I 

109TH CONGRESS 

2D SESSION H. R. 5638 

To amend the Internal Revenue Code of 1986 to increase the unified credit 

against the estate tax to an exclusion equivalent of $5,000,000 and 

to repeal the sunset provision for the estate and generation-skipping 

taxes, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

JUNE 19, 2006 

Mr. THOMAS (for himself, Mr. HULSHOF, and Mr. CRAMER) introduced the 

following bill; which was referred to the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to increase 

the unified credit against the estate tax to an exclusion 

equivalent of $5,000,000 and to repeal the sunset provision for the estate and generation-skipping taxes, and 

for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Permanent Estate Tax 

5 Relief Act of 2006’’. 
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1 SEC. 2. REFORM AND EXTENSION OF ESTATE TAX AFTER 

2 2009. 

3 (a) RESTORATION OF UNIFIED CREDIT AGAINST

4 GIFT TAX.—Paragraph (1) of section 2505(a) of the In5 ternal Revenue Code of 1986 (relating to general rule for 

6 unified credit against gift tax), after the application of 

7 subsection (g), is amended by striking ‘‘(determined as if 

8 the applicable exclusion amount were $1,000,000)’’. 

9 (b) EXCLUSION EQUIVALENT OF UNIFIED CREDIT

10 EQUAL TO $5,000,000.—Subsection (c) of section 2010 

11 of such Code (relating to unified credit against estate tax) 

12 is amended to read as follows: 

13 ‘‘(c) APPLICABLE CREDIT AMOUNT.— 

14 ‘‘(1) IN GENERAL.—For purposes of this sec15 tion, the applicable credit amount is the amount of 

16 the tentative tax which would be determined under 

17 the rate schedule set forth in section 2001(c) if the 

18 amount with respect to which such tentative tax is 

19 to be computed were the applicable exclusion 

20 amount. 

21 ‘‘(2) APPLICABLE EXCLUSION AMOUNT.—For 

22 purposes of this subsection, the applicable exclusion 

23 amount is $5,000,000.’’. 

24 (c) RATE SCHEDULE.— 
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1 (1) IN GENERAL.—Subsection (c) of section 

2 2001 of such Code (relating to rate schedule) is 

3 amended to read as follows: 

4 ‘‘(c) RATE SCHEDULE.—The tentative tax is equal 

5 to the sum of— 

6 ‘‘(1) the product of the rate specified in section 

7 1(h)(1)(C) in effect on the date of the decedent’s 

8 death multiplied by so much of the sum described in 

9 subsection (b)(1) as does not exceed $25,000,000, 

10 and 

11 ‘‘(2) the product of twice the rate specified in 

12 section 1(h)(1)(C) in effect on the date of the dece13 dent’s death multiplied by so much of the sum de14 scribed in subsection (b)(1) as equals or exceeds 

15 $25,000,000.’’. 

16 (2) CONFORMING AMENDMENT.—Section 

17 2502(a) of such Code (relating computation of tax), 

18 after the application of subsection (g), is amended 

19 by adding at the end the following flush sentence: 

20 ‘‘In computing the tentative tax under section 2001(c) for 

21 purposes of this subsection, ‘the last day of the calendar 

22 year in which the gift was made’ shall be substituted for 

23 ‘the date of the decedent’s death’ each place it appears 

24 in such section.’’. 
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1 (d) MODIFICATIONS OF ESTATE AND GIFT TAXES TO

2 REFLECT DIFFERENCES IN UNIFIED CREDIT RESULTING

3 FROM DIFFERENT TAX RATES.— 

4 (1) ESTATE TAX.— 

5 (A) IN GENERAL.—Section 2001(b)(2) of 

6 such Code (relating to computation of tax) is 

7 amended by striking ‘‘if the provisions of sub8 section (c) (as in effect at the decedent’s 

9 death)’’ and inserting ‘‘if the modifications de10 scribed in subsection (g)’’. 

11 (B) MODIFICATIONS.—Section 2001 of 

12 such Code is amended by adding at the end the 

13 following new subsection: 

14 ‘‘(g) MODIFICATIONS TO GIFT TAX PAYABLE TO RE15 FLECT DIFFERENT TAX RATES.—For purposes of apply16 ing subsection (b)(2) with respect to 1 or more gifts, the 

17 rates of tax under subsection (c) in effect at the decedent’s 

18 death shall, in lieu of the rates of tax in effect at the time 

19 of such gifts, be used both to compute— 

20 ‘‘(1) the tax imposed by chapter 12 with respect 

21 to such gifts, and 

22 ‘‘(2) the credit allowed against such tax under 

23 section 2505, including in computing— 

24 ‘‘(A) the applicable credit amount under 

25 section 2505(a)(1), and 
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1 ‘‘(B) the sum of the amounts allowed as a 

2 credit for all preceding periods under section 

3 2505(a)(2). 

4 For purposes of paragraph (2)(A), the applicable 

5 credit amount for any calendar year before 1998 is 

6 the amount which would be determined under sec7 tion 2010(c) if the applicable exclusion amount were 

8 the dollar amount under section 6018(a)(1) for such 

9 year.’’. 

10 (2) GIFT TAX.—Section 2505(a) of such Code 

11 (relating to unified credit against gift tax), after the 

12 application of subsection (g), is amended by adding 

13 at the end the following new flush sentence: 

14 ‘‘For purposes of applying paragraph (2) for any calendar 

15 year, the rates of tax used in computing the tax under 

16 section 2502(a)(2) for such calendar year shall, in lieu of 

17 the rates of tax in effect for preceding calendar periods, 

18 be used in determining the amounts allowable as a credit 

19 under this section for all preceding calendar periods.’’. 

20 (e) REPEAL OF DEDUCTION FOR STATE DEATH

21 TAXES.— 

22 (1) IN GENERAL.—Section 2058 of such Code 

23 (relating to State death taxes) is amended by adding 

24 at the end the following: 
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1 ‘‘(c) TERMINATION.—This section shall not apply to 

2 the estates of decedents dying after December 31, 2009.’’. 

3 (2) CONFORMING AMENDMENT.—Section 

4 2106(a)(4) of such Code is amended by adding at 

5 the end the following new sentence: ‘‘This paragraph 

6 shall not apply to the estates of decedents dying 

7 after December 31, 2009.’’. 

8 (f) EFFECTIVE DATE.—The amendments made by 

9 this section shall apply to estates of decedents dying, gen10 eration-skipping transfers, and gifts made, after Decem11 ber 31, 2009. 

12 (g) ADDITIONAL MODIFICATIONS TO ESTATE TAX.— 

13 (1) IN GENERAL.—The following provisions of 

14 the Economic Growth and Tax Relief Reconciliation 

15 Act of 2001, and the amendments made by such 

16 provisions, are hereby repealed: 

17 (A) Subtitles A and E of title V. 

18 (B) Subsection (d), and so much of sub19 section (f)(3) as relates to subsection (d), of 

20 section 511. 

21 (C) Paragraph (2) of subsection (b), and 

22 paragraph (2) of subsection (e), of section 521. 

23 The Internal Revenue Code of 1986 shall be applied 

24 as if such provisions and amendments had never 

25 been enacted. 
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1 (2) SUNSET NOT TO APPLY TO TITLE V OF

2 EGTRRA.—Section 901 of the Economic Growth and 

3 Tax Relief Reconciliation Act of 2001 shall not 

4 apply to title V of such Act. 

5 (3) REPEAL OF DEADWOOD.— 

6 (A) Sections 2011, 2057, and 2604 of the 

7 Internal Revenue Code of 1986 are hereby re8 pealed. 

9 (B) The table of sections for part II of 

10 subchapter A of chapter 11 of such Code is 

11 amended by striking the item relating to section 

12 2011. 

13 (C) The table of sections for part IV of 

14 subchapter A of chapter 11 of such Code is 

15 amended by striking the item relating to section 

16 2057. 

17 (D) The table of sections for subchapter A 

18 of chapter 13 of such Code is amended by strik19 ing the item relating to section 2604. 

20 SEC. 3. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED 

21 CREDIT OF DECEASED SPOUSE. 

22 (a) IN GENERAL.—Subsection (c) of section 2010 of 

23 the Internal Revenue Code of 1986 (defining applicable 

24 credit amount), as amended by section 2(b), is amended 
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1 by striking paragraph (2) and inserting the following new 

2 paragraphs: 

3 ‘‘(2) APPLICABLE EXCLUSION AMOUNT.—For 

4 purposes of this subsection, the applicable exclusion 

5 amount is the sum of— 

6 ‘‘(A) the basic exclusion amount, and 

7 ‘‘(B) in the case of a surviving spouse, the 

8 aggregate deceased spousal unused exclusion 

9 amount. 

10 ‘‘(3) BASIC EXCLUSION AMOUNT.—For pur11 poses of this subsection, the basic exclusion amount 

12 is $5,000,000. 

13 ‘‘(4) AGGREGATE DECEASED SPOUSAL UNUSED

14 EXCLUSION AMOUNT.—For purposes of this sub15 section, the term ‘aggregate deceased spousal unused 

16 exclusion amount’ means the lesser of— 

17 ‘‘(A) the basic exclusion amount, or 

18 ‘‘(B) the sum of the deceased spousal un19 used exclusion amounts of the surviving spouse. 

20 ‘‘(5) DECEASED SPOUSAL UNUSED EXCLUSION

21 AMOUNT.—For purposes of this subsection, the term 

22 ‘deceased spousal unused exclusion amount’ means, 

23 with respect to the surviving spouse of any deceased 

24 spouse dying after December 31, 2009, the excess (if 

25 any) of— 
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1 ‘‘(A) the applicable exclusion amount of 

2 the deceased spouse, over 

3 ‘‘(B) the amount with respect to which the 

4 tentative tax is determined under section 

5 2001(b)(1) on the estate of such deceased 

6 spouse. 

7 ‘‘(6) SPECIAL RULES.— 

8 ‘‘(A) ELECTION REQUIRED.—A deceased 

9 spousal unused exclusion amount may not be 

10 taken into account by a surviving spouse under 

11 paragraph (5) unless the executor of the estate 

12 of the deceased spouse files an estate tax return 

13 on which such amount is computed and makes 

14 an election on such return that such amount 

15 may be so taken into account. Such election, 

16 once made, shall be irrevocable. No election 

17 may be made under this subparagraph if such 

18 return is filed after the time prescribed by law 

19 (including extensions) for filing such return. 

20 ‘‘(B) EXAMINATION OF PRIOR RETURNS

21 AFTER EXPIRATION OF PERIOD OF LIMITATIONS

22 WITH RESPECT TO DECEASED SPOUSAL UN23 USED EXCLUSION AMOUNT.—Notwithstanding 

24 any period of limitation in section 6501, after 

25 the time has expired under section 6501 within 
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1 which a tax may be assessed under chapter 11 

2 or 12 with respect to a deceased spousal unused 

3 exclusion amount, the Secretary may examine a 

4 return of the deceased spouse to make deter5 minations with respect to such amount for pur6 poses of carrying out this subsection. 

7 ‘‘(7) REGULATIONS.—The Secretary shall pre8 scribe such regulations as may be necessary or ap9 propriate to carry out this subsection.’’. 

10 (b) CONFORMING AMENDMENTS.— 

11 (1) Paragraph (1) of section 2505(a) of such 

12 Code, as amended by section 2, is amended to read 

13 as follows: 

14 ‘‘(1) the applicable credit amount under section 

15 2010(c) which would apply if the donor died as of 

16 the end of the calendar year, reduced by’’. 

17 (2) Section 6018(a)(1) of such Code, after the 

18 application of section 2(g), is amended by striking 

19 ‘‘applicable exclusion amount’’ and inserting ‘‘basic 

20 exclusion amount’’. 

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

22 this section shall apply to estates of decedents dying, gen23 eration-skipping transfers, and gifts made, after Decem24 ber 31, 2009. 
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1 SEC. 4. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

2 (a) IN GENERAL.—Part I of subchapter P of chapter 

3 1 of the Internal Revenue Code of 1986 is amended by 

4 adding at the end the following new section: 

5 ‘‘SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

6 ‘‘(a) IN GENERAL.—In the case of a taxpayer which 

7 elects the application of this section for a taxable year, 

8 there shall be allowed a deduction against gross income 

9 equal to 60 percent of the lesser of— 

10 ‘‘(1) the taxpayer’s qualified timber gain for 

11 such year, or 

12 ‘‘(2) the taxpayer’s net capital gain for such 

13 year. 

14 ‘‘(b) QUALIFIED TIMBER GAIN.—For purposes of 

15 this section, the term ‘qualified timber gain’ means, with 

16 respect to any taxpayer for any taxable year, the excess 

17 (if any) of— 

18 ‘‘(1) the sum of the taxpayer’s gains described 

19 in subsections (a) and (b) of section 631 for such 

20 year, over 

21 ‘‘(2) the sum of the taxpayer’s losses described 

22 in such subsections for such year. 

23 ‘‘(c) SPECIAL RULES FOR PASS-THRU ENTITIES.— 

24 In the case of any qualified timber gain of a pass-thru 

25 entity (as defined in section 1(h)(10))— 
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1 ‘‘(1) the election under this section shall be 

2 made separately by each taxpayer subject to tax on 

3 such gain, and 

4 ‘‘(2) the Secretary may prescribe such regula5 tions as are appropriate to apply this section to such 

6 gain. 

7 ‘‘(d) TERMINATION.—No disposition of timber after 

8 December 31, 2008, shall be taken into account under 

9 subsection (b).’’. 

10 (b) COORDINATION WITH MAXIMUM CAPITAL GAINS

11 RATES.— 

12 (1) TAXPAYERS OTHER THAN CORPORA13 TIONS.—Paragraph (2) of section 1(h) of such Code 

14 is amended to read as follows: 

15 ‘‘(2) REDUCTION OF NET CAPITAL GAIN.—For 

16 purposes of this subsection, the net capital gain for 

17 any taxable year shall be reduced (but not below 

18 zero) by the sum of— 

19 ‘‘(A) the amount which the taxpayer takes 

20 into account as investment income under sec21 tion 163(d)(4)(B)(iii), and 

22 ‘‘(B) in the case of a taxable year with re23 spect to which an election is in effect under sec24 tion 1203, the lesser of— 
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1 ‘‘(i) the amount described in para2 graph (1) of section 1203(a), or 

3 ‘‘(ii) the amount described in para4 graph (2) of such section.’’. 

5 (2) CORPORATIONS.—Section 1201 of such 

6 Code is amended by redesignating subsection (b) as 

7 subsection (c) and inserting after subsection (a) the 

8 following new subsection: 

9 ‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO AC10 COUNT.—For purposes of this section, in the case of a 

11 corporation with respect to which an election is in effect 

12 under section 1203, the net capital gain for any taxable 

13 year shall be reduced (but not below zero) by the corpora14 tion’s qualified timber gain (as defined in section 

15 1203(b)).’’. 

16 (c) DEDUCTION ALLOWED WHETHER OR NOT INDI17 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

18 of section 62 of such Code is amended by inserting before 

19 the last sentence the following new paragraph: 

20 ‘‘(21) QUALIFIED TIMBER GAINS.—The deduc21 tion allowed by section 1203.’’. 

22 (d) DEDUCTION ALLOWED IN COMPUTING AD23 JUSTED CURRENT EARNINGS.—Subparagraph (C) of sec24 tion 56(g)(4) of such Code is amended by adding at the 

25 end the following new clause: 
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1 ‘‘(vii) DEDUCTION FOR QUALIFIED

2 TIMBER GAIN.—Clause (i) shall not apply 

3 to any deduction allowed under section 

4 1203.’’. 

5 (e) DEDUCTION ALLOWED IN COMPUTING TAXABLE

6 INCOME OF ELECTING SMALL BUSINESS TRUSTS.—Sub7 paragraph (C) of section 641(c)(2) of such Code is amend8 ed by inserting after clause (iii) the following new clause: 

9 ‘‘(iv) The deduction allowed under 

10 section 1203.’’. 

11 (f) CONFORMING AMENDMENTS.— 

12 (1) Subparagraph (B) of section 172(d)(2) of 

13 such Code is amended to read as follows: 

14 ‘‘(B) the exclusion under section 1202 and 

15 the deduction under section 1203 shall not be 

16 allowed.’’. 

17 (2) Paragraph (4) of section 642(c) of such 

18 Code is amended by striking the first sentence and 

19 inserting the following: ‘‘To the extent that the 

20 amount otherwise allowable as a deduction under 

21 this subsection consists of gain described in section 

22 1202(a) or qualified timber gain (as defined in sec23 tion 1203(b)), proper adjustment shall be made for 

24 any exclusion allowable to the estate or trust under 
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1 section 1202 and for any deduction allowable to the 

2 estate or trust under section 1203.’’. 

3 (3) Paragraph (3) of section 643(a) of such 

4 Code is amended by striking the last sentence and 

5 inserting the following: ‘‘The exclusion under section 

6 1202 and the deduction under section 1203 shall not 

7 be taken into account.’’. 

8 (4) Subparagraph (C) of section 643(a)(6) of 

9 such Code is amended to read as follows: 

10 ‘‘(C) Paragraph (3) shall not apply to a 

11 foreign trust. In the case of such a trust— 

12 ‘‘(i) there shall be included gains from 

13 the sale or exchange of capital assets, re14 duced by losses from such sales or ex15 changes to the extent such losses do not 

16 exceed gains from such sales or exchanges, 

17 and 

18 ‘‘(ii) the deduction under section 1203 

19 shall not be taken into account.’’. 

20 (5) Paragraph (4) of section 691(c) of such 

21 Code is amended by inserting ‘‘1203,’’ after 

22 ‘‘1202,’’. 

23 (6) Paragraph (2) of section 871(a) of such 

24 Code is amended by striking ‘‘section 1202’’ and in25 serting ‘‘sections 1202 and 1203’’. 
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1 (7) The table of sections for part I of sub2 chapter P of chapter 1 of such Code is amended by 

3 adding at the end the following new item: 

‘‘Sec. 1203. Deduction for qualified timber gain.’’. 

4 (g) EFFECTIVE DATE.— 

5 (1) IN GENERAL.—The amendments made by 

6 this section shall apply to taxable years ending after 

7 the date of the enactment of this Act. 

8 (2) TAXABLE YEARS WHICH INCLUDE DATE OF

9 ENACTMENT.—In the case of any taxable year which 

10 includes the date of the enactment of this Act, for 

11 purposes of the Internal Revenue Code of 1986, the 

12 taxpayer’s qualified timber gain shall not exceed the 

13 excess that would be described in section 1203(b) of 

14 such Code, as added by this section, if only disposi15 tions of timber after such date were taken into ac16 count. 

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