I 
113TH CONGRESS 
2D SESSION 
H. R. 4061 
To amend the Internal Revenue Code of 1986 to reform the estate and 
gift tax. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 14, 2014 
Mr. MCDERMOTT 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 reform 
the estate and gift 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 ‘‘Sensible Estate Tax 
Act of 2014’’. 
SEC. 2. MODIFICATION OF ESTATE TAX EXCLUSION AND ES-
TATE TAX RATES. 
(a) EXCLUSION AMOUNT.— 
(1) IN GENERAL.—Subparagraph (A) of section 
2010(c)(3) of the Internal Revenue Code of 1986 is 
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amended by striking ‘‘$5,000,000’’ and inserting 
‘‘$1,000,000’’. 
(2) INFLATION
ADJUSTMENT.—Subparagraph 
(B) of section 2010(c)(3) of such Code is amend-
ed— 
(A) by striking ‘‘2011’’ in the matter pre-
ceding clause (i) and inserting ‘‘2014’’, and 
(B) by striking ‘‘2010’’ in clause (ii) and 
inserting ‘‘2000’’. 
(b) ESTATE TAX RATES.— 
(1) IN GENERAL.—The table contained in sub-
section (c) of section 2001 of such Code is amended 
by striking ‘‘Over $1,000,000’’ and all that follows 
and inserting the following: 
‘‘Over $1,000,000 but not over 
$1,250,000.
$345,800, plus 41 percent of the 
excess of such amount over 
$1,000,000. 
Over $1,250,000 but not over 
$1,500,000.
$448,300, plus 43 percent of the 
excess of such amount over 
$1,250,000. 
Over $1,500,000 but not over 
$5,000,000.
$555,800, plus 45 percent of the 
excess of such amount over 
$1,500,000. 
Over $5,000,000 but not over 
$10,000,000.
$2,130,800, plus 50 percent of the 
excess of such amount over 
$5,000,000. 
Over $10,000,000 .........................
$4,630,800, plus 55 percent of the 
excess of such amount over 
$10,000,000.’’. 
(2) ADJUSTMENT FOR INFLATION.—Subsection 
(c) of section 2001 of such Code is amended— 
(A) by inserting the following before the 
table contained therein: 
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‘‘(1) IN GENERAL.—’’, and 
(B) by adding at the end the following new 
paragraph: 
‘‘(2) INFLATION ADJUSTMENT.—In the case of 
any decedent dying in a calendar year after 2014— 
‘‘(A) each minimum and maximum dollar 
amount for each rate bracket in the table in 
paragraph (1) shall be increased by an amount 
equal to— 
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such 
calendar year, determined by substituting 
‘2000’ for ‘1992’ in subparagraph (B) 
thereof, and 
‘‘(B) each of the amounts setting forth the 
tax under such table shall be adjusted to the 
extent necessary to reflect the adjustments in 
the rate brackets made by subparagraph (A). 
If any increase determined under subparagraph (A) 
is not a multiple of $10,000, such increase shall be 
rounded to the nearest multiple of $10,000.’’. 
(c) COORDINATION WITH GIFT TAX TO REFLECT 
DECREASE
IN
APPLICABLE
CREDIT
AMOUNT.—Sub-
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section (g) of section 2001 of such Code is amended to 
read as follows: 
‘‘(g) MODIFICATIONS TO GIFT TAX CALCULATION.— 
For purposes of applying subsection (b)(2) with respect 
to 1 or more gifts— 
‘‘(1) MODIFICATIONS TO REFLECT DIFFERENT 
TAX RATES.—The rates of tax under subsection (c) 
in effect at the decedent’s death shall, in lieu of the 
rates of tax in effect at the time of such gifts, be 
used both to compute— 
‘‘(A) the tax imposed by chapter 12 with 
respect to such gifts, and 
‘‘(B) the credit allowed against such tax 
under section 2505, including in computing— 
‘‘(i) the amount determined under 
section 2505(a)(1), and 
‘‘(ii) the sum of the amounts allowed 
as a credit for all preceding periods under 
section 2505(a)(2). 
‘‘(2) MODIFICATION TO REFLECT REDUCED AP-
PLICABLE
CREDIT
AMOUNTS.—The amount deter-
mined under section 2505(a)(1) for each calendar 
year shall not exceed the estate’s applicable credit 
amount under section 2010(c).’’. 
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SEC. 4. 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 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— 
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‘‘(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. 
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‘‘(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, 
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‘‘(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 
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‘‘(iii) in any other case, ownership of 
at least 10 percent of the beneficial inter-
ests in the entity. 
‘‘(C) EXCEPTION FOR ACTIVELY TRADED 
INTERESTS.—Subparagraph (A) shall not apply 
to any nonbusiness asset which consists of an 
interest which is actively traded (within the 
meaning of section 1092). 
‘‘(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 (determined immediately after such trans-
fer).’’. 
(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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SEC. 5. CONSISTENT BASIS REPORTING BETWEEN ESTATE 
AND PERSON ACQUIRING PROPERTY FROM 
DECEDENT. 
(a) CONSISTENT USE OF BASIS.— 
(1) PROPERTY
ACQUIRED
FROM
A
DECE-
DENT.—Section 1014 of the Internal Revenue Code 
of 1986 is amended by adding at the end the fol-
lowing new subsection: 
‘‘(f) BASIS MUST BE CONSISTENT WITH ESTATE 
TAX RETURN.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the value used to determine the basis of any in-
terest in property in the hands of the person acquir-
ing such property shall not exceed the value of such 
interest as finally determined for purposes of chap-
ter 11. 
‘‘(2) SPECIAL RULE WHERE NO FINAL DETER-
MINATION.—In any case in which the final value of 
property has not been determined under chapter 11 
and there has been a statement furnished under sec-
tion 6035(a), the value used to determine the basis 
of any interest in property in the hands of the per-
son acquiring such property shall not exceed the 
amount reported on any statement furnished under 
section 6035(a). 
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‘‘(3) REGULATIONS.—The Secretary may by 
regulations provide exceptions to the application of 
this subsection.’’. 
(2) PROPERTY
ACQUIRED
BY
GIFTS
AND 
TRANSFERS IN TRUST.—Section 1015 of the Inter-
nal Revenue Code of 1986 is amended by adding at 
the end the following new subsection: 
‘‘(f) BASIS MUST BE CONSISTENT GIFT TAX RE-
TURN.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the value used to determine the basis of any in-
terest in property in the hands of the person acquir-
ing such property shall not exceed the value of such 
interest as finally determined for purposes of chap-
ter 12. 
‘‘(2) SPECIAL RULE WHERE NO FINAL DETER-
MINATION.—In any case in which the final value of 
property has not been determined under chapter 12 
and there has been a statement furnished under sec-
tion 6035(b), the value used to determine the basis 
of any interest in property in the hands of the per-
son acquiring such property shall not exceed the 
amount reported on any statement furnished under 
section 6035(b). 
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‘‘(3) REGULATIONS.—The Secretary may by 
regulations provide exceptions to the application of 
this subsection.’’. 
(b) INFORMATION REPORTING.— 
(1) IN GENERAL.—Subpart A of part III of 
subchapter A of chapter 61 of the Internal Revenue 
Code of 1986 is amended by inserting after section 
6034A the following new section: 
‘‘SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING 
PROPERTY FROM DECEDENT OR BY GIFT. 
‘‘(a) INFORMATION WITH RESPECT TO PROPERTY 
ACQUIRED FROM DECEDENTS.— 
‘‘(1) IN GENERAL.—The executor of any estate 
required to file a return under section 6018(a) shall 
furnish to the Secretary and to each person acquir-
ing any interest in property included in the dece-
dent’s gross estate for Federal estate tax purposes 
a statement identifying the value of each interest in 
such property as reported on such return and such 
other information with respect to such interest as 
the Secretary may prescribe. 
‘‘(2) STATEMENTS
BY
BENEFICIARIES.—Each 
person required to file a return under section 
6018(b) shall furnish to the Secretary and to each 
other person who holds a legal or beneficial interest 
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in the property to which such return relates a state-
ment identifying the information described in para-
graph (1). 
‘‘(3) TIME FOR FURNISHING STATEMENT.— 
‘‘(A) IN
GENERAL.—Each statement re-
quired to be furnished under paragraph (1) or 
(2) shall be furnished at such time as the Sec-
retary may prescribe, but in no case at a time 
later than the earlier of— 
‘‘(i) the date which is 30 days after 
the date on which the return under section 
6018 was required to be filed (including 
extensions, if any), or 
‘‘(ii) the date which is 30 days after 
the date such return is filed. 
‘‘(B) ADJUSTMENTS.—In any case in 
which there is an adjustment to the information 
required to be included on a statement filed 
under paragraph (1) or (2) after such state-
ment has been filed, a supplemental statement 
under such paragraph shall be filed not later 
than the date which is 30 days after such ad-
justment is made. 
‘‘(b) INFORMATION WITH RESPECT TO PROPERTY 
ACQUIRED BY GIFT.— 
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‘‘(1) IN
GENERAL.—Each person making a 
transfer by gift who is required to file a return 
under section 6019 with respect to such transfer 
shall furnish to the Secretary and to each person ac-
quiring any interest in property by reason of such 
transfer a statement identifying the value of each in-
terest in such property as reported on such return 
and such other information with respect to such in-
terest as the Secretary may prescribe. 
‘‘(2) TIME FOR FURNISHING STATEMENT.— 
‘‘(A) IN
GENERAL.—Each statement re-
quired to be furnished under paragraph (1) 
shall be furnished at such time as the Secretary 
may prescribe, but in no case at a time later 
than the earlier of— 
‘‘(i) the date which is 30 days after 
the date on which the return under section 
6019 was required to be filed (including 
extensions, if any), or 
‘‘(ii) the date which is 30 days after 
the date such return is filed. 
‘‘(B) ADJUSTMENTS.—In any case in 
which there is an adjustment to the information 
required to be included on a statement filed 
under paragraph (1) after such statement has 
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been filed, a supplemental statement under 
such paragraph shall be filed not later than the 
date which is 30 days after such adjustment is 
made. 
‘‘(c) REGULATIONS.—The Secretary shall prescribe 
such regulations as necessary to carry out this section, in-
cluding regulations relating to— 
‘‘(1) the application of this section to property 
with regard to which no estate or gift tax return is 
required to be filed, and 
‘‘(2) situations in which the surviving joint ten-
ant or other recipient may have better information 
than the executor regarding the basis or fair market 
value of the property.’’. 
(2) PENALTY FOR FAILURE TO FILE.— 
(A) RETURN.—Section 6724(d)(1) of the 
Internal Revenue Code of 1986 is amended by 
striking ‘‘and’’ at the end of subparagraph (B), 
by striking the period at the end of subpara-
graph (C) and inserting ‘‘, and’’, and by insert-
ing after subparagraph (C) the following new 
subparagraph: 
‘‘(D) any statement required to be filed 
with the Secretary under section 6035.’’. 
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(B) STATEMENT.—Section 6724(d)(2) of 
such Code is amended by striking ‘‘or’’ at the 
end of subparagraph (GG), by striking the pe-
riod at the end of subparagraph (HH) and in-
serting ‘‘, or’’, and by inserting after subpara-
graph (HH) the following new subparagraph: 
‘‘(II) section 6035 (other than a statement 
described in paragraph (1)(D)).’’. 
(3) CLERICAL AMENDMENT.—The table of sec-
tions for subpart A of part III of subchapter A of 
chapter 61 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to sec-
tion 6034A the following new item: 
‘‘Sec. 6035. Basis information to persons acquiring property from decedent or 
by gift.’’. 
(c) PENALTY FOR INCONSISTENT REPORTING.— 
(1) IN
GENERAL.—Subsection (b) of section 
6662 of the Internal Revenue Code of 1986 is 
amended by inserting after paragraph (7) the fol-
lowing new paragraph: 
‘‘(8) Any inconsistent estate or gift basis.’’. 
(2) INCONSISTENT BASIS REPORTING.—Section 
6662 of such Code is amended by adding at the end 
the following new subsection: 
‘‘(k) INCONSISTENT ESTATE OR GIFT BASIS RE-
PORTING.—For purposes of this section, the term ‘incon-
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sistent estate or gift basis’ means the portion of the under-
statement which is attributable to— 
‘‘(1) in the case of property acquired from a de-
cedent, a basis determination with respect to such 
property which is not consistent with the value of 
such property as determined under section 1014(f), 
and 
‘‘(2) in the case of property acquired by gift, a 
basis determination with respect to such property 
which is not consistent with the value of such prop-
erty as determined under section 1015(f).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers for which returns are 
filed after the date of the enactment of this Act. 
SEC. 6. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR 
GRANTOR RETAINED ANNUITY TRUSTS. 
(a) IN GENERAL.—Subsection (b) of section 2702 of 
the Internal Revenue Code of 1986 is amended— 
(1) by redesignating paragraphs (1), (2), and 
(3) as subparagraphs (A), (B), and (C), respectively, 
and by moving such subparagraphs (as so redesig-
nated) 2 ems to the right; 
(2) by striking ‘‘For purposes of’’ and inserting 
the following: 
‘‘(1) IN GENERAL.—For purposes of’’; 
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(3) by striking ‘‘paragraph (1) or (2)’’ in para-
graph (1)(C) (as so redesignated) and inserting 
‘‘subparagraph (A) or (B)’’; and 
(4) by adding at the end the following new 
paragraph: 
‘‘(2) ADDITIONAL
REQUIREMENTS
WITH
RE-
SPECT
TO
GRANTOR
RETAINED
ANNUITIES.—For 
purposes of subsection (a), in the case of an interest 
described in paragraph (1)(A) (determined without 
regard to this paragraph) which is retained by the 
transferor, such interest shall be treated as de-
scribed in such paragraph only if— 
‘‘(A) the right to receive the fixed amounts 
referred to in such paragraph is for a term of 
not less than 10 years, 
‘‘(B) such fixed amounts, when determined 
on an annual basis, do not decrease relative to 
any prior year during the first 10 years of the 
term referred to in subparagraph (A), and 
‘‘(C) the remainder interest has a value 
greater than zero determined as of the time of 
the transfer.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers made after the date 
of the enactment of this Act. 
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SEC. 7. LIMITATION ON GST EXEMPTION OF PERPETUAL 
DYNASTY TRUSTS. 
(a) IN GENERAL.—Section 2642 of the Internal Rev-
enue Code of 1986 is amended by adding at the end the 
following new subsection: 
‘‘(h) EXPIRATION OF GST EXEMPTION 90 YEARS 
AFTER ESTABLISHMENT OF TRUST.— 
‘‘(1) IN GENERAL.—In the case of any genera-
tion-skipping transfer made from a trust after the 
date which is 90 years after the date on which such 
trust is created, the inclusion ratio with respect to 
any property transferred in such transfer shall be 1. 
‘‘(2) SPECIAL
RULES.—For purposes of this 
subsection— 
‘‘(A) DATE
OF
CREATION
OF
CERTAIN 
DEEMED
SEPARATE
TRUSTS.—In the case of 
any portion of a trust which is treated as a sep-
arate trust under section 2654(b)(1), such sep-
arate trust shall be treated as created on the 
date of the first transfer described in such sec-
tion with respect to such separate trust. 
‘‘(B) DATE OF CREATION OF POUR-OVER 
TRUSTS.—In the case of any generation-skip-
ping transfer of property which involves the 
transfer of property from 1 trust to another 
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trust, the date of the creation of the transferee 
trust shall be treated as being the earlier of— 
‘‘(i) the date of the creation of such 
transferee trust, or 
‘‘(ii) the date of the creation of the 
transferor trust. 
In the case of multiple transfers to which the 
preceding sentence applies, the date of the cre-
ation of the transferor trust shall be determined 
under the preceding sentence before the appli-
cation of the preceding sentence to determine 
the date of the creation of the transferee trust. 
‘‘(C) EXCEPTION
FOR
CERTAIN
TRANS-
FERS
FOR
EDUCATION
AND
MEDICAL
EX-
PENSES.—Subparagraph (B) shall not apply to 
the transfer of property from 1 trust to another 
trust if— 
‘‘(i) such transfer is described in sec-
tion 2642(c)(2), and 
‘‘(ii) the individual referred to in such 
section with respect to the transferee trust 
was also a beneficiary of the transferor 
trust. 
‘‘(3) REGULATIONS.—The Secretary may pre-
scribe such regulations or other guidance as may be 
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necessary or appropriate to carry out this sub-
section.’’. 
(b) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made this 
section shall apply to— 
(A) trusts created after the date of the en-
actment of this Act, and 
(B) generation-skipping transfers made 
from trusts created on or before such date, but 
only to the extent such transfer is made out of 
corpus added to the trust after such date (or 
out of income attributable to corpus so added). 
(2) DETERMINATION OF DATE OF CREATION.— 
For purposes of this subsection, the rules of sections 
2642(h)(2) (as added by this section) and 2654(b) 
of the Internal Revenue Code of 1986 shall apply for 
purposes of determining the date of the creation of 
any trust. 
(3) EXCEPTIONS.—The Secretary of the Treas-
ury, or his designee, shall issue regulations or other 
guidance which provide exceptions to the application 
of the amendments made by this section which are 
substantially similar to the relevant exceptions under 
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paragraph (2) of section 1433(b) of the Tax Reform 
Act of 1986. 
Æ 
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