Short title

This Act may be cited as the

Capital Gains and Estate Tax Relief Act of 2009

Individual income tax rates for capital gains made permanent

Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is amended by striking this title and inserting section 302.

Reform and extension of estate tax after 2009

(a)

Restoration of Unified Credit Against Gift Tax

Paragraph (1) of section 2505(a) of the Internal Revenue Code of 1986 (relating to general rule for unified credit against gift tax), after the application of subsection (g), is amended by striking (determined as if the applicable exclusion amount were $1,000,000). (b)

Exclusion Equivalent of Unified Credit Increased to $5,000,000

Subsection (c) of section 2010 of such Code (relating to unified credit against estate tax) is amended to read as follows:

(c)

Applicable Credit Amount

(1)

In general

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. (2)

Applicable exclusion amount

(A)

In general

For purposes of this subsection, the applicable exclusion amount is as follows: (i)For calendar year 2010, $3,750,000. (ii)For calendar year 2011, $4,000,000. (iii)For calendar year 2012, $4,250,000. (iv)For calendar year 2013, $4,500,000. (v)For calendar year 2014, $4,750,000. (vi)For calendar year 2015 and thereafter, $5,000,000. (B)

Inflation adjustment

In the case of any decedent dying in a calendar year after 2015, the $5,000,000 amount in subparagraph (A)(vi) shall be increased by an amount equal to— (i)such dollar amount, multiplied by (ii)the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2014 for calendar year 1992 in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $50,000, such amount shall be rounded to the nearest multiple of $50,000.

(c)

Rate Schedule

(1)

In general

Subsection (c) of section 2001 of such Code (relating to rate schedule) is amended to read as follows:

(c)

Rate Schedule

(1)

In general

The tentative tax is equal to the sum of— (A)the product of the rate specified in section 1(h)(1)(C) in effect on the date of the decedent’s death multiplied by so much of the sum described in subsection (b)(1) as does not exceed $25,000,000, and (B)twice the rate specified in section 1(h)(1)(C) in effect on the date of the decedent’s death of so much of the sum described in subsection (b)(1) as exceeds $25,000,000. (2)

Inflation adjustment

In the case of any decedent dying in a calendar year after 2015, each $25,000,000 amount in subparagraphs (A) and (B) of paragraph (1) shall be increased by an amount equal to— (A)such dollar amount, multiplied by (B)the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting calendar year 2014 for calendar year 1992 in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $50,000, such amount shall be rounded to the nearest multiple of $50,000.

(2)

Conforming amendment

Section 2502(a) of such Code (relating to computation of tax), after the application of subsection (g), is amended by adding at the end the following flush sentence:

In computing the tentative tax under section 2001(c) for purposes of this subsection, the last day of the calendar year in which the gift was made shall be substituted for the date of the decedent’s death each place it appears in such section.

(d)

Modifications of Estate and Gift Taxes To Reflect Differences in Unified Credit Resulting From Different Tax Rates

(1)

Estate tax

(A)

In general

Section 2001(b)(2) of such Code (relating to computation of tax) is amended by striking if the provisions of subsection (c) (as in effect at the decedent’s death) and inserting if the modifications described in subsection (g). (B)

Modifications

Section 2001 of such Code is amended by adding at the end the following new subsection:

(g)

Modifications to Gift Tax Payable To Reflect Different Tax Rates

For purposes of applying subsection (b)(2) with respect to 1 or more gifts, the rates of tax under subsection (c) in effect on the date of the decedent’s death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute— (1)the tax imposed by chapter 12 with respect to such gifts, and (2)the credit allowed against such tax under section 2505, including in computing— (A)the applicable credit amount under section 2505(a)(1), and (B)the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2).

For purposes of paragraph (2)(A), the applicable credit amount for any calendar year before 1998 is the amount which would be determined under section 2010(c) if the applicable exclusion amount were the dollar amount under section 6018(a)(1) for such year.

(2)

Gift tax

Section 2505(a) of such Code (relating to unified credit against gift tax), after the application of subsection (g), is amended by adding at the end the following new flush sentence:

For purposes of applying paragraph (2) for any calendar year, the rate schedule under section 2001(c) used in computing the applicable credit amount under paragraph (1) for such calendar year shall, in lieu of the rates of tax in effect for preceding calendar periods, be used in determining the amounts allowable as a credit under this section for all preceding calendar periods.

(e)

Repeal of Deduction for State Death Taxes

(1)

In general

Section 2058 of such Code (relating to State death taxes) is amended by adding at the end the following:

(c)

Termination

This section shall not apply to the estates of decedents dying after December 31, 2009.

(2)

Conforming amendment

Section 2106(a)(4) of such Code is amended by adding at the end the following new sentence: This paragraph shall not apply to the estates of decedents dying after December 31, 2009.. (f)

Effective Date

The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2009. (g)

Additional Modifications to Estate Tax

(1)

In general

The following provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such provisions, are hereby repealed: (A)Subtitles A and E of title V. (B)Subsection (d), and so much of subsection (f)(3) as relates to subsection (d), of section 511. (C)Paragraph (2) of subsection (b), and paragraph (2) of subsection (e), of section 521.

The Internal Revenue Code of 1986 shall be applied as if such provisions and amendments had never been enacted.

(2)

Sunset not to apply

Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V (other than subtitles F, G, and H thereof) of such Act. (3)

Repeal of deadwood

(A)Sections 2011, 2057, and 2604 of the Internal Revenue Code of 1986 are hereby repealed. (B)The table of sections for part II of subchapter A of chapter 11 of such Code is amended by striking the item relating to section 2011. (C)The table of sections for part IV of subchapter A of chapter 11 of such Code is amended by striking the item relating to section 2057. (D)The table of sections for subchapter A of chapter 13 of such Code is amended by striking the item relating to section 2604.

Unified credit increased by unused unified credit of deceased spouse

(a)

In general

Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (defining applicable credit amount), as amended by section 3(b), is amended by striking paragraph (2) and inserting the following new paragraphs:

(2)

Applicable exclusion amount

For purposes of this subsection, the applicable exclusion amount is the sum of— (A)the basic exclusion amount, and (B)in the case of a surviving spouse, the aggregate deceased spousal unused exclusion amount. (3)

Basic exclusion amount

(A)

In general

For purposes of this subsection, the basic exclusion amount is as follows: (i)For calendar year 2010, $3,750,000. (ii)For calendar year 2011, $4,000,000. (iii)For calendar year 2012, $4,250,000. (iv)For calendar year 2013, $4,500,000. (v)For calendar year 2014, $4,750,000. (vi)For calendar year 2015 and thereafter, $5,000,000. (B)

Inflation adjustment

If any amount as adjusted under the preceding sentence is not a multiple of $50,000, such amount shall be rounded to the nearest multiple of $50,000.

(4)

Aggregate deceased spousal unused exclusion amount

For purposes of this subsection, the term aggregate deceased spousal unused exclusion amount means the lesser of— (A)the basic exclusion amount, or (B)the sum of the deceased spousal unused exclusion amounts of the surviving spouse. (5)

Deceased spousal unused exclusion amount

For purposes of this subsection, the term deceased spousal unused exclusion amount means, with respect to the surviving spouse of any deceased spouse dying after December 31, 2009, the excess (if any) of— (A)the applicable exclusion amount of the deceased spouse, over (B)the amount with respect to which the tentative tax is determined under section 2001(b)(1) on the estate of such deceased spouse. (6)

Special rules

(A)

Election required

A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse under paragraph (5) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. Such election, once made, shall be irrevocable. No election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions) for filing such return. (B)

Examination of prior returns after expiration of period of limitations with respect to deceased spousal unused exclusion amount

Notwithstanding any period of limitation in section 6501, after the time has expired under section 6501 within which a tax may be assessed under chapter 11 or 12 with respect to a deceased spousal unused exclusion amount, the Secretary may examine a return of the deceased spouse to make determinations with respect to such amount for purposes of carrying out this subsection. (7)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this subsection.

(b)

Conforming Amendments

(1)Paragraph (1) of section 2505(a), as amended by section 3, is amended to read as follows:

(1)the applicable credit amount under section 2010(c) which would apply if the donor died as of the end of the calendar year, reduced by

(2)Section 2631(c) is amended by striking the applicable exclusion amount and inserting the basic exclusion amount. (3)Section 6018(a)(1), after the application of section 101(g), is amended by striking applicable exclusion amount and inserting basic exclusion amount. (c)

Effective Date

The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2009.