I

107TH CONGRESS

1ST SESSION H. R. 1398

To amend the Internal Revenue Code of 1986 to provide individual income

tax rate reductions, tax relief to families with children, marriage penalty

relief, and to immediately eliminate the estate tax for two-thirds of

all decedents currently subject to the estate tax.

IN THE HOUSE OF REPRESENTATIVES

APRIL 4, 2001

Mr. RANGEL (for himself, Mr. BONIOR, Mrs. MINK of Hawaii, Mr. PASTOR,

Mr. SAWYER, Mr. MCNULTY, Mr. PASCRELL, Mr. MATSUI, Mr. BARRETT, and Mr. LEVIN) 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 provide

individual income tax rate reductions, tax relief to families with children, marriage penalty relief, and to immediately eliminate the estate tax for two-thirds of all decedents currently subject to the estate tax.

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 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Tax Reduction Act of 2001’’.
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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment

4 to, or repeal of, a section or other provision, the reference

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986.

7 (c) SECTION 15 NOT TO APPLY.—No amendment

8 made by this Act shall be treated as a change in a rate

9 of tax for purposes of section 15 of the Internal Revenue

10 Code of 1986.

11 TITLE I—INDIVIDUAL INCOME

12 TAX RATE REDUCTIONS; EX13 PANSION OF EARNED INCOME

14 CREDIT ASSISTANCE

15 SEC. 101. INDIVIDUAL INCOME TAX RATE REDUCTIONS.

16 (a) IN GENERAL.—Section 1 is amended by adding

17 at the end the following new subsection:

18 ‘‘(i) 12 PERCENT RATE BRACKET.—

19 ‘‘(1) IN GENERAL.—In the case of taxable years

20 beginning after December 31, 2000—

21 ‘‘(A) the rate of tax under subsections (a),

22 (b), (c), and (d) on taxable income not over the

23 initial bracket amount shall be 12 percent, and
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1 ‘‘(B) the 15 percent rate of tax shall apply

2 only to taxable income over the initial bracket

3 amount.

4 ‘‘(2) INITIAL BRACKET AMOUNT.—For purposes

5 of this subsection—

6 ‘‘(A) IN GENERAL.—Except as provided in

7 subparagraph (B), the initial bracket amount

8 is—

9 ‘‘(i) $20,000 in the case of subsection

10 (a),

11 ‘‘(ii) 80 percent of the dollar amount

12 in clause (i) in the case of subsection (b),

13 and

14 ‘‘(iii) 50 percent of the dollar amount

15 in clause (i) in the case of subsections (c)

16 and (d).

17 ‘‘(B) PHASEIN.—The initial bracket

18 amount is—

‘‘(i) 1 19 ⁄4 the amount otherwise applica20 ble under subparagraph (A) in the case of

21 taxable years beginning during 2001, and

‘‘(ii) 1 22 ⁄2 such amount otherwise appli23 cable under subparagraph (A) in the case

24 of taxable years beginning during 2002.

25 ‘‘(3) INFLATION ADJUSTMENT.—
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1 ‘‘(A) IN GENERAL.—In the case of any

2 taxable year beginning in a calendar year after

3 2003, the $20,000 amount under paragraph

4 (2)(A)(i) shall be increased by an amount equal

5 to—

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

7 ‘‘(ii) the cost-of-living adjustment de8 termined under subsection (f)(3) for the

9 calendar year in which the taxable year be10 gins, determined by substituting ‘calendar

11 year 2002’ for ‘calendar year 1992’ in sub12 paragraph (B) thereof.

13 ‘‘(B) ROUNDING RULES.—If any amount

14 after adjustment under subparagraph (A) is not

15 a multiple of $50, such amount shall be round16 ed to the next lowest multiple of $50.

17 ‘‘(4) ADJUSTMENT OF TABLES.—The Secretary

18 shall adjust the tables prescribed under subsection

19 (f) to carry out this subsection.’’

20 (b) ADJUSTMENT IN COMPUTATION OF ALTER21 NATIVE MINIMUM TAX.—Paragraph (2) of section 55(a)

22 is amended to read as follows:

23 ‘‘(2) the sum of—

24 ‘‘(A) the regular tax for the taxable year,

25 plus
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1 ‘‘(B) in the case of an individual, 3 percent

2 of so much of the individual’s taxable income

3 for the taxable year as is taxed at 12 percent.’’

4 (c) REPEAL OF REDUCTION OF REFUNDABLE TAX

5 CREDITS.—

6 (1) Subsection (d) of section 24 is amended by

7 striking paragraph (2) and redesignating paragraph

8 (3) as paragraph (2).

9 (2) Section 32 is amended by striking sub10 section (h).

11 (d) CONFORMING AMENDMENT.—Subclause (II) of

12 section 1(g)(7)(B)(ii) is amended by striking ‘‘15 percent’’

13 and inserting ‘‘12 percent’’.

14 (e) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to taxable years beginning after

16 December 31, 2000.

17 (f) PROTECTION OF SOCIAL SECURITY AND MEDI18 CARE.—The amounts transferred to any trust fund under

19 the Social Security Act shall be determined as if this Act

20 had not been enacted.

21 SEC. 102. MODIFICATIONS TO EARNED INCOME TAX CRED22 IT.

23 (a) INCREASES IN PERCENTAGES AND AMOUNTS

24 USED TO DETERMINE CREDIT; MARRIAGE PENALTY RE25 LIEF.—
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1 (1) IN GENERAL.—Subsection (b) of section 32

2 is amended to read as follows:

3 ‘‘(b) PERCENTAGES AND AMOUNTS.—

4 ‘‘(1) PERCENTAGES.—The credit percentage,

5 the initial phaseout percentage, and the final phase6 out percentage shall be determined as follows:

‘‘In the case of an eligible individual with:The credit percentage is:

The initial

phaseout percentage is:

The final

phaseout percentage is:

1 qualifying child .................. 34 15.98 18.98

2 or more qualifying children 40 21.0624.06

No qualifying children .......... 7.65 7.65 7.65

7 ‘‘(2) AMOUNTS.—

8 ‘‘(A) IN GENERAL.—The earned income

9 amount and the initial phaseout amount shall

10 be determined as follows:

‘‘In the case of an eligible individual with:

The earned income amount

is:

The initial

phaseout

amount is:

1 qualifying child .............................................. $8,140 $13,470

2 or more qualifying children ........................... $11,120 $13,470

No qualifying children ...................................... $4,900 $6,130.

11 In the case of a joint return where there is at

12 least 1 qualifying child, the initial phaseout

13 amount shall be $2,500 greater than the

14 amount otherwise applicable under the pre15 ceding sentence.
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1 ‘‘(B) FINAL PHASEOUT AMOUNT.—The

2 final phaseout amount is $26,000 ($28,500 in

3 the case of a joint return).’’

4 (2) MODIFICATION OF COMPUTATION OF

5 PHASEOUT.—Paragraph (2) of section 32(a) is

6 amended to read as follows:

7 ‘‘(2) PHASEOUT OF CREDIT.—The amount of

8 the credit allowable to a taxpayer under paragraph

9 (1) for any taxable year shall be reduced (but not

10 below zero) by the sum of—

11 ‘‘(A) the initial phaseout percentage of so

12 much of the total income (or, if greater, the

13 earned income) of the taxpayer for the taxable

14 year as exceeds the initial phaseout amount but

15 does not exceed the final phaseout amount, plus

16 ‘‘(B) the final phaseout percentage of so

17 much of the total income (or, if greater, the

18 earned income) of the taxpayer for the taxable

19 year as exceeds the final phaseout amount.’’

20 (3) TOTAL INCOME.—Paragraph (5) of section

21 32(c) is amended to read as follows:

22 ‘‘(5) TOTAL INCOME.—The term ‘total income’

23 means adjusted gross income determined without re24 gard to—
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1 ‘‘(A) the deductions referred to in para2 graphs (6), (7), (9), (10), (15), (16), and (17)

3 of section 62(a),

4 ‘‘(B) the deduction allowed by section

5 162(l), and

6 ‘‘(C) the deduction allowed by section

7 164(f).’’

8 (4) CONFORMING AMENDMENTS.—

9 (A) Subsection (j) of section 32 is amend10 ed to read as follows:

11 ‘‘(j) INFLATION ADJUSTMENT.—

12 ‘‘(1) IN GENERAL.—In the case of any taxable

13 year beginning after 2002, each of the dollar

14 amounts in subsection (b)(2) shall be increased by

15 an amount equal to—

16 ‘‘(A) such dollar amount, multiplied by

17 ‘‘(B) the cost-of-living adjustment deter18 mined under section 1(f)(3), for the calendar

19 year in which the taxable year begins, deter20 mined by substituting ‘calendar year 2001’ for

21 ‘calendar year 1992’ in subparagraph (B)

22 thereof.

23 ‘‘(2) ROUNDING.—If any dollar amount, after

24 being increased under paragraph (1), is not a mul-
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1 tiple of $10, such dollar amount shall be rounded to

2 the nearest multiple of $10.’’

3 (B) Subparagraph (C) of section 32(c)(1)

4 is amended by striking ‘‘modified adjusted

5 gross income’’ and inserting ‘‘total income’’.

6 (C) Paragraph (2) of section 32(f) is

7 amended to read as follows:

8 ‘‘(2) REQUIREMENTS FOR TABLES.—

9 ‘‘(A) IN GENERAL.—The provisions of sub10 section (a)(1) and the provisions of subsection

11 (a)(2) shall be reflected in separate tables pre12 scribed under paragraph (1).

13 ‘‘(B) SUBSECTION (a)(1) TABLE.—The ta14 bles prescribed under paragraph (1) to reflect

15 the provisions of subsection (a)(1) shall have in16 come brackets of not greater than $50 each for

17 earned income between $0 and the earned in18 come amount.

19 ‘‘(C) SUBSECTION (a)(2) TABLE.—The ta20 bles prescribed under paragraph (1) to reflect

21 the provisions of subsection (a)(2) shall have in22 come brackets of not greater than $50 each for

23 total income (or, if greater, the earned income)

24 above the initial phaseout threshold.’’
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1 (b) REPEAL OF DENIAL OF CREDIT WHERE INVEST2 MENT INCOME.—Section 32 is amended by striking sub3 section (i).

4 (c) EARNED INCOME TO INCLUDE ONLY AMOUNTS

5 INCLUDIBLE IN GROSS INCOME.—

6 (1) IN GENERAL.—Section 32(c)(2)(A)(i) (de7 fining earned income) is amended by inserting ‘‘, but

8 only if such amounts are includible in gross income

9 for the taxable year’’ after ‘‘other employee com10 pensation’’.

11 (2) CONFORMING AMENDMENT.—Section

12 32(c)(2)(B) is amended by striking ‘‘and’’ at the end

13 of clause (iv), by striking the period at the end of

14 clause (v) and inserting ‘‘, and’’, and by adding at

15 the end the following new clause:

16 ‘‘(vi) the requirement under subparagraph

17 (A)(i) that an amount be includible in

18 gross income shall not apply if such

19 amount is exempt from tax under section

20 7873 or is derived directly from restricted

21 and allotted land under the Act of Feb22 ruary 8, 1887 (commonly known as the In23 dian General Allotment Act) (25 U.S.C.

24 331 et seq.) or from land held under Acts

25 or treaties containing an exception provi-
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1 sion similar to the Indian General Allot2 ment Act.’’

3 (d) MODIFICATION OF JOINT RETURN REQUIRE4 MENT.—Subsection (d) of section 32 is amended to read

5 as follows:

6 ‘‘(d) MARRIED INDIVIDUALS.—

7 ‘‘(1) IN GENERAL.—If the taxpayer is married

8 at the close of the taxable year, the credit shall be

9 allowed under subsection (a) only if the taxpayer

10 and his spouse file a joint return for the taxable

11 year.

12 ‘‘(2) MARITAL STATUS.—For purposes of para13 graph (1), an individual legally separated from his

14 spouse under a decree of divorce or of separate

15 maintenance shall not be considered as married.

16 ‘‘(3) CERTAIN MARRIED INDIVIDUALS LIVING

17 APART.—For purposes of paragraph (1), if—

18 ‘‘(A) an individual —

19 ‘‘(i) is married and files a separate re20 turn, and

21 ‘‘(ii) has a qualifying child who is a

22 son, daughter, stepson, or stepdaughter of

23 such individual, and

24 ‘‘(B) during the last 6 months of such tax25 able year, such individual and such individual’s
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1 spouse do not have the same principal place of

2 abode,

3 such individual shall not be considered as married.’’

4 (e) EXPANSION OF MATHEMATICAL ERROR AUTHOR5 ITY.—Paragraph (2) of section 6213(g) is amended by

6 striking ‘‘and’’ at the end of subparagraph (K), by striking

7 the period at the end of subparagraph (L) and inserting

8 ‘‘, and’’, and by inserting after subparagraph (L) the fol9 lowing new subparagraph:

10 ‘‘(M) the entry on the return claiming the

11 credit under section 32 with respect to a child

12 if, according to the Federal Case Registry of

13 Child Support Orders established under section

14 453(h) of the Social Security Act, the taxpayer

15 is a noncustodial parent of such child.’’

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

17 this section shall apply to taxable years beginning after

18 December 31, 2001.

19 TITLE II—MARRIAGE PENALTY

20 RELIEF

21 SEC. 201. MARRIAGE PENALTY RELIEF.

22 (a) STANDARD DEDUCTION.—

23 (1) IN GENERAL.—Paragraph (2) of section

24 63(c) (relating to standard deduction) is amended—
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1 (A) by striking ‘‘$5,000’’ in subparagraph

2 (A) and inserting ‘‘twice the dollar amount in

3 effect under subparagraph (C) for the taxable

4 year’’,

5 (B) by adding ‘‘or’’ at the end of subpara6 graph (B),

7 (C) by striking ‘‘in the case of’’ and all

8 that follows in subparagraph (C) and inserting

9 ‘‘in any other case.’’, and

10 (D) by striking subparagraph (D).

11 (2) INCREASE ALLOWED AS DEDUCTION IN DE12 TERMINING MINIMUM TAX.—Subparagraph (E) of

13 section 56(b)(1) is amended by adding at the end

14 the following new sentence: ‘‘The preceding sentence

15 shall not apply to so much of the standard deduction

16 under subparagraph (A) of section 63(c)(2) as ex17 ceeds the amount which would be such deduction but

18 for the amendment made by section 201(a)(1) of the

19 Tax Reduction Act of 2001.

20 (3) TECHNICAL AMENDMENTS.—

21 (A) Subparagraph (B) of section 1(f)(6) is

22 amended by striking ‘‘(other than with’’ and all

23 that follows through ‘‘shall be applied’’ and in24 serting ‘‘(other than with respect to sections

25 63(c)(4) and 151(d)(4)(A)) shall be applied’’.
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1 (B) Paragraph (4) of section 63(c) is

2 amended by adding at the end the following

3 flush sentence:

4 ‘‘The preceding sentence shall not apply to the

5 amount referred to in paragraph (2)(A).’’.

6 (b) EFFECTIVE DATE.—The amendments made by

7 this section shall apply to taxable years beginning after

8 December 31, 2000.

9 TITLE III—ESTATE TAX RELIEF

10 SEC. 301. INCREASE IN EXEMPTION EQUIVALENT OF UNI11 FIED CREDIT.

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

13 (relating to applicable credit amount) is amended by strik14 ing the table and inserting the following new table:

‘‘In the case of estates of decedents The applicable

dying, and gifts made, during: exclusion amount is:

2002 ....................................................................... $2,000,000

2003 and 2004 ...................................................... $2,100,000

2005 and 2006...................................................... $2,200,000

2007 and 2008 ...................................................... $2,300,000

2009 ....................................................................... $2,400,000

2010 or thereafter ................................................. $2,500,000.’’

15 (b) REPEAL OF SPECIAL BENEFIT FOR FAMILY16 OWNED BUSINESS INTERESTS.—

17 (1) Section 2057 is hereby repealed.

18 (2) Paragraph (10) of section 2031(c) is

19 amended by inserting ‘‘(as in effect on the day be20 fore the date of the enactment of this parenthet21 ical)’’ before the period.
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1 (3) The table of sections for part IV of sub2 chapter A of chapter 11 is amended by striking the

3 item relating to section 2057.

4 (c) CORRECTION OF TECHNICAL ERROR AFFECTING

5 LARGEST ESTATES.—Paragraph (2) of section 2001(c) is

6 amended by striking ‘‘$10,000,000’’ and all that follows

7 and inserting ‘‘$10,000,000. The amount of the increase

8 under the preceding sentence shall not exceed the sum of

9 the applicable credit amount under section 2010(c) and

10 $359,200.’’

11 (d) EFFECTIVE DATE.—The amendments made by

12 this section shall apply to estates of decedents dying, and

13 gifts made, after December 31, 2001.

14 SEC. 302. CREDIT FOR STATE DEATH TAXES REPLACED

15 WITH DEDUCTION FOR SUCH TAXES.

16 (a) REPEAL OF CREDIT.—Section 2011 (relating to

17 credit for State death taxes) is hereby repealed.

18 (b) DEDUCTION FOR STATE DEATH TAXES.—Part

19 IV of subchapter A of chapter 11 is amended by adding

20 at the end the following new section:

21 ‘‘SEC. 2058. STATE DEATH TAXES.

22 ‘‘(a) ALLOWANCE OF DEDUCTION.—For purposes of

23 the tax imposed by section 2001, the value of the taxable

24 estate shall be determined by deducting from the value

25 of the gross estate the amount of any estate, inheritance,
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1 legacy, or succession taxes actually paid to any State or

2 the District of Columbia, in respect of any property in3 cluded in the gross estate (not including any such taxes

4 paid with respect to the estate of a person other than the

5 decedent).

6 ‘‘(b) PERIOD OF LIMITATIONS.—The deduction al7 lowed by this section shall include only such taxes as were

8 actually paid and deduction therefor claimed within 4

9 years after the filing of the return required by section

10 6018, except that—

11 ‘‘(1) If a petition for redetermination of a defi12 ciency has been filed with the Tax Court within the

13 time prescribed in section 6213(a), then within such

14 4-year period or before the expiration of 60 days

15 after the decision of the Tax Court becomes final.

16 ‘‘(2) If, under section 6161 or 6166, an exten17 sion of time has been granted for payment of the tax

18 shown on the return, or of a deficiency, then within

19 such 4-year period or before the date of the expira20 tion of the period of the extension.

21 ‘‘(3) If a claim for refund or credit of an over22 payment of tax imposed by this chapter has been

23 filed within the time prescribed in section 6511, then

24 within such 4-year period or before the expiration of

25 60 days from the date of mailing by certified mail
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1 or registered mail by the Secretary to the taxpayer

2 of a notice of the disallowance of any part of such

3 claim, or before the expiration of 60 days after a de4 cision by any court of competent jurisdiction be5 comes final with respect to a timely suit instituted

6 upon such claim, whichever is later.

7 Refund based on the deduction may (despite the provisions

8 of sections 6511 and 6512) be made if claim therefor is

9 filed within the period above provided. Any such refund

10 shall be made without interest.’’

11 (c) CONFORMING AMENDMENTS.—

12 (1) Subsection (a) of section 2012 is amended

13 by striking ‘‘the credit for State death taxes pro14 vided by section 2011 and’’.

15 (2) Subparagraph (A) of section 2013(c)(1) is

16 amended by striking ‘‘2011,’’.

17 (3) Paragraph (2) of section 2014(b) is amend18 ed by striking ‘‘, 2011,’’.

19 (4) Sections 2015 and 2016 are each amended

20 by striking ‘‘2011 or’’.

21 (5) Subsection (d) of section 2053 is amended

22 to read as follows:

23 ‘‘(d) CERTAIN FOREIGN DEATH TAXES.—

24 ‘‘(1) IN GENERAL.—Notwithstanding the provi25 sions of subsection (c)(1)(B) of this section, for pur-
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1 poses of the tax imposed by section 2001, the value

2 of the taxable estate may be determined, if the ex3 ecutor so elects before the expiration of the period

4 of limitation for assessment provided in section

5 6501, by deducting from the value of the gross es6 tate the amount (as determined in accordance with

7 regulations prescribed by the Secretary) of any es8 tate, succession, legacy, or inheritance tax imposed

9 by and actually paid to any foreign country, in re10 spect of any property situated within such foreign

11 country and included in the gross estate of a citizen

12 or resident of the United States, upon a transfer by

13 the decedent for public, charitable, or religious uses

14 described in section 2055. The determination under

15 this paragraph of the country within which property

16 is situated shall be made in accordance with the

17 rules applicable under subchapter B (sec. 2101 and

18 following) in determining whether property is situ19 ated within or without the United States. Any elec20 tion under this paragraph shall be exercised in ac21 cordance with regulations prescribed by the Sec22 retary.

23 ‘‘(2) CONDITION FOR ALLOWANCE OF DEDUC24 TION.—No deduction shall be allowed under para25 graph (1) for a foreign death tax specified therein
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1 unless the decrease in the tax imposed by section

2 2001 which results from the deduction provided in

3 paragraph (1) will inure solely for the benefit of the

4 public, charitable, or religious transferees described

5 in section 2055 or section 2106(a)(2). In any case

6 where the tax imposed by section 2001 is equitably

7 apportioned among all the transferees of property

8 included in the gross estate, including those de9 scribed in sections 2055 and 2106(a)(2) (taking into

10 account any exemptions, credits, or deductions al11 lowed by this chapter), in determining such decrease,

12 there shall be disregarded any decrease in the Fed13 eral estate tax which any transferees other than

14 those described in sections 2055 and 2106(a)(2) are

15 required to pay.

16 ‘‘(3) EFFECT ON CREDIT FOR FOREIGN DEATH

17 TAXES OF DEDUCTION UNDER THIS SUBSECTION.—

18 ‘‘(A) ELECTION.—An election under this

19 subsection shall be deemed a waiver of the right

20 to claim a credit, against the Federal estate

21 tax, under a death tax convention with any for22 eign country for any tax or portion thereof in

23 respect of which a deduction is taken under this

24 subsection.
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1 ‘‘(B) CROSS REFERENCE.—

‘‘See section 2014(f) for the effect of a deduction

taken under this paragraph on the credit for foreign

death taxes.’’

2 (6) Subparagraph (A) of section 2056A(b)(10)

3 is amended—

4 (A) by striking ‘‘2011,’’, and

5 (B) by inserting ‘‘2058,’’ after ‘‘2056,’’.

6 (7)(A) Subsection (a) of section 2102 is amend7 ed to read as follows:

8 ‘‘(a) IN GENERAL.—The tax imposed by section 2101

9 shall be credited with the amounts determined in accord10 ance with sections 2012 and 2013 (relating to gift tax and

11 tax on prior transfers).’’

12 (B) Section 2102 is amended by striking sub13 section (b) and by redesignating subsection (c) as

14 subsection (b).

15 (C) Section 2102(b)(5) (as redesignated by sub16 paragraph (B)) and section 2107(c)(3) are each

17 amended by striking ‘‘2011 to 2013, inclusive,’’ and

18 inserting ‘‘2012 and 2013’’.

19 (8) Subsection (a) of section 2106 is amended

20 by adding at the end the following new paragraph:

21 ‘‘(4) STATE DEATH TAXES.—The amount which

22 bears the same ratio to the State death taxes as the

23 value of the property, as determined for purposes of

24 this chapter, upon which State death taxes were paid
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1 and which is included in the gross estate under sec2 tion 2103 bears to the value of the total gross estate

3 under section 2103. For purposes of this paragraph,

4 the term ‘State death taxes’ means the taxes de5 scribed in section 2011(a).’’

6 (9) Section 2201 is amended—

7 (A) by striking ‘‘as defined in section

8 2011(d)’’, and

9 (B) by adding at the end the following new

10 flush sentence:

11 ‘‘For purposes of this section, the additional estate tax

12 is the difference between the tax imposed by section 2001

13 or 2101 and the amount equal to 125 percent of the max14 imum credit provided by section 2011(b), as in effect be15 fore its repeal by the Tax Reduction Act of 2001.’’

16 (10) Paragraph (2) of section 6511(i) is amend17 ed by striking ‘‘2011(c), 2014(b),’’ and inserting

18 ‘‘2014(b)’’.

19 (11) Subsection (c) of section 6612 is amended

20 by striking ‘‘section 2011(c) (relating to refunds due

21 to credit for State taxes),’’.

22 (12) The table of sections for part II of sub23 chapter A of chapter 11 is amended by striking the

24 item relating to section 2011.
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1 (13) The table of sections for part IV of sub2 chapter A of chapter 11 is amended by adding at

3 the end the following new item:

‘‘Sec. 2058. State death taxes.’’

4 (d) EFFECTIVE DATE.—The amendments made by

5 this section shall apply to estates of decedents dying after

6 December 31, 2001.

7 SEC. 303. VALUATION RULES FOR CERTAIN TRANSFERS OF

8 NONBUSINESS ASSETS; LIMITATION ON MI9 NORITY DISCOUNTS.

10 (a) IN GENERAL.—Section 2031 (relating to defini11 tion of gross estate) is amended by redesignating sub12 section (d) as subsection (f) and by inserting after sub13 section (c) the following new subsections:

14 ‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS

15 OF NONBUSINESS ASSETS.—For purposes of this chapter

16 and chapter 12—

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

18 of any interest in an entity other than an interest

19 which is actively traded (within the meaning of sec20 tion 1092)—

21 ‘‘(A) the value of any nonbusiness assets

22 held by the entity shall be determined as if the

23 transferor had transferred such assets directly

24 to the transferee (and no valuation discount
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1 shall be allowed with respect to such nonbusi2 ness assets), and

3 ‘‘(B) the nonbusiness assets shall not be

4 taken into account in determining the value of

5 the interest in the entity.

6 ‘‘(2) NONBUSINESS ASSETS.—For purposes of

7 this subsection—

8 ‘‘(A) IN GENERAL.—The term ‘nonbusi9 ness asset’ means any asset which is not used

10 in the active conduct of 1 or more trades or

11 businesses.

12 ‘‘(B) EXCEPTION FOR CERTAIN PASSIVE

13 ASSETS.—Except as provided in subparagraph

14 (C), a passive asset shall not be treated for pur15 poses of subparagraph (A) as used in the active

16 conduct of a trade or business unless—

17 ‘‘(i) the asset is property described in

18 paragraph (1) or (4) of section 1221(a) or

19 is a hedge with respect to such property,

20 or

21 ‘‘(ii) the asset is real property used in

22 the active conduct of 1 or more real prop23 erty trades or businesses (within the mean24 ing of section 469(c)(7)(C)) in which the

25 transferor materially participates and with
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1 respect to which the transferor meets the

2 requirements of section 469(c)(7)(B)(ii).

3 For purposes of clause (ii), material participa4 tion shall be determined under the rules of sec5 tion 469(h), except that section 469(h)(3) shall

6 be applied without regard to the limitation to

7 farming activity.

8 ‘‘(C) EXCEPTION FOR WORKING CAP9 ITAL.—Any asset (including a passive asset)

10 which is held as a part of the reasonably re11 quired working capital needs of a trade or busi12 ness shall be treated as used in the active con13 duct of a trade or business.

14 ‘‘(3) PASSIVE ASSET.—For purposes of this

15 subsection, the term ‘passive asset’ means any—

16 ‘‘(A) cash or cash equivalents,

17 ‘‘(B) except to the extent provided by the

18 Secretary, stock in a corporation or any other

19 equity, profits, or capital interest in any entity,

20 ‘‘(C) evidence of indebtedness, option, for21 ward or futures contract, notional principal con22 tract, or derivative,

23 ‘‘(D) asset described in clause (iii), (iv), or

24 (v) of section 351(e)(1)(B),

25 ‘‘(E) annuity,
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1 ‘‘(F) real property used in 1 or more real

2 property trades or businesses (as defined in sec3 tion 469(c)(7)(C)),

4 ‘‘(G) asset (other than a patent, trade5 mark, or copyright) which produces royalty in6 come,

7 ‘‘(H) commodity,

8 ‘‘(I) collectible (within the meaning of sec9 tion 401(m)), or

10 ‘‘(J) any other asset specified in regula11 tions prescribed by the Secretary.

12 ‘‘(4) LOOK-THRU RULES.—

13 ‘‘(A) IN GENERAL.—If a nonbusiness asset

14 of an entity consists of a 10-percent interest in

15 any other entity, this subsection shall be ap16 plied by disregarding the 10-percent interest

17 and by treating the entity as holding directly its

18 ratable share of the assets of the other entity.

19 This subparagraph shall be applied successively

20 to any 10-percent interest of such other entity

21 in any other entity.

22 ‘‘(B) 10-PERCENT INTEREST.—The term

23 ‘10-percent interest’ means—

24 ‘‘(i) in the case of an interest in a cor25 poration, ownership of at least 10 percent
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1 (by vote or value) of the stock in such cor2 poration,

3 ‘‘(ii) in the case of an interest in a

4 partnership, ownership of at least 10 per5 cent of the capital or profits interest in the

6 partnership, and

7 ‘‘(iii) in any other case, ownership of

8 at least 10 percent of the beneficial inter9 ests in the entity.

10 ‘‘(5) COORDINATION WITH SUBSECTION (b).—

11 Subsection (b) shall apply after the application of

12 this subsection.

13 ‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For

14 purposes of this chapter and chapter 12, in the case of

15 the transfer of any interest in an entity other than an in16 terest which is actively traded (within the meaning of sec17 tion 1092), no discount shall be allowed by reason of the

18 fact that the transferee does not have control of such enti19 ty if the transferee and members of the family (as defined

20 in section 2032A(e)(2)) of the transferee have control of

21 such entity.’’

22 (b) EFFECTIVE DATE.—The amendments made by

23 this section shall apply to transfers after the date of the

24 enactment of this Act.
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1 SEC. 304. EXPANSION OF ESTATE TAX RULE FOR CON2 SERVATION EASEMENTS.

3 (a) REPEAL OF LOCATION REQUIREMENT.—Sub4 paragraph (A) of section 2031(c)(8) (defining land subject

5 to a conservation easement) is amended by striking clause

6 (i) and redesignating clauses (ii) and (iii) as clauses (i)

7 and (ii), respectively.

8 (b) CLARIFICATION OF DATE FOR DETERMINING

9 VALUE OF LAND AND EASEMENT.—Section 2031(c)(2)

10 (defining applicable percentage) is amended by adding at

11 the end the following new sentence: ‘‘The values taken into

12 account under the preceding sentence shall be such values

13 as of the date of the contribution referred to in paragraph

14 (8)(B).’’.

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

16 this section shall apply to estates of decedents dying after

17 December 31, 2000.

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