99–008

107TH CONGRESS REPORT " HOUSE OF REPRESENTATIVES ! 2d Session 107–494

PROVIDING FOR CONSIDERATION OF H.R. 2143, 

PERMANENT DEATH TAX REPEAL ACT OF 2001

JUNE 5, 2002.—Referred to the House Calendar and ordered to be printed 

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

submitted the following 

R E P O R T 

[To accompany H. Res. 435]

The Committee on Rules, having had under consideration House 

Resolution 435, by a nonrecord vote, report the same to the House 

with the recommendation that the resolution be adopted. 

SUMMARY OF PROVISIONS OF THE RESOLUTION

The resolution provides for consideration in the House of H.R. 

2143, the Permanent Death Tax Repeal Act of 2001, under a modified closed rule. The rule provides one hour of debate equally divided and controlled by the chairman and ranking minority member of the Committee on Ways and Means. 

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

shall be separately debatable for one hour equally divided and controlled by the proponent and an opponent. The rule waives all 

points of order against the amendment in the nature of a substitute. Finally, the rule provides one motion to recommit with or 

without instructions. 

SUMMARY OF AMENDMENT MADE IN ORDER UNDER THE RULE

Rangel/Pomeroy/Thurman: 

Democratic Substitute. The substitute would immediately eliminate the estate tax for most estates. It would do so by increasing 

the estate tax exclusion to $3 million, effective January 1, 2003. 

It would offset the cost of increasing the exclusion by freezing existing estate tax rates, eliminating the ability to claim valuation 

discounts by holding property through partnerships, and restoring 

the prior law phase out of the benefit of the graduated rates and 

exclusion. 

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In addition, the substitute would repeal the carryover basis rules 

contained in last year’s tax bill. By doing this the substitute would 

continue the favorable current law step-up in basis rules that 

eliminate capital gains taxes on increases in value before death. 

TEXT OF AMENDMENT MADE IN ORDER UNDER THE RULE

Strike all after the enacting clause and insert the following: 

SECTION 1. RESTORATION OF ESTATE TAX; REPEAL OF CARRYOVER 

BASIS. 

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

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

amendments, had never been enacted. 

(b) SUNSET NOT TO APPLY.—

(1) Subsection (a) of section 901 of the Economic Growth and 

Tax Relief Reconciliation Act of 2001 is amended by striking 

‘‘this Act’’ and all that follows and inserting ‘‘this Act (other 

than title V) shall not apply to taxable, plan, or limitation 

years beginning after December 31, 2010.’’. 

(2) Subsection (b) of such section 901 is amended by striking 

‘‘, estates, gifts, and transfers’’. 

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

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

SEC. 2. MODIFICATIONS TO ESTATE TAX. 

(a) INCREASE IN EXCLUSION EQUIVALENT OF UNIFIED CREDIT TO

$3,000,000.—

(1) IN GENERAL.—Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (relating to applicable credit 

amount) is amended by striking all that follows ‘‘the applicable 

exclusion amount’’ and inserting ‘‘. For purposes of the preceding sentence, the applicable exclusion amount is 

$3,000,000.’’. 

(2) EARLIER TERMINATION OF SECTION 2057.—Subsection (f) of 

section 2057 of such Code is amended by striking ‘‘December 

31, 2003’’ and inserting ‘‘December 31, 2002’’. 

(b) MAXIMUM ESTATE TAX RATE TO REMAIN AT 50 PERCENT; RES- TORATION OF PHASEOUT OF GRADUATED RATES AND UNIFIED CRED- IT.—Paragraph (2) of section 2001(c) of such Code is amended to 

read as follows: 

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

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

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

under the preceding sentence shall not exceed the sum of the 

applicable credit amount under section 2010(c) and $224,200.’’

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

shall apply to estates of decedents dying, and gifts made, after December 31, 2002. 

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SEC. 3. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; LIMITATION ON MINORITY DISCOUNTS. 

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

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

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

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

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

in an entity other than an interest which is actively traded 

(within the meaning of section 1092)—

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

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

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

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

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

more trades or businesses. 

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

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

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

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

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

such property, or 

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

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

the transferor materially participates and with respect 

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

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

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

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

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

trade or business. 

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

term ‘passive asset’ means any—

‘‘(A) cash or cash equivalents, 

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

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

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

contract, notional principal contract, or derivative, 

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

351(e)(1)(B), 

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‘‘(E) annuity,

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

or businesses (as defined in section 469(c)(7)(C)), ‘‘(G) asset (other than a patent, trademark, or copyright) 

which produces royalty income, ‘‘(H) commodity, 

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

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

by the Secretary. ‘‘(4) LOOK-THRU RULES.— ‘‘(A) IN GENERAL.—If a nonbusiness asset of an entity 

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

subsection shall be applied by disregarding the 10-percent 

interest and by treating the entity as holding directly its 

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

interest of such other entity in any other entity. ‘‘(B) 10-PERCENT INTEREST.—The term ‘10-percent interest’ means— ‘‘(i) in the case of an interest in a corporation, ownership of at least 10 percent (by vote or value) of the 

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

interest in the partnership, and ‘‘(iii) in any other case, ownership of at least 10 percent of the beneficial interests in the entity. ‘‘(5) COORDINATION WITH SUBSECTION (b).—Subsection (b) 

shall apply after the application of this subsection. ‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For purposes of this 

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

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

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

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

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

Amend the title so as to read: ‘‘A bill to amend the Internal Revenue Code of 1986 to restore the estate tax, to limit its applicability 

to estates of over $3,000,000, and for other purposes.’’

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