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TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS

Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes

SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.

(a) Estate Tax Repeal.--Subchapter C of chapter 11 of subtitle B (relating to miscellaneous) is amended by adding at the end the following new section:

``SEC. 2210. TERMINATION.

``(a) In General.--Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2009.
``(b) Certain Distributions From Qualified Domestic Trusts.--In applying section 2056A with respect to the surviving spouse of a decedent dying before January 1, 2010--

``(1) section 2056A(b)(1)(A) shall not apply to distributions made after December 31, 2020, and
``(2) section 2056A(b)(1)(B) shall not apply after December 31, 2009.''.

(b) Generation-Skipping Transfer Tax Repeal.--Subchapter G of chapter 13 of subtitle B (relating to administration) is amended by adding at the end the following new section:

``SEC. 2664. TERMINATION.

``This chapter shall not apply to generation-skipping transfers after December 31, 2009.''.

(c) Conforming Amendments.--

(1) The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item:
``Sec. 2210. Termination.''.

(2) The table of sections for subchapter G of chapter 13 is amended by adding at the end the following new item:
``Sec. 2664. Termination.''.

(d) <<NOTE: Applicability. 26 USC 2210 note.>> Effective Date.--The amendments made by this section shall apply to the estates of decedents dying, and generation-skipping transfers, after December 31, 2009.

[[Page 115 STAT. 70]]

Subtitle B--Reductions of Estate and Gift Tax Rates

SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

(a) Maximum Rate of Tax Reduced to 50 Percent.--The table contained in section 2001(c)(1) <<NOTE: 26 USC 2001 >> is amended by striking the two highest brackets and inserting the following:

``Over $2,500,000.....$1,025,800, plus 50% of the excess over $2,500,000.''.

(b) Repeal of Phaseout of Graduated Rates.--Subsection (c) of section 2001 is amended by striking paragraph (2).
(c) Additional Reductions of Maximum Rate of Tax.--Subsection (c) of section 2001, as amended by subsection (b), is amended by adding at the end the following new paragraph:

``(2) Phasedown of maximum rate of tax.--

``(A) <<NOTE: Regulations.>> In general.--In the case of estates of decedents dying, and gifts made, in calendar years after 2002 and before 2010, 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) the maximum rate of tax for any calendar year shall be determined in the table under subparagraph (B), and
``(ii) the brackets and the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under subparagraph (A).

``(B) Maximum rate.--

``In calendar year The maximum rate is
2003 49 percent
2004 48 percent
2005 47 percent
2006 46 percent
2007, 2008, and 2009 45 percent.''.

(d) Maximum Gift Tax Rate Reduced to Maximum Individual Rate After 2009.--Subsection (a) of section 2502 (relating to rate of tax) is amended to read as follows:

``(a) Computation of Tax.--

``(1) In general.--The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of--

``(A) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over
``(B) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for each of the preceding calendar periods.

``(2) Rate schedule.--

``If the amount with respeThe tentative tax is: which the tentative tax to be computed is:

Not over $10,000......18% of such amount.
Over $10,000 but not o$1,800, plus 20% of the excess over $10,000. $20,000.
Over $20,000 but not o$3,800, plus 22% of the excess over $20,000. $40,000.

[[Page 115 STAT. 71]]

Over $40,000 but not o$8,200, plus 24% of the excess over $40,000. $60,000.
Over $60,000 but not o$13,000, plus 26% of the excess over $60,000. $80,000.
Over $80,000 but not o$18,200, plus 28% of the excess over $80,000. $100,000.
Over $100,000 but not $23,800, plus 30% of the excess over $100,000. $150,000.
Over $150,000 but not $38,800, plus 32% of the excess over $150,000. $250,000.
Over $250,000 but not $70,800, plus 34% of the excess over $250,000. $500,000.
Over $500,000.........$155,800, plus 35% of the excess over $500,000.''.

(e) Treatment of Certain Transfers in <<NOTE: 26 USC 2511.>> Trust.--Section 2511 (relating to transfers in general) is amended by adding at the end the following new subsection:

``(c) Treatment of Certain Transfers in Trust.--Notwithstanding any other provision of this section and except as provided in regulations, a transfer in trust shall be treated as a taxable gift under section 2503, unless the trust is treated as wholly owned by the donor or the donor's spouse under subpart E of part I of subchapter J of chapter 1.''.

(f ) Effective Dates.-- <<NOTE: Applicability. 26 USC 2001 note. 26 USC 2001 note. 26 USC 2001 note.26 USC 2502 note.>>

26 USC
2001 note

26 USC
2001 note

26 USC
2502 note

(1) Subsections (a) and (b).--The amendments 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, 2002.
(3) Subsections (d) and (e).--The amendments made by subsections (d) and (e) shall apply to gifts made after December 31, 2009.

Subtitle C--Increase in Exemption Amounts

SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS.

(a) In General.--Subsection (c) of section 2010 (relating to applicable credit amount) is amended by striking the table and inserting the following new table:

``In the case of estates of decedents dying during: The applicable exclusion amount is:
2002 and 2003 $1,000,000
2004 and 2005 $1,500,000
2006, 2007, and 2008 $2,000,000
2009 $3,500,000.''.

(b) Lifetime Gift Exemption Increased to $1,000,000.--

(1) For periods before estate tax repeal.--Paragraph (1) of section 2505(a) (relating to unified credit against gift tax) is amended by inserting ``(determined as if the applicable exclusion amount were $1,000,000)'' after ``calendar year''.
(2) For periods after estate tax repeal.--Paragraph (1) of section 2505(a) (relating to unified credit against gift

[[Page 115 STAT. 72]]

tax), as amended by paragraph (1), is amended to read as follows:

``(1) the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $1,000,000, reduced by''.

(c) GST Exemption.--

(1) In general.--Subsection (a) of 2631 <<NOTE: 26 USC 2631.>> (relating to GST exemption) is amended by striking ``of $1,000,000'' and inserting ``amount''.
(2) Exemption amount.--Subsection (c) of section 2631 is amended to read as follows:

``(c) GST Exemption Amount.--For purposes of subsection (a), the GST exemption amount for any calendar year shall be equal to the applicable exclusion amount under section 2010(c) for such calendar year.''.
(d) Repeal of Special Benefit for Family-Owned Business Interests.-- Section 2057 (relating to family-owned business interests) is amended by adding at the end the following new subsection:

``( j) Termination.--This section shall not apply to the estates of decedents dying after December 31, 2003.''.

(e) <<NOTE: Applicability. 26 USC 2010 note.>> Effective Dates.--

(1) In general.--Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2001.
(2) Subsection (b)(2).--The amendments made by subsection (b)(2) shall apply to gifts made after December 31, 2009.
(3) Subsections (c) and (d).--The amendments made by subsections (c) and (d) shall apply to estates of decedents dying, and generation-skipping transfers, after December 31, 2003.

Subtitle D--Credit for State Death Taxes

SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.

(a) In General.--Section 2011(b) (relating to amount of credit) is amended--

(1) by striking ``Credit.--The credit allowed'' and inserting ``Credit.--

``(1) In general.--Except as provided in paragraph (2), the credit allowed'',

(2) by striking ``For purposes'' and inserting the following:

``(3) Adjusted taxable estate.--For purposes'', and

(3) by inserting after paragraph (1) the following new paragraph:

``(2) Reduction of maximum credit.--

``(A) In general.--In the case of estates of decedents dying after December 31, 2001, the credit allowed by this section shall not exceed the applicable percentage of the credit otherwise determined under paragraph (1).
``(B) Applicable percentage.--

``In the case of estates of decedents        The applicable dying during: percentage is:
2002................................................................................................75 percent

[[Page 115 STAT. 73]]

2003................................................................................................50 percent
2004................................................................................................25 percent.''.

(b) <<NOTE: Applicability. 26 USC 2011 note.>> Effective Date.--The amendments made by this subsection shall apply to estates of decedents dying after December 31, 2001.

SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH TAXES.

(a) Repeal of Credit.--Section 2011 <<NOTE: 26 USC 2011.>> (relating to credit for State death taxes) is amended by adding at the end the following new subsection:

``(g) Termination.--This section shall not apply to the estates of decedents dying after December 31, 2004.''.

(b) Deduction for State Death Taxes.--Part IV of subchapter A of chapter 11 is amended by adding at the end the following new section:

``SEC. 2058. STATE DEATH TAXES.

``(a) Allowance of Deduction.--For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent).
``(b) Period of Limitations.--The deduction allowed by this section shall include only such taxes as were actually paid and deduction therefor claimed before the later of--

``(1) 4 years after the filing of the return required by section 6018, or
``(2) if--

``(A) a petition for redetermination of a deficiency has been filed with the Tax Court within the time prescribed in section 6213(a), the expiration of 60 days after the decision of the Tax Court becomes final,
``(B) an extension of time has been granted under section 6161 or 6166 for payment of the tax shown on the return, or of a deficiency, the date of the expiration of the period of the extension, or
``(C) a claim for refund or credit of an overpayment of tax imposed by this chapter has been filed within the time prescribed in section 6511, the latest of the expiration of--

``(i) 60 days from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance of any part of such claim,
``(ii) 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon such claim, or
``(iii) 2 years after a notice of the waiver of disallowance is filed under section 6532(a)(3).

Notwithstanding sections 6511 and 6512, refund based on the deduction may be made if the claim for refund is filed within the period provided in the preceding sentence. Any such refund shall be made without interest.''.

(c) Conforming Amendments.--

[[Page 115 STAT. 74]]

(1) Subsection (a) of section 2012 <<NOTE: 26 USC 2012.>> is amended by striking ``the credit for State death taxes provided by section 2011 and''.
(2) Subparagraph (A) of section 2013(c)(1) is amended by striking ``2011,''.
(3) Paragraph (2) of section 2014(b) is amended by striking ``, 2011,''.
(4) Sections 2015 and 2016 are each amended by striking ``2011 or''.
(5) Subsection (d) of section 2053 is amended to read as follows:

``(d) Certain Foreign Death Taxes.--

``(1) <<NOTE: Regulations.>> In general.--Notwithstanding the provisions of subsection (c)(1)(B), for purposes of the tax imposed by section 2001, the value of the taxable estate may be determined, if the executor so elects before the expiration of the period of limitation for assessment provided in section 6501, by deducting from the value of the gross estate the amount (as determined in accordance with regulations prescribed by the Secretary) of any estate, succession, legacy, or inheritance tax imposed by and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United States, upon a transfer by the decedent for public, charitable, or religious uses described in section 2055. The determination under this paragraph of the country within which property is situated shall be made in accordance with the rules applicable under subchapter B (sec. 2101 and following) in determining whether property is situated within or without the United States. Any election under this paragraph shall be exercised in accordance with regulations prescribed by the Secretary.
``(2) Condition for allowance of deduction.--No deduction shall be allowed under paragraph (1) for a foreign death tax specified therein unless the decrease in the tax imposed by section 2001 which results from the deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2). In any case where the tax imposed by section 2001 is equitably apportioned among all the transferees of property included in the gross estate, including those described in sections 2055 and 2106(a)(2) (taking into account any exemptions, credits, or deductions allowed by this chapter), in determining such decrease, there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described in sections 2055 and 2106(a)(2) are required to pay.
``(3) Effect on credit for foreign death taxes of deduction under this subsection.--

``(A) Election.--An election under this subsection shall be deemed a waiver of the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country for any tax or portion thereof in respect of which a deduction is taken under this subsection.
``(B) Cross reference.--

``See section 2014(f ) for the effect of a deduction taken under this paragraph on the credit for foreign death taxes.''.

(6) Subparagraph (A) of section 2056A(b)(10) is amended--

[[Page 115 STAT. 75]]

(A) by striking ``2011,'', and
(B) by inserting ``2058,'' after ``2056,''.

(7)(A) Subsection (a) of section 2102 <<NOTE: 26 USC 2102.>> is amended to read as follows:

``(a) In General.--The tax imposed by section 2101 shall be credited with the amounts determined in accordance with sections 2012 and 2013 (relating to gift tax and tax on prior transfers).''.

(B) Section 2102 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b).
(C) Section 2102(b)(5) (as redesignated by subparagraph (B)) and section 2107(c)(3) are each amended by striking ``2011 to 2013, inclusive,'' and inserting ``2012 and 2013''.

(8) Subsection (a) of section 2106 is amended by adding at the end the following new paragraph:

``(4) State death taxes.--The amount which bears the same ratio to the State death taxes as the value of the property, as determined for purposes of this chapter, upon which State death taxes were paid and which is included in the gross estate under section 2103 bears to the value of the total gross estate under section 2103. For purposes of this paragraph, the term `State death taxes' means the taxes described in section 2011(a).''.

(9) Section 2201 is amended--

(A) by striking ``as defined in section 2011(d)'', and
(B) by adding at the end the following new flush sentence:

``For purposes of this section, the additional estate tax is the difference between the tax imposed by section 2001 or 2101 and the amount equal to 125 percent of the maximum credit provided by section 2011(b), as in effect before its repeal by the Economic Growth and Tax Relief Reconciliation Act of 2001.''.

(10) Section 2604 (relating to credit for certain State taxes) is amended by adding at the end the following new subsection:

``(c) Termination.--This section shall not apply to the generation- skipping transfers after December 31, 2004.''.

(11) Paragraph (2) of section 6511(i) is amended by striking ``2011(c), 2014(b),'' and inserting ``2014(b)''.
(12) Subsection (c) of section 6612 is amended by striking ``section 2011(c) (relating to refunds due to credit for State taxes),''.
(13) The table of sections for part II of subchapter A of chapter 11 is amended by striking the item relating to section 2011.
(14) The table of sections for part IV of subchapter A of chapter 11 is amended by adding at the end the following new item:

``Sec. 2058. State death taxes.''.

(15) The table of sections for subchapter A of chapter 13 is amended by striking the item relating to section 2604.

(d) <<NOTE: Applicability. 26 USC 2011 note.>> Effective Date.--The amendments made by this section shall apply to estates of decedents dying, and generation-skipping transfers, after December 31, 2004.

[[Page 115 STAT. 76]]

Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With Repeal

SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.

Section 1014 <<NOTE: 26 USC 1014.>> (relating to basis of property acquired from a decedent) is amended by adding at the end the following new subsection:

``(f ) Termination.--This section shall not apply with respect to decedents dying after December 31, 2009.''.

SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.

(a) General Rule.--Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section:

``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.

``(a) In General.--Except as otherwise provided in this section--

``(1) property acquired from a decedent dying after December 31, 2009, shall be treated for purposes of this subtitle as transferred by gift, and
``(2) the basis of the person acquiring property from such a decedent shall be the lesser of--

``(A) the adjusted basis of the decedent, or
``(B) the fair market value of the property at the date of the decedent's death.

``(b) Basis Increase for Certain Property.--

``(1) In general.--In the case of property to which this subsection applies, the basis of such property under subsection (a) shall be increased by its basis increase under this subsection.
``(2) Basis increase.--For purposes of this subsection--

``(A) In general.--The basis increase under this subsection for any property is the portion of the aggregate basis increase which is allocated to the property pursuant to this section.
``(B) Aggregate basis increase.--In the case of any estate, the aggregate basis increase under this subsection is $1,300,000.
``(C) Limit increased by unused built-in losses and loss carryovers.--The limitation under subparagraph (B) shall be increased by--

``(i) the sum of the amount of any capital loss carryover under section 1212(b), and the amount of any net operating loss carryover under section 172, which would (but for the decedent's death) be carried from the decedent's last taxable year to a later taxable year of the decedent, plus
``(ii) the sum of the amount of any losses that would have been allowable under section 165 if the property acquired from the decedent had been sold at fair market value immediately before the decedent's death.

[[Page 115 STAT. 77]]

``(3) Decedent nonresidents who are not citizens of the united states.--In the case of a decedent nonresident not a citizen of the United States--

``(A) paragraph (2)(B) shall be applied by substituting `$60,000' for `$1,300,000', and
``(B) paragraph (2)(C) shall not apply.

``(c) Additional Basis Increase for Property Acquired by Surviving Spouse.--

``(1) In general.--In the case of property to which this subsection applies and which is qualified spousal property, the basis of such property under subsection (a) (as increased under subsection (b)) shall be increased by its spousal property basis increase.
``(2) Spousal property basis increase.--For purposes of this subsection--

``(A) In general.--The spousal property basis increase for property referred to in paragraph (1) is the portion of the aggregate spousal property basis increase which is allocated to the property pursuant to this section.
``(B) Aggregate spousal property basis increase.--In the case of any estate, the aggregate spousal property basis increase is $3,000,000.

``(3) Qualified spousal property.--For purposes of this subsection, the term `qualified spousal property' means--

``(A) outright transfer property, and
``(B) qualified terminable interest property.

``(4) Outright transfer property.--For purposes of this subsection--

``(A) In general.--The term `outright transfer property' means any interest in property acquired from the decedent by the decedent's surviving spouse.
``(B) Exception.--Subparagraph (A) shall not apply where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail--

``(i)(I) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse), and
``(II) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse, or
``(ii) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.

For purposes of this subparagraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.

``(C) Interest of spouse conditional on survival for limited period.--For purposes of this paragraph, an

[[Page 115 STAT. 78]] interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if--

``(i) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event, and
``(ii) such termination or failure does not in fact occur.

``(5) Qualified terminable interest property.--For purposes of this subsection--

``(A) In general.--The term `qualified terminable interest property' means property--

``(i) which passes from the decedent, and
``(ii) in which the surviving spouse has a qualifying income interest for life.

``(B) Qualifying income interest for life.--The surviving spouse has a qualifying income interest for life if--

``(i) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
``(ii) no person has a power to appoint any part of the property to any person other than the surviving spouse.

Clause (ii) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).

``(C) Property includes interest therein.--The term `property' includes an interest in property.
``(D) Specific portion treated as separate property.--A specific portion of property shall be treated as separate property. For purposes of the preceding sentence, the term `specific portion' only includes a portion determined on a fractional or percentage basis.

``(d) Definitions and Special Rules for Application of Subsections (b) and (c).--

``(1) Property to which subsections (b) and (c) apply.--

``(A) In general.--The basis of property acquired from a decedent may be increased under subsection (b) or (c) only if the property was owned by the decedent at the time of death.
``(B) Rules relating to ownership.--

``(i) Jointly held property.--In the case of property which was owned by the decedent and another person as joint tenants with right of survivorship or tenants by the entirety--

``(I) if the only such other person is the surviving spouse, the decedent shall be treated as the owner of only 50 percent of the property,

[[Page 115 STAT. 79]]

``(II) in any case (to which subclause (I) does not apply) in which the decedent furnished consideration for the acquisition of the property, the decedent shall be treated as the owner to the extent of the portion of the property which is proportionate to such consideration, and
``(III) in any case (to which subclause (I) does not apply) in which the property has been acquired by gift, bequest, devise, or inheritance by the decedent and any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, the decedent shall be treated as the owner to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants with right of survivorship.

``(ii) Revocable trusts.--The decedent shall be treated as owning property transferred by the decedent during life to a qualified revocable trust (as defined in section 645(b)(1)).
``(iii) Powers of appointment.--The decedent shall not be treated as owning any property by reason of holding a power of appointment with respect to such property.
``(iv) Community property.--Property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State or possession of the United States or any foreign country shall be treated for purposes of this section as owned by, and acquired from, the decedent if at least one-half of the whole of the community interest in such property is treated as owned by, and acquired from, the decedent without regard to this clause.

``(C) Property acquired by decedent by gift within 3 years of death.--

``(i) In general.--Subsections (b) and (c) shall not apply to property acquired by the decedent by gift or by inter vivos transfer for less than adequate and full consideration in money or money's worth during the 3-year period ending on the date of the decedent's death.
``(ii) Exception for certain gifts from spouse.--Clause (i) shall not apply to property acquired by the decedent from the decedent's spouse unless, during such 3-year period, such spouse acquired the property in whole or in part by gift or by inter vivos transfer for less than adequate and full consideration in money or money's worth.

``(D) Stock of certain entities.--Subsections (b) and (c) shall not apply to--

``(i) stock or securities of a foreign personal holding company,
``(ii) stock of a DISC or former DISC,
``(iii) stock of a foreign investment company, or

[[Page 115 STAT. 80]]

``(iv) stock of a passive foreign investment company unless such company is a qualified electing fund (as defined in section 1295) with respect to the decedent.

``(2) Fair market value limitation.--The adjustments under subsections (b) and (c) shall not increase the basis of any interest in property acquired from the decedent above its fair market value in the hands of the decedent as of the date of the decedent's death.
``(3) Allocation rules.--

``(A) In general.--The executor shall allocate the adjustments under subsections (b) and (c) on the return required by section 6018.
``(B) Changes in allocation.--Any allocation made pursuant to subparagraph (A) may be changed only as provided by the Secretary.

``(4) Inflation adjustment of basis adjustment amounts.--

``(A) In general.--In the case of decedents dying in a calendar year after 2010, the $1,300,000, $60,000, and $3,000,000 dollar amounts in subsections (b) and (c)(2)(B) shall each be increased by an amount equal to the product of--

``(i) such dollar amount, and
``(ii) the cost-of-living adjustment determined under section 1(f )(3) for such calendar year, determined by substituting `2009' for `1992' in subparagraph (B) thereof.

``(B) Rounding.--If any increase determined under subparagraph (A) is not a multiple of--

``(i) $100,000 in the case of the $1,300,000 amount,
``(ii) $5,000 in the case of the $60,000 amount, and
``(iii) $250,000 in the case of the $3,000,000 amount,

such increase shall be rounded to the next lowest multiple thereof.

``(e) Property Acquired From the Decedent.--For purposes of this section, the following property shall be considered to have been acquired from the decedent:

``(1) Property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent.
``(2) Property transferred by the decedent during his lifetime--

``(A) to a qualified revocable trust (as defined in section 645(b)(1)), or
``(B) to any other trust with respect to which the decedent reserved the right to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.

``(3) Any other property passing from the decedent by reason of death to the extent that such property passed without consideration.

``(f ) Coordination With Section 691.--This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.
``(g) Certain Liabilities Disregarded.--

[[Page 115 STAT. 81]]

``(1) In general.--In determining whether gain is recognized on the acquisition of property--

``(A) from a decedent by a decedent's estate or any beneficiary other than a tax-exempt beneficiary, and
``(B) from the decedent's estate by any beneficiary other than a tax-exempt beneficiary, and in determining the adjusted basis of such property, liabilities in excess of basis shall be disregarded.

``(2) Tax-exempt beneficiary.--For purposes of paragraph (1), the term `tax-exempt beneficiary' means--

``(A) the United States, any State or political subdivision thereof, any possession of the United States, any Indian tribal government (within the meaning of section 7871), or any agency or instrumentality of any of the foregoing,
``(B) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by chapter 1,
``(C) any foreign person or entity (within the meaning of section 168(h)(2)), and
``(D) to the extent provided in regulations, any person to whom property is transferred for the principal purpose of tax avoidance.

``(h) Regulations.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.''.

(b) Information Returns, Etc.--

(1) Large transfers at death.--So much of subpart C of part II of subchapter A of chapter 61 as precedes section 6019 is amended to read as follows:

``Subpart C--Returns Relating to Transfers During Life or at Death

``Sec. 6018. Returns relating to large transfers at death.
``Sec. 6019. Gift tax returns.

``SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.

``(a) In General.--If this section applies to property acquired from a decedent, the executor of the estate of such decedent shall make a return containing the information specified in subsection (c) with respect to such property.
``(b) Property to Which Section Applies.--

``(1) Large transfers.--This section shall apply to all property (other than cash) acquired from a decedent if the fair market value of such property acquired from the decedent exceeds the dollar amount applicable under section 1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
``(2) Transfers of certain gifts received by decedent within 3 years of death.--This section shall apply to any appreciated property acquired from the decedent if--

``(A) subsections (b) and (c) of section 1022 do not apply to such property by reason of section 1022(d)(1)(C), and
``(B) such property was required to be included on a return required to be filed under section 6019.

``(3) Nonresidents not citizens of the united states.--In the case of a decedent who is a nonresident not a citizen of the United States, paragraphs (1) and (2) shall be applied--

[[Page 115 STAT. 82]]

``(A) by taking into account only--

``(i) tangible property situated in the United States, and
``(ii) other property acquired from the decedent by a United States person, and

``(B) by substituting the dollar amount applicable under section 1022(b)(3) for the dollar amount referred to in paragraph (1).

``(4) Returns by trustees or beneficiaries.--If the executor is unable to make a complete return as to any property acquired from or passing from the decedent, the executor shall include in the return a description of such property and the name of every person holding a legal or beneficial interest therein. Upon notice from the Secretary, such person shall in like manner make a return as to such property.

``(c) Information Required To Be Furnished.--The information specified in this subsection with respect to any property acquired from the decedent is--

``(1) the name and TIN of the recipient of such property,
``(2) an accurate description of such property,
``(3) the adjusted basis of such property in the hands of the decedent and its fair market value at the time of death,
``(4) the decedent's holding period for such property,
``(5) sufficient information to determine whether any gain on the sale of the property would be treated as ordinary income, ``(6) the amount of basis increase allocated to the property under subsection (b) or (c) of section 1022, and
``(7) such other information as the Secretary may by regulations prescribe.

``(d) <<NOTE: Applicability.>> Property Acquired From Decedent.-- For purposes of this section, section 1022 shall apply for purposes of determining the property acquired from a decedent.

``(e) Statements To Be Furnished to Certain Persons.--Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing--

``(1) the name, address, and phone number of the person required to make such return, and
``(2) the information specified in subsection (c) with respect to property acquired from, or passing from, the decedent to the person required to receive such statement.

The <<NOTE: Dealine.>> written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.''.

(2) Gifts.--Section 6019 <<NOTE: 26 USC 6019.>> (relating to gift tax returns) is amended--

(A) by striking ``Any individual'' and inserting

``(a) In General.--Any individual'', and

(B) by adding at the end the following new subsection:

``(b) Statements To Be Furnished to Certain Persons.--Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing--

``(1) the name, address, and phone number of the person required to make such return, and

[[Page 115 STAT. 83]]

``(2) the information specified in such return with respect to property received by the person required to receive such statement.

The <<NOTE: Deadline.>> written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.''.

(3) Time for filing section 6018 returns.--

(A) Returns relating to large transfers at death.-- Subsection (a) of section 6075 <<NOTE: 26 USC 6075.>> is amended to read as follows:

``(a) Returns Relating to Large Transfers at Death.--The return required by section 6018 with respect to a decedent shall be filed with the return of the tax imposed by chapter 1 for the decedent's last taxable year or such later date specified in regulations prescribed by the Secretary.''.

(B) Conforming amendments.--Paragraph (3) of section 6075(b) is amended--

(i) by striking ``estate tax return'' in the heading and inserting ``section 6018 return'', and
(ii) by striking ``(relating to estate tax returns)'' and inserting ``(relating to returns relating to large transfers at death)''.

(4) Penalties.--Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end the following new section:

``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN TRANSFERS AT DEATH AND GIFTS.

``(a) Information Required To Be Furnished to the Secretary.--Any person required to furnish any information under section 6018 who fails to furnish such information on the date prescribed therefor (determined with regard to any extension of time for filing) shall pay a penalty of $10,000 ($500 in the case of information required to be furnished under section 6018(b)(2)) for each such failure.
``(b) Information Required To Be Furnished to Beneficiaries.--Any person required to furnish in writing to each person described in section 6018(e) or 6019(b) the information required under such section who fails to furnish such information shall pay a penalty of $50 for each such failure.
``(c) Reasonable Cause Exception.--No penalty shall be imposed under subsection (a) or (b) with respect to any failure if it is shown that such failure is due to reasonable cause.
``(d) Intentional Disregard.--If any failure under subsection (a) or (b) is due to intentional disregard of the requirements under sections 6018 and 6019(b), the penalty under such subsection shall be 5 percent of the fair market value (as of the date of death or, in the case of section 6019(b), the date of the gift) of the property with respect to which the information is required.
``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by this section.''.

(5) Clerical amendments.--

[[Page 115 STAT. 84]]

(A) The table of sections for part I of subchapter B of chapter 68 is amended by adding at the end the following new item:
``Sec. 6716. Failure to file information with respect to certain transfers at death and gifts.''.

(B) The item relating to subpart C in the table of subparts for part II of subchapter A of chapter 61 is amended to read as follows:
``Subpart C. Returns relating to transfers during life or at death.''.

(c) Exclusion of Gain on Sale of Principal Residence Made Available to Heir of Decedent in Certain Cases.--Subsection (d) of section 121 <<NOTE: 26 USC 121.>> (relating to exclusion of gain from sale of principal residence) is amended by adding at the end the following new paragraph:

``(9) Property acquired from a decedent.--The exclusion under this section shall apply to property sold by--

``(A) the estate of a decedent,
``(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and
``(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1)) established by the decedent,

determined by taking into account the ownership and use by the decedent.''.

(d) Transfers of Appreciated Carryover Basis Property To Satisfy Pecuniary Bequest.--

(1) In general.--Section 1040 (relating to transfer of certain farm, etc., real property) is amended to read as follows:

``SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY PECUNIARY BEQUEST.

``(a) In General.--If the executor of the estate of any decedent satisfies the right of any person to receive a pecuniary bequest with appreciated property, then gain on such exchange shall be recognized to the estate only to the extent that, on the date of such exchange, the fair market value of such property exceeds such value on the date of death.
``(b) <<NOTE: Regulations.>> Similar Rule for Certain Trusts.--To the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where--

``(1) by reason of the death of the decedent, a person has a right to receive from a trust a specific dollar amount which is the equivalent of a pecuniary bequest, and
``(2) the trustee of a trust satisfies such right with property.

``(c) Basis of Property Acquired in Exchange Described in Subsection (a) or (b).--The basis of property acquired in an exchange with respect to which gain realized is not recognized by reason of subsection (a) or (b) shall be the basis of such property immediately before the exchange increased by the amount of the gain recognized to the estate or trust on the exchange.''.

(2) The item relating to section 1040 in the table of sections for part III of subchapter O of chapter 1 is amended to read as follows:

``Sec. 1040. Use of appreciated carryover basis property to satisfy pecuniary bequest.''.

(e) Amendments Related to Carryover Basis.--

[[Page 115 STAT. 85]]

(1) Recognition of gain on transfers to nonresidents.--

(A) Subsection (a) of section 684 <<NOTE: 26 USC 684.>> is amended by inserting ``or to a nonresident alien'' after ``or trust''.
(B) Subsection (b) of section 684 is amended to read as follows:

``(b) Exceptions.--

``(1) Transfers to certain trusts.--Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any United States person is treated as the owner of such trust under section 671.
``(2) Lifetime transfers to nonresident aliens.--Subsection (a) shall not apply to a lifetime transfer to a nonresident alien.''.

(C) The section heading for section 684 is amended by inserting ``and nonresident aliens'' after ``estates''.
(D) The item relating to section 684 in the table of sections for subpart F of part I of subchapter J of chapter 1 is amended by inserting ``and nonresident aliens'' after ``estates''.

(2) Capital gain treatment for inherited art work or similar property.--

(A) In general.--Subparagraph (C) of section 1221(a)(3) (defining capital asset) is amended by inserting ``(other than by reason of section 1022)'' after ``is determined''.
(B) Coordination with section 170.--Paragraph (1) of section 170(e) (relating to certain contributions of ordinary income 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 without regard to the exception contained in section 1221(a)(3)(C) for basis determined under section 1022.''.

(3) Definition of executor.--Section 7701(a) (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.''.

(4) Certain trusts.--Subparagraph (A) of section 4947(a)(2) is amended by inserting ``642(c),'' after ``170(f )(2)(B),''.
(5) Other amendments.--

(A) Section 1246 is amended by striking sub- section (e).
(B) Subsection (e) of section 1291 is amended--

(i) by striking ``(e),''; and
(ii) by striking ``; except that'' and all that follows and inserting a period.

(C) Section 1296 is amended by striking sub- section (i).

[[Page 115 STAT. 86]]

(6) Clerical amendment.--The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item:
``Sec. 1022. Treatment of property acquired from a decedent dying after December 31, 2009.''.

(f ) Effective <<NOTE: Applicability. 26 USC 121 note.>> Date.--

(1) In general.--Except as provided in paragraph (2), the amendments made by this section shall apply to estates of decedents dying after December 31, 2009.
(2) Transfers to nonresidents.--The amendments made by subsection (e)(1) shall apply to transfers after December 31, 2009.
(3) Section 4947.--The amendment made by subsection (e)(4) shall apply to deductions for taxable years beginning after December 31, 2009.

Subtitle F--Conservation Easements

SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

(a) Repeal of Certain Restrictions on Where Land Is Located.--Clause (i) of section 2031(c)(8)(A) <<NOTE: 26 USC 2031.>> (defining land subject to a qualified conservation easement) is amended to read as follows:

``(i) which is located in the United States or any possession of the United States,''.

(b) Clarification of Date for Determining Value of Land and Easement.--Section 2031(c)(2) (defining applicable percentage) is amended by adding at the end the following new sentence: ``The values taken into account under the preceding sentence shall be such values as of the date of the contribution referred to in paragraph (8)(B).''.
(c) <<NOTE: Applicability. 26 USC 2031 note.>> Effective Date.--The amendments made by this section shall apply to estates of decedents dying after December 31, 2000.

Subtitle G--Modifications of Generation-Skipping Transfer Tax

SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.

(a) In General.--Section 2632 (relating to special rules for allocation of GST exemption) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsections:

``(c) Deemed Allocation to Certain Lifetime Transfers to GST Trusts.--

``(1) In general.--If any individual makes an indirect skip during such individual's lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the indirect skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred.

[[Page 115 STAT. 87]]

``(2) Unused portion.--For purposes of paragraph (1), the unused portion of an individual's GST exemption is that portion of such exemption which has not previously been--

``(A) allocated by such individual,
``(B) treated as allocated under subsection (b) with respect to a direct skip occurring during or before the calendar year in which the indirect skip is made, or
``(C) treated as allocated under paragraph (1) with respect to a prior indirect skip.

``(3) Definitions.--

``(A) Indirect skip.--For purposes of this subsection, the term `indirect skip' means any transfer of property (other than a direct skip) subject to the tax imposed by chapter 12 made to a GST trust.
``(B) GST trust.--The term `GST trust' means a trust that could have a generation-skipping transfer with respect to the transferor unless--

``(i) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons--

``(I) before the date that the individual attains age 46,
``(II) on or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age 46, or
``(III) upon the occurrence of an event that, in accordance with regulations prescribed by the Secretary, may reasonably be expected to occur before the date that such individual attains age 46,

``(ii) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by class) who is more than 10 years older than such individuals,
``(iii) the trust instrument provides that, if one or more individuals who are non-skip persons die on or before a date or event described in clause (i) or (ii), more than 25 percent of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject to a general power of appointment exercisable by one or more of such individuals,
``(iv) the trust is a trust any portion of which would be included in the gross estate of a non-skip person (other than the transferor) if such person died immediately after the transfer,
``(v) the trust is a charitable lead annuity trust (within the meaning of section 2642(e)(3)(A)) or a charitable remainder annuity trust or a charitable remainder unitrust (within the meaning of section 664(d)), or
``(vi) the trust is a trust with respect to which a deduction was allowed under section 2522 for the

[[Page 115 STAT. 88]]

amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair market value of the trust property (determined yearly) and which is required to pay principal to a non-skip person if such person is alive when the yearly payments for which the deduction was allowed terminate.

For purposes of this subparagraph, the value of transferred property shall not be considered to be includible in the gross estate of a non-skip person or subject to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the amount referred to in section 2503(b) with respect to any transferor, and it shall be assumed that powers of appointment held by non- skip persons will not be exercised.

``(4) Automatic allocations to certain gst trusts.--For purposes of this subsection, an indirect skip to which section 2642(f ) applies shall be deemed to have been made only at the close of the estate tax inclusion period. The fair market value of such transfer shall be the fair market value of the trust property at the close of the estate tax inclusion period.
``(5) Applicability and effect.--

``(A) In general.--An individual--

``(i) may elect to have this subsection not apply to--

``(I) an indirect skip, or
``(II) any or all transfers made by such individual to a particular trust, and

``(ii) may elect to treat any trust as a GST trust for purposes of this subsection with respect to any or all transfers made by such individual to such trust.

``(B) Elections.--

``(i) Elections with respect to indirect skips.--An election under subparagraph (A)(i)(I) shall be deemed to be timely if filed on a timely filed gift tax return for the calendar year in which the transfer was made or deemed to have been made pursuant to paragraph (4) or on such later date or dates as may be prescribed by the Secretary.
`(ii) Other elections.--An election under clause (i)(II) or (ii) of subparagraph (A) may be made on a timely filed gift tax return for the calendar year for which the election is to become effective.

``(d) Retroactive Allocations.--

``(1) In general.--If--

``(A) a non-skip person has an interest or a future interest in a trust to which any transfer has been made,
``(B) such person--

``(i) is a lineal descendant of a grandparent of the transferor or of a grandparent of the transferor's spouse or former spouse, and
``(ii) is assigned to a generation below the generation assignment of the transferor, and

``(C) such person predeceases the transferor,

[[Page 115 STAT. 89]]

then the transferor may make an allocation of any of such transferor's unused GST exemption to any previous transfer or transfers to the trust on a chronological basis.

``(2) Special rules.--If the allocation under paragraph (1) by the transferor is made on a gift tax return filed on or before the date prescribed by section 6075(b) for gifts made within the calendar year within which the non-skip person's death occurred--

``(A) the value of such transfer or transfers for purposes of section 2642(a) shall be determined as if such allocation had been made on a timely filed gift tax return for each calendar year within which each transfer was made,
``(B) such allocation shall be effective immediately before such death, and
``(C) the amount of the transferor's unused GST exemption available to be allocated shall be determined immediately before such death.

``(3) Future interest.--For purposes of this subsection, a person has a future interest in a trust if the trust may permit income or corpus to be paid to such person on a date or dates in the future.''.

(b) Conforming Amendment.--Paragraph (2) of section <<NOTE: 26 USC 2632 note.>> 2632(b) is amended by striking ``with respect to a prior direct skip'' and inserting ``or subsection (c)(1)''.

(c) <<NOTE: Applicability. 26 USC 2632 note.>> Effective Dates.--

(1) Deemed allocation.--Section 2632(c) of the Internal Revenue Code of 1986 (as added by subsection (a)), and the amendment made by subsection (b), shall apply to transfers subject to chapter 11 or 12 made after December 31, 2000, and to estate tax inclusion periods ending after December 31, 2000.
(2) Retroactive allocations.--Section 2632(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to deaths of non-skip persons occurring after December 31, 2000.

SEC. 562. SEVERING OF TRUSTS.

(a) In General.--Subsection (a) of section 2642 (relating to inclusion ratio) is amended by adding at the end the following new paragraph:

``(3) Severing of trusts.--

``(A) In general.--If a trust is severed in a qualified severance, the trusts resulting from such severance shall be treated as separate trusts thereafter for purposes of this chapter.
``(B) Qualified severance.--For purposes of subparagraph (A)--

``(i) In general.--The term `qualified severance' means the division of a single trust and the creation (by any means available under the governing instrument or under local law) of two or more trusts if--

``(I) the single trust was divided on a fractional basis, and
``(II) the terms of the new trusts, in the aggregate, provide for the same succession of interests

[[Page 115 STAT. 90]]

of beneficiaries as are provided in the original trust.

``(ii) Trusts with inclusion ratio greater than zero.--If a trust has an inclusion ratio of greater than zero and less than 1, a severance is a qualified severance only if the single trust is divided into two trusts, one of which receives a fractional share of the total value of all trust assets equal to the applicable fraction of the single trust immediately before the severance. In such case, the trust receiving such fractional share shall have an inclusion ratio of zero and the other trust shall have an inclusion ratio of 1.

``(iii) Regulations.--The term `qualified severance' includes any other severance permitted under regulations prescribed by the Secretary.

``(C) Timing and manner of severances.--A severance pursuant to this paragraph may be made at any time. <<NOTE: Regulations.>> The Secretary shall prescribe by forms or regulations the manner in which the qualified severance shall be reported to the Secretary.''.

(b) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Date.--The amendment made by this section shall apply to severances after December 31, 2000.

SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.

(a) Gifts for Which Gift Tax Return Filed or Deemed Allocation Made.--Paragraph (1) of section 2642(b) <<NOTE: 26 USC 2642.>> (relating to valuation rules, etc.) is amended to read as follows:

``(1) Gifts for which gift tax return filed or deemed allocation made.--If the allocation of the GST exemption to any transfers of property is made on a gift tax return filed on or before the date prescribed by section 6075(b) for such transfer or is deemed to be made under section 2632 (b)(1) or (c)(1)--

``(A) the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 12 (within the meaning of section 2001(f )(2)), or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, its value at the time of the close of the estate tax inclusion period, and
``(B) such allocation shall be effective on and after the date of such transfer, or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, on and after the close of such estate tax inclusion period.''.

(b) Transfers at Death.--Subparagraph (A) of section 2642(b)(2) is amended to read as follows:

``(A) Transfers at death.--If property is transferred as a result of the death of the transferor, the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 11; except that, if the requirements prescribed by the Secretary respecting allocation of post-death changes in value are not met, the value of such property shall be determined as of the time of the distribution concerned.''.

[[Page 115 STAT. 91]]

(c) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Date.--The amendments made by this section shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 2000.

SEC. 564. RELIEF PROVISIONS.

(a) In General.--Section 2642 <<NOTE: 26 USC 2642.>> is amended by adding at the end the following new subsection:

``(g) Relief Provisions.--

``(1) Relief from late elections.--

``(A) <<NOTE: Regulations.>> In general.--The Secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make--

``(i) an allocation of GST exemption described in paragraph (1) or (2) of subsection (b), and
``(ii) an election under subsection (b)(3) or (c)(5) of section 2632.

Such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph.

``(B) Basis for determinations.--In determining whether to grant relief under this paragraph, the Secretary shall take into account all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. For purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute.

``(2) Substantial compliance.--An allocation of GST exemption under section 2632 that demonstrates an intent to have the lowest possible inclusion ratio with respect to a transfer or a trust shall be deemed to be an allocation of so much of the transferor's unused GST exemption as produces the lowest possible inclusion ratio. In determining whether there has been substantial compliance, all relevant circumstances shall be taken into account, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant.''.

(b) <<NOTE: Applicability. 26 USC 2642 note.>> Effective Dates.--

(1) Relief from late elections.--Section 2642(g)(1) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to requests pending on, or filed after, December 31, 2000.
(2) Substantial compliance.--Section 2642(g)(2) of such Code (as so added) shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 2000. No implication is intended with respect to the availability of relief from late elections or the application of a rule of substantial compliance on or before such date.

[[Page 115 STAT. 92]]

Subtitle H--Extension of Time for Payment of Estate Tax

SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND SHAREHOLDERS IN CLOSELY HELD BUSINESSES.

(a) In General.--Paragraphs (1)(B)(ii), (1)(C)(ii), and (9)(B)(iii)(I) of section 6166(b) <<NOTE: 26 USC 6166.>> (relating to definitions and special rules) are each amended by striking ``15'' and inserting ``45''.
(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The amendments made by this section shall apply to estates of decedents dying after December 31, 2001.

SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT FOR ESTATES WITH INTERESTS QUALIFYING LENDING AND FINANCE BUSINESSES.

(a) In General.--Section 6166(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:

``(10) Stock in qualifying lending and finance business treated as stock in an active trade or business company.--

``(A) In general.--If the executor elects the benefits of this paragraph, then--

``(i) Stock in qualifying lending and finance business treated as stock in an active trade or business company.--For purposes of this section, any asset used in a qualifying lending and finance business shall be treated as an asset which is used in carrying on a trade or business.
``(ii) 5-year deferral for principal not to apply.--The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).
``(iii) 5 equal installments allowed.--For purposes of applying subsection (a)(1), `5' shall be substituted for `10'.

``(B) Definitions.--For purposes of this paragraph--

``(i) Qualifying lending and finance business.--The term `qualifying lending and finance business' means a lending and finance business, if--

``(I) based on all the facts and circumstances immediately before the date of the decedent's death, there was substantial activity with respect to the lending and finance business, or
``(II) during at least 3 of the 5 taxable years ending before the date of the decedent's death, such business had at least 1 full-time employee substantially all of whose services were the active management of such business, 10 full-time, nonowner employees substantially all of whose services were directly related to such business, and $5,000,000 in gross receipts from activities described in clause (ii).

``(ii) Lending and finance business.--The term `lending and finance business' means a trade or business of--

``(I) making loans,

[[Page 115 STAT. 93]]

``(II) purchasing or discounting accounts receivable, notes, or installment obligations,
``(III) engaging in rental and leasing of real and tangible personal property, including entering into leases and purchasing, servicing, and disposing of leases and leased assets,
``(IV) rendering services or making facilities available in the ordinary course of a lending or finance business, and
``(V) rendering services or making facilities available in connection with activities described in subclauses (I) through (IV) carried on by the corporation rendering services or making facilities available, or another corporation which is a member of the same affiliated group (as defined in section 1504 without regard to section 1504(b)(3)).

``(iii) Limitation.--The term `qualifying lending and finance business' shall not include any interest in an entity, if the stock or debt of such entity or a controlled group (as defined in section 267(f )(1)) of which such entity was a member was readily tradable on an established securities market or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent's death.''.

(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The amendment made by this section shall apply to estates of decedents dying after December 31, 2001.

SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAYMENT.

(a) In General.--Subparagraph (B) of section <<NOTE: 26 USC 6166.>> 6166(b)(8) (relating to all stock must be non-readily-tradable stock) is amended to read as follows:

``(B) All stock must be non-readily-tradable stock.--

``(i) In general.--No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)).
``(ii) Special application where only holding company stock is non-readily-tradable stock.--If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting `5' for `10'.''.

(b) <<NOTE: Applicability. 26 USC 6166 note.>> Effective Date.--The amendment made by this section shall apply to estates of decedents dying after December 31, 2001.

Subtitle I--Other Provisions

If on the date of the enactment of this Act (or at any time within 1 year after the date of the enactment) a refund or credit of any overpayment of tax resulting from the application of section

[[Page 115 STAT. 94]]

2032A(c)(7)(E) of the Internal Revenue Code of 1986 is barred by any law or rule of law, the refund or credit of such overpayment shall, nevertheless, be made or allowed if claim therefor is filed before the date 1 year after the date of the enactment of this Act.


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