Text: S.2231 — 116th Congress (2019-2020)All Information (Except Text)

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Introduced in Senate (07/23/2019)


116th CONGRESS
1st Session
S. 2231


To establish American opportunity accounts, to modify estate and gift tax rules, to reform the taxation of capital income, and for other purposes.


IN THE SENATE OF THE UNITED STATES

July 23, 2019

Mr. Booker introduced the following bill; which was read twice and referred to the Committee on Finance


A BILL

To establish American opportunity accounts, to modify estate and gift tax rules, to reform the taxation of capital income, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title; table of contents.

(a) Short title.—This Act may be cited as the “American Opportunity Accounts Act”.

(b) Table of contents.—The table of contents for this Act is as follows:


Sec. 1. Short title; table of contents.

Sec. 101. Definitions.

Sec. 102. American Opportunity Fund.

Sec. 103. AO accounts.

Sec. 104. Assignment, alienation, and treatment of deceased individuals.

Sec. 105. Rules governing AO accounts relating to investment, accounting, and reporting.

Sec. 106. American Opportunity Fund Board.

Sec. 107. Fiduciary responsibilities.

Sec. 108. Accounts disregarded in determining eligibility for Federal benefits.

Sec. 109. Reports.

Sec. 110. Programs for promoting financial capability.

Sec. 111. Tax treatment.

Sec. 201. Modification of estate tax rate and basic exclusion amount.

Sec. 202. Required minimum 10-year term, etc., for grantor retained annuity trusts.

Sec. 203. Certain transfer tax rules applicable to grantor trusts.

Sec. 204. Simplifying gift tax exclusion for annual gifts.

Sec. 205. Modification of rules for value of certain farm real property.

Sec. 211. Increase in capital gains rate.

Sec. 212. Deemed realization of capital gains at time of gift or death.

Sec. 213. Exclusion of certain amounts of realized capital gain.

Sec. 214. Extension of time for payment of tax.

Sec. 215. Waiver of penalty for underpayment of estimated tax.

Sec. 216. Effective date.

SEC. 101. Definitions.

For purposes of this title—

(1) AMERICAN OPPORTUNITY FUND.—The term “American Opportunity Fund” means the fund established under section 102.

(2) AO ACCOUNT.—The term “AO account” means an American opportunity account established under section 103.

(3) SECRETARY.—The term “Secretary” means the Secretary of the Treasury or the Secretary’s delegate.

(4) AMERICAN OPPORTUNITY FUND BOARD.—The term “American Opportunity Fund Board” means the board established pursuant to section 106.

(5) EXECUTIVE DIRECTOR.—The term “Executive Director” means the executive director appointed pursuant to section 106.

SEC. 102. American Opportunity Fund.

(a) Establishment.—There is established in the Treasury of the United States a fund to be known as the “American Opportunity Fund”.

(b) Amounts held by Fund.—The American Opportunity Fund consists of the sum of all amounts paid into the Fund under this title, increased by the total net earnings from investments of sums held in the Fund or reduced by the total net losses from investments of sums held in the Fund, and reduced by the total amount of payments made from the Fund (including payments for administrative expenses).

(c) Use of Fund.—

(1) IN GENERAL.—The sums in the American Opportunity Fund are appropriated and shall remain available without fiscal year limitation—

(A) to make contributions to AO accounts;

(B) to invest under section 105;

(C) to make distributions in accordance with this title;

(D) to pay the administrative expenses of carrying out this title; and

(E) to purchase insurance as provided in section 107(c)(2).

(2) EXCLUSIVE PURPOSES.—The sums in the American Opportunity Fund shall not be appropriated for any purpose other than the purposes specified in this section and may not be used for any other purpose.

(d) Transfers to American Opportunity Fund.—The Secretary shall make transfers from the general fund of the Treasury to the American Opportunity Fund as follows:

(1) INITIAL CONTRIBUTION FOR ELIGIBLE INDIVIDUALS BORN AFTER DECEMBER 31, 2019.—Upon receipt of a certification under section 103(b)(2) with respect to an individual born after December 31, 2019, the Secretary shall transfer $1,000 to the AO account of the individual.

(2) ANNUAL CONTRIBUTIONS.—

(A) IN GENERAL.—Each year which occurs after the year in which an AO account is established for an eligible individual and before the year the eligible individual attains the age of 18, the Secretary shall transfer the annual contribution amount to the AO account of the individual.

(B) ANNUAL CONTRIBUTION AMOUNT.—The annual contribution amount shall be the amount such that the annual contribution amount for any taxpayer whose household income is within an income tier specified in the following table shall decrease, on a sliding scale in a linear manner, from the initial amount to the final amount specified in such table for such income tier:


In the case of household income (expressed as a percent of the poverty line) within the following income tier: The initial amount is— The final amount is—
Up to 100 percent $2,000 $2,000
100 percent up to 125 percent 2,000 1,500
125 percent up to 175 percent 1,500 1,000
175 percent up to 225 percent 1,000 500
225 percent up to 325 percent 500 250
325 percent up to 500 percent 250 0
500 percent or more 0 0

(C) APPLICABLE HOUSEHOLD INCOME; POVERTY LINE.—For purposes of this paragraph—

(i) APPLICABLE HOUSEHOLD INCOME.—The term “applicable household income” means household income (as defined in section 36B(d) of the Internal Revenue Code of 1986), except that—

(I) with respect to any calendar year, the Secretary shall use the income of the most recent taxable year for which information is available; and

(II) in determining household income the Secretary shall aggregate the income of married individuals filing separate tax returns.

(ii) POVERTY LINE.—The term “poverty line” has the meaning given such term under section 36B(d) of the Internal Revenue Code of 1986.

(D) AUTHORITY TO PROVIDE TAX INFORMATION.—

(i) IN GENERAL.—Section 6103(l) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(23) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT ELIGIBILITY REQUIREMENTS FOR CERTAIN PROGRAMS.—

“(A) IN GENERAL.—The Secretary shall disclose to officers and employees of the Department of Treasury or the American Opportunity Fund Board return information of any taxpayer whose income is relevant in determining any annual contribution to an American Opportunity Account under section 102 of the American Opportunity Accounts Act. Such return information shall be limited to—

“(i) taxpayer identity information with respect to such taxpayer,

“(ii) the filing status of such taxpayer,

“(iii) the number of individuals for whom a deduction is allowed under section 151 with respect to the taxpayer (including the taxpayer and the taxpayer's spouse),

“(iv) the modified adjusted gross income (as defined in section 36B) of such taxpayer, of any spouse of such taxpayer who filed a separate return, and of each of the other individuals included under clause (iii) who are required to file a return of tax imposed by chapter 1 for the taxable year,

“(v) such other information as is prescribed by the Secretary by regulation as might indicate whether the taxpayer is eligible for such an annual contribution (and the amount thereof), and

“(vi) the taxable year with respect to which the preceding information relates or, if applicable, the fact that such information is not available.

“(B) RESTRICTION ON USE OF DISCLOSED INFORMATION.—Return information disclosed under subparagraph (A) may be used by officers and employees of the Department of Treasury or the American Opportunity Fund Board for the purposes of, and to the extent necessary in establishing eligibility for, and verifying the appropriate amount of, any annual contribution described in subparagraph (A).”.

(ii) PROCEDURES AND RECORDKEEPING RELATED TO DISCLOSURES.—Paragraph (4) of section 6103(p) of such Code is amended by striking “or (22)” each place it appears and inserting “(22), or (23)”.

(E) STUDY ON INCORPORATION OF OTHER WEALTH FACTORS.—Not later than 2 years after the date of the enactment of this Act, the Comptroller General shall submit to Congress and the Secretary of Treasury a report on the feasibility and distributive impacts of a new measure for determining the amount of the annual contribution amount under this paragraph based on family wealth, total assets, and overall net worth. Such measure may—

(i) include financial assets, the value of family home, retirement accounts, business and entrepreneurial ventures, potential future inheritances, and any other assets or debts; and

(ii) continue to factor in current or past income to the extent such information is useful in estimating overall household wealth.

(3) ADJUSTMENT FOR INFLATION.—

(A) IN GENERAL.—For each calendar year beginning after 2020, each of the dollar amounts under paragraphs (1) and (2)(B)(i) shall be increased by such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) of the Internal Revenue Code of 1986 determined by substituting “calendar year 2019” for “calendar year 2016” in subparagraph (A)(ii) thereof.

(B) ROUNDING.—If any amount adjusted under paragraph (1) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.

(e) Prohibition on Use of Payroll Taxes To Fund AO accounts.—The American Opportunity Fund and AO accounts are wholly separate and unique from the Social Security system. No amount from any tax on employment may be contributed to the American Opportunity Fund or AO accounts.

SEC. 103. AO accounts.

(a) In general.—

(1) ESTABLISHMENT.—The Executive Director shall establish in the American Opportunity Fund an account (to be known as an “American Opportunity account” or an “AO account”) for each eligible individual certified under subsection (b). Each such account shall be identified to its account holder by means of a unique personal identifier currently recognized by the Internal Revenue Service and shall remain in the American Opportunity Fund.

(2) ACCOUNT BALANCE.—The balance in an account holder’s AO account at any time is the excess of—

(A) the sum of—

(i) all deposits made into the American Opportunity Fund and credited to the account under paragraph (3); and

(ii) the total amount of allocations made to and reductions made in the account pursuant to paragraph (4); over

(B) the amounts paid out of the account with respect to such individual under subsection (c).

(3) CREDITING OF CONTRIBUTIONS.—Pursuant to regulations which shall be prescribed by the Executive Director, the Executive Director shall credit to each AO account the amounts paid into the American Opportunity Fund under section 102(d) which are attributable to the account holder of such account.

(4) ALLOCATION OF EARNINGS AND LOSSES.—The Executive Director shall allocate to each AO account an amount equal to the net earnings and net losses from each investment of sums in the American Opportunity Fund which are attributable, on a pro rata basis, to sums credited to such account, reduced by an appropriate share of the administrative expenses paid out of the net earnings, as determined by the Executive Director.

(b) Eligible individual.—For purposes of this title—

(1) IN GENERAL.—The term “eligible individual” means any individual who—

(A) was born after December 31, 2003;

(B) has not yet attained the age of 18 years; and

(C) has a valid, unique, Federal Government issued identification number recognized by the Internal Revenue Service.

(2) CERTIFICATION OF ACCOUNT HOLDERS.—

(A) AUTOMATIC CERTIFICATION FOR CERTAIN INDIVIDUALS BORN AFTER DECEMBER 31, 2019.—On any date after December 31, 2019, on which an eligible individual is issued a social security account number under section 203(c)(2) of the Social Security Act, the Commissioner of Social Security shall certify to the Executive Director and the Secretary of the Treasury the name of, and social security number issued to, such eligible individual.

(B) OTHER INDIVIDUALS.—In the case of an eligible individual who is not certified under subparagraph (A), such individual may request the establishment an AO account under this subparagraph by application to the Executive Director, and the Executive Director shall certify such individual under this subparagraph.

(c) Restrictions on distributions.—

(1) AGE-RELATED RESTRICTIONS.—

(A) IN GENERAL.—Except as otherwise provided in this paragraph, no amount may be distributed from an AO account before the date on which the account holder attains the age of 18.

(B) HIGHER EDUCATION EXPENSES.—Subparagraph (A) shall not apply to amounts paid for qualified tuition and related expenses (as defined in section 25A(f)(1) of the Internal Revenue Code of 1986) of the account holder if the account holder is an eligible student (as defined in section 25A(b)(3) of such Code) with respect to such expenses.

(C) AUTHORITY TO PROVIDE HIGHER AGE LIMIT FOR CERTAIN DISTRIBUTIONS.—The Secretary, in consultation with the American Opportunity Fund Advisory Board, may by regulations provide for a higher age limitation with respects to distributions relating to certain categories of qualified expenses if the Secretary determines that such higher age limitation is appropriate.

(2) USE-RELATED RESTRICTIONS.—

(A) IN GENERAL.—No amount may be distributed from an AO account unless the account holder establishes, under rules established by the Executive Director in consultation with the American Opportunity Fund Advisory Board, that such amount shall be used for a qualified expense.

(B) QUALIFIED EXPENSE.—For purposes of this subsection—

(i) IN GENERAL.—The term “qualified expense” means expenses for any of the following:

(I) Education of the account holder.

(II) Ownership of a home by the account holder.

(III) Any expenses paid or incurred on or after the date on which the account holder attains age 59½.

(IV) Any other investment in financial assets or personal capital that provides long-term gains to wages and wealth, as established under regulations promulgated by the Secretary, in consultation with the Executive Director and the American Opportunity Fund Advisory Board.

(ii) EXCEPTION.—Such term shall not include any expense described in clause (i) which is paid to a person who does not meet such standards as are prescribed by the Secretary, in consultation with the Executive Director and the American Opportunity Fund Advisory Board.

(3) AMERICAN OPPORTUNITY ACCOUNT ADVISORY BOARD.—For purposes of this subsection, the term “American Opportunity Fund Advisory Board” means an advisory board established by the Secretary consisting of individuals with expertise in savings and asset-building, home financing, education financing, consumer financial protection, and such other areas as the Secretary may determine appropriate.

SEC. 104. Assignment, alienation, and treatment of deceased individuals.

(a) Assignment and alienation.—Under regulations which shall be prescribed by the Executive Director, rules relating to assignment and alienation applicable under chapter 84 of title 5, United States Code, with respect to amounts held in accounts in the Thrift Savings Fund shall apply with respect to amounts held in AO accounts in the American Opportunity Fund.

(b) Treatment of accounts of deceased individuals.—In the case of a deceased account holder of an AO account which has an account balance greater than zero, upon receipt of notification of such individual’s death, the Executive Director shall close the account and shall transfer the balance in such account to the AO account of such account holder’s surviving spouse or, if there is no such account of a surviving spouse, to the duly appointed legal representative of the estate of the deceased account holder, or if there is no such representative, to the person or persons determined to be entitled thereto under the laws of the domicile of the deceased account holder.

SEC. 105. Rules governing AO accounts relating to investment, accounting, and reporting.

(a) Investment program.—The Secretary shall establish, and the American Opportunity Fund Board shall invest in debt obligations of the United States Government with a term of 30 years.

(b) Independent public accountant.—

(1) IN GENERAL.—Under regulations which shall be prescribed by the Executive Director, and subject to the provisions of this title, section 8439(b) of title 5, United States Code (relating to engagement of independent qualified public accountant), shall apply with respect to the American Opportunity Fund and accounts maintained in such Fund in the same manner and to the same extent as such section relates to the Thrift Savings Fund and the accounts maintained in the Thrift Savings Fund.

(2) APPLICATION RULES.—For purposes of paragraph (1), references in such section 8439(b) to an employee, Member, former employee, or former Member shall be deemed references to an account holder of an AO account in the American Opportunity Fund.

(c) Confidentiality and disclosure.—

(1) IN GENERAL.—Except as otherwise authorized by Federal law, the American Opportunity Fund Board, the Executive Director, and any employee of the American Opportunity Fund Board shall not disclose information with respect to the American Opportunity Fund or any account maintained in such Fund.

(2) DISCLOSURE TO DESIGNEE OF BENEFICIARY.—The Executive Director may, subject to such requirements and conditions as he may prescribe by regulations, disclose such information with respect to the AO account of the beneficiary to such person or persons as the beneficiary may designate in a request for or consent to such disclosure, or to any other person at the beneficiary’s request to the extent necessary to comply with a request for information or assistance made by the beneficiary to such other person.

SEC. 106. American Opportunity Fund Board.

(a) In general.—There is established in the executive branch of the Government an American Opportunity Fund Board.

(b) Composition, duties, and responsibilities.—Subject to the provisions of this title, the following provisions shall apply with respect to the American Opportunity Fund Board in the same manner and to the same extent as such provisions relate to the Federal Retirement Thrift Investment Board:

(1) Section 8472 of title 5, United States Code (relating to composition of Federal Retirement Thrift Investment Board).

(2) Section 8474 of such title (relating to Executive Director).

(3) Section 8476 of such title (relating to administrative provisions).

SEC. 107. Fiduciary responsibilities.

(a) In general.—Under regulations of the Secretary of Labor, the provisions of sections 8477 and 8478 of title 5, United States Code, shall apply in connection with the American Opportunity Fund and the accounts maintained in such Fund in the same manner and to the same extent as such provisions apply in connection with the Thrift Savings Fund and the accounts maintained in the Thrift Savings Fund.

(b) Investigative authority.—Any authority available to the Secretary of Labor under section 504 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1134) is hereby made available to the Secretary of Labor, and any officer designated by the Secretary of Labor, to determine whether any person has violated, or is about to violate, any provision applicable under subsection (a).

(c) Exculpatory provisions; insurance.—

(1) IN GENERAL.—Any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this title shall be void.

(2) INSURANCE.—Amounts in the American Opportunity Fund available for administrative expenses shall be available and may be used at the discretion of the Executive Director to purchase insurance to cover potential liability of persons who serve in a fiduciary capacity with respect to the Fund and accounts maintained therein, without regard to whether a policy of insurance permits recourse by the insurer against the fiduciary in the case of a breach of a fiduciary obligation.

SEC. 108. Accounts disregarded in determining eligibility for Federal benefits.

Amounts in any AO account shall not be taken into account in determining any individual’s or household’s financial eligibility for, or amount of, any benefit or service, paid for in whole or in part with Federal funds, including student financial aid.

SEC. 109. Reports.

(a) Reports to Congress.—The Executive Director, in consultation with the Secretary, shall annually transmit a written report to the Congress. Such report shall include—

(1) a detailed description of the status and operation of the American Opportunity Fund and the management of the AO accounts; and

(2) a detailed accounting of the administrative expenses in carrying out this title, including the ratio of such administrative expenses to the balance of the American Opportunity Fund and the methodology adopted by the Executive Director for allocating such expenses among the AO accounts.

(b) Reports to account holders.—The American Opportunity Fund Board shall prescribe regulations under which each individual for whom an AO account is maintained shall be furnished with an annual statement relating to the individual’s account, which shall include—

(1) a statement of the balance of individual’s AO account;

(2) a projection of the account’s growth by the time the individual attains the age of 18; and

(3) such other information as the Secretary deems relevant.

SEC. 110. Programs for promoting financial capability.

The Secretary of the Treasury, in coordination with the Financial Literacy and Education Commission, shall develop programs to promote the financial capability of account holders of AO accounts.

SEC. 111. Tax treatment.

(a) Contributions and distributions.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139G the following new section:

“SEC. 139H. Contributions to and distributions from AO accounts.

“Gross income shall not include—

“(1) any contribution credited to the AO account of the taxpayer under section 103(a)(3) of the American Opportunity Accounts Act, and

“(2) any distribution from such an AO account.”.

(b) Tax treatment of earnings and distributions.—Subchapter F of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new part:


“Sec. 530A. American Opportunity Fund and AO accounts.

“SEC. 530A. American Opportunity Fund and AO accounts.

“(a) General rule.—The American Opportunity Fund and AO accounts shall be exempt from taxation under this subtitle. Notwithstanding the preceding sentence, a AO account shall be subject to the taxes imposed by section 511 (relating to imposition of tax on unrelated business income of charitable organizations).

“(b) Definitions.—For purposes of this section, the terms ‘American Opportunity Fund’ and ‘AO account’ have the meanings given such terms under title I of the American Opportunity Accounts Act”..”.

(c) Conforming amendments.—

(1) The table of sections for part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item related to section 139G the following new item:


“Sec. 139H. Contributions to and distributions from AO accounts.”.

(2) The table of parts for subchapter F of chapter 1 of such Code is amended by adding at the end the following new item:

(d) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

SEC. 201. Modification of estate tax rate and basic exclusion amount.

(a) Permanent extension of maximum estate tax rate and basic exclusion amount as in effect in 2009.—

(1) MAXIMUM ESTATE TAX RATE.—The last row of the table contained in subsection (c) of section 2001 of the Internal Revenue Code of 1986 is amended by striking “40 percent” and inserting “45 percent”.

(2) BASIC EXCLUSION AMOUNT.—Paragraph (3) of section 2010(c) of the Internal Revenue Code of 1986 is amended to read as follows:

“(3) BASIC EXCLUSION AMOUNT.—For purposes of this subsection, the basic exclusion amount is $3,500,000.”.

(b) Additional taxes for estates over $10,000,000.—The table contained in section 2001(c), as amended by subsection (a), is amended—

(1) by inserting “but not over $10,000,000” after “Over $1,000,000” in the last row; and

(2) by adding at the end the following:



“Over $10,000,000 but not over $50,000,000 $4,395,800, plus 55 percent of the excess of such amount over $10,000,000.
Over $50,000,000 $26,395,800, plus 65 percent of the excess of such amount over $50,000,000.”.

(c) Effective date.—The amendments made by this section shall apply to estates of decedents dying and gifts made after December 31, 2019.

SEC. 202. Required minimum 10-year term, etc., for grantor retained annuity trusts.

(a) In general.—Subsection (b) of section 2702 is amended—

(1) by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs (as so redesignated) 2 ems to the right;

(2) by striking “For purposes of” and inserting the following:

“(1) IN GENERAL.—For purposes of”;

(3) by striking “paragraph (1) or (2)” in paragraph (1)(C) (as so redesignated) and inserting “subparagraph (A) or (B)”; and

(4) by adding at the end the following new paragraph:

“(2) ADDITIONAL REQUIREMENTS WITH RESPECT TO GRANTOR RETAINED ANNUITIES.—For purposes of subsection (a), in the case of an interest described in paragraph (1)(A) (determined without regard to this paragraph) which is retained by the transferor, such interest shall be treated as described in such paragraph only if—

“(A) the right to receive the fixed amounts referred to in such paragraph is for a term of not less than 10 years and not more than the life expectancy of the annuitant plus 10 years,

“(B) such fixed amounts, when determined on an annual basis, do not decrease during the term described in subparagraph (A), and

“(C) the remainder interest has a value, as determined as of the time of the transfer, which is—

“(i) not less than an amount equal to the greater of—

“(I) 25 percent of the fair market value of the property in the trust, or

“(II) $500,000, and

“(ii) not greater than the fair market value of the property in the trust.”.

(b) Effective date.—The amendments made by this section shall apply to transfers made after the date of the enactment of this Act.

SEC. 203. Certain transfer tax rules applicable to grantor trusts.

(a) In general.—Subtitle B is amended by adding at the end the following new chapter:

“CHAPTER 16SPECIAL RULES FOR GRANTOR TRUSTS


“Sec. 2901. Application of transfer taxes.

“SEC. 2901. Application of transfer taxes.

“(a) In general.—In the case of any portion of a trust to which this section applies—

“(1) the value of the gross estate of the deceased deemed owner of such portion shall include all assets attributable to that portion at the time of the death of such owner,

“(2) any distribution from such portion to one or more beneficiaries during the life of the deemed owner of such portion shall be treated as a transfer by gift for purposes of chapter 12, and

“(3) if at any time during the life of the deemed owner of such portion, such owner ceases to be treated as the owner of such portion under subpart E of part 1 of subchapter J of chapter 1, all assets attributable to such portion at such time shall be treated for purposes of chapter 12 as a transfer by gift made by the deemed owner.

“(b) Portion of trust to which section applies.—This section shall apply to—

“(1) the portion of a trust with respect to which the grantor is the deemed owner, and

“(2) the portion of the trust to which a person who is not the grantor is a deemed owner by reason of the rules of subpart E of part 1 of subchapter J of chapter 1, and such deemed owner engages in a sale, exchange, or comparable transaction with the trust that is disregarded for purposes of subtitle A.

For purposes of paragraph (2), the portion of the trust described with respect to a transaction is the portion of the trust attributable to the property received by the trust in such transaction, including all retained income therefrom, appreciation thereon, and reinvestments thereof, net of the amount of consideration received by the deemed owner in such transaction.

“(c) Exceptions.—This section shall not apply to—

“(1) any trust that is includible in the gross estate of the deemed owner (without regard to subsection (a)(1)), and

“(2) any other type of trust that the Secretary determines by regulations or other guidance does not have as a significant purpose the avoidance of transfer taxes.

“(d) Deemed owner defined.—For purposes of this section, the term ‘deemed owner’ means any person who is treated as the owner of a portion of a trust under subpart E of part 1 of subchapter J of chapter 1.

“(e) Reduction for taxable gifts to trust made by owner.—The amount to which subsection (a) applies shall be reduced by the value of any transfer by gift by the deemed owner to the trust previously taken into account by the deemed owner under chapter 12.

“(f) Liability for payment of tax.—Any tax imposed pursuant to subsection (a) shall be a liability of the trust.”.

(b) Clerical amendment.—The table of chapters for subtitle B is amended by adding at the end the following new item:

“CHAPTER 16. SPECIAL RULES FOR GRANTOR TRUSTS”.

(c) Effective date.—The amendments made by this section shall apply—

(1) to trusts created on or after the date of the enactment of this Act;

(2) to any portion of a trust established before the date of the enactment of this Act which is attributable to a contribution made on or after such date; and

(3) to any portion of a trust established before the date of the enactment of this Act to which section 2901(a) of the Internal Revenue Code of 1986 (as added by subsection (a)) applies by reason of a transaction described in section 2901(b)(2) of such Code on or after such date.

SEC. 204. Simplifying gift tax exclusion for annual gifts.

(a) In general.—Section 2503 of the Internal Revenue Code of 1986 is amended—

(1) by striking paragraph (1) of subsection (b) and inserting the following:

“(1) IN GENERAL.—

“(A) LIMIT PER DONEE.—In the case of gifts made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year.

“(B) CUMULATIVE LIMIT PER DONOR.—

“(i) IN GENERAL.—The aggregate amount excluded under subparagraph (A) with respect to all transfers described in clause (ii) made by the donor during the calendar year shall not exceed $50,000.

“(ii) TRANSFERS SUBJECT TO LIMITATION.—The transfers described in this clause are—

“(I) a transfer in trust (with the exception of any transfer to a trust described in section 2642(c)(2)),

“(II) a transfer of an interest in a passthrough entity,

“(III) a transfer of an interest subject to a prohibition on sale, and

“(IV) any other transfer of property that, without regard to withdrawal, put, or other such rights in the donee, cannot immediately be liquidated by the donee.”, and

(2) by striking subsection (c).

(b) Conforming amendments.—

(1) Subparagraph (B) of section 529(c)(2) of the Internal Revenue Code of 1986 is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A).

(2) Clause (i) of section 529A(b)(2)(B) of such Code is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A)”.

(3) Paragraph (2) of section 2523(i) of such Code is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A)”.

(4) Subsection (c) of such Code of section 2801 is amended by striking “2503(b)” and inserting “2503(b)(1)(A)”.

(c) Regulations.—The Secretary of the Treasury, or the Secretary of the Treasury's delegate, may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the amendments made by this section.

(d) Effective date.—The amendments made by this section shall apply to any calendar year beginning after the date of the enactment of this Act.

SEC. 205. Modification of rules for value of certain farm real property.

(a) Increase in limitation.—

(1) IN GENERAL.—Paragraph (2) of section 2032A(a) of the Internal Revenue Code of 1986 is amended by striking “$750,000” and inserting “$3,000,000”.

(2) INFLATION ADJUSTMENT.—Paragraph (3) of section 2032A(a) of such Code is amended—

(A) by striking “1998” and inserting “2020”;

(B) by striking “$750,000” and inserting “$3,000,000” in subparagraph (A); and

(C) by striking “calendar year 1997” and inserting “calendar year 2019” in subparagraph (B).

(b) Qualified use limited to farming purposes.—

(1) IN GENERAL.—Section 2032A(b)(2) is amended by striking “the devotion of the property” and all that follows and inserting “the devotion of the property to use as a farm for farming purposes.”.

(2) CONFORMING AMENDMENTS.—

(A) Subsections (c)(6)(A), (h)(3), and (i)(3) of section 2032A of the such Code are each amended by striking “subparagraph (A) or (B) of”.

(B) The heading of section 2032A of such Code (and the item relating to section 2032A in the table of sections for part III of subchapter A of chapter 11 of such Code) is amended by striking “, etc.,”.

(c) Effective date.—The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2019.

SEC. 211. Increase in capital gains rate.

(a) In general.—Section 1(h)(1)(D) of the Internal Revenue Code of 1986 is amended by striking “20 percent” and inserting “24.2 percent”.

(b) Minimum tax.—Section 55(b)(3)(D) of the Internal Revenue Code of 1986 is amended by striking “20 percent” and inserting “24.2 percent”.

(c) Conforming amendments.—The following provisions are each amended by striking “20 percent” and inserting “20.4 percent”:

(1) Section 531 of the Internal Revenue Code of 1986.

(2) Section 541 of the Internal Revenue Code of 1986.

(3) Section 1445(e)(1) of the Internal Revenue Code of 1986.

(4) Section 1445(e)(6) of the Internal Revenue Code of 1986.

(5) The second sentence of section 7518(g)(6)(A) of the Internal Revenue Code of 1986.

(6) Section 53511(f)(2) of title 46, United States Code.

(d) Effective dates.—

(1) IN GENERAL.—Except as otherwise provided, the amendments made by this section shall apply to taxable years beginning after December 31, 2019.

(2) WITHHOLDING.—The amendments made by paragraphs (3) and (4) of subsection (c) shall apply to amounts paid on or after January 1, 2019.

SEC. 212. Deemed realization of capital gains at time of gift or death.

(a) Treatment as sale.—

(1) IN GENERAL.—Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 1261. Gains from certain property transferred by gift or upon death.

“(a) In general.—Any capital asset which is transferred by gift or upon death shall be treated as sold for its fair market value on the date of such gift, death, or transfer.

“(b) Exceptions.—

“(1) TANGIBLE PROPERTY.—This section shall not apply to any tangible personal property other than a collectible (as defined in section 408(m) without regard to paragraph (3) thereof).

“(2) SPOUSAL EXCEPTION.—This section shall not apply to any transfer if such transfer is made to the spouse or surviving spouse of the transferor.

“(3) GIFTS TO CHARITY.—This section shall not apply to any transfer if such transfer is made to an organization described in section 170(c).”.

(2) CLERICAL AMENDMENT.—The table of sections for part IV of subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:


“Sec. 1261. Gains from certain property transferred by gift or upon death.”.

(b) Treatment of basis for gifts and bequests to which tax applies.—

(1) ELIMINATION OF CARRYOVER BASIS FOR GIFTS.—Subsection (a) section 1015 of the Internal Revenue Code of 1986 is amended—

(A) by striking “If the property” and inserting the following:

“(1) GIFTS BEFORE JANUARY 1, 2020.—If the property”;

(B) by inserting “and before January 1, 2020” after “after December 31, 1920”; and

(C) by adding at the end the following new paragraph:

“(2) GIFTS AFTER DECEMBER 31, 2019.—

“(A) IN GENERAL.—If the property was acquired by gift after December 31, 2019, the basis shall be the fair market value of such property at the time of the gift.

“(B) SPECIAL RULES FOR CHARITABLE ORGANIZATIONS.—In the case of any property acquired by an organization described in section 170(c) by gift, subparagraph (A) shall not apply and paragraph (1) shall be applied without regard to the phrase ‘and before January 1, 2020’.”.

(2) PROPERTY ACQUIRED FROM DECEDENT SPOUSES.—Section 1014 of such Code is amended by adding at the end the following new subsection:

“(g) Property acquired from decedent spouses.—In the case of any property acquired from or which has passed from a decedent in a transfer described in section 1041(a)(1), the basis of such property in the hands of the transferee shall be determined under section 1041(b) and not this section.”.

(3) RULE FOR TRANSFERS BETWEEN SPOUSES.—

(A) IN GENERAL.—Section 1041(b) of the Internal Revenue Code of 1986 is amended to read as follows:

“(b) Transferee has transferor's basis.—In the case of any transfer of property described in subsection (a), the basis of the transferee in the property shall be the adjusted basis of the transferor.”.

(B) CONFORMING AMENDMENT.—Section 1015(e) of such Code is amended by striking “1041(b)(2)” and inserting “1041(b)”.

SEC. 213. Exclusion of certain amounts of realized capital gain.

(a) In general.—Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986, as amended by section 111, is amended by inserting after section 139H the following new section:

“SEC. 139I. Exclusion gain from transfers of appreciated assets by gift or at death.

“(a) In general.—Gross income shall not include so much of the aggregate gain from transfers at death described in 1261(a) of any capital asset as does not exceed $100,000.

“(b) Special rules for real property used for farming.—

“(1) IN GENERAL.—

“(A) APPLICATION OF SECTION.—In the case of qualified real property—

“(i) subsection (a) shall be applied separately to such qualified real property and other property, and

“(ii) in applying subsection (a) to such qualified real property, ‘the applicable amount’ shall be substituted for ‘$100,000’.

“(B) APPLICABLE AMOUNT.—For purposes of subparagraph (A), the applicable amount is an amount equal to the sum of—

“(i) $1,000,000, plus

“(ii) the excess (not less than zero) of the amount in effect under subsection (a) over the aggregate amount of gain from transfers at death described in section 1261(a) of capital assets other than qualified real property.

“(2) IMPOSITION OF ADDITIONAL TAX.—

“(A) IN GENERAL.—The Secretary shall, by regulations, provide for recapturing the benefit under any exclusion allowable under paragraph (1) with respect to any qualified real property if, within 10 years after the decedent's death and before the death of the qualified heir—

“(i) the qualified heir disposes of any interest in qualified real property (other than by a disposition to a member of his family), or

“(ii) the qualified heir ceases to use for the qualified use the qualified real property which was acquired (or passed) from the decedent.

“(B) LIABILITY.—The benefit recaptured under subparagraph (A) shall be recaptured from the qualified heir.

“(3) DEFINITIONS.—Any term used in this subsection which is also used in section 2032A shall have the meaning given such term under section 2032A.

“(c) Inflation adjustment.—

“(1) IN GENERAL.—In the case of any taxable year beginning after 2020, the $100,000 amount in subsection (a) and the $1,000,000 in subsection (b)(1)(B)(i) shall each be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting in subparagraph (A)(ii) thereof ‘calendar year 2019’ for ‘calendar year 2016’.

“(2) ROUNDING.—

“(A) IN GENERAL.—If the dollar amount in subsection (a), after being increased under paragraph (1), is not a multiple of $10,000, such dollar amount shall be rounded to the next lowest multiple of $10,000.

“(B) QUALIFIED REAL PROPERTY.—If the dollar amount in subsection (b)(1)(B)(i), after being increased under paragraph (1), is not a multiple of $100,000, such amount shall be rounded to the next lowest multiple of $100,000.”.

(b) Clerical amendment.—The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after section 139H the following new item:


“Sec. 139I. Exclusion gain from transfers of appreciated assets by gift or at death.”.

(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

SEC. 214. Extension of time for payment of tax.

(a) Extension of time.—

(1) IN GENERAL.—Subpart B of chapter 62 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“SEC. 6168. Extension of time for payment of capital gains on certain assets realized by reason of death.

“(a) 15-Year installment payment.—

“(1) IN GENERAL.—In the case of any gain with respect to an eligible capital asset that is recognized under section 1261 by reason of the death of the taxpayer, the taxpayer may elect to pay part or all of tax imposed on such gain in 2 or more (but not exceeding 15) equal installments.

“(2) DATE FOR PAYMENT OF INSTALLMENTS.—If an election is made under paragraph (1), the first installment shall be paid not later than the date on which the tax for the taxable year in which the gain described in paragraph (1) occurs is due, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.

“(b) Eligible capital asset.—For purposes of this section, the term ‘eligible capital asset’ means any capital asset other than personal property of a type which is actively traded (within the meaning of section 1092(d)(1)).

“(c) Portion of tax eligible.—The amount of tax to which this section applies shall not exceed the excess of—

“(1) the tax computed under chapter 1 (determined after application of section 1261), over

“(2) the tax computed under chapter 1 (determined without regard to section 1261).

“(d) Election.—Any election under subsection (a) shall be made not later than the time prescribed by section 6072 for filing the return of tax imposed under chapter 1 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax.

“(e) Proration of deficiency to installments.—If an election is made under subsection (a) to pay any part of the tax imposed under chapter 1 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

“(f) Time for payment of interest.—If the time for payment of any amount of tax has been extended under this section, interest payable under section 6601 on any unpaid portion shall be paid annually at the same time as, and as part of, each installment payment of the tax.

“(g) Regulations.—The Secretary shall prescribe such regulations as may be necessary to the application of this section.

“(h) Cross References.—

“(1) SECURITY.—For authority of the Secretary to require security in the case of an extension under this section, see section 6165.

“(2) INTEREST.—For provisions relating to interest on tax payable in installments under this section, see subsection (k) of section 6601.”.

(2) CLERICAL AMENDMENT.—The table of sections for subpart B of chapter 62 is amended by adding at the end the following new item:


“Sec. 6168. Extension of time for payment of capital gains on certain assets realized by reason of death.”.

(b) Interest.—Section 6601 of the Internal Revenue Code of 1986 is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:

“(k) Special rate for tax extended under section 6168.—If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6168, in lieu of the annual rate provided by subsection (a), interest shall be paid at a rate equal to 45 percent of the annual rate provided by subsection (a). For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6168 shall be treated as an amount of tax payable in installments under such section.”.

SEC. 215. Waiver of penalty for underpayment of estimated tax.

Section 6654(e)(3) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

“(C) CAPITAL GAINS PAYABLE UPON DEATH.—No addition to tax shall be imposed under subsection (a) with respect to any underpayment if the taxpayer died during the taxable year and the Secretary determines that the amount of the underpayment is due to capital gains that were realized by reason of section 1261.”.

SEC. 216. Effective date.

Except as otherwise provided, the amendments made by this subtitle shall apply to transfers after December 31, 2019, in taxable years beginning after such date.


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