109TH CONGRESS 

2D SESSION H. R. 5638

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.
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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’’. 

6 SEC. 2. REFORM AND EXTENSION OF ESTATE TAX AFTER 

7 2009. 

8 (a) RESTORATION OF UNIFIED CREDIT AGAINST

9 GIFT TAX.—Paragraph (1) of section 2505(a) of the In10 ternal Revenue Code of 1986 (relating to general rule for 

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

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

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

14 (b) EXCLUSION EQUIVALENT OF UNIFIED CREDIT

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

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

17 is amended to read as follows: 

18 ‘‘(c) APPLICABLE CREDIT AMOUNT.—

19 ‘‘(1) IN GENERAL.—For purposes of this sec20 tion, the applicable credit amount is the amount of 

21 the tentative tax which would be determined under 

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

23 amount with respect to which such tentative tax is 

24 to be computed were the applicable exclusion 

25 amount. 
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1 ‘‘(2) APPLICABLE EXCLUSION AMOUNT.—

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

3 subsection, the applicable exclusion amount is 

4 $5,000,000. 

5 ‘‘(B) INFLATION ADJUSTMENT.—In the 

6 case of any decedent dying in a calendar year 

7 after 2010, the dollar amount in subparagraph 

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

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

10 ‘‘(ii) the cost-of-living adjustment de11 termined under section 1(f)(3) for such 

12 calendar year by substituting ‘calendar 

13 year 2009’ for ‘calendar year 1992’ in sub14 paragraph (B) thereof. 

15 If any amount as adjusted under the preceding 

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

17 amount shall be rounded to the nearest multiple 

18 of $100,000.’’. 

19 (c) RATE SCHEDULE.—

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

21 2001 of such Code (relating to rate schedule) is 

22 amended to read as follows: 

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

24 to the sum of—
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1 ‘‘(1) the product of the rate specified in section 

2 1(h)(1)(C) in effect on the date of the decedent’s 

3 death multiplied by so much of the sum described in 

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

5 and 

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

7 section 1(h)(1)(C) in effect on the date of the dece8 dent’s death multiplied by so much of the sum de9 scribed in subsection (b)(1) as equals or exceeds 

10 $25,000,000.’’. 

11 (2) CONFORMING AMENDMENT.—Section 

12 2502(a) of such Code (relating computation of tax), 

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

14 by adding at the end the following flush sentence: 

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

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

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

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

19 in such section.’’. 

20 (d) MODIFICATIONS OF ESTATE AND GIFT TAXES TO

21 REFLECT DIFFERENCES IN UNIFIED CREDIT RESULTING

22 FROM DIFFERENT TAX RATES.—

23 (1) ESTATE TAX.—

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

25 such Code (relating to computation of tax) is 
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1 amended by striking ‘‘if the provisions of sub2 section (c) (as in effect at the decedent’s 

3 death)’’ and inserting ‘‘if the modifications de4 scribed in subsection (g)’’. 

5 (B) MODIFICATIONS.—Section 2001 of 

6 such Code is amended by adding at the end the 

7 following new subsection: 

8 ‘‘(g) MODIFICATIONS TO GIFT TAX PAYABLE TO RE9 FLECT DIFFERENT TAX RATES.—For purposes of apply10 ing subsection (b)(2) with respect to 1 or more gifts, the 

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

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

13 of such gifts, be used both to compute—

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

15 to such gifts, and 

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

17 section 2505, including in computing—

18 ‘‘(A) the applicable credit amount under 

19 section 2505(a)(1), and 

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

21 credit for all preceding periods under section 

22 2505(a)(2). 

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

24 credit amount for any calendar year before 1998 is 

25 the amount which would be determined under sec-
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1 tion 2010(c) if the applicable exclusion amount were 

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

3 year.’’. 

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

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

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

7 at the end the following new flush sentence: 

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

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

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

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

12 be used in determining the amounts allowable as a credit 

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

14 (e) REPEAL OF DEDUCTION FOR STATE DEATH

15 TAXES.—

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

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

18 at the end the following: 

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

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

21 (2) CONFORMING AMENDMENT.—Section 

22 2106(a)(4) of such Code is amended by adding at 

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

24 shall not apply to the estates of decedents dying 

25 after December 31, 2009.’’. 
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1 (f) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to estates of decedents dying, gen3 eration-skipping transfers, and gifts made, after Decem4 ber 31, 2009. 

5 (g) ADDITIONAL MODIFICATIONS TO ESTATE TAX.—

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

7 the Economic Growth and Tax Relief Reconciliation 

8 Act of 2001, and the amendments made by such 

9 provisions, are hereby repealed: 

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

11 (B) Subsection (d), and so much of sub12 section (f)(3) as relates to subsection (d), of 

13 section 511. 

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

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

16 The Internal Revenue Code of 1986 shall be applied 

17 as if such provisions and amendments had never 

18 been enacted. 

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

20 EGTRRA.—Section 901 of the Economic Growth and 

21 Tax Relief Reconciliation Act of 2001 shall not 

22 apply to title V of such Act. 

23 (3) REPEAL OF DEADWOOD.—
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1 (A) Sections 2011, 2057, and 2604 of the 

2 Internal Revenue Code of 1986 are hereby re3 pealed. 

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

5 subchapter A of chapter 11 of such Code is 

6 amended by striking the item relating to section 

7 2011. 

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

9 subchapter A of chapter 11 of such Code is 

10 amended by striking the item relating to section 

11 2057. 

12 (D) The table of sections for subchapter A 

13 of chapter 13 of such Code is amended by strik14 ing the item relating to section 2604. 

15 SEC. 3. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED 

16 CREDIT OF DECEASED SPOUSE. 

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

18 the Internal Revenue Code of 1986 (defining applicable 

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

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

21 paragraphs: 

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

23 purposes of this subsection, the applicable exclusion 

24 amount is the sum of—

25 ‘‘(A) the basic exclusion amount, and 
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1 ‘‘(B) in the case of a surviving spouse, the 

2 aggregate deceased spousal unused exclusion 

3 amount. 

4 ‘‘(3) BASIC EXCLUSION AMOUNT.—

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

6 subsection, the basic exclusion amount is 

7 $5,000,000. 

8 ‘‘(B) INFLATION ADJUSTMENT.—In the 

9 case of any decedent dying in a calendar year 

10 after 2010, the dollar amount in subparagraph 

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

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

13 ‘‘(ii) the cost-of-living adjustment de14 termined under section 1(f)(3) for such 

15 calendar year by substituting ‘calendar 

16 year 2009’ for ‘calendar year 1992’ in sub17 paragraph (B) thereof. 

18 If any amount as adjusted under the preceding 

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

20 amount shall be rounded to the nearest multiple 

21 of $100,000. 

22 ‘‘(4) AGGREGATE DECEASED SPOUSAL UNUSED

23 EXCLUSION AMOUNT.—For purposes of this sub24 section, the term ‘aggregate deceased spousal unused 

25 exclusion amount’ means the lesser of—
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1 ‘‘(A) the basic exclusion amount, or 

2 ‘‘(B) the sum of the deceased spousal un3 used exclusion amounts of the surviving spouse. 

4 ‘‘(5) DECEASED SPOUSAL UNUSED EXCLUSION

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

6 ‘deceased spousal unused exclusion amount’ means, 

7 with respect to the surviving spouse of any deceased 

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

9 any) of—

10 ‘‘(A) the applicable exclusion amount of 

11 the deceased spouse, over 

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

13 tentative tax is determined under section 

14 2001(b)(1) on the estate of such deceased 

15 spouse. 

16 ‘‘(6) SPECIAL RULES.—

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

18 spousal unused exclusion amount may not be 

19 taken into account by a surviving spouse under 

20 paragraph (5) unless the executor of the estate 

21 of the deceased spouse files an estate tax return 

22 on which such amount is computed and makes 

23 an election on such return that such amount 

24 may be so taken into account. Such election, 

25 once made, shall be irrevocable. No election 
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1 may be made under this subparagraph if such 

2 return is filed after the time prescribed by law 

3 (including extensions) for filing such return. 

4 ‘‘(B) EXAMINATION OF PRIOR RETURNS

5 AFTER EXPIRATION OF PERIOD OF LIMITATIONS

6 WITH RESPECT TO DECEASED SPOUSAL UN7 USED EXCLUSION AMOUNT.—Notwithstanding 

8 any period of limitation in section 6501, after 

9 the time has expired under section 6501 within 

10 which a tax may be assessed under chapter 11 

11 or 12 with respect to a deceased spousal unused 

12 exclusion amount, the Secretary may examine a 

13 return of the deceased spouse to make deter14 minations with respect to such amount for pur15 poses of carrying out this subsection. 

16 ‘‘(7) REGULATIONS.—The Secretary shall pre17 scribe such regulations as may be necessary or ap18 propriate to carry out this subsection.’’. 

19 (b) CONFORMING AMENDMENTS.—

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

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

22 as follows: 

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

24 2010(c) which would apply if the donor died as of 

25 the end of the calendar year, reduced by’’. 
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1 (2) Section 2631(c) of such Code is amended by 

2 striking ‘‘the applicable exclusion amount’’ and in3 serting ‘‘the basic exclusion amount’’. 

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

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

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

7 exclusion amount’’. 

8 (c) 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 SEC. 4. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

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

14 1 of the Internal Revenue Code of 1986 is amended by 

15 adding at the end the following new section: 

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

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

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

19 there shall be allowed a deduction against gross income 

20 equal to 60 percent of the lesser of—

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

22 such year, or 

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

24 year. 
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1 ‘‘(b) QUALIFIED TIMBER GAIN.—For purposes of 

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

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

4 (if any) of—

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

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

7 year, over 

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

9 in such subsections for such year. 

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

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

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

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

14 made separately by each taxpayer subject to tax on 

15 such gain, and 

16 ‘‘(2) the Secretary may prescribe such regula17 tions as are appropriate to apply this section to such 

18 gain. 

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

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

21 subsection (b).’’. 

22 (b) COORDINATION WITH MAXIMUM CAPITAL GAINS

23 RATES.—
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1 (1) TAXPAYERS OTHER THAN CORPORA2 TIONS.—Paragraph (2) of section 1(h) of such Code 

3 is amended to read as follows: 

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

5 purposes of this subsection, the net capital gain for 

6 any taxable year shall be reduced (but not below 

7 zero) by the sum of—

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

9 into account as investment income under sec10 tion 163(d)(4)(B)(iii), and 

11 ‘‘(B) in the case of a taxable year with re12 spect to which an election is in effect under sec13 tion 1203, the lesser of—

14 ‘‘(i) the amount described in para15 graph (1) of section 1203(a), or 

16 ‘‘(ii) the amount described in para17 graph (2) of such section.’’. 

18 (2) CORPORATIONS.—Section 1201 of such 

19 Code is amended by redesignating subsection (b) as 

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

21 following new subsection: 

22 ‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO AC23 COUNT.—For purposes of this section, in the case of a 

24 corporation with respect to which an election is in effect 

25 under section 1203, the net capital gain for any taxable 
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1 year shall be reduced (but not below zero) by the corpora2 tion’s qualified timber gain (as defined in section 

3 1203(b)).’’. 

4 (c) DEDUCTION ALLOWED WHETHER OR NOT INDI5 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

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

7 the last sentence the following new paragraph: 

8 ‘‘(21) QUALIFIED TIMBER GAINS.—The deduc9 tion allowed by section 1203.’’. 

10 (d) DEDUCTION ALLOWED IN COMPUTING AD11 JUSTED CURRENT EARNINGS.—Subparagraph (C) of sec12 tion 56(g)(4) of such Code is amended by adding at the 

13 end the following new clause: 

14 ‘‘(vii) DEDUCTION FOR QUALIFIED

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

16 to any deduction allowed under section 

17 1203.’’. 

18 (e) DEDUCTION ALLOWED IN COMPUTING TAXABLE

19 INCOME OF ELECTING SMALL BUSINESS TRUSTS.—Sub20 paragraph (C) of section 641(c)(2) of such Code is amend21 ed by inserting after clause (iii) the following new clause: 

22 ‘‘(iv) The deduction allowed under 

23 section 1203.’’. 

24 (f) CONFORMING AMENDMENTS.—
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1 (1) Subparagraph (B) of section 172(d)(2) of 

2 such Code is amended to read as follows: 

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

4 the deduction under section 1203 shall not be 

5 allowed.’’. 

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

7 Code is amended by striking the first sentence and 

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

9 amount otherwise allowable as a deduction under 

10 this subsection consists of gain described in section 

11 1202(a) or qualified timber gain (as defined in sec12 tion 1203(b)), proper adjustment shall be made for 

13 any exclusion allowable to the estate or trust under 

14 section 1202 and for any deduction allowable to the 

15 estate or trust under section 1203.’’. 

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

17 Code is amended by striking the last sentence and 

18 inserting the following: ‘‘The exclusion under section 

19 1202 and the deduction under section 1203 shall not 

20 be taken into account.’’. 

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

22 such Code is amended to read as follows: 

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

24 foreign trust. In the case of such a trust—
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1 ‘‘(i) there shall be included gains from 

2 the sale or exchange of capital assets, re3 duced by losses from such sales or ex4 changes to the extent such losses do not 

5 exceed gains from such sales or exchanges, 

6 and 

7 ‘‘(ii) the deduction under section 1203 

8 shall not be taken into account.’’. 

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

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

11 ‘‘1202,’’. 

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

13 Code is amended by striking ‘‘section 1202’’ and in14 serting ‘‘sections 1202 and 1203’’. 

15 (7) The table of sections for part I of sub16 chapter P of chapter 1 of such Code is amended by 

17 adding at the end the following new item:

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

18 (g) EFFECTIVE DATE.—

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

20 this section shall apply to taxable years ending after 

21 the date of the enactment of this Act. 

22 (2) TAXABLE YEARS WHICH INCLUDE DATE OF

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

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

25 purposes of the Internal Revenue Code of 1986, the 
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1 taxpayer’s qualified timber gain shall not exceed the 

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

3 such Code, as added by this section, if only disposi4 tions of timber after such date were taken into ac5 count. 

Passed the House of Representatives June 22, 2006. 

Attest:

Clerk. 
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