[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[S. 479 Introduced in Senate (IS)]







105th CONGRESS
  1st Session
                                 S. 479

   To amend the Internal Revenue Code of 1986 to provide estate tax 
                    relief, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 19, 1997

   Mr. Grassley (for himself, Mr. Baucus, Mr. Lott, Mr. Breaux, Mr. 
 Nickles, Mr. Murkowski, Mr. Torricelli, Ms. Landrieu, Mr. Craig, Mr. 
 Kerrey, Mr. Hagel, and Mr. Hutchinson) introduced the following bill; 
     which was read twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
   To amend the Internal Revenue Code of 1986 to provide estate tax 
                    relief, 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; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Estate Tax Relief 
for the American Family Act of 1997''.
    (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.

SEC. 2. INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDIT.

    (a) Estate Tax Credit.--
            (1) In general.--Section 2010(a) (relating to unified 
        credit against estate tax) is amended by striking ``$192,800'' 
        and inserting ``the applicable credit amount''.
            (2) Applicable credit amount.--Section 2010 is amended by 
        redesignating subsection (c) as subsection (d) and by inserting 
        after subsection (b) the following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this section, the 
applicable credit amount is 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 the applicable exclusion amount determined in accordance with the 
following table:

        ``In the case of estates of decedents
                                                         The applicable
          dying, and gifts made, during:
                                                   exclusion amount is:
                  1997...............................         $700,000 
                  1998...............................         $800,000 
                  1999...............................         $850,000 
                  2000...............................         $900,000 
                  2001...............................         $950,000 
                  2002 or thereafter.................     $1,000,000.''
            (3) Conforming amendments.--
                    (A) Section 6018(a)(1) is amended by striking 
                ``$600,000'' and inserting ``the applicable exclusion 
                amount in effect under section 2010(c) for the calendar 
                year which includes the date of death''.
                    (B) Section 2001(c)(2) is amended by striking 
                ``$21,040,000'' and inserting ``the amount at which the 
                average tax rate under this section is 55 percent''.
                    (C) Section 2102(c)(3)(A) is amended by striking 
                ``$192,800'' and inserting ``the applicable credit 
                amount in effect under section 2010(c) for the calendar 
                year which includes the date of death''.
    (b) Unified Gift Tax Credit.--Section 2505(a)(1) (relating to 
unified credit against gift tax) is amended by striking ``$192,800'' 
and inserting ``the applicable credit amount in effect under section 
2010(c) for such calendar year''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying, and gifts made, after the date 
of the enactment of this Act.

SEC. 3. FAMILY-OWNED BUSINESS EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 (relating 
to gross estate) is amended by inserting after section 2033 the 
following new section:

``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

    ``(a) In General.--In the case of an estate of a decedent to which 
this section applies, the value of the gross estate shall not include 
the lesser of--
            ``(1) the adjusted value of the qualified family-owned 
        business interests of the decedent otherwise includible in the 
        estate, or
            ``(2) the sum of--
                    ``(A) $1,500,000, plus
                    ``(B) 50 percent of the excess (if any) of the 
                adjusted value of such interests over $1,500,000, but 
                not over $10,000,000.
    ``(b) Estates to Which Section Applies.--
            ``(1) In general.--This section shall apply to an estate 
        if--
                    ``(A) the decedent was (at the date of the 
                decedent's death) a citizen or resident of the United 
                States,
                    ``(B) the executor elects the application of this 
                section and files the agreement referred to in 
                subsection (h),
                    ``(C) the sum of--
                            ``(i) the adjusted value of the qualified 
                        family-owned business interests described in 
                        paragraph (2), plus
                            ``(ii) the amount of the gifts of such 
                        interests determined under paragraph (3),
                exceeds 50 percent of the adjusted gross estate, and
                    ``(D) during the 8-year period ending on the date 
                of the decedent's death there have been periods 
                aggregating 5 years or more during which--
                            ``(i) such interests were owned by the 
                        decedent or a member of the decedent's family, 
                        and
                            ``(ii) there was material participation 
                        (within the meaning of section 2032A(e)(6)) by 
                        the decedent or a member of the decedent's 
                        family in the operation of the business to 
                        which such interests relate.
            ``(2) Includible qualified family-owned business 
        interests.--The qualified family-owned business interests 
        described in this paragraph are the interests which--
                    ``(A) are included in determining the value of the 
                gross estate (without regard to this section), and
                    ``(B) are acquired by any qualified heir from, or 
                passed to any qualified heir from, the decedent (within 
                the meaning of section 2032A(e)(9)).
            ``(3) Includible gifts of interests.--The amount of the 
        gifts of qualified family-owned business interests determined 
        under this paragraph is the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of such gifts from the 
                        decedent to members of the decedent's family 
                        taken into account under subsection 
                        2001(b)(1)(B), plus
                            ``(ii) the amount of such gifts otherwise 
                        excluded under section 2503(b),
                to the extent such interests are continuously held by 
                members of such family (other than the decedent's 
                spouse) between the date of the gift and the date of 
                the decedent's death, over
                    ``(B) the amount of such gifts from the decedent to 
                members of the decedent's family otherwise included in 
                the gross estate.
    ``(c) Adjusted Gross Estate.--For purposes of this section, the 
term `adjusted gross estate' means the value of the gross estate 
(determined without regard to this section)--
            ``(1) reduced by any amount deductible under paragraph (3) 
        or (4) of section 2053(a), and
            ``(2) increased by the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of gifts determined under 
                        subsection (b)(3), plus
                            ``(ii) the amount (if more than de minimis) 
                        of other transfers from the decedent to the 
                        decedent's spouse (at the time of the transfer) 
                        within 10 years of the date of the decedent's 
                        death, plus
                            ``(iii) the amount of other gifts (not 
                        included under clause (i) or (ii)) from the 
                        decedent within 3 years of such date, other 
                        than gifts to members of the decedent's family 
                        otherwise excluded under section 2503(b), over
                    ``(B) the sum of the amounts described in clauses 
                (i), (ii), and (iii) of subparagraph (A) which are 
                otherwise includible in the gross estate.
For purposes of the preceding sentence, the Secretary may provide that 
de minimis gifts to persons other than members of the decedent's family 
shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Business 
Interests.--For purposes of this section, the adjusted value of any 
qualified family-owned business interest is the value of such interest 
for purposes of this chapter (determined without regard to this 
section), reduced by the excess of--
            ``(1) any amount deductible under paragraph (3) or (4) of 
        section 2053(a), over
            ``(2) the sum of--
                    ``(A) any indebtedness on any qualified residence 
                of the decedent the interest on which is deductible 
                under section 163(h)(3), plus
                    ``(B) any indebtedness to the extent the taxpayer 
                establishes that the proceeds of such indebtedness were 
                used for the payment of educational and medical 
                expenses of the decedent, the decedent's spouse, or the 
                decedent's dependents (within the meaning of section 
                152), plus
                    ``(C) any indebtedness not described in 
                subparagraph (A) or (B), to the extent such 
                indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Business Interest.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified family-owned business interest' means--
                    ``(A) an interest as a proprietor in a trade or 
                business carried on as a proprietorship, or
                    ``(B) an interest in an entity carrying on a trade 
                or business, if--
                            ``(i) at least--
                                    ``(I) 50 percent of such entity is 
                                owned (directly or indirectly) by the 
                                decedent and members of the decedent's 
                                family,
                                    ``(II) 70 percent of such entity is 
                                so owned by members of 2 families, or
                                    ``(III) 90 percent of such entity 
                                is so owned by members of 3 families, 
                                and
                            ``(ii) for purposes of subclause (II) or 
                        (III) of clause (i), at least 30 percent of 
                        such entity is so owned by the decedent and 
                        members of the decedent's family.
            ``(2) Limitation.--Such term shall not include--
                    ``(A) any interest in a trade or business the 
                principal place of business of which is not located in 
                the United States,
                    ``(B) any interest in an entity, if the stock or 
                debt of such entity or a controlled group (as defined 
                in section 267(f)(1)) of which such entity was a member 
                was readily tradable on an established securities 
                market or secondary market (as defined by the 
                Secretary) at any time within 3 years of the date of 
                the decedent's death,
                    ``(C) any interest in a trade or business not 
                described in section 542(c)(2), if more than 35 percent 
                of the adjusted ordinary gross income of such trade or 
                business for the taxable year which includes the date 
                of the decedent's death would qualify as personal 
                holding company income (as defined in section 543(a)),
                    ``(D) that portion of an interest in a trade or 
                business that is attributable to--
                            ``(i) cash or marketable securities, or 
                        both, in excess of the reasonably expected day-
                        to-day working capital needs of such trade or 
                        business, and
                            ``(ii) any other assets of the trade or 
                        business (other than assets used in the active 
                        conduct of a trade or business described in 
                        section 542(c)(2)), the income of which is 
                        described in section 543(a) or in subparagraph 
                        (B), (C), (D), or (E) of section 954(c)(1) 
                        (determined by substituting `trade or business' 
                        for `controlled foreign corporation').
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes of 
                paragraph (1)(B)--
                            ``(i) Corporations.--Ownership of a 
                        corporation shall be determined by the holding 
                        of stock possessing the appropriate percentage 
                        of the total combined voting power of all 
                        classes of stock entitled to vote and the 
                        appropriate percentage of the total value of 
                        shares of all classes of stock.
                            ``(ii) Partnerships.--Ownership of a 
                        partnership shall be determined by the owning 
                        of the appropriate percentage of the capital 
                        interest in such partnership.
                    ``(B) Ownership of tiered entities.--For purposes 
                of this section, if by reason of holding an interest in 
                a trade or business, a decedent, any member of the 
                decedent's family, any qualified heir, or any member of 
                any qualified heir's family is treated as holding an 
                interest in any other trade or business--
                            ``(i) such ownership interest in the other 
                        trade or business shall be disregarded in 
                        determining if the ownership interest in the 
                        first trade or business is a qualified family-
                        owned business interest, and
                            ``(ii) this section shall be applied 
                        separately in determining if such interest in 
                        any other trade or business is a qualified 
                        family-owned business interest.
                    ``(C) Individual ownership rules.--For purposes of 
                this section, an interest owned, directly or 
                indirectly, by or for an entity described in paragraph 
                (1)(B) shall be considered as being owned 
                proportionately by or for the entity's shareholders, 
                partners, or beneficiaries. A person shall be treated 
                as a beneficiary of any trust only if such person has a 
                present interest in such trust.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
            ``(1) In general.--There is imposed an additional estate 
        tax if, within 10 years after the date of the decedent's death 
        and before the date of the qualified heir's death--
                    ``(A) the material participation requirements 
                described in section 2032A(c)(6)(B) are not met with 
                respect to the qualified family-owned business interest 
                which was acquired (or passed) from the decedent,
                    ``(B) the qualified heir disposes of any portion of 
                a qualified family-owned business interest (other than 
                by a disposition to a member of the qualified heir's 
                family or through a qualified conservation contribution 
                under section 170(h)),
                    ``(C) the qualified heir loses United States 
                citizenship (within the meaning of section 877) or with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) occurs, and such heir does 
                not comply with the requirements of subsection (g), or
                    ``(D) the principal place of business of a trade or 
                business of the qualified family-owned business 
                interest ceases to be located in the United States.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the additional 
                estate tax imposed by paragraph (1) shall be equal to--
                            ``(i) the applicable percentage of the 
                        adjusted tax difference attributable to the 
                        qualified family-owned business interest (as 
                        determined under rules similar to the rules of 
                        section 2032A(c)(2)(B)), plus
                            ``(ii) interest on the amount determined 
                        under clause (i) at the underpayment rate 
                        established under section 6621 for the period 
                        beginning on the date the estate tax liability 
                        was due under this chapter and ending on the 
                        date such additional estate tax is due.
                    ``(B) Applicable percentage.--For purposes of this 
                paragraph, the applicable percentage shall be 
                determined under the following table:

        ``If the event described in

          paragraph (1) occurs in

          the following year of
                                                         The applicable
          material participation:
                                                         percentage is:
    1 through 6...................................                 100 
    7.............................................                  80 
    8.............................................                  60 
    9.............................................                  40 
    10............................................                  20.
    ``(g) Security Requirements for Noncitizen Qualified Heirs.--
            ``(1) In general.--Except upon the application of 
        subparagraph (F) or (M) of subsection (h)(3), if a qualified 
        heir is not a citizen of the United States, any interest under 
        this section passing to or acquired by such heir (including any 
        interest held by such heir at a time described in subsection 
        (f)(1)(C)) shall be treated as a qualified family-owned 
        business interest only if the interest passes or is acquired 
        (or is held) in a qualified trust.
            ``(2) Qualified trust.--The term `qualified trust' means a 
        trust--
                    ``(A) which is organized under, and governed by, 
                the laws of the United States or a State, and
                    ``(B) except as otherwise provided in regulations, 
                with respect to which the trust instrument requires 
                that at least 1 trustee of the trust be an individual 
                citizen of the United States or a domestic corporation.
    ``(h) Agreement.--The agreement referred to in this subsection is a 
written agreement signed by each person in being who has an interest 
(whether or not in possession) in any property designated in such 
agreement consenting to the application of subsection (f) with respect 
to such property.
    ``(i) Other Definitions and Applicable Rules.--For purposes of this 
section--
            ``(1) Qualified heir.--The term `qualified heir'--
                    ``(A) has the meaning given to such term by section 
                2032A(e)(1), and
                    ``(B) includes any active employee of the trade or 
                business to which the qualified family-owned business 
                interest relates if such employee has been employed by 
                such trade or business for a period of at least 10 
                years before the date of the decedent's death.
            ``(2) Member of the family.--The term `member of the 
        family' has the meaning given to such term by section 
        2032A(e)(2).
            ``(3) Applicable rules.--Rules similar to the following 
        rules shall apply:
                    ``(A) Section 2032A(b)(4) (relating to decedents 
                who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to special 
                rules for surviving spouses).
                    ``(C) Section 2032A(c)(2)(D) (relating to partial 
                dispositions).
                    ``(D) Section 2032A(c)(3) (relating to only 1 
                additional tax imposed with respect to any 1 portion).
                    ``(E) Section 2032A(c)(4) (relating to due date).
                    ``(F) Section 2032A(c)(5) (relating to liability 
                for tax; furnishing of bond).
                    ``(G) Section 2032A(c)(7) (relating to no tax if 
                use begins within 2 years; active management by 
                eligible qualified heir treated as material 
                participation).
                    ``(H) Paragraphs (1) and (3) of section 2032A(d) 
                (relating to election; agreement).
                    ``(I) Section 2032A(e)(10) (relating to community 
                property).
                    ``(J) Section 2032A(e)(14) (relating to treatment 
                of replacement property acquired in section 1031 or 
                1033 transactions).
                    ``(K) Section 2032A(f) (relating to statute of 
                limitations).
                    ``(L) Section 6166(b)(3) (relating to farmhouses 
                and certain other structures taken into account).
                    ``(M) Subparagraphs (B), (C), and (D) of section 
                6166(g)(1) (relating to acceleration of payment).
                    ``(N) Section 6324B (relating to special lien for 
                additional estate tax).''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by inserting after the item 
relating to section 2033 the following new item:

                              ``Sec. 2033A. Family-owned business 
                                        exclusion.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1997.

SEC. 4. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A TO 
              LINEAL DESCENDANTS.

    (a) General Rule.--Paragraph (7) of section 2032A(c) (relating to 
special rules for tax treatment of dispositions and failures to use for 
qualified use) is amended by adding at the end the following new 
subparagraph:
                    ``(E) Certain rents treated as qualified use.--For 
                purposes of this subsection, a surviving spouse or 
                lineal descendant of the decedent shall not be treated 
                as failing to use qualified real property in a 
                qualified use solely because such spouse or descendant 
                rents such property to a member of the family of such 
                spouse or descendant on a net cash basis. For purposes 
                of the preceding sentence, a legally adopted child of 
                an individual shall be treated as the child of such 
                individual by blood.''
    (b) Conforming Amendment.--Section 2032A(b)(5)(A) is amended by 
striking out the last sentence.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendment made by section 6151 of the 
Technical and Miscellaneous Revenue Act of 1988.

SEC. 5. INCREASE IN MAXIMUM REDUCTION IN VALUE FOR SPECIAL USE 
              VALUATION.

    (a) In General.--Section 2032A(a)(2) (relating to limitation on 
aggregate reduction in fair market value) is amended by striking 
``$750,000'' and inserting ``$1,000,000''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1996.

SEC. 6. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.

    (a) General Rule.--Paragraph (3) of section 2032A(d) (relating to 
modification of election and agreement to be permitted) is amended to 
read as follows:
            ``(3) Modification of election and agreement to be 
        permitted.--The Secretary shall prescribe procedures which 
        provide that in any case in which the executor makes an 
        election under paragraph (1) (and submits the agreement 
        referred to in paragraph (2)) within the time prescribed 
        therefor, but--
                    ``(A) the notice of election, as filed, does not 
                contain all required information, or
                    ``(B) signatures of 1 or more persons required to 
                enter into the agreement described in paragraph (2) are 
                not included on the agreement as filed, or the 
                agreement does not contain all required information,
        the executor will have a reasonable period of time (not 
        exceeding 90 days) after notification of such failures to 
        provide such information or signatures.''
    (b) Effective Date.--The amendment made by this section shall apply 
to the estates of decedents dying after the date of the enactment of 
this Act.

SEC. 7. 20-YEAR INSTALLMENT PAYMENT WHERE ESTATE CONSISTS LARGELY OF 
              INTEREST IN CLOSELY HELD BUSINESS.

    (a) In General.--Section 6166(a) (relating to extension of time for 
payment of estate tax where estate consists largely of interest in 
closely held business) is amended by striking ``10'' in paragraph (1) 
and the heading thereof and inserting ``20''.
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1996.

SEC. 8. NO INTEREST ON CERTAIN PORTION OF ESTATE TAX EXTENDED UNDER 
              6166.

    (a) In General.--Section 6601(j) (relating to 4-percent rate on 
certain portion of estate tax extended under section 6166) is amended--
            (1) by striking the first sentence of paragraph (1) and 
        inserting the following new sentence: ``If the time for payment 
        of an amount of tax imposed by chapter 11 is extended as 
        provided in section 6166, no interest on the no-interest 
        portion of such amount shall (in lieu of the annual rate 
        provided by subsection (a)) be paid.'',
            (2) by striking ``4-percent'' each place it appears in 
        paragraphs (2) and (3) and inserting ``no-interest'',
            (3) by striking subparagraph (A) of paragraph (2) and 
        inserting the following new subparagraph:
                    ``(A) $153,000, or'',
            (4) by striking ``4-percent'' in the heading of paragraph 
        (2) and inserting ``No interest'', and
            (5) by striking ``4-Percent Rate'' in the heading thereof 
        and inserting ``No Interest''.
    (b) Conforming Amendments.--
            (1) Section 6166(b)(7)(A)(iii) is amended by striking ``4-
        percent rate of interest'' and inserting ``no-interest 
        portion''.
            (2) Section 6166(b)(8)(A)(iii) is amended to read as 
        follows:
                            ``(iii) No-interest portion not to apply.--
                        Section 6601(j) (relating to no-interest 
                        portion) shall not apply.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1996.

SEC. 9. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER 
              EXPIRATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Section 2001 (relating to imposition and rate of 
estate tax) is amended by adding at the end the following new 
subsection:
    ``(f) Valuation of Gifts.--If--
            ``(1) the time has expired within which a tax may be 
        assessed under chapter 12 (or under corresponding provisions of 
        prior laws) on the transfer of property by gift made during a 
        preceding calendar period (as defined in section 2502(b)), and
            ``(2) the value of such gift is shown on the return for 
        such preceding calendar period or is disclosed in such return, 
        or in a statement attached to the return, in a manner adequate 
        to apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax under 
this chapter, be the value of such gift as finally determined for 
purposes of chapter 12.''
    (b) Modification of Application of Statute of Limitations.--
Paragraph (9) of section 6501(c) is amended to read as follows:
            ``(9) Gift tax on certain gifts not shown on return.--If 
        any gift of property the value of which (or any increase in 
        taxable gifts required under section 2701(d)) is required to be 
        shown on a return of tax imposed by chapter 12 (without regard 
        to section 2503(b)), and is not shown on such return, any tax 
        imposed by chapter 12 on such gift may be assessed, or a 
        proceeding in court for the collection of such tax may be begun 
        without assessment, at any time. The preceding sentence shall 
        not apply to any item which is disclosed in such return, or in 
        a statement attached to the return, in a manner adequate to 
        apprise the Secretary of the nature of such item. The value of 
        any item which is so disclosed may not be redetermined by the 
        Secretary after the expiration of the period under subsection 
        (a).''
    (c) Declaratory Judgment Procedure for Determining Value of Gift.--
            (1) In general.--Part IV of subchapter C of chapter 76 is 
        amended by inserting after section 7476 the following new 
        section:

``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.

    ``(a) Creation of Remedy.--In a case of an actual controversy 
involving a determination by the Secretary of the value of any gift 
shown on the return of tax imposed by chapter 12 or disclosed on such 
return or in any statement attached to such return, upon the filing of 
an appropriate pleading, the Tax Court may make a declaration of the 
value of such gift. Any such declaration shall have the force and 
effect of a decision of the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
            ``(1) Petitioner.--A pleading may be filed under this 
        section only by the donor.
            ``(2) Exhaustion of administrative remedies.--The court 
        shall not issue a declaratory judgment or decree under this 
        section in any proceeding unless it determines that the 
        petitioner has exhausted all available administrative remedies 
        within the Internal Revenue Service.
            ``(3) Time for bringing action.--If the Secretary sends by 
        certified or registered mail notice of his determination as 
        described in subsection (a) to the petitioner, no proceeding 
        may be initiated under this section unless the pleading is 
        filed before the 91st day after the date of such mailing.''
            (2) Clerical amendment.--The table of sections for such 
        part IV is amended by inserting after the item relating to 
        section 7476 the following new item:

                              ``Sec. 7477. Declaratory judgments 
                                        relating to value of certain 
                                        gifts.''
    (d) Conforming Amendment.--Subsection (c) of section 2504 is 
amended by striking ``, and if a tax under this chapter or under 
corresponding provisions of prior laws has been assessed or paid for 
such preceding calendar period''.
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections (a) and 
        (c) shall apply to gifts made after the date of the enactment 
        of this Act.
            (2) Subsection (b).--The amendment made by subsection (b) 
        shall apply to gifts made in calendar years ending after the 
        date of the enactment of this Act.

SEC. 10. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER TAX 
              FOR TRANSFERS TO INDIVIDUALS WITH DECEASED PARENTS.

    (a) In General.--Section 2651 (relating to generation assignment) 
is amended by redesignating subsection (e) as subsection (f), and by 
inserting after subsection (d) the following new subsection:
    ``(e) Special Rule for Persons With a Deceased Parent.--
            ``(1) In general.--For purposes of determining whether any 
        transfer is a generation-skipping transfer, if--
                    ``(A) an individual is a descendant of a parent of 
                the transferor (or the transferor's spouse or former 
                spouse), and
                    ``(B) such individual's parent who is a lineal 
                descendant of the parent of the transferor (or the 
                transferor's spouse or former spouse) is dead at the 
                time the transfer (from which an interest of such 
                individual is established or derived) is subject to a 
                tax imposed by chapter 11 or 12 upon the transferor 
                (and if there shall be more than 1 such time, then at 
                the earliest such time),
        such individual shall be treated as if such individual were a 
        member of the generation which is 1 generation below the lower 
        of the transferor's generation or the generation assignment of 
        the youngest living ancestor of such individual who is also a 
        descendant of the parent of the transferor (or the transferor's 
        spouse or former spouse), and the generation assignment of any 
        descendant of such individual shall be adjusted accordingly.
            ``(2) Limited application of subsection to collateral 
        heirs.--This subsection shall not apply with respect to a 
        transfer to any individual who is not a lineal descendant of 
        the transferor (or the transferor's spouse or former spouse) 
        if, at the time of the transfer, such transferor has any living 
        lineal descendant.''
    (b) Conforming Amendments.--
            (1) Section 2612(c) (defining direct skip) is amended by 
        striking paragraph (2) and by redesignating paragraph (3) as 
        paragraph (2).
            (2) Section 2612(c)(2) (as so redesignated) is amended by 
        striking ``section 2651(e)(2)'' and inserting ``section 
        2651(f)(2)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to terminations, distributions, and transfers occurring after 
December 31, 1997.
                                 <all>