SEC. 7. VALUATION RULES FOR CERTAIN TRANSFERS OF 
NONBUSINESS ASSETS; LIMITATION ON MI-
NORITY DISCOUNTS. 
(a) IN GENERAL.—Section 2031 of the Internal Rev-
enue Code of 1986 (relating to definition of gross estate) 
is amended by redesignating subsection (d) as subsection 
(f) and by inserting after subsection (c) the following new 
subsections: 
‘‘(d) VALUATION RULES FOR CERTAIN TRANSFERS 
OF NONBUSINESS ASSETS.—For purposes of this chapter 
and chapter 12— 
‘‘(1) IN GENERAL.—In the case of the transfer 
of any interest in an entity other than an interest 
which is actively traded (within the meaning of sec-
tion 1092)— 
‘‘(A) the value of any nonbusiness assets 
held by the entity with respect to such interest 
shall be determined as if the transferor had 
transferred such assets directly to the trans-
feree (and no valuation discount shall be al-
lowed with respect to such nonbusiness assets), 
and 
‘‘(B) such nonbusiness assets shall not be 
taken into account in determining the value of 
the interest in the entity. 
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‘‘(2) NONBUSINESS ASSETS.—For purposes of 
this subsection— 
‘‘(A) IN
GENERAL.—The term ‘nonbusi-
ness asset’ means any asset which is not used 
in the active conduct of 1 or more trades or 
businesses. 
‘‘(B) EXCEPTION
FOR
CERTAIN
PASSIVE 
ASSETS.—Except as provided in subparagraph 
(C), a passive asset shall not be treated for pur-
poses of subparagraph (A) as used in the active 
conduct of a trade or business unless— 
‘‘(i) the asset is property described in 
paragraph (1) or (4) of section 1221(a) or 
is a hedge with respect to such property, 
or 
‘‘(ii) the asset is real property used in 
the active conduct of 1 or more real prop-
erty trades or businesses (within the mean-
ing of section 469(c)(7)(C)) in which the 
transferor materially participates and with 
respect to which the transferor meets the 
requirements of section 469(c)(7)(B)(ii). 
For purposes of clause (ii), material participa-
tion shall be determined under the rules of sec-
tion 469(h), except that section 469(h)(3) shall 
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be applied without regard to the limitation to 
farming activity. 
‘‘(C) EXCEPTION
FOR
WORKING
CAP-
ITAL.—Any asset (including a passive asset) 
which is held as a part of the reasonably re-
quired working capital needs of a trade or busi-
ness shall be treated as used in the active con-
duct of a trade or business. 
‘‘(3) PASSIVE
ASSET.—For purposes of this 
subsection, the term ‘passive asset’ means any— 
‘‘(A) cash or cash equivalents, 
‘‘(B) except to the extent provided by the 
Secretary, stock in a corporation or any other 
equity, profits, or capital interest in any entity, 
‘‘(C) evidence of indebtedness, option, for-
ward or futures contract, notional principal con-
tract, or derivative, 
‘‘(D) asset described in clause (iii), (iv), or 
(v) of section 351(e)(1)(B), 
‘‘(E) annuity, 
‘‘(F) real property used in 1 or more real 
property trades or businesses (as defined in sec-
tion 469(c)(7)(C)), 
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‘‘(G) asset (other than a patent, trade-
mark, or copyright) which produces royalty in-
come, 
‘‘(H) commodity, 
‘‘(I) collectible (within the meaning of sec-
tion 401(m)), or 
‘‘(J) any other asset specified in regula-
tions prescribed by the Secretary. 
‘‘(4) LOOK-THRU RULES.— 
‘‘(A) IN GENERAL.—If a nonbusiness asset 
of an entity consists of a 10-percent interest in 
any other entity, this subsection shall be ap-
plied by disregarding the 10-percent interest 
and by treating the entity as holding directly its 
ratable share of the assets of the other entity. 
This subparagraph shall be applied successively 
to any 10-percent interest of such other entity 
in any other entity. 
‘‘(B) 10-PERCENT
INTEREST.—The term 
‘10-percent interest’ means— 
‘‘(i) in the case of an interest in a cor-
poration, ownership of at least 10 percent 
(by vote or value) of the stock in such cor-
poration, 
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‘‘(ii) in the case of an interest in a 
partnership, ownership of at least 10 per-
cent of the capital or profits interest in the 
partnership, and 
‘‘(iii) in any other case, ownership of 
at least 10 percent of the beneficial inter-
ests in the entity. 
‘‘(5) COORDINATION WITH SUBSECTION (b).— 
Subsection (b) shall apply after the application of 
this subsection. 
‘‘(e) LIMITATION ON MINORITY DISCOUNTS.—For 
purposes of this chapter and chapter 12, in the case of 
the transfer of any interest in an entity other than an in-
terest which is actively traded (within the meaning of sec-
tion 1092), no discount shall be allowed by reason of the 
fact that the transferee does not have control of such enti-
ty if the transferee and members of the family (as defined 
in section 2032A(e)(2)) of the transferee have control of 
such entity.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers after the date of the 
enactment of this Act. 
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SEC. 8. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR 
GRANTOR RETAINED ANNUITY TRUSTS. 
(a) IN GENERAL.—Subsection (b) of section 2702 of 
the Internal Revenue Code of 1986 is amended— 
(1) by redesignating paragraphs (1), (2) and 
(3) as subparagraphs (A), (B), and (C), respectively, 
and by moving such subparagraphs (as so redesig-
nated) 2 ems to the right; 
(2) by striking ‘‘For purposes of’’ and inserting 
the following: 
‘‘(1) IN GENERAL.—For purposes of’’; 
(3) by striking ‘‘paragraph (1) or (2)’’ in para-
graph (1)(C) (as so redesignated) and inserting 
‘‘subparagraph (A) or (B)’’; and 
(4) by adding at the end the following new 
paragraph: 
‘‘(2) ADDITIONAL
REQUIREMENTS
WITH
RE-
SPECT
TO
GRANTOR
RETAINED
ANNUITIES.—For 
purposes of subsection (a), in the case of an interest 
described in paragraph (1)(A) (determined without 
regard to this paragraph) which is retained by the 
transferor, such interest shall be treated as de-
scribed in such paragraph only if— 
‘‘(A) the right to receive the fixed amounts 
referred to in such paragraph is for a term of 
not less than 10 years, 
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‘‘(B) such fixed amounts, when determined 
on an annual basis, do not decrease relative to 
any prior year during the first 10 years of the 
term referred to in subparagraph (A), and 
‘‘(C) the remainder interest has a value 
greater than zero determined as of the time of 
the transfer.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to transfers made after the date 
of the enactment of this Act. 
Æ 
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