Permanent extension of estate tax as in effect in 2009

(a)

Restoration of unified credit against gift tax

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

Exclusion equivalent of unified credit equal to $3,500,000

Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (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 section 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount. (2)

Applicable exclusion amount

(A)

In general

For purposes of this subsection, the applicable exclusion amount is $3,500,000. (B)

Inflation adjustment

In the case of any decedent dying in a calendar year after 2010, the dollar amount in subparagraph (A) 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 2009 for calendar year 1992 in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.

(c)

Maximum estate tax rate equal to 45 percent

(1)

In general

Subsection (c) of section 2001 of the Internal Revenue Code of 1986 (relating to imposition and rate of tax) is amended— (A)by striking but not over $2,000,000 in the table contained in paragraph (1), (B)by striking the last 2 items in such table, (C)by striking (1) In general.—, and (D)by striking paragraph (2). (2)

Conforming amendment

Paragraphs (1) and (2) of section 2102(b) of such Code are amended to read as follows:

(1)

In general

A credit in an amount that would be determined under section 2010 as the applicable credit amount if the applicable exclusion amount were $60,000 shall be allowed against the tax imposed by section 2101. (2)

Residents of possessions of the united states

In the case of a decedent who is considered to be a nonresident not a citizen of the United States under section 2209, the credit allowed under this subsection shall not be less than the proportion of the amount that would be determined under section 2010 as the applicable credit amount if the applicable exclusion amount were $175,000 which the value of that part of the decedent's gross estate which at the time of the decedent's death is situated in the United States bears to the value of the decedent's entire gross estate, wherever situated.

(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 the Internal Revenue Code of 1986 (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 at 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) is amended by adding at the end the following new flush sentence:

For purposes of applying paragraph (2) for any calendar year, the rates of tax in effect under section 2502(a)(2) 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)

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. (f)

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

(A)Subsection (a) of section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking this Act and all that follows and inserting this Act (other than title V) shall not apply to taxable, plan, or limitation years beginning after December 31, 2010.. (B)Subsection (b) of such section 901 is amended by striking , estates, gifts, and transfers. (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

Section 2010(c) of the Internal Revenue Code of 1986, as amended by section 1(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 $3,500,000. (B)

Inflation adjustment

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.

(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 computed with respect to each deceased spouse 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 basic 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) of the Internal Revenue Code of 1986, as amended by section 1(a), is amended to read as follows:

(1)the applicable credit amount in effect 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) of such Code is amended by striking the applicable exclusion amount and inserting the basic exclusion amount. (3)Section 6018(a)(1) of such Code 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.

Sense of the Senate regarding revenue neutrality

It is the sense of the Senate that any reduction in Federal revenues resulting from the provisions of, and amendments made by, this Act should be fully offset.