[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1128 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1128

To amend the Internal Revenue Code of 1986 to repeal the Federal estate 
and gift taxes and the tax on generation-skipping transfers, to provide 
  for a carryover basis at death, and to establish a partial capital 
                 gains exclusion for inherited assets.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 26, 1999

 Mr. Kyl (for himself, Mr. Kerrey, Mr. Nickles, Mr. Breaux, Mr. Mack, 
Mr. Robb, and Mr. Gramm) 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 repeal the Federal estate 
and gift taxes and the tax on generation-skipping transfers, to provide 
  for a carryover basis at death, and to establish a partial capital 
                 gains exclusion for inherited assets.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Estate Tax Elimination Act of 
1999''.

SEC. 2. REPEAL OF CERTAIN FEDERAL TRANSFER TAXES.

    (a) In General.--Subtitle B of the Internal Revenue Code of 1986 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hereby repealed.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 the date of enactment of this Act.
    (c) Technical and Conforming Changes.--The Secretary of the 
Treasury or the Secretary's delegate shall, as soon as practicable but 
in any event not later than 90 days after the date of enactment of this 
Act, submit to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a draft of 
any technical and conforming changes in the Internal Revenue Code of 
1986 which are necessary to reflect throughout such Code the changes in 
the substantive provisions of law made by this Act.

SEC. 3. TERMINATION OF A STEP UP IN BASIS AT DEATH.

    (a) Termination of Application of Section 1014.--Section 1014 of 
the Internal Revenue Code of 1986 (relating to basis of property 
acquired from a decedent) is amended by adding at the end the 
following:
    ``(f) Termination.--In the case of a decedent dying after the date 
of enactment of the Estate Tax Elimination Act of 1999, this section 
shall not apply to property for which basis is provided by section 
1022.''
    (b) Conforming Amendment.--Subsection (a) of section 1016 of the 
Internal Revenue Code of 1986 (relating to adjustments to basis) is 
amended by striking ``and'' at the end of paragraph (26), by striking 
the period at the end of paragraph (27) and inserting ``; and'', and by 
adding at the end the following:
            ``(28) to the extent provided in section 1022 (relating to 
        basis for certain property acquired from a decedent dying after 
        the date of enactment of the Estate Tax Elimination Act of 
        1999.''

SEC. 4. CARRYOVER BASIS AT DEATH.

    (a) General Rule.--Part II of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 (relating to basis rules of general 
application) is amended by inserting after section 1021 the following:

``SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED FROM A 
              DECEDENT.

    ``(a) Carryover Basis.--
            ``(1) In general.--Except as otherwise provided in this 
        section, the basis of carryover basis property in the hands of 
        a person acquiring such property from a decedent is--
                    ``(A) its initial basis, increased by
                    ``(B) its allowable share of the decedent's 
                exclusion allowance determined under subsection (c).
            ``(2) Initial basis.--The initial basis of carryover basis 
        property is its adjusted basis for purposes of determining gain 
        immediately before the death of the decedent.
    ``(b) Carryover Basis Property Defined.--
            ``(1) In general.--For purposes of this section, the term 
        `carryover basis property' means any property--
                    ``(A) which is acquired from or passed from a 
                decedent who died after the date of enactment of the 
                Estate Tax Elimination Act of 1999, and
                    ``(B) which is not excluded pursuant to paragraph 
                (2) or (3).
        The property taken into account under subparagraph (A) shall be 
        determined under section 1014(b) without regard to subparagraph 
        (A) of the last sentence of paragraph (9) thereof.
            ``(2) Certain property not carryover basis property.--The 
        term `carryover basis property' does not include--
                    ``(A) property which--
                            ``(i) was acquired from the decedent before 
                        the decedent's death, and
                            ``(ii) was sold, exchanged, or otherwise 
                        disposed of before the decedent's death by the 
                        person so acquiring it,
                    ``(B) any item of gross income in respect of a 
                decedent described in section 691;
                    ``(C) property described in section 2042 (relating 
                to proceeds of life insurance), as in effect on the day 
                before the date of enactment of the Estate Tax 
                Elimination Act of 1999;
                    ``(D) property described in section 1014(b)(5); and
                    ``(E) property which was acquired from the decedent 
                by the surviving spouse of the decedent, the value of 
                which would have been deductible from the value of the 
                taxable estate of the decedent under section 2056, as 
                in effect on the day before the date of enactment of 
                the Estate Tax Elimination Act of 1999.
            ``(3) $50,000 exclusion for tangible personal property.--
                    ``(A) Exclusion.--The term `carryover basis 
                property' does not include any tangible personal 
                property--
                            ``(i) which, in the hands of the decedent, 
                        was a capital asset, and
                            ``(ii) with respect to which the executor 
                        has made an election under this paragraph.
                    ``(B) Limitation.--The fair market value of all 
                assets designated under this subsection with respect to 
                any decedent shall not exceed $50,000.
                    ``(C) Election.--An election under this paragraph 
                with respect to any asset shall be made by the executor 
                not later than the date prescribed for filing the 
                return required under section 6039H(a), and shall be 
                made on such return.
    ``(c) Exclusion Allowance.--
            ``(1) Basis adjustment.--
                    ``(A) In general.--The basis adjustment under this 
                subsection for any carryover basis property is--
                            ``(i) the portion of the decedent's family-
                        owned business interest exclusion allowance 
                        which is allocated to property exclusively used 
                        by the qualified family-owned business interest 
                        pursuant to this section, and
                            ``(ii) the portion of the decedent's 
                        general exclusion allowance which is allocated 
                        to property pursuant to this section 
                        (determined after the allocation under clause 
                        (i)).
                    ``(B) Limitation.--Such basis adjustment for any 
                property shall not exceed the net appreciation in such 
                property.
                    ``(C) Net appreciation.--For purposes of this 
                subsection, the net appreciation in value of any 
                property is the amount by which--
                            ``(i) the fair market value of such 
                        property, exceeds
                            ``(ii) the initial basis of such property.
                    ``(D) Decedent's family-owned business interest 
                exclusion allowance.--In the case of any estate, the 
                decedent's family-owned business interest exclusion 
                allowance shall be equal to the lesser of--
                            ``(i) the excess of--
                                    ``(I) $1,300,000, over
                                    ``(II) the applicable dollar 
                                amount, or
                            ``(ii) the aggregate net appreciation of 
                        all carryover basis property exclusively used 
                        by the qualified family-owned business 
                        interest.
                    ``(E) Decedent's general exclusion allowance.--In 
                the case of any estate, the decedent's general 
                exclusion allowance shall be equal to the lesser of--
                            ``(i) the applicable amount, or
                            ``(ii) the aggregate net appreciation of 
                        all carryover basis property not described in 
                        subparagraph (D)(ii).
                    ``(F) Applicable amount.--
                            ``(i) In general.--For purposes of this 
                        subsection, the applicable amount for any 
                        decedent is equal to the sum of--
                                    ``(I) the applicable dollar amount, 
                                and
                                    ``(II) in the case of a decedent 
                                with a deceased spouse whose decedent's 
                                allowance was less than the applicable 
                                amount for such spouse the unallocated 
                                portion of such amount.
                            ``(ii) Applicable dollar amount.--For 
                        purposes of clause (i)(I), the applicable 
                        dollar amount shall be the dollar amount set 
                        forth in the following table:

        ``In the case of estates of decedents
                                                         The applicable
          dying, and gifts made, during:
                                                      dollar amount is:
                  1999...............................         $650,000 
                  2000 and 2001......................         $675,000 
                  2002 and 2003......................         $700,000 
                  2004...............................         $850,000 
                  2005...............................         $950,000 
                  2006...............................       $1,000,000.
                    ``(G) Qualified family-owned business interest.--
                For purposes of this section, the `qualified family-
                owned business interest' has the meaning given such 
                term by section 2057(e), as in effect on the day before 
                the date of enactment of the Estate Tax Elimination Act 
                of 1999.
            ``(2) Allocation rules.--
                    ``(A) In general.--The executor shall allocate the 
                adjustments under this subsection among the carryover 
                basis properties on the return required under section 
                6039H(a).
                    ``(B) Changes in allocation.--Any allocation made 
                pursuant to subparagraph (A) may be changed at any time 
                before the close of the 30th day after the initial 
                basis finality date. The allocation in effect at the 
                close of such 30th day may be changed only with the 
                consent of the Secretary.
                    ``(C) Initial basis finality date.--For purposes of 
                this paragraph, the term `initial basis finality date' 
                means the last day on which the initial basis of 
                property may be changed in an administrative or 
                judicial proceeding referred to in section 7480.
    ``(d) Special Rules and Definitions.--For purposes of this 
section--
            ``(1) Treatment of items on a class basis.--Under 
        regulations prescribed by the Secretary, the holding periods, 
        bases, and fair market value of similar items falling within 
        the same class of property may be determined on a class basis 
        rather than on an individual item basis.
            ``(2) Personal and household effects.--
                    ``(A) Loss.--In the case of any carryover basis 
                property which, in the hands of the decedent, was a 
                personal or household effect, for purposes of 
                determining loss the basis of such property in the 
                hands of the person acquiring such property from the 
                decedent shall not exceed its fair market value.
                    ``(B) Determination of minimum basis.--The basis of 
                any property which is a personal or household effect 
                shall be treated as not greater than the fair market 
                value of such property.
            ``(3) Fair market value.--For purposes of this section, 
        when not otherwise distinctly expressed, the term `fair market 
        value' means value determined without regard to whether there 
        is a mortgage on, or indebtedness in respect of, the property.
            ``(4) Fair market value limitation.--The adjustment under 
        subsection (c) shall not increase the basis of property above 
        its fair market value.
            ``(5) Property passing from the decedent.--For purposes of 
        this section, property passing from the decedent shall be 
        treated as property acquired from the decedent.
            ``(6) Nonresidents not citizens.--In the case of a decedent 
        who was (at the time of his death) a nonresident not a citizen 
        of the United States--
                    ``(A) subsection (b)(3) shall not apply, and
                    ``(B) there shall be no basis adjustment under 
                subsection (c).
    ``(e) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the purposes of this section.''
    (b) Procedure for Binding Determination of Initial Basis.--
            (1) In general.--Part IV of subchapter C of chapter 76 of 
        the Internal Revenue Code of 1986 (relating to declaratory 
        judgments) is amended by adding at the end the following:

``SEC. 7480. PROCEDURE FOR BINDING DETERMINATION OF INITIAL BASIS OF 
              CARRYOVER BASIS PROPERTY.

    ``(a) Administrative Audit.--
            ``(1) Designation by executor.--An executor may request the 
        Secretary to audit the initial basis of any carryover basis 
        property which is shown on the return required under section 
        6039H(a). Any such request shall be made on such return.
            ``(2) Authority of the secretary.--For purposes of 
        examining the correctness of the initial basis of any property 
        with respect to which an executor has made a request under 
        paragraph (1), the Secretary shall have the same authority as 
        if he were determining the liability of any person for a tax 
        imposed by this title.
    ``(b) Judicial Review.--
            ``(1) Bringing of action.--If the executor and the 
        Secretary have not entered into an agreement described in 
        subsection (c)(2) with respect to any property for which a 
        request has been made under subsection (a)(1), the executor may 
        bring an action in the Tax Court with respect to such property.
            ``(2) Declaration by tax court.--Upon the filing of an 
        appropriate pleading in an action brought under paragraph (1), 
        the Tax Court may make a declaration of the initial basis of 
        the property with respect to which such an action is brought. 
        Any such declaration shall be final and conclusive and shall 
        not be reviewed by any other court.
            ``(3) Time for bringing action.--No action may be brought 
        under this subsection with respect to any property unless the 
        pleading is filed--
                    ``(A) after the expiration of 1 year after the date 
                on which the executor made a request under subsection 
                (a)(1) with respect to such property, and
                    ``(B) before the 91st day after the later of--
                            ``(i) the day on which the Secretary sends 
                        by certified or registered mail a notification 
                        of his disagreement with the initial basis of 
                        the property shown on the return required under 
                        section 6039H(a), or
                            ``(ii) the expiration of the 1-year period 
                        referred to in subparagraph (A).
    ``(c) Binding Effect of Determinations.--
            ``(1) No notice from secretary.--If--
                    ``(A) an executor makes a request under subsection 
                (a)(1) with respect to the initial basis of any 
                property, and
                    ``(B) before the date 3 years after the day on 
                which such request is made, the Secretary does not send 
                to the executor by certified or registered mail notice 
                of his disagreement with the initial basis of such 
                property shown on the return required under section 
                6039H(a),
        then the initial basis so shown shall be binding and conclusive 
        on the Secretary and on any person whose basis in such property 
        is affected by such initial basis unless any such person 
        establishes a different initial basis to the satisfaction of 
        the Secretary.
            ``(2) Agreement between secretary and executor.--If the 
        executor and the Secretary sign a written agreement as to the 
        initial basis of any property with respect to which the 
        executor made a request under subsection (a)(1), such agreement 
        shall be binding and conclusive on the Secretary and on any 
        person whose basis in such property is affected by the initial 
        basis in the same manner as if such agreement were a closing 
        agreement under section 7121 between the Secretary and such 
        person.
            ``(3) Tax court decision binding on heirs.--Any declaration 
        of the initial basis of any property made by the Tax Court 
        which has become final shall also be binding on any person 
        whose basis in the property is affected by the initial basis.
    ``(d) Intervention.--Any person whose basis in any property is 
affected by the initial basis of any property shall be allowed to 
intervene in any administrative or judicial proceeding under this 
section with respect to such property.
    ``(e) Definitions.--Terms used in this section which are also used 
in section 1022 shall have the meanings as when used in section 1022.''
            (2) Clerical amendment.--The table of sections for part IV 
        of subchapter C of chapter 76 of such Code is amended by adding 
        at the end the following:

                              ``Sec. 7480. Procedure for binding 
                                        determination of initial basis 
                                        of carryover basis property.''
    (c) Information Returns; Assessable Penalty for Negligent or 
Fraudulent Overstatement of Initial Basis; Penalties for Failure To 
Furnish Information.--
            (1) Information returns.--Subpart A of part III of 
        subchapter A of chapter 61 of the Internal Revenue Code of 1986 
        (relating to information concerning persons subject to special 
        provisions) is amended by adding after section 6039G the 
        following:

``SEC. 6039H. INFORMATION REGARDING CARRYOVER BASIS PROPERTY ACQUIRED 
              FROM A DECEDENT.

    ``(a) In General.--Every executor shall furnish the Secretary such 
information with respect to carryover basis property to which section 
1022 applies as the Secretary may by regulations prescribe.
    ``(b) Statements To Be Furnished to Persons Who Acquire Property 
From a Decedent.--Every executor who is required to furnish information 
under subsection (a) shall furnish in writing to each person acquiring 
an item of such property from the decedent (or to whom the item passes 
from the decedent) the adjusted basis of such item.''
            (2) Penalties.--Part I of subchapter B of chapter 68 of 
        such Code (relating to assessable penalties) is amended by 
        adding at the end the following:

``SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CARRYOVER 
              BASIS PROPERTY.

    ``(a) Information Required To Be Furnished to the Secretary.--Any 
executor who fails to furnish information required under section 
6039H(a) on the date prescribed therefor (determined with regard to any 
extension of time for filing) shall, if such failure is due to 
negligence or intentional disregard of rules and regulations, pay a 
penalty of $100 for each such failure, but the total amount imposed for 
all such failures shall not exceed $5,000.
    ``(b) Information Required To Be Furnished to Beneficiaries.--Any 
executor who fails to furnish in writing to each person described in 
section 6039H(b) the information required under such section shall, if 
such failure is due to negligence or intentional disregard of rules and 
regulations, pay a penalty of $50 for each such failure, but the total 
amount imposed for all such failures shall not exceed $2,500.
    ``(c) Negligent or Fraudulent Overstatement of Initial Basis.--
            ``(1) Negligent overstatement.--If any part of an initial 
        basis overstatement is due to negligence or intentional 
        disregard of rules and regulations (but without intent to 
        defraud) by the executor, such executor shall pay a penalty 
        equal to 10 percent of such overstatement.
            ``(2) Fraudulent overstatement.--If any part of an initial 
        basis overstatement is due to fraud by the executor, such 
        executor shall pay a penalty equal to 30 percent of such 
        overstatement.
            ``(3) Initial basis overstatement defined.--For purposes of 
        this subsection, the term `initial basis overstatement' means 
        the excess of--
                    ``(A) the initial basis of any carryover basis 
                property shown on the return required under section 
                6039H(a), over
                    ``(B) the amount determined to be the initial basis 
                of such property.
    ``(d) Deficiency Procedures Not To Apply.--Subchapter B of chapter 
63 shall not apply in respect of the assessment or collection of any 
penalty imposed by this section.''
            (3) Clerical amendments.--
                    (A) The table of sections for subpart A of part III 
                of subchapter A of chapter 61 of such Code is amended 
                by adding after the item relating to section 6039G the 
                following:

                              ``Sec. 6039H. Information regarding 
                                        carryover basis property 
                                        acquired from a decedent.''
                    (B) The table of sections for part I of subchapter 
                B of chapter 68 of such Code is amended by adding at 
                the end the following:

                              ``Sec. 6716. Failure to file information 
                                        with respect to carryover basis 
                                        property.''
    (d) Miscellaneous Amendments Related To Carryover Basis.--
            (1) Capital gain treatment for inherited art work or 
        similar property.--
                    (A) In general.--Subparagraph (C) of section 
                1221(3) of the Internal Revenue Code of 1986 (defining 
                capital asset) is amended by inserting ``(other than by 
                reason of section 1022)'' after ``is determined''.
                    (B) Coordination with section 170.--Paragraph (1) 
                of section 170(e) of such Code (relating to certain 
                contributions of ordinary income and capital gain 
                property) is amended by adding at the end the 
                following: ``For purposes of this paragraph, the 
                determination of whether property is a capital asset 
                shall be made without regard to the exception contained 
                in section 1221(3)(C) for basis determined under 
                section 1022.''
            (2) Definition of Executor.--Section 7701(a) of such Code 
        (relating to definitions) is amended by adding at the end the 
        following:
            ``(47) Executor.--The term `executor' means the executor or 
        administrator of the decedent, or, if there is no executor or 
        administrator appointed, qualified, and acting within the 
        United States, then any person in actual or constructive 
        possession of any property of the decedent.''
    (e) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after the date of enactment of this 
Act.
                                 <all>