SECTION 1. PERMANENT EXTENSION OF ESTATE TAX AS IN EFFECT IN 2009.

    (a) Restoration of Unified Credit Against Gift Tax.--Paragraph (1) 
of section 2505(a) (relating to general rule for unified credit against 
gift tax), after the application of subsection (f), is amended by 
striking ``(determined as if the applicable exclusion amount were 
$1,000,000)''.
    (b) Exclusion Equivalent of Unified Credit Equal to $3,500,000.--
Subsection (c) of section 2010 of the Internal Revenue Code of 1986 
(relating to unified credit against estate tax) is amended to read as 
follows:
    ``(c) Applicable Credit Amount.--
            ``(1) In general.--For purposes of this section, the 
        applicable credit amount is the amount of the tentative tax 
        which would be determined under section 2001(c) if the amount 
        with respect to which such tentative tax is to be computed were 
        equal to the applicable exclusion amount.
            ``(2) Applicable exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the applicable exclusion amount is $3,500,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2010, the 
                dollar amount in subparagraph (A) shall be increased by 
                an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2009' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10,000, such amount shall be 
                rounded to the nearest multiple of $10,000.''.
    (c) Maximum Estate Tax Rate Equal to 45 Percent.--
            (1) In general.--Subsection (c) of section 2001 of the 
        Internal Revenue Code of 1986 (relating to imposition and rate 
        of tax) is amended--
                    (A) by striking ``but not over $2,000,000'' in the 
                table contained in paragraph (1),
                    (B) by striking the last 2 items in such table,
                    (C) by striking ``(1) in general.--'', and
                    (D) by striking paragraph (2).
            (2) Conforming amendment.--Paragraphs (1) and (2) of 
        section 2102(b) of such Code are amended to read as follows:
            ``(1) In general.--A credit in an amount that would be 
        determined under section 2010 as the applicable credit amount 
        if the applicable exclusion amount were $60,000 shall be 
        allowed against the tax imposed by section 2101.
            ``(2) Residents of possessions of the united states.--In 
        the case of a decedent who is considered to be a `nonresident 
        not a citizen of the United States' under section 2209, the 
        credit allowed under this subsection shall not be less than the 
        proportion of the amount that would be determined under section 
        2010 as the applicable credit amount if the applicable 
        exclusion amount were $175,000 which the value of that part of 
        the decedent's gross estate which at the time of the decedent's 
        death is situated in the United States bears to the value of 
        the decedent's entire gross estate, wherever situated.''.
    (d) Modifications of Estate and Gift Taxes To Reflect Differences 
in Unified Credit Resulting From Different Tax Rates.--
            (1) Estate tax.--
                    (A) In general.--Section 2001(b)(2) of the Internal 
                Revenue Code of 1986 (relating to computation of tax) 
                is amended by striking ``if the provisions of 
                subsection (c) (as in effect at the decedent's death)'' 
                and inserting ``if the modifications described in 
                subsection (g)''.
                    (B) Modifications.--Section 2001 of such Code is 
                amended by adding at the end the following new 
                subsection:
    ``(g) Modifications to Gift Tax Payable To Reflect Different Tax 
Rates.--For purposes of applying subsection (b)(2) with respect to 1 or 
more gifts, the rates of tax under subsection (c) in effect at the 
decedent's death shall, in lieu of the rates of tax in effect at the 
time of such gifts, be used both to compute--
            ``(1) the tax imposed by chapter 12 with respect to such 
        gifts, and
            ``(2) the credit allowed against such tax under section 
        2505, including in computing--
                    ``(A) the applicable credit amount under section 
                2505(a)(1), and
                    ``(B) the sum of the amounts allowed as a credit 
                for all preceding periods under section 2505(a)(2).
        For purposes of paragraph (2)(A), the applicable credit amount 
        for any calendar year before 1998 is the amount which would be 
        determined under section 2010(c) if the applicable exclusion 
        amount were the dollar amount under section 6018(a)(1) for such 
        year.''.
            (2) Gift tax.--Section 2505(a) of such Code (relating to 
        unified credit against gift tax) is amended by adding at the 
        end the following new flush sentence:
``For purposes of applying paragraph (2) for any calendar year, the 
rates of tax in effect under section 2502(a)(2) for such calendar year 
shall, in lieu of the rates of tax in effect for preceding calendar 
periods, be used in determining the amounts allowable as a credit under 
this section for all preceding calendar periods.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.
    (f) Additional Modifications to Estate Tax.--
            (1) In general.--The following provisions of the Economic 
        Growth and Tax Relief Reconciliation Act of 2001, and the 
        amendments made by such provisions, are hereby repealed:
                    (A) Subtitles A and E of title V.
                    (B) Subsection (d), and so much of subsection 
                (f)(3) as relates to subsection (d), of section 511.
                    (C) Paragraph (2) of subsection (b), and paragraph 
                (2) of subsection (e), of section 521.
        The Internal Revenue Code of 1986 shall be applied as if such 
        provisions and amendments had never been enacted.
            (2) Sunset not to apply.--
                    (A) Subsection (a) of section 901 of the Economic 
                Growth and Tax Relief Reconciliation Act of 2001 is 
                amended by striking ``this Act'' and all that follows 
                and inserting ``this Act (other than title V) shall not 
                apply to taxable, plan, or limitation years beginning 
                after December 31, 2010.''.
                    (B) Subsection (b) of such section 901 is amended 
                by striking ``, estates, gifts, and transfers''.
            (3) Repeal of deadwood.--
                    (A) Sections 2011, 2057, and 2604 of the Internal 
                Revenue Code of 1986 are hereby repealed.
                    (B) The table of sections for part II of subchapter 
                A of chapter 11 of such Code is amended by striking the 
                item relating to section 2011.
                    (C) The table of sections for part IV of subchapter 
                A of chapter 11 of such Code is amended by striking the 
                item relating to section 2057.
                    (D) The table of sections for subchapter A of 
                chapter 13 of such Code is amended by striking the item 
                relating to section 2604.

SEC. 2. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED 
              SPOUSE.

    (a) In General.--Section 2010(c) of the Internal Revenue Code of 
1986, as amended by section 1(b), is amended by striking paragraph (2) 
and inserting the following new paragraphs:
            ``(2) Applicable exclusion amount.--For purposes of this 
        subsection, the applicable exclusion amount is the sum of--
                    ``(A) the basic exclusion amount, and
                    ``(B) in the case of a surviving spouse, the 
                aggregate deceased spousal unused exclusion amount.
            ``(3) Basic exclusion amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the basic exclusion amount is $3,500,000.
                    ``(B) Inflation adjustment.--In the case of any 
                decedent dying in a calendar year after 2010, the 
                dollar amount in subparagraph (A) shall be increased by 
                an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year by substituting `calendar year 
                        2009' for `calendar year 1992' in subparagraph 
                        (B) thereof.
                If any amount as adjusted under the preceding sentence 
                is not a multiple of $10,000, such amount shall be 
                rounded to the nearest multiple of $10,000.
            ``(4) Aggregate deceased spousal unused exclusion amount.--
        For purposes of this subsection, the term `aggregate deceased 
        spousal unused exclusion amount' means the lesser of--
                    ``(A) the basic exclusion amount, or
                    ``(B) the sum of the deceased spousal unused 
                exclusion amounts computed with respect to each 
                deceased spouse of the surviving spouse.
            ``(5) Deceased spousal unused exclusion amount.--For 
        purposes of this subsection, the term `deceased spousal unused 
        exclusion amount' means, with respect to the surviving spouse 
        of any deceased spouse dying after December 31, 2009, the 
        excess (if any) of--
                    ``(A) the basic exclusion amount of the deceased 
                spouse, over
                    ``(B) the amount with respect to which the 
                tentative tax is determined under section 2001(b)(1) on 
                the estate of such deceased spouse.
            ``(6) Special rules.--
                    ``(A) Election required.--A deceased spousal unused 
                exclusion amount may not be taken into account by a 
                surviving spouse under paragraph (5) unless the 
                executor of the estate of the deceased spouse files an 
                estate tax return on which such amount is computed and 
                makes an election on such return that such amount may 
                be so taken into account. Such election, once made, 
                shall be irrevocable. No election may be made under 
                this subparagraph if such return is filed after the 
                time prescribed by law (including extensions) for 
                filing such return.
                    ``(B) Examination of prior returns after expiration 
                of period of limitations with respect to deceased 
                spousal unused exclusion amount.--Notwithstanding any 
                period of limitation in section 6501, after the time 
                has expired under section 6501 within which a tax may 
                be assessed under chapter 11 or 12 with respect to a 
                deceased spousal unused exclusion amount, the Secretary 
                may examine a return of the deceased spouse to make 
                determinations with respect to such amount for purposes 
                of carrying out this subsection.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this subsection.''.
    (b) Conforming Amendments.--
            (1) Paragraph (1) of section 2505(a) of the Internal 
        Revenue Code of 1986, as amended by section 1(a), is amended to 
        read as follows:
            ``(1) the applicable credit amount in effect under section 
        2010(c) which would apply if the donor died as of the end of 
        the calendar year, reduced by''.
            (2) Section 2631(c) of such Code is amended by striking 
        ``the applicable exclusion amount'' and inserting ``the basic 
        exclusion amount''.
            (3) Section 6018(a)(1) of such Code is amended by striking 
        ``applicable exclusion amount'' and inserting ``basic exclusion 
        amount''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, generation-skipping transfers, and 
gifts made, after December 31, 2009.

SEC. 3. SENSE OF THE SENATE REGARDING REVENUE NEUTRALITY.

    It is the sense of the Senate that any reduction in Federal 
revenues resulting from the provisions of, and amendments made by, this 
Act should be fully offset.
Output: Amends the Internal Revenue Code to: (1) establish a permanent estate tax exclusion of $3.5 million ($7 million for married couples filing joint tax returns) and a maximum 45% tax rate for decedents dying, generation-skipping transfers, and gifts made, after December 31, 2009; (2) allow an annual inflation adjustment to the exclusion amount after 2010; and (3) allow a surviving spouse an increase in the estate tax exclusion by the unused exclusion amount of a deceased spouse.

Expresses the sense of the Senate that any reduction in federal revenues resulting from this Act should be fully offset.