For the 99.5 Percent Act
Bill: S.994 | Sponsor: Sen. Sanders, Bernard (I-VT)
Policy area: Taxation

Summary:
For the 99.5 Percent Act
This bill imposes increased tax rates on decedent estates, gifts, and generation-skipping transfers.
Estates with a value of over $1 billion are taxed at a 65% tax rate. The basic exclusion amount is reduced to $3.5 million.
The bill increases (1) to $3 million the reduction in valuations of farmland for estate tax purposes and adjusts such increased amount for inflation, and (2) to $2 million the maximum estate tax exclusion for contributions of conservation easements. It also increases to 60% the applicable percentage for such exclusion.
The bill requires (1) consistent basis reporting for property acquired by gift and transfers in trust, and (2) executors of estates and donors of gifts required to file a gift tax return to disclose to the Department of the Treasury, and to recipients of any interest in an estate or a gift, information identifying the value of each interest received.
The bill sets forth estate valuation rules for certain transfers of nonbusiness assets and limits estate tax discounts for certain individuals with minority interests in a business acquired from a decedent.
The bill expands rules for valuing assets in grantor retained annuity trusts to require that (1) the right to receive fixed amounts from an annuity last for a term of not less than 10 years and not more than the life expectancy of the annuitant plus 10 years, and that such fixed amounts not decrease during the first 10 years of the annuity term, and (2) the remainder interest have a value when transferred that is not less than the the greater of 25% of the fair market value of the trust property or $500,000. The bill also sets forth rules for the application of transfer taxes to a grantor trust (a trust in which the grantor retains control over the trust assets and has the right to receive income from the trust).
The bill eliminates the generation-skipping transfer tax exemption for any trust whose termination date is not greater than 50 years after its creation.
The bill modifies the tax exclusion for annual gifts to eliminate the present interest requirement for such exclusion and to impose a new, aggregate per donor limit equal to twice the annual exclusion amount in effect for the taxable year.

To amend the Internal Revenue Code of 1986 to reinstate estate and 
           generation-skipping taxes, 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. SHORT TITLE.

    This Act may be cited as the ``For the 99.5 Percent Act''.

SEC. 2. MODIFICATIONS TO ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER 
              TAXES.

    (a) Modification of Rates.--Section 2001(c) of the Internal Revenue 
Code of 1986 is amended by striking the last 2 rows and inserting the 
following:


  ``Over $750,000 but not over           $248,300 plus 39 percent of the
   $3,500,000.                            excess of such amount over
                                          $750,000.
   Over $3,500,000 but not over          $1,320,800 plus 45 percent of
   $10,000,000.                           the excess of such amount over
                                          $3,500,000.
   Over $10,000,000 but not over         $4,245,800 plus 50 percent of
   $50,000,000.                           the excess of such amount over
                                          $10,000,000.
   Over $50,000,000 but not over         $24,245,800 plus 55 percent of
   $1,000,000,000.                        the excess of such amount over
                                          $50,000,000.
  Over $1,000,000,000..................  $546,745,800 plus 65 percent of
                                          the excess of such amount over
                                          $1,000,000,000.''.
 

    (b) Exclusion Amount.--
            (1) Estate tax.--Paragraph (3) of section 2010(c) of the 
        Internal Revenue Code of 1986 is amended to read as follows:
            ``(3) Basic exclusion amount.--For purposes of this 
        section, the basic exclusion amount is $3,500,000.''.
            (2) Modification to gift tax exclusion amount.--Paragraph 
        (1) of section 2505(a) of the Internal Revenue Code of 1986 is 
        amended to read as follows:
            ``(1) the applicable credit amount in effect under section 
        2010(c) for such calendar year (determined as if the basic 
        exclusion amount in section 2010(c)(2)(A) were $1,000,000), 
        reduced by''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and generation-skipping transfers 
and gifts made, after December 31, 2021.

SEC. 3. MODIFICATION OF RULES FOR VALUE OF CERTAIN FARM, ETC., REAL 
              PROPERTY.

    (a) In General.--Paragraph (2) of section 2032A(a) of the Internal 
Revenue Code of 1986 is amended by striking ``$750,000'' and inserting 
``$3,000,000''.
    (b) Inflation Adjustment.--Paragraph (3) of section 2032A(a) of 
such Code is amended--
            (1) by striking ``1998'' and inserting ``2022'',
            (2) by striking ``$750,000'' each place it appears and 
        inserting ``$3,000,000'', and
            (3) by striking ``calendar year 1997'' and inserting 
        ``calendar year 2021'' in subparagraph (B).
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2021.

SEC. 4. MODIFICATION OF ESTATE TAX RULES WITH RESPECT TO LAND SUBJECT 
              TO CONSERVATION EASEMENTS.

    (a) Modification of Exclusion Limitation.--Subparagraph (B) of 
section 2031(c)(1) of the Internal Revenue Code of 1986 is amended by 
striking ``$500,000'' and inserting ``$2,000,000''.
    (b) Modification of Applicable Percentage.--Paragraph (2) of 
section 2031(c) of the Internal Revenue Code of 1986 is amended by 
striking ``40 percent'' and inserting ``60 percent''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2021.

SEC. 5. DISALLOWANCE OF STEP-UP IN BASIS FOR PROPERTY HELD IN CERTAIN 
              GRANTOR TRUSTS.

    (a) In General.--Section 1014 of the Internal Revenue Code of 1986 
is amended--
            (1) by redesignating subsection (f) as subsection (g), and
            (2) by inserting after subsection (e) the following:
    ``(f) Property Held in Certain Grantor Trusts.--This section shall 
not apply to property--
            ``(1) held in a trust of which the transferor is considered 
        the owner under subpart E of part I of subchapter J, and
            ``(2) if, after the transfer of such property to the trust, 
        such property is not includible in the gross estate of the 
        transferor for purposes of chapter 11.''.
    (b) Conforming Amendment.--Section 6662(k) of the Internal Revenue 
Code of 1986 is amended by striking ``1014(f)'' and inserting 
``1014(g)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 6. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; 
              LIMITATION ON MINORITY DISCOUNTS.

    (a) In General.--Section 2031 of the Internal Revenue Code of 1986 
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 section 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 transferee (and no valuation 
                discount shall be allowed 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.
            ``(2) Nonbusiness assets.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonbusiness 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 purposes 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 property 
                        trades or businesses (within the meaning 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 participation 
                shall be determined under the rules of section 469(h), 
                except that section 469(h)(3) shall be applied without 
                regard to the limitation to farming activity.
                    ``(C) Exception for working capital.--Any asset 
                (including a passive asset) which is held as a part of 
                the reasonably required working capital needs of a 
                trade or business shall be treated as used in the 
                active conduct 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, forward or 
                futures contract, notional principal contract, 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 section 
                469(c)(7)(C)),
                    ``(G) asset (other than a patent, trademark, or 
                copyright) which produces royalty income,
                    ``(H) commodity,
                    ``(I) collectible (within the meaning of section 
                408(m)), or
                    ``(J) any other asset specified in regulations 
                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 applied 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 
                        corporation, ownership of at least 10 percent 
                        (by vote or value) of the stock in such 
                        corporation,
                            ``(ii) in the case of an interest in a 
                        partnership, ownership of at least 10 percent 
                        of the capital or profits interest in the 
                        partnership, and
                            ``(iii) in any other case, ownership of at 
                        least 10 percent of the beneficial interests 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 interest which is actively traded (within the 
meaning of section 1092), no discount shall be allowed by reason of the 
fact that the transferee does not have control of such entity, or by 
reason of the lack of marketability of the interest, if the transferor, 
the transferee, and members of the family (as defined in section 
2032A(e)(2)) of the transferor and transferee--
            ``(1) have control of such entity, or
            ``(2) own the majority of the ownership interests (by 
        value) in such entity.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 7. 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 redesignated) 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 paragraph 
        (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 respect 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 described 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 and not more than the life expectancy of 
                the annuitant plus 10 years,
                    ``(B) such fixed amounts, when determined on an 
                annual basis, do not decrease during the term described 
                in subparagraph (A), and
                    ``(C) the remainder interest has a value, as 
                determined as of the time of the transfer, which is--
                            ``(i) not less than an amount equal to the 
                        greater of--
                                    ``(I) 25 percent of the fair market 
                                value of the property in the trust, or
                                    ``(II) $500,000, and
                            ``(ii) not greater than the fair market 
                        value of the property in the trust.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers made after the date of the enactment of this Act.

SEC. 8. CERTAIN TRANSFER TAX RULES APPLICABLE TO GRANTOR TRUSTS.

    (a) In General.--Subtitle B of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new chapter:

             ``CHAPTER 16--SPECIAL RULES FOR GRANTOR TRUSTS

``Sec. 2901. Application of transfer taxes.

``SEC. 2901. APPLICATION OF TRANSFER TAXES.

    ``(a) In General.--In the case of any portion of a trust to which 
this section applies--
            ``(1) the value of the gross estate of the deceased deemed 
        owner of such portion shall include all assets attributable to 
        that portion at the time of the death of such owner,
            ``(2) any distribution from such portion to one or more 
        beneficiaries during the life of the deemed owner of such 
        portion shall be treated as a transfer by gift for purposes of 
        chapter 12, and
            ``(3) if at any time during the life of the deemed owner of 
        such portion, such owner ceases to be treated as the owner of 
        such portion under subpart E of part 1 of subchapter J of 
        chapter 1, all assets attributable to such portion at such time 
        shall be treated for purposes of chapter 12 as a transfer by 
        gift made by the deemed owner.
    ``(b) Portion of Trust to Which Section Applies.--This section 
shall apply to--
            ``(1) the portion of a trust with respect to which the 
        grantor is the deemed owner, and
            ``(2) the portion of the trust to which a person who is not 
        the grantor is a deemed owner by reason of the rules of subpart 
        E of part 1 of subchapter J of chapter 1, and such deemed owner 
        engages in a sale, exchange, or comparable transaction with the 
        trust that is disregarded for purposes of subtitle A.
For purposes of paragraph (2), the portion of the trust described with 
respect to a transaction is the portion of the trust attributable to 
the property received by the trust in such transaction, including all 
retained income therefrom, appreciation thereon, and reinvestments 
thereof, net of the amount of consideration received by the deemed 
owner in such transaction.
    ``(c) Exceptions.--This section shall not apply to any trust that 
is includible in the gross estate of the deemed owner (without regard 
to subsection (a)(1)).
    ``(d) Deemed Owner Defined.--For purposes of this section, the term 
`deemed owner' means any person who is treated as the owner of a 
portion of a trust under subpart E of part 1 of subchapter J of chapter 
1.
    ``(e) Reduction for Taxable Gifts to Trust Made by Owner.--The 
amount to which subsection (a) applies shall be reduced by the value of 
any transfer by gift by the deemed owner to the trust previously taken 
into account by the deemed owner under chapter 12.
    ``(f) Liability for Payment of Tax.--Any tax imposed pursuant to 
subsection (a) shall be a liability of the trust.''.
    (b) Clerical Amendment.--The table of chapters for subtitle B of 
such Code is amended by adding at the end the following new item:

           ``Chapter 16. Special Rules for Grantor Trusts''.

    (c) Effective Date.--The amendments made by this section shall 
apply--
            (1) to trusts created on or after the date of the enactment 
        of this Act,
            (2) to any portion of a trust established before the date 
        of the enactment of this Act which is attributable to a 
        contribution made on or after such date, and
            (3) to any portion of a trust established before the date 
        of the enactment of this Act to which section 2901(a) of the 
        Internal Revenue Code of 1986 (as added by subsection (a)) 
        applies by reason of a transaction described in section 
        2901(b)(2) of such Code on or after such date.

SEC. 9. ELIMINATION OF GENERATION-SKIPPING TRANSFER TAX EXEMPTION FOR 
              CERTAIN TRUSTS.

    (a) In General.--Section 2642 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(h) Elimination of GST Exemption for Certain Trusts.--
            ``(1) In general.--
                    ``(A) Transfers from non-qualifying trusts.--In the 
                case of any generation-skipping transfer made from a 
                trust that is not a qualifying trust, the inclusion 
                ratio with respect to any property transferred in such 
                transfer shall be 1.
                    ``(B) Qualifying trust.--For purposes of this 
                subsection, the term `qualifying trust' means a trust 
                for which the date of termination of such trust is not 
                greater than 50 years after the date on which such 
                trust is created.
            ``(2) Trusts created before date of enactment.--In the case 
        of any trust created before the date of the enactment of this 
        subsection, such trust shall be deemed to be a qualifying trust 
        for a period of 50 years after the date of the enactment of 
        this subsection.
            ``(3) Date of creation of certain deemed separate trusts.--
        In the case of any portion of a trust which is treated as a 
        separate trust under section 2654(b)(1), such separate trust 
        shall be treated as created on the date of the first transfer 
        described in such section with respect to such separate trust.
            ``(4) Date of creation of pour-over trusts.--In the case of 
        any generation-skipping transfer of property which involves the 
        transfer of property from 1 trust to another trust, the date of 
        the creation of the transferee trust shall be treated as being 
        the earlier of--
                    ``(A) the date of the creation of such transferee 
                trust, or
                    ``(B) the date of the creation of the transferor 
                trust.
        In the case of multiple transfers to which the preceding 
        sentence applies, the date of the creation of the transferor 
        trust shall be determined under the preceding sentence before 
        the application of the preceding sentence to determine the date 
        of the creation of the transferee trust.
            ``(5) Regulations.--The Secretary may prescribe such 
        regulations or other guidance as may be necessary or 
        appropriate to carry out this subsection.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 10. SIMPLIFYING GIFT TAX EXCLUSION FOR ANNUAL GIFTS.

    (a) In General.--Paragraph (1) of section 2503(b) of the Internal 
Revenue Code of 1986 is amended to read as follows:
            ``(1) In general.--
                    ``(A) Limit per donee.--In the case of gifts made 
                to any person by the donor during the calendar year, 
                the first $10,000 of such gifts to such person shall 
                not, for purposes of subsection (a), be included in the 
                total amount of gifts made during such year.
                    ``(B) Cumulative limit per donor.--
                            ``(i) In general.--The aggregate amount 
                        excluded under subparagraph (A) with respect to 
                        all transfers described in clause (ii) made by 
                        the donor during the calendar year shall not 
                        exceed twice the dollar amount in effect under 
                        such subparagraph for such calendar year.
                            ``(ii) Transfers subject to limitation.--
                        The transfers described in this clause are--
                                    ``(I) a transfer in trust,
                                    ``(II) a transfer of an interest in 
                                a passthrough entity,
                                    ``(III) a transfer of an interest 
                                subject to a prohibition on sale, and
                                    ``(IV) any other transfer of 
                                property that, without regard to 
                                withdrawal, put, or other such rights 
                                in the donee, cannot immediately be 
                                liquidated by the donee.''.
    (b) Conforming Amendment.--Section 2503 of the Internal Revenue 
Code of 1986 is amended by striking subsection (c).
    (c) Regulations.--The Secretary of the Treasury, or the Secretary 
of the Treasury's delegate, may prescribe such regulations or other 
guidance as may be necessary or appropriate to carry out the amendments 
made by this section.
    (d) Effective Date.--The amendments made by this section shall 
apply to any calendar year beginning after the date of the enactment of 
this Act.
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