[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 3988 Introduced in Senate (IS)]

<DOC>






118th CONGRESS
  2d Session
                                S. 3988

To amend the Internal Revenue Code of 1986 to modify rules for grantor 
                                trusts.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             March 20, 2024

  Mr. Wyden (for himself and Mr. King) 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 modify rules for grantor 
                                trusts.

    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 ``Getting Rid of Abusive Trust Schemes 
Act'' or the ``GRATS Act''.

SEC. 2. REQUIRED MINIMUM 15-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 annuity trusts.--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 15 years and not more than the life expectancy of 
                the annuitant plus 10 years,
                    ``(B) such fixed amounts, when determined on an 
                annual basis, do not decrease during the term described 
                in subparagraph (A), and
                    ``(C) the remainder interest has a value, as 
                determined as of the time of the transfer, which is--
                            ``(i) not less than an amount equal to the 
                        greater of--
                                    ``(I) 25 percent of the fair market 
                                value of the property transferred to 
                                the trust, or
                                    ``(II) $500,000, and
                            ``(ii) not greater than the fair market 
                        value of the property transferred to the 
                        trust.''.
    (b) Effective Dates.--The amendments made by this section shall 
apply--
            (1) to trusts created on or after the date of enactment of 
        this Act, and
            (2) to any portion of a trust established before the date 
        of the enactment of this Act which is attributable to a 
        contribution made on or after such date.

SEC. 3. CERTAIN TRANSFERS BETWEEN GRANTOR TRUST AND DEEMED OWNER.

    (a) In General.--Part IV of subchapter O of chapter 1 of the 
Internal Revenue Code of 1986 is amended by redesignating section 1062 
as section 1063 and inserting after section 1061 the following new 
section:

``SEC. 1062. CERTAIN TRANSFERS BETWEEN GRANTOR TRUST AND DEEMED OWNER.

    ``(a) In General.--In the case of any transfer of property for 
consideration between a trust and a person who is a deemed owner of the 
trust, such transfer shall be treated as a sale or exchange for 
purposes of this chapter regardless of the fact that such person is a 
deemed owner of such trust.
    ``(b) Exception.--Subsection (a) shall not apply to--
            ``(1) any grantor trust which is fully revocable by the 
        deemed owner,
            ``(2) any asset-backed securities trust, or
            ``(3) any grantor trust which is identified by the 
        Secretary (pursuant to regulations or other guidance) as 
        appropriate to exclude from the application of subsection (a).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Asset-backed securities trust.--
                    ``(A) In general.--The term `asset-backed 
                securities trust' means any grantor trust--
                            ``(i) for which the assets of the trust are 
                        mortgage-backed securities or other asset-
                        backed securities, and
                            ``(ii) which is engaged in securitization 
                        transactions.
                    ``(B) Exception.--The term `asset-backed securities 
                trust' shall not include any grantor trust identified 
                by the Secretary (pursuant to regulations or other 
                guidance) as appropriate to exclude from the 
                application of subsection (b)(2).
            ``(2) Deemed owner.--The term `deemed owner' means, with 
        respect to any trust, any person who is treated as the owner of 
        such trust (or a portion thereof) under subpart E of part 1 of 
        subchapter J.
    ``(d) Rule of Construction.--For purposes of subsection (a), a 
transfer of property for consideration shall include--
            ``(1) any satisfaction of an annuity, or
            ``(2) any discharge of debt,
by the trust in kind.''.
    (b) Related Taxpayers.--Section 267(b) of the Internal Revenue Code 
of 1986 is amended--
            (1) by striking ``or'' at the end of paragraph (12),
            (2) by striking the period at the end of paragraph (13) and 
        inserting ``; or'', and
            (3) by adding at the end the following new paragraph:
            ``(14) A grantor trust and the person treated as the owner 
        of the trust (or portion thereof) under subpart E of part 1 of 
        subchapter J of this chapter.''.
    (c) Clerical Amendments.--The table of sections for part IV of 
subchapter O of chapter 1 of the Internal Revenue Code of 1986 is 
amended by striking the item relating to section 1062 and inserting the 
following new items:

``Sec. 1062. Certain sales to grantor trusts.
``Sec. 1063. Cross references.''.
    (d) Effective Dates.--The amendments made by this section shall 
apply to transfers made after the date of the enactment of this Act.

SEC. 4. PAYMENT OF TAX ON INCOME OF GRANTOR TRUST.

    (a) In General.--Section 2503 of the Internal Revenue Code of 1986 
is amended--
            (1) in subsection (a), by striking ``The term'' and 
        inserting ``Subject to subsection (d), the term'' and
            (2) by inserting after subsection (c) the following:
    ``(d) Payment of Tax on Income of Grantor Trust.--
            ``(1) In general.--Notwithstanding subsections (b) and (e), 
        an amount equal to the taxes paid on the income of an 
        applicable grantor trust for any calendar year by a person who 
        is the deemed owner of such trust (or portion thereof) shall be 
        treated for purposes of this subtitle as a taxable gift made 
        during such calendar year.
            ``(2) Applicable grantor trust.--For purposes of this 
        subsection, the term `applicable grantor trust' means any 
        trust--
                    ``(A) with respect to which the taxpayer is 
                considered an owner under subpart E of part I of 
                subchapter J of chapter 1, and
                    ``(B) which is not fully revocable by the taxpayer.
            ``(3) Reimbursement by trust.--Paragraph (1) shall not 
        apply with respect to any amount paid by the deemed owner for 
        any calendar year which is reimbursed by the applicable grantor 
        trust during such calendar year.
            ``(4) Date of gift.--In the case of any amount treated for 
        purposes of this subtitle as a taxable gift pursuant to 
        paragraph (1), such gift shall be deemed to have occurred on 
        the earlier of--
                    ``(A) December 31 of the calendar year for which 
                the tax is paid by the person who is the deemed owner,
                    ``(B) the day before the date of the death of such 
                person, or
                    ``(C) the date on which such person renounces any 
                right of reimbursement by the applicable grantor trust 
                with respect to the calendar year for which the tax is 
                paid by such person.
            ``(5) Deemed owner.--For purposes of this subsection, the 
        term `deemed owner' has the same meaning given such term under 
        section 1062(c).''.
    (b) Conforming Amendments.--
            (1) Section 2522 of the Internal Revenue Code of 1986 is 
        amended--
                    (A) by redesignating subsection (f) as subsection 
                (g), and
                    (B) by inserting after subsection (e) the following 
                new subsection:
    ``(f) Denial of Deduction for Payment of Tax on Income of Grantor 
Trust.--No deduction shall be allowed under this section for any amount 
which is treated as a gift by reason of section 2503(d).''.
            (2) Section 2523 of such Code is amended by adding at the 
        end the following new subsection:
    ``(j) Denial of Deduction for Payment of Tax on Income of Grantor 
Trust.--No deduction shall be allowed under this section for any amount 
which is treated as a gift by reason of section 2503(d).''.
    (c) Effective Dates.--The amendments made by this section shall 
apply to trusts created on or after the date of enactment of this Act.
                                 <all>