To amend the Internal Revenue Code of 1986 to treat property transferred by gift or at death as sold for fair market value, and for other purposes.
Bill: H.R.2286 | Sponsor: Rep. Pascrell, Bill, Jr. (D-NJ)
Policy area: Taxation

Summary:
This bill treats property transferred by gift or upon the death of a decedent as sold at its fair market value (thus requiring recognition of gain realized over the property's basis). Under current law there is a step up in basis of such property which allows for an exclusion of gain for gifts and estate property. The bill allows an exception to this fair market value rule for U.S. citizen spouses, charities, and certain tangible property.
The bill allows a taxpayer an exclusion from income for up to $1 million (indexed for inflation) in gain resulting from transfers at death.
The bill imposes certain information reporting requirements for gifts or bequests subject to this bill's fair market value rule. It also allows taxpayers to pay any tax due in two or more, but not more than seven, equal installments.

To amend the Internal Revenue Code of 1986 to treat property 
transferred by gift or at death as sold for fair market value, and for 
                            other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. DEEMED REALIZATION OF CAPITAL GAINS AT TIME OF GIFT OR 
              DEATH.

    (a) Treatment as Sale.--
            (1) In general.--Part IV of subchapter P of chapter 1 of 
        the Internal Revenue Code of 1986 is amended by adding at the 
        end the following new section:

``SEC. 1261. GAINS FROM CERTAIN PROPERTY TRANSFERRED BY GIFT OR UPON 
              DEATH.

    ``(a) In General.--Any property which is transferred by gift or at 
death shall be treated as sold for its fair market value on the date of 
such gift or death.
    ``(b) Exceptions.--
            ``(1) Spouse or surviving spouse.--This section shall not 
        apply to a transfer of property to the transferor's spouse or 
        surviving spouse if such spouse or surviving spouse is a 
        citizen of the United States.
            ``(2) Certain tangible personal property.--In the case of 
        tangible personal property, this section shall apply only to 
        the following:
                    ``(A) Property held in connection with a trade or 
                business.
                    ``(B) Property held for investment.
                    ``(C) Collectibles (as defined in section 408(m) 
                (determined without regard to paragraph (3) thereof)).
            ``(3) Charitable contributions.--This section shall not 
        apply to any transfer to an organization described in section 
        170(c).
    ``(c) Special Rules for Trusts.--
            ``(1) Certain grantor trusts.--In the case of any property 
        which--
                    ``(A) is held in a trust of which the grantor or 
                another person is treated as the owner under subpart E 
                of part I of subchapter J of chapter 1, and
                    ``(B) is includible in the gross estate of the 
                grantor or such other person under chapter 11,
        such property shall be treated as transferred under subsection 
        (a) when the grantor or such other person ceases to be treated 
        as the owner of such property, or such property ceases to be 
        includible in the gross estate of the grantor or such other 
        person (including by reason of the death of the grantor or such 
        other person, or the distribution of such property to a person 
        other than the grantor or such other person).
            ``(2) Other trusts.-- In the case of any property held in 
        trust and not described in paragraph (1), such property shall 
        be treated as transferred under subsection (a) upon the 
        transfer of such property to a trust.
            ``(3) Transfers from and modifications of trusts.--Any 
        modification of the direct or indirect beneficiaries of a trust 
        (or the rights of the beneficiaries to trust assets) or any 
        transfer or distribution of trust assets (including to another 
        trust) shall be treated as a transfer described in subsection 
        (a), unless the Secretary determines that any such transfer or 
        modification is of a type which does not have the potential for 
        tax avoidance.
            ``(4) Dynasty trusts.--
                    ``(A) In general.--Any property that is 
                continuously held in trust and is not subject to 
                subsection (a) for a period of 30 years shall be 
                treated as transferred pursuant to subsection (a) at 
                the end of such 30 year period.
                    ``(B) Property held in trust on the effective 
                date.--Any property held in trust on January 1, 2022, 
                that has been continuously held in trust for more than 
                30 years as of such date shall be treated as 
                transferred pursuant to subsection (a) on such date.
                    ``(C) Certain grantor trusts and qualifying spousal 
                trusts.--For purposes of this paragraph, property shall 
                not be treated as held in trust during any period when 
                such property is held by a trust described in 
                paragraphs (1)(A) and (1)(B), or when such property is 
                held by a qualifying spousal trust.
            ``(5) Qualifying spousal trust.--
                    ``(A) In general.--Paragraphs (1), (2), (3), and 
                (4) shall not apply in the case of a qualifying spousal 
                trust, and the property of such trust shall be treated 
                as transferred under subsection (a)--
                            ``(i) upon the death of the spousal 
                        beneficiary,
                            ``(ii) upon the distribution of such 
                        property from such trust to any person other 
                        than the spousal beneficiary who is a citizen 
                        of the United States, or
                            ``(iii) at such time such property ceases 
                        to be held by a qualifying spousal trust.
                    ``(B) Qualifying spousal trust.--For purposes of 
                this section, a trust is a qualifying spousal trust 
                if--
                            ``(i) such trust is a qualified domestic 
                        trust (as defined in section 2056A),
                            ``(ii) the sole current income beneficiary 
                        of such trust is the spouse or surviving spouse 
                        of the transferor of property to such trust, 
                        and
                            ``(iii) such transferor (during the life of 
                        such transferor) or such spouse or surviving 
                        spouse has the power to appoint over the entire 
                        trust.
    ``(d) Exclusion of Certain Gifts.--In the case of gifts made to any 
individual during the taxable year, so much of the dollar amount of 
such gifts to such individual as does not exceed the amount in effect 
for the calendar year under section 2503(b) in which the taxable year 
begins shall not be taken into account under subsection (a) for such 
taxable year.
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to prevent the avoidance of the purposes of this 
section.''.
            (2) Clerical amendment.--The table of sections for part IV 
        of subchapter P of chapter 1 of such Code is amended by adding 
        at the end the following new item:

``Sec. 1261. Gains from certain property transferred by gift or upon 
                            death.''.
    (b) Coordination of Related Party Loss Rules.--Section 267 of such 
Code is amended by adding at the end the following new subsection:
    ``(h) Property Treated as Sold at Death.--Subsection (a)(1) shall 
not apply to any property that is transferred at death and treated as 
sold under section 1261.''.
    (c) Treatment of Basis for Gifts and Bequests to Which Tax 
Applies.--
            (1) Elimination of carryover basis for gifts.--Section 
        1015(a) of such Code is amended--
                    (A) by striking ``If the property'' and inserting 
                the following:
            ``(1) Gifts before january 1, 2022.--If the property'';
                    (B) by inserting ``, and before January 1, 2022'' 
                after ``after December 31, 1920''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2)  Gifts after december 31, 2021.--If the property was 
        acquired by gift after December 31, 2021, the basis shall be 
        the fair market value of such property at the time of the 
        gift.''.
            (2) Rules for transfers between spouses.--
                    (A) In general.--Section 1041(b) of such Code is 
                amended to read as follows:
    ``(b) Transferee Has Transferor's Basis.--In the case of any 
transfer of property described in subsection (a), the basis of the 
transferee in the property shall be the adjusted basis of the 
transferor.''.
                    (B) Transfers at death.--Section 1041(a) of such 
                Code is amended by inserting ``(including at death)'' 
                after ``transfer of property''.
                    (C) Conforming amendments.--
                            (i) Section 1014 of such Code is amended by 
                        adding at the end the following new subsection:
    ``(g) Property Acquired From Decedent Spouse.--In the case of 
property which passes from the decedent to (or in trust for the benefit 
of) the decedent's surviving spouse in a transfer described in section 
1041(a)(1), the basis of such property in the hands of the transferee 
shall be determined under section 1041(b) and not this section.'', and
                            (ii) Section 1015(e) of such Code is 
                        amended by striking ``1041(b)(2)'' and 
                        inserting ``1041(b)''.
            (3) Basis must be consistent with gains recognized in 
        deemed realization.--
                    (A) Property acquired from decedent.--Section 1014 
                of such Code, as amended by the preceding provisions of 
                this Act, is amended by adding at the end the following 
                new subsection:
    ``(h) Basis Must Be Consistent With Gains Recognized in Deemed 
Realization.--The basis of any property to which subsection (a) applies 
shall not exceed the amount for which the property was treated as sold 
under section 1261.''.
                    (B) Property acquired by gift.--Section 1015 of 
                such Code is amended by adding at the end the following 
                new subsection:
    ``(f) Basis Must Be Consistent With Gains Recognized in Deemed 
Realization.--The basis of any property to which subsection (a)(2) 
applies shall not exceed the amount for which the property was treated 
as sold under section 1261.''.
    (d) Conforming Amendments.--
            (1) Section 7477(a) of such Code is amended by striking 
        ``chapter 12'' and inserting ``chapter 1 or 12''.
            (2) Section 7517(a) of such Code is amended by striking 
        ``chapter 11'' and inserting ``chapter 1, 11''.
    (e) Effective Date.--The amendments made by this section shall 
apply to transfers by gift (including transfers treated as gifts by 
reason of the amendments made by this section), or at death by 
decedents dying, after December 31, 2021.

SEC. 2. EXCLUSION OF CERTAIN AMOUNTS OF REALIZED CAPITAL GAIN.

    (a) In General.--Part III of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 is amended by inserting before section 
140 the following new section:

``SEC. 139I. EXCLUSION OF GAIN FROM TRANSFERS OF APPRECIATED ASSETS AT 
              DEATH.

    ``(a) In General.--Gross income shall not include so much of the 
net capital gain for the taxable year from transfers at death to which 
1261(a) applies as does not exceed $1,000,000.
    ``(b) Inflation Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning after 2022, the $1,000,000 amount in subsection (a) 
        shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, determined by substituting in 
                subparagraph (A)(ii) thereof `calendar year 2021' for 
                `calendar year 2016'.
            ``(2) Rounding.--If the dollar amount in subsection (a), 
        after being increased under paragraph (1), is not a multiple of 
        $10,000, such amount shall be rounded to the next lowest 
        multiple of $10,000.''.
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 of such Code is amended by inserting after 
section 139H the following new item:

``Sec. 139I. Exclusion of gain from transfers of appreciated assets at 
                            death.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers at death by decedents dying after December 31, 2021, 
in taxable years beginning after such date.

SEC. 3. INFORMATION REPORTING OF CERTAIN GIFTS.

    (a) In General.--Subpart B of part III of subchapter A of chapter 
61 of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 6050Z. RETURNS RELATING TO CERTAIN GIFTS AND BEQUESTS.

    ``(a) In General.--In the case of an applicable transfer, the 
individual making such gift, or the executor in the case of a transfer 
at death, shall furnish to the Secretary the following information:
            ``(1) The name and taxpayer identification number of the 
        person to whom such transfer was made.
            ``(2) A description of the property transferred.
            ``(3) The fair market value of the property transferred and 
        the basis of such property to the transferee.
    ``(b) Applicable Transfer.--
            ``(1) In general.--For purposes of this section, the term 
        `applicable transfer' means--
                    ``(A) any gift (other than a covered security (as 
                defined in section 6045(g)(3))) which is taken into 
                account under section 1261, and
                    ``(B) so much of any transfer at death (other than 
                such a covered security) which is so taken into account 
                under section 1261 and the gain from which is 
                includible in gross income for the taxable year of such 
                transfer.
            ``(2) De minimis.--
                    ``(A) Gifts.--For gifts not exceeding the 
                limitation for such year under section 2503(b) and not 
                taken into account under section 1261, see subsection 
                (d) thereof.
                    ``(B) Transfers at death.--For amount of gain 
                excluded from gross income in case of a transfer at 
                death, see section 139I(a).
    ``(c) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--Every person required to make a return under 
subsection (a) shall furnish to each person whose name is required to 
set forth in such return a written statement showing the information 
described in subsection (a).
    ``(d) Timing.--The returns and statements required under this 
section shall be furnished at such time and in such form and manner as 
the Secretary shall by regulation prescribe.''.
    (b) Clerical Amendment.--The table of sections for subpart B of 
part III of subchapter A of chapter 61 of such Code is amended by 
adding at the end the following new item:

``Sec. 6050Z. Returns relating to certain gifts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers after December 31, 2021, in taxable years beginning 
after such date.

SEC. 4. EXTENSION OF TIME FOR PAYMENT OF TAX.

    (a) Extension of Time.--
            (1) In general.--Subchapter B of chapter 62 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new section:

``SEC. 6168. EXTENSION OF TIME FOR PAYMENT OF CAPITAL GAINS ON CERTAIN 
              ASSETS REALIZED BY REASON OF DEATH.

    ``(a) 7-Year Installment Payment.--
            ``(1) In general.--In the case of any gain with respect to 
        eligible property that is recognized under section 1261 by 
        reason of the death of the taxpayer, the taxpayer may elect to 
        pay part or all of tax imposed on such gain in 2 or more (but 
        not exceeding 7) equal installments.
            ``(2) Date for payment of installments.--If an election is 
        made under paragraph (1), the first installment shall be paid 
        not later than the date on which the tax for the taxable year 
        in which the gain described in paragraph (1) occurs is due, and 
        each succeeding installment shall be paid on or before the date 
        which is 1 year after the date prescribed by this paragraph for 
        payment of the preceding installment.
    ``(b) Eligible Capital Asset.--For purposes of this section, the 
term `eligible property' means any property other than personal 
property of a type which is actively traded (within the meaning of 
section 1092(d)(1)).
    ``(c) Portion of Tax Eligible.--The amount of tax to which this 
section applies shall not exceed the excess of--
            ``(1) the tax computed under chapter 1 (determined after 
        application of section 1261), over
            ``(2) the tax computed under chapter 1 (determined without 
        regard to section 1261).
    ``(d) Election.--Any election under subsection (a) shall be made 
not later than the time prescribed by section 6072 for filing the 
return of tax imposed under chapter 1 (including extensions thereof), 
and shall be made in such manner as the Secretary shall by regulations 
prescribe. If an election under subsection (a) is made, the provisions 
of this subtitle shall apply as though the Secretary were extending the 
time for payment of the tax.
    ``(e) Proration of Deficiency to Installments.--If an election is 
made under subsection (a) to pay any part of the tax imposed under 
chapter 1 in installments and a deficiency has been assessed, the 
deficiency shall (subject to the limitation provided by subsection 
(a)(2)) be prorated to the installments payable under subsection (a). 
The part of the deficiency so prorated to any installment the date for 
payment of which has not arrived shall be collected at the same time 
as, and as a part of, such installment. The part of the deficiency so 
prorated to any installment the date for payment of which has arrived 
shall be paid upon notice and demand from the Secretary. This 
subsection shall not apply if the deficiency is due to negligence, to 
intentional disregard of rules and regulations, or to fraud with intent 
to evade tax.
    ``(f) Time for Payment of Interest.--If the time for payment of any 
amount of tax has been extended under this section, interest payable 
under section 6601 on any unpaid portion shall be paid annually at the 
same time as, and as part of, each installment payment of the tax.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to the application of this section.
    ``(h) Cross-References.--
            ``(1) Security.--For authority of the Secretary to require 
        security in the case of an extension under this section, see 
        section 6165.
            ``(2) Interest.--For provisions relating to interest on tax 
        payable in installments under this section, see subsection (k) 
        of section 6601.''.
            (2) Coordination with transferee liability.--Section 6109 
        of such Code is amended by redesignating subsections (g), (h), 
        and (i) as subsections (h), (i), and (j), respectively, and by 
        inserting after subsection (f) the following new subsection:
    ``(g) Period of Assessment in Case of Extension of Time for Payment 
of Tax Under Section 1261.--For purposes of subsection (c), the period 
of limitation for assessment against the transferor of any tax imposed 
under section 1261 the payment of which is extended under section 6168 
shall not be treated as expiring earlier than the due date for the last 
payment under (a)(2) of such section.''.
            (3) Clerical amendment.--The table of sections for subpart 
        B of chapter 62 of such Code is amended by adding at the end 
        the following new item:

``Sec. 6168. Extension of time for payment of capital gains on certain 
                            assets realized by reason of death.''.
    (b) Interest.--Section 6601 of such Code is amended by 
redesignating subsection (k) as subsection (l) and by inserting after 
subsection (j) the following new subsection:
    ``(k) Special Rate for Tax Extended Under Section 6168.--If the 
time for payment of an amount of tax imposed by section 1261 is 
extended as provided in section 6168, in lieu of the annual rate 
provided by subsection (a), interest shall be paid at a rate equal to 
45 percent of the annual rate provided by subsection (a). For purposes 
of this subsection, the amount of any deficiency which is prorated to 
installments payable under section 6168 shall be treated as an amount 
of tax payable in installments under such section.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2021.
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