[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3467 Introduced in House (IH)]

112th CONGRESS
  1st Session
                                H. R. 3467

  To amend the Internal Revenue Code of 1986 to reform the estate and 
                               gift tax.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 17, 2011

  Mr. McDermott (for himself and Mr. Rangel) introduced the following 
      bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to reform the estate and 
                               gift tax.

    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 ``Sensible Estate Tax Act of 2011''.

SEC. 2. AMOUNT OF ESTATE TAX EXCLUSION AND ESTATE TAX RATES MADE 
              PERMANENT.

    (a) Exclusion Amount.--
            (1) In general.--Subparagraph (A) of section 2010(c)(3) of 
        the Internal Revenue Code of 1986 is amended by striking 
        ``$5,000,000'' and inserting ``$1,000,000''.
            (2) Inflation adjustment.--Subparagraph (B) of section 
        2010(c)(3) of such Code is amended--
                    (A) by striking ``2011'' in the matter preceding 
                clause (i) and inserting ``2012'', and
                    (B) by striking ``2010'' in clause (ii) and 
                inserting ``2000''.
    (b) Estate Tax Rates.--
            (1) In general.--The table contained in subsection (c) of 
        section 2001 of such Code is amended by striking ``Over 
        $500,000'' and all that follows and inserting the following:


``Over $500,000 but not over $750,000........  $155,800, plus 37 percent of the excess of such amount over
                                                $500,000.
Over $750,000 but not over $1,000,000........  $248,300, plus 39 percent of the excess of such amount over
                                                $750,000.
Over $1,000,000 but not over $1,250,000......  $345,800, plus 41 percent of the excess of such amount over
                                                $1,000,000.
Over $1,250,000 but not over $1,500,000......  $448,300, plus 43 percent of the excess of such amount over
                                                $1,250,000.
Over $1,500,000 but not over $5,000,000......  $555,800, plus 45 percent of the excess of such amount over
                                                $1,500,000.
 Over $5,000,000 but not over $10,000,000....  $2,130,800, plus 50 percent of the excess of such amount over
                                                $5,000,000.
 Over $10,000,000............................  $4,630,800, plus 55 percent of the excess of such amount over
                                                $10,000,000.''.
 

            (2) Adjustment for inflation.--Subsection (c) of section 
        2001 of such Code is amended--
                    (A) by inserting the following before the table 
                contained therein:
            ``(1) In general.--'', and
                    (B) by adding at the end the following new 
                paragraph:
            ``(2) Inflation adjustment.--In the case of any decedent 
        dying in a calendar year after 2012--
                    ``(A) each minimum and maximum dollar amount for 
                each rate bracket in the table in paragraph (1) 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, determined by substituting 
                        `2000' for `1992' in subparagraph (B) thereof, 
                        and
                    ``(B) 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 (A).
                If any increase determined under subparagraph (A) is 
                not a multiple of $10,000, such increase shall be 
                rounded to the nearest multiple of $10,000.''.
    (c) Coordination With Gift Tax To Reflect Decrease in Applicable 
Credit Amount.--Subsection (g) of section 2001 of such Code is amended 
to read as follows:
    ``(g) Modifications to Gift Tax Calculation.--For purposes of 
applying subsection (b)(2) with respect to 1 or more gifts--
            ``(1) Modifications to reflect different tax rates.--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--
                    ``(A) the tax imposed by chapter 12 with respect to 
                such gifts, and
                    ``(B) the credit allowed against such tax under 
                section 2505, including in computing--
                            ``(i) the amount determined under section 
                        2505(a)(1), and
                            ``(ii) the sum of the amounts allowed as a 
                        credit for all preceding periods under section 
                        2505(a)(2).
            ``(2) Modification to reflect reduced applicable credit 
        amounts.--The amount determined under section 2505(a)(1) for 
        each calendar year shall not exceed the estate's applicable 
        credit amount under section 2010(c).''.
    (d) Technical Correction.--Clause (i) of section 2010(c)(4)(B) of 
such Code is amended by striking ``basic exclusion amount'' and 
inserting ``applicable exclusion amount''.
    (e) Effective Date.--
            (1) In general.--Except as otherwise provided by in this 
        subsection, the amendments made by this section shall apply to 
        estates of decedents dying, generation-skipping transfers, and 
        gifts made, after December 31, 2011.
            (2) Technical correction.--The amendment made by subsection 
        (d) shall take effect as if included in the amendments made by 
        section 303 of the Tax Relief, Unemployment Insurance 
        Reauthorization, and Job Creation Act of 2010.
    (f) Sunset Not To Apply.--
            (1) 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, 2012.''.
            (2) Subsection (b) of such section 901 of such Act is 
        amended by striking ``, estates, gifts, and transfers''.
            (3) Section 304 of the Tax Relief, Unemployment Insurance 
        Reauthorization, and Job Creation Act of 2010 is repealed.

SEC. 3. RESTORATION OF CREDIT FOR STATE TRANSFER TAX.

    (a) In General.--Section 2011 of the Internal Revenue Code of 1986 
is amended by striking subsection (f).
    (b) Repeal of Deduction for State Transfer Taxes.--
            (1) In general.--Section 2058 of such Code 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, 2011.''.
            (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, 2011.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after December 31, 
2011.

SEC. 4. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; 
              LIMITATION ON MINORITY DISCOUNTS.

    (a) In General.--Section 2031 of the Internal Revenue Code of 1986 
is amended by redesignating subsection (d) as subsection (f) and by 
inserting after subsection (c) the following new subsections:
    ``(d) Valuation Rules for Certain Transfers of Nonbusiness 
Assets.--For purposes of this chapter and chapter 12--
            ``(1) In general.--In the case of the transfer of any 
        interest in an entity other than an interest which is actively 
        traded (within the meaning of section 1092)--
                    ``(A) 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 (and 
                no valuation discount shall be allowed with respect to 
                such nonbusiness assets), and
                    ``(B) the nonbusiness assets shall not be taken 
                into account in determining the value of the interest 
                in the entity.
            ``(2) Nonbusiness assets.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonbusiness asset' 
                means any asset which is not used in the active conduct 
                of 1 or more trades or businesses.
                    ``(B) Exception for certain passive assets.--Except 
                as provided in subparagraph (C), a passive asset shall 
                not be treated for purposes of subparagraph (A) as used 
                in the active conduct of a trade or business unless--
                            ``(i) the asset is property described in 
                        paragraph (1) or (4) of section 1221(a) or is a 
                        hedge with respect to such property, or
                            ``(ii) the asset is real property used in 
                        the active conduct of 1 or more real property 
                        trades or businesses (within the meaning of 
                        section 469(c)(7)(C)) in which the transferor 
                        materially participates and with respect to 
                        which the transferor meets the requirements of 
                        section 469(c)(7)(B)(ii).
                For purposes of clause (ii), material participation 
                shall be determined under the rules of section 469(h), 
                except that section 469(h)(3) shall be applied without 
                regard to the limitation to farming activity.
                    ``(C) Exception for working capital.--Any asset 
                (including a passive asset) 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 business.
            ``(3) Passive asset.--For purposes of this subsection, the 
        term `passive asset' means any--
                    ``(A) cash or cash equivalents,
                    ``(B) except to the extent provided by the 
                Secretary, stock in a corporation or any other equity, 
                profits, or capital interest in any entity,
                    ``(C) evidence of indebtedness, option, forward or 
                futures contract, notional principal contract, or 
                derivative,
                    ``(D) asset described in clause (iii), (iv), or (v) 
                of section 351(e)(1)(B),
                    ``(E) annuity,
                    ``(F) real property used in 1 or more real property 
                trades or businesses (as defined in section 
                469(c)(7)(C)),
                    ``(G) asset (other than a patent, trademark, or 
                copyright) which produces royalty income,
                    ``(H) commodity,
                    ``(I) collectible (within the meaning of section 
                401(m)), or
                    ``(J) any other asset specified in regulations 
                prescribed by the Secretary.
            ``(4) Look-thru rules.--
                    ``(A) In general.--If a nonbusiness asset of an 
                entity consists of a 10-percent interest in any other 
                entity, this subsection shall be applied by 
                disregarding the 10-percent interest and by treating 
                the entity as holding directly its ratable share of the 
                assets of the other entity. This subparagraph shall be 
                applied successively to any 10-percent interest of such 
                other entity in any other entity.
                    ``(B) 10-percent interest.--The term `10-percent 
                interest' means--
                            ``(i) in the case of an interest in a 
                        corporation, ownership of at least 10 percent 
                        (by vote or value) of the stock in such 
                        corporation,
                            ``(ii) in the case of an interest in a 
                        partnership, ownership of at least 10 percent 
                        of the capital or profits interest in the 
                        partnership, and
                            ``(iii) in any other case, ownership of at 
                        least 10 percent of the beneficial interests in 
                        the entity.
                    ``(C) Exception for actively traded interests.--
                Subparagraph (A) shall not apply to any nonbusiness 
                asset which consists of an interest which is actively 
                traded (within the meaning of section 1092).
            ``(5) Coordination with subsection (b).--Subsection (b) 
        shall apply after the application of this subsection.
    ``(e) Limitation on Minority Discounts.--For purposes of this 
chapter and chapter 12, in the case of the transfer of any interest in 
an entity other than an interest which is actively traded (within the 
meaning of section 1092), 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 (as defined in section 
2032A(e)(2)) of the transferee have control of such entity (determined 
immediately after such transfer).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.

SEC. 5. CONSISTENT BASIS REPORTING BETWEEN ESTATE AND PERSON ACQUIRING 
              PROPERTY FROM DECEDENT.

    (a) Consistent Use of Basis.--
            (1) Property acquired from a decedent.--Section 1014 of the 
        Internal Revenue Code of 1986 is amended by adding at the end 
        the following new subsection:
    ``(f) Basis Must Be Consistent With Estate Tax Return.--
            ``(1) In general.--For purposes of this section, 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 11.
            ``(2) Special rule where no final determination.--In any 
        case in which the final value of property has not been 
        determined under chapter 11 and there has been a statement 
        furnished under section 6035(a), 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 6035(a).
            ``(3) Regulations.--The Secretary may by regulations 
        provide exceptions to the application of this subsection.''.
            (2) Property acquired by gifts and transfers in trust.--
        Section 1015 of the Internal Revenue Code of 1986 is amended by 
        adding at the end the following new subsection:
    ``(f) Basis Must Be Consistent Gift Tax Return.--
            ``(1) In general.--For purposes of this section, 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 12.
            ``(2) Special rule where no final determination.--In any 
        case in which the final value of property has not been 
        determined under chapter 12 and there has been a statement 
        furnished under section 6035(b), 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 6035(b).
            ``(3) Regulations.--The Secretary may by regulations 
        provide exceptions to the application of this subsection.''.
    (b) Information Reporting.--
            (1) In general.--Subpart A of part III of subchapter A of 
        chapter 61 of the Internal Revenue Code of 1986 is amended by 
        inserting after section 6034A the following new section:

``SEC. 6035. BASIS INFORMATION TO PERSONS ACQUIRING PROPERTY FROM 
              DECEDENT OR BY GIFT.

    ``(a) Information With Respect to Property Acquired From 
Decedents.--
            ``(1) In general.--The executor of any estate required to 
        file a return under section 6018(a) 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 
        prescribe.
            ``(2) Statements by beneficiaries.--Each person required to 
        file a return under section 6018(b) 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 (1).
            ``(3) Time for furnishing statement.--
                    ``(A) In general.--Each statement required to be 
                furnished under paragraph (1) or (2) shall be furnished 
                at such time as the Secretary may prescribe, but in no 
                case at a time later than the earlier of--
                            ``(i) the date which is 30 days after the 
                        date on which the return under section 6018 was 
                        required to be filed (including extensions, if 
                        any), or
                            ``(ii) the date which is 30 days after the 
                        date such return is filed.
                    ``(B) Adjustments.--In any case in which there is 
                an adjustment to the information required to be 
                included on a statement filed under paragraph (1) or 
                (2) after such statement has been filed, a supplemental 
                statement under such paragraph shall be filed not later 
                than the date which is 30 days after such adjustment is 
                made.
    ``(b) Information With Respect to Property Acquired by Gift.--
            ``(1) In general.--Each person making a transfer by gift 
        who is required to file a return under section 6019 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 prescribe.
            ``(2) Time for furnishing statement.--
                    ``(A) In general.--Each statement required to be 
                furnished under paragraph (1) shall be furnished at 
                such time as the Secretary may prescribe, but in no 
                case at a time later than the earlier of--
                            ``(i) the date which is 30 days after the 
                        date on which the return under section 6019 was 
                        required to be filed (including extensions, if 
                        any), or
                            ``(ii) the date which is 30 days after the 
                        date such return is filed.
                    ``(B) Adjustments.--In any case in which there is 
                an adjustment to the information required to be 
                included on a statement filed under paragraph (1) after 
                such statement has been filed, a supplemental statement 
                under such paragraph shall be filed not later than the 
                date which is 30 days after such adjustment is made.
    ``(c) Regulations.--The Secretary shall prescribe such regulations 
as necessary to carry out this section, including regulations relating 
to--
            ``(1) the application of this section to property with 
        regard to which no estate or gift tax return is required to be 
        filed, and
            ``(2) 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 property.''.
            (2) Penalty for failure to file.--
                    (A) Return.--Section 6724(d)(1) of the Internal 
                Revenue Code of 1986 is amended by striking ``and'' at 
                the end of subparagraph (B), by striking the period at 
                the end of subparagraph (C) and inserting ``, and'', 
                and by adding at the end the following new 
                subparagraph:
                    ``(D) any statement required to be filed with the 
                Secretary under section 6035.''.
                    (B) Statement.--Section 6724(d)(2) of such Code is 
                amended by striking ``or'' at the end of subparagraph 
                (GG), by striking the period at the end of subparagraph 
                (HH) and inserting ``, or'', and by adding at the end 
                the following new subparagraph:
                    ``(II) section 6035 (other than a statement 
                described in paragraph (1)(D)).''.
            (3) Clerical amendment.--The table of sections for subpart 
        A of part III of subchapter A of chapter 61 of the Internal 
        Revenue Code of 1986 is amended by inserting after the item 
        relating to section 6034A the following new item:

``Sec. 6035. Basis information to persons acquiring property from 
                            decedent or by gift.''.
    (c) Penalty for Inconsistent Reporting.--
            (1) In general.--Subsection (b) of section 6662 of the 
        Internal Revenue Code of 1986 is amended by inserting after 
        paragraph (7) the following new paragraph:
            ``(8) Any inconsistent estate or gift basis.''.
            (2) Inconsistent basis reporting.--Section 6662 of such 
        Code is amended by adding at the end the following new 
        subsection:
    ``(k) Inconsistent Estate or Gift Basis Reporting.--For purposes of 
this section, the term `inconsistent estate or gift basis' means the 
portion of the understatement which is attributable to--
            ``(1) in the case of property acquired from a decedent, a 
        basis determination with respect to such property which is not 
        consistent with the value of such property as determined under 
        section 1014(f), and
            ``(2) in the case of property acquired by gift, a basis 
        determination with respect to such property which is not 
        consistent with the value of such property as determined under 
        section 1015(f).''.
    (d) 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 Act.

SEC. 6. REQUIRED MINIMUM 10-YEAR TERM, ETC., FOR GRANTOR RETAINED 
              ANNUITY TRUSTS.

    (a) In General.--Subsection (b) of section 2702 of the Internal 
Revenue Code of 1986 is amended--
            (1) by redesignating paragraphs (1), (2) and (3) as 
        subparagraphs (A), (B), and (C), respectively, and by moving 
        such subparagraphs (as so redesignated) 2 ems to the right;
            (2) by striking ``For purposes of'' and inserting the 
        following:
            ``(1) In general.--For purposes of'';
            (3) by striking ``paragraph (1) or (2)'' in paragraph 
        (1)(C) (as so redesignated) and inserting ``subparagraph (A) or 
        (B)''; and
            (4) by adding at the end the following new paragraph:
            ``(2) Additional requirements with respect to grantor 
        retained annuities.--For purposes of subsection (a), in the 
        case of an interest described in paragraph (1)(A) (determined 
        without regard to this paragraph) which is retained by the 
        transferor, such interest shall be treated as described in such 
        paragraph only if--
                    ``(A) the right to receive the fixed amounts 
                referred to in such paragraph is for a term of not less 
                than 10 years,
                    ``(B) such fixed amounts, when determined on an 
                annual basis, do not decrease relative to any prior 
                year during the first 10 years of the term referred to 
                in subparagraph (A), and
                    ``(C) the remainder interest has a value greater 
                than zero determined as of the time of the transfer.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transfers made after the date of the enactment of this Act.

SEC. 7. LIMITATION ON GST EXEMPTION OF PERPETUAL DYNASTY TRUSTS.

    (a) In General.--Section 2642 of the Internal Revenue Code of 1986 
is amended by adding at the end the following new subsection:
    ``(h) Expiration of GST Exemption 90 Years After Establishment of 
Trust.--
            ``(1) In general.--In the case of any generation-skipping 
        transfer made from a trust after the date which is 90 years 
        after the date on which such trust is created, the inclusion 
        ratio with respect to any property transferred in such transfer 
        shall be 1.
            ``(2) Special rules.--For purposes of this subsection--
                    ``(A) 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 2654(b)(1), 
                such separate trust shall be treated as created on the 
                date of the first transfer described in such section 
                with respect to such separate trust.
                    ``(B) Date of creation of pour-over trusts.--In the 
                case of any generation-skipping transfer of property 
                which involves the transfer of property from 1 trust to 
                another trust, the date of the creation of the 
                transferee trust shall be treated as being the earlier 
                of--
                            ``(i) the date of the creation of such 
                        transferee trust, or
                            ``(ii) the date of the creation of the 
                        transferor trust.
                In the case of multiple transfers to which the 
                preceding sentence applies, 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 trust.
                    ``(C) Exception for certain transfers for education 
                and medical expenses.--Subparagraph (B) shall not apply 
                to the transfer of property from 1 trust to another 
                trust if--
                            ``(i) such transfer is described in section 
                        2642(c)(2), and
                            ``(ii) the individual referred to in such 
                        section with respect to the transferee trust 
                        was also a beneficiary of the transferor trust.
            ``(3) Regulations.--The Secretary may prescribe such 
        regulations or other guidance as may be necessary or 
        appropriate to carry out this subsection.''.
    (b) Effective Date.--
            (1) In general.--The amendments made this section shall 
        apply to--
                    (A) trusts created after the date of the enactment 
                of this Act, and
                    (B) generation-skipping transfers made from trusts 
                created on or before such date, but only to the extent 
                such transfer is made out of corpus added to the trust 
                after such date (or out of income attributable to 
                corpus so added).
            (2) Determination of date of creation.--For purposes of 
        this subsection, the rules of sections 2642(h)(2) (as added by 
        this section) and 2654(b) of the Internal Revenue Code of 1986 
        shall apply for purposes of determining the date of the 
        creation of any trust.
            (3) Exceptions.--The Secretary of the Treasury, or his 
        designee, 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 (2) of section 1433(b) of the Tax 
        Reform Act of 1986.
                                 <all>