I
107TH CONGRESS
1ST SESSION
H. R. 627
To provide tax and regulatory relief for farmers and to improve the competi-
tiveness of American agricultural commodities and products in global
markets.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 14, 2001
Mr. BOEHNER (for himself, Mr. COOKSEY, Mr. PENCE, Mr. JOHNSON of Illi-
nois, Mr. OSBORNE, Mr. NETHERCUTT, Mr. FLETCHER, Mr. LAHOOD,
and Mr. HAYES) introduced the following bill; which was referred to the
Committee on Ways and Means, and in addition to the Committees on
Agriculture, Rules, and Government Reform, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
A BILL
To provide tax and regulatory relief for farmers and to
improve the competitiveness of American agricultural
commodities and products in global markets.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Rural America Prosperity Act of 2001’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—TAX RELIEF FOR FARMERS
Subtitle A—General Tax Provisions
Sec. 101. Deduction for 100 percent of health insurance costs of self-employed
individuals.
Sec. 102. Exclusion of gain from sale of farmland.
Sec. 103. Income averaging for farmers not to increase alternative minimum
tax liability.
Sec. 104. Farm and ranch risk management accounts.
Subtitle B—Estate and Gift Tax Relief
Sec. 111. Repeal of estate, gift, and generation-skipping taxes.
Sec. 112. Termination of step up in basis at death.
Sec. 113. Carryover basis at death.
Sec. 114. Additional reductions of estate and gift tax rates.
Sec. 115. Unified credit against estate and gift taxes replaced with unified ex-
emption amount.
Sec. 116. Deemed allocation of GST exemption to lifetime transfers to trusts;
retroactive allocations.
Sec. 117. Severing of trusts.
Sec. 118. Modification of certain valuation rules.
Sec. 119. Relief provisions.
Sec. 120. Expansion of estate tax rule for conservation easements.
TITLE II—STUDY OF COSTS OF REGULATIONS ON FARMERS,
RANCHERS, AND FORESTERS
Sec. 201. Definitions.
Sec. 202. Comptroller General study of regulations.
Sec. 203. Response of Secretary of Agriculture.
TITLE III—EXTENSION OF TRADE AUTHORITIES PROCEDURES
FOR RECIPROCAL TRADE AGREEMENTS
Sec. 301. Short title.
Sec. 302. Trade negotiating objectives.
Sec. 303. Trade agreements authority.
Sec. 304. Consultations.
Sec. 305. Implementation of trade agreements.
Sec. 306. Treatment of certain trade agreements.
Sec. 307. Conforming amendments.
Sec. 308. Definitions.
TITLE IV—AGRICULTURAL TRADE FREEDOM
Sec. 401. Short title.
Sec. 402. Definitions.
Sec. 403. Agricultural commodities, livestock, and products exempt from unilat-
eral agricultural sanctions.
Sec. 404. Sale or barter of food assistance.
TITLE I—TAX RELIEF FOR
FARMERS
Subtitle A—General Tax Provisions
SEC. 101. DEDUCTION FOR 100 PERCENT OF HEALTH IN-
SURANCE COSTS OF SELF-EMPLOYED INDI-
VIDUALS.
(a) IN GENERAL.—Paragraph (1) of section 162(l)
of the Internal Revenue Code of 1986 (relating to special
rules for health insurance costs of self-employed individ-
uals) is amended to read as follows:
‘‘(1) ALLOWANCE OF DEDUCTION.—In the case
of an individual who is an employee within the
meaning of section 401(c)(1), there shall be allowed
as a deduction under this section an amount equal
to 100 percent of the amount paid during the tax-
able year for insurance which constitutes medical
care for the taxpayer, his spouse, and dependents.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 102. EXCLUSION OF GAIN FROM SALE OF FARMLAND.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
items specifically excluded from gross income) is amended
by inserting after section 121 the following:
‘‘SEC. 121A. EXCLUSION OF GAIN FROM SALE OF QUALIFIED
FARM PROPERTY.
‘‘(a) EXCLUSION.—In the case of a natural person,
gross income shall not include gain from the sale or ex-
change of qualified farm property.
‘‘(b) LIMITATION.—
‘‘(1) IN GENERAL.—The amount of gain ex-
cluded from gross income under subsection (a) with
respect to any taxable year shall not exceed
$500,000 ($250,000 in the case of a married indi-
vidual filing a separate return), reduced by the ag-
gregate amount of gain excluded under subsection
(a) for all preceding taxable years.
‘‘(2) SPECIAL RULE FOR JOINT RETURNS.—The
amount of the exclusion under subsection (a) on a
joint return for any taxable year shall be allocated
equally between the spouses for purposes of applying
the limitation under paragraph (1) for any suc-
ceeding taxable year.
‘‘(c) QUALIFIED FARM PROPERTY.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘qualified farm
property’ means real property located in the United
States if, during periods aggregating 3 years or
more of the 5-year period ending on the date of the
sale or exchange of such real property—
‘‘(A) such real property was used by the
taxpayer or a member of the family of the tax-
payer as a farm for farming purposes, and
‘‘(B) there was material participation by
the taxpayer (or such a member) in the oper-
ation of the farm.
‘‘(2) OTHER DEFINITIONS.—The terms ‘mem-
ber of the family’, ‘farm’, and ‘farming purposes’
have the respective meanings given such terms by
paragraphs (2), (4), and (5) of section 2032A(e).
‘‘(3) SPECIAL
RULES.—Rules similar to the
rules of paragraphs (4) and (5) of section 2032A(b)
and paragraphs (3) and (6) of section 2032A(e)
shall apply.
‘‘(d) OTHER RULES.—For purposes of this section,
rules similar to the rules of subsection (e) and subsection
(f) of section 121 shall apply.’’
(b) CONFORMING AMENDMENT.—The table of sec-
tions for part III of subchapter B of chapter 1 of the In-
ternal Revenue Code of 1986 is amended by inserting
after the item relating to section 121 the following:
‘‘Sec. 121A. Exclusion of gain from sale of qualified farm prop-
erty.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to any sale or exchange after the
date of the enactment of this Act in taxable years ending
after such date.
SEC. 103. INCOME AVERAGING FOR FARMERS NOT TO IN-
CREASE ALTERNATIVE MINIMUM TAX LIABIL-
ITY.
(a) IN GENERAL.—Section 55(c) of the Internal Rev-
enue Code of 1986 (defining regular tax) is amended by
redesignating paragraph (2) as paragraph (3) and by in-
serting after paragraph (1) the following:
‘‘(2) COORDINATION WITH INCOME AVERAGING
FOR FARMERS.—Solely for purposes of this section,
section 1301 (relating to averaging of farm income)
shall not apply in computing the regular tax.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1997.
SEC. 104. FARM AND RANCH RISK MANAGEMENT AC-
COUNTS.
(a) IN GENERAL.—Subpart C of part II of sub-
chapter E of chapter 1 of the Internal Revenue Code of
1986 (relating to taxable year for which deductions taken)
is amended by inserting after section 468B the following:
‘‘SEC. 468C. FARM AND RANCH RISK MANAGEMENT AC-
COUNTS.
‘‘(a) DEDUCTION ALLOWED.—In the case of an indi-
vidual engaged in an eligible farming business, there shall
be allowed as a deduction for any taxable year the amount
paid in cash by the taxpayer during the taxable year to
a Farm and Ranch Risk Management Account (herein-
after referred to as the ‘FARRM Account’).
‘‘(b) LIMITATION.—The amount which a taxpayer
may pay into the FARRM Account for any taxable year
shall not exceed 20 percent of so much of the taxable in-
come of the taxpayer (determined without regard to this
section) which is attributable (determined in the manner
applicable under section 1301) to any eligible farming
business.
‘‘(c) ELIGIBLE FARMING BUSINESS.—For purposes
of this section, the term ‘eligible farming business’ means
any farming business (as defined in section 263A(e)(4))
which is not a passive activity (within the meaning of sec-
tion 469(c)) of the taxpayer.
‘‘(d) FARRM ACCOUNT.—For purposes of this
section—
‘‘(1) IN
GENERAL.—The term ‘FARRM Ac-
count’ means a trust created or organized in the
United States for the exclusive benefit of the tax-
payer, but only if the written governing instrument
creating the trust meets the following requirements:
‘‘(A) No contribution will be accepted for
any taxable year in excess of the amount al-
lowed as a deduction under subsection (a) for
such year.
‘‘(B) The trustee is a bank (as defined in
section 408(n)) or another person who dem-
onstrates to the satisfaction of the Secretary
that the manner in which such person will ad-
minister the trust will be consistent with the re-
quirements of this section.
‘‘(C) The assets of the trust consist en-
tirely of cash or of obligations which have ade-
quate stated interest (as defined in section
1274(c)(2)) and which pay such interest not
less often than annually.
‘‘(D) All income of the trust is distributed
currently to the grantor.
‘‘(E) The assets of the trust will not be
commingled with other property except in a
common trust fund or common investment
fund.
‘‘(2) ACCOUNT TAXED AS GRANTOR TRUST.—
The grantor of a FARRM Account shall be treated
for purposes of this title as the owner of such Ac-
count and shall be subject to tax thereon in accord-
ance with subpart E of part I of subchapter J of
this chapter (relating to grantors and others treated
as substantial owners).
‘‘(e) INCLUSION OF AMOUNTS DISTRIBUTED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), there shall be includible in the gross in-
come of the taxpayer for any taxable year—
‘‘(A) any amount distributed from a
FARRM Account of the taxpayer during such
taxable year, and
‘‘(B) any deemed distribution under—
‘‘(i) subsection (f)(1) (relating to de-
posits not distributed within 5 years),
‘‘(ii) subsection (f)(2) (relating to ces-
sation in eligible farming business), and
‘‘(iii) subparagraph (A) or (B) of sub-
section (f)(3) (relating to prohibited trans-
actions and pledging account as security).
‘‘(2) EXCEPTIONS.—Paragraph (1)(A) shall not
apply to—
‘‘(A) any distribution to the extent attrib-
utable to income of the Account, and
‘‘(B) the distribution of any contribution
paid during a taxable year to a FARRM Ac-
count to the extent that such contribution ex-
ceeds the limitation applicable under subsection
(b) if requirements similar to the requirements
of section 408(d)(4) are met.
For purposes of subparagraph (A), distributions
shall be treated as first attributable to income and
then to other amounts.
‘‘(f) SPECIAL RULES.—
‘‘(1) TAX
ON
DEPOSITS
IN
ACCOUNT
WHICH
ARE NOT DISTRIBUTED WITHIN 5 YEARS.—
‘‘(A) IN GENERAL.—If, at the close of any
taxable year, there is a nonqualified balance in
any FARRM Account—
‘‘(i) there shall be deemed distributed
from such Account during such taxable
year an amount equal to such balance, and
‘‘(ii) the taxpayer’s tax imposed by
this chapter for such taxable year shall be
increased by 10 percent of such deemed
distribution.
The preceding sentence shall not apply if an
amount equal to such nonqualified balance is
distributed from such Account to the taxpayer
before the due date (including extensions) for
filing the return of tax imposed by this chapter
for such year (or, if earlier, the date the tax-
payer files such return for such year).
‘‘(B) NONQUALIFIED BALANCE.—For pur-
poses of subparagraph (A), the term ‘non-
qualified balance’ means any balance in the Ac-
count on the last day of the taxable year which
is attributable to amounts deposited in such Ac-
count before the 4th preceding taxable year.
‘‘(C) ORDERING RULE.—For purposes of
this paragraph, distributions from a FARRM
Account (other than distributions of current in-
come) shall be treated as made from deposits in
the order in which such deposits were made, be-
ginning with the earliest deposits.
‘‘(2) CESSATION
IN
ELIGIBLE
BUSINESS.—At
the close of the first disqualification period after a
period for which the taxpayer was engaged in an eli-
gible farming business, there shall be deemed dis-
tributed from the FARRM Account of the taxpayer
an amount equal to the balance in such Account (if
any) at the close of such disqualification period. For
purposes of the preceding sentence, the term ‘dis-
qualification period’ means any period of 2 consecu-
tive taxable years for which the taxpayer is not en-
gaged in an eligible farming business.
‘‘(3) CERTAIN RULES TO APPLY.—Rules similar
to the following rules shall apply for purposes of this
section:
‘‘(A) Section 220(f)(8) (relating to treat-
ment on death).
‘‘(B) Section 408(e)(2) (relating to loss of
exemption of account where individual engages
in prohibited transaction).
‘‘(C) Section 408(e)(4) (relating to effect
of pledging account as security).
‘‘(D) Section 408(g) (relating to commu-
nity property laws).
‘‘(E) Section 408(h) (relating to custodial
accounts).
‘‘(4) TIME WHEN PAYMENTS DEEMED MADE.—
For purposes of this section, a taxpayer shall be
deemed to have made a payment to a FARRM Ac-
count on the last day of a taxable year if such pay-
ment is made on account of such taxable year and
is made on or before the due date (without regard
to extensions) for filing the return of tax for such
taxable year.
‘‘(5) INDIVIDUAL.—For purposes of this sec-
tion, the term ‘individual’ shall not include an estate
or trust.
‘‘(6) DEDUCTION NOT ALLOWED FOR SELF-EM-
PLOYMENT TAX.—The deduction allowable by reason
of subsection (a) shall not be taken into account in
determining an individual’s net earnings from self-
employment (within the meaning of section 1402(a))
for purposes of chapter 2.
‘‘(g) REPORTS.—The trustee of a FARRM Account
shall make such reports regarding such Account to the
Secretary and to the person for whose benefit the Account
is maintained with respect to contributions, distributions,
and such other matters as the Secretary may require
under regulations. The reports required by this subsection
shall be filed at such time and in such manner and fur-
nished to such persons at such time and in such manner
as may be required by such regulations.’’.
(b) TAX ON EXCESS CONTRIBUTIONS.—
(1) Subsection (a) of section 4973 of the Inter-
nal Revenue Code of 1986 (relating to tax on excess
contributions to certain tax-favored accounts and an-
nuities) is amended by striking ‘‘or’’ at the end of
paragraph (3), by redesignating paragraph (4) as
paragraph (5), and by inserting after paragraph (3)
the following:
‘‘(4) a FARRM Account (within the meaning of
section 468C(d)), or’’.
(2) Section 4973 of such Code, is amended by
adding at the end the following:
‘‘(g) EXCESS
CONTRIBUTIONS
TO
FARRM AC-
COUNTS.—For purposes of this section, in the case of a
FARRM Account (within the meaning of section
468C(d)), the term ‘excess contributions’ means the
amount by which the amount contributed for the taxable
year to the Account exceeds the amount which may be con-
tributed to the Account under section 468C(b) for such
taxable year. For purposes of this subsection, any con-
tribution which is distributed out of the FARRM Account
in a distribution to which section 468C(e)(2)(B) applies
shall be treated as an amount not contributed.’’.
(3) The section heading for section 4973 of
such Code is amended to read as follows:
‘‘SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN AC-
COUNTS, ANNUITIES, ETC.’’.
(4) The table of sections for chapter 43 of such
Code is amended by striking the item relating to sec-
tion 4973 and inserting the following:
‘‘Sec. 4973. Excess contributions to certain accounts, annuities,
etc.’’.
(c) TAX ON PROHIBITED TRANSACTIONS.—
(1) Subsection (c) of section 4975 of the Inter-
nal Revenue Code of 1986 (relating to tax on pro-
hibited transactions) is amended by adding at the
end the following:
‘‘(6) SPECIAL RULE FOR FARRM ACCOUNTS.—
A person for whose benefit a FARRM Account
(within the meaning of section 468C(d)) is estab-
lished shall be exempt from the tax imposed by this
section with respect to any transaction concerning
such account (which would otherwise be taxable
under this section) if, with respect to such trans-
action, the account ceases to be a FARRM Account
by reason of the application of section 468C(f)(3)(A)
to such account.’’.
(2) Paragraph (1) of section 4975(e) of such
Code is amended by redesignating subparagraphs
(E) and (F) as subparagraphs (F) and (G), respec-
tively, and by inserting after subparagraph (D) the
following:
‘‘(E) a FARRM Account described in sec-
tion 468C(d),’’.
(d) FAILURE TO PROVIDE REPORTS ON FARRM AC-
COUNTS.—Paragraph (2) of section 6693(a) of the Inter-
nal Revenue Code of 1986 (relating to failure to provide
reports on certain tax-favored accounts or annuities) is
amended by redesignating subparagraphs (C) and (D) as
subparagraphs (D) and (E), respectively, and by inserting
after subparagraph (B) the following:
‘‘(C) section 468C(g) (relating to FARRM
Accounts),’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart C of part II of subchapter E of chapter 1 of
the Internal Revenue Code of 1986 is amended by insert-
ing after the item relating to section 468B the following:
‘‘Sec. 468C. Farm and Ranch Risk Management Accounts.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2000.
Subtitle B—Estate and Gift Tax
Relief
SEC. 111. REPEAL OF ESTATE, GIFT, AND GENERATION-
SKIPPING TAXES.
(a) IN GENERAL.—Subtitle B of the Internal Rev-
enue Code of 1986 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.
SEC. 112. TERMINATION OF STEP UP IN BASIS AT DEATH.
(a) TERMINATION
OF APPLICATION
OF SECTION
1014.—Section 1014 of the Internal Revenue Code of
1986 (relating to basis of property acquired from a dece-
dent) is amended by adding at the end the following:
‘‘(f) TERMINATION.—In the case of a decedent dying
after December 31, 2010, this section shall not apply to
property for which basis is provided by section 1022.’’.
(b) CONFORMING AMENDMENT.—Subsection (a) of
section 1016 of the Internal Revenue Code of 1986 (relat-
ing to adjustments to basis) is amended by striking ‘‘and’’
at the end of paragraph (26), by striking the period at
the end of paragraph (27) and inserting ‘‘, and’’, and by
adding at the end the following:
‘‘(28) to the extent provided in section 1022
(relating to basis for certain property acquired from
a decedent dying after December 31, 2010).’’.
SEC. 113. CARRYOVER BASIS AT DEATH.
(a) GENERAL RULE.—Part II of subchapter O of
chapter 1 of the Internal Revenue Code of 1986 (relating
to basis rules of general application) is amended by insert-
ing after section 1021 the following new section:
‘‘SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY
ACQUIRED FROM A DECEDENT DYING AFTER
DECEMBER 31, 2010.
‘‘(a) CARRYOVER BASIS.—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 shall be determined under section 1015.
‘‘(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,
2010, and
‘‘(B) which is not excluded pursuant to
paragraph (2).
The property taken into account under subpara-
graph (A) shall be determined under section 1014(b)
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) any item of gross income in respect
of a decedent described in section 691,
‘‘(B) property of the decedent to the extent
that the aggregate adjusted fair market value
of such property does not exceed $1,300,000,
and
‘‘(C) property which was acquired from the
decedent by the surviving spouse of the dece-
dent (and which would be carryover basis prop-
erty without regard to this subparagraph) but
only if the value of such property would have
been deductible from the value of the taxable
estate of the decedent under section 2056, as in
effect on the day before the date of the enact-
ment of the Rural America Prosperity Act of
2001.
For purposes of this subsection, the term ‘adjusted
fair market value’ means, with respect to any prop-
erty, fair market value reduced by any indebtedness
secured by such property.
‘‘(3) LIMITATION
ON
EXCEPTION
FOR
PROP-
ERTY ACQUIRED BY SURVIVING SPOUSE.—The ad-
justed fair market value of property which is not
carryover basis property by reason of paragraph
(2)(C) shall not exceed $3,000,000.
‘‘(4) ALLOCATION OF EXCEPTED AMOUNTS.—
The executor shall allocate the limitations under
paragraphs (2)(B) and (3).
‘‘(5) INFLATION
ADJUSTMENT
OF
EXCEPTED
AMOUNTS.—In the case of decedents dying in a cal-
endar year after 2011, the dollar amounts in para-
graphs (2)(B) and (3) shall each be increased by an
amount equal to the product of—
‘‘(A) such dollar amount, and
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, determined by substituting ‘2010’ for
‘1992’ in subparagraph (B) thereof.
If any increase determined under the preceding sen-
tence is not a multiple of $10,000, such increase
shall be rounded to the nearest multiple of $10,000.
‘‘(c) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary to carry out the pur-
poses of this section.’’.
(b) MISCELLANEOUS AMENDMENTS RELATED
TO
CARRYOVER BASIS.—
(1) CAPITAL GAIN TREATMENT FOR INHERITED
ART WORK OR SIMILAR PROPERTY.—
(A) IN
GENERAL.—Subparagraph (C) of
section 1221(a)(3) of the Internal Revenue
Code of 1986 (defining capital asset) is amend-
ed by inserting ‘‘(other than by reason of sec-
tion 1022)’’ after ‘‘is determined’’.
(B) COORDINATION WITH SECTION 170.—
Paragraph (1) of section 170(e) of such Code
(relating to certain contributions of ordinary in-
come and capital gain property) is amended by
adding at the end the following: ‘‘For purposes
of this paragraph, the determination of whether
property is a capital asset shall be made with-
out regard to the exception contained in section
1221(a)(3)(C) for basis determined under sec-
tion 1022.’’.
(2) 
DEFINITION
OF
EXECUTOR.—Section
7701(a) of such Code (relating to definitions) is
amended by adding 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.’’.
(3) CLERICAL AMENDMENT.—The table of sec-
tions for part II of subchapter O of chapter 1 of
such Code is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 1022. Carryover basis for certain property acquired from a
decedent dying after December 31, 2010.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to estates of decedents dying after
December 31, 2010.
SEC. 114. 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) of the Internal Revenue Code of
1986 is amended by striking the two highest brack-
ets 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 of such Code is amended by add-
ing 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 of the Internal
Revenue Code of 1986 is amended by striking paragraph
(2) and redesignating paragraph (3), as added by sub-
section (a), as paragraph (2).
(c) ADDITIONAL REDUCTIONS OF RATES OF TAX.—
Subsection (c) of section 2001 of the Internal Revenue
Code of 1986, 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 .............................................................................
4.0
2008 .............................................................................
5.5
2009 .............................................................................
7.5
2010 .............................................................................
9.5.
‘‘(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), and
‘‘(ii) shall not reduce the highest rate
under paragraph (1) below the highest rate
in section 1(c).
‘‘(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.
SEC. 115. UNIFIED CREDIT AGAINST ESTATE AND GIFT
TAXES REPLACED WITH UNIFIED EXEMPTION
AMOUNT.
(a) IN GENERAL.—
(1) ESTATE
TAX.—Subsection (b) of section
2001 of the Internal Revenue Code of 1986 (relating
to computation of tax) is amended to read as fol-
lows:
‘‘(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