H. R. 2491—665
(C) The section heading for section 1375 is amended by
striking ‘‘SUBCHAPTER C’’ and inserting ‘‘ACCUMULATED’’.
(D) The table of sections for part III of subchapter S of
chapter 1 is amended by striking ‘‘subchapter C’’ in the item
relating to section 1375 and inserting ‘‘accumulated’’.
(3) Clause (i) of section 1042(c)(4)(A) is amended by striking
‘‘section 1362(d)(3)(D)’’ and inserting ‘‘section 1362(d)(3)(C)’’.
SEC. 11512. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS
UNDER AT-RISK RULES ALLOWED.
Paragraph (3) of section 1366(d) (relating to carryover of dis-
allowed losses and deductions to post-termination transition period)
is amended by adding at the end the following new subparagraph:
‘‘(D) AT-RISK
LIMITATIONS.—To the extent that any
increase in adjusted basis described in subparagraph (B)
would have increased the shareholder’s amount at risk
under section 465 if such increase had occurred on the
day preceding the commencement of the post-termination
transition period, rules similar to the rules described in
subparagraphs (A) through (C) shall apply to any losses
disallowed by reason of section 465(a).’’
SEC. 11513. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO
REFLECT CERTAIN ITEMS OF INCOME.
(a) IN GENERAL.—Subsection (b) of section 1367 (relating to
adjustments to basis of stock of shareholders, etc.) is amended
by adding at the end the following new paragraph:
‘‘(4) ADJUSTMENTS IN CASE OF INHERITED STOCK.—
‘‘(A) IN GENERAL.—If any person acquires stock in an
S corporation by reason of the death of a decedent or
by bequest, devise, or inheritance, section 691 shall be
applied with respect to any item of income of the S corpora-
tion in the same manner as if the decedent had held
directly his pro rata share of such item.
‘‘(B) ADJUSTMENTS
TO
BASIS.—The basis determined
under section 1014 of any stock in an S corporation shall
be reduced by the portion of the value of the stock which
is attributable to items constituting income in respect of
the decedent.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply in the case of decedents dying after the date of the
enactment of this Act.
SEC. 11514. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO
REAL 
PROPERTY 
SUBDIVIDED 
FOR 
SALE 
BY
NONCORPORATE TAXPAYERS.
(a) IN GENERAL.—Subsection (a) of section 1237 (relating to
real property subdivided for sale) is amended by striking ‘‘other
than a corporation’’ in the material preceding paragraph (1) and
inserting ‘‘other than a C corporation’’.
(b) CONFORMING AMENDMENT.—Subparagraph (A) of section
1237(a)(2) is amended by inserting ‘‘an S corporation which included
the taxpayer as a shareholder,’’ after ‘‘controlled by the taxpayer,’’.
SEC. 11515. EFFECTIVE DATE.
(a) IN GENERAL.—Except as otherwise provided in this sub-
chapter, the amendments made by this subchapter shall apply
to taxable years beginning after December 31, 1995.
H. R. 2491—666
(b) TREATMENT OF CERTAIN ELECTIONS UNDER PRIOR LAW.—
For purposes of section 1362(g) of the Internal Revenue Code of
1986 (relating to election after termination), any termination under
section 1362(d) of such Code in a taxable year beginning before
January 1, 1996, shall not be taken into account.
Subchapter B—Repeal of 30-Percent Gross Income
Limitation on Regulated Investment Companies
SEC. 11521. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.
(a) GENERAL RULE.—Subsection (b) of section 851 (relating
to limitations) is amended by striking paragraph (3), by adding
‘‘and’’ at the end of paragraph (2), and by redesignating paragraph
(4) as paragraph (3).
(b) TECHNICAL AMENDMENTS.—
(1) The material following paragraph (3) of section 851(b)
(as redesignated by subsection (a)) is amended—
(A) by striking out ‘‘paragraphs (2) and (3)’’ and insert-
ing ‘‘paragraph (2)’’, and
(B) by striking out the last sentence thereof.
(2) Subsection (c) of section 851 is amended by striking
‘‘subsection (b)(4)’’ each place it appears (including the heading)
and inserting ‘‘subsection (b)(3)’’.
(3) Subsection (d) of section 851 is amended by striking
‘‘subsections (b)(4)’’ and inserting ‘‘subsections (b)(3)’’.
(4) Paragraph (1) of section 851(e) is amended by striking
‘‘subsection (b)(4)’’ and inserting ‘‘subsection (b)(3)’’.
(5) Paragraph (4) of section 851(e) is amended by striking
‘‘subsections (b)(4)’’ and inserting ‘‘subsections (b)(3)’’.
(6) Section 851 is amended by striking subsection (g) and
redesignating subsection (h) as subsection (g).
(7) Subsection (g) of section 851 (as redesignated by para-
graph (6)) is amended by striking paragraph (3).
(8) Section 817(h)(2) is amended—
(A) by striking ‘‘851(b)(4)’’ in subparagraph (A) and
inserting ‘‘851(b)(3)’’, and
(B) by striking ‘‘851(b)(4)(A)(i)’’ in subparagraph (B)
and inserting ‘‘851(b)(3)(A)(i)’’.
(9) Section 1092(f)(2) is amended by striking ‘‘Except for
purposes of section 851(b)(3), the’’ and inserting ‘‘The’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending after the date of the enactment
of this Act.
Subchapter C—Accounting Provisions
SEC. 11551. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM
CONTRACTS.
(a) LOOK-BACK METHOD NOT TO APPLY IN CERTAIN CASES.—
Subsection (b) of section 460 (relating to percentage of completion
method) is amended by adding at the end the following new para-
graph:
‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD NOT APPLY IN
DE MINIMIS CASES.—
‘‘(A) AMOUNTS TAKEN INTO ACCOUNT AFTER COMPLETION
OF
CONTRACT.—Paragraph (1)(B) shall not apply with
H. R. 2491—667
respect to any taxable year (beginning after the taxable
year in which the contract is completed) if—
‘‘(i) the cumulative taxable income (or loss) under
the contract as of the close of such taxable year, is
within
‘‘(ii) 10 percent of the cumulative look-back taxable
income (or loss) under the contract as of the close
of the most recent taxable year to which paragraph
(1)(B) applied (or would have applied but for subpara-
graph (B)).
‘‘(B) DE
MINIMIS
DISCREPANCIES.—Paragraph (1)(B)
shall not apply in any case to which it would otherwise
apply if—
‘‘(i) the cumulative taxable income (or loss) under
the contract as of the close of each prior contract year,
is within
‘‘(ii) 10 percent of the cumulative look-back income
(or loss) under the contract as of the close of such
prior contract year.
‘‘(C) DEFINITIONS.—For purposes of this paragraph—
‘‘(i) CONTRACT
YEAR.—The term ‘contract year’
means any taxable year for which income is taken
into account under the contract.
‘‘(ii) LOOK-BACK INCOME OR LOSS.—The look-back
income (or loss) is the amount which would be the
taxable income (or loss) under the contract if the alloca-
tion method set forth in paragraph (2)(A) were used
in determining taxable income.
‘‘(iii) DISCOUNTING NOT APPLICABLE.—The amounts
taken into account after the completion of the contract
shall be determined without regard to any discounting
under the 2nd sentence of paragraph (2).
‘‘(D) CONTRACTS TO WHICH PARAGRAPH APPLIES.—This
paragraph shall only apply if the taxpayer makes an elec-
tion under this subparagraph. Unless revoked with the
consent of the Secretary, such an election shall apply to
all long-term contracts completed during the taxable year
for which election is made or during any subsequent taxable
year.’’
(b) MODIFICATION OF INTEREST RATE.—
(1) IN
GENERAL.—Subparagraph (C) of section 460(b)(2)
is amended by striking ‘‘the overpayment rate established by
section 6621’’ and inserting ‘‘the adjusted overpayment rate
(as defined in paragraph (7))’’.
(2) ADJUSTED OVERPAYMENT RATE.—Subsection (b) of sec-
tion 460 is amended by adding at the end the following new
paragraph:
‘‘(7) ADJUSTED OVERPAYMENT RATE.—
‘‘(A) IN GENERAL.—The adjusted overpayment rate for
any interest accrual period is the overpayment rate in
effect under section 6621 for the calendar quarter in which
such interest accrual period begins.
‘‘(B) INTEREST
ACCRUAL
PERIOD.—For purposes of
subparagraph (A), the term ‘interest accrual period’ means
the period—
‘‘(i) beginning on the day after the return due
date for any taxable year of the taxpayer, and
H. R. 2491—668
‘‘(ii) ending on the return due date for the following
taxable year.
For purposes of the preceding sentence, the term ‘return
due date’ means the date prescribed for filing the return
of the tax imposed by this chapter (determined without
regard to extensions).’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to contracts completed in taxable years ending after
the date of the enactment of this Act.
SEC. 11552. APPLICATION OF MARK TO MARKET ACCOUNTING METHOD
TO TRADERS IN SECURITIES.
(a) IN GENERAL.—Section 475 (relating to mark to market
accounting method for dealers in securities) is amended by
redesignating subsection (e) as subsection (f) and by inserting after
subsection (d) the following new subsection:
‘‘(e) AUTHORITY TO EXTEND METHOD TO TRADERS IN SECURI-
TIES.—
‘‘(1) IN GENERAL.—A trader in securities may elect to have
the provisions of this section (other than subsection (d)(3))
apply to securities held by the trader. Such election may be
made only with the consent of the Secretary.
‘‘(2) TRADER
IN
SECURITIES.—For purposes of this sub-
section, the term ‘trader in securities’ means a taxpayer who
is regularly engaged in trading securities.’’
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years ending on and after December 31,
1995.
SEC. 11553. MODIFICATION OF RULING AMOUNTS FOR NUCLEAR
DECOMMISSIONING COSTS.
(a) IN GENERAL.—Section 468A(d) (relating to ruling amount)
is amended by adding at the end the following new paragraph:
‘‘(4) NONSUBSTANTIAL
MODIFICATIONS.—A taxpayer
may modify a schedule of ruling amounts under paragraph
(1) without a review under paragraph (3) if such modifica-
tion does not substantially modify the ruling amount. The
taxpayer shall notify the Secretary of any such modifica-
tion.’’
(b) EFFECTIVE DATE.—The amendment made by this section
shall apply to modifications after the date of the enactment of
this Act.
Subchapter D—Tax-Exempt Bond Provision
SEC. 11561. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVEST-
MENT IN CERTAIN NONPURPOSE INVESTMENTS.
(a) IN GENERAL.—Subsection (d) of section 148 (relating to
special rules for reasonably required reserve or replacement fund)
is amended by striking paragraph (3).
(b) EFFECTIVE DATE.—The amendments made by this part shall
apply to bonds issued after the date of the enactment of this
Act.
H. R. 2491—669
Subchapter E—Insurance Provisions
SEC. 11571. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON
RETIRED LIVES.
(a) GENERAL RULE.—
(1) Paragraph (2) of section 817(d) (defining variable con-
tract) is amended by striking ‘‘or’’ at the end of subparagraph
(A), by striking ‘‘and’’ at the end of subparagraph (B) and
inserting ‘‘or’’, and by inserting after subparagraph (B) the
following new subparagraph:
‘‘(C) provides for funding of insurance on retired lives
as described in section 807(c)(6), and’’.
(2) Paragraph (3) of section 817(d) is amended by striking
‘‘or’’ at the end of subparagraph (A), by striking the period
at the end of subparagraph (B) and inserting ‘‘, or’’, and by
inserting after subparagraph (B) the following new subpara-
graph:
‘‘(C) in the case of funds held under a contract described
in paragraph (2)(C), the amounts paid in, or the amounts
paid out, reflect the investment return and the market
value of the segregated asset account.’’.
(b) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
SEC. 11572. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.
(a) GENERAL RULE.—Subpart E of part I of subchapter L of
chapter 1 (relating to definitions and special rules) is amended
by inserting after section 817 the following new section:
‘‘SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.
‘‘(a) COMPUTATION OF RESERVES.—In the case of a modified
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not
apply.
‘‘(b) SEGREGATED ASSETS UNDER MODIFIED GUARANTEED CON-
TRACTS MARKED TO MARKET.—
‘‘(1) IN GENERAL.—In the case of any life insurance com-
pany, for purposes of this subtitle—
‘‘(A) Any gain or loss with respect to a segregated
asset shall be treated as ordinary income or loss, as the
case may be.
‘‘(B) If any segregated asset is held by such company
as of the close of any taxable year—
‘‘(i) such company shall recognize gain or loss as
if such asset were sold for its fair market value on
the last business day of such taxable year, and
‘‘(ii) any such gain or loss shall be taken into
account for such taxable year.
Proper adjustment shall be made in the amount of any
gain or loss subsequently realized for gain or loss taken
into account under the preceding sentence. The Secretary
may provide by regulations for the application of this
subparagraph at times other than the times provided in
this subparagraph.
‘‘(2) SEGREGATED ASSET.—For purposes of paragraph (1),
the term ‘segregated asset’ means any asset held as part of
a segregated account referred to in subsection (d)(1) under
a modified guaranteed contract.
H. R. 2491—670
‘‘(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE RESERVES.—
For purposes of applying section 816(b)(1)(A) to any modified
guaranteed contract, an assumed rate of interest shall include a
rate of interest determined, from time to time, with reference to
a market rate of interest.
‘‘(d) MODIFIED GUARANTEED CONTRACT DEFINED.—For purposes
of this section, the term ‘modified guaranteed contract’ means a
contract not described in section 817—
‘‘(1) all or part of the amounts received under which are
allocated to an account which, pursuant to State law or regula-
tion, is segregated from the general asset accounts of the com-
pany and is valued from time to time with reference to market
values,
‘‘(2) which—
‘‘(A) provides for the payment of annuities,
‘‘(B) is a life insurance contract, or
‘‘(C) is a pension plan contract which is not a life,
accident, health, property, casualty, or liability contract,
‘‘(3) for which reserves are valued at market for annual
statement purposes, and
‘‘(4) which provides for a net surrender value or a policy-
holder’s fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817,
such portion shall be treated for purposes of this section as a
separate contract.
‘‘(e) REGULATIONS.—The Secretary may prescribe regulations—
‘‘(1) to provide for the treatment of market value adjust-
ments under sections 72, 7702, 7702A, and 807(e)(1)(B),
‘‘(2) to determine the interest rates applicable under sec-
tions 807(c)(3), 807(d)(2)(B), and 812 with respect to a modified
guaranteed contract annually, in a manner appropriate for
modified guaranteed contracts and, to the extent appropriate
for such a contract, to modify or waive the applicability of
section 811(d),
‘‘(3) to provide rules to limit ordinary gain or loss treatment
to assets constituting reserves for modified guaranteed con-
tracts (and not other assets) of the company,
‘‘(4) to provide appropriate treatment of transfers of assets
to and from the segregated account, and
‘‘(5) as may be necessary or appropriate to carry out the
purposes of this section.’’.
(b) CLERICAL AMENDMENT.—The table of sections for subpart
E of part I of subchapter L of chapter 1 is amended by inserting
after the item relating to section 817 the following new item:
‘‘Sec. 817A. Special rules for modified guaranteed contracts.’’.
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply to taxable years beginning after December 31, 1995.
(2) TREATMENT OF NET ADJUSTMENTS.—In the case of any
taxpayer required by the amendments made by this section
to change its calculation of reserves to take into account market
value adjustments and to mark segregated assets to market
for any taxable year—
(A) such changes shall be treated as a change in
method of accounting initiated by the taxpayer,
H. R. 2491—671
(B) such changes shall be treated as made with the
consent of the Secretary, and
(C) the adjustments required by reason of section 481
of the Internal Revenue Code of 1986 shall be taken into
account as ordinary income or loss by the taxpayer for
the taxpayer’s first taxable year beginning after December
31, 1995.
Subchapter F—Other Provisions
SEC. 11581. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT
TO DECEASED PARTNER, ETC.
(a) GENERAL RULE.—Subparagraph (A) of section 706(c)(2)
(relating to disposition of entire interest) is amended to read as
follows:
‘‘(A) DISPOSITION
OF
ENTIRE
INTEREST.—The taxable
year of a partnership shall close with respect to a partner
whose entire interest in the partnership terminates
(whether by reason of death, liquidation, or otherwise).’’
(b) CLERICAL AMENDMENT.—The paragraph heading for para-
graph (2) of section 706(c) is amended to read as follows:
‘‘(2) TREATMENT OF DISPOSITIONS.—’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to partnership taxable years beginning after December
31, 1995.
SEC. 11582. CREDIT FOR SOCIAL SECURITY TAXES PAID WITH RESPECT
TO EMPLOYEE CASH TIPS.
(a) REPORTING REQUIREMENT NOT CONSIDERED.—Subparagraph
(A) of section 45B(b)(1) (relating to excess employer social security
tax) is amended by inserting ‘‘(without regard to whether such
tips are reported under section 6053)’’ after ‘‘section 3121(q)’’.
(b) TAXES PAID.—Subsection (d) of section 13443 of the Revenue
Reconciliation Act of 1993 is amended by inserting ‘‘, with respect
to services performed before, on, or after such date’’ after ‘‘1993’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall take effect as if included in the amendments made by, and
the provisions of, section 13443 of the Revenue Reconciliation Act
of 1993.
SEC. 11583. DUE DATE FOR FIRST QUARTER ESTIMATED TAX PAY-
MENTS BY PRIVATE FOUNDATIONS.
(a) IN GENERAL.—Paragraph (3) of section 6655(g) is amended
by inserting after subparagraph (C) the following new subpara-
graph:
‘‘(D) In the case of any private foundation, subsection
(c)(2) shall be applied by substituting ‘May 15’ for ‘April
15 ’ ’’.
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to taxable years beginning after December 31, 1995.
H. R. 2491—672
CHAPTER 6—ESTATES AND TRUSTS
Subchapter A—Income Tax Provisions
SEC. 11601. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF
ESTATE.
(a) IN GENERAL.—Subpart A of part I of subchapter J (relating
to estates, trusts, beneficiaries, and decedents) is amended by add-
ing at the end the following new section:
‘‘SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF
ESTATE.
‘‘(a) GENERAL RULE.—For purposes of this subtitle, if both
the executor (if any) of an estate and the trustee of a qualified
revocable trust elect the treatment provided in this section, such
trust shall be treated and taxed as part of such estate (and not
as a separate trust) for all taxable years of the estate ending
after the date of the decedent’s death and before the applicable
date.
‘‘(b) DEFINITIONS.—For purposes of subsection (a)—
‘‘(1) QUALIFIED REVOCABLE TRUST.—The term ‘qualified rev-
ocable trust’ means any trust (or portion thereof) which was
treated under section 676 as owned by the decedent of the
estate referred to in subsection (a) by reason of a power in
the grantor (determined without regard to section 672(e)).
‘‘(2) APPLICABLE DATE.—The term ‘applicable date’ means—
‘‘(A) if no return of tax imposed by chapter 11 is
required to be filed, the date which is 2 years after the
date of the decedent’s death, and
‘‘(B) if such a return is required to be filed, the date
which is 6 months after the date of the final determination
of the liability for tax imposed by chapter 11.
‘‘(c) ELECTION.—The election under subsection (a) shall be made
not later than the time prescribed for filing the return of tax
imposed by this chapter for the first taxable year of the estate
(determined with regard to extensions) and, once made, shall be
irrevocable.’’
(b) COMPARABLE
TREATMENT
UNDER
GENERATION-SKIPPING
TAX.—Paragraph (1) of section 2652(b) is amended by adding at
the end the following new sentence: ‘‘Such term shall not include
any trust during any period the trust is treated as part of an
estate under section 646.’’
(c) CLERICAL AMENDMENT.—The table of sections for such sub-
part A is amended by adding at the end the following new item:
‘‘Sec. 646. Certain revocable trusts treated as part of estate.’’
(d) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to estates of decedents dying after the
date of the enactment of this Act.
SEC. 11602. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR
OF ESTATE.
(a) IN GENERAL.—Subsection (b) of section 663 (relating to
distributions in first 65 days of taxable year) is amended by insert-
ing ‘‘an estate or’’ before ‘‘a trust’’ each place it appears.
(b) CONFORMING AMENDMENT.—Paragraph (2) of section 663(b)
is amended by striking ‘‘the fiduciary of such trust’’ and inserting
H. R. 2491—673
‘‘the executor of such estate or the fiduciary of such trust (as
the case may be)’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 
11603. 
SEPARATE 
SHARE 
RULES 
AVAILABLE 
TO
ESTATES.
(a) IN GENERAL.—Subsection (c) of section 663 (relating to
separate shares treated as separate trusts) is amended—
(1) by inserting before the last sentence the following new
sentence: ‘‘Rules similar to the rules of the preceding provisions
of this subsection shall apply to treat substantially separate
and independent shares of different beneficiaries in an estate
having more than 1 beneficiary as separate estates.’’, and
(2) by inserting ‘‘or estates’’ after ‘‘trusts’’ in the last sen-
tence.
(b) CONFORMING AMENDMENT.—The subsection heading of sec-
tion 663(c) is amended by inserting ‘‘ESTATES OR’’ before ‘‘TRUSTS’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 11604. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS
RELATED PERSONS FOR DISALLOWANCE OF LOSSES,
ETC.
(a) DISALLOWANCE OF LOSSES.—Subsection (b) of section 267
(relating to losses, expenses, and interest with respect to trans-
actions between related taxpayers) is amended by striking ‘‘or’’
at the end of paragraph (11), by striking the period at the end
of paragraph (12) and inserting ‘‘; or’’, and by adding at the end
the following new paragraph:
‘‘(13) Except in the case of a sale or exchange in satisfaction
of a pecuniary bequest, an executor of an estate and a bene-
ficiary of such estate.’’
(b) ORDINARY INCOME FROM GAIN FROM SALE OF DEPRECIABLE
PROPERTY.—Subsection (b) of section 1239 is amended by striking
the period at the end of paragraph (2) and inserting ‘‘, and’’ and
by adding at the end the following new paragraph:
‘‘(3) except in the case of a sale or exchange in satisfaction
of a pecuniary bequest, an executor of an estate and a bene-
ficiary of such estate.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
SEC. 11605. LIMITATION ON TAXABLE YEAR OF ESTATES.
(a) IN GENERAL.—Section 645 (relating to taxable year of trusts)
is amended to read as follows:
‘‘SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.
‘‘(a) ESTATES.—For purposes of this subtitle, the taxable year
of an estate shall be a year ending on October 31, November
30, or December 31.
‘‘(b) TRUSTS.—
‘‘(1) IN GENERAL.—For purposes of this subtitle, the taxable
year of any trust shall be the calendar year.
H. R. 2491—674
‘‘(2) EXCEPTION FOR TRUSTS EXEMPT FROM TAX AND CHARI-
TABLE TRUSTS.—Paragraph (1) shall not apply to a trust exempt
from taxation under section 501(a) or to a trust described
in section 4947(a)(1).’’
(b) CLERICAL AMENDMENT.—The table of sections for subpart
A of part I of subchapter J of chapter 1 is amended by striking
the item relating to section 645 and inserting the following new
item:
‘‘Sec. 645. Taxable year of estates and trusts.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to estates of decedents dying after the date of the
enactment of this Act.
SEC. 11606. TREATMENT OF FUNERAL TRUSTS.
(a) IN GENERAL.—Subpart F of part I of subchapter J of chapter
1 is amended by adding at the end the following new section:
‘‘SEC. 684. TREATMENT OF FUNERAL TRUSTS.
‘‘(a) IN GENERAL.—In the case of a qualified funeral trust—
‘‘(1) subparts B, C, D, and E shall not apply, and
‘‘(2) no deduction shall be allowed by section 642(b).
‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of this sub-
section, the term ‘qualified funeral trust’ means any trust (other
than a foreign trust) if—
‘‘(1) the trust arises as a result of a contract with a person
engaged in the trade or business of providing funeral or burial
services or property necessary to provide such services,
‘‘(2) the sole purpose of the trust is to hold, invest, and
reinvest funds in the trust and to use such funds solely to
make payments for such services or property for the benefit
of the beneficiaries of the trust,
‘‘(3) the only beneficiaries of such trust are individuals
who have entered into contracts described in paragraph (1)
to have such services or property provided at their death,
‘‘(4) the only contributions to the trust are contributions
by or for the benefit of such beneficiaries,
‘‘(5) the trustee elects the application of this subsection,
and
‘‘(6) the trust would (but for the election described in para-
graph (5)) be treated as owned by the beneficiaries under sub-
part E.
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral trust’ shall
not include any trust which accepts aggregate contributions
by or for the benefit of an individual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of paragraph (1), all
trusts having trustees which are related persons shall be
treated as 1 trust. For purposes of the preceding sentence,
persons are related if—
‘‘(A) the relationship between such persons would
result in the disallowance of losses under section 267 or
707(b),
‘‘(B) such persons are treated as a single employer
under subsection (a) or (b) of section 52, or
H. R. 2491—675
‘‘(C) the Secretary determines that treating such per-
sons as related is necessary to prevent avoidance of the
purposes of this section.
‘‘(3) INFLATION ADJUSTMENT.—In the case of any contract
referred to in subsection (b)(1) which is entered into during
any calendar year after 1996, the dollar amount referred to
paragraph (1) shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year, by substituting ‘cal-
endar year 1995’ for ‘calendar year 1992’ in subparagraph
(B) thereof.
If any dollar amount after being increased under the preceding
sentence is not a multiple of $100, such dollar amount shall
be rounded to the nearest multiple of $100.
‘‘(d) APPLICATION OF RATE SCHEDULE.—Section 1(e) shall be
applied to each qualified funeral trust by treating each beneficiary’s
interest in each such trust as a separate trust.
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BENEFICIARY ON
CANCELLATION.—No gain or loss shall be recognized to a beneficiary
described in subsection (b)(3) of any qualified funeral trust by
reason of any payment from such trust to such beneficiary by
reason of cancellation of a contract referred to in subsection (b)(1).
If any payment referred to in the preceding sentence consists of
property other than money, the basis of such property in the hands
of such beneficiary shall be the same as the trust’s basis in such
property immediately before the payment.
‘‘(f) SIMPLIFIED REPORTING.—The Secretary may prescribe rules
for simplified reporting of all trusts having a single trustee.’’
(b) CLERICAL AMENDMENT.—The table of sections for subpart
F of part I of subchapter J of chapter 1 is amended by adding
at the end the following new item:
‘‘Sec. 684. Treatment of funeral trusts.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to taxable years beginning after the date of the enact-
ment of this Act.
Subchapter B—Estate and Gift Tax Provisions
SEC. 11611. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF
RECOVERY.
(a) AMENDMENT TO SECTION 2207A.—Paragraph (2) of section
2207A(a) (relating to right of recovery in the case of certain marital
deduction property) is amended to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—Paragraph (1)
shall not apply with respect to any property to the extent
that the decedent in his will (or a revocable trust) specifically
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.’’
(b) AMENDMENT TO SECTION 2207B.—Paragraph (2) of section
2207B(a) (relating to right of recovery where decedent retained
interest) is amended to read as follows:
‘‘(2) DECEDENT
MAY
OTHERWISE
DIRECT.—Paragraph (1)
shall not apply with respect to any property to the extent
that the decedent in his will (or a revocable trust) specifically
H. R. 2491—676
indicates an intent to waive any right of recovery under this
subchapter with respect to such property.’’
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply with respect to the estates of decedents dying after
the date of the enactment of this Act.
SEC. 11612. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT’S
DEATH.
(a) GENERAL RULE.—Section 2035 is amended to read as follows:
‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS
OF DECEDENT’S DEATH.
‘‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS ESTATE.—If—
‘‘(1) the decedent made a transfer (by trust or otherwise)
of an interest in any property, or relinquished a power with
respect to any property, during the 3-year period ending on
the date of the decedent’s death, and
‘‘(2) the value of such property (or an interest therein)
would have been included in the decedent’s gross estate under
section 2036, 2037, 2038, or 2042 if such transferred interest
or relinquished power had been retained by the decedent on
the date of his death,
the value of the gross estate shall include the value of any property
(or interest therein) which would have been so included.
‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DURING 3 YEARS
BEFORE DECEDENT’S DEATH.—The amount of the gross estate (deter-
mined without regard to this subsection) shall be increased by
the amount of any tax paid under chapter 12 by the decedent
or his estate on any gift made by the decedent or his spouse
during the 3-year period ending on the date of the decedent’s
death.
‘‘(c) OTHER RULES RELATING TO TRANSFERS WITHIN 3 YEARS
OF DEATH.—
‘‘(1) IN GENERAL.—For purposes of—
‘‘(A) section 303(b) (relating to distributions in redemp-
tion of stock to pay death taxes),
‘‘(B) section 2032A (relating to special valuation of
certain farms, etc., real property), and
‘‘(C) subchapter C of chapter 64 (relating to lien for
taxes),
the value of the gross estate shall include the value of all
property to the extent of any interest therein of which the
decedent has at any time made a transfer, by trust or otherwise,
during the 3-year period ending on the date of the decedent’s
death.
‘‘(2) COORDINATION
WITH
SECTION
6166.—An estate shall
be treated as meeting the 35 percent of adjusted gross estate
requirement of section 6166(a)(1) only if the estate meets such
requirement both with and without the application of paragraph
(1).
‘‘(3) MARITAL AND SMALL TRANSFERS.—Paragraph (1) shall
not apply to any transfer (other than a transfer with respect
to a life insurance policy) made during a calendar year to
any donee if the decedent was not required by section 6019
(other than by reason of section 6019(2)) to file any gift tax
return for such year with respect to transfers to such donee.
H. R. 2491—677
‘‘(d) EXCEPTION.—Subsection (a) shall not apply to any bona
fide sale for an adequate and full consideration in money or money’s
worth.
‘‘(e) TREATMENT
OF CERTAIN TRANSFERS FROM REVOCABLE
TRUSTS.—For purposes of this section and section 2038, any transfer
from any portion of a trust during any period that such portion
was treated under section 676 as owned by the decedent by reason
of a power in the grantor (determined without regard to section
672(e)) shall be treated as a transfer made directly by the decedent.’’
(b) CLERICAL AMENDMENT.—The table of sections for part III
of subchapter A of chapter 11 is amended by striking ‘‘gifts’’ in
the item relating to section 2035 and inserting ‘‘certain gifts’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 11613. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST
RULES.
(a) GENERAL RULE.—
(1) ESTATE TAX.—Subparagraph (B) of section 2056(b)(7)
(defining qualified terminable interest property) is amended
by adding at the end the following new clause:
‘‘(vi) TREATMENT
OF
CERTAIN
INCOME
DISTRIBU-
TIONS.—An income interest shall not fail to qualify
as a qualified income interest for life solely because
income for the period after the last distribution date
and on or before the date of the surviving spouse’s
death is not required to be distributed to the surviving
spouse or to the estate of the surviving spouse.’’
(2) GIFT TAX.—Paragraph (3) of section 2523(f) is amended
by striking ‘‘and (iv)’’ and inserting ‘‘(iv), and (vi)’’.
(b) CLARIFICATION OF SUBSEQUENT INCLUSIONS.—Section 2044
is amended by adding at the end the following new subsection:
‘‘(d) CLARIFICATION OF INCLUSION OF CERTAIN INCOME.—The
amount included in the gross estate under subsection (a) shall
include the amount of any income from the property to which
this section applies for the period after the last distribution date
and on or before the date of the decedent’s death if such income
is not otherwise included in the decedent’s gross estate.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendments made by this section
shall apply with respect to the estates of decedents dying,
and gifts made, after the date of the enactment of this Act.
(2) APPLICATION OF SECTION 2044 TO TRANSFERS BEFORE
DATE OF ENACTMENT.—In the case of the estate of any decedent
dying after the date of the enactment of this Act, if there
was a transfer of property on or before such date—
(A) such property shall not be included in the gross
estate of the decedent under section 2044 of the Internal
Revenue Code of 1986 if no prior marital deduction was
allowed with respect to such a transfer of such property
to the decedent, but
(B) such property shall be so included if such a deduc-
tion was allowed.
SEC. 11614. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) GENERAL RULE.—In the case of any trust created under
an instrument executed before the date of the enactment of the
H. R. 2491—678
Revenue Reconciliation Act of 1990, such trust shall be treated
as meeting the requirements of paragraph (1) of section 2056A(a)
of the Internal Revenue Code of 1986 if the trust instrument
requires that all trustees of the trust be individual citizens of
the United States or domestic corporations.
(b) EFFECTIVE DATE.—The provisions of subsection (a) shall
take effect as if included in the provisions of section 11702(g)
of the Revenue Reconciliation Act of 1990.
SEC. 11615. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER
SECTION 2032A.
(a) GENERAL RULE.—Paragraph (3) of section 2032A(d) (relating
to modification of election and agreement to be permitted) is
amended to read as follows:
‘‘(3) MODIFICATION OF ELECTION AND AGREEMENT TO BE
PERMITTED.—The Secretary shall prescribe procedures which
provide that in any case in which the executor makes an
election under paragraph (1) (and submits the agreement
referred to in paragraph (2)) within the time prescribed there-
for, but—
‘‘(A) the notice of election, as filed, does not contain
all required information, or
‘‘(B) signatures of 1 or more persons required to enter
into the agreement described in paragraph (2) are not
included on the agreement as filed, or the agreement does
not contain all required information,
the executor will have a reasonable period of time (not exceed-
ing 90 days) after notification of such failures to provide such
information or signatures.’’
(b) EFFECTIVE DATE.—The amendment made by subsection (a)
shall apply to the estates of decedents dying after the date of
the enactment of this Act.
SEC. 11616. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES
AFTER EXPIRATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Section 2001 (relating to imposition and rate
of estate tax) is amended by adding at the end the following new
subsection:
‘‘(f) VALUATION OF GIFTS.—If—
‘‘(1) the time has expired within which a tax may be
assessed under chapter 12 (or under corresponding provisions
of prior laws) on the transfer of property by gift made during
a preceding calendar period (as defined in section 2502(b)),
and
‘‘(2) the value of such gift is shown on the return for
such preceding calendar period or is disclosed in such return,
or in a statement attached to the return, in a manner adequate
to apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax
under this chapter, be the value of such gift as finally determined
for purposes of chapter 12.’’
(b) MODIFICATION
OF APPLICATION
OF STATUTE
OF LIMITA-
TIONS.—Paragraph (9) of section 6501(c) is amended to read as
follows:
‘‘(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN ON RETURN.—
If any gift of property the value of which (or any increase
in taxable gifts required under section 2701(d)) is required
to be shown on a return of tax imposed by chapter 12 (without