II 

Calendar No. 496 

109TH CONGRESS 

2D SESSION H. R. 5638 

IN THE SENATE OF THE UNITED STATES 

JUNE 23, 2006 

Read the first time 

JUNE 26, 2006 

Read the second time and placed on the calendar 

AN ACT 

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.— 

22 ‘‘(A) IN GENERAL.—For purposes of this 

23 subsection, the applicable exclusion amount is 

24 $5,000,000. 

25 ‘‘(B) INFLATION ADJUSTMENT.—In the 

26 case of any decedent dying in a calendar year 


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1 after 2010, the dollar amount in subparagraph 

2 (A) shall be increased by an amount equal to— 

3 ‘‘(i) such dollar amount, multiplied by 

4 ‘‘(ii) the cost-of-living adjustment de5 termined under section 1(f)(3) for such 

6 calendar year by substituting ‘calendar 

7 year 2009’ for ‘calendar year 1992’ in sub8 paragraph (B) thereof. 

9 If any amount as adjusted under the preceding 

10 sentence is not a multiple of $100,000, such 

11 amount shall be rounded to the nearest multiple 

12 of $100,000.’’. 

13 (c) RATE SCHEDULE.— 

14 (1) IN GENERAL.—Subsection (c) of section 

15 2001 of such Code (relating to rate schedule) is 

16 amended to read as follows: 

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

18 to the sum of— 

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

20 1(h)(1)(C) in effect on the date of the decedent’s 

21 death multiplied by so much of the sum described in 

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

23 and 

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

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1 dent’s death multiplied by so much of the sum de2 scribed in subsection (b)(1) as equals or exceeds 

3 $25,000,000.’’. 

4 (2) CONFORMING AMENDMENT.—Section 

5 2502(a) of such Code (relating computation of tax), 

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

7 by adding at the end the following flush sentence: 

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

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

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

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

12 in such section.’’. 

13 (d) MODIFICATIONS OF ESTATE AND GIFT TAXES TO

14 REFLECT DIFFERENCES IN UNIFIED CREDIT RESULTING

15 FROM DIFFERENT TAX RATES.— 

16 (1) ESTATE TAX.— 

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

18 such Code (relating to computation of tax) is 

19 amended by striking ‘‘if the provisions of sub20 section (c) (as in effect at the decedent’s 

21 death)’’ and inserting ‘‘if the modifications de22 scribed in subsection (g)’’. 

23 (B) MODIFICATIONS.—Section 2001 of 

24 such Code is amended by adding at the end the 

25 following new subsection: 


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1 ‘‘(g) MODIFICATIONS TO GIFT TAX PAYABLE TO RE2 FLECT DIFFERENT TAX RATES.—For purposes of apply3 ing subsection (b)(2) with respect to 1 or more gifts, the 

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

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

6 of such gifts, be used both to compute— 

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

8 to such gifts, and 

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

10 section 2505, including in computing— 

11 ‘‘(A) the applicable credit amount under 

12 section 2505(a)(1), and 

13 ‘‘(B) the sum of the amounts allowed as a 

14 credit for all preceding periods under section 

15 2505(a)(2). 

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

17 credit amount for any calendar year before 1998 is 

18 the amount which would be determined under sec19 tion 2010(c) if the applicable exclusion amount were 

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

21 year.’’. 

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

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

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

25 at the end the following new flush sentence: 


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

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

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

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

5 be used in determining the amounts allowable as a credit 

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

7 (e) REPEAL OF DEDUCTION FOR STATE DEATH

8 TAXES.— 

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

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

11 at the end the following: 

12 ‘‘(c) TERMINATION.—This section shall not apply to 

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

14 (2) CONFORMING AMENDMENT.—Section 

15 2106(a)(4) of such Code is amended by adding at 

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

17 shall not apply to the estates of decedents dying 

18 after December 31, 2009.’’. 

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

20 this section shall apply to estates of decedents dying, gen21 eration-skipping transfers, and gifts made, after Decem22 ber 31, 2009. 

23 (g) ADDITIONAL MODIFICATIONS TO ESTATE TAX.— 

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

25 the Economic Growth and Tax Relief Reconciliation 


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1 Act of 2001, and the amendments made by such 

2 provisions, are hereby repealed: 

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

4 (B) Subsection (d), and so much of sub5 section (f)(3) as relates to subsection (d), of 

6 section 511. 

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

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

9 The Internal Revenue Code of 1986 shall be applied 

10 as if such provisions and amendments had never 

11 been enacted. 

12 (2) SUNSET NOT TO APPLY TO TITLE V OF

13 EGTRRA.—Section 901 of the Economic Growth and 

14 Tax Relief Reconciliation Act of 2001 shall not 

15 apply to title V of such Act. 

16 (3) REPEAL OF DEADWOOD.— 

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

18 Internal Revenue Code of 1986 are hereby re19 pealed. 

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

21 subchapter A of chapter 11 of such Code is 

22 amended by striking the item relating to section 

23 2011. 

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

25 subchapter A of chapter 11 of such Code is 


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1 amended by striking the item relating to section 

2 2057. 

3 (D) The table of sections for subchapter A 

4 of chapter 13 of such Code is amended by strik5 ing the item relating to section 2604. 

6 SEC. 3. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED 

7 CREDIT OF DECEASED SPOUSE. 

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

9 the Internal Revenue Code of 1986 (defining applicable 

10 credit amount), as amended by section 2(b), is amended 

11 by striking paragraph (2) and inserting the following new 

12 paragraphs: 

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

14 purposes of this subsection, the applicable exclusion 

15 amount is the sum of— 

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

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

18 aggregate deceased spousal unused exclusion 

19 amount. 

20 ‘‘(3) BASIC EXCLUSION AMOUNT.— 

21 ‘‘(A) IN GENERAL.—For purposes of this 

22 subsection, the basic exclusion amount is 

23 $5,000,000. 

24 ‘‘(B) INFLATION ADJUSTMENT.—In the 

25 case of any decedent dying in a calendar year 


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1 after 2010, the dollar amount in subparagraph 

2 (A) shall be increased by an amount equal to— 

3 ‘‘(i) such dollar amount, multiplied by 

4 ‘‘(ii) the cost-of-living adjustment de5 termined under section 1(f)(3) for such 

6 calendar year by substituting ‘calendar 

7 year 2009’ for ‘calendar year 1992’ in sub8 paragraph (B) thereof. 

9 If any amount as adjusted under the preceding 

10 sentence is not a multiple of $100,000, such 

11 amount shall be rounded to the nearest multiple 

12 of $100,000. 

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 2631(c) of such Code is amended by 

18 striking ‘‘the applicable exclusion amount’’ and in19 serting ‘‘the basic exclusion amount’’. 

20 (3) Section 6018(a)(1) of such Code, after the 

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

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

23 exclusion amount’’. 

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

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1 eration-skipping transfers, and gifts made, after Decem2 ber 31, 2009. 

3 SEC. 4. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

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

5 1 of the Internal Revenue Code of 1986 is amended by 

6 adding at the end the following new section: 

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

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

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

10 there shall be allowed a deduction against gross income 

11 equal to 60 percent of the lesser of— 

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

13 such year, or 

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

15 year. 

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

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

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

19 (if any) of— 

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

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

22 year, over 

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

24 in such subsections for such year. 


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

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

3 entity (as defined in section 1(h)(10))— 

4 ‘‘(1) the election under this section shall be 

5 made separately by each taxpayer subject to tax on 

6 such gain, and 

7 ‘‘(2) the Secretary may prescribe such regula8 tions as are appropriate to apply this section to such 

9 gain. 

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

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

12 subsection (b).’’. 

13 (b) COORDINATION WITH MAXIMUM CAPITAL GAINS

14 RATES.— 

15 (1) TAXPAYERS OTHER THAN CORPORA16 TIONS.—Paragraph (2) of section 1(h) of such Code 

17 is amended to read as follows: 

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

19 purposes of this subsection, the net capital gain for 

20 any taxable year shall be reduced (but not below 

21 zero) by the sum of— 

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

23 into account as investment income under sec24 tion 163(d)(4)(B)(iii), and 


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1 ‘‘(B) in the case of a taxable year with re2 spect to which an election is in effect under sec3 tion 1203, the lesser of— 

4 ‘‘(i) the amount described in para5 graph (1) of section 1203(a), or 

6 ‘‘(ii) the amount described in para7 graph (2) of such section.’’. 

8 (2) CORPORATIONS.—Section 1201 of such 

9 Code is amended by redesignating subsection (b) as 

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

11 following new subsection: 

12 ‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO AC13 COUNT.—For purposes of this section, in the case of a 

14 corporation with respect to which an election is in effect 

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

16 year shall be reduced (but not below zero) by the corpora17 tion’s qualified timber gain (as defined in section 

18 1203(b)).’’. 

19 (c) DEDUCTION ALLOWED WHETHER OR NOT INDI20 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

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

22 the last sentence the following new paragraph: 

23 ‘‘(21) QUALIFIED TIMBER GAINS.—The deduc24 tion allowed by section 1203.’’. 


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1 (d) DEDUCTION ALLOWED IN COMPUTING AD2 JUSTED CURRENT EARNINGS.—Subparagraph (C) of sec3 tion 56(g)(4) of such Code is amended by adding at the 

4 end the following new clause: 

5 ‘‘(vii) DEDUCTION FOR QUALIFIED

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

7 to any deduction allowed under section 

8 1203.’’. 

9 (e) DEDUCTION ALLOWED IN COMPUTING TAXABLE

10 INCOME OF ELECTING SMALL BUSINESS TRUSTS.—Sub11 paragraph (C) of section 641(c)(2) of such Code is amend12 ed by inserting after clause (iii) the following new clause: 

13 ‘‘(iv) The deduction allowed under 

14 section 1203.’’. 

15 (f) CONFORMING AMENDMENTS.— 

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

17 such Code is amended to read as follows: 

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

19 the deduction under section 1203 shall not be 

20 allowed.’’. 

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

22 Code is amended by striking the first sentence and 

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

24 amount otherwise allowable as a deduction under 

25 this subsection consists of gain described in section 


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1 1202(a) or qualified timber gain (as defined in sec2 tion 1203(b)), proper adjustment shall be made for 

3 any exclusion allowable to the estate or trust under 

4 section 1202 and for any deduction allowable to the 

5 estate or trust under section 1203.’’. 

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

7 Code is amended by striking the last sentence and 

8 inserting the following: ‘‘The exclusion under section 

9 1202 and the deduction under section 1203 shall not 

10 be taken into account.’’. 

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

12 such Code is amended to read as follows: 

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

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

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

16 the sale or exchange of capital assets, re17 duced by losses from such sales or ex18 changes to the extent such losses do not 

19 exceed gains from such sales or exchanges, 

20 and 

21 ‘‘(ii) the deduction under section 1203 

22 shall not be taken into account.’’. 

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

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

25 ‘‘1202,’’. 


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

2 Code is amended by striking ‘‘section 1202’’ and in3 serting ‘‘sections 1202 and 1203’’. 

4 (7) The table of sections for part I of sub5 chapter P of chapter 1 of such Code is amended by 

6 adding at the end the following new item: 

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

7 (g) EFFECTIVE DATE.— 

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

9 this section shall apply to taxable years ending after 

10 the date of the enactment of this Act. 

11 (2) TAXABLE YEARS WHICH INCLUDE DATE OF

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

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

14 purposes of the Internal Revenue Code of 1986, the 

15 taxpayer’s qualified timber gain shall not exceed the 

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

17 such Code, as added by this section, if only disposi18 tions of timber after such date were taken into ac19 count. 

Passed the House of Representatives June 22, 2006. 

Attest: KAREN L. HAAS, 

Clerk. 


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Calendar No. 496 

109TH CONGRESS 

2D SESSION H. R. 5638 

AN ACT 

To amend the Internal Revenue Code of 1986 to 

poses. generation-skipping taxes, and for other purrepeal the sunset provision for the estate and to an exclusion equivalent of $5,000,000 and to increase the unified credit against the estate tax 

JUNE 26, 2006 

Read the second time and placed on the calendar 


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