SECTION 1. SHORT TITLE; ETC.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Death Tax Elimination Act of 2001’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.—
Sec. 1. Short title; etc.
TITLE I—REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING
TAXES
Sec. 101. Repeal of estate, gift, and generation-skipping taxes.
TITLE II—REDUCTIONS OF ESTATE AND GIFT TAX RATES PRIOR
TO REPEAL
Sec. 201. Additional reductions of estate and gift tax rates.
TITLE III—UNIFIED CREDIT REPLACED WITH UNIFIED
EXEMPTION AMOUNT
Sec. 301. Unified credit against estate and gift taxes replaced with unified ex-
emption amount.
TITLE IV—CARRYOVER BASIS AT DEATH; OTHER CHANGES
TAKING EFFECT WITH REPEAL
Sec. 401. Termination of step-up in basis at death.
Sec. 402. Treatment of property acquired from a decedent dying after Decem-
ber 31, 2010.
TITLE V—CONSERVATION EASEMENTS
Sec. 501. Expansion of estate tax rule for conservation easements.
TITLE VI—MODIFICATIONS OF GENERATION-SKIPPING TRANSFER
TAX
Sec. 601. Deemed allocation of GST exemption to lifetime transfers to trusts;
retroactive allocations.
Sec. 602. Severing of trusts.
Sec. 603. Modification of certain valuation rules.
Sec. 604. Relief provisions.
TITLE VII—EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX
Sec. 701. Increase in number of allowable partners and shareholders in closely
held businesses.
TITLE I—REPEAL OF ESTATE,
GIFT, AND GENERATION-SKIP-
PING TAXES
SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION-
SKIPPING TAXES.
(a) IN GENERAL.—Subtitle B is hereby repealed.
(b) EFFECTIVE DATE.—The repeal made by sub-
section (a) shall apply to the estates of decedents dying,
and gifts and generation-skipping transfers made, after
December 31, 2010.
TITLE II—REDUCTIONS OF ES-
TATE AND GIFT TAX RATES
PRIOR TO REPEAL
SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT
TAX RATES.
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PER-
CENT.—
(1) IN GENERAL.—The table contained in sec-
tion 2001(c)(1) is amended by striking the two high-
est brackets and inserting the following:
‘‘Over $2,500,000 ..........................
$1,025,800, plus 50% of the excess
over $2,500,000.’’.
(2) PHASE-IN OF REDUCED RATE.—Subsection
(c) of section 2001 is amended by adding at the end
the following new paragraph:
‘‘(3) PHASE-IN
OF
REDUCED
RATE.—In the
case of decedents dying, and gifts made, during
2002, the last item in the table contained in para-
graph (1) shall be applied by substituting ‘53%’ for
‘50%’.’’.
(b) 
REPEAL
OF
PHASEOUT
OF
GRADUATED
RATES.—Subsection (c) of section 2001 is amended by
striking paragraph (2) and redesignating paragraph (3),
as added by subsection (a), as paragraph (2).
(c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—
Subsection (c) of section 2001, as so amended, is amended
by adding at the end the following new paragraph:
‘‘(3) PHASEDOWN OF TAX.—In the case of es-
tates of decedents dying, and gifts made, during any
calendar year after 2003 and before 2011—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (C), the tentative tax under this
subsection shall be determined by using a table
prescribed by the Secretary (in lieu of using the
table contained in paragraph (1)) which is the
same as such table; except that—
‘‘(i) each of the rates of tax shall be
reduced by the number of percentage
points determined under subparagraph
(B), and
‘‘(ii) the amounts setting forth the tax
shall be adjusted to the extent necessary to
reflect the adjustments under clause (i).
‘‘(B) PERCENTAGE
POINTS
OF
REDUC-
TION.—
The number of
‘‘For calendar year:
percentage points is:
2004 .............................................................................
1.0
2005 .............................................................................
2.0
2006 .............................................................................
3.0
2007 .............................................................................
5.0
2008 .............................................................................
7.0
2009 .............................................................................
9.0
2010 .............................................................................
11.0.
‘‘(C) COORDINATION
WITH
INCOME
TAX
RATES.—The reductions under subparagraph
(A)—
‘‘(i) shall not reduce any rate under
paragraph (1) below the lowest rate in sec-
tion 1(c) applicable to the taxable year
which includes the date of death (or, in the
case of a gift, the date of the gift), and
‘‘(ii) shall not reduce the highest rate
under paragraph (1) below the highest rate
in section 1(c) for such taxable year.
‘‘(D) COORDINATION
WITH
CREDIT
FOR
STATE
DEATH
TAXES.—Rules similar to the
rules of subparagraph (A) shall apply to the
table contained in section 2011(b) except that
the Secretary shall prescribe percentage point
reductions which maintain the proportionate re-
lationship (as in effect before any reduction
under this paragraph) between the credit under
section 2011 and the tax rates under subsection
(c).’’.
(d) EFFECTIVE DATES.—
(1) SUBSECTIONS
(a)
AND
(b).—The amend-
ments made by subsections (a) and (b) shall apply
to estates of decedents dying, and gifts made, after
December 31, 2001.
(2) SUBSECTION (c).—The amendment made by
subsection (c) shall apply to estates of decedents
dying, and gifts made, after December 31, 2003.
TITLE III—UNIFIED CREDIT RE-
PLACED WITH UNIFIED EX-
EMPTION AMOUNT
SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT
TAXES REPLACED WITH UNIFIED EXEMPTION
AMOUNT.
(a) IN GENERAL.—
(1) ESTATE
TAX.—Subsection (b) of section
2001 (relating to computation of tax) is amended to
read as follows:
‘‘(b) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by this
section shall be the amount equal to the excess (if
any) of—
‘‘(A) the tentative tax determined under
paragraph (2), over
‘‘(B) the aggregate amount of tax which
would have been payable under chapter 12 with
respect to gifts made by the decedent after De-
cember 31, 1976, if the provisions of subsection
(c) (as in effect at the decedent’s death) had
been applicable at the time of such gifts.
‘‘(2) TENTATIVE TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph is a tax computed under subsection (c) on
the excess of—
‘‘(A) the sum of—
‘‘(i) the amount of the taxable estate,
and
‘‘(ii) the amount of the adjusted tax-
able gifts, over
‘‘(B) the exemption amount for the cal-
endar year in which the decedent died.
‘‘(3) EXEMPTION
AMOUNT.—For purposes of
paragraph (2), the term ‘exemption amount’ means
the amount determined in accordance with the fol-
lowing table:
‘‘In the case of
The exemption
calendar year:
amount is:
2002 and 2003 ..........................................................
$700,000
2004 ..........................................................................
$850,000
2005 ..........................................................................
$950,000
2006 or thereafter .....................................................
$1,000,000.
‘‘(4) ADJUSTED
TAXABLE
GIFTS.—For pur-
poses of paragraph (2), the term ‘adjusted taxable
gifts’ means the total amount of the taxable gifts
(within the meaning of section 2503) made by the
decedent after December 31, 1976, other than gifts
which are includible in the gross estate of the dece-
dent.’’.
(2) GIFT TAX.—Subsection (a) of section 2502
(relating to computation of tax) is amended to read
as follows:
‘‘(a) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by section
2501 for each calendar year shall be the amount
equal to the excess (if any) of—
‘‘(A) the tentative tax determined under
paragraph (2) for such calendar year, over
‘‘(B) the aggregate amount of tax that
would have been payable under this chapter
with respect to gifts made by the donor in pre-
ceding calendar periods if the tax had been
computed under the provisions of section
2001(c) as in effect for such calendar year.
‘‘(2) TENTATIVE TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph for a calendar year is a tax computed
under section 2001(c) on the excess of—
‘‘(A) the aggregate sum of the taxable gifts
for such calendar year and for each of the pre-
ceding calendar periods, over
‘‘(B) the exemption amount under section
2001(b)(3) for such calendar year.’’.
(b) REPEAL OF UNIFIED CREDITS.—
(1) Section 2010 (relating to unified credit
against estate tax) is hereby repealed.
(2) Section 2505 (relating to unified credit
against gift tax) is hereby repealed.
(c) CONFORMING AMENDMENTS.—
(1)(A) Subsection (b) of section 2011 is
amended—
(i) by striking ‘‘adjusted’’ in the table; and
(ii) by striking the last sentence.
(B) Subsection (f) of section 2011 is amended
by striking ‘‘, reduced by the amount of the unified
credit provided by section 2010’’.
(2) Subsection (a) of section 2012 is amended
by striking ‘‘and the unified credit provided by sec-
tion 2010’’.
(3) Subparagraph (A) of section 2013(c)(1) is
amended by striking ‘‘2010,’’.
(4) Paragraph (2) of section 2014(b) is amend-
ed by striking ‘‘2010, 2011,’’ and inserting ‘‘2011’’.
(5) Clause (ii) of section 2056A(b)(12)(C) is
amended to read as follows:
‘‘(ii) to treat any reduction in the tax
imposed by paragraph (1)(A) by reason of
the credit allowable under section 2010 (as
in effect on the day before the date of the
enactment of the Death Tax Elimination
Act of 2001) or the exemption amount al-
lowable under section 2001(b) with respect
to the decedent as a credit under section
2505 (as so in effect) or exemption under
section 2501 (as the case may be) allow-
able to such surviving spouse for purposes
of determining the amount of the exemp-
tion allowable under section 2501 with re-
spect to taxable gifts made by the sur-
viving spouse during the year in which the
spouse becomes a citizen or any subse-
quent year,’’.
(6) Subsection (a) of section 2057 is amended
by striking paragraphs (2) and (3) and inserting the
following new paragraph:
‘‘(2) MAXIMUM DEDUCTION.—The deduction al-
lowed by this section shall not exceed the excess of
$1,300,000 over the exemption amount (as defined
in section 2001(b)(3)).’’.
(7) Subsection (b) of section 2101 is amended
to read as follows:
‘‘(b) COMPUTATION OF TAX.—
‘‘(1) IN GENERAL.—The tax imposed by this
section shall be the amount equal to the excess (if
any) of—
‘‘(A) the tentative tax determined under
paragraph (2), over
‘‘(B) a tentative tax computed under sec-
tion 2001(c) on the amount of the adjusted tax-
able gifts.
‘‘(2) TENTATIVE TAX.—For purposes of para-
graph (1), the tentative tax determined under this
paragraph is a tax computed under section 2001(c)
on the excess of—
‘‘(A) the sum of—
‘‘(i) the amount of the taxable estate,
and
‘‘(ii) the amount of the adjusted tax-
able gifts, over
‘‘(B) the exemption amount for the cal-
endar year in which the decedent died.
‘‘(3) EXEMPTION AMOUNT.—
‘‘(A) IN GENERAL.—The term ‘exemption
amount’ means $60,000.
‘‘(B) RESIDENTS OF POSSESSIONS OF THE
UNITED
STATES.—In the case of a decedent
who is considered to be a nonresident not a cit-
izen of the United States under section 2209,
the exemption amount under this paragraph
shall be the greater of—
‘‘(i) $60,000, or
‘‘(ii) that proportion of $175,000
which the value of that part of the dece-
dent’s gross estate which at the time of his
death is situated in the United States
bears to the value of his entire gross estate
wherever situated.
‘‘(C) SPECIAL RULES.—
‘‘(i) 
COORDINATION
WITH
TREA-
TIES.—To the extent required under any
treaty obligation of the United States, the
exemption amount allowed under this para-
graph shall be equal to the amount which
bears the same ratio to the exemption
amount under section 2001(b)(3) (for the
calendar year in which the decedent died)
as the value of the part of the decedent’s
gross estate which at the time of his death
is situated in the United States bears to
the value of his entire gross estate wher-
ever situated. For purposes of the pre-
ceding sentence, property shall not be
treated as situated in the United States if
such property is exempt from the tax im-
posed by this subchapter under any treaty
obligation of the United States.
‘‘(ii) COORDINATION WITH GIFT TAX
EXEMPTION AND UNIFIED CREDIT.—If an
exemption has been allowed under section
2501 (or a credit has been allowed under
section 2505 as in effect on the day before
the date of the enactment of the Death
Tax Elimination Act of 2001) with respect
to any gift made by the decedent, each dol-
lar amount contained in subparagraph (A)
or (B) or the exemption amount applicable
under clause (i) of this subparagraph
(whichever applies) shall be reduced by the
exemption so allowed under section 2501
(or, in the case of such a credit, by the
amount of the gift for which the credit was
so allowed).’’.
(8) Section 2102 is amended by striking sub-
section (c).
(9)(A) Paragraph (1) of section 2107(a) is
amended by striking ‘‘the table contained in’’.
(B) Paragraph (1) of section 2107(c) is amend-
ed to read as follows:
‘‘(1) EXEMPTION
AMOUNT.—For purposes of
subsection (a), the exemption amount under section
2001 shall be $60,000.’’.
(C) Paragraph (3) of section 2107(c) is amend-
ed by striking the second sentence.
(D) The heading of subsection (c) of section
2107 is amended to read as follows:
‘‘(c) EXEMPTION AMOUNT AND CREDITS.—’’.
(10) Paragraph (1) of section 6018(a) is
amended by striking ‘‘the applicable exclusion
amount in effect under section 2010(c)’’ and insert-
ing 
‘‘the 
exemption 
amount 
under 
section
2001(b)(3)’’.
(11) Subparagraph (A) of section 6601(j)(2) is
amended to read as follows:
‘‘(A) the amount of the tentative tax which
would be determined under the rate schedule
set forth in section 2001(c) if the amount with
respect to which such tentative tax is to be
computed were $1,000,000, or’’.
(12) The table of sections for part II of sub-
chapter A of chapter 11 is amended by striking the
item relating to section 2010.
(13) The table of sections for subchapter A of
chapter 12 is amended by striking the item relating
to section 2505.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying and
gifts made after December 31, 2001.
TITLE IV—CARRYOVER BASIS AT
DEATH; 
OTHER 
CHANGES
TAKING 
EFFECT 
WITH 
RE-
PEAL
SEC. 401. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 (relating to basis of property acquired
from a decedent) is amended by adding at the end the
following new subsection:
‘‘(f) TERMINATION.—This section shall not apply
with respect to decedents dying after December 31,
2010.’’.
SEC. 402. TREATMENT OF PROPERTY ACQUIRED FROM A
DECEDENT DYING AFTER DECEMBER 31, 2010.
(a) GENERAL RULE.—Part II of subchapter O of
chapter 1 (relating to basis rules of general application)
is amended by inserting after section 1021 the following
new section:
‘‘SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A
DECEDENT DYING AFTER DECEMBER 31, 2010.
‘‘(a) IN GENERAL.—Except as otherwise provided in
this section—
‘‘(1) property acquired from a decedent dying
after December 31, 2010, shall be treated for pur-
poses of this subtitle as transferred by gift, and
‘‘(2) the basis of the person acquiring property
from such a decedent shall be the lesser of—
‘‘(A) the adjusted basis of the decedent, or
‘‘(B) the fair market value of the property
at the date of the decedent’s death.
‘‘(b) BASIS INCREASE FOR CERTAIN PROPERTY.—
‘‘(1) IN GENERAL.—In the case of property to
which this subsection applies, the basis of such prop-
erty under subsection (a) shall be increased by its
basis increase under this subsection.
‘‘(2) BASIS INCREASE.—For purposes of this
subsection—
‘‘(A) IN
GENERAL.—The basis increase
under this subsection for any property is the
portion of the aggregate basis increase which is
allocated to the property pursuant to this sec-
tion.
‘‘(B) AGGREGATE
BASIS
INCREASE.—In
the case of any estate, the aggregate basis in-
crease under this subsection is $1,300,000.
‘‘(C) LIMIT INCREASED BY UNUSED BUILT-
IN LOSSES AND LOSS CARRYOVERS.—The limi-
tation under subparagraph (B) shall be in-
creased by—
‘‘(i) the sum of the amount of any
capital 
loss 
carryover 
under 
section
1212(b), and the amount of any net oper-
ating loss carryover under section 172,
which would (but for the decedent’s death)
be carried from the decedent’s last taxable
year to a later taxable year of the dece-
dent, plus
‘‘(ii) the sum of the amount of any
losses that would have been allowable
under section 165 if the property acquired
from the decedent had been sold at fair
market value immediately before the dece-
dent’s death.
‘‘(3) DECEDENT NONRESIDENTS WHO ARE NOT
CITIZENS OF THE UNITED STATES.—In the case of
a decedent nonresident not a citizen of the United
States—
‘‘(A) paragraph (2)(B) shall be applied by
substituting ‘$60,000’ for ‘$1,300,000’, and
‘‘(B) paragraph (2)(C) shall not apply.
‘‘(c) ADDITIONAL BASIS INCREASE FOR PROPERTY
ACQUIRED BY SURVIVING SPOUSE.—
‘‘(1) IN GENERAL.—In the case of property to
which this subsection applies and which is qualified
spousal property, the basis of such property under
subsection (a) (as increased, if any, under subsection
(b)) shall be increased by its spousal property basis
increase.
‘‘(2) SPOUSAL
PROPERTY
BASIS
INCREASE.—
For purposes of this subsection—
‘‘(A) IN GENERAL.—The spousal property
basis increase for property referred to in para-
graph (1) is the portion of the aggregate spous-
al property basis increase which is allocated to
the property pursuant to this section.
‘‘(B) AGGREGATE
SPOUSAL
PROPERTY
BASIS INCREASE.—In the case of any estate,
the aggregate spousal property basis increase is
$3,000,000.
‘‘(3) QUALIFIED
SPOUSAL
PROPERTY.—For
purposes of this subsection, the term ‘qualified
spousal property’ means—
‘‘(A) outright transfer property, and
‘‘(B) qualified terminable interest property.
‘‘(4) OUTRIGHT
TRANSFER
PROPERTY.—For
purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘outright
transfer property’ means any interest in prop-
erty acquired from the decedent by the dece-
dent’s surviving spouse.
‘‘(B) 
EXCEPTION.—Subparagraph 
(A)
shall not apply where, on the lapse of time, on
the occurrence of an event or contingency, or on
the failure of an event or contingency to occur,
an interest passing to the surviving spouse will
terminate or fail—
‘‘(i)(I) if an interest in such property
passes or has passed (for less than an ade-
quate and full consideration in money or
money’s worth) from the decedent to any
person other than such surviving spouse
(or the estate of such spouse), and
‘‘(II) if by reason of such passing
such person (or his heirs or assigns) may
possess or enjoy any part of such property
after such termination or failure of the in-
terest so passing to the surviving spouse,
or
‘‘(ii) if such interest is to be acquired
for the surviving spouse, pursuant to direc-
tions of the decedent, by his executor or by
the trustee of a trust.
For purposes of this subparagraph, an interest
shall not be considered as an interest which will
terminate or fail merely because it is the owner-
ship of a bond, note, or similar contractual obli-
gation, the discharge of which would not have
the effect of an annuity for life or for a term.
‘‘(C) INTEREST OF SPOUSE CONDITIONAL
ON SURVIVAL FOR LIMITED PERIOD.—For pur-
poses of this paragraph, an interest passing to
the surviving spouse shall not be considered as
an interest which will terminate or fail on the
death of such spouse if—
‘‘(i) such death will cause a termi-
nation or failure of such interest only if it
occurs within a period not exceeding 6
months after the decedent’s death, or only
if it occurs as a result of a common dis-
aster resulting in the death of the decedent
and the surviving spouse, or only if it oc-
curs in the case of either such event, and
‘‘(ii) such termination or failure does
not in fact occur.
‘‘(5) QUALIFIED TERMINABLE INTEREST PROP-
ERTY.—For purposes of this subsection—
‘‘(A) IN GENERAL.—The term ‘qualified ter-
minable interest property’ means property—
‘‘(i) which passes from the decedent,
and
‘‘(ii) in which the surviving spouse has
a qualifying income interest for life.
‘‘(B) QUALIFYING INCOME INTEREST FOR
LIFE.—The surviving spouse has a qualifying
income interest for life if—
‘‘(i) the surviving spouse is entitled to
all the income from the property, payable
annually or at more frequent intervals, or
has a usufruct interest for life in the prop-
erty, and
‘‘(ii) no person has a power to appoint
any part of the property to any person
other than the surviving spouse.
Clause (ii) shall not apply to a power exer-
cisable only at or after the death of the sur-
viving spouse. To the extent provided in regula-
tions, an annuity shall be treated in a manner
similar to an income interest in property (re-
gardless of whether the property from which the
annuity is payable can be separately identified).
‘‘(C) 
PROPERTY
INCLUDES
INTEREST
THEREIN.—The term ‘property’ includes an in-
terest in property.
‘‘(D) SPECIFIC PORTION TREATED AS SEP-
ARATE PROPERTY.—A specific portion of prop-
erty shall be treated as separate property. For
purposes of the preceding sentence, the term
‘specific portion’ only includes a portion deter-
mined on a fractional or percentage basis.
‘‘(d) DEFINITIONS AND SPECIAL RULES FOR APPLI-
CATION OF SUBSECTIONS (b) AND (c).—
‘‘(1) PROPERTY
TO
WHICH
SUBSECTIONS (b)
AND (c) APPLY.—
‘‘(A) IN GENERAL.—The basis of property
acquired from a decedent may be increased
under subsection (b) or (c) only if the property
was owned by the decedent at the time of
death.
‘‘(B) RULES RELATING TO OWNERSHIP.—
‘‘(i) JOINTLY
HELD
PROPERTY.—In
the case of property which was owned by
the decedent and another person as joint
tenants with right of survivorship or ten-
ants by the entirety—
‘‘(I) if the only such other person
is the surviving spouse, the decedent
shall be treated as the owner of only
50 percent of the property,
‘‘(II) in any case (to which sub-
clause (I) does not apply) in which the
decedent furnished consideration for
the acquisition of the property, the de-
cedent shall be treated as the owner
to the extent of the portion of the
property which is proportionate to
such consideration, and
‘‘(III) in any case (to which sub-
clause (I) does not apply) in which the
property has been acquired by gift,
bequest, devise, or inheritance by the
decedent and any other person as
joint tenants with right of survivor-
ship and their interests are not other-
wise specified or fixed by law, the de-
cedent shall be treated as the owner
to the extent of the value of a frac-
tional part to be determined by divid-
ing the value of the property by the
number of joint tenants with right of
survivorship.
‘‘(ii) REVOCABLE TRUSTS.—The dece-
dent shall be treated as owning property
transferred by the decedent during life to
a revocable trust to pay all of the income
during the decedent’s life to the decedent
or at the direction of the decedent.
‘‘(iii) POWERS
OF
APPOINTMENT.—
The decedent shall not be treated as own-
ing any property by reason of holding a
power of appointment with respect to such
property.
‘‘(iv) COMMUNITY PROPERTY.—Prop-
erty 
which 
represents 
the 
surviving
spouse’s one-half share of community prop-
erty held by the decedent and the surviving
spouse under the community property laws
of any State or possession of the United
States or any foreign country shall be
treated for purposes of this section as
owned by, and acquired from, the decedent
if at least one-half of the whole of the com-
munity interest in such property is treated
as owned by, and acquired from, the dece-
dent without regard to this clause.
‘‘(C) PROPERTY ACQUIRED BY DECEDENT
BY GIFT WITHIN 3 YEARS OF DEATH.—
‘‘(i) IN
GENERAL.—Subsections (b)
and (c) shall not apply to property ac-
quired by the decedent by gift or by inter
vivos transfer for less than adequate and
full consideration in money or money’s
worth during the 3-year period ending on
the date of the decedent’s death.
‘‘(ii) EXCEPTION FOR CERTAIN GIFTS
FROM SPOUSE.—Clause (i) shall not apply
to property acquired by the decedent from
the decedent’s spouse unless, during such
3-year period, such spouse acquired the
property in whole or in part by gift or by
inter vivos transfer for less than adequate
and full consideration in money or money’s
worth.
‘‘(D) STOCK OF CERTAIN ENTITIES.—Sub-
sections (b) and (c) shall not apply to—
‘‘(i) stock or securities a foreign per-
sonal holding company,
‘‘(ii) stock of a DISC or former
DISC,
‘‘(iii) stock of a foreign investment
company, or
‘‘(iv) stock of a passive foreign invest-
ment company unless such company is a
qualified electing fund (as defined in sec-
tion 1295) with respect to the decedent.
‘‘(2) FAIR MARKET VALUE LIMITATION.—The
adjustments under subsection (b) and (c) shall not
increase the basis of any interest in property ac-
quired from the decedent above its fair market value
in the hands of the decedent as of the date of the
decedent’s death.
‘‘(3) ALLOCATION RULES.—
‘‘(A) IN GENERAL.—The executor shall al-
locate the adjustments under subsections (b)
and (c) on the return required by section 6018.
‘‘(B) CHANGES IN ALLOCATION.—Any allo-
cation made pursuant to subparagraph (A) may
be changed only as provided by the Secretary.
‘‘(4) INFLATION
ADJUSTMENT
OF
BASIS
AD-
JUSTMENT AMOUNTS.—
‘‘(A) IN GENERAL.—In the case of dece-
dents dying in a calendar year after 2011, the
$1,300,000, $60,000, and $3,000,000 dollar
amounts in subsections (b) and (c)(2)(B) shall
each be increased by an amount equal to the
product of—
‘‘(i) such dollar amount, and
‘‘(ii) the cost-of-living adjustment de-
termined under section 1(f)(3) for such
calendar year, determined by substituting
‘2010’ for ‘1992’ in subparagraph (B)
thereof.
‘‘(B) ROUNDING.—If any increase deter-
mined under subparagraph (A) is not a multiple
of—
‘‘(i) $100,000 in the case of the
$1,300,000 amount,
‘‘(ii) $5,000 in the case of the
$60,000 amount, and
‘‘(iii) $250,000 in the case of the
$3,000,000 amount,
such increase shall be rounded to the next low-
est multiple thereof.
‘‘(e) PROPERTY ACQUIRED FROM THE DECEDENT.—
For purposes of this section, the following property shall
be considered to have been acquired from the decedent:
‘‘(1) Property acquired by bequest, devise, or
inheritance, or by the decedent’s estate from the de-
cedent.
‘‘(2) Property transferred by the decedent dur-
ing his lifetime in trust to pay the income for life
to or on the order or direction of the decedent, with
the right reserved to the decedent at all times before
his death—
‘‘(A) to revoke the trust, or
‘‘(B) to make any change in the enjoyment
thereof through the exercise of a power to alter,
amend, or terminate the trust.
‘‘(3) Any other property passing from the dece-
dent by reason of death to the extent that such
property passed without consideration.
‘‘(f) COORDINATION WITH SECTION 691.—This sec-
tion shall not apply to property which constitutes a right
to receive an item of income in respect of a decedent under
section 691.
‘‘(g) CERTAIN LIABILITIES DISREGARDED.—In de-
termining whether gain is recognized on the acquisition
of property—
‘‘(1) from a decedent by a decedent’s estate or
any beneficiary, and
‘‘(2) from the decedent’s estate by any bene-
ficiary,
and in determining the adjusted basis of such property,
liabilities in excess of basis shall be disregarded.
‘‘(h) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(b) INFORMATION RETURNS, ETC.—
(1) IN GENERAL.—Subpart C of part II of sub-
chapter A of chapter 61 is amended to read as fol-
lows:
‘‘Subpart C—Returns Relating to Transfers During
Life or at Death
‘‘Sec. 6018. Returns relating to large transfers at death.
‘‘Sec. 6019. Returns relating to large lifetime gifts.
‘‘SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT
DEATH.
‘‘(a) IN GENERAL.—If this section applies to prop-
erty acquired from a decedent, the executor of the estate
of such decedent shall make a return containing the infor-
mation specified in subsection (c) with respect to such
property.
‘‘(b) PROPERTY TO WHICH SECTION APPLIES.—
‘‘(1) LARGE
TRANSFERS.—This section shall
apply to all property (other than cash) acquired
from a decedent if the fair market value of such
property acquired from the decedent exceeds the dol-
lar amount applicable under section 1022(b)(2)(B)
(without regard to section 1022(b)(2)(C)).
‘‘(2) TRANSFERS OF CERTAIN GIFTS RECEIVED
BY DECEDENT WITHIN 3 YEARS OF DEATH.—This
section shall apply to any appreciated property ac-
quired from the decedent if—
‘‘(A) subsections (b) and (c) of section
1022 do not apply to such property by reason
of section 1022(d)(1)(C), and
‘‘(B) such property was required to be in-
cluded on a return required to be filed under
section 6019.
‘‘(3) NONRESIDENTS
NOT
CITIZENS
OF
THE
UNITED STATES.—In the case of a decedent who is
a nonresident not a citizen of the United States,
paragraphs (1) and (2) shall be applied—
‘‘(A) by taking into account only—
‘‘(i) tangible property situated in the
United States, and
‘‘(ii) other property acquired from the
decedent by a United States person, and
‘‘(B) by substituting the dollar amount ap-
plicable under section 1022(b)(3) for the dollar
amount referred to in paragraph (1).
‘‘(4) RETURNS
BY
TRUSTEES
OR
BENE-
FICIARIES.—If the executor is unable to make a
complete return as to any property acquired from or
passing from the decedent, the executor shall include
in the return a description of such property and the
name of every person holding a legal or beneficial in-
terest therein. Upon notice from the Secretary such
person shall in like manner make a return as to
such property.
‘‘(c) INFORMATION REQUIRED TO BE FURNISHED.—
The information specified in this subsection with respect
to any property acquired from the decedent is—
‘‘(1) the name and TIN of the recipient of such
property,
‘‘(2) an accurate description of such property,
‘‘(3) the adjusted basis of such property in the
hands of the decedent and its fair market value at
the time of death,
‘‘(4) the decedent’s holding period for such
property,
‘‘(5) sufficient information to determine wheth-
er any gain on the sale of the property would be
treated as ordinary income,
‘‘(6) the amount of basis increase allocated to
the property under subsection (b) or (c) of section
1022, and
‘‘(7) such other information as the Secretary
may by regulations prescribe.
‘‘(d) PROPERTY ACQUIRED FROM DECEDENT.—For
purposes of this section, section 1022 shall apply for pur-
poses of determining the property acquired from a dece-
dent.
‘‘(e) STATEMENTS TO BE FURNISHED TO CERTAIN
PERSONS.—Every person required to make a return under
subsection (a) shall furnish to each person whose name
is required to be set forth in such return (other than the
person required to make such return) a written statement
showing—
‘‘(1) the name, address, and phone number of
the person required to make such return, and
‘‘(2) the information specified in subsection (c)
with respect to property acquired from, or passing
from, the decedent to the person required to receive
such statement.
The written statement required under the preceding sen-
tence shall be furnished not later than 30 days after the
date that the return required by subsection (a) is filed.
‘‘SEC. 6019. RETURNS RELATING TO LARGE LIFETIME
GIFTS.
‘‘(a) IN GENERAL.—If the value of the aggregate
gifts of property made by an individual to any United
States person during a calendar year exceeds $25,000,
such individual shall make a return for such year setting
forth—
‘‘(1) the name and TIN of the donee,
‘‘(2) an accurate description of such property,
‘‘(3) the adjusted basis of such property in the
hands of the donor at the time of the gift,
‘‘(4) the donor’s holding period for such prop-
erty,
‘‘(5) sufficient information to determine wheth-
er any gain on the sale of the property would be
treated as ordinary income, and
‘‘(6) such other information as the Secretary
may by regulations prescribe.
‘‘(b) EXCEPTIONS.—Subsection (a) shall not apply
to—
‘‘(1) CASH.—Any gift of cash.
‘‘(2) GIFTS TO CHARITY.—Any gift to an orga-
nization described in section 501(c) and exempt
from tax under section 501(a) but only if no interest
in the property is held for the benefit of any person
other than such an organization.
‘‘(3) WAIVER OF CERTAIN PENSION RIGHTS in-
dividual waives, before the death of a participant,
any survivor benefit, or right to such benefit, under
section 401(a)(11) or 417, subsection (a) shall not
apply to such waiver.
‘‘(4) REPORTING
ELSEWHERE.—Any gift re-
quired to be reported to the Secretary under any
other provision of this title.
‘‘(c) STATEMENTS TO BE FURNISHED TO CERTAIN
PERSONS.—Every person required to make a return under
subsection (a) shall furnish to each person whose name
is required to be set forth in such return a written state-
ment showing—
‘‘(1) the name, address, and phone number of
the person required to make such return, and
‘‘(2) the information specified in subsection (a)
with respect to property received by the person re-
quired to receive such statement.
The written statement required under the preceding sen-
tence shall be furnished on or before January 31 of the
year following the calendar year for which the return
under subsection (a) was required to be made.’’.
(2) TIME
FOR
FILING
SECTION
6018
RE-
TURNS.—
(A) RETURNS RELATING TO LARGE TRANS-
FERS
AT
DEATH.—Subsection (a) of section
6075 is amended to read as follows:
‘‘(a) RETURNS RELATING TO LARGE TRANSFERS AT
DEATH.—The return required by section 6018 with re-
spect to a decedent shall be filed with the return of the
tax imposed by chapter 1 for the decedent’s last taxable
year or such later date specified in regulations prescribed
by the Secretary.’’.
(B) RETURNS RELATING TO LARGE LIFE-
TIME GIFTS.—
(i) The heading for section 6075(b) is
amended to read as follows:
‘‘(b) RETURNS RELATING
TO LARGE LIFETIME
GIFTS.—’’.
(ii) Paragraph (1) of section 6075(b)
is amended by striking ‘‘(relating to gift
taxes)’’ and inserting ‘‘(relating to returns
relating to large lifetime gifts)’’.
(iii) Paragraph (3) of section 6075(b)
is amended—
(I) by striking ‘‘ESTATE TAX RE-
TURN’’ and inserting ‘‘SECTION 6018
RETURN’’, and
(II) by striking ‘‘(relating to es-
tate tax returns)’’ and inserting ‘‘(re-
lating to returns relating to large
transfers at death)’’.
(3) PENALTIES.—Part I of subchapter B of
chapter 68 (relating to assessable penalties) is
amended by adding at the end the following new sec-
tion:
‘‘SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT
TO CERTAIN TRANSFERS AT DEATH AND
GIFTS.
‘‘(a) INFORMATION REQUIRED TO BE FURNISHED
TO THE SECRETARY.—Any person required to furnish any
information under section 6018 or 6019 who fails to fur-
nish such information on the date prescribed therefor (de-
termined with regard to any extension of time for filing)
shall pay a penalty of $10,000 ($500 in the case of infor-
mation required to be furnished under section 6018(b)(2)
or 6019) for each such failure.
‘‘(b) INFORMATION REQUIRED TO BE FURNISHED
TO BENEFICIARIES.—Any person required to furnish in
writing to each person described in section 6018(e) or
6019(c) the information required under such section who
fails to furnish such information shall pay a penalty of
$50 for each such failure.
‘‘(c) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under subsection (a) or (b) with respect
to any failure if it is shown that such failure is due to
reasonable cause.
‘‘(d) INTENTIONAL
DISREGARD.—If any failure
under subsection (a) or (b) is due to intentional disregard
of the requirements under sections 6018 and 6019, the
penalty under such subsection shall be 5 percent of the
fair market value (as of the date of death or, in the case
of section 6019, the date of the gift) of the property with
respect to which the information is required.
‘‘(e) DEFICIENCY PROCEDURES NOT TO APPLY.—
Subchapter B of chapter 63 (relating to deficiency proce-
dures for income, estate, gift, and certain excise taxes)
shall not apply in respect of the assessment or collection
of any penalty imposed by this section.’’.
(4) CLERICAL AMENDMENTS.—
(A) The table of sections for part I of sub-
chapter B of chapter 68 is amended by adding
at the end the following new item:
‘‘Sec. 6716. Failure to file information with respect to certain
transfers at death and gifts.’’.
(B) The item relating to subpart C in the
table of subparts for part II of subchapter A of
chapter 61 is amended to read as follows:
‘‘Subpart C. Returns relating to transfers during life or at
death.’’.
(c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL
RESIDENCE MADE AVAILABLE TO HEIR OF DECEDENT
IN CERTAIN CASES.—Subsection (d) of section 121 (relat-
ing to exclusion of gain from sale of principal residence)
is amended by adding at the end the following new para-
graph:
‘‘(9) PROPERTY
ACQUIRED
FROM
A
DECE-
DENT.—The exclusion under this section shall apply
to property sold by—
‘‘(A) the estate of a decedent, and
‘‘(B) any individual who acquired such
property from the decedent (within the meaning
of section 1022),
determined by taking into account the ownership
and use by the decedent.’’.
(d) TRANSFERS OF APPRECIATED CARRYOVER BASIS
PROPERTY TO SATISFY PECUNIARY BEQUEST.—
(1) IN
GENERAL.—Section 1040 (relating to
transfer of certain farm, etc., real property) is
amended to read as follows:
‘‘SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS
PROPERTY 
TO 
SATISFY 
PECUNIARY 
BE-
QUEST.
‘‘(a) IN GENERAL.—If the executor of the estate of
any decedent satisfies the right of any person to receive
a pecuniary bequest with appreciated property, then gain
on such exchange shall be recognized to the estate only
to the extent that, on the date of such exchange, the fair
market value of such property exceeds such value on the
date of death.
‘‘(b) SIMILAR RULE FOR CERTAIN TRUSTS.—To the
extent provided in regulations prescribed by the Secretary,
a rule similar to the rule provided in subsection (a) shall
apply where—
‘‘(1) by reason of the death of the decedent, a
person has a right to receive from a trust a specific
dollar amount which is the equivalent of a pecuniary
bequest, and
‘‘(2) the trustee of a trust satisfies such right
with property.
‘‘(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE
DESCRIBED IN SUBSECTION (a) OR (b).—The basis of
property acquired in an exchange with respect to which
gain realized is not recognized by reason of subsection (a)
or (b) shall be the basis of such property immediately be-
fore the exchange increased by the amount of the gain rec-
ognized to the estate or trust on the exchange.’’.
(2) The item relating to section 1040 in the
table of sections for part III of subchapter O of
chapter 1 is amended to read as follows:
‘‘Sec. 1040. Use of appreciated carryover basis property to satisfy
pecuniary bequest.’’.
(e) ANTI-ABUSE RULES.—Section 7701 is amended
by redesignating subsection (n) as subsection (o) and by
inserting after subsection (m) the following new sub-
section:
‘‘(n) PURPORTED GIFTS MAY BE DISREGARDED.—
For purposes of subtitle A, the Secretary may treat a
transfer which purports to be a gift as having never been
transferred if, in connection with such transfer—
‘‘(1)(A) the transferor (or any person related to
or designated by the transferor or such person) has
received anything of value in connection with such
transfer from the transferee directly or indirectly, or
‘‘(B) there is an understanding or expectation
that the transferor (or such person) will receive any-
thing of value in connection with such transfer from
the transferee directly or indirectly, and
‘‘(2) the Secretary determines that such treat-
ment is appropriate to prevent avoidance of tax im-
posed by subtitle A.’’.
(f) MISCELLANEOUS AMENDMENTS RELATED
TO
CARRYOVER BASIS.—
(1) RECOGNITION OF GAIN ON TRANSFERS TO
NONRESIDENTS.—
(A) Subsection (a) of section 684 is
amended by inserting ‘‘or to a nonresident not
a citizen of the United States’’ after ‘‘or trust’’.
(B) Subsection (b) of section 684 is
amended by striking ‘‘any person’’ and insert-
ing ‘‘any United States person’’.
(C) The section heading for section 684 is
amended by inserting ‘‘AND
NONRESIDENT
ALIENS’’ after ‘‘ESTATES’’.
(D) The item relating to section 684 in the
table of sections for subpart F of part I of sub-
chapter J of chapter 1 is amended by inserting
‘‘and nonresident aliens’’ after ‘‘estates’’.
(2) CAPITAL GAIN TREATMENT FOR INHERITED
ART WORK OR SIMILAR PROPERTY.—
(A) IN
GENERAL.—Subparagraph (C) of
section 1221(a)(3) (defining capital asset) is
amended by inserting ‘‘(other than by reason of
section 1022)’’ after ‘‘is determined’’.
(B) COORDINATION WITH SECTION 170.—
Paragraph (1) of section 170(e) (relating to
certain contributions of ordinary income and
capital gain property) is amended by adding at
the end the following: ‘‘For purposes of this
paragraph, the determination of whether prop-
erty is a capital asset shall be made without re-
gard to the exception contained in section
1221(a)(3)(C) for basis determined under sec-
tion 1022.’’.
(3) 
DEFINITION
OF
EXECUTOR.—Section
7701(a) (relating to definitions) is amended by add-
ing at the end the following:
‘‘(47) EXECUTOR.—The term ‘executor’ means
the executor or administrator of the decedent, or, if
there is no executor or administrator appointed,
qualified, and acting within the United States, then
any person in actual or constructive possession of
any property of the decedent.’’.
(4) CERTAIN
TRUSTS.—Subparagraph (A) of
section 
4947(a)(2) 
is 
amended 
by 
inserting
‘‘642(c),’’ after ‘‘170(f)(2)(B),’’.
(5) OTHER AMENDMENTS.—
(A) Section 1246 is amended by striking
subsection (e).
(B) Subsection (e) of section 1291 is
amended—
(i) by striking ‘‘(e),’’; and
(ii) by striking ‘‘; except that’’ and all
that follows and inserting a period.
(C) Section 1296 is amended by striking
subsection (i).
(6) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter O of chapter 1 is
amended by inserting after the item relating to sec-
tion 1021 the following new item:
‘‘Sec. 1022. Treatment of property acquired from a decedent
dying after December 31, 2010.’’.
(g) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in para-
graph (2), the amendments made by this section
shall apply to estates of decedents dying after De-
cember 31, 2010.
(2) PURPORTED GIFTS, ETC.—The amendments
made by subsections (e) and (f)(1) shall apply to
transfers after December 31, 2010.
(3) SECTION 4947.—The amendment made by
subsection (f)(4) shall apply to deductions for tax-
able years beginning after December 31, 2010.
(h) STUDY.—The Secretary of the Treasury or the
Secretary’s delegate shall conduct a study of—
(1) opportunities for avoidance of the income
tax, if any; and
(2) potential increases in income tax revenues,
by reason of the enactment of this Act. The study shall
be submitted to the Committee on Ways and Means of
the House of Representatives and the Committee on Fi-
nance of the Senate not later than December 31, 2002.
TITLE V—CONSERVATION
EASEMENTS
SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CON-
SERVATION EASEMENTS.
(a) WHERE LAND IS LOCATED.—Clause (i) of sec-
tion 2031(c)(8)(A) (defining land subject to a conserva-
tion easement) is amended—
(1) by striking ‘‘25 miles’’ each place it appears
and inserting ‘‘50 miles’’; and
(2) striking ‘‘10 miles’’ and inserting ‘‘25
miles’’.
(b) CLARIFICATION
OF DATE
FOR DETERMINING
VALUE OF LAND AND EASEMENT.—Section 2031(c)(2)
(defining applicable percentage) is amended by adding at
the end the following new sentence: ‘‘The values taken into
account under the preceding sentence shall be such values
as of the date of the contribution referred to in paragraph
(8)(B).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 2000.
TITLE 
VI—MODIFICATIONS 
OF
GENERATION-SKIPPING
TRANSFER TAX
SEC. 601. DEEMED ALLOCATION OF GST EXEMPTION TO
LIFETIME TRANSFERS TO TRUSTS; RETRO-
ACTIVE ALLOCATIONS.
(a) IN GENERAL.—Section 2632 (relating to special
rules for allocation of GST exemption) is amended by re-
designating subsection (c) as subsection (e) and by insert-
ing after subsection (b) the following new subsections:
‘‘(c) DEEMED ALLOCATION TO CERTAIN LIFETIME
TRANSFERS TO GST TRUSTS.—
‘‘(1) IN GENERAL.—If any individual makes an
indirect skip during such individual’s lifetime, any
unused portion of such individual’s GST exemption
shall be allocated to the property transferred to the
extent necessary to make the inclusion ratio for such
property zero. If the amount of the indirect skip ex-
ceeds such unused portion, the entire unused portion
shall be allocated to the property transferred.
‘‘(2) UNUSED PORTION.—For purposes of para-
graph (1), the unused portion of an individual’s
GST exemption is that portion of such exemption
which has not previously been—
‘‘(A) allocated by such individual,
‘‘(B) treated as allocated under subsection
(b) with respect to a direct skip occurring dur-
ing or before the calendar year in which the in-
direct skip is made, or
‘‘(C) treated as allocated under paragraph
(1) with respect to a prior indirect skip.
‘‘(3) DEFINITIONS.—
‘‘(A) INDIRECT
SKIP.—For purposes of
this subsection, the term ‘indirect skip’ means
any transfer of property (other than a direct
skip) subject to the tax imposed by chapter 12
made to a GST trust.
‘‘(B) GST TRUST.—The term ‘GST trust’
means a trust that could have a generation-
skipping transfer with respect to the transferor
unless—
‘‘(i) the trust instrument provides that
more than 25 percent of the trust corpus
must be distributed to or may be with-
drawn by one or more individuals who are
non-skip persons—
‘‘(I) before the date that the indi-
vidual attains age 46,
‘‘(II) on or before one or more
dates specified in the trust instrument
that will occur before the date that
such individual attains age 46, or
‘‘(III) upon the occurrence of an
event that, in accordance with regula-
tions prescribed by the Secretary, may
reasonably be expected to occur before
the date that such individual attains
age 46,
‘‘(ii) the trust instrument provides
that more than 25 percent of the trust cor-
pus must be distributed to or may be with-
drawn by one or more individuals who are
non-skip persons and who are living on the
date of death of another person identified
in the instrument (by name or by class)
who is more than 10 years older than such
individuals,
‘‘(iii) the trust instrument provides
that, if one or more individuals who are
non-skip persons die on or before a date or
event described in clause (i) or (ii), more
than 25 percent of the trust corpus either
must be distributed to the estate or estates
of one or more of such individuals or is
subject to a general power of appointment
exercisable by one or more of such individ-
uals,
‘‘(iv) the trust is a trust any portion
of which would be included in the gross es-
tate of a non-skip person (other than the
transferor) if such person died immediately
after the transfer,
‘‘(v) the trust is a charitable lead an-
nuity trust (within the meaning of section
2642(e)(3)(A)) or a charitable remainder
annuity trust or a charitable remainder
unitrust (within the meaning of section
664(d)), or
‘‘(vi) the trust is a trust with respect
to which a deduction was allowed under
section 2522 for the amount of an interest
in the form of the right to receive annual
payments of a fixed percentage of the net
fair market value of the trust property (de-
termined yearly) and which is required to
pay principal to a non-skip person if such
person is alive when the yearly payments
for which the deduction was allowed termi-
nate.
For purposes of this subparagraph, the value of
transferred property shall not be considered to
be includible in the gross estate of a non-skip
person or subject to a right of withdrawal by
reason of such person holding a right to with-
draw so much of such property as does not ex-
ceed the amount referred to in section 2503(b)
with respect to any transferor, and it shall be
assumed that powers of appointment held by
non-skip persons will not be exercised.
‘‘(4) AUTOMATIC
ALLOCATIONS
TO
CERTAIN
GST TRUSTS.—For purposes of this subsection, an
indirect skip to which section 2642(f) applies shall
be deemed to have been made only at the close of
the estate tax inclusion period. The fair market
value of such transfer shall be the fair market value
of the trust property at the close of the estate tax
inclusion period.
‘‘(5) APPLICABILITY AND EFFECT.—
‘‘(A) IN GENERAL.—An individual—
‘‘(i) may elect to have this subsection
not apply to—
‘‘(I) an indirect skip, or
‘‘(II) any or all transfers made
by such individual to a particular
trust, and
‘‘(ii) may elect to treat any trust as a
GST trust for purposes of this subsection
with respect to any or all transfers made
by such individual to such trust.
‘‘(B) ELECTIONS.—
‘‘(i) ELECTIONS
WITH
RESPECT
TO
INDIRECT SKIPS.—An election under sub-
paragraph (A)(i)(I) shall be deemed to be
timely if filed on a timely filed gift tax re-
turn for the calendar year in which the
transfer was made or deemed to have been
made pursuant to paragraph (4) or on
such later date or dates as may be pre-
scribed by the Secretary.
‘‘(ii) OTHER ELECTIONS.—An election
under clause (i)(II) or (ii) of subparagraph
(A) may be made on a timely filed gift tax
return for the calendar year for which the
election is to become effective.
‘‘(d) RETROACTIVE ALLOCATIONS.—
‘‘(1) IN GENERAL.—If—
‘‘(A) a non-skip person has an interest or
a future interest in a trust to which any trans-
fer has been made,
‘‘(B) such person—
‘‘(i) is a lineal descendant of a grand-
parent of the transferor or of a grand-
parent of the transferor’s spouse or former
spouse, and
‘‘(ii) is assigned to a generation below
the generation assignment of the trans-
feror, and
‘‘(C) such person predeceases the trans-
feror,
then the transferor may make an allocation of any
of such transferor’s unused GST exemption to any
previous transfer or transfers to the trust on a
chronological basis.
‘‘(2) SPECIAL RULES.—If the allocation under
paragraph (1) by the transferor is made on a gift
tax return filed on or before the date prescribed by
section 6075(b) for gifts made within the calendar
year within which the non-skip person’s death
occurred—
‘‘(A) the value of such transfer or trans-
fers for purposes of section 2642(a) shall be de-
termined as if such allocation had been made
on a timely filed gift tax return for each cal-
endar year within which each transfer was
made,
‘‘(B) such allocation shall be effective im-
mediately before such death, and
‘‘(C) the amount of the transferor’s unused
GST exemption available to be allocated shall
be determined immediately before such death.
‘‘(3) FUTURE INTEREST.—For purposes of this
subsection, a person has a future interest in a trust
if the trust may permit income or corpus to be paid
to such person on a date or dates in the future.’’.
(b) CONFORMING AMENDMENT.—Paragraph (2) of
section 2632(b) is amended by striking ‘‘with respect to
a prior direct skip’’ and inserting ‘‘or subsection (c)(1)’’.
(c) EFFECTIVE DATES.—
(1) DEEMED ALLOCATION.—Section 2632(c) of
the Internal Revenue Code of 1986 (as added by
subsection (a)), and the amendment made by sub-
section (b), shall apply to transfers subject to chap-
ter 11 or 12 made after December 31, 2000, and to
estate tax inclusion periods ending after December
31, 2000.
(2) 
RETROACTIVE
ALLOCATIONS.—Section
2632(d) of the Internal Revenue Code of 1986 (as
added by subsection (a)) shall apply to deaths of
non-skip persons occurring after December 31,
2000.
SEC. 602. SEVERING OF TRUSTS.
(a) IN GENERAL.—Subsection (a) of section 2642
(relating to inclusion ratio) is amended by adding at the
end the following new paragraph:
‘‘(3) SEVERING OF TRUSTS.—
‘‘(A) IN GENERAL.—If a trust is severed in
a qualified severance, the trusts resulting from
such severance shall be treated as separate
trusts thereafter for purposes of this chapter.
‘‘(B) QUALIFIED
SEVERANCE.—For pur-
poses of subparagraph (A)—
‘‘(i) IN GENERAL.—The term ‘quali-
fied severance’ means the division of a sin-
gle trust and the creation (by any means
available under the governing instrument
or under local law) of two or more trusts
if—
‘‘(I) the single trust was divided
on a fractional basis, and
‘‘(II) the terms of the new trusts,
in the aggregate, provide for the same
succession of interests of beneficiaries
as are provided in the original trust.
‘‘(ii) TRUSTS WITH INCLUSION RATIO
GREATER THAN ZERO.—If a trust has an
inclusion ratio of greater than zero and
less than 1, a severance is a qualified sev-
erance only if the single trust is divided
into two trusts, one of which receives a
fractional share of the total value of all
trust assets equal to the applicable fraction
of the single trust immediately before the
severance. In such case, the trust receiving
such fractional share shall have an inclu-
sion ratio of zero and the other trust shall
have an inclusion ratio of 1.
‘‘(iii) 
REGULATIONS.—The 
term
‘qualified severance’ includes any other
severance permitted under regulations pre-
scribed by the Secretary.
‘‘(C) 
TIMING
AND
MANNER
OF
SEVERANCES.—A severance pursuant to this
paragraph may be made at any time. The Sec-
retary shall prescribe by forms or regulations
the manner in which the qualified severance
shall be reported to the Secretary.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to severances after December 31,
2000.
SEC. 603. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR
DEEMED ALLOCATION MADE.—Paragraph (1) of section
2642(b) (relating to valuation rules, etc.) is amended to
read as follows:
‘‘(1) GIFTS
FOR
WHICH
GIFT
TAX
RETURN
FILED OR DEEMED ALLOCATION MADE.—If the allo-
cation of the GST exemption to any transfers of
property is made on a gift tax return filed on or be-
fore the date prescribed by section 6075(b) for such
transfer or is deemed to be made under section 2632
(b)(1) or (c)(1)—
‘‘(A) the value of such property for pur-
poses of subsection (a) shall be its value as fi-
nally determined for purposes of chapter 12
(within the meaning of section 2001(f)(2)), or,
in the case of an allocation deemed to have been
made at the close of an estate tax inclusion pe-
riod, its value at the time of the close of the es-
tate tax inclusion period, and
‘‘(B) such allocation shall be effective on
and after the date of such transfer, or, in the
case of an allocation deemed to have been made
at the close of an estate tax inclusion period, on
and after the close of such estate tax inclusion
period.’’.
(b) TRANSFERS AT DEATH.—Subparagraph (A) of
section 2642(b)(2) is amended to read as follows:
‘‘(A) TRANSFERS AT DEATH.—If property
is transferred as a result of the death of the
transferor, the value of such property for pur-
poses of subsection (a) shall be its value as fi-
nally determined for purposes of chapter 11; ex-
cept that, if the requirements prescribed by the
Secretary respecting allocation of post-death
changes in value are not met, the value of such
property shall be determined as of the time of
the distribution concerned.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to transfers subject to chapter 11
or 12 of the Internal Revenue Code of 1986 made after
December 31, 2000.
SEC. 604. RELIEF PROVISIONS.
(a) IN GENERAL.—Section 2642 is amended by add-
ing at the end the following new subsection:
‘‘(g) RELIEF PROVISIONS.—
‘‘(1) RELIEF FROM LATE ELECTIONS.—
‘‘(A) IN GENERAL.—The Secretary shall by
regulation prescribe such circumstances and
procedures under which extensions of time will
be granted to make—
‘‘(i) an allocation of GST exemption
described in paragraph (1) or (2) of sub-
section (b), and
‘‘(ii) an election under subsection
(b)(3) or (c)(5) of section 2632.
Such regulations shall include procedures for
requesting comparable relief with respect to
transfers made before the date of the enactment
of this paragraph.
‘‘(B) BASIS
FOR
DETERMINATIONS.—In
determining whether to grant relief under this
paragraph, the Secretary shall take into ac-
count all relevant circumstances, including evi-
dence of intent contained in the trust instru-
ment or instrument of transfer and such other
factors as the Secretary deems relevant. For
purposes of determining whether to grant relief
under this paragraph, the time for making the
allocation (or election) shall be treated as if not
expressly prescribed by statute.
‘‘(2) SUBSTANTIAL
COMPLIANCE.—An alloca-
tion of GST exemption under section 2632 that
demonstrates an intent to have the lowest possible
inclusion ratio with respect to a transfer or a trust
shall be deemed to be an allocation of so much of
the transferor’s unused GST exemption as produces
the lowest possible inclusion ratio. In determining
whether there has been substantial compliance, all
relevant circumstances shall be taken into account,
including evidence of intent contained in the trust
instrument or instrument of transfer and such other
factors as the Secretary deems relevant.’’.
(b) EFFECTIVE DATES.—
(1) RELIEF FROM LATE ELECTIONS.—Section
2642(g)(1) of the Internal Revenue Code of 1986
(as added by subsection (a)) shall apply to requests
pending on, or filed after, December 31, 2000.
(2) 
SUBSTANTIAL
COMPLIANCE.—Section
2642(g)(2) of such Code (as so added) shall apply
to transfers subject to chapter 11 or 12 of the Inter-
nal Revenue Code of 1986 made after December 31,
2000. No implication is intended with respect to the
availability of relief from late elections or the appli-
cation of a rule of substantial compliance on or be-
fore such date.
TITLE VII—EXTENSION OF TIME
FOR PAYMENT OF ESTATE TAX
SEC. 701. INCREASE IN NUMBER OF ALLOWABLE PARTNERS
AND 
SHAREHOLDERS 
IN 
CLOSELY 
HELD
BUSINESSES.
(a) IN GENERAL.—Paragraphs (1)(B)(ii), (1)(C)(ii),
and (9)(B)(iii)(I) of section 6166(b) (relating to defini-
tions and special rules) are each amended by striking ‘‘15’’
and inserting ‘‘45’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 2001.
Passed the House of Representatives April 4, 2001.
Attest:
Clerk.
107TH CONGRESS
1ST SESSION
H. R. 8
AN ACT
To amend the Internal Revenue Code of 1986 to
phaseout the estate and gift taxes over a 10-year
period, and for other purposes.