‘‘(1) subparts B, C, D, and E shall not apply,
and
‘‘(2) no deduction shall be allowed by section
642(b).
‘‘(b) QUALIFIED FUNERAL TRUST.—For purposes of
this subsection, the term ‘qualified funeral trust’ means
any trust (other than a foreign trust) if—
‘‘(1) the trust arises as a result of a contract
with a person engaged in the trade or business of
providing funeral or burial services or property nec-
essary to provide such services,
‘‘(2) the sole purpose of the trust is to hold, in-
vest, and reinvest funds in the trust and to use such
funds solely to make payments for such services or
property for the benefit of the beneficiaries of the
trust,
‘‘(3) the only beneficiaries of such trust are in-
dividuals who have entered into contracts described
in paragraph (1) to have such services or property
provided at their death,
‘‘(4) the only contributions to the trust are con-
tributions by or for the benefit of such beneficiaries,
‘‘(5) the trustee elects the application of this
subsection, and
‘‘(6) the trust would (but for the election de-
scribed in paragraph (5)) be treated as owned by the
beneficiaries under subpart E.
‘‘(c) DOLLAR LIMITATION ON CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—The term ‘qualified funeral
trust’ shall not include any trust which accepts ag-
gregate contributions by or for the benefit of an in-
dividual in excess of $7,000.
‘‘(2) RELATED TRUSTS.—For purposes of para-
graph (1), all trusts having trustees which are relat-
ed persons shall be treated as 1 trust. For purposes
of the preceding sentence, persons are related if—
‘‘(A) the relationship between such persons
would result in the disallowance of losses under
section 267 or 707(b),
‘‘(B) such persons are treated as a single
employer under subsection (a) or (b) of section
52, or
‘‘(C) the Secretary determines that treat-
ing such persons as related is necessary to pre-
vent avoidance of the purposes of this section.
‘‘(3) INFLATION ADJUSTMENT.—In the case of
any contract referred to in subsection (b)(1) which
is entered into during any calendar year after 1997,
the dollar amount referred to paragraph (1) shall be
increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the cost-of-living adjustment deter-
mined under section 1(f)(3) for such calendar
year, by substituting ‘calendar year 1996’ for
‘calendar year 1992’ in subparagraph (B)
thereof.
If any dollar amount after being increased under the
preceding sentence is not a multiple of $100, such
dollar amount shall be rounded to the nearest mul-
tiple of $100.
‘‘(d) APPLICATION
OF RATE SCHEDULE.—Section
1(e) shall be applied to each qualified funeral trust by
treating each beneficiary’s interest in each such trust as
a separate trust.
‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO BEN-
EFICIARY ON CANCELLATION.—No gain or loss shall be
recognized to a beneficiary described in subsection (b)(3)
of any qualified funeral trust by reason of any payment
from such trust to such beneficiary by reason of cancella-
tion of a contract referred to in subsection (b)(1). If any
payment referred to in the preceding sentence consists of
property other than money, the basis of such property in
the hands of such beneficiary shall be the same as the
trust’s basis in such property immediately before the pay-
ment.
‘‘(f) SIMPLIFIED REPORTING.—The Secretary may
prescribe rules for simplified reporting of all trusts having
a single trustee.’’
(b) CLERICAL AMENDMENT.—The table of sections
for subpart F of part I of subchapter J of chapter 1 is
amended by adding at the end the following new item:
‘‘Sec. 684. Treatment of funeral trusts.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after the
date of the enactment of this Act.
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