IB
Union Calendar No. 361
106TH CONGRESS
2D SESSION
H. R. 8
[Report No. 106–651]
To amend the Internal Revenue Code of 1986 to phaseout the estate and
gift taxes over a 10-year period.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 25, 1999
Ms. DUNN (for herself and Mr. TANNER) introduced the following bill; which
was referred to the Committee on Ways and Means
JUNE 6, 2000
Additional sponsors: Mr. HERGER, Mr. MCCRERY, Mr. HAYWORTH, Mr.
ENGLISH, Mr. ADERHOLT, Mr. TALENT, Mr. HALL of Texas, Mrs.
MYRICK, Mr. FOLEY, Mr. DEUTSCH, Mr. DREIER, Mr. SENSENBRENNER,
Mr. GOODE, Mr. WICKER, Mr. SHAW, Mr. BOUCHER, Mr. NETHERCUTT,
Ms. DANNER, Mr. MCCOLLUM, Mrs. EMERSON, Mr. WATTS of Oklahoma,
Mr. CONDIT, Mr. ROYCE, Mr. SCHAFFER, Mr. NEY, Mr. CUNNINGHAM,
Mr. HUTCHINSON, Mr. FORBES, Mr. MCINTYRE, Mr. HASTINGS of Wash-
ington, Mr. MANZULLO, Mr. CRANE, Mr. LOBIONDO, Mr. REYNOLDS,
Mr. TANCREDO, Mr. JOHN, Mr. SALMON, Mr. DICKEY, Mr. SESSIONS,
Mr. BARCIA, Mr. CHAMBLISS, Mr. HEFLEY, Mr. RAHALL, Mr. LAHOOD,
Mr. KASICH, Mr. CRAMER, Mr. HOSTETTLER, Mr. CALLAHAN, Mr.
BACHUS, Mr. BISHOP, Mr. SKEEN, Mrs. CHENOWETH-HAGE, Mr. LUCAS
of Kentucky, Mr. BOEHNER, Mr. BILBRAY, Mr. PACKARD, Mrs. CUBIN,
Mr. WELLER, Mr. RAMSTAD, Mr. MILLER of Florida, Mrs. BONO, Ms.
EDDIE BERNICE JOHNSON of Texas, Mrs. NORTHUP, Mr. COOK, Mr.
DEMINT, Mr. COBLE, Ms. PRYCE of Ohio, Mr. WATKINS, Ms. ROS-
LEHTINEN, Mr. GARY MILLER of California, Mr. GORDON, Mr. FRANKS
of New Jersey, Mr. GALLEGLY, Mr. WALDEN of Oregon, Mr. KOLBE, Mr.
BURTON of Indiana, Mr. RILEY, Mr. JENKINS, Mr. WOLF, Mr. PEASE,
Mr. GOODLATTE, Mr. GOSS, Mr. YOUNG of Alaska, Mr. LEWIS of Cali-
fornia, Mr. PHELPS, Mr. PITTS, Mr. MCINNIS, Mr. METCALF, Mr. LUCAS
of Oklahoma, Mr. KUYKENDALL, Mr. OSE, Mr. HILL of Montana, Mr.
SIMPSON, Mr. COLLINS, Mr. COX, Mr. THOMAS, Mr. LEWIS of Kentucky,
Mr. HULSHOF, Mr. HAYES, Mr. SWEENEY, Mr. BRYANT, Mr. HOUGH-
TON, Mr. CLEMENT, Ms. LOFGREN, Mr. RADANOVICH, Mr. GIBBONS, Mr.
FLETCHER, Mr. WAMP, Mr. PETERSON of Pennsylvania, Mr. LINDER,
Mr. ARMEY, Mr. MCKEON, Mr. TIAHRT, Mr. EWING, Mr. BARRETT of
Nebraska, Mr. KNOLLENBERG, Mr. SHERWOOD, Mr. SHOWS, Mr.
SANDLIN, Mr. FORD, Mr. SHUSTER, Mr. HYDE, Mr. PAUL, Mr. CAL-
VERT, Mr. TERRY, Mr. MCINTOSH, Mr. ROHRABACHER, Mr. DOOLITTLE,
Mr. CANADY of Florida, Mr. POMBO, Mr. ROGERS, Mr. WELDON of Flor-
ida, Mr. BAIRD, Mr. ANDREWS, Mr. ISAKSON, Mr. GRAHAM, Mr. RYUN
of Kansas, Mr. MORAN of Kansas, Mrs. FOWLER, Mr. BLUNT, Mr. PICK-
ERING, Mr. PORTMAN, Mr. NUSSLE, Mr. WALSH, Mr. KINGSTON, Mr.
EVERETT, Mr. CAMPBELL, Mr. STUMP, Mrs. CLAYTON, Mr. LARGENT,
Mr. HUNTER, Mr. LATHAM, Mr. DUNCAN, Mr. HILLEARY, Mr. HOEK-
STRA, Mr. TAYLOR of North Carolina, Mr. EHLERS, Mr. ROGAN, Mr.
SCARBOROUGH, Mr. SAXTON, Mr. GREEN of Wisconsin, Mr. DEAL of
Georgia, Mr. BASS, Mr. BOEHLERT, Mrs. BIGGERT, Mr. SAM JOHNSON
of Texas, Mr. SUNUNU, Mr. WHITFIELD, Mr. MICA, Mr. LATOURETTE,
Mr. GILLMOR, Mrs. MCCARTHY of New York, Mr. BLILEY, Mr. SPENCE,
Mr. SHIMKUS, Mr. CAMP, Mr. THUNE, Mr. TOOMEY, Mr. SOUDER, Mr.
EHRLICH, Mr. HANSEN, Mr. PORTER, Mr. BRADY of Texas, Mr. JONES
of North Carolina, Mr. BILIRAKIS, Mr. JEFFERSON, Mr. ABERCROMBIE,
Mr. CHABOT, Mrs. WILSON, Mr. DOOLEY of California, Mr. ENGEL, Mr.
LAMPSON, Ms. GRANGER, Mr. BAKER, Mr. BONILLA, Mr. BURR of North
Carolina, Mr. CANNON, Mr. TOWNS, Mr. COMBEST, Mr. GEKAS, Mr.
BARTON of Texas, Mr. COOKSEY, Mr. GREENWOOD, Mr. COBURN, Mr.
DELAY, Mr. FOSSELLA, Mr. BARTLETT of Maryland, Mr. BARR of Geor-
gia, Mr. RYAN of Wisconsin, Mr. SHADEGG, Mr. GILMAN, Mr. HORN, Mr.
OXLEY, Mr. NORWOOD, Mrs. ROUKEMA, Mrs. KELLY, Mr. KLINK, Mr.
SMITH of Texas, Mr. KING, Mr. ISTOOK, Mr. WELDON of Pennsylvania,
Mr. SMITH of Washington, Mr. THORNBERRY, Ms. VELA´ZQUEZ, Mr. PAS-
TOR, Mr. CLAY, Mr. MASCARA, Ms. ESHOO, Ms. BERKLEY, Mr. MEEKS
of New York, Mr. GILCHREST, Mrs. MORELLA, Mr. MCHUGH, Mr.
BLAGOJEVICH, Mr. BERRY, Mr. WYNN, Mr. VITTER, Mr. TAUZIN, Mrs.
TAUSCHER, Mr. DAVIS of Virginia, Mr. TRAFICANT, Mr. MALONEY of
Connecticut, and Mr. SMITH of New Jersey
JUNE 6, 2000
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on February 25, 1999]
A BILL
To amend the Internal Revenue Code of 1986 to phaseout
the estate and gift taxes over a 10-year period.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Death Tax Elimination Act of 2000’’.
(b) AMENDMENT OF 1986 CODE.—Except as otherwise
expressly provided, whenever in this Act an amendment or
repeal is expressed in terms of an amendment to, or repeal
of, a section or other provision, the reference shall be consid-
ered to be made to a section or other provision of the Inter-
nal Revenue Code of 1986.
TITLE I—REPEAL OF ESTATE,
GIFT, AND GENERATION-SKIP-
PING TAXES; REPEAL OF STEP
UP IN BASIS AT DEATH
SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION-
SKIPPING TAXES.
(a) IN GENERAL.—Subtitle B is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by subsection
(a) shall apply to the estates of decedents dying, and gifts
and generation-skipping transfers made, after December 31,
2009.
SEC. 102. TERMINATION OF STEP UP IN BASIS AT DEATH.
(a) TERMINATION
OF
APPLICATION
OF
SECTION
1014.—Section 1014 (relating to basis of property acquired
from a decedent) is amended by adding at the end the fol-
lowing:
‘‘(f ) TERMINATION.—In the case of a decedent dying
after December 31, 2009, this section shall not apply to
property for which basis is provided by section 1022.’’.
(b) CONFORMING AMENDMENT.—Subsection (a) of sec-
tion 1016 (relating to adjustments to basis) is amended by
striking ‘‘and’’ at the end of paragraph (26), by striking
the period at the end of paragraph (27) and inserting ‘‘,
and’’, and by adding at the end the following:
‘‘(28) to the extent provided in section 1022 (re-
lating to basis for certain property acquired from a
decedent dying after December 31, 2009).’’.
SEC. 103. CARRYOVER BASIS AT DEATH.
(a) GENERAL RULE.—Part II of subchapter O of chap-
ter 1 (relating to basis rules of general application) is
amended by inserting after section 1021 the following new
section:
‘‘SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY AC-
QUIRED FROM A DECEDENT DYING AFTER DE-
CEMBER 31, 2009.
‘‘(a) CARRYOVER BASIS.—Except as otherwise pro-
vided in this section, the basis of carryover basis property
in the hands of a person acquiring such property from a
decedent shall be determined under section 1015.
‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘carryover basis property’ means any
property—
‘‘(A) which is acquired from or passed from
a decedent who died after December 31, 2009,
and
‘‘(B) which is not excluded pursuant to
paragraph (2).
The property taken into account under subparagraph
(A) shall be determined under section 1014(b) without
regard to subparagraph (A) of the last sentence of
paragraph (9) thereof.
‘‘(2) CERTAIN PROPERTY NOT CARRYOVER BASIS
PROPERTY.—The term ‘carryover basis property’ does
not include—
‘‘(A) any item of gross income in respect of
a decedent described in section 691,
‘‘(B) property of the decedent to the extent
that the aggregate adjusted fair market value of
such property does not exceed $1,300,000, and
‘‘(C) property which was acquired from the
decedent by the surviving spouse of the decedent
(and which would be carryover basis property
without regard to this subparagraph) but only if
the value of such property would have been de-
ductible from the value of the taxable estate of
the decedent under section 2056, as in effect on
the day before the date of the enactment of the
Death Tax Elimination Act of 2000.
For purposes of this subsection, the term ‘adjusted
fair market value’ means, with respect to any prop-
erty, fair market value reduced by any indebtedness
secured by such property.
‘‘(3) LIMITATION ON EXCEPTION FOR PROPERTY
ACQUIRED BY SURVIVING SPOUSE.—The adjusted fair
market value of property which is not carryover basis
property by reason of paragraph (2)(C) shall not ex-
ceed $3,000,000.
‘‘(4) ALLOCATION OF EXCEPTED AMOUNTS.—The
executor shall allocate the limitations under para-
graphs (2)(B) and (3).
‘‘(5) INFLATION
ADJUSTMENT
OF
EXCEPTED
AMOUNTS.—In the case of decedents dying in a cal-
endar year after 2010, the dollar amounts in para-
graphs (2)(B) and (3) shall each be increased by an
amount equal to the product of—
‘‘(A) such dollar amount, and
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, determined by substituting ‘2009’ for
‘1992’ in subparagraph (B) thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $10,000, such increase shall
be rounded to the nearest multiple of $10,000.
‘‘(c) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(b) MISCELLANEOUS AMENDMENTS RELATED TO CAR-
RYOVER BASIS.—
(1) CAPITAL GAIN TREATMENT FOR INHERITED
ART WORK OR SIMILAR PROPERTY.—
(A) IN
GENERAL.—Subparagraph (C) of
section 1221(a)(3) (defining capital asset) is
amended by inserting ‘‘(other than by reason of
section 1022)’’ after ‘‘is determined’’.
(B) COORDINATION
WITH
SECTION
170.—
Paragraph (1) of section 170(e) (relating to cer-
tain contributions of ordinary income and cap-
ital gain property) is amended by adding at the
end the following: ‘‘For purposes of this para-
graph, the determination of whether property is
a capital asset shall be made without regard to
the exception contained in section 1221(a)(3)(C)
for basis determined under section 1022.’’.
(2) DEFINITION OF EXECUTOR.—Section 7701(a)
(relating to definitions) is amended by adding at the
end the following:
‘‘(47) EXECUTOR.—The term ‘executor’ means
the executor or administrator of the decedent, or, if
there is no executor or administrator appointed,
qualified, and acting within the United States, then
any person in actual or constructive possession of any
property of the decedent.’’.
(3) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter O of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 1022. Carryover basis for certain property acquired from a
decedent dying after December 31, 2009.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to estates of decedents dying after De-
cember 31, 2009.
TITLE II—REDUCTIONS OF ES-
TATE AND GIFT TAX RATES
PRIOR TO REPEAL
SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT
TAX RATES.
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PER-
CENT.—
(1) IN GENERAL.—The table contained in section
2001(c)(1) is amended by striking the two highest
brackets and inserting the following:
‘‘Over $2,500,000 ..............................
$1,025,800, plus 50% of the excess over
$2,500,000.’’.
(2) PHASE-IN OF REDUCED RATE.—Subsection
(c) of section 2001 is amended by adding at the end
the following new paragraph:
‘‘(3) PHASE-IN OF REDUCED RATE.—In the case
of decedents dying, and gifts made, during 2001, the
last item in the table contained in paragraph (1)
shall be applied by substituting ‘53%’ for ‘50%’.’’.
(b) REPEAL OF PHASEOUT OF GRADUATED RATES.—
Subsection (c) of section 2001 is amended by striking para-
graph (2) and redesignating paragraph (3), as added by
subsection (a), as paragraph (2).
(c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—
Subsection (c) of section 2001, as so amended, is amended
by adding at the end the following new paragraph:
‘‘(3) PHASEDOWN OF TAX.—In the case of estates
of decedents dying, and gifts made, during any cal-
endar year after 2002 and before 2010—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (C), the tentative tax under this
subsection shall be determined by using a table
prescribed by the Secretary (in lieu of using the
table contained in paragraph (1)) which is the
same as such table; except that—
‘‘(i) each of the rates of tax shall be re-
duced by the number of percentage points
determined under subparagraph (B), and
‘‘(ii) the amounts setting forth the tax
shall be adjusted to the extent necessary to
reflect the adjustments under clause (i).
‘‘(B) PERCENTAGE
POINTS
OF
REDUC-
TION.—
The number of
‘‘For calendar year:
percentage points is:
2003 ....................................................................................
1.0
2004 ....................................................................................
2.0
2005 ....................................................................................
3.0
2006 ....................................................................................
4.0
2007 ....................................................................................
5.5
2008 ....................................................................................
7.5
2009 ....................................................................................
9.5.
‘‘(C) COORDINATION
WITH
INCOME
TAX
RATES.—The reductions under subparagraph
(A)—
‘‘(i) shall not reduce any rate under
paragraph (1) below the lowest rate in sec-
tion 1(c), and
‘‘(ii) shall not reduce the highest rate
under paragraph (1) below the highest rate
in section 1(c).
‘‘(D) COORDINATION
WITH
CREDIT
FOR
STATE DEATH TAXES.—Rules similar to the rules
of subparagraph (A) shall apply to the table con-
tained in section 2011(b) except that the Sec-
retary shall prescribe percentage point reductions
which maintain the proportionate relationship
(as in effect before any reduction under this
paragraph) between the credit under section
2011 and the tax rates under subsection (c).’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS (a) AND (b).—The amend-
ments made by subsections (a) and (b) shall apply to
estates of decedents dying, and gifts made, after De-
cember 31, 2000.
(2) SUBSECTION (c).—The amendment made by
subsection (c) shall apply to estates of decedents
dying, and gifts made, after December 31, 2002.
TITLE III—UNIFIED CREDIT RE-
PLACED WITH UNIFIED EX-
EMPTION AMOUNT
SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT
TAXES REPLACED WITH UNIFIED EXEMPTION
AMOUNT.
(a) IN GENERAL.—
(1) ESTATE TAX.—Subsection (b) of section 2001
(relating to computation of tax) is amended to read
as follows:
‘‘(b) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by this sec-
tion shall be the amount equal to the excess (if any)
of—
‘‘(A) the tentative tax determined under
paragraph (2), over
‘‘(B) the aggregate amount of tax which
would have been payable under chapter 12 with
respect to gifts made by the decedent after De-
cember 31, 1976, if the provisions of subsection
(c) (as in effect at the decedent’s death) had been
applicable at the time of such gifts.
‘‘(2) TENTATIVE
TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph is a tax computed under subsection (c) on
the excess of—
‘‘(A) the sum of—
‘‘(i) the amount of the taxable estate,
and
‘‘(ii) the amount of the adjusted tax-
able gifts, over
‘‘(B) the exemption amount for the calendar
year in which the decedent died.
‘‘(3) EXEMPTION
AMOUNT.—For purposes of
paragraph (2), the term ‘exemption amount’ means
the amount determined in accordance with the fol-
lowing table:
‘‘In the case of
The exemption
calendar year:
amount is:
2001 .................................................................................
$675,000
2002 and 2003 ................................................................
$700,000
2004 .................................................................................
$850,000
2005 .................................................................................
$950,000
2006 or thereafter ...........................................................
$1,000,000.
‘‘(4) ADJUSTED TAXABLE GIFTS.—For purposes
of paragraph (2), the term ‘adjusted taxable gifts’
means the total amount of the taxable gifts (within
the meaning of section 2503) made by the decedent
after December 31, 1976, other than gifts which are
includible in the gross estate of the decedent.’’
(2) GIFT TAX.—Subsection (a) of section 2502
(relating to computation of tax) is amended to read
as follows:
‘‘(a) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by section
2501 for each calendar year shall be the amount equal
to the excess (if any) of—
‘‘(A) the tentative tax determined under
paragraph (2), over
‘‘(B) the tax paid under this section for all
prior calendar periods.
‘‘(2) TENTATIVE
TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph for a calendar year is a tax computed
under section 2001(c) on the excess of—
‘‘(A) the aggregate sum of the taxable gifts
for such calendar year and for each of the pre-
ceding calendar periods, over
‘‘(B) the exemption amount under section
2001(b)(3) for such calendar year.’’
(b) REPEAL OF UNIFIED CREDITS.—
(1) Section 2010 (relating to unified credit
against estate tax) is hereby repealed.
(2) Section 2505 (relating to unified credit
against gift tax) is hereby repealed.
(c) CONFORMING AMENDMENTS.—
(1)(A) Subsection (b) of section 2011 is
amended—
(i) by striking ‘‘adjusted’’ in the table, and
(ii) by striking the last sentence.
(B) Subsection (f ) of section 2011 is amended by
striking ‘‘, reduced by the amount of the unified cred-
it provided by section 2010’’.
(2) Subsection (a) of section 2012 is amended by
striking ‘‘and the unified credit provided by section
2010’’.
(3) Subparagraph (A) of section 2013(c)(1) is
amended by striking ‘‘2010,’’.
(4) Paragraph (2) of section 2014(b) is amended
by striking ‘‘2010, 2011,’’ and inserting ‘‘2011’’.
(5) Clause (ii) of section 2056A(b)(12)(C) is
amended to read as follows:
‘‘(ii) to treat any reduction in the tax
imposed by paragraph (1)(A) by reason of
the credit allowable under section 2010 (as
in effect on the day before the date of the en-
actment of the Death Tax Elimination Act
of 2000) or the exemption amount allowable
under section 2001(b) with respect to the de-
cedent as a credit under section 2505 (as so
in effect) or exemption under section 2521
(as the case may be) allowable to such sur-
viving spouse for purposes of determining
the amount of the exemption allowable
under section 2521 with respect to taxable
gifts made by the surviving spouse during
the year in which the spouse becomes a cit-
izen or any subsequent year,’’.
(6) Subsection (a) of section 2057 is amended by
striking paragraphs (2) and (3) and inserting the fol-
lowing new paragraph:
‘‘(2) MAXIMUM DEDUCTION.—The deduction al-
lowed by this section shall not exceed the excess of
$1,300,000 over the exemption amount (as defined in
section 2001(b)(3)).’’
(7)(A) Subsection (b) of section 2101 is amended
to read as follows:
‘‘(b) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by this sec-
tion shall be the amount equal to the excess (if any)
of—
‘‘(A) the tentative tax determined under
paragraph (2), over
‘‘(B) a tentative tax computed under section
2001(c) on the amount of the adjusted taxable
gifts.
‘‘(2) TENTATIVE
TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph is a tax computed under section 2001(c)
on the excess of—
‘‘(A) the sum of—
‘‘(i) the amount of the taxable estate,
and
‘‘(ii) the amount of the adjusted tax-
able gifts, over
‘‘(B) the exemption amount for the calendar
year in which the decedent died.
‘‘(3) EXEMPTION AMOUNT.—
‘‘(A) IN
GENERAL.—The term ‘exemption
amount’ means $60,000.
‘‘(B) RESIDENTS OF POSSESSIONS OF THE
UNITED STATES.—In the case of a decedent who
is considered to be a nonresident not a citizen of
the United States under section 2209, the exemp-
tion amount under this paragraph shall be the
greater of—
‘‘(i) $60,000, or
‘‘(ii) that proportion of $175,000
which the value of that part of the dece-
dent’s gross estate which at the time of his
death is situated in the United States bears
to the value of his entire gross estate wher-
ever situated.
‘‘(C) SPECIAL RULES.—
‘‘(i) COORDINATION WITH TREATIES.—
To the extent required under any treaty ob-
ligation of the United States, the exemption
amount allowed under this paragraph shall
be equal to the amount which bears the
same ratio to the exemption amount under
section 2001(b)(3) (for the calendar year in
which the decedent died) as the value of the
part of the decedent’s gross estate which at
the time of his death is situated in the
United States bears to the value of his en-
tire gross estate wherever situated. For pur-
poses of the preceding sentence, property
shall not be treated as situated in the
United States if such property is exempt
from the tax imposed by this subchapter
under any treaty obligation of the United
States.
‘‘(ii) COORDINATION
WITH
GIFT
TAX
EXEMPTION
AND
UNIFIED
CREDIT.—If an
exemption has been allowed under section
2521 (or a credit has been allowed under
section 2505 as in effect on the day before
the date of the enactment of the Death Tax
Elimination Act of 2000) with respect to
any gift made by the decedent, each dollar
amount contained in subparagraph (A) or
(B) or the exemption amount applicable
under clause (i) of this subparagraph
(whichever applies) shall be reduced by the
exemption so allowed under section 2521
(or, in the case of such a credit, by the
amount of the gift for which the credit was
so allowed).’’.
(8) Section 2102 is amended by striking sub-
section (c).
(9)(A) Subsection (a) of section 2107 is amended
by adding at the end the following new paragraph:
‘‘(3) LIMITATION ON EXEMPTION AMOUNT.—Sub-
paragraphs (B) and (C) of section 2101(b)(3) shall
not apply in applying section 2101 for purposes of
this section.’’.
(B) Subsection (c) of section 2107 is amended—
(i) by striking paragraph (1) and by redes-
ignating paragraphs (2) and (3) as paragraphs
(1) and (2), respectively, and
(ii) by striking the second sentence of para-
graph (2) (as so redesignated).
(10) Paragraph (1) of section 6018(a) is amend-
ed by striking ‘‘the applicable exclusion amount in ef-
fect under section 2010(c)’’ and inserting ‘‘the exemp-
tion amount under section 2001(b)(3)’’.
(11) Subparagraph (A) of section 6601( j)(2) is
amended to read as follows:
‘‘(A) the amount of the tentative tax which
would be determined under the rate schedule set
forth in section 2001(c) if the amount with re-
spect to which such tentative tax is to be com-
puted were $1,000,000, or’’.
(12) The table of sections for part II of sub-
chapter A of chapter 11 is amended by striking the
item relating to section 2010.
(13) The table of sections for subchapter A of
chapter 12 is amended by striking the item relating
to section 2505.
(d) EFFECTIVE DATE.—The amendments made by this
section—
(1) insofar as they relate to the tax imposed by
chapter 11 of the Internal Revenue Code of 1986, shall
apply to estates of decedents dying after December 31,
2000, and
(2) insofar as they relate to the tax imposed by
chapter 12 of such Code, shall apply to gifts made
after December 31, 2000.
TITLE 
IV—MODIFICATIONS 
OF
GENERATION-SKIPPING
TRANSFER TAX
SEC. 401. DEEMED ALLOCATION OF GST EXEMPTION TO
LIFETIME TRANSFERS TO TRUSTS; RETRO-
ACTIVE ALLOCATIONS.
(a) IN GENERAL.—Section 2632 (relating to special
rules for allocation of GST exemption) is amended by redes-
ignating subsection (c) as subsection (e) and by inserting
after subsection (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 ex-
tent 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 during
or before the calendar year in which the indirect
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 (other than a direct skip)
subject to the tax imposed by chapter 12 made
to a GST trust.
‘‘(B) GST TRUST.—The term ‘GST trust’
means a trust that could have a generation-skip-
ping 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 withdrawn
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 one 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 corpus
must be distributed to or may be withdrawn
by one 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 individ-
uals;
‘‘(iii) the trust instrument provides
that, if one 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 one or more of such individuals or is sub-
ject to a general power of appointment exer-
cisable by one 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 sec-
tion 2522 for the amount of an interest in
the form of the right to receive annual pay-
ments of a fixed percentage of the net fair
market value of the trust property (deter-
mined yearly) and which is required to pay
principal to a non-skip person if such per-
son is alive when the yearly payments for
which the deduction was allowed terminate.
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 per-
son or subject to a right of withdrawal by reason
of such person holding a right to withdraw so
much of such property as does not exceed the
amount referred to in section 2503(b) with re-
spect 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 trans-
fer 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 IN-
DIRECT SKIPS.—An election under subpara-
graph (A)(i)(I) shall be deemed to be timely
if filed on a timely filed gift tax return for
the calendar year in which the transfer was
made or deemed to have been made pursu-
ant to paragraph (4) or on such later date
or dates as may be prescribed by the Sec-
retary.
‘‘(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 transfer
has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grand-
parent of the transferor or of a grandparent
of the transferor’s spouse or former spouse,
and
‘‘(ii) is assigned to a generation below
the generation assignment of the transferor,
and
‘‘(C) such person predeceases the transferor,
then the transferor may make an allocation of any of
such transferor’s unused GST exemption to any pre-
vious transfer or transfers to the trust on a chrono-
logical 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 with-
in which the non-skip person’s death occurred—
‘‘(A) the value of such transfer or transfers
for purposes of section 2642(a) shall be deter-
mined as if such allocation had been made on a
timely filed gift tax return for each calendar
year within which each transfer was made,
‘‘(B) such allocation shall be effective imme-
diately 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 sec-
tion 2632(b) is amended by striking ‘‘with respect to a di-
rect 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 sub-
section (a)), and the amendment made by subsection
(b), shall apply to transfers subject to chapter 11 or
12 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 December 31, 1999.
SEC. 402. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642 (re-
lating 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 ‘qualified
severance’ means the division of a single
trust and the creation (by any means avail-
able under the governing instrument or
under local law) of two 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 severance
only if the single trust is divided into two
trusts, one of which receives a fractional
share of the total value of all trust assets
equal to the applicable fraction of the single
trust immediately before the severance. In
such case, the trust receiving such fractional
share shall have an inclusion ratio of zero
and the other trust shall have an inclusion
ratio of 1.
‘‘(iii) 
REGULATIONS.—The 
term
‘qualified severance’ includes any other sev-
erance 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 December 31, 1999.
SEC. 403. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR
DEEMED ALLOCATION MADE.—Paragraph (1) of section
2642(b) (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 allocation of
the GST exemption to any transfers of property is
made on a gift tax return filed on or before 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 purposes
of subsection (a) shall be its value as finally de-
termined 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 period, its value
at the time of the close of the estate 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 sec-
tion 2642(b)(2) is amended to read as follows:
‘‘(A) TRANSFERS AT DEATH.—If property is
transferred as a result of the death of the trans-
feror, the value of such property for purposes of
subsection (a) shall be its value as finally deter-
mined for purposes of chapter 11; except that, if
the requirements prescribed by the Secretary re-
specting 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 con-
cerned.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to transfers subject to chapter 11 or 12
of the Internal Revenue Code of 1986 made after December
31, 1999.
SEC. 404. RELIEF PROVISIONS.
(a) IN GENERAL.—Section 2642 is amended by adding
at the end the following new subsection:
‘‘(g) RELIEF PROVISIONS.—
‘‘(1) RELIEF FROM LATE ELECTIONS.—
‘‘(A) IN GENERAL.—The Secretary shall by
regulation prescribe such circumstances and pro-
cedures 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 re-
questing comparable relief with respect to trans-
fers made before the date of the enactment of this
paragraph.
‘‘(B) BASIS FOR DETERMINATIONS.—In de-
termining whether to grant relief under this
paragraph, the Secretary shall take into account
all relevant circumstances, including evidence of
intent contained in the trust instrument or in-
strument of transfer and such other factors as the
Secretary deems relevant. For purposes of deter-
mining whether to grant relief under this para-
graph, the time for making the allocation (or
election) shall be treated as if not expressly pre-
scribed by statute.
‘‘(2) SUBSTANTIAL COMPLIANCE.—An allocation
of GST exemption under section 2632 that dem-
onstrates an intent to have the lowest possible inclu-
sion ratio with respect to a transfer or a trust shall
be deemed to be an allocation of so much of the
transferor’s unused GST exemption as produces the
lowest possible inclusion ratio. In determining wheth-
er 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
FROM
LATE
ELECTIONS.—Section
2642(g)(1) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to requests pend-
ing on, or filed after, December 31, 1999.
(2) 
SUBSTANTIAL
COMPLIANCE.—Section
2642(g)(2) of such Code (as so added) shall apply to
transfers subject to chapter 11 or 12 of the Internal
Revenue Code of 1986 made after December 31, 1999.
No implication is intended with respect to the avail-
ability of relief from late elections or the application
of a rule of substantial compliance on or before such
date.
TITLE V—CONSERVATION
EASEMENTS
SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON-
SERVATION EASEMENTS.
(a) WHERE LAND IS LOCATED.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
2031(c)(8)(A) (defining land subject to a conservation
easement) is amended—
(A) by striking ‘‘25 miles’’ both places it
appears and inserting ‘‘50 miles’’, and
(B) striking ‘‘10 miles’’ and inserting ‘‘25
miles’’.
(2) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to estates of decedents
dying after December 31, 1999.
(b) CLARIFICATION
OF
DATE
FOR
DETERMINING
VALUE OF LAND AND EASEMENT.—
(1) IN GENERAL.—Section 2031(c)(2) (defining
applicable percentage) is amended by adding at the
end the following new sentence: ‘‘The values taken
into account under the preceding sentence shall be
such values as of the date of the contribution referred
to in paragraph (8)(B).’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to estates of decedents
dying after December 31, 1997.
Union Calendar No. 361
106TH CONGRESS
2D SESSION
H. R. 8
[Report No. 106–651]
A BILL
To amend the Internal Revenue Code of 1986 to
phaseout the estate and gift taxes over a 10-year
period.
JUNE 6, 2000
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union,
and ordered to be printed