103
(i) by striking ‘‘With respect to’’ and in-
serting ‘‘In the case of a corporation, with re-
spect to’’,
(ii) by striking ‘‘1(h) or’’, and
(iii) by striking ‘‘28 percent (34 percent in
the case of a corporation’’ and inserting ‘‘34
percent’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1996.
SEC. 3103. CARRYOVER BASIS AT DEATH.
(a) GENERAL RULE.—Part II of subchapter O of
chapter 1 of subtitle A of the Internal Revenue Code of
1986 is amended by inserting after section 1021 the fol-
lowing new section:
‘‘SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY
ACQUIRED FROM A DECEDENT.
‘‘(a) CARRYOVER BASIS.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this section, the basis of carryover basis
property in the hands of a person acquiring such
property from a decedent is—
‘‘(A) its initial basis, increased by
‘‘(B) its section 1022 adjustment deter-
mined under subsection (c).
104
‘‘(2) INITIAL BASIS.—The initial basis of carry-
over basis property is its adjusted basis for purposes
of determining gain immediately before the death of
the decedent, adjusted as provided in subsection (d).
‘‘(3) FAIR MARKET VALUE RULE FOR ESTATES
HAVING $600,000 OR LESS OF PROPERTY DESCRIBED
IN SECTION 1022(b).—
‘‘(A) IN GENERAL.—In the case of any de-
cedent dying after December 31, 1996, if the
aggregate fair market value of the property
which (but for this paragraph) would be carry-
over basis property is $600,000 or less, then—
‘‘(i) this section (other than this para-
graph) shall not apply to such property,
and
‘‘(ii) the basis of such property in the
hands of the person acquiring it shall be
determined under section 1014.
‘‘(B) ELECTION WITH RESPECT TO TAN-
GIBLE PERSONAL PROPERTY DISREGARDED.—
For purposes of subparagraph (A), the deter-
mination of what would be carryover basis
property shall be made without regard to any
election under subsection (b)(3).
‘‘(4) ELECTION OF MARK-TO-MARKET.—
105
‘‘(A) IN GENERAL.—If the executor elects
this paragraph with respect to all property
which (but for this paragraph) would be carry-
over basis property, then—
‘‘(i) this section (other than this para-
graph) shall not apply to such property,
and
‘‘(ii) the basis of such property in the
hands of the person acquiring it shall be
determined under section 1014.
‘‘(B) EFFECT OF ELECTION.—If an elec-
tion under this paragraph applies to any prop-
erty, such property shall be treated as sold (for
its value determined for purposes of chapter
11) on the date of the decedent’s death (and
any gain or loss shall be treated as received or
accrued on such date).
‘‘(C) DISTRIBUTIONS IN REDEMPTION OF
STOCK TO PAY TAX.—Section 303 shall be ap-
plied—
‘‘(i) by treating subsection (a)(1)
thereof as including a reference to the tax
imposed by this chapter by reason of the
election under this paragraph, and
106
‘‘(ii) by determining the period of dis-
tribution with respect to such tax without
regard to subparagraph (C) of section
303(b)(1) and as if subparagraphs (A) and
(B) thereof referred only to the tax im-
posed by this chapter.
‘‘(D) ELECTION.—An election under this
paragraph shall be made by the executor not
later than the date prescribed for filing the re-
turn of the tax imposed by chapter 11 (includ-
ing extensions thereof), and shall be made on
such return. Such an election, once made, shall
be irrevocable.
‘‘(b) CARRYOVER BASIS PROPERTY DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘carryover basis property’ means any
property—
‘‘(A) which is acquired from or passed
from a decedent who died after December 31,
1996, and
‘‘(B) which is not excluded pursuant to
paragraph (2) or (3).
The property taken into account under subpara-
graph (A) shall be determined under section 1014(b)
107
without regard to subparagraph (A) of the last sen-
tence of paragraph (9) thereof.
‘‘(2) CERTAIN
PROPERTY
NOT
CARRYOVER
BASIS PROPERTY.—The term ‘carryover basis prop-
erty’ does not include—
‘‘(A) property which—
‘‘(i) was acquired from the decedent
before the decedent’s death, and
‘‘(ii) was sold, exchanged, or otherwise
disposed of before the decedent’s death by
the person so acquiring it,
‘‘(B) any item of gross income in respect
of a decedent described in section 691;
‘‘(C) property described in section 2042
(relating to proceeds of life insurance); and
‘‘(D) 
property 
described 
in 
section
1014(b)(5).
‘‘(3) $25,000 EXCLUSION FOR TANGIBLE PER-
SONAL PROPERTY.—
‘‘(A) EXCLUSION.—The term ‘carryover
basis property’ does not include any tangible
personal property—
‘‘(i) which, in the hands of the dece-
dent, was a capital asset, and
108
‘‘(ii) with respect to which the execu-
tor has made an election under this para-
graph.
‘‘(B) LIMITATION.—The fair market value
of all assets designated under this subsection
with respect to any decedent shall not exceed
$25,000.
‘‘(C) ELECTION.—An election under this
paragraph with respect to any asset shall be
made by the executor not later than the date
prescribed for filing the return of the tax im-
posed by chapter 11 (including extensions
thereof), and shall be made on such return.
‘‘(c) SECTION 1022 ADJUSTMENT.—
‘‘(1) IN GENERAL.—The section 1022 adjust-
ment for any carryover basis property is the sum
of—
‘‘(A) the minimum basis adjustment for
such property, and
‘‘(B) the death tax adjustment for such
property.
‘‘(2) MINIMUM BASIS ADJUSTMENT.—
‘‘(A) IN
GENERAL.—The minimum basis
adjustment for any carryover basis property is
the portion of the aggregate minimum basis ad-
109
justment which is allocated to the property pur-
suant to this section.
‘‘(B) AGGREGATE MINIMUM BASIS ADJUST-
MENT.—In the case of any estate, the aggre-
gate minimum basis adjustment is the amount
(if any) by which—
‘‘(i) $600,000, exceeds
‘‘(ii) the aggregate of the initial bases
of all carryover basis property.
‘‘(3) DEATH TAX ADJUSTMENT.—
‘‘(A) IN GENERAL.—The death tax adjust-
ment for any carryover basis property is the
portion of the aggregate death tax adjustment
which is allocated to the property pursuant to
this section.
‘‘(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 subsection, the net appreciation in value
of any property is the amount by which—
110
‘‘(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 carryover basis 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 greater of—
‘‘(i) $250,000, or
‘‘(ii) 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)—
111
‘‘(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.—
‘‘(A) IN GENERAL.—The executor shall al-
locate the adjustments under this subsection
among the carryover basis properties on the re-
turn of the tax imposed by chapter 11.
‘‘(B) CHANGES IN ALLOCATION.—Any allo-
cation made pursuant to subparagraph (A) may
be changed at any time before the close of the
30th day after the initial basis finality date.
The allocation in effect at the close of such
30th day may be changed only with the consent
of the Secretary.
‘‘(C) INITIAL BASIS FINALITY DATE.—For
purposes of this paragraph, the term ‘initial
basis finality date’ means the last day on which
the initial basis of property may be changed in
an administrative or judicial proceeding re-
ferred to in section 7479.
112
‘‘(d) FRESH START ADJUSTMENT.—
‘‘(1) MARKETABLE SECURITIES.—If—
‘‘(A) the adjusted basis immediately before
the death of the decedent of any property which
is carryover basis property reflects the adjusted
basis of any marketable security on December
31, 1996, and
‘‘(B) the fair market value of such security
on December 31, 1996, exceeded its adjusted
basis on such date,
then the adjusted basis of such property shall be in-
creased to reflect the excess referred to in subpara-
graph (B).
‘‘(2) OTHER PROPERTY.—
‘‘(A) IN GENERAL.—For purposes of this
section, if the holding period for any property
other than a marketable security includes De-
cember 31, 1996, the adjusted basis of such
property immediately before the death of the
decedent shall be treated as being not less than
the greatest of the amounts determined under
subparagraph (B).
‘‘(B) DETERMINATION
USING
DISCOUNT
BACK METHOD.—The amount determined under
this subparagraph for any property is—
113
‘‘(i) the fair market value of such
property, divided by
‘‘(ii) 1.005 to the ‘nth’ power where
‘n’ equals the number of full calendar
months which have elapsed between De-
cember 31, 1996, and the date of the dece-
dent’s death.
Except as provided in subparagraph (C), the
amount determined under this subparagraph
shall not be less than 25 percent of the fair
market value of the property.
‘‘(C) 
SUBSTANTIAL
IMPROVEMENT
OR
OTHER
CHANGE
AFTER
1992.—Under regula-
tions prescribed by the Secretary, proper ad-
justment shall be made in the adjustment under
subparagraph (B) or (C) for any property with
respect to which there has been a substantial
improvement or other change after December
31, 1996.
‘‘(3) ONLY ONE FRESH START.—There shall be
no increase in basis under this subsection by reason
of the death of any decedent if the adjusted basis of
the property in the hands of such decedent reflects
the adjusted basis of property which was carryover
basis property with respect to a prior decedent.
114
‘‘(4) CERTAIN PREFERRED STOCK.—
‘‘(A) IN GENERAL.—For purposes of this
subsection, preferred stock which was issued
and outstanding on December 31, 1996, and
which, but for this subparagraph, would not be
a marketable security shall be treated as a mar-
ketable security the fair market value of which,
on December 31, 1996, is its stated redemption
price on such date excluding any dividends in
arrears.
‘‘(B) PREFERRED STOCK DEFINED.—For
purposes of subparagraph (A), the term ‘pre-
ferred stock’ means any stock which—
‘‘(i) is fixed and preferred as to divi-
dends and does not participate in corporate
growth to any significant extent, and
‘‘(ii) is not convertible into any other
class of stock.
‘‘(5) CERTAIN OTHER PROPERTY.—In the case
of any property which, as of December 31, 1996,
had a value which was readily ascertainable (whether
because of a buy-sell agreement, a redemption value,
or otherwise) by a method other than appraisal, the
Secretary may by regulations provide rules similar to
the rules provided by paragraph (1).
115
‘‘(6) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) MARKETABLE SECURITY.—Except as
provided in paragraphs (4) and (5), the term
‘marketable security’ means any security for
which, as of December 1996, there was a mar-
ket on a stock exchange, in an over-the-counter
market, or otherwise.
‘‘(B) HOLDING PERIOD.—The term ‘hold-
ing period’ means, with respect to any carryover
basis property, the period during which the de-
cedent (or, if any other person held such prop-
erty immediately before the death of the dece-
dent, such other person) held such property as
determined under section 1223; except that
such period shall end on the date of the dece-
dent’s death.
‘‘(e) SPECIAL RULES AND DEFINITIONS.—For pur-
poses of this section—
‘‘(1) TREATMENT
OF
ITEMS
ON
A
CLASS
BASIS.—Under regulations prescribed by the Sec-
retary, the holding periods, bases, and fair market
value of similar items falling within the same class
of property may be determined on a class basis rath-
er than on an individual item basis.
116
‘‘(2) IMPROVEMENTS
TO
PRINCIPAL
RESI-
DENCE.—
‘‘(A) IN GENERAL.—If—
‘‘(i) property was used by the dece-
dent as his principal residence, and
‘‘(ii) the decedent’s holding period for
such property began after December 31,
1996,
then in determining the decedent’s adjusted
basis for such property immediately before the
death of the decedent the improvements to such
residence for each calendar year during which
the decedent held it and used it as his principal
residence shall be deemed to be not less than
$250.
‘‘(B) SPECIAL
RULES.—For purposes of
subparagraph (A):
‘‘(i) The term ‘principal residence’ has
the same meaning as when used in section
1034.
‘‘(ii) The period taken into account
shall include any period during the dece-
dent’s holding period for this residence
during which the decedent held a prior
principal residence.
118
such property from the decedent shall not ex-
ceed its fair market value.
‘‘(B) 
DETERMINATION
OF
MINIMUM
BASIS.—In 
determining 
under 
subsection
(c)(2)(B) the aggregate of the initial bases of
all carryover basis property, the basis of any
property which is a personal or household effect
shall be treated as not greater than the fair
market value of such property.
‘‘(5) FAIR MARKET VALUE.—For purposes of
this section, when not otherwise distinctly expressed,
the term ‘fair market value’ means value as deter-
mined under chapter 11 (without regard to whether
there is a mortgage on, or indebtedness in respect
of, the property).
‘‘(6) FAIR MARKET VALUE LIMITATION.—The
adjustments under subsections (c) and (d) shall not
increase the basis of property above its fair market
value.
‘‘(7) PROPERTY
PASSING
FROM
THE
DECE-
DENT.—For purposes of this section, property pass-
ing from the decedent shall be treated as property
acquired from the decedent.
‘‘(8) NONRESIDENTS
NOT
CITIZENS.—In the
case of a decedent who was (at the time of his
129
‘‘SEC. 6039F. INFORMATION REGARDING CARRYOVER BASIS
PROPERTY ACQUIRED FROM A DECEDENT.
‘‘(a) IN GENERAL.—Every executor (as defined in
section 2203) shall furnish the Secretary such information
with respect to carryover basis property to which section
1022 applies as the Secretary may by regulations pre-
scribe.
‘‘(b) STATEMENTS TO BE FURNISHED TO PERSONS
WHO ACQUIRE PROPERTY FROM A DECEDENT.—Every
executor who is required to furnish information under sub-
section (a) shall furnish in writing to each person acquir-
ing an item of such property from the decedent (or to
whom the item passes from the decedent) the adjusted
basis of such item.’’
(2) PENALTIES.—Part I of subchapter B of
chapter 68 (relating to assessable penalties) is
amended by adding at the end thereof the following
new section:
‘‘SEC. 6714. FAILURE TO FILE INFORMATION WITH RESPECT
TO CARRYOVER BASIS PROPERTY.
‘‘(a) INFORMATION REQUIRED TO BE FURNISHED
TO THE SECRETARY.—Any executor who fails to furnish
information required under section 6039F(a) on the date
prescribed therefor (determined with regard to any exten-
sion of time for filing) shall, if such failure is due to neg-
ligence or intentional disregard of rules and regulations,