Report text available as:

  • TXT
  • PDF   (PDF provides a complete and accurate display of this text.) Tip ?

107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-37

======================================================================



 
                   DEATH TAX ELIMINATION ACT OF 2001

                                _______
                                

 April 3, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                         [To accompany H.R. 8]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 8) to amend the Internal Revenue Code of 1986 to 
phaseout the estate and gift taxes over a 10-year period, and 
for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background..........................................17
          A. Purpose and Summary.................................    17
          B. Background and Need for Legislation.................    19
          C. Legislative History.................................    19
 II. Explanation of the Bill.........................................19
          A. Phase in Repeal of Estate, Gift, and Generation-
              Skipping Transfer Taxes (secs. 101-402)............    19
          B. Expand Estate Tax Rule for Conservation Easements 
              (sec. 501).........................................    32
          C. Modify Generation-Skipping Transfer Tax Rules (secs. 
              601-604)...........................................    33
          D. Expand Availability of Installment Payment of Estate 
              Tax for Closely-Held Businesses (sec. 701).........    41
III. Votes of the Committee..........................................42
 IV. Budget Effects of the Bill......................................44
          A. Committee Estimates of Budgetary Effects............    44
          B. Statement Regarding New Budget Authority and Tax 
              Expenditures Budget Authority......................    46
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................    46
  V. Other Matters To Be Discussed Under the Rules of the House......47
          A. Committee Oversight Findings and Recommendations....    47
          B. Statement of General Performance Goals and 
              Objectives.........................................    48
          C. Constitutional Authority Statement..................    48
          D. Information Relating to Unfunded Mandates...........    48
          E. Applicability of House Rule XXI 5(b)................    48
          F. Tax Complexity Analysis.............................    48
 VI. Changes in Existing Law Made by the Bill as Reported............49
VII. Dissenting Views...............................................194


  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Death Tax 
Elimination Act of 2001''.
  (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.
  (c) Table of Contents.--

Sec. 1. Short title; etc.

     TITLE I--REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES

Sec. 101. Repeal of estate, gift, and generation-skipping taxes.

   TITLE II--REDUCTIONS OF ESTATE AND GIFT TAX RATES PRIOR TO REPEAL

Sec. 201. Additional reductions of estate and gift tax rates.

    TITLE III--UNIFIED CREDIT REPLACED WITH UNIFIED EXEMPTION AMOUNT

Sec. 301. Unified credit against estate and gift taxes replaced with 
unified exemption amount.

 TITLE IV--CARRYOVER BASIS AT DEATH; OTHER CHANGES TAKING EFFECT WITH 
                                 REPEAL

Sec. 401. Termination of step-up in basis at death.
Sec. 402. Treatment of property acquired from a decedent dying after 
December 31, 2010.

                    TITLE V--CONSERVATION EASEMENTS

Sec. 501. Expansion of estate tax rule for conservation easements.

      TITLE VI--MODIFICATIONS OF GENERATION-SKIPPING TRANSFER TAX

Sec. 601. Deemed allocation of GST exemption to lifetime transfers to 
trusts; retroactive allocations.
Sec. 602. Severing of trusts.
Sec. 603. Modification of certain valuation rules.
Sec. 604. Relief provisions.

         TITLE VII--EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX

Sec. 701. Increase in number of allowable partners and shareholders in 
closely held businesses.

     TITLE I--REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING TAXES

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, 2010.

   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 2002, 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 2003 and 
        before 2011--
                  ``(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:
                  2004.....................................        1.0 
                  2005.....................................        2.0 
                  2006.....................................        3.0 
                  2007.....................................        5.0 
                  2008.....................................        7.0 
                  2009.....................................        9.0 
                  2010.....................................       11.0.

                  ``(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) applicable to the taxable year which 
                        includes the date of death (or, in the case of 
                        a gift, the date of the gift), and
                          ``(ii) shall not reduce the highest rate 
                        under paragraph (1) below the highest rate in 
                        section 1(c) for such taxable year.
                  ``(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, 2001.
          (2) Subsection (c).--The amendment made by subsection (c) 
        shall apply to estates of decedents dying, and gifts made, 
        after December 31, 2003.

    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:
                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) for such calendar year, over
                  ``(B) the aggregate amount of tax that would have 
                been payable under this chapter with respect to gifts 
                made by the donor in preceding calendar periods if the 
                tax had been computed under the provisions of section 
                2001(c) as in effect for such calendar year.
          ``(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 
                        2001) 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 2501 (as the case 
                        may be) allowable to such surviving spouse for 
                        purposes of determining the amount of the 
                        exemption allowable under section 2501 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) 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 amountallowed 
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 2501 (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 2001) 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 2501 (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) Paragraph (1) of section 2107(a) is amended by 
        striking ``the table contained in''.
          (B) Paragraph (1) of section 2107(c) is amended to read as 
        follows:
          ``(1) Exemption amount.--For purposes of subsection (a), the 
        exemption amount under section 2001 shall be $60,000.''
          (C) Paragraph (3) of section 2107(c) is amended by striking 
        the second sentence.
          (D) The heading of subsection (c) of section 2107 is amended 
        to read as follows:
  ``(c) Exemption Amount and Credits.--''.
          (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 shall apply 
to estates of decedents dying and gifts made after December 31, 2001.

 TITLE IV--CARRYOVER BASIS AT DEATH; OTHER CHANGES TAKING EFFECT WITH 
                                 REPEAL

SEC. 401. TERMINATION OF STEP-UP IN BASIS AT DEATH.

  Section 1014 (relating to basis of property acquired from a decedent) 
is amended by adding at the end the following new subsection:
  ``(f) Termination.--This section shall not apply with respect to 
decedents dying after December 31, 2010.''.

SEC. 402. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
                    DECEMBER 31, 2010.

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

``SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER 
                    DECEMBER 31, 2010.

  ``(a) In General.--Except as otherwise provided in this section--
          ``(1) property acquired from a decedent dying after December 
        31, 2010, shall be treated for purposes of this subtitle as 
        transferred by gift, and
          ``(2) the basis of the person acquiring property from such a 
        decedent shall be the lesser of--
                  ``(A) the adjusted basis of the decedent, or
                  ``(B) the fair market value of the property at the 
                date of the decedent's death.
  ``(b) Basis Increase for Certain Property.--
          ``(1) In general.--In the case of property to which this 
        subsection applies, the basis of such property under subsection 
        (a) shall be increased by its basis increase under this 
        subsection.
          ``(2) Basis increase.--For purposes of this subsection--
                  ``(A) In general.--The basis increase under this 
                subsection for any property is the portion of the 
                aggregate basis increase which is allocated to the 
                property pursuant to this section.
                  ``(B) Aggregate basis increase.--In the case of any 
                estate, the aggregate basis increase under this 
                subsection is $1,300,000.
                  ``(C) Limit increased by unused built-in losses and 
                loss carryovers.--The limitation under subparagraph (B) 
                shall be increased by--
                          ``(i) the sum of the amount of any capital 
                        loss carryover under section 1212(b), and the 
                        amount of any net operating loss carryover 
                        under section 172, which would (but for the 
                        decedent's death) be carried from the 
                        decedent's last taxable year to a later taxable 
                        year of the decedent, plus
                          ``(ii) the sum of the amount of any losses 
                        that would have been allowable under section 
                        165 if the property acquired from the decedent 
                        had been sold at fair market value immediately 
                        before the decedent's death.
          ``(3) Decedent nonresidents who are not citizens of the 
        united states.--In the case of a decedent nonresident not a 
        citizen of the United States--
                  ``(A) paragraph (2)(B) shall be applied by 
                substituting `$60,000' for `$1,300,000', and
                  ``(B) paragraph (2)(C) shall not apply.
  ``(c) Additional Basis Increase for Property Acquired by Surviving 
Spouse.--
          ``(1) In general.--In the case of property to which this 
        subsection applies and which is qualified spousal property, the 
        basis of such property under subsection (a) (as increased, if 
        any, under subsection (b)) shall be increased by its spousal 
        property basis increase.
          ``(2) Spousal property basis increase.--For purposes of this 
        subsection--
                  ``(A) In general.--The spousal property basis 
                increase for property referred to in paragraph (1) is 
                the portion of the aggregate spousal property basis 
                increase which is allocated to the property pursuant to 
                this section.
                  ``(B) Aggregate spousal property basis increase.--In 
                the case of any estate, the aggregate spousal property 
                basis increase is $3,000,000.
          ``(3) Qualified spousal property.--For purposes of this 
        subsection, the term `qualified spousal property' means--
                  ``(A) outright transfer property, and
                  ``(B) qualified terminable interest property.
          ``(4) Outright transfer property.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `outright transfer 
                property' means any interest in property acquired from 
                the decedent by the decedent's surviving spouse.
                  ``(B) Exception.--Subparagraph (A) shall not apply 
                where, on the lapse of time, on the occurrence of an 
                event or contingency, or on the failure of an event or 
                contingency to occur, an interest passing to the 
                surviving spouse will terminate or fail--
                          ``(i)(I) if an interest in such property 
                        passes or has passed (for less than an adequate 
                        and full consideration in money or money's 
                        worth) from the decedent to any person other 
                        than such surviving spouse (or the estate of 
                        such spouse), and
                          ``(II) if by reason of such passing such 
                        person (or his heirs or assigns) may possess or 
                        enjoy any part of such property after such 
                        termination or failure of the interest so 
                        passing to the surviving spouse, or
                          ``(ii) if such interest is to be acquired for 
                        the surviving spouse, pursuant to directions of 
                        the decedent, by his executor or by the trustee 
                        of a trust.
                For purposes of this subparagraph, an interest shall 
                not be considered as an interest which will terminate 
                or fail merely because it is the ownership of a bond, 
                note, or similar contractual obligation, the discharge 
                of which would not have the effect of an annuity for 
                life or for a term.
                  ``(C) Interest of spouse conditional on survival for 
                limited period.--For purposes of this paragraph, an 
                interest passing to the surviving spouse shall not be 
                considered as an interest which will terminate or fail 
                on the death of such spouse if--
                          ``(i) such death will cause a termination or 
                        failure of such interest only if it occurs 
                        within a period not exceeding 6 months after 
                        the decedent's death, or only if it occurs as a 
                        result of a common disaster resulting in the 
                        death of the decedent and the surviving spouse, 
                        or only if it occurs in the case of either such 
                        event; and
                          ``(ii) such termination or failure does not 
                        in fact occur.
          ``(5) Qualified terminable interest property.--For purposes 
        of this subsection--
                  ``(A) In general.--The term `qualified terminable 
                interest property' means property--
                          ``(i) which passes from the decedent, and
                          ``(ii) in which the surviving spouse has a 
                        qualifying income interest for life.
                  ``(B) Qualifying income interest for life.--The 
                surviving spouse has a qualifying income interest for 
                life if--
                          ``(i) the surviving spouse is entitled to all 
                        the income from the property, payable annually 
                        or at more frequent intervals, or has a 
                        usufruct interest for life in the property, and
                          ``(ii) no person has a power to appoint any 
                        part of the property to any person other than 
                        the surviving spouse.
                Clause (ii) shall not apply to a power exercisable only 
                at or after the death of the surviving spouse. To the 
                extent provided in regulations, an annuity shall be 
                treated in a manner similar to an income interest in 
                property (regardless of whether the property from which 
                the annuity is payable can be separately identified).
                  ``(C) Property includes interest therein.--The term 
                `property' includes an interest in property.
                  ``(D) Specific portion treated as separate 
                property.--A specific portion of property shall be 
                treated as separate property. For purposes of the 
                preceding sentence, the term `specific portion' only 
                includes a portion determined on a fractional or 
                percentage basis.
  ``(d) Definitions and Special Rules for Application of Subsections 
(b) and (c).--
          ``(1) Property to which subsections (b) and (c) apply.--
                  ``(A) In general.--The basis of property acquired 
                from a decedent may be increased under subsection (b) 
                or (c) only if the property was owned by the decedent 
                at the time of death.
                  ``(B) Rules relating to ownership.--
                          ``(i) Jointly held property.--In the case of 
                        property which was owned by the decedent and 
                        another person as joint tenants with right of 
                        survivorship or tenants by the entirety--
                                  ``(I) if the only such other person 
                                is the surviving spouse, the decedent 
                                shall be treated as the owner of only 
                                50 percent of the property,
                                  ``(II) in any case (to which 
                                subclause (I) does not apply) in which 
                                the decedent furnished consideration 
                                for the acquisition of the property, 
                                the decedent shall be treated as the 
                                owner to the extent of the portion of 
                                the property which is proportionate to 
                                such consideration, and
                                  ``(III) in any case (to which 
                                subclause (I) does not apply) in which 
                                the property has been acquired by gift, 
                                bequest, devise, or inheritance by the 
                                decedent and any other person as joint 
                                tenants with right of survivorship and 
                                their interests are not otherwise 
                                specified or fixed by law, the decedent 
                                shall be treated as the owner to the 
                                extent of the value of a fractional 
                                part to be determined by dividing the 
                                value of the property by the number of 
                                joint tenants with right of 
                                survivorship.
                          ``(ii) Revocable trusts.--The decedent shall 
                        be treated as owning property transferred by 
                        the decedent during life to a revocable trust 
                        to pay all of the income during the decedent's 
                        life to the decedent or at the direction of the 
                        decedent.
                          ``(iii) Powers of appointment.--The decedent 
                        shall not be treated as owning any property by 
                        reason of holding a power of appointment with 
                        respect to such property.
                          ``(iv) Community property.--Property which 
                        represents the surviving spouse's one-half 
                        share of community property held by the 
                        decedent and the surviving spouse under the 
                        community property laws of any State or 
                        possession of the United States or any foreign 
                        country shall be treated for purposes of this 
                        section as owned by, and acquired from, the 
                        decedent if at least one-half of the whole of 
                        the community interest in such property is 
                        treated as owned by, and acquired from, the 
                        decedent without regard to this clause.
                  ``(C) Property acquired by decedent by gift within 3 
                years of death.--
                          ``(i) In general.--Subsections (b) and (c) 
                        shall not apply to property acquired by the 
                        decedent by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth during the 3-year period 
                        ending on the date of the decedent's death.
                          ``(ii) Exception for certain gifts from 
                        spouse.--Clause (i) shall not apply to property 
                        acquired by the decedent from the decedent's 
                        spouse unless, during such 3-year period, such 
                        spouse acquired the property in whole or in 
                        part by gift or by inter vivos transfer for 
                        less than adequate and full consideration in 
                        money or money's worth.
                  ``(D) Stock of certain entities.--Subsections (b) and 
                (c) shall not apply to--
                          ``(i) stock or securities a foreign personal 
                        holding company,
                          ``(ii) stock of a DISC or former DISC,
                          ``(iii) stock of a foreign investment 
                        company, or
                          ``(iv) stock of a passive foreign investment 
                        company unless such company is a qualified 
                        electing fund (as defined in section 1295) with 
                        respect to the decedent.
          ``(2) Fair market value limitation.--The adjustments under 
        subsection (b) and (c) shall not increase the basis of any 
        interest in property acquired from the decedent above its fair 
        market value in the hands of the decedent as of the date of the 
        decedent's death.
          ``(3) Allocation rules.--
                  ``(A) In general.--The executor shall allocate the 
                adjustments under subsections (b) and (c) on the return 
                required by section 6018.
                  ``(B) Changes in allocation.--Any allocation made 
                pursuant to subparagraph (A) may be changed only as 
                provided by the Secretary.
          ``(4) Inflation adjustment of basis adjustment amounts.--
                  ``(A) In general.--In the case of decedents dying in 
                a calendar year after 2011, the $1,300,000, $60,000, 
                and $3,000,000 dollar amounts in subsections (b) and 
                (c)(2)(B) shall each be increased by an amount equal to 
                the product of--
                          ``(i) such dollar amount, and
                          ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for such 
                        calendar year, determined by substituting 
                        `2010' for `1992' in subparagraph (B) thereof.
                  ``(B) Rounding.--If any increase determined under 
                subparagraph (A) is not a multiple of--
                          ``(i) $100,000 in the case of the $1,300,000 
                        amount,
                          ``(ii) $5,000 in the case of the $60,000 
                        amount, and
                          ``(iii) $250,000 in the case of the 
                        $3,000,000 amount,
                such increase shall be rounded to the next lowest 
                multiple thereof.
  ``(e) Property Acquired From the Decedent.--For purposes of this 
section, the following property shall be considered to have been 
acquired from the decedent:
          ``(1) Property acquired by bequest, devise, or inheritance, 
        or by the decedent's estate from the decedent.
          ``(2) Property transferred by the decedent during his 
        lifetime in trust to pay the income for life to or on the order 
        or direction of the decedent, with the right reserved to the 
        decedent at all times before his death--
                  ``(A) to revoke the trust, or
                  ``(B) to make any change in the enjoyment thereof 
                through the exercise of a power to alter, amend, or 
                terminate the trust.
          ``(3) Any other property passing from the decedent by reason 
        of death to the extent that such property passed without 
        consideration.
  ``(f) Coordination With Section 691.--This section shall not apply to 
property which constitutes a right to receive an item of income in 
respect of a decedent under section 691.
  ``(g) Certain Liabilities Disregarded.--In determining whether gain 
is recognized on the acquisition of property--
          ``(1) from a decedent by a decedent's estate or any 
        beneficiary, and
          ``(2) from the decedent's estate by any beneficiary,
and in determining the adjusted basis of such property, liabilities in 
excess of basis shall be disregarded.
  ``(h) Regulations.--The Secretary shall prescribe such regulations as 
may be necessary to carry out the purposes of this section.''.
  (b) Information Returns, Etc.--
          (1) In general.--Subpart C of part II of subchapter A of 
        chapter 61 is amended to read as follows:

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

                              ``Sec. 6018. Returns relating to large 
                                        transfers at death.
                              ``Sec. 6019. Returns relating to large 
                                        lifetime gifts.

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

  ``(a) In General.--If this section applies to property acquired from 
a decedent, the executor of the estate of such decedent shall make a 
return containing the information specified in subsection (c) with 
respect to such property.
  ``(b) Property to Which Section Applies.--
          ``(1) Large transfers.--This section shall apply to all 
        property (other than cash) acquired from a decedent if the fair 
        market value of such property acquired from the decedent 
        exceeds the dollar amount applicable under section 
        1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
          ``(2) Transfers of certain gifts received by decedent within 
        3 years of death.--This section shall apply to any appreciated 
        property acquired from the decedent if--
                  ``(A) subsections (b) and (c) of section 1022 do not 
                apply to such property by reason of section 
                1022(d)(1)(C), and
                  ``(B) such property was required to be included on a 
                return required to be filed under section 6019.
          ``(3) Nonresidents not citizens of the united states.--In the 
        case of a decedent who is a nonresident not a citizen of the 
        United States, paragraphs (1) and (2) shall be applied--
                  ``(A) by taking into account only--
                          ``(i) tangible property situated in the 
                        United States, and
                          ``(ii) other property acquired from the 
                        decedent by a United States person, and
                  ``(B) by substituting the dollar amount applicable 
                under section 1022(b)(3) for the dollar amount referred 
                to in paragraph (1).
          ``(4) Returns by trustees or beneficiaries.--If the executor 
        is unable to make a complete return as to any property acquired 
        from or passing from the decedent, the executor shall include 
        in the return a description of such property and the name of 
        every person holding a legal or beneficial interest therein. 
        Upon notice from the Secretary such person shall in like manner 
        make a return as to such property.
  ``(c) Information Required To Be Furnished.--The information 
specified in this subsection with respect to any property acquired from 
the decedent is--
          ``(1) the name and TIN of the recipient of such property,
          ``(2) an accurate description of such property,
          ``(3) the adjusted basis of such property in the hands of the 
        decedent and its fair market value at the time of death,
          ``(4) the decedent's holding period for such property,
          ``(5) sufficient information to determine whether any gain on 
        the sale of the property would be treated as ordinary income,
          ``(6) the amount of basis increase allocated to the property 
        under subsection (b) or (c) of section 1022, and
          ``(7) such other information as the Secretary may by 
        regulations prescribe.
  ``(d) Property Acquired From Decedent.--For purposes of this section, 
section 1022 shall apply for purposes of determining the property 
acquired from a decedent.
  ``(e) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return (other 
than the person required to make such return) a written statement 
showing--
          ``(1) the name, address, and phone number of the person 
        required to make such return, and
          ``(2) the information specified in subsection (c) with 
        respect to property acquired from, or passing from, the 
        decedent to the person required to receive such statement.
The written statement required under the preceding sentence shall be 
furnished not later than 30 days after the date that the return 
required by subsection (a) is filed.

``SEC. 6019. RETURNS RELATING TO LARGE LIFETIME GIFTS.

  ``(a) In General.--If the value of the aggregate gifts of property 
made by an individual to any United States person during a calendar 
year exceeds $25,000, such individual shall make a return for such year 
setting forth--
          ``(1) the name and TIN of the donee,
          ``(2) an accurate description of such property,
          ``(3) the adjusted basis of such property in the hands of the 
        donor at the time of the gift,
          ``(4) the donor's holding period for such property,
          ``(5) sufficient information to determine whether any gain on 
        the sale of the property would be treated as ordinary income, 
        and
          ``(6) such other information as the Secretary may by 
        regulations prescribe.
  ``(b) Exceptions.--Subsection (a) shall not apply to--
          ``(1) Cash.--Any gift of cash.
          ``(2) Gifts to charity.--Any gift to an organization 
        described in section 501(c) and exempt from tax under section 
        501(a) but only if no interest in the property is held for the 
        benefit of any person other than such an organization.
          ``(3) Waiver of certain pension rights individual waives, 
        before the death of a participant, any survivor benefit, or 
        right to such benefit, under section 401(a)(11) or 417, 
        subsection (a) shall not apply to such waiver.
          ``(4) Reporting elsewhere.--Any gift required to be reported 
        to the Secretary under any other provision of this title.
  ``(c) Statements To Be Furnished to Certain Persons.--Every person 
required to make a return under subsection (a) shall furnish to each 
person whose name is required to be set forth in such return a written 
statement showing--
          ``(1) the name, address, and phone number of the person 
        required to make such return, and
          ``(2) the information specified in subsection (a) with 
        respect to property received by the person required to receive 
        such statement.
The written statement required under the preceding sentence shall be 
furnished on or before January 31 of the year following the calendar 
year for which the return under subsection (a) was required to be 
made.''
          (2) Time for filing section 6018 returns.--
                  (A) Returns relating to large transfers at death.--
                Subsection (a) of section 6075 is amended to read as 
                follows:
  ``(a) Returns Relating to Large Transfers at Death.--The return 
required by section 6018 with respect to a decedent shall be filed with 
the return of the tax imposed by chapter 1 for the decedent's last 
taxable year or such later date specified in regulations prescribed by 
the Secretary.''
                  (B) Returns relating to large lifetime gifts.--
                          (i) The heading for section 6075(b) is 
                        amended to read as follows:
  ``(b) Returns Relating to Large Lifetime Gifts.--''.
                          (ii) Paragraph (1) of section 6075(b) is 
                        amended by striking ``(relating to gift 
                        taxes)'' and inserting ``(relating to returns 
                        relating to large lifetime gifts)''.
                          (iii) Paragraph (3) of section 6075(b) is 
                        amended--
                                  (I) by striking ``estate tax return'' 
                                and inserting ``section 6018 return'', 
                                and
                                  (II) by striking ``(relating to 
                                estate tax returns)'' and inserting 
                                ``(relating to returns relating to 
                                large transfers at death)''.
          (3) Penalties.--Part I of subchapter B of chapter 68 
        (relating to assessable penalties) is amended by adding at the 
        end the following new section:

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

  ``(a) Information Required To Be Furnished to the Secretary.--Any 
person required to furnish any information under section 6018 or 6019 
who fails to furnish such information on the date prescribed therefor 
(determined with regard to any extension of time for filing) shall pay 
a penalty of $10,000 ($500 in the case of information required to be 
furnished under section 6018(b)(2) or 6019) for each such failure.
  ``(b) Information Required To Be Furnished to Beneficiaries.--Any 
person required to furnish in writing to each person described in 
section 6018(e) or 6019(c) the information required under such section 
who fails to furnish such information shall pay a penalty of $50 for 
each such failure.
  ``(c) Reasonable Cause Exception.--No penalty shall be imposed under 
subsection (a) or (b) with respect to any failure if it is shown that 
such failure is due to reasonable cause.
  ``(d) Intentional Disregard.--If any failure under subsection (a) or 
(b) is due to intentional disregard of the requirements under sections 
6018 and 6019, the penalty under such subsection shall be 5 percent of 
the fair market value (as of the date of death or, in the case of 
section 6019, the date of the gift) of the property with respect to 
which the information is required.
  ``(e) Deficiency Procedures Not To Apply.--Subchapter B of chapter 63 
(relating to deficiency procedures for income, estate, gift, and 
certain excise taxes) shall not apply in respect of the assessment or 
collection of any penalty imposed by this section.''
          (4) Clerical amendments.--
                  (A) The table of sections for part I of subchapter B 
                of chapter 68 is amended by adding at the end the 
                following new item:

                              ``Sec. 6716. Failure to file information 
                                        with respect to certain 
                                        transfers at death and gifts.''

                  (B) The item relating to subpart C in the table of 
                subparts for part II of subchapter A of chapter 61 is 
                amended to read as follows:

                              ``Subpart C. Returns relating to 
                                        transfers during life or at 
                                        death.''

  (c) Exclusion of Gain on Sale of Principal Residence Made Available 
to Heir of Decedent in Certain Cases.--Subsection (d) of section 121 
(relating to exclusion of gain from sale of principal residence) is 
amended by adding at the end the following new paragraph:
          ``(9) Property acquired from a decedent.--The exclusion under 
        this section shall apply to property sold by--
                  ``(A) the estate of a decedent, and
                  ``(B) any individual who acquired such property from 
                the decedent (within the meaning of section 1022),
        determined by taking into account the ownership and use by the 
        decedent.''
  (d) Transfers of Appreciated Carryover Basis Property To Satisfy 
Pecuniary Bequest.--
          (1) In general.--Section 1040 (relating to transfer of 
        certain farm, etc., real property) is amended to read as 
        follows:

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

  ``(a) In General.--If the executor of the estate of any decedent 
satisfies the right of any person to receive a pecuniary bequest with 
appreciated property, then gain on such exchange shall be recognized to 
the estate only to the extent that, on the date of such exchange, the 
fair market value of such property exceeds such value on the date of 
death.
  ``(b) Similar Rule for Certain Trusts.--To the extent provided in 
regulations prescribed by the Secretary, a rule similar to the rule 
provided in subsection (a) shall apply where--
          ``(1) by reason of the death of the decedent, a person has a 
        right to receive from a trust a specific dollar amount which is 
        the equivalent of a pecuniary bequest, and
          ``(2) the trustee of a trust satisfies such right with 
        property.
  ``(c) Basis of Property Acquired in Exchange Described in Subsection 
(a) or (b).--The basis of property acquired in an exchange with respect 
to which gain realized is not recognized by reason of subsection (a) or 
(b) shall be the basis of such property immediately before the exchange 
increased by the amount of the gain recognized to the estate or trust 
on the exchange.''
          (2) The item relating to section 1040 in the table of 
        sections for part III of subchapter O of chapter 1 is amended 
        to read as follows:

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

  (e) Anti-Abuse Rules.--Section 7701 is amended by redesignating 
subsection (n) as subsection (o) and by inserting after subsection (m) 
the following new subsection:
  ``(n) Purported Gifts May Be Disregarded.--For purposes of subtitle 
A, the Secretary may treat a transfer which purports to be a gift as 
having never been transferred if, in connection with such transfer--
          ``(1)(A) the transferor (or any person related to or 
        designated by the transferor or such person) has received 
        anything of value in connection with such transfer from the 
        transferee directly or indirectly, or
          ``(B) there is an understanding or expectation that the 
        transferor (or such person) will receive anything of value in 
        connection with such transfer from the transferee directly or 
        indirectly, and
          ``(2) the Secretary determines that such treatment is 
        appropriate to prevent avoidance of tax imposed by subtitle 
        A.''
  (f) Miscellaneous Amendments Related to Carryover Basis.--
          (1) Recognition of gain on transfers to nonresidents.--
                  (A) Subsection (a) of section 684 is amended by 
                inserting ``or to a nonresident not a citizen of the 
                United States'' after ``or trust''.
                  ``(B) Subsection (b) of section 684 is amended by 
                striking ``any person'' and inserting ``any United 
                States person''.
                  (C) The section heading for section 684 is amended by 
                inserting ``and nonresident