I
107TH CONGRESS
2D SESSION
H. R. 5008
To amend the Internal Revenue Code of 1986 to limit the applicability
of the estate tax to estates of over $3,500,000, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 24, 2002
Mr. POMEROY 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 limit the
applicability of the estate tax to estates of over
$3,500,000, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. REPEAL OF CARRYOVER BASIS; ETC.
(a) IN GENERAL.—Subtitles A and E of title V of
the Economic Growth and Tax Relief Reconciliation Act
of 2001, and the amendments made by such subtitles, are
hereby repealed; and the Internal Revenue Code of 1986
shall be applied as if such subtitles, and amendments, had
never been enacted.
(b) SUNSET NOT TO APPLY.—
(1) Subsection (a) of section 901 of the Eco-
nomic Growth and Tax Relief Reconciliation Act of
2001 is amended by striking ‘‘this Act’’ and all that
follows and inserting ‘‘this Act (other than title V)
shall not apply to taxable, plan, or limitation years
beginning after December 31, 2010.’’.
(2) Subsection (b) of such section 901 is
amended by striking ‘‘, estates, gifts, and transfers’’.
(c) CONFORMING AMENDMENTS.—Subsections (d)
and (e) of section 511 of the Economic Growth and Tax
Relief Reconciliation Act of 2001, and the amendments
made by such subsections, are hereby repealed; and the
Internal Revenue Code of 1986 shall be applied as if such
subsections, and amendments, had never been enacted.
SEC. 2. MODIFICATIONS TO ESTATE TAX.
(a) INCREASE IN EXCLUSION EQUIVALENT OF UNI-
FIED CREDIT TO $3,500,000.—
(1) IN
GENERAL.—Subsection (c) of section
2010 of the Internal Revenue Code of 1986 (relating
to applicable credit amount) is amended by striking
all that follows ‘‘the applicable exclusion amount’’
and inserting ‘‘. For purposes of the preceding sen-
tence, the applicable exclusion amount is $3,500,000
($3,000,000 in the case of estates of decedents
SEC. 3. VALUATION RULES FOR CERTAIN TRANSFERS OF
NONBUSINESS ASSETS; LIMITATION ON MI-
NORITY DISCOUNTS.
(a) IN GENERAL.—Section 2031 of the Internal Rev-
enue Code of 1986 (relating to definition of gross estate)
is amended by redesignating subsection (d) as subsection
(f) and by inserting after subsection (c) the following new
subsections:
‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS
OF NONBUSINESS ASSETS.—For purposes of this chapter
and chapter 12—
‘‘(1) IN GENERAL.—In the case of the transfer
of any interest in an entity other than an interest
which is actively traded (within the meaning of sec-
tion 1092)—
‘‘(A) the value of any nonbusiness assets
held by the entity shall be determined as if the
transferor had transferred such assets directly
to the transferee (and no valuation discount
shall be allowed with respect to such nonbusi-
ness assets), and
‘‘(B) the nonbusiness assets shall not be
taken into account in determining the value of
the interest in the entity.
‘‘(2) NONBUSINESS ASSETS.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘nonbusi-
ness asset’ means any asset which is not used
in the active conduct of 1 or more trades or
businesses.
‘‘(B) EXCEPTION
FOR
CERTAIN
PASSIVE
ASSETS.—Except as provided in subparagraph
(C), a passive asset shall not be treated for pur-
poses of subparagraph (A) as used in the active
conduct of a trade or business unless—
‘‘(i) the asset is property described in
paragraph (1) or (4) of section 1221(a) or
is a hedge with respect to such property,
or
‘‘(ii) the asset is real property used in
the active conduct of 1 or more real prop-
erty trades or businesses (within the mean-
ing of section 469(c)(7)(C)) in which the
transferor materially participates and with
respect to which the transferor meets the
requirements of section 469(c)(7)(B)(ii).
For purposes of clause (ii), material participa-
tion shall be determined under the rules of sec-
tion 469(h), except that section 469(h)(3) shall
be applied without regard to the limitation to
farming activity.
‘‘(C) EXCEPTION
FOR
WORKING
CAP-
ITAL.—Any asset (including a passive asset)
which is held as a part of the reasonably re-
quired working capital needs of a trade or busi-
ness shall be treated as used in the active con-
duct of a trade or business.
‘‘(3) PASSIVE
ASSET.—For purposes of this
subsection, the term ‘passive asset’ means any—
‘‘(A) cash or cash equivalents,
‘‘(B) except to the extent provided by the
Secretary, stock in a corporation or any other
equity, profits, or capital interest in any entity,
‘‘(C) evidence of indebtedness, option, for-
ward or futures contract, notional principal con-
tract, or derivative,
‘‘(D) asset described in clause (iii), (iv), or
(v) of section 351(e)(1)(B),
‘‘(E) annuity,
‘‘(F) real property used in 1 or more real
property trades or businesses (as defined in sec-
tion 469(c)(7)(C)),
‘‘(G) asset (other than a patent, trade-
mark, or copyright) which produces royalty in-
come,
‘‘(H) commodity,
‘‘(I) collectible (within the meaning of sec-
tion 401(m)), or
‘‘(J) any other asset specified in regula-
tions prescribed by the Secretary.
‘‘(4) LOOK-THRU RULES.—
‘‘(A) IN GENERAL.—If a nonbusiness asset
of an entity consists of a 10-percent interest in
any other entity, this subsection shall be ap-
plied by disregarding the 10-percent interest
and by treating the entity as holding directly its
ratable share of the assets of the other entity.
This subparagraph shall be applied successively
to any 10-percent interest of such other entity
in any other entity.
‘‘(B) 10-PERCENT
INTEREST.—The term
‘10-percent interest’ means—
‘‘(i) in the case of an interest in a cor-
poration, ownership of at least 10 percent
(by vote or value) of the stock in such cor-
poration,
‘‘(ii) in the case of an interest in a
partnership, ownership of at least 10 per-
cent of the capital or profits interest in the
partnership, and
‘‘(iii) in any other case, ownership of
at least 10 percent of the beneficial inter-
ests in the entity.
‘‘(5) COORDINATION WITH SUBSECTION (b).—
Subsection (b) shall apply after the application of
this subsection.
‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For
purposes of this chapter and chapter 12, in the case of
the transfer of any interest in an entity other than an in-
terest which is actively traded (within the meaning of sec-
tion 1092), no discount shall be allowed by reason of the
fact that the transferee does not have control of such enti-
ty if the transferee and members of the family (as defined
in section 2032A(e)(2)) of the transferee have control of
such entity.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers after the date of the
enactment of this Act.
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