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H.R.2488
Financial Freedom Act of 1999 (Placed on the Calendar in the
Senate)
TITLE VI--ESTATE TAX RELIEF
Subtitle A--Repeal of
Estate , Gift, and
Generation-Skipping Taxes; Repeal
of Step Up in Basis At Death
SEC. 601. 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(a) IN GENERAL- Subtitle B is hereby repealed.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, 2008.
SEC. 602. 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, 2008,
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,
2008).'.
SEC. 603. 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:
`SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A DECEDENT
DYING AFTER DECEMBER 31, 2008.
`(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, 2008, 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 which was acquired from the decedent by the surviving
spouse of the decedent, the value of which 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 Financial Freedom Act of 1999, and
`(C) any includible property of the decedent if the aggregate adjusted
fair market value of such property does not exceed $2,000,000.
For purposes of this paragraph and paragraph (3), the term `adjusted
fair market value' means, with respect to any property, fair market value
reduced by any indebtedness secured by such property.
`(3) PHASEIN OF CARRYOVER BASIS IF INCLUDIBLE PROPERTY EXCEEDS
$1,300,000-
`(A) IN GENERAL- If the adjusted fair market value of the includible
property of the decedent exceeds $1,300,000, but does not exceed
$2,000,000, the amount of the increase in the basis of such property which
would (but for this paragraph) result under section 1014 shall be reduced
by the amount which bears the same ratio to such increase as such excess
bears to $700,000.
`(B) ALLOCATION OF REDUCTION- The reduction under subparagraph (A)
shall be allocated among only the includible property having net
appreciation and shall be allocated in proportion to the respective
amounts of such net appreciation. For purposes of the preceding sentence,
the term `net appreciation' means the excess of the adjusted fair market
value over the decedent's adjusted basis immediately before such
decedent's death.
`(4) INCLUDIBLE PROPERTY-
`(A) IN GENERAL- For purposes of this subsection, the term `includible
property' means property which would be included in the gross estate of the decedent under any
of the following provisions as in effect on the day before the date of the
enactment of the Financial Freedom Act of 1999:
`(B) EXCLUSION OF PROPERTY ACQUIRED BY SPOUSE- Such term shall not
include property described in paragraph (2)(B).
`(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(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(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, 2008.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
estates of decedents dying after December 31, 2008.
Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal
SEC. 611. 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 2 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 2004 and before 2009--
`(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-
--The number of
`For calendar year:
--percentage points is:
--1.0
--2.0
--3.0
--4.0
--5.5
--7.5.
`(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).'.
(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, 2004.
Subtitle C--Unified Credit Replaced With Unified Exemption
Amount
SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES REPLACED WITH
UNIFIED EXEMPTION AMOUNT.
(1) ESTATE TAX - Part IV of subchapter A of
chapter 11 is amended by inserting after section 2051 the following new
section:
`SEC. 2052. EXEMPTION.
`(a) IN GENERAL- 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 an amount equal to the excess
(if any) of--
`(1) the exemption amount for the calendar year in which the decedent
died, over
`(A) the aggregate amount allowed as an exemption under section 2521
with respect to gifts made by the decedent after December 31, 2000,
and
`(B) the aggregate amount of gifts made by the decedent for which
credit was allowed by section 2505 (as in effect on the day before the
date of the enactment of the Financial Freedom Act of 1999).
Gifts which are includible in the gross estate of the decedent shall not be
taken into account in determining the amounts under paragraph (2).
`(b) EXEMPTION AMOUNT- For purposes of subsection (a), 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.'.
(2) GIFT TAX - Subchapter
C of chapter 12 (relating to deductions) is amended by inserting before
section 2522 the following new section:
`SEC. 2521. EXEMPTION.
`(a) IN GENERAL- In computing taxable gifts for any calendar year, there
shall be allowed as a deduction in the case of a citizen or resident of the
United States an amount equal to the excess of--
`(1) the exemption amount determined under section 2052 for such
calendar year, over
`(A) the aggregate amount allowed as an exemption under this section
for all preceding calendar years after 2000, and
`(B) the aggregate amount of gifts for which credit was allowed by
section 2505 (as in effect on the day before the date of the enactment of
the Financial Freedom Act of 1999).'.
(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) Subparagraph (B) of section 2001(b)(1) is amended by inserting
before the comma `reduced by the amount of described in section
2052(a)(2)'.
(B) Subsection (b) of section 2001 is amended by adding at the end the
following new sentence: `For purposes of paragraph (2), the amount of the
tax payable under chapter 12
shall be determined without regard to the credit provided by section 2505
(as in effect on the day before the date of the enactment of the Financial
Freedom Act of 1999).'.
(2) Subsection (f) of section 2011 is amended by striking `, reduced by
the amount of the unified credit provided by section 2010'.
(3) Subsection (a) of section 2012 is amended by striking `and the
unified credit provided by section 2010'.
(4) Subsection (b) of section 2013 is amended by inserting before the
period at the end of the first sentence `and increased by the exemption
allowed under section 2052 or 2106(a)(4) (or the corresponding provisions of
prior law) in determining the taxable estate of the transferor for
purposes of the estate tax' .
(5) Subparagraph (A) of section 2013(c)(1) is amended by striking
`2010,'.
(6) Paragraph (2) of section 2014(b) is amended by striking
`2010,'.
(7) 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 Financial Freedom Act of
1999) or the exemption allowable under section 2052 with respect to the
decedent as such a credit or exemption (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,'.
(8) Section 2102 is amended by striking subsection (c).
(9) Subsection (a) of section 2106 is amended by adding at the end the
following new paragraph:
`(A) IN GENERAL- An exemption of $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 under this paragraph shall be the
greater of--
`(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.
`(i) COORDINATION WITH TREATIES- To the extent required under any
treaty obligation of the United States, the exemption allowed under this
paragraph shall be equal to the amount which bears the same ratio to the
exemption amount under section 2052 (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 Financial Freedom Act of 1999) 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 2521 (or, in the case of such a credit, by
the amount of the gift for which the credit was so
allowed).'.
(10) Subsection (c) of section 2107 is amended--
(A) by striking paragraph (1) and by redesignating paragraphs (2) and
(3) as paragraphs (1) and (2), respectively, and
(B) by striking the second sentence of paragraph (2) (as so
redesignated).
(11) Section 2206 is amended by striking `the taxable estate' in the first sentence and
inserting `the sum of the taxable estate and the amount of the
exemption allowed under section 2052 or 2106(a)(4) in computing the taxable
estate' .
(12) Section 2207 is amended by striking `the taxable estate' in the first sentence and
inserting `the sum of the taxable estate and the amount of the
exemption allowed under section 2052 or 2106(a)(4) in computing the taxable
estate' .
(13) Subparagraph (B) of section 2207B(a)(1) is amended to read as
follows:
`(B) the sum of the taxable estate and the amount of the
exemption allowed under section 2052 or 2106(a)(4) in computing the
taxable estate .'.
(14) Subsection (a) of section 2503 is amended by striking `section
2522' and inserting `section 2521'.
(15) Paragraph (1) of section 6018(a) is amended by striking `$600,000'
and inserting `the exemption amount under section 2052 for the calendar year
which includes the date of death'.
(16) Subparagraph (A) of section 6601(j)(2) is amended to read as
follows:
`(A) the amount of the tax which would be imposed by
chapter 11 on an amount of taxable estate equal to the excess of
$1,000,000 over the exemption amount allowable under section 2052,
or'.
(17) The table of sections for part II of subchapter A of chapter 11 is
amended by striking the item relating to section 2010.
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