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[Congressional Bills 106th Congress]
[From the U.S. Government Printing Office]
[H.R. 8 Enrolled Bill (ENR)]

        H.R.8

                       One Hundred Sixth Congress

                                 of the

                        United States of America


                          AT THE SECOND SESSION

           Begun and held at the City of Washington on Monday,
             the twenty-fourth day of January, two thousand


                                 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    (a) In General.--Subtitle B is hereby repealed.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.--

          
                                                         The number of  
        ``For calendar year:
                                                   percentage points is:
            2003..............................................
                                                                    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) by 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.

                               Speaker of the House of Representatives.

                            Vice President of the United States and    
                                               President of the Senate.