I
106TH CONGRESS
1ST SESSION
H. R. 2158
To amend the Internal Revenue Code of 1986 to modify the tax on genera-
tion-skipping transfers to eliminate certain traps for the unwary and
otherwise improve the fairness of such tax.
IN THE HOUSE OF REPRESENTATIVES
JUNE 10, 1999
Mr. MCCRERY 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 modify
the tax on generation-skipping transfers to eliminate cer-
tain traps for the unwary and otherwise improve the
fairness of such tax.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Generation-Skipping
Transfer Tax Amendments Act of 1999’’.
SEC. 2. DEEMED ALLOCATION OF GST EXEMPTION TO LIFE-
TIME TRANSFERS TO TRUSTS; RETROACTIVE
ALLOCATIONS.
(a) IN GENERAL.—Section 2632 of the Internal Rev-
enue Code of 1986 (relating to special rules for allocation
of GST exemption) is amended by redesignating sub-
section (c) as subsection (e) and by inserting after sub-
section (b) the following new subsections:
‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME
TRANSFERS TO GST TRUSTS.—
‘‘(1) IN GENERAL.—If any individual makes an
indirect skip during such individual’s lifetime, any
unused portion of such individual’s GST exemption
shall be allocated to the property transferred to the
extent necessary to make the inclusion ratio for such
property zero. If the amount of the indirect skip ex-
ceeds such unused portion, the entire unused portion
shall be allocated to the property transferred.
‘‘(2) UNUSED PORTION.—For purposes of para-
graph (1), the unused portion of an individual’s
GST exemption is that portion of such exemption
which has not previously been—
‘‘(A) allocated by such individual,
‘‘(B) treated as allocated under subsection
(b) with respect to a direct skip occurring dur-
ing or before the calendar year in which the in-
direct skip is made, or
‘‘(C) treated as allocated under paragraph
(1) with respect to a prior indirect skip.
‘‘(3) DEFINITIONS.—
‘‘(A) INDIRECT
SKIP.—For purposes of
this subsection, the term ‘indirect skip’ means
any transfer of property subject to the tax im-
posed by chapter 12 made to a GST trust.
‘‘(B) GST TRUST.—The term ‘GST trust’
means a trust that could have a generation-
skipping transfer with respect to the transferor
unless—
‘‘(i) the trust instrument provides that
more than 25 percent of the trust corpus
must be distributed to or may be with-
drawn by 1 or more individuals who are
non-skip persons—
‘‘(I) before the date that the indi-
vidual attains age 46,
‘‘(II) on or before 1 or more
dates specified in the trust instrument
that will occur before the date that
such individual attains age 46, or
‘‘(III) upon the occurrence of an
event that, in accordance with regula-
tions prescribed by the Secretary, may
reasonably be expected to occur before
the date that such individual attains
age 46;
‘‘(ii) the trust instrument provides
that more than 25 percent of the trust cor-
pus must be distributed to or may be with-
drawn by 1 or more individuals who are
non-skip persons and who are living on the
date of death of another person identified
in the instrument (by name or by class)
who is more than 10 years older than such
individuals;
‘‘(iii) the trust instrument provides
that, if 1 or more individuals who are non-
skip persons die on or before a date or
event described in clause (i) or (ii), more
than 25 percent of the trust corpus either
must be distributed to the estate or estates
of 1 or more of such individuals or is sub-
ject to a general power of appointment ex-
ercisable by 1 or more of such individuals;
‘‘(iv) the trust is a trust any portion
of which would be included in the gross es-
tate of a non-skip person (other than the
transferor) if such person died immediately
after the transfer;
‘‘(v) the trust is a charitable lead an-
nuity trust (within the meaning of section
2642(e)(3)(A)) or a charitable remainder
annuity trust or a charitable remainder
unitrust (within the meaning of section
664(d)); or
‘‘(vi) the trust is a trust with respect
to which a deduction was allowed under
section 2522 for the amount of an interest
in the form of the right to receive annual
payments of a fixed percentage of the net
fair market value of the trust property (de-
termined yearly) and which is required to
pay principal to a non-skip person if such
person is alive when the yearly payments
for which the deduction was allowed termi-
nate.
For purposes of this subparagraph, the value of
transferred property shall not be considered to
be includible in the gross estate of a non-skip
person or subject to a right of withdrawal by
reason of such person holding a right to with-
draw so much of such property as does not ex-
ceed the amount referred to in section 2503(b)
with respect to any transferor, and it shall be
assumed that powers of appointment held by
non-skip persons will not be exercised.
‘‘(4) AUTOMATIC
ALLOCATIONS
TO
CERTAIN
GST TRUSTS.—For purposes of this subsection, an
indirect skip to which section 2642(f) applies shall
be deemed to have been made only at the close of
the estate tax inclusion period. The fair market
value of such transfer shall be the fair market value
of the trust property at the close of the estate tax
inclusion period.
‘‘(5) APPLICABILITY AND EFFECT.—
‘‘(A) IN GENERAL.—An individual—
‘‘(i) may elect to have this subsection
not apply to—
‘‘(I) an indirect skip, or
‘‘(II) any or all transfers made
by such individual to a particular
trust, and
‘‘(ii) may elect to treat any trust as a
GST trust for purposes of this subsection
with respect to any or all transfers made
by such individual to such trust.
‘‘(B) ELECTIONS.—
‘‘(i) ELECTIONS
WITH
RESPECT
TO
INDIRECT SKIPS.—An election under sub-
paragraph (A)(i)(I) shall be deemed to be
timely if filed on a timely filed gift tax re-
turn for the calendar year in which the
transfer was made or deemed to have been
made pursuant to paragraph (4) or on
such later date or dates as may be pre-
scribed by the Secretary.
‘‘(ii) OTHER ELECTIONS.—An election
under clause (i)(II) or (ii) of subparagraph
(A) may be made on a timely filed gift tax
return for the calendar year for which the
election is to become effective.
‘‘(d) RETROACTIVE ALLOCATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a non-skip person has an interest or
a future interest in a trust to which any trans-
fer has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grand-
parent of the transferor or of a grand-
parent of the transferor’s spouse or former
spouse, and
‘‘(ii) is assigned to a generation below
the generation assignment of the trans-
feror, and
‘‘(C) such person predeceases the trans-
feror,
then the transferor may make an allocation of any
of such transferor’s unused GST exemption to any
previous transfer or transfers to the trust on a
chronological basis.
‘‘(2) SPECIAL RULES.—If the allocation under
paragraph (1) by the transferor is made on a gift
tax return filed on or before the date prescribed by
section 6075(b) for gifts made within the calendar
year within which the non-skip person’s death
occurred—
‘‘(A) the value of such transfer or trans-
fers for purposes of section 2642(a) shall be de-
termined as if such allocation had been made
on a timely filed gift tax return for each cal-
endar year within which each transfer was
made,
‘‘(B) such allocation shall be effective im-
mediately before such death, and
‘‘(C) the amount of the transferor’s unused
GST exemption available to be allocated shall
be determined immediately before such death.
‘‘(3) FUTURE INTEREST.—For purposes of this
subsection, a person has a future interest in a trust
if the trust may permit income or corpus to be paid
to such person on a date or dates in the future.’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 2632(b) of such Code is amended by striking ‘‘with
respect to a direct skip’’ and inserting ‘‘or subsection
(c)(1)’’.
(c) EFFECTIVE DATES.—
(1) DEEMED ALLOCATION.—Section 2632(c) of
the Internal Revenue Code of 1986 (as added by
subsection (a)), and the amendment made by sub-
section (b), shall apply to transfers subject to chap-
ter 11 or 12 of such Code made after December 31,
1999, and to estate tax inclusion periods ending
after December 31, 1999.
(2) 
RETROACTIVE
ALLOCATIONS.—Section
2632(d) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to deaths of
non-skip persons occurring after the date of the en-
actment of this Act.
SEC. 3. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642 of
the Internal Revenue Code of 1986 (relating to inclusion
ratio) is amended by adding at the end the following new
paragraph:
‘‘(3) SEVERING OF TRUSTS.—
‘‘(A) IN GENERAL.—If a trust is severed in
a qualified severance, the trusts resulting from
such severance shall be treated as separate
trusts thereafter for purposes of this chapter.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A)—
‘‘(i) IN GENERAL.—The term ‘quali-
fied severance’ means the division of a sin-
gle trust and the creation (by any means
available under the governing instrument
or under local law) of 2 or more trusts if—
‘‘(I) the single trust was divided
on a fractional basis, and
‘‘(II) the terms of the new trusts,
in the aggregate, provide for the same
succession of interests of beneficiaries
as are provided in the original trust.
‘‘(ii) TRUSTS WITH INCLUSION RATIO
GREATER THAN ZERO.—If a trust has an
inclusion ratio of greater than zero and
less than 1, a severance is a qualified sev-
erance only if the single trust is divided
into 2 trusts, one of which receives a frac-
tional share of the total value of all trust
assets equal to the applicable fraction of
the single trust immediately before the sev-
erance. In such case, the trust receiving
such fractional share shall have an inclu-
sion ratio of zero and the other trust shall
have an inclusion ratio of 1.
‘‘(iii) 
REGULATIONS.—The 
term
‘qualified severance’ includes any other
severance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) 
TIMING
AND
MANNER
OF
SEVERANCES.—A severance pursuant to this
paragraph may be made at any time. The Sec-
retary shall prescribe by forms or regulations
the manner in which the qualified severance
shall be reported to the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to severances after the date of the
enactment of this Act.
SEC. 4. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR
DEEMED ALLOCATION MADE.—Paragraph (1) of section
2642(b) of the Internal Revenue Code of 1986 (relating
to valuation rules, etc.) is amended to read as follows:
‘‘(1) GIFTS
FOR
WHICH
GIFT
TAX
RETURN
FILED OR DEEMED ALLOCATION MADE.—If the allo-
cation of the GST exemption to any transfers of
property is made on a gift tax return filed on or be-
fore the date prescribed by section 6075(b) for such
transfer or is deemed to be made under section 2632
(b)(1) or (c)(1)—
‘‘(A) the value of such property for pur-
poses of subsection (a) shall be its value as fi-
nally determined for purposes of chapter 12
(within the meaning of section 2001(f)(2)), or,
in the case of an allocation deemed to have been
made at the close of an estate tax inclusion pe-
riod, its value at the time of the close of the es-
tate tax inclusion period, and
‘‘(B) such allocation shall be effective on
and after the date of such transfer, or, in the
case of an allocation deemed to have been made
at the close of an estate tax inclusion period, on
and after the close of such estate tax inclusion
period.’’.
(b) TRANSFERS AT DEATH.—Subparagraph (A) of
section 2642(b)(2) of such Code is amended to read as
follows:
‘‘(A) TRANSFERS AT DEATH.—If property
is transferred as a result of the death of the
transferor, the value of such property for pur-
poses of subsection (a) shall be its value as fi-
nally determined for purposes of chapter 11; ex-
cept that, if the requirements prescribed by the
Secretary respecting allocation of post-death
changes in value are not met, the value of such
property shall be determined as of the time of
the distribution concerned.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 1431 of the Tax Reform Act of
1986.
SEC. 5. RELIEF PROVISIONS.
(a) IN GENERAL.—Section 2642 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the
following new subsection:
‘‘(g) RELIEF PROVISIONS.—
‘‘(1) RELIEF FOR LATE ELECTIONS.—
‘‘(A) IN GENERAL.—The Secretary shall by
regulation prescribe such circumstances and
procedures under which extensions of time will
be granted to make—
‘‘(i) an allocation of GST exemption
described in paragraph (1) or (2) of sub-
section (b), and
‘‘(ii) an election under subsection
(b)(3) or (c)(5) of section 2632.
Such regulations shall include procedures for
requesting comparable relief with respect to
transfers made before the date of enactment of
this paragraph.
‘‘(B) BASIS
FOR
DETERMINATIONS.—In
determining whether to grant relief under this
paragraph, the Secretary shall take into ac-
count all relevant circumstances, including evi-
dence of intent contained in the trust instru-
ment or instrument of transfer and such other
factors as the Secretary deems relevant. For
purposes of determining whether to grant relief
under this paragraph, the time for making the
allocation (or election) shall be treated as if not
expressly prescribed by statute.
‘‘(2) SUBSTANTIAL
COMPLIANCE.—An alloca-
tion of GST exemption under section 2632 that
demonstrates an intent to have a zero inclusion ratio
with respect to a transfer or a trust shall be deemed
to be an allocation of so much of the transferor’s un-
used GST exemption as produces, to the extent pos-
sible, a zero inclusion ratio. In determining whether
there has been substantial compliance, all relevant
circumstances shall be taken into account, including
evidence of intent contained in the trust instrument
or instrument of transfer and such other factors as
the Secretary deems relevant.’’.
(b) EFFECTIVE DATES.—
(1) RELIEF
FOR
LATE
ELECTIONS.—Section
2642(g)(1) of the Internal Revenue Code of 1986
(as added by subsection (a)) shall apply to requests
pending on, or filed after, the date of the enactment
of this Act.
(2) 
SUBSTANTIAL
COMPLIANCE.—Section
2642(g)(2) of such Code (as so added) shall take ef-
fect on the date of the enactment of this Act and
shall apply to allocations made prior to such date for
purposes of determining the tax consequences of
generation-skipping transfers with respect to which
the period of time for filing claims for refund has
not expired. No negative implication is intended with
respect to the availability of relief for late elections
or the application of a rule of substantial compliance
prior to the enactment of this amendment.
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