i)(II) or (ii) of subparagraph (A) may 
                        be made on a timely filed gift tax return for 
                        the calendar year for which the election is to 
                        become effective.
    ``(d) Retroactive Allocations.--
            ``(1) In general.--If--
                    ``(A) a non-skip person has an interest or a future 
                interest in a trust to which any transfer has been 
                made,
                    ``(B) such person--
                            ``(i) is a lineal descendant of a 
                        grandparent of the transferor or of a 
                        grandparent of the transferor's spouse or 
                        former spouse, and
                            ``(ii) is assigned to a generation below 
                        the generation assignment of the transferor, 
                        and
                    ``(C) such person predeceases the transferor,
        then the transferor may make an allocation of any of such 
        transferor's unused GST exemption to any previous transfer or 
        transfers to the trust on a chronological basis.
            ``(2) Special rules.--If the allocation under paragraph (1) 
        by the transferor is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for gifts made 
        within the calendar year within which the non-skip person's 
        death occurred--
                    ``(A) the value of such transfer or transfers for 
                purposes of section 2642(a) shall be determined as if 
                such allocation had been made on a timely filed gift 
                tax return for each calendar year within which each 
                transfer was made,
                    ``(B) such allocation shall be effective 
                immediately before such death, and
                    ``(C) the amount of the transferor's unused GST 
                exemption available to be allocated shall be determined 
                immediately before such death.
            ``(3) Future interest.--For purposes of this subsection, a 
        person has a future interest in a trust if the trust may permit 
        income or corpus to be paid to such person on a date or dates 
        in the future.''.
    (b) Conforming Amendment.--Paragraph (2) of section 2632(b) is 
amended by striking ``with respect to a prior direct skip'' and 
inserting ``or subsection (c)(1)''.
    (c) Effective Dates.--
            (1) Deemed allocation.--Section 2632(c) of the Internal 
        Revenue Code of 1986 (as added by subsection (a)), and the 
        amendment made by subsection (b), shall apply to transfers 
        subject to chapter 11 or 12 made after December 31, 2000, and 
        to estate tax inclusion periods ending after December 31, 2000.
            (2) Retroactive allocations.--Section 2632(d) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        shall apply to deaths of non-skip persons occurring after 
        December 31, 2000.

SEC. 602. SEVERING OF TRUSTS.

    (a) In General.--Subsection (a) of section 2642 (relating to 
inclusion ratio) is amended by adding at the end the following new 
paragraph:
            ``(3) Severing of trusts.--
                    ``(A) In general.--If a trust is severed in a 
                qualified severance, the trusts resulting from such 
                severance shall be treated as separate trusts 
                thereafter for purposes of this chapter.
                    ``(B) Qualified severance.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The term `qualified 
                        severance' means the division of a single trust 
                        and the creation (by any means available under 
                        the governing instrument or under local law) of 
                        two or more trusts if--
                                    ``(I) the single trust was divided 
                                on a fractional basis, and
                                    ``(II) the terms of the new trusts, 
                                in the aggregate, provide for the same 
                                succession of interests of 
                                beneficiaries as are provided in the 
                                original trust.
                            ``(ii) Trusts with inclusion ratio greater 
                        than zero.--If a trust has an inclusion ratio 
                        of greater than zero and less than 1, a 
                        severance is a qualified severance only if the 
                        single trust is divided into two trusts, one of 
                        which receives a fractional share of the total 
                        value of all trust assets equal to the 
                        applicable fraction of the single trust 
                        immediately before the severance. In such case, 
                        the trust receiving such fractional share shall 
                        have an inclusion ratio of zero and the other 
                        trust shall have an inclusion ratio of 1.
                            ``(iii) Regulations.--The term `qualified 
                        severance' includes any other severance 
                        permitted under regulations prescribed by the 
                        Secretary.
                    ``(C) Timing and manner of severances.--A severance 
                pursuant to this paragraph may be made at any time. The 
                Secretary shall prescribe by forms or regulations the 
                manner in which the qualified severance shall be 
                reported to the Secretary.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to severances after December 31, 2000.

SEC. 603. MODIFICATION OF CERTAIN VALUATION RULES.

    (a) Gifts for Which Gift Tax Return Filed or Deemed Allocation 
Made.--Paragraph (1) of section 2642(b) (relating to valuation rules, 
etc.) is amended to read as follows:
            ``(1) Gifts for which gift tax return filed or deemed 
        allocation made.--If the allocation of the GST exemption to any 
        transfers of property is made on a gift tax return filed on or 
        before the date prescribed by section 6075(b) for such transfer 
        or is deemed to be made under section 2632 (b)(1) or (c)(1)--
                    ``(A) the value of such property for purposes of 
                subsection (a) shall be its value as finally determined 
                for purposes of chapter 12 (within the meaning of 
                section 2001(f)(2)), or, in the case of an allocation 
                deemed to have been made at the close of an estate tax 
                inclusion period, its value at the time of the close of 
                the estate tax inclusion period, and
                    ``(B) such allocation shall be effective on and 
                after the date of such transfer, or, in the case of an 
                allocation deemed to have been made at the close of an 
                estate tax inclusion period, on and after the close of 
                such estate tax inclusion period.''.
    (b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is 
amended to read as follows:
                    ``(A) Transfers at death.--If property is 
                transferred as a result of the death of the transferor, 
                the value of such property for purposes of subsection 
                (a) shall be its value as finally determined for 
                purposes of chapter 11; except that, if the 
                requirements prescribed by the Secretary respecting 
                allocation of post-death changes in value are not met, 
                the value of such property shall be determined as of 
                the time of the distribution concerned.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers subject to chapter 11 or 12 of the Internal Revenue 
Code of 1986 made after December 31, 2000.

SEC. 604. RELIEF PROVISIONS.

    (a) In General.--Section 2642 is amended by adding at the end the 
following new subsection:
    ``(g) Relief Provisions.--
            ``(1) Relief from late elections.--
                    ``(A) In general.--The Secretary shall by 
                regulation prescribe such circumstances and procedures 
                under which extensions of time will be granted to 
                make--
                            ``(i) an allocation of GST exemption 
                        described in paragraph (1) or (2) of subsection 
                        (b), and
                            ``(ii) an election under subsection (b)(3) 
                        or (c)(5) of section 2632.
                Such regulations shall include procedures for 
                requesting comparable relief with respect to transfers 
                made before the date of the enactment of this 
                paragraph.
                    ``(B) Basis for determinations.--In determining 
                whether to grant relief under this paragraph, the 
                Secretary shall take into account all relevant 
                circumstances, including evidence of intent contained 
                in the trust instrument or instrument of transfer and 
                such other factors as the Secretary deems relevant. For 
                purposes of determining whether to grant relief under 
                this paragraph, the time for making the allocation (or 
                election) shall be treated as if not expressly 
                prescribed by statute.
            ``(2) Substantial compliance.--An allocation of GST 
        exemption under section 2632 that demonstrates an intent to 
        have the lowest possible inclusion ratio with respect to a 
        transfer or a trust shall be deemed to be an allocation of so 
        much of the transferor's unused GST exemption as produces the 
        lowest possible inclusion ratio. In determining whether there 
        has been substantial compliance, all relevant circumstances 
        shall be taken into account, including evidence of intent 
        contained in the trust instrument or instrument of transfer and 
        such other factors as the Secretary deems relevant.''.
    (b) Effective Dates.--
            (1) Relief from late elections.--Section 2642(g)(1) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        shall apply to requests pending on, or filed after, December 
        31, 2000.
            (2) Substantial compliance.--Section 2642(g)(2) of such 
        Code (as so added) shall apply to transfers subject to chapter 
        11 or 12 of the Internal Revenue Code of 1986 made after 
        December 31, 2000. No implication is intended with respect to 
        the availability of relief from late elections or the 
        application of a rule of substantial compliance on or before 
        such date.

         TITLE VII--EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX

SEC. 701. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND SHAREHOLDERS IN 
              CLOSELY HELD BUSINESSES.

    (a) In General.--Paragraphs (1)(B)(ii), (1)(C)(ii), and 
(9)(B)(iii)(I) of section 6166(b) (relating to definitions and special 
rules) are each amended by striking ``15'' and inserting ``45''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after 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-year period, and for other purposes.
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