I
105TH CONGRESS
1ST SESSION
H. R. 1379
To amend the Internal Revenue Code of 1986 to lower the maximum capital
gains rate to 15 percent with respect to assets held for more than
3 years, to replace the estate and gift tax rate schedules, and for
other purposes.
IN THE HOUSE OF REPRESENTATIVES
APRIL 17, 1997
Mr. HILL 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 lower the
maximum capital gains rate to 15 percent with respect
to assets held for more than 3 years, to replace the
estate and gift tax rate schedules, and for other pur-
poses.
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 ‘‘American Dream Tax
Fairness Equity Act of 1997’’.
SEC. 2. REDUCTION OF MAXIMUM CAPITAL GAINS RATE
FOR INDIVIDUALS TO 15 PERCENT WITH RE-
SPECT TO ASSETS HELD FOR MORE THAN 3
YEARS.
(a) IN GENERAL.—Subsection (h) of section 1 of the
Internal Revenue Code of 1986 (relating to tax imposed)
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,
‘‘(B) 15 percent of qualified 3-year capital
gain (to the extent not taken into account
under subparagraph (A)), and
‘‘(C) 28 percent of the excess (if any) of
taxable income over the amounts taken into ac-
count under subparagraphs (A) and (B).
‘‘(2) QUALIFIED
3-YEAR
CAPITAL
GAIN.—For
purposes of this subsection, the term ‘qualified 3-
year capital gain’ means the lesser of—
‘‘(A) net long-term capital gain for the tax-
able year, determined by substituting ‘held for
more than 3 years’ for ‘held for more than 1
year’ in paragraphs (3) and (4) of section 1222,
or
‘‘(B) net capital gain for such taxable year.
‘‘(3) COORDINATION
WITH
INVESTMENT
IN-
COME ELECTION.—For purposes of this subsection,
the net capital gain for any taxable year shall be re-
duced (but not below zero) by the amount which the
taxpayer elects to take into account as investment
income 
for 
the 
taxable 
year 
under 
section
163(d)(4)(B)(iii).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 2. REPLACEMENT OF ESTATE AND GIFT TAX RATE
SCHEDULES.
(a) ESTATE TAX RATE SCHEDULE REPLACED BY 15
AND 28 PERCENT TAX RATES.—
(1) IN
GENERAL.—Subsection (b) of section
2001 of the Internal Revenue Code of 1986 (relating
to imposition and rate of tax) is amended to read as
follows:
‘‘(b) COMPUTATION OF TAX.—The amount imposed
by this section shall be—
‘‘(1) 15 percent of all qualified 3-year capital
gain (within the meaning of section 1(h)) included in
the taxable estate, and
‘‘(2) 28 percent of all capital gain (other than
such qualified 3-year capital gain) included in the
taxable estate,
determined as if all property included in the taxable estate
had been sold for its fair market value on the date of the
decedent’s death (or the date applicable with respect to
the valuation of such property under section 2032, if
any).’’
(2) REPEAL
OF
RATE
SCHEDULE.—Section
2001 of such Code is amended by striking sub-
section (c).
(3) CONFORMING AMENDMENTS.—Section 2001
of such Code is amended by striking subsections (d)
and (e).
(b) REDUCTION OF GIFT TAX.—Subsection (a) of
section 2502 of such Code is amended to read as follows:
‘‘(a) COMPUTATION OF TAX.—The tax imposed by
section 2501 for each calendar year shall be—
‘‘(1) 15 percent of all qualified 3-year capital
gain (as defined in section 1(h)) contained in the
taxable gifts made during such year, and
‘‘(2) 28 percent of all capital gain (other than
such qualified 3-year capital gain) contained in such
taxable gifts,
determined, with respect to each such gift, as if all prop-
erty contained in such gift had been sold by the grantor
for its fair market value on the date of such gift.’’
(c) UNIFIED CREDIT AGAINST ESTATE AND GIFT
TAXES.—
(1) UNIFIED CREDIT AGAINST ESTATE TAX.—
Subsection (a) of section 2010 of such Code (relat-
ing to unified credit against estate tax) is amended
to read as follows:
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) GENERAL RULE.—A credit of the amount
determined under paragraph (2) shall be allowed to
the estate of every decedent against the tax imposed
by section 2001.
‘‘(2) AMOUNT OF CREDIT.—The amount deter-
mined under this paragraph is the amount equal to
the sum of—
‘‘(A) the tax imposed under section
2001(b)(2) (to the extent that such tax is im-
posed on so much of the imputed capital gains
amount as does not exceed $600,000), and
‘‘(B) the tax imposed under section
2001(b)(1) on the excess (if any) of—
‘‘(i) so much of the imputed capital
gains amount as does not exceed $600,000,
over
‘‘(ii) the portion of the imputed cap-
ital gains amount taken into account under
subparagraph (A).
‘‘(3) IMPUTED CAPITAL GAINS AMOUNT.—For
purposes of this subsection, the term ‘imputed cap-
ital gains amount’ means the aggregate amount to
which the rates of section 2001(b) apply.
‘‘(4) COORDINATION
WITH
UNIFIED
CREDIT
USED TO REDUCE GIFT TAX.—
‘‘(A) 
IN
GENERAL.—The 
$600,000
amounts referred to in subparagraphs (A) and
(B)(i) of paragraph (2) shall each be reduced
by the cumulative gift tax credit amount.
‘‘(B) CUMULATIVE
GIFT
TAX
CREDIT
AMOUNT.—For purposes of this paragraph, the
term ‘cumulative gift tax credit amount’ means
the sum of the capital gains gift amounts (as
defined in section 2505(a)(3)) with respect to
which a credit was allowed under section 2505
(relating to unified credit against gift tax), de-
termined by not taking into account any gift in-
cluded in the taxable estate.’’
(2) UNIFIED CREDIT AGAINST GIFT TAX.—Sub-
section (a) of section 2505 of such Code (relating to
unified credit against gift tax) is amended to read
as follows:–
‘‘(a) ALLOWANCE OF CREDIT.—
‘‘(1) GENERAL RULE.—In the case of a citizen
or resident of the United States, there shall be al-
lowed as a credit against the tax imposed by section
2501 for each calendar year an amount equal to—
‘‘(A) the amount determined under para-
graph (2), reduced by––
‘‘(B) the sum of the amounts allowable as
a credit to the individual under this section for
all preceding calendar periods with respect to
gifts made before the gift tax change date, as
determined under paragraph (4).
‘‘(2) AMOUNT.—The amount determined under
this paragraph is the amount equal to the sum of—
‘‘(A) the tax imposed under section
2502(a)(2) for the year on the capital gains gift
amount, and
‘‘(B) the tax imposed under section
2502(a)(1) for the year on the excess (if any)
of—
‘‘(i) the capital gains gift amount for
the year, over
‘‘(ii) the portion of such capital gains
gift amount taken into account under sub-
paragraph (A).
‘‘(3) CAPITAL GAINS GIFT AMOUNT.—For pur-
poses of this subsection, the term ‘capital gains gift
amount’ means, for any year, the amount to which
the rates of section 2502(b) apply with respect to
such year, but not more than the excess (if any)
of—
‘‘(A) $600,000, over
‘‘(B) the sum of the capital gains gift
amounts for all preceding years (determined
without taking into account any gift made be-
fore the date of the enactment of this para-
graph).
‘‘(4) GIFTS MADE BEFORE GIFT TAX CHANGE
DATE.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(B), the amount allowable as a credit
to an individual under this section for a preced-
ing calendar period with respect to any gift
made before the gift tax change date shall be
the amount which would have been allowable to
the individual as a credit under this section
with respect to such gift—
‘‘(i) if this section and section
2001(b), as in effect on the day after the
date of the enactment of this paragraph,
had been in effect for the year of such gift
and all preceding calendar periods, and
‘‘(ii) without regard to the parenthet-
ical contained in paragraph (3)(B).
‘‘(B) GIFT
MADE
BEFORE
GIFT
TAX
CHANGE DATE.—For purposes of this section,
the term ‘gift made before gift tax change date’
means a gift made before the date of the enact-
ment of this paragraph (other than a gift taken
into account under subsection (b)).’’
(3) CONFORMING AMENDMENT.—Subsection (b)
of section 2502 of such Code is amended by adding
at the end the following new flush sentence:
‘‘In connection with the gift tax imposed by this chapter
for the calendar year in which this sentence is enacted
with respect to gifts made on or after the date of such
enactment, the term ‘preceding calendar period’ shall in-
clude the portion of such calendar year which precedes
such date of enactment.’’
(d) ESTATES OF NONRESIDENT ALIENS.—
(1) RATE CHANGE.—
(A) IN GENERAL.—Subsection (b) of sec-
tion 2101 of such Code (relating to tax imposed
on estates of nonresident aliens) is amended to
read as follows:
‘‘(b) COMPUTATION OF TAX.—The tax imposed by
this section shall be the amount equal to the tax computed
under section 2001(b) (determined as if section 2001 ap-
plied to the decedent).’’
(B) CONFORMING
AMENDMENT.—Section
2101 of such Code is amended by striking sub-
section (c).
(2) CREDITS AGAINST TAX.—Section 2102 of
such Code (relating to credits against estate tax for
nonresidents not citizens) is amended by adding at
the end the following new subsection:
‘‘(d) ADJUSTMENT OF AMOUNTS TO REFLECT UNI-
FIED CREDIT CHANGES.—The Secretary shall by regula-
tion adjust the dollar amounts provided in this section to
reflect, in a proportionate manner, the changes made to
sections 2010 and 2505 on the date of the enactment of
this subsection.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying on
or after, and gifts made on or after, the date of the enact-
ment of this Act.
SEC. 3. TAX ON TRUSTS WHEN GRANTOR DIES.
(a) IN GENERAL.—Subpart A of part I of subchapter
J of chapter 1 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new section:
‘‘SEC. 646. ASSETS MARKED TO MARKET WHEN GRANTOR
DIES.
‘‘(a) IN GENERAL.—For purposes of this title, on the
death of any individual who has contributed property to
a trust—
‘‘(1) the trust shall recognize gain or loss as if
all property so contributed by the decedent which is
contained in the trust were sold for its fair market
value on the date of such death,
‘‘(2) such gain or loss shall be taken into ac-
count for the taxable year of the trust in which such
death occurs, and
‘‘(3) proper adjustment shall be made in the
amount of any gain or loss subsequently realized for
gain or loss taken into account under paragraph (2).
‘‘(b) PROPERTY CONTRIBUTED BY PARTNERSHIP OR
CORPORATION.—For purposes of this section, the Sec-
retary may by regulations provide that property contrib-
uted to a trust by a partnership or corporation shall be
treated as contributed by the individual having a greater
than 50 percent interest in such partnership or owning
more than 50 percent of the stock of such corporation.
For purposes of this subsection, rules similar to the rules
of section 318 (relating to constructive ownership of stock)
shall apply.
‘‘(c) PROPORTIONATE APPLICATION.—If any prop-
erty was contributed to a trust partially by the decedent
and partially by another person, the portion of such prop-
erty so contributed by the decedent shall be treated as a
separate asset for purposes of this title and subsection (a)
shall apply to such portion.
‘‘(d) COORDINATION WITH INCLUSION IN TAXABLE
ESTATE.—This section shall not apply to the portion of
any trust which is included in the taxable estate of any
individual.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart A of part I of subchapter J of chapter 1 of
such Code is amended by adding at the end the following
new item:
‘‘Sec. 646. Assets marked to market when grantor dies.’’
(c) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply with respect to decedents dying on or
after the date of the enactment of this Act.
(2) TRUSTS CONTAINING PROPERTY CONTRIB-
UTED BY DECEDENTS DYING BEFORE DATE OF EN-
ACTMENT.—For purposes of section 646 of the In-
ternal Revenue Code of 1986 (as added by sub-
section (b)), any individual dying before the date of
the enactment of this Act shall be treated as dying
on the date of the enactment of this Act.
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