622
SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS
RULES FOR DETERMINING WHETHER REIT
HAS EARNINGS AND PROFITS FROM NON-
REIT YEAR.
Subsection (d) of section 857 is amended by adding
at the end the following new paragraph:
‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS
OF SUBSECTION (a)(2)(B).—Any distribution which
is made in order to comply with the requirements of
subsection (a)(2)(B)—
‘‘(A) shall be treated for purposes of this
subsection and subsection (a)(2)(B) as made
from the earliest accumulated earnings and
profits (other than earnings and profits to
which subsection (a)(2)(A) applies) rather than
the most recently accumulated earnings and
profits, and
‘‘(B) to the extent treated under subpara-
graph (A) as made from accumulated earnings
and profits, shall not be treated as a distribu-
tion for purposes of subsection (b)(2)(B).’’.
SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.
(a) GRACE PERIODS.—
(1) INITIAL PERIOD.—Paragraph (2) of section
856(e) (relating to special rules for foreclosure prop-
erty) is amended by striking ‘‘on the date which is
623
2 years after the date the trust acquired such prop-
erty’’ and inserting ‘‘as of the close of the 3d taxable
year following the taxable year in which the trust ac-
quired such property’’.
(2) EXTENSION.—Paragraph (3) of section
856(e) is amended—
(A) by striking ‘‘or more extensions’’ and
inserting ‘‘extension’’, and
(B) by striking the last sentence and in-
serting: ‘‘Any such extension shall not extend
the grace period beyond the close of the 3d tax-
able year following the last taxable year in the
period under paragraph (2).’’.
(b) REVOCATION OF ELECTION.—Paragraph (5) of
section 856(e) is amended by striking the last sentence
and inserting: ‘‘A real estate investment trust may revoke
any such election for a taxable year by filing the revocation
(in the manner provided by the Secretary) on or before
the due date (including any extension of time) for filing
its return of tax under this chapter for the taxable year.
If a trust revokes an election for any property, no election
may be made by the trust under this paragraph with re-
spect to the property for any subsequent taxable year.’’.
624
(c) CERTAIN ACTIVITIES NOT TO DISQUALIFY PROP-
ERTY.—Paragraph (4) of section 856(e) is amended by
adding at the end the following new flush sentence:
‘‘For purposes of subparagraph (C), property shall
not be treated as used in a trade or business by rea-
son of any activities of the real estate investment
trust with respect to such property to the extent
that such activities would not result in amounts re-
ceived or accrued, directly or indirectly, with respect
to such property being treated as other than rents
from real property.’’.
SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.
Section 856(c)(5)(G) (relating to treatment of certain
interest rate agreements), as redesignated by section
1255, is amended to read as follows:
‘‘(G) TREATMENT OF CERTAIN HEDGING
INSTRUMENTS.—Except to the extent provided
by regulations, any—
‘‘(i) payment to a real estate invest-
ment trust under an interest rate swap or
cap agreement, option, futures contract,
forward rate agreement, or any similar fi-
nancial instrument, entered into by the
trust in a transaction to reduce the inter-
est rate risks with respect to any indebted-
625
ness incurred or to be incurred by the
trust to acquire or carry real estate assets,
and
‘‘(ii) gain from the sale or other dis-
position of any such investment,
shall be treated as income qualifying under
paragraph (2).’’.
SEC. 1259. EXCESS NONCASH INCOME.
Section 857(e)(2) (relating to determination of
amount of excess noncash income) is amended—
(1) by striking subparagraph (B),
(2) by striking the period at the end of sub-
paragraph (C) and inserting a comma,
(3) by redesignating subparagraph (C) (as
amended by paragraph (2)) as subparagraph (B),
and
(4) by adding at the end the following new sub-
paragraphs:
‘‘(C) the amount (if any) by which—
‘‘(i) the amounts includible in gross
income with respect to instruments to
which section 860E(a) or 1272 applies, ex-
ceed
‘‘(ii) the amount of money and the
fair market value of other property re-
626
ceived during the taxable year under such
instruments, and
‘‘(D) amounts includible in income by rea-
son of cancellation of indebtedness.’’.
SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.
Clause (iii) of section 857(b)(6)(C) (relating to cer-
tain sales not to constitute prohibited transactions) is
amended by striking ‘‘(other than foreclosure property)’’
in subclauses (I) and (II) and inserting ‘‘(other than sales
of foreclosure property or sales to which section 1033 ap-
plies)’’.
SEC. 1261. SHARED APPRECIATION MORTGAGES.
(a) BANKRUPTCY SAFE HARBOR.—Section 856(j)
(relating to treatment of shared appreciation mortgages)
is amended by redesignating paragraph (4) as paragraph
(5) and by inserting after paragraph (3) the following new
paragraph:
‘‘(4) COORDINATION WITH 4-YEAR HOLDING PE-
RIOD.—
‘‘(A) IN GENERAL.—For purposes of sec-
tion 857(b)(6)(C), if a real estate investment
trust is treated as having sold secured property
under paragraph (3)(A), the trust shall be
treated as having held such property for at
least 4 years if—
627
‘‘(i) the secured property is sold or
otherwise disposed of pursuant to a case
under title 11 of the United States Code,
‘‘(ii) the seller is under the jurisdic-
tion of the court in such case, and
‘‘(iii) the disposition is required by the
court or is pursuant to a plan approved by
the court.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply if—
‘‘(i) the secured property was acquired
by the trust with the intent to evict or
foreclose, or
‘‘(ii) the trust knew or had reason to
know that default on the obligation de-
scribed in paragraph (5)(A) would occur.’’.
(b) CLARIFICATION OF DEFINITION OF SHARED AP-
PRECIATION
PROVISION.—Clause 
(ii) 
of 
section
856(j)(5)(A) is amended by inserting before the period ‘‘or
appreciation in value as of any specified date’’.
SEC. 1262. WHOLLY OWNED SUBSIDIARIES.
Section 856(i)(2) (defining qualified REIT subsidi-
ary) is amended by striking ‘‘at all times during the period
such corporation was in existence’’.
628
SEC. 1263. EFFECTIVE DATE.
The amendments made by this part shall apply to
taxable years beginning after the date of the enactment
of this Act.
Subtitle E—Provisions Relating to
Regulated Investment Companies
SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITA-
TION.
(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 sec-
tion 851(b) (as redesignated by subsection (a)) is
amended—
(A) by striking out ‘‘paragraphs (2) and
(3)’’ and inserting ‘‘paragraph (2)’’, and
(B) by striking out the last sentence there-
of.
(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)’’.
629
(3) Subsection (d) of section 851 is amended by
striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
(4) Paragraph (1) of section 851(e) is amended
by striking ‘‘subsection (b)(4)’’ and inserting ‘‘sub-
section (b)(3)’’.
(5) Paragraph (4) of section 851(e) is amended
by striking ‘‘subsections (b)(4)’’ and inserting ‘‘sub-
sections (b)(3)’’.
(6) Section 851 is amended by striking sub-
section (g) and redesignating subsection (h) as sub-
section (g).
(7) Subsection (g) of section 851 (as redesig-
nated by paragraph (6)) is amended by striking
paragraph (3).
(8) Section 817(h)(2) is amended—
(A) by striking ‘‘851(b)(4)’’ in subpara-
graph (A) and inserting ‘‘851(b)(3)’’, and
(B) by striking ‘‘851(b)(4)(A)(i)’’ in sub-
paragraph (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’’.
630
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
Subtitle F—Taxpayer Protections
SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN
PENALTIES.
(a) INFORMATION ON DEDUCTIBLE EMPLOYEE CON-
TRIBUTIONS.—Subsection (g) of section 6652 (relating to
information required in connection with deductible em-
ployee contributions) is amended by adding at the end the
following new sentence: ‘‘No penalty shall be imposed
under this subsection on any failure which is shown to be
due to reasonable cause and not willful neglect.’’.
(b) REPORTS
ON STATUS
AS QUALIFIED SMALL
BUSINESS.—Subsection (k) of section 6652 (relating to
failure to make reports required under section 1202) is
amended by adding at the end the following new sentence:
‘‘No penalty shall be imposed under this subsection on any
failure which is shown to be due to reasonable cause and
not willful neglect.’’.
(c) RETURNS OF PERSONAL HOLDING COMPANY TAX
BY FOREIGN CORPORATIONS.—Section 6683 (relating to
failure of foreign corporation to file return of personal
holding company tax) is amended by adding at the end
the following new sentence: ‘‘No penalty shall be imposed
631
under this section on any failure which is shown to be due
to reasonable cause and not willful neglect.’’.
(d) FAILURE TO MAKE REQUIRED PAYMENTS.—
Subparagraph (A) of section 7519(f)(4) is amended by
adding at the end the following new sentence: ‘‘No penalty
shall be imposed under this subparagraph on any failure
which is shown to be due to reasonable cause and not will-
ful neglect.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS
FOR REFUNDS.
(a) IN GENERAL.—Paragraph (3) of section 6512(b)
(relating to overpayment determined by Tax Court) is
amended by adding at the end the following flush sen-
tence:
‘‘In a case described in subparagraph (B) where the
date of the mailing of the notice of deficiency is dur-
ing the third year after the due date (with exten-
sions) for filing the return of tax and no return was
filed before such date, the applicable period under
subsections (a) and (b)(2) of section 6511 shall be
3 years.’’.
632
(b) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to claims for credit or refund
for taxable years ending after the date of the enactment
of this Act.
SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER
PROSPECTIVE JUROR HAS BEEN AUDITED.
(a) IN GENERAL.—Subsection (h) of section 6103
(relating to disclosure to certain Federal officers and em-
ployees for purposes of tax administration, etc.) is amend-
ed by striking paragraph (5) and by redesignating para-
graph (6) as paragraph (5).
(b) CONFORMING AMENDMENT.—Paragraph (4) of
section 6103(p) is amended by striking ‘‘(h)(6)’’ each
place it appears and inserting ‘‘(h)(5)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to judicial proceedings commenced
after the date of the enactment of this Act.
SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL.—Subsection (a) of section 6501
(relating to limitations on assessment and collection) is
amended by adding at the end thereof the following new
sentence: ‘‘For purposes of this chapter, the term ‘return’
means the return required to be filed by the taxpayer (and
does not include a return of any person from whom the
633
taxpayer has received an item of income, gain, loss, deduc-
tion, or credit).’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.
(a) RIGHT TO APPEAL TAX COURT DECISION.—Sub-
section (f) of section 7430 (relating to right of appeal)
is amended by adding at the end the following new para-
graph:
‘‘(3) APPEAL
OF
TAX
COURT
DECISION.—An
order of the Tax Court disposing of a petition under
paragraph (2) shall be reviewable in the same man-
ner as a decision of the Tax Court, but only with re-
spect to the matters determined in such order.’’.
(b) PERIOD FOR APPLYING TO IRS FOR COSTS.—
Subsection (b) of section 7430 (relating to limitations) is
amended by adding at the end the following new para-
graph:
‘‘(5) PERIOD FOR APPLYING TO IRS FOR AD-
MINISTRATIVE
COSTS.—An award may be made
under subsection (a) by the Internal Revenue Serv-
ice for reasonable administrative costs only if the
prevailing party files an application with the Inter-
nal Revenue Service for such costs before the 91st
634
day after the date on which the final decision of the
Internal Revenue Service as to the determination of
the tax, interest, or penalty is mailed to such
party.’’.
(c) PERIOD FOR PETITIONING OF TAX COURT FOR
REVIEW OF DENIAL OF COSTS.—Paragraph (2) of section
7430(f) (relating to right of appeal) is amended—
(1) by striking ‘‘appeal to’’ and inserting ‘‘the
filing of a petition for review with’’, and
(2) by adding at the end the following new sen-
tence: ‘‘If the Secretary sends by certified or reg-
istered mail a notice of such decision to the peti-
tioner, no proceeding in the Tax Court may be initi-
ated under this paragraph unless such petition is
filed before the 91st day after the date of such mail-
ing.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to civil actions or proceedings com-
menced after the date of the enactment of this Act.
SEC. 1286. PENALTY FOR UNAUTHORIZED INSPECTION OF
TAX RETURNS OR TAX RETURN INFORMA-
TION.
(a) IN GENERAL.—Part I of subchapter A of chapter
75 (relating to crimes, other offenses, and forfeitures) is
635
amended by adding after section 7213 the following new
section:
‘‘SEC. 7213A. UNAUTHORIZED INSPECTION OF RETURNS OR
RETURN INFORMATION.
‘‘(a) PROHIBITIONS.—
‘‘(1) FEDERAL EMPLOYEES AND OTHER PER-
SONS.—It shall be unlawful for—
‘‘(A) any officer or employee of the United
States, or
‘‘(B) any person described in section
6103(n) or an officer or employee of any such
person,
willfully to inspect, except as authorized in this title,
any return or return information.
‘‘(2) STATE AND OTHER EMPLOYEES.—It shall
be unlawful for any person (not described in para-
graph (1)) willfully to inspect, except as authorized
in this title, any return or return information ac-
quired by such person or another person under a
provision of section 6103 referred to in section
7213(a)(2).
‘‘(b) PENALTY.—
‘‘(1) IN GENERAL.—Any violation of subsection
(a) shall be punishable upon conviction by a fine in
any amount not exceeding $1,000, or imprisonment
636
of not more than 1 year, or both, together with the
costs of prosecution.
‘‘(2) FEDERAL OFFICERS OR EMPLOYEES.—An
officer or employee of the United States who is con-
victed of any violation of subsection (a) shall, in ad-
dition to any other punishment, be dismissed from
office or discharged from employment.
‘‘(c) DEFINITIONS.—For purposes of this section, the
terms ‘inspect’, ‘return’, and ‘return information’ have the
respective meanings given such terms by section
6103(b).’’.
(b) TECHNICAL AMENDMENTS.—
(1) Paragraph (2) of section 7213(a) is amend-
ed by inserting ‘‘(5),’’ after ‘‘(m)(2), (4),’’.
(2) The table of sections for part I of sub-
chapter A of chapter 75 is amended by inserting
after the item relating to section 7213 the following
new item:
‘‘Sec. 7213A. Unauthorized inspection of returns or return infor-
mation.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to violations occurring on and after
the date of the enactment of this Act.
637
SEC. 1287. CIVIL DAMAGES FOR UNAUTHORIZED INSPEC-
TION OF RETURNS AND RETURN INFORMA-
TION; NOTIFICATION OF UNLAWFUL INSPEC-
TION OR DISCLOSURE.
(a) CIVIL DAMAGES FOR UNAUTHORIZED INSPEC-
TION.—Subsection (a) of section 7431 is amended—
(1) by striking ‘‘DISCLOSURE’’ in the headings
for paragraphs (1) and (2) and inserting ‘‘INSPEC-
TION OR DISCLOSURE’’, and
(2) by striking ‘‘discloses’’ in paragraphs (1)
and (2) and inserting ‘‘inspects or discloses’’.
(b) NOTIFICATION OF UNLAWFUL INSPECTION OR
DISCLOSURE.—Section 7431 is amended by redesignating
subsections (e) and (f) as subsections (f) and (g), respec-
tively, and by inserting after subsection (d) the following
new subsection:
‘‘(e) NOTIFICATION OF UNLAWFUL INSPECTION AND
DISCLOSURE.—If any person is criminally charged by in-
dictment or information with inspection or disclosure of
a taxpayer’s return or return information in violation of—
‘‘(1) paragraph (1) or (2) of section 7213(a),
‘‘(2) section 7213A(a), or
‘‘(3) subparagraph (B) of section 1030(a)(2) of
title 18, United States Code,
the Secretary shall notify such taxpayer as soon as prac-
ticable of such inspection or disclosure.’’.
638
(c) NO DAMAGES FOR INSPECTION REQUESTED BY
TAXPAYER.—Subsection (b) of section 7431 is amended
to read as follows:
‘‘(b) EXCEPTIONS.—No liability shall arise under this
section with respect to any inspection or disclosure—
‘‘(1) which results from a good faith, but erro-
neous, interpretation of section 6103, or
‘‘(2) which is requested by the taxpayer.’’.
(d) CONFORMING AMENDMENTS.—
(1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d)
of section 7431 are each amended by inserting ‘‘in-
spection or’’ before ‘‘disclosure’’.
(2) Clause (ii) of section 7431(c)(1)(B) is
amended by striking ‘‘willful disclosure or a disclo-
sure’’ and inserting ‘‘willful inspection or disclosure
or an inspection or disclosure’’.
(3) Subsection (f) of section 7431, as redesig-
nated by subsection (b), is amended to read as fol-
lows:
‘‘(f) DEFINITIONS.—For purposes of this section, the
terms ‘inspect’, ‘inspection’, ‘return’, and ‘return informa-
tion’ have the respective meanings given such terms by
section 6103(b).’’.
639
(4) The section heading for section 7431 is
amended by inserting ‘‘INSPECTION
OR’’ before
‘‘DISCLOSURE’’.
(5) The table of sections for subchapter B of
chapter 76 is amended by inserting ‘‘inspection or’’
before ‘‘disclosure’’ in the item relating to section
7431.
(6) Paragraph (2) of section 7431(g), as redes-
ignated by subsection (b), is amended by striking
‘‘any use’’ and inserting ‘‘any inspection or use’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to inspections and disclosures oc-
curring on and after the date of the enactment of this
Act.
TITLE 
XIII—SIMPLIFICATION
PROVISIONS 
RELATING 
TO
ESTATE AND GIFT TAXES
SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX
FILING REQUIREMENTS.
(a) IN GENERAL.—Section 6019 is amended by strik-
ing ‘‘or’’ at the end of paragraph (1), by adding ‘‘or’’ at
the end of paragraph (2), and by inserting after paragraph
(2) the following new paragraph:
‘‘(3) a transfer with respect to which a deduc-
tion is allowed under section 2522, except that this
640
paragraph shall apply with respect to a transfer of
property (other than a transfer described in section
2522(d)) only if the entire value of such property is
allowed as a deduction under section 2522,’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to gifts made after the date of the
enactment of this Act.
SEC. 1302. 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
641
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.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to the estates of dece-
dents dying after the date of the enactment of this Act.
SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.
(a) GENERAL RULE.—In the case of any trust cre-
ated under an instrument executed before the date of the
enactment of the Revenue Reconciliation Act of 1990,
such trust shall be treated as meeting the requirements
of paragraph (1) of section 2056A(a) of the Internal Reve-
nue 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 sec-
tion 11702(g) of the Revenue Reconciliation Act of 1990.
SEC. 1304. CLARIFICATIONS RELATING TO DISCLAIMERS.
(a) PARTIAL TRANSFER-TYPE DISCLAIMERS PER-
MITTED.—Paragraph (3) of section 2518(c) (relating to
certain transfers treated as disclaimers) is amended by in-
serting ‘‘(or an undivided portion of such interest)’’ after
‘‘entire interest in the property’’.
642
(b) RETENTION
OF
INTEREST
BY
DECEDENT’S
SPOUSE
PERMITTED
IN
TRANSFER-TYPE
DISCLAIM-
ERS.—Paragraph (3) of section 2518(c) is amended by
adding at the end the following new flush sentence:
‘‘For purposes of the preceding sentence, a written
transfer by the spouse of the decedent of property
to a trust shall not fail to be treated as a transfer
of such spouse’s interest in such property by reason
of such spouse having an interest in such trust.’’.
(c) DISCLAIMERS ARE EFFECTIVE FOR INCOME TAX
PURPOSES.—Subsection (a) of section 2518 is amended
by inserting ‘‘and subtitle A’’ after ‘‘this subtitle’’ each
place it appears.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers creating an interest
in the person disclaiming, and disclaimers, made after the
date of the enactment of this Act.
SEC. 1305. INCREASE OF AMOUNT OF LAPSE OF GENERAL
POWER OF APPOINTMENT NOT TREATED AS
RELEASE FOR PURPOSES OF ESTATE AND
GIFT TAX (5 OR 5 POWER).
(a) ESTATE TAX.—Subparagraph (A) of section
2041(b)(2) (relating to lapse of power) is amended by
striking ‘‘$5,000’’ and inserting ‘‘$10,000’’.
644
SEC. 1307. 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 adding 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 revocable 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 chap-
ter 11 is required to be filed, the date which is
645
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 tax-
able year of the estate (determined with regard to exten-
sions) 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 subpart 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.
646
SEC. 1308. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAX-
ABLE YEAR OF ESTATE.
(a) IN GENERAL.—Subsection (b) of section 663 (re-
lating to distributions in first 65 days of taxable year) is
amended by inserting ‘‘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 ‘‘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 enactment of this Act.
SEC. 1309. SEPARATE SHARE RULES AVAILABLE TO ES-
TATES.
(a) IN GENERAL.—Subsection (c) of section 663 (re-
lating to separate shares treated as separate trusts) is
amended—
(1) by inserting before the last sentence the fol-
lowing new sentence: ‘‘Rules similar to the rules of
the preceding provisions of this subsection shall
apply to treat substantially separate and independ-
ent shares of different beneficiaries in an estate hav-
ing more than 1 beneficiary as separate estates.’’,
and
647
(2) by inserting ‘‘or estates’’ after ‘‘trusts’’ in
the last sentence.
(b) CONFORMING
AMENDMENT.—The subsection
heading of section 663(c) is amended by inserting ‘‘ES-
TATES 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. 1310. EXECUTOR OF ESTATE AND BENEFICIARIES
TREATED AS RELATED PERSONS FOR DIS-
ALLOWANCE OF LOSSES, ETC.
(a) DISALLOWANCE OF LOSSES.—Subsection (b) of
section 267 (relating to losses, expenses, and interest with
respect to transactions 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 beneficiary 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 para-
648
graph (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 beneficiary of such estate.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 1311. 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 sub-
title, the taxable year of any trust shall be the cal-
endar year.
‘‘(2) EXCEPTION FOR TRUSTS EXEMPT FROM
TAX
AND
CHARITABLE
TRUSTS.—Paragraph (1)
shall not apply to a trust exempt from taxation
under section 501(a) or to a trust described in sec-
tion 4947(a)(1).’’.
649
(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. 1312. 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 follow-
ing 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 subsection, 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 nec-
essary to provide such services,
650
‘‘(2) the sole purpose of the trust is to hold, in-
vest, 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 in-
dividuals 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 con-
tributions 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 de-
scribed in paragraph (5)) be treated as owned by the
beneficiaries under subpart E.
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral
trust’ shall not include any trust which accepts ag-
gregate contributions by or for the benefit of an in-
dividual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are relat-
ed 
persons 
shall 
be
651
treated as 1 trust. For purposes of the preceding
sentence, persons are related if—
‘‘(A) the relationship between such persons
is described in section 267 or 707(b),
‘‘(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
‘‘(C) the Secretary determines that treat-
ing such persons as related is necessary to pre-
vent 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 1998,
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 deter-
mined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1997’ 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 mul-
tiple of $100.
652
‘‘(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 BEN-
EFICIARY 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 cancella-
tion 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 pay-
ment.
‘‘(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 enactment of this Act.
653
SEC. 1313. 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 relin-
quished a power with respect to any property, during
the 3-year period ending on the date of the dece-
dent’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 DUR-
ING
3 YEARS
BEFORE
DECEDENT’S
DEATH.—The
amount of the gross estate (determined without regard to
this subsection) shall be increased by the amount of any
654
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 distribu-
tions in redemption 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 trans-
fer, 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
655
both with and without the application of paragraph
(1).
‘‘(3) MARITAL AND SMALL TRANSFERS.—Para-
graph (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 de-
cedent was not required by section 6019 (other than
by reason of section 6019(2)) to file any gift tax re-
turn for such year with respect to transfers to such
donee.
‘‘(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 dur-
ing 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 dece-
dent.’’.
(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’’.
656
(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. 1314. CLARIFICATION OF TREATMENT OF SURVIVOR
ANNUITIES UNDER QUALIFIED TERMINABLE
INTEREST RULES.
(a) IN GENERAL.—Subparagraph (C) of section
2056(b)(7) is amended by inserting ‘‘(or, in the case of
an interest in an annuity arising under the community
property laws of a State, included in the gross estate of
the decedent under section 2033)’’ after ‘‘section 2039’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 1315. TREATMENT UNDER QUALIFIED DOMESTIC
TRUST RULES OF FORMS OF OWNERSHIP
WHICH ARE NOT TRUSTS.
(a) IN GENERAL.—Subsection (c) of section 2056A
(defining qualified domestic trust) is amended by adding
at the end the following new paragraph:
‘‘(3) TRUST.—To the extent provided in regula-
tions prescribed by the Secretary, the term ‘trust’
includes other arrangements which have substan-
tially the same effect as a trust.’’.
657
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to estates of decedents dying after
the date of the enactment of this Act.
SEC. 1316. OPPORTUNITY TO CORRECT CERTAIN FAILURES
UNDER SECTION 2032A.
(a) GENERAL RULE.—Paragraph (3) of section
2032A(d) (relating to modification of election and agree-
ment to be permitted) is amended to read as follows:
‘‘(3) MODIFICATION OF ELECTION AND AGREE-
MENT TO BE PERMITTED.—The Secretary shall pre-
scribe procedures which provide that in any case in
which the executor makes an election under para-
graph (1) (and submits the agreement referred to in
paragraph (2)) within the time prescribed therefor,
but—
‘‘(A) the notice of election, as filed, does
not contain all required information, or
‘‘(B) signatures of 1 or more persons re-
quired to enter into the agreement described in
paragraph (2) are not included on the agree-
ment as filed, or the agreement does not con-
tain all required information,
the executor will have a reasonable period of time
(not exceeding 90 days) after notification of such
failures to provide such information or signatures.’’.