House and Senate Approve Estate Tax Repeal

House and Senate Approve Estate Tax Repeal

News story posted in Legislative on 17 July 2000| comments
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Summary

On July 14, 2000, the Senate passed the Death Tax Elimination Act of 2000 (H.R. 8) which the House approved on June 9, 2000. It is anticipated that President Clinton will veto this bill. The text of H.R. 8 is provided.

H.R. 8

PGDC SUMMARY:

On July 14, 2000, the Senate passed the Death Tax Elimination Act of 2000 (H.R.8) which the House approved on June 9, 2000. It is anticipated that President Clinton will veto this bill.

FULL TEXT:

               Calendar No. 608
                106th CONGRESS
                  2d Session
                   H. R. 8
        IN THE SENATE OF THE UNITED STATES
        IN THE SENATE OF THE UNITED STATES
                June 12, 2000
                   Received
                June 19, 2000
  Read twice and ordered placed on the calendar
                   AN ACT
To amend the Internal Revenue Code of 1986 to phaseout the estate
and gift taxes over a 10-year period.
     Be it enacted by the Senate and House of Representatives of
     the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
     (a) SHORT TITLE- This Act may be cited as the `Death Tax
     Elimination Act of 2000'.
     (b) AMENDMENT OF 1986 CODE- Except as otherwise expressly
     provided, whenever in this Act an
amendment or repeal is expressed in terms of an amendment to, or
repeal of, a section or other provision, the
reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
        TITLE I--REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING
        TAXES; REPEAL OF STEP UP IN BASIS AT DEATH
SEC. 101. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES.
     (a) IN GENERAL- Subtitle B is hereby repealed.
     (b) EFFECTIVE DATE- The repeal made by subsection (a) shall
     apply to the estates of decedents dying, and
gifts and generation-skipping transfers made, after December 31,
2009.
SEC. 102. TERMINATION OF STEP UP IN BASIS AT DEATH.
     (a) TERMINATION OF APPLICATION OF SECTION 1014- Section 1014
     (relating to basis of property
acquired from a decedent) is amended by
     adding at the end the following:
     `(f) TERMINATION- In the case of a decedent dying after
     December 31, 2009, this section shall not apply to
property for which basis is provided by section 1022.'.
     (b) CONFORMING AMENDMENT- Subsection (a) of section 1016
     (relating to adjustments to basis) is
amended by striking `and' at the end of paragraph (26), by
striking the period at the end of paragraph (27) and
inserting `, and', and by adding at the end the following:
          `(28) to the extent provided in section 1022 (relating
          to basis for certain property acquired from a decedent
dying after December 31, 2009).'.
SEC. 103. CARRYOVER BASIS AT DEATH.
     (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. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A
DECEDENT DYING
AFTER DECEMBER 31, 2009.
     `(a) CARRYOVER BASIS- Except as otherwise provided in this
     section, the basis of carryover basis property in
the hands of a person acquiring such property from a decedent
shall be determined under section 1015.
     `(b) CARRYOVER BASIS PROPERTY DEFINED-
          `(1) IN GENERAL- For purposes of this section, the term
          `carryover basis property' means any property--
               `(A) which is acquired from or passed from a
               decedent who died after December 31, 2009, and
               `(B) which is not excluded pursuant to paragraph
               (2).
          The property taken into account under subparagraph (A)
          shall be determined under section 1014(b) without
regard to subparagraph (A) of the last sentence of paragraph (9)
thereof.
          `(2) CERTAIN PROPERTY NOT CARRYOVER BASIS PROPERTY- The
          term `carryover basis property'
does not include--
               `(A) any item of gross income in respect of a
               decedent described in section 691,
               `(B) property of the decedent to the extent that
               the aggregate adjusted fair market value of such
               property
does not exceed $1,300,000, and
               `(C) property which was acquired from the decedent
               by the surviving spouse of the decedent (and which
would be carryover basis property  without regard to this
subparagraph) but only if the value of such property would
have been deductible from the value of the taxable estate of the
decedent under section 2056, as in effect on the day
before the date of the enactment of the Death Tax Elimination Act
of 2000.
          For purposes of this subsection, the term `adjusted
          fair market value' means, with respect to any property,
          fair market value reduced by any indebtedness secured
          by such property.
          `(3) LIMITATION ON EXCEPTION FOR PROPERTY ACQUIRED BY
          SURVIVING SPOUSE- The
adjusted fair market value of property  which is not carryover
basis property by reason of paragraph (2)(C) shall not
exceed $3,000,000.
          `(4) ALLOCATION OF EXCEPTED AMOUNTS- The executor shall
          allocate the limitations under
paragraphs (2)(B) and (3).
          `(5) INFLATION ADJUSTMENT OF EXCEPTED AMOUNTS- In the
          case of decedents dying in a calendar
year after 2010, the dollar amounts in paragraphs (2)(B) and (3)
shall each be increased by an amount equal to the
product of--
               `(A) such dollar amount, and
               `(B) 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.
          If any increase determined under the preceding sentence
          is not a multiple of $10,000, such increase shall be
rounded to the nearest multiple of $10,000.
     `(c) REGULATIONS- The Secretary shall prescribe such
     regulations as may be necessary to carry out the
purposes of this section.'.
     (b) MISCELLANEOUS AMENDMENTS RELATED TO CARRYOVER BASIS-
          (1) 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.'.
          (2) 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.'.
          (3) CLERICAL AMENDMENT- The table of sections for part
          II of subchapter O of chapter 1 is amended by
adding at the end the following new item:
`Sec. 1022. Carryover basis for certain property acquired from a
decedent dying after December 31, 2009.'.
     (c) EFFECTIVE DATE- The amendments made by this section
     shall apply to estates of decedents dying after
December 31, 2009.
     TITLE II--REDUCTIONS OF ESTATE AND GIFT TAX RATES PRIOR TO REPEAL
SEC. 201. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.
     (a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT-
          (1) IN GENERAL- The table contained in section 2001(c)
          (1) 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.'.
          (2) PHASE-IN OF REDUCED RATE- Subsection (c) of section
          2001 is amended by adding at the end the
following new paragraph:
          `(3) PHASE-IN OF REDUCED RATE- In the case of decedents
          dying, and gifts made, during 2001, the last
item in the table contained in paragraph (1) shall be applied by
substituting `53%' for `50%'.'.
     (b) REPEAL OF PHASEOUT OF GRADUATED RATES- Subsection (c) of
     section 2001 is amended by
striking paragraph (2) and redesignating paragraph (3), as added
by subsection (a), as paragraph (2).
     (c) ADDITIONAL REDUCTIONS OF RATES OF TAX- Subsection (c) of
     section 2001, as so amended, is
amended by adding at the end the following new paragraph:
          `(3) PHASEDOWN OF TAX- In the case of estates of
          decedents dying, and gifts made, during any calendar
year after 2002 and before 2010--
               `(A) IN GENERAL- Except as provided in
               subparagraph (C), 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) each of the rates of tax shall be
                    reduced by the number of percentage points
                    determined under
subparagraph (B), and
                    `(ii) the amounts setting forth the tax shall
                    be adjusted to the extent necessary to
                    reflect the adjustments
under clause (i).
               `(B) PERCENTAGE POINTS OF REDUCTION-
` For calendar year:               The number of
                           percentage points is:
              2000                      1.0
              2004                      2.0
              2005                      3.0
              2006                      4.0
              2007                      5.5
              2008                      7.5
              2009                      9.5.
               `(C) COORDINATION WITH INCOME TAX RATES- The
               reductions under subparagraph (A)--
                    `(i) shall not reduce any rate under
                    paragraph (1) below the lowest rate in
                    section 1(c), and
                    `(ii) shall not reduce the highest rate under
                    paragraph (1) below the highest rate in
                    section 1(c).
               `(D) COORDINATION WITH CREDIT FOR STATE DEATH
               TAXES- Rules similar to the rules of
subparagraph (A) shall apply to the table contained in section
2011(b) except that the Secretary shall prescribe
percentage point reductions which maintain the proportionate
relationship (as in effect before any reduction under
this paragraph) between the credit under section 2011 and the tax
rates under subsection  (c).'.
     (d) EFFECTIVE DATES-
          (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, 2000.
          (2) SUBSECTION (c)- The amendment made by subsection
          (c) shall apply to estates of decedents dying, and
gifts made, after December 31, 2002.
                         TITLE III--UNIFIED CREDIT REPLACED WITH
                         UNIFIED EXEMPTION AMOUNT
SEC. 301. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED
WITH UNIFIED
EXEMPTION AMOUNT.
     (a) IN GENERAL-
          (1) ESTATE TAX- Subsection (b) of section 2001
          (relating to computation of tax) is amended to read as
follows:
     `(b) COMPUTATION OF TAX-
          `(1) IN GENERAL- The tax imposed by this section shall
          be the amount equal to the excess (if any) of--
               `(A) the tentative tax determined under paragraph
               (2), over
               `(B) the aggregate amount of tax which would have
               been payable under chapter 12 with respect to
               gifts
made by the decedent after December 31, 1976, if the provisions
of subsection (c) (as in effect at the decedent's
death) had been applicable at the time of such gifts.
          `(2) TENTATIVE TAX- For purposes of paragraph (1), the
          tentative tax determined under this paragraph is a
tax computed under subsection (c) on the excess of--
               `(A) the sum of--
                    `(i) the amount of the taxable estate, and
                    `(ii) the amount of the adjusted taxable
                    gifts, over
               `(B) the exemption amount for the calendar year in
               which the decedent died.
          `(3) EXEMPTION AMOUNT- For purposes of paragraph (2),
          the term `exemption amount' means the amount
determined in accordance with the following table:
`In the case of                    The exemption
calendar year:                     amount is:
2001                          $675,000
2002 and 2003                 $700,000
2004                          $850,000
2005                          $950,000
2006 or thereafter            $1,000,000.
          `(4) ADJUSTED TAXABLE GIFTS- For purposes of paragraph
          (2), the term `adjusted taxable gifts' means
the total amount of the taxable gifts (within the meaning of
section 2503) made by the decedent after December 31,
1976, other than gifts which are includible in the gross estate
of the decedent.'.
          (2) GIFT TAX- Subsection (a) of section 2502 (relating
          to computation 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 the amount equal to the
excess (if any) of--
               `(A) the tentative tax determined under paragraph
               (2), over
               `(B) the tax paid under this section for all prior
               calendar periods.
          `(2) TENTATIVE TAX- For purposes of paragraph (1), the
          tentative tax determined under this paragraph for
a calendar year is a tax computed under section 2001(c) on the
excess of--
               `(A) the aggregate sum of the taxable gifts for
               such calendar year and for each of the preceding
               calendar
periods, over
               `(B) the exemption amount under section 2001(b)(3)
               for such calendar year.'.
     (b) REPEAL OF UNIFIED CREDITS-
          (1) Section 2010 (relating to unified credit against
          estate tax) is hereby repealed.
          (2) Section 2505 (relating to unified credit against
          gift tax) is hereby repealed.
     (c) CONFORMING AMENDMENTS-
          (1)(A) Subsection (b) of section 2011 is amended--
               (i) by striking `adjusted' in the table; and
               (ii) by striking the last sentence.
          (B) Subsection (f) of section 2011 is amended by
          striking `, reduced by the amount of the unified credit
provided by section 2010'.
          (2) Subsection (a) of section 2012 is amended by
          striking `and the unified credit provided by section
          2010'.
          (3) Subparagraph (A) of section 2013(c)(1) is amended
          by striking `2010,'.
          (4) Paragraph (2) of section 2014(b) is amended by
          striking `2010, 2011,' and inserting `2011'.
          (5) Clause (ii) of section 2056A(b)(12)(C) is amended
          to read as follows:
                    `(ii) to treat any reduction in the tax
                    imposed by paragraph (1)(A) by reason of the
                    credit allowable
under section 2010 (as in effect on the day before the date of
the enactment of the Death Tax Elimination Act of
2000) or the exemption amount allowable under section 2001(b)
with respect to the decedent as a credit under
section 2505 (as so in effect) or exemption under section 2521
(as the case may be) allowable to such surviving
spouse for purposes of determining the amount of the exemption
allowable under section 2521 with respect to
taxable gifts made by the surviving spouse during the year in
which the spouse becomes a citizen or any subsequent
year,'.
          (6) Subsection (a) of section 2057 is amended by
          striking paragraphs (2) and (3) and inserting the
          following
new paragraph:
          `(2) MAXIMUM DEDUCTION- The deduction allowed by this
          section shall not exceed the excess of
$1,300,000 over the exemption amount (as defined in section
2001(b)(3)).'.
          (7)(A) Subsection (b) of section 2101 is amended to
          read as follows:
     `(b) COMPUTATION OF TAX-
          `(1) IN GENERAL- The tax imposed by this section shall
          be the amount equal to the excess (if any) of--
               `(A) the tentative tax determined under paragraph
               (2), over
               `(B) a tentative tax computed under section
               2001(c) on the amount of the adjusted taxable
               gifts.
          `(2) TENTATIVE TAX- For purposes of paragraph (1), the
          tentative tax determined under this paragraph is a
tax computed under section 2001(c) on the excess of--
               `(A) the sum of--
                    `(i) the amount of the taxable estate, and
                    `(ii) the amount of the adjusted taxable
                    gifts, over
               `(B) the exemption amount for the calendar year in
               which the decedent died.
          `(3) EXEMPTION AMOUNT-
               `(A) IN GENERAL- The term `exemption amount' means
               $60,000.
               `(B) 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 exemption amount under
this paragraph shall be the greater of--
                    `(i) $60,000, or
                    `(ii) that proportion of $175,000 which the
                    value of that part of the decedent's gross
                    estate which at the
time of his death is situated in the United States bears to the
value of his entire gross estate wherever situated.
               `(C) SPECIAL RULES-
                    `(i) COORDINATION WITH TREATIES- To the
                    extent required under any treaty obligation
                    of the
United States, the exemption amount allowed under this paragraph
shall be equal to the amount which bears the same
ratio to the exemption amount under section 2001(b)(3) (for the
calendar year in which the decedent died) as the
value of the part of the decedent's gross estate which at the
time of his death is situated in the United States bears to
the value of his entire gross estate wherever situated. For
purposes of the preceding sentence, property shall not be
treated as situated in the United States if such property is
exempt from the tax imposed by this subchapter under any
treaty obligation of the United States.
                    `(ii) COORDINATION WITH GIFT TAX EXEMPTION
                    AND UNIFIED CREDIT- If an exemption
has been allowed under section  2521 (or a credit has been
allowed under section 2505 as in effect on the day before
the date of the enactment of the Death Tax Elimination Act of
2000) with respect to any gift made by the decedent,
each dollar amount contained in subparagraph (A) or (B) or the
exemption amount applicable under clause (i) of this
subparagraph (whichever applies) shall be reduced by the
exemption so allowed under section 2521 (or, in the case
of such a credit, by the amount of the gift for which the credit
was so allowed).'.
          (8) Section 2102 is amended by striking subsection (c).
          (9)(A) Subsection (a) of section 2107 is amended by
          adding at the end the following new paragraph:
          `(3) LIMITATION ON EXEMPTION AMOUNT- Subparagraphs (B)
          and (C) of section 2101(b)(3) shall not
apply in applying section 2101 for purposes of this section.'.
          (B) Subsection (c) of section 2107 is amended--
               (i) by striking paragraph (1) and by redesignating
               paragraphs (2) and (3) as paragraphs (1) and (2),
respectively; and
               (ii) by striking the second sentence of paragraph
               (2) (as so redesignated).
          (10) Paragraph (1) of section 6018(a) is amended by
          striking `the applicable exclusion amount in effect
          under
section 2010(c)' and inserting `the exemption amount under
section 2001(b)(3)'.
          (11) Subparagraph (A) of section 6601(j)(2) is amended
          to read as follows:
               `(A) the amount of the tentative tax which would
               be determined under the rate schedule set forth in
               section
2001(c) if the amount with respect to which such tentative tax is
to be computed were $1,000,000, or'.
          (12) The table of sections for part II of subchapter A
          of chapter 11 is amended by striking the item relating
          to
section 2010.
          (13) The table of sections for subchapter A of chapter
          12 is amended by striking the item relating to section
2505.
     (d) EFFECTIVE DATE- The amendments made by this section--
          (1) insofar as they relate to the tax imposed by
          chapter 11 of the Internal Revenue Code of 1986, shall
          apply to
estates of decedents dying after December 31, 2000; and
          (2) insofar as they relate to the tax imposed by
          chapter 12 of such Code, shall apply to gifts made
          after
December 31, 2000.
     TITLE IV--MODIFICATIONS OF GENERATION-SKIPPING TRANSFER TAX
SEC. 401. 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.
          `(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 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, 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 2632(b)
     is amended by striking `with respect to a
direct skip' and inserting `or subsection (c)(1)'.
     (c) 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, 1999, and to estate tax inclusion periods ending
after  December 31, 1999.
          (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, 1999.
SEC. 402. 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 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. The Secretary shall prescribe by forms or
regulations the manner in which the qualified severance shall
be reported to the Secretary.'.
     (b) EFFECTIVE DATE- The amendment made by this section shall
     apply to severances after December 31,
1999.
SEC. 403. MODIFICATION OF CERTAIN VALUATION RULES.
     (a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED
     ALLOCATION MADE- Paragraph (1) of
section 2642(b) (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.'.
     (c) 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,
1999.
SEC. 404. RELIEF PROVISIONS.
     (a) IN GENERAL- Section 2642 is amended by adding at the end
     the following new subsection:
     `(g) RELIEF PROVISIONS-
          `(1) RELIEF FROM LATE ELECTIONS-
               `(A) 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) 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, 1999.
          (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, 1999. 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.
      TITLE V--CONSERVATION EASEMENTS
SEC. 501. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION
EASEMENTS.
     (a) WHERE LAND IS LOCATED-
          (1) IN GENERAL- Clause (i) of section 2031(c)(8)(A)
          (defining land subject to a conservation easement) is
amended--
               (A) by striking `25 miles' both places it appears
               and inserting `50 miles'; and
               (B) striking `10 miles' and inserting `25 miles'.
          (2) EFFECTIVE DATE- The amendments made by this
          subsection shall apply to estates of decedents dying
after December 31, 1999.
     (b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND AND
     EASEMENT-
          (1) IN GENERAL- 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).'.
          (2) EFFECTIVE DATE- The amendment made by this
          subsection shall apply to estates of decedents dying
after December 31, 1997.


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