,i #aacth ,,congress #b;d ,session ,h4 ,r4 #djfa ,,in ,,the ,,house ,,of ,,representatives ,february #ad1 #bjad ,mr4 ,mc,dermott introduced the following bill2 which was referred to the ,committee on ,ways and ,means ,a ,,bill ,to amend the ,internal ,revenue ,code of #aihf to reform the estate and gift tax4 #a4 ,short title ,this ,act may be cited as the ,sensible ,estate ,tax ,act of #bjad4 #b4 ,modification of estate tax exclusion and estate tax rates 7a7 ,exclusion amount 7#a7 ,in general ,subparagraph 7,a7 of section #bjaj7;c77#c7 of the ,internal ,revenue ,code of #aihf is amended by striking #e1jjj1jjj and inserting #a1jjj1jjj4 7#b7 ,inflation adjustment ,subparagraph 7,b7 of section #bjaj7;c77#c7 of such ,code is amended-- 7,a7 by striking #bjaa in the matter preceding clause 7i7 and inserting #bjad1 and 7,b7 by striking #bjaj in clause 7ii7 and inserting #bjjj4 7b7 ,estate tax rates 7#a7 ,in general ,the table contained in subsection 7c7 of section #bjja of such ,code is amended by striking ,over #a1jjj1jjj and all that follows and inserting the following3 ,over #a1jjj1jjj but not over #a1bej1jjjcde1hjj1 plus #da percent of the excess of such amount over #a1jjj1jjj4 ,over #a1bej1jjj but not over #a1ejj1jjjddh1cjj1 plus #dc percent of the excess of such amount over #a1bej1jjj4 ,over #a1ejj1jjj but not over #e1jjj1jjjeee1hjj1 plus #de percent of the excess of such amount over #a1ejj1jjj4 ,over #e1jjj1jjj but not over #aj1jjj1jjjb1acj1hjj1 plus #ej percent of the excess of such amount over #e1jjj1jjj4 ,over #aj1jjj1jjj #d1fcj1hjj1 plus #ee percent of the excess of such amount over #aj1jjj1jjj4 4 7#b7 ,adjustment for inflation ,subsection 7c7 of section #bjja of such ,code is amended-- 7,a7 by inserting the following before the table contained therein3 7#a7 ,in general 1 and 7,b7 by adding at the end the following new paragraph3 7#b7 ,inflation adjustment ,in the case of any decedent dying in a calendar year after #bjad-- 7,a7 each minimum and maximum dollar amount for each rate bracket in the table in paragraph 7#a7 shall be increased by an amount equal to-- 7i7 such dollar amount1 multiplied by 7ii7 the cost-of-living adjustment determined under section #a7;f77#c7 for such calendar year1 determined by substituting #bjjj for #aiib in subparagraph 7,b7 thereof1 and 7,b7 each of the amounts setting forth the tax under such table shall be adjusted to the extent necessary to reflect the adjustments in the rate brackets made by subparagraph 7,a74 ,if any increase determined under subparagraph 7,a7 is not a multiple of #aj1jjj1 such increase shall be rounded to the nearest multiple of #aj1jjj4 4 7c7 ,coordination with gift tax ,to reflect decrease in applicable credit amount ,subsection 7g7 of section #bjja of such ,code is amended to read as follows3 7g7 ,modifications to gift tax calculation ,for purposes of applying subsection 7b77#b7 with respect to #a or more gifts-- 7#a7 ,modifications to reflect different tax rates ,the rates of tax under subsection 7c7 in effect at the decedent's death shall1 in lieu of the rates of tax in effect at the time of such gifts1 be used both to compute-- 7,a7 the tax imposed by chapter #ab with respect to such gifts1 and 7,b7 the credit allowed against such tax under section #beje1 including in computing-- 7i7 the amount determined under section #beje7;a77#a71 and 7ii7 the sum of the amounts allowed as a credit for all preceding periods under section #beje7;a77#b74 7#b7 ,modification to reflect reduced applicable credit amounts ,the amount determined under section #beje7;a77#a7 for each calendar year shall not exceed the estate's applicable credit amount under section #bjaj7;c74 4 7d7 ,effective date ,except as otherwise provided by in this subsection1 the amendments made by this section shall apply to estates of decedents dying1 generation-skipping transfers1 and gifts made1 after ,december #ca1 #bjad4 #c4 ,restoration of credit for ,state transfer tax 7a7 ,in general ,section #bjaa of the ,internal ,revenue ,code of #aihf is amended by striking subsection 7f74 7b7 ,repeal of deduction for state transfer taxes 7#a7 ,in general ,section #bjeh of such ,code is amended by adding at the end the following3 7c7 ,termination ,this section shall not apply to the estates of decedents dying after ,december #ca1 #bjad4 4 7#b7 ,conforming amendment ,section #bajf7;a77#d7 of such ,code is amended by adding at the end the following new sentence3 ,this paragraph shall not apply to the estates of decedents dying after ,december #ca1 #bjad44 7c7 ,effective date ,the amendments made by this section shall apply to estates of decedents dying1 and gifts made1 after ,december #ca1 #bjad4 #d4 ,valuation rules for certain transfers of nonbusiness assets2 limitation on minority discounts 7a7 ,in general ,section #bjca of the ,internal ,revenue ,code of #aihf is amended by redesignating subsection 7d7 as subsection 7f7 and by inserting after subsection 7c7 the following new subsections3 7d7 ,valuation rules for certain transfers of nonbusiness assets ,for purposes of this chapter and chapter #ab-- 7#a7 ,in general ,in the case of the transfer of any interest in an entity other than an interest which is actively traded 7within the meaning of section #ajib7-- 7,a7 the value of any nonbusiness assets held by the entity shall be determined as if the transferor had transferred such assets directly to the transferee 7and no valuation discount shall be allowed with respect to such nonbusiness assets71 and 7,b7 the nonbusiness assets shall not be taken into account in determining the value of the interest in the entity4 7#b7 ,nonbusiness assets ,for purposes of this subsection-- 7,a7 ,in general ,the term nonbusiness asset means any asset which is not used in the active conduct of #a or more trades or businesses4 7,b7 ,exception for certain passive assets ,except as provided in subparagraph 7,c71 a passive asset shall not be treated for purposes of subparagraph 7,a7 as used in the active conduct of a trade or business unless-- 7i7 the asset is property described in paragraph 7#a7 or 7#d7 of section #abba7;a7 or is a hedge with respect to such property1 or 7ii7 the asset is real property used in the active conduct of #a or more real property trades or businesses 7within the meaning of section #dfi7;c77#g77;,c77 in which the transferor materially participates and with respect to which the transferor meets the requirements of section #dfi7;c77#g77;,b77ii74 ,for purposes of clause 7ii71 material participation shall be determined under the rules of section #dfi7;h71 except that section #dfi7;h77#c7 shall be applied without regard to the limitation to farming activity4 7,c7 ,exception for working capital ,any asset 7including a passive asset7 which is held as a part of the reasonably required working capital needs of a trade or business shall be treated as used in the active conduct of a trade or business4 7#c7 ,passive asset ,for purposes of this subsection1 the term passive asset means any-- 7,a7 cash or cash equivalents1 7,b7 except to the extent provided by the ,secretary1 stock in a corporation or any other equity1 profits1 or capital interest in any entity1 7,c7 evidence of indebtedness1 option1 forward or futures contract1 notional principal contract1 or derivative1 7,d7 asset described in clause 7iii71 7iv71 or 7v7 of section #cea7;e77#a77;,b71 7,e7 annuity1 7,f7 real property used in #a or more real property trades or businesses 7as defined in section #dfi7;c77#g77;,c771 7,g7 asset 7other than a patent1 trademark1 or copyright7 which produces royalty income1 7,h7 commodity1 7,i7 collectible 7within the meaning of section #dja7m771 or 7,j7 any other asset specified in regulations prescribed by the ,secretary4 7#d7 ,look-thru rules 7,a7 ,in general ,if a nonbusiness asset of an entity consists of a #aj-percent interest in any other entity1 this subsection shall be applied by disregarding the #aj-percent interest and by treating the entity as holding directly its ratable share of the assets of the other entity4 ,this subparagraph shall be applied successively to any #aj-percent interest of such other entity in any other entity4 7,b7 #aj-percent interest ,the term #aj-percent interest means-- 7i7 in the case of an interest in a corporation1 ownership of at least #aj percent 7by vote or value7 of the stock in such corporation1 7ii7 in the case of an interest in a partnership1 ownership of at least #aj percent of the capital or profits interest in the partnership1 and 7iii7 in any other case1 ownership of at least #aj percent of the beneficial interests in the entity4 7,c7 ,exception for actively traded interests ,subparagraph 7,a7 shall not apply to any nonbusiness asset which consists of an interest which is actively traded 7within the meaning of section #ajib74 7#e7 ,coordination with subsection 7b7 ,subsection 7b7 shall apply after the application of this subsection4 7e7 ,limitation on minority discounts ,for purposes of this chapter and chapter #ab1 in the case of the transfer of any interest in an entity other than an interest which is actively traded 7within the meaning of section #ajib71 no discount shall be allowed by reason of the fact that the transferee does not have control of such entity if the transferee and members of the family 7as defined in section #bjcb;,a7e77#b77 of the transferee have control of such entity 7determined immediately after such transfer74 4 7b7 ,effective date ,the amendments made by this section shall apply to transfers after the date of the enactment of this ,act4 #e4 ,consistent basis reporting between estate and person acquiring property from decedent 7a7 ,consistent use of basis 7#a7 ,property acquired from a decedent ,section #ajad of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7f7 ,basis must be consistent with estate tax return 7#a7 ,in general ,for purposes of this section1 the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the value of such interest as finally determined for purposes of chapter #aa4 7#b7 ,special rule where no final determination ,in any case in which the final value of property has not been determined under chapter #aa and there has been a statement furnished under section #fjce7;a71 the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the amount reported on any statement furnished under section #fjce7;a74 7#c7 ,regulations ,the ,secretary may by regulations provide exceptions to the application of this subsection4 4 7#b7 ,property acquired by gifts and transfers in trust ,section #ajae of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7f7 ,basis must be consistent gift tax return 7#a7 ,in general ,for purposes of this section1 the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the value of such interest as finally determined for purposes of chapter #ab4 7#b7 ,special rule where no final determination ,in any case in which the final value of property has not been determined under chapter #ab and there has been a statement furnished under section #fjce7;b71 the value used to determine the basis of any interest in property in the hands of the person acquiring such property shall not exceed the amount reported on any statement furnished under section #fjce7;b74 7#c7 ,regulations ,the ,secretary may by regulations provide exceptions to the application of this subsection4 4 7b7 ,information reporting 7#a7 ,in general ,subpart ,a of part ,,iii of subchapter ,a of chapter #fa of the ,internal ,revenue ,code of #aihf is amended by inserting after section #fjcd;,a the following new section3 #fjce4 ,basis information to persons acquiring property from decedent or by gift 7a7 ,information with respect to property acquired from decedents 7#a7 ,in general ,the executor of any estate required to file a return under section #fjah7;a7 shall furnish to the ,secretary and to each person acquiring any interest in property included in the decedent's gross estate for ,federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the ,secretary may prescribe4 7#b7 ,statements by beneficiaries ,each person required to file a return under section #fjah7;b7 shall furnish to the ,secretary and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in paragraph 7#a74 7#c7 ,time for furnishing statement 7,a7 ,in general ,each statement required to be furnished under paragraph 7#a7 or 7#b7 shall be furnished at such time as the ,secretary may prescribe1 but in no case at a time later than the earlier of-- 7i7 the date which is #cj days after the date on which the return under section #fjah was required to be filed 7including extensions1 if any71 or 7ii7 the date which is #cj days after the date such return is filed4 7,b7 ,adjustments ,in any case in which there is an adjustment to the information required to be included on a statement filed under paragraph 7#a7 or 7#b7 after such statement has been filed1 a supplemental statement under such paragraph shall be filed not later than the date which is #cj days after such adjustment is made4 7b7 ,information with respect to property acquired by gift 7#a7 ,in general ,each person making a transfer by gift who is required to file a return under section #fjai with respect to such transfer shall furnish to the ,secretary and to each person acquiring any interest in property by reason of such transfer a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the ,secretary may prescribe4 7#b7 ,time for furnishing statement 7,a7 ,in general ,each statement required to be furnished under paragraph 7#a7 shall be furnished at such time as the ,secretary may prescribe1 but in no case at a time later than the earlier of-- 7i7 the date which is #cj days after the date on which the return under section #fjai was required to be filed 7including extensions1 if any71 or 7ii7 the date which is #cj days after the date such return is filed4 7,b7 ,adjustments ,in any case in which there is an adjustment to the information required to be included on a statement filed under paragraph 7#a7 after such statement has been filed1 a supplemental statement under such paragraph shall be filed not later than the date which is #cj days after such adjustment is made4 7c7 ,regulations ,the ,secretary shall prescribe such regulations as necessary to carry out this section1 including regulations relating to-- 7#a7 the application of this section to property with regard to which no estate or gift tax return is required to be filed1 and 7#b7 situations in which the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property4 4 7#b7 ,penalty for failure to file 7,a7 ,return ,section #fgbd7;d77#a7 of the ,internal ,revenue ,code of #aihf is amended by striking and at the end of subparagraph 7,b71 by striking the period at the end of subparagraph 7,c7 and inserting 1 and1 and by inserting after subparagraph 7,c7 the following new subparagraph3 7,d7 any statement required to be filed with the ,secretary under section #fjce4 4 7,b7 ,statement ,section #fgbd7;d77#b7 of such ,code is amended by striking or at the end of subparagraph 7,,gg71 by striking the period at the end of subparagraph 7,,hh7 and inserting 1 or1 and by inserting after subparagraph 7,,hh7 the following new subparagraph3 7,,ii7 section #fjce 7other than a statement described in paragraph 7#a77;,d774 4 7#c7 ,clerical amendment ,the table of sections for subpart ,a of part ,,iii of subchapter ,a of chapter #fa of the ,internal ,revenue ,code of #aihf is amended by inserting after the item relating to section #fjcd;,a the following new item3 ,sec4 #fjce4 ,basis information to persons acquiring property from decedent or by gift4 4 7c7 ,penalty for inconsistent reporting 7#a7 ,in general ,subsection 7b7 of section #fffb of the ,internal ,revenue ,code of #aihf is amended by inserting after paragraph 7#g7 the following new paragraph3 7#h7 ,any inconsistent estate or gift basis4 4 7#b7 ,inconsistent basis reporting ,section #fffb of such ,code is amended by adding at the end the following new subsection3 7k7 ,inconsistent estate or gift basis reporting ,for purposes of this section1 the term inconsistent estate or gift basis means the portion of the understatement which is attributable to-- 7#a7 in the case of property acquired from a decedent1 a basis determination with respect to such property which is not consistent with the value of such property as determined under section #ajad7;f71 and 7#b7 in the case of property acquired by gift1 a basis determination with respect to such property which is not consistent with the value of such property as determined under section #ajae7;f74 4 7d7 ,effective date ,the amendments made by this section shall apply to transfers for which returns are filed after the date of the enactment of this ,act4 #f4 ,required minimum #aj-year term1 etc41 for grantor retained annuity trusts 7a7 ,in general ,subsection 7b7 of section #bgjb of the ,internal ,revenue ,code of #aihf is amended-- 7#a7 by redesignating paragraphs 7#a71 7#b71 and 7#c7 as subparagraphs 7,a71 7,b71 and 7,c71 respectively1 and by moving such subparagraphs 7as so redesignated7 #b ems to the right2 7#b7 by striking ,for purposes of and inserting the following3 7#a7 ,in general ,for purposes of 2 7#c7 by striking paragraph 7#a7 or 7#b7 in paragraph 7#a77;,c7 7as so redesignated7 and inserting subparagraph 7,a7 or 7,b72 and 7#d7 by adding at the end the following new paragraph3 7#b7 ,additional requirements with respect to grantor retained annuities ,for purposes of subsection 7a71 in the case of an interest described in paragraph 7#a77;,a7 7determined without regard to this paragraph7 which is retained by the transferor1 such interest shall be treated as described in such paragraph only if-- 7,a7 the right to receive the fixed amounts referred to in such paragraph is for a term of not less than #aj years1 7,b7 such fixed amounts1 when determined on an annual basis1 do not decrease relative to any prior year during the first #aj years of the term referred to in subparagraph 7,a71 and 7,c7 the remainder interest has a value greater than zero determined as of the time of the transfer4 4 7b7 ,effective date ,the amendments made by this section shall apply to transfers made after the date of the enactment of this ,act4 #g4 ,limitation on ,,gst exemption of perpetual dynasty trusts 7a7 ,in general ,section #bfdb of the ,internal ,revenue ,code of #aihf is amended by adding at the end the following new subsection3 7h7 ,expiration of ,,gst exemption #ij years after establishment of trust 7#a7 ,in general ,in the case of any generation-skipping transfer made from a trust after the date which is #ij years after the date on which such trust is created1 the inclusion ratio with respect to any property transferred in such transfer shall be #a4 7#b7 ,special rules ,for purposes of this subsection-- 7,a7 ,date of creation of certain deemed separate trusts ,in the case of any portion of a trust which is treated as a separate trust under section #bfed7;b77#a71 such separate trust shall be treated as created on the date of the first transfer described in such section with respect to such separate trust4 7,b7 ,date of creation of pour-over trusts ,in the case of any generation-skipping transfer of property which involves the transfer of property from #a trust to another trust1 the date of the creation of the transferee trust shall be treated as being the earlier of-- 7i7 the date of the creation of such transferee trust1 or 7ii7 the date of the creation of the transferor trust4 ,in the case of multiple transfers to which the preceding sentence applies1 the date of the creation of the transferor trust shall be determined under the preceding sentence before the application of the preceding sentence to determine the date of the creation of the transferee trust4 7,c7 ,exception for certain transfers for education and medical expenses ,subparagraph 7,b7 shall not apply to the transfer of property from #a trust to another trust if-- 7i7 such transfer is described in section #bfdb7;c77#b71 and 7ii7 the individual referred to in such section with respect to the transferee trust was also a beneficiary of the transferor trust4 7#c7 ,regulations ,the ,secretary may prescribe such regulations or other guidance as may be necessary or appropriate to carry out this subsection4 4 7b7 ,effective date 7#a7 ,in general ,the amendments made this section shall apply to-- 7,a7 trusts created after the date of the enactment of this ,act1 and 7,b7 generation-skipping transfers made from trusts created on or before such date1 but only to the extent such transfer is made out of corpus added to the trust after such date 7or out of income attributable to corpus so added74 7#b7 ,determination of date of creation ,for purposes of this subsection1 the rules of sections #bfdb7;h77#b7 7as added by this section7 and #bfed7;b7 of the ,internal ,revenue ,code of #aihf shall apply for purposes of determining the date of the creation of any trust4 7#c7 ,exceptions ,the ,secretary of the ,treasury1 or his designee1 shall issue regulations or other guidance which provide exceptions to the application of the amendments made by this section which are substantially similar to the relevant exceptions under paragraph 7#b7 of section #adcc7;b7 of the ,tax ,reform ,act of #aihf4