I
103D CONGRESS
2D SESSION
H. R. 5023
To amend the Internal Revenue Code of 1986 to reduce the lowest rate
of income tax imposed on taxpayers other than corporations from 15
percent to 12.5 percent, to provide for a carryover basis of property
acquired from a decedent, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
SEPTEMBER 12, 1994
Mr. OWENS 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 reduce
the lowest rate of income tax imposed on taxpayers other
than corporations from 15 percent to 12.5 percent, to
provide for a carryover basis of property acquired from
a decedent, 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. SHORT TITLE.
This Act may be cited as the ‘‘Citizens’ Tax Relief
Act of 1994’’.
SEC. 2. REDUCTION OF LOWEST RATE OF INCOME TAX IM-
POSED ON TAXPAYERS OTHER THAN COR-
PORATIONS.
(a) IN GENERAL.—Each of the tables contained in
subsections (a), (b), (c), (d), and (e) of section 1 of the
Internal Revenue Code of 1986 is amended by striking
‘‘15%’’ and inserting ‘‘12.5%’’.
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 1994.
(c) SECTION 15 NOT TO APPLY.—The amendment
made by subsection (a) shall not be treated as a change
in the rate of a tax imposed by chapter 1 of the Internal
Revenue Code of 1986 for purposes of section 15 of such
Code.
SEC. 3. REPEAL OF INCREASE IN BASIS OF PROPERTY AC-
QUIRED FROM A DECEDENT.
(a) IN GENERAL.—Section 1014 of the Internal Rev-
enue Code of 1986 (relating to basis of property acquired
from a decedent) is hereby repealed.
(b) BASIS TO BE DETERMINED UNDER RULES AP-
PLICABLE TO GIFTS.—Section 1015 of such Code (relat-
ing to basis of property acquired by gifts and transfers
in trusts) is amended by adding at the end the following
new subsection:
‘‘(f) PROPERTY ACQUIRED FROM OR PASSING FROM
A DECEDENT.—
‘‘(1) IN GENERAL.—Property acquired from a
decedent dying after December 31, 1994, or passed
from such a decedent shall be treated for purposes
of subsection (a) as acquired by gift for purposes of
this section.
‘‘(2) PROPERTY
ACQUIRED
FROM
A
DECE-
DENT.—Section 1014(b) (as in effect on the day be-
fore the date of the enactment of the Citizens’ Tax
Relief Act of 1994) shall apply for purposes of
whether property is considered to have been acquired
from or to have passed from the decedent.
‘‘(3) INCREASE
IN
BASIS
FOR
ESTATE
TAX
PAID.—
‘‘(A) IN
GENERAL.—The basis of any
property which this subsection applies shall be
the basis determined under subsection (a) in-
creased by the portion of the aggregate death
tax adjustment which is allocated to the prop-
erty pursuant to this paragraph.
‘‘(B) LIMITATION.—The death tax adjust-
ment for any property shall not exceed—
‘‘(i) the net appreciation in such prop-
erty, multiplied by
‘‘(ii) the Federal marginal estate tax
rate.
‘‘(C) NET
APPRECIATION.—For purposes
of this paragraph, the net appreciation in value
of any property is the amount by which—
‘‘(i) the fair market value of such
property, exceeds
‘‘(ii) the initial basis of such property
increased by the minimum basis adjust-
ment of such property.
‘‘(4) AGGREGATE DEATH TAX ADJUSTMENT.—
In the case of any estate—
‘‘(A) IN GENERAL.—The aggregate death
tax adjustment is the product of—
‘‘(i) the aggregate net appreciation of
all properties which have net appreciation,
and
‘‘(ii) the Federal marginal estate tax
rate.
‘‘(B) LIMITATION.—The amount taken
into account under subparagraph (A)(i) shall
not exceed the taxable estate.
‘‘(C) FEDERAL
MARGINAL
ESTATE
TAX
RATE.—The term ‘Federal marginal estate tax
rate’ means the highest rate in the rate sched-
ule set forth in section 2001(c)—
‘‘(i) which is used in determining the
tentative tax under section 2001(b)(1) with
respect to the estate of the decedent, and
‘‘(ii) the amount subject to which is at
least $50,000.
In no event shall the Federal marginal estate
tax rate be less than 30 percent.
‘‘(5) ALLOCATION RULES.—The executor shall
allocate the adjustments under this subsection
among the properties on the return of the tax im-
posed by chapter 11.’’.
(c) CONFORMING AMENDMENTS.—
(1) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
striking the item relating to section 1014.
(2) The heading of section 1015 of such Code
is amended to read as follows:
‘‘SEC. 1015. BASIS OF PROPERTY ACQUIRED BY GIFT, FROM
A DECEDENT, OR TRANSFERRED IN TRUST.’’.
(3) The table of sections for part II of sub-
chapter O of chapter 1 of such Code is amended by
striking the item relating to section 1015 and insert-
ing the following new item:
‘‘Sec. 1015. Basis of property acquired by gift, from a decedent,
or transferred in trust.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to decedents dying after December
31, 1994.
SEC. 4. PHASEIN OF CAPITAL GAINS TAX ON INHERITED
PROPERTY.
(a) IN GENERAL.—Subsection (h) of section 1 of the
Internal Revenue Code of 1986 (relating to maximum cap-
ital gains rate) is amended to read as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—
‘‘(1) IN GENERAL.—If a taxpayer has a net
capital gain for any taxable year, then the tax im-
posed by this section shall not exceed the sum of—
‘‘(A) a tax computed at the rates and in
the same manner as if this subsection had not
been enacted on the greater of—
‘‘(i) taxable income reduced by the
amount of the net capital gain, or
‘‘(ii) the amount of taxable income
taxed at a rate below 28 percent, plus
‘‘(B) a tax equal to the sum of—
‘‘(i) the applicable percentage of so
much of such net capital gain as is attrib-
utable to property acquired by the tax-
payer from a decedent dying after Decem-
ber 31, 1994 (or passed to the taxpayer
from such a decedent), and
‘‘(ii) 28 percent of the amount of the
taxable income in excess of the sum of the
amount determined under subparagraph
(A) and the net capital gain described in
clause (i) of this subparagraph.
‘‘(2) APPLICABLE PERCENTAGE.—For purposes
of paragraph (1), the term ‘applicable percentage’
means—
‘‘(A) 10 percent in the case of taxable
years beginning after December 31, 1993, and
before January 1, 1996,
‘‘(B) 15 percent in the case of taxable
years beginning during 1996,
‘‘(C) 20 percent in the case of taxable
years beginning during 1997, and
‘‘(D) 25 percent in the case of taxable
years beginning during 1998.
‘‘(3) ELECTION
TO
MARK-TO-MARKET
PROP-
ERTY ACQUIRED FROM A DECEDENT.—If the tax-
payer elects this paragraph with respect to any prop-
erty described in paragraph (1)(B)(i), such property
shall be treated as sold (for its fair market value as
of the first day of the taxpayer year) and any gain
or loss shall be treated as received or accrued on
such day.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years ending after De-
cember 31, 1994.
SEC. 5. ADDITIONAL EXCLUSION OF GAIN ON SALE OF
PRINCIPAL RESIDENCE ACQUIRED FROM A
DECEDENT.
(a) IN GENERAL.—Subsection (d) of section 121 of
the Internal Revenue Code of 1986 (relating to one-time
exclusion of gain from sale of principal residence by indi-
vidual who has attained age 55) is amended by adding
at the end the following new paragraph:
‘‘(10) SPECIAL
RULES
FOR
RESIDENCE
AC-
QUIRED FROM DECEDENT.—
‘‘(A) IN GENERAL.—In the case of a resi-
dence which was acquired by the taxpayer from
a decedent dying after December 31, 1994, or
to whom such residence passed from such a de-
cedent 
(within 
the 
meaning 
of 
section
1015(f)(2))—
‘‘(i) subsection (a)(1) shall not apply,
and
‘‘(ii) the requirement of subsection
(a)(2) shall be treated as met if the dece-
dent satisfied such requirement as of the
date of death or the taxpayer satisfies such
requirement.
‘‘(B) ADDITIONAL
ELECTION.—Any elec-
tion under this section with respect to any resi-
dence to which subparagraph (A) applies shall
not be taken into account in determining
whether any other election may be made under
this section.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to sales and exchanges after De-
cember 31, 1994, in taxable years ending after such date.
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