[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 4490 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
2d Session
S. 4490
To amend the Internal Revenue Code of 1986 to provide a tax on the
assets of trusts, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 12, 2026
Mrs. Murray (for herself, Mr. Wyden, Mr. Van Hollen, Mr. Booker, and
Ms. Alsobrooks) 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 provide a tax on the
assets of trusts, and for other purposes.
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 ``Fair Trusts for Fiscal
Responsibility Act''.
SEC. 2. IMPOSITION OF TAX ON ASSETS OF TRUSTS.
(a) In General.--Subtitle B of the Internal Revenue Code of 1986 is
amended by adding at the end the following new chapter:
``CHAPTER 16--TAX ON TRUST ASSETS
``subchapter a--tax imposed
``subchapter b--trust withholding credit account
``subchapter c--definitions and other rules
``Subchapter A--Tax Imposed
``Sec. 2901. Imposition of tax.
``Sec. 2902. Computation of tax.
``SEC. 2901. IMPOSITION OF TAX.
``(a) In General.--There is hereby imposed a tax on the net value
of all assets of an applicable trust held on the last day of any
calendar year.
``(b) Limitation.--The amount of tax imposed under this chapter on
any applicable trust shall not exceed the excess (if any) of--
``(1) product of--
``(A) the sum of--
``(i) the net value of all assets of the
trust held as of the last day of the calendar
year, plus
``(ii) the balance of the trust withholding
credit account (as determined under section
2911) as of such day, and
``(B) the highest rate of tax under section 2001(c)
on the estates of decedents dying on such day, over
``(2) the amount determined under paragraph (1)(A)(ii).
``SEC. 2902. COMPUTATION OF TAX.
``(a) In General.--The tax imposed by section 2901 shall be equal
to the sum of--
``(1) 0 percent of so much of the net value of all assets
of the trust as does not exceed the 1 percent bracket
threshold,
``(2) 1 percent of so much of the net value of all assets
of the trust in excess of the 1 percent bracket threshold but
not in excess of the 1.5 percent bracket threshold,
``(3) 1.5 percent of so much of the net value of all assets
of the trust in excess of the 1.5 percent bracket threshold but
not in excess of the 2 percent bracket threshold,
``(4) 2 percent of so much of the net value of all assets
of the trust in excess of the 2 percent bracket threshold but
not in excess of the 3 percent bracket threshold, plus
``(5) 3 percent of so much of the net value of all assets
of the trust in excess of the 3 percent bracket threshold.
``(b) Determination of Bracket Thresholds.--
``(1) In general.--Except as otherwise provided in this
chapter--
``(A) 1 percent bracket threshold.--The 1 percent
bracket threshold shall be equal to the lesser of--
``(i) $50,000,000, or
``(ii) the sum of--
``(I) $0, plus
``(II) the lowest unused 1 percent
bracket amount allocated to the trust
from among all beneficiaries of the
trust.
``(B) 1.5 percent bracket threshold.--The 1.5
percent bracket threshold shall be equal to the lesser
of--
``(i) $100,000,000, or
``(ii) the sum of--
``(I) the 1 percent bracket
threshold, plus
``(II) the lowest unused 1.5
percent bracket amount allocated to the
trust from among all beneficiaries of
the trust.
``(C) 2 percent bracket threshold.--The 2 percent
bracket threshold shall be equal to the lesser of--
``(i) $250,000,000, or
``(ii) the sum of--
``(I) the 1.5 percent bracket
threshold, plus
``(II) the lowest unused 2 percent
bracket amount allocated to the trust
from among all beneficiaries of the
trust.
``(D) 3 percent bracket threshold.--The 3 percent
bracket threshold shall be equal to the lesser of--
``(i) $1,000,000,000, or
``(ii) the sum of--
``(I) the 2 percent bracket
threshold, plus
``(II) the lowest unused 3 percent
bracket amount allocated to the trust
from among all beneficiaries of the
trust.
``(2) Treatment of corporations, partnerships, and
trusts.--In the case of any trust all of the beneficiaries of
which are corporations, partnerships, or trusts (after
application of the rules of paragraphs (2) and (3) of section
2922(b))--
``(A) the 1 percent bracket threshold shall be
equal to the amount in effect under paragraph
(1)(A)(i),
``(B) the 1.5 percent bracket threshold shall be
equal to the amount in effect under paragraph
(1)(B)(i),
``(C) the 2 percent bracket threshold shall be
equal to the amount in effect under paragraph
(1)(C)(i), and
``(D) the 3 percent bracket threshold shall be
equal to the amount in effect under paragraph
(1)(D)(i).
``(3) Inflation adjustment.--
``(A) In general.--In the case of any calendar year
beginning after 2027, each of the dollar amounts in
subparagraphs (A)(i), (B)(i), (C)(i), and (D)(i) of
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 in
subparagraph (A)(ii) thereof `calendar year
2026' for `calendar year 2016'.
``(B) Rounding.--If any amount as adjusted under
subparagraph (A) is not a multiple of $10,000, such
dollar amount shall be rounded to the next lowest
multiple of $10,000.
``(c) Allocation of Unused Bracket Amounts.--
``(1) In general.--Except as otherwise provided in this
subsection, the amount of any category of unused bracket amount
allocated to any trust from a beneficiary shall be equal to the
product of--
``(A) the maximum amount with respect to such
category as determined under paragraph (3)(B), and
``(B) the ratio of--
``(i) the present value of the
beneficiary's beneficial interest in such trust
(determined as provided in section
6039M(c)(3)), to
``(ii) the present value of the
beneficiary's beneficial interest (as so
determined) in all applicable trusts.
``(2) Election to assign different amounts.--A beneficiary
may elect to allocate the amount of any category of unused
bracket amount in a different manner than provided in paragraph
(1), except that the aggregate amount of any category of unused
bracket amounts allocated to all trusts for which such person
is a beneficiary may not exceed the maximum amount with respect
to such category as determined under paragraph (3)(B). An
election made under this section shall be made at such time and
in such manner as specified by the Secretary in regulations.
``(3) Categories of unused bracket amounts; maximum
amount.--
``(A) Categories of unused bracket amounts.--For
purposes of this subsection, the categories of unused
bracket amounts are--
``(i) the unused 1 percent bracket amount,
``(ii) the unused 1.5 percent bracket
amount,
``(iii) the unused 2 percent bracket
amount, and
``(iv) the unused 3 percent bracket amount.
``(B) Maximum amount.--With respect to any person
for any calendar year--
``(i) the maximum amount with respect to
the unused 1 percent bracket amount shall be
equal to the amount in effect under subsection
(b)(1)(A)(i),
``(ii) the maximum amount with respect to
the unused 1.5 percent bracket amount shall be
equal to the amount in effect under subsection
(b)(1)(B)(i),
``(iii) the maximum amount with respect to
the unused 2 percent bracket amount shall be
equal to the amount in effect under subsection
(b)(1)(C)(i), and
``(iv) the maximum amount with respect to
the unused 3 percent bracket amount shall be
equal to the amount in effect under subsection
(b)(1)(D)(i).
``(4) Special rule for certain beneficiaries.--
``(A) In general.--In the case of any beneficiary
described in subparagraph (B), no amount shall be
allocated under this section and the determination of
the lowest amount allocated to a trust under
subparagraphs (A)(ii)(II), (B)(ii)(II), (C)(ii)(II),
and (D)(ii)(II) of subsection (b)(1) shall be
determined without regard to such beneficiary.
``(B) Beneficiaries described.--A beneficiary is
described in this subparagraph if--
``(i) such beneficiary is an exempt
beneficiary, or
``(ii) such beneficiary is person described
in section 6039M(b)(2).
``Subchapter B--Trust Withholding Credit Account
``Sec. 2911. Trust withholding credit account.
``SEC. 2911. TRUST WITHHOLDING CREDIT ACCOUNT.
``(a) In General.--Under rules established by the Secretary--
``(1) each applicable trust which is subject to a tax
imposed under this chapter, and
``(2) each beneficiary of an applicable trust who receives
a qualified distribution,
shall establish a trust withholding credit account.
``(b) Additions to Account.--
``(1) Trusts.--The balance of the trust withholding credit
account for any applicable trust shall be increased by the
amount of tax imposed under this chapter which is paid by or on
behalf of the trust.
``(2) Beneficiaries.--
``(A) In general.--The balance of the trust
withholding credit account for any beneficiary who
receives a qualified distribution shall be increased by
the ratable share with respect to such distribution.
``(B) Distributions to certain corporate
shareholders and partners.----
``(i) In general.--For purposes of this
section, in the case of a qualified
distribution to a corporation or partnership
with respect to which a shareholder or partner
is treated as a beneficiary by reason of
section 2922(b)(3)(B), such shareholder or
partner (as the case may be) shall be treated
as having directly received a qualified
distribution in an amount equal to the
applicable percentage of the amount of the
distribution made to such corporation or
partnership.
``(ii) Applicable percentage.--For purposes
of this subparagraph, the applicable percentage
is the percentage of the ownership interest
held by such individual in the corporation or
partnership at the time of the distribution
(determined as provided under section
2922(b)(3)(B)).
``(C) Limitation.--In the case of a qualified
distribution which is a direct skip from a trust
(within the meaning of chapter 13), the amount of the
increase under subparagraph (A) shall be reduced by the
amount of credit allowed under section 2604(c)(2) (if
any) to the trust making the distribution.
``(c) Subtractions.--
``(1) Trusts.--The balance of the trust withholding credit
account for any applicable trust shall be reduced by--
``(A) the ratable share with respect to any
qualified distribution made by the trust, and
``(B) in the case of a taxable termination (as
defined in section 2612), the sum of--
``(i) the amount of any credit allowed
under section 2604(a), plus
``(ii) the product of--
``(I) the amount determined under
section 2604(a)(1) with respect to such
taxable termination, and
``(II) the excess of 1 over the
inclusion ratio (as defined in section
2642).
``(2) Beneficiaries.--The balance of the trust withholding
credit account for any beneficiary shall be reduced by the
amount of credits allowed to the beneficiary under sections
2017, 2604(b), and 2604(c).
``(d) Qualified Distribution.--For purposes of this section--
``(1) In general.--The term `qualified distribution' means
any distribution which--
``(A) is made from an applicable trust which is
subject to a tax under this chapter, and
``(B) is made to any person other than an exempt
beneficiary.
``(2) Special rule for certain trusts.--In the case of a
property in an applicable trust which is includible in the
gross estate of an individual, such property shall be treated
as distributed from the applicable trust to the individual in a
qualified distribution (and such individual shall be treated as
the beneficiary of such trust for purposes of subsection
(b)(2)) on the earlier of--
``(A) the date such property is distributed from
the trust, or
``(B) the date of the death of such individual.
``(e) Ratable Share.--For purposes of this section, the term
`ratable share' means, with respect to any qualified distribution, the
amount which bears the same ratio to the balance of the trust
withholding credit account (determined immediately before the qualified
distribution) as--
``(1) the amount of the qualified distribution, bears to
``(2) the net value of assets of the trust (determined
immediately before the qualified distribution).
``Subchapter C--Definitions and Other Rules
``Sec. 2921. Determination of net value of assets.
``Sec. 2922. Other definitions and special rules.
``SEC. 2921. DETERMINATION OF NET VALUE OF ASSETS.
``(a) In General.--For purposes of this chapter, the term `net
value of all assets' means, as of any date, the value of all property
of the trust, real or personal, tangible or intangible, wherever
situated, reduced by any qualified debts owed by the taxpayer.
``(b) Value of Property.--
``(1) Tradable assets.--
``(A) In general.--In the case of any tradable
asset, the value of such asset shall be the fair market
value of such asset.
``(B) Tradable asset.--For purposes of this
paragraph, the term `tradable asset' means any asset
if--
``(i) interests in such asset are traded on
an established securities market,
``(ii) interests in such assets are readily
tradable on a secondary market (or the
substantial equivalent thereof),
``(iii) interests in such assets are
available on an online or electronic platform
that regularly matches, or facilitates the
matching of, buyers and sellers of such assets,
or
``(iv) such asset is an asset for which the
Secretary determines there is a reasonable
basis to determine the asset's fair market
value annually.
``(2) Other assets.--
``(A) In general.--In the case of any asset which
is not a tradable asset, the value of such asset shall
be--
``(i) in any case in which there has been a
qualified appraisal (as defined in section
170(f)(11)(E)) conducted within the 2-year
period ending on the date the value is
determined for purposes of this chapter, the
value determined under such appraisal, and
``(ii) in any other case, the value of such
property determined under such other method as
prescribed by the Secretary.
``(B) Determination where no alternative method.--
If subparagraph (A)(i) does not apply and the Secretary
has not prescribed a method under subparagraph (A)(ii),
the value of such asset shall be the greater of--
``(i) the sum of--
``(I) the basis of such asset, and
``(II) the product of--
``(aa) the amount
determined under subclause (I),
and
``(bb) the sum of 1 percent
and the long-term rate
determined under section
1274(d) for the applicable
month, compounded semiannually,
or
``(ii) the value of such property
determined by a qualified appraisal (as defined
in section 170(f)(11)(E)) conducted within the
5-year period ending on the date the value is
determined for purposes of this chapter.
``(C) Applicable month.--For purposes of
subparagraph (B)(i)(II)--
``(i) In general.--Except as provided in
clause (ii), the term `applicable month' means,
with respect to any asset, the month in which
such asset was acquired by the taxpayer.
``(ii) Certain assets with carryover
basis.--In the case of any asset the basis in
the hands of the taxpayer was determined by
reference to the basis in the hands of another
person, the term `applicable month' means the
month in which such asset was acquired by such
other person.
``(3) Limitation on discount by reason of family control.--
``(A) In general.--For purposes of this chapter, in
the case of any interest in an entity other than an
interest which is actively traded (within the meaning
of section 1092), if the person who transferred such
interest, the transferee, and members of the family of
the transferor and transferee have control of such
entity immediately before such transfer, no discount
shall be allowed--
``(i) by reason of the fact that the
transferor or transferee does not have control
of such entity,
``(ii) by reason of the lack of
marketability of the interest, or
``(iii) for any other reason.
``(B) Definitions.--In this paragraph, the terms
`control' and `member of the family' have the same
meanings given such terms in section 2704(c).
``(C) Attribution.--For purposes of this paragraph,
the rule of section 2701(e)(3) shall apply for purposes
of determining the interests held by any individual.
``(4) Valuation rules for certain nonbusiness assets held
by nontradable entities.--
``(A) In general.--For purposes of this chapter, in
the case of any interest in an entity other than an
interest which is a tradable asset--
``(i) the value of any nonbusiness assets
held by the entity with respect to such
interest shall be determined as if the owner of
the entity directly held its ratable share of
such nonbusiness assets (and no valuation
discount shall be allowed with respect to such
nonbusiness assets), and
``(ii) such nonbusiness assets shall not be
taken into account in determining the value of
the interest in the entity and the basis of
such nonbusiness assets shall not be taken into
account in determining the basis of such
interest under paragraph (2)(A)(i).
``(B) Nonbusiness assets.--For purposes of this
paragraph--
``(i) In general.--The term `nonbusiness
asset' means any asset other than an asset
which is used in the active conduct of a trade
or business.
``(ii) Passive assets treated as
nonbusiness assets.--For purposes of clause
(i), a passive asset shall be treated as a
nonbusiness asset 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).
``(iii) Material participation.--For
purposes of clause (ii)(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.
``(iv) Working capital treated as used in
trade or business.--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.
``(C) Passive asset.--For purposes of this
paragraph, the term `passive asset' means any--
``(i) cash or cash equivalents,
``(ii) stock in a corporation or any other
equity, profits, or capital interest in any
entity,
``(iii) evidence of indebtedness, option,
forward or futures contract, notional principal
contract, or derivative,
``(iv) asset described in clause (iii),
(iv), or (v) of section 351(e)(1)(B),
``(v) annuity,
``(vi) real property used in 1 or more real
property trades or businesses (as defined in
section 469(c)(7)(C)),
``(vii) asset (other than a patent,
trademark, or copyright) which produces royalty
income,
``(viii) commodity,
``(ix) collectible (within the meaning of
section 408(m)), or
``(x) any other asset specified in
regulations prescribed by the Secretary.
``(D) Look-thru rule.--
``(i) In general.--If a nonbusiness asset
of an entity described in subparagraph (A)
consists of a 10-percent interest in any other
entity, this paragraph 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.
``(ii) 10-percent interest.--The term `10-
percent interest' means--
``(I) in the case of an interest in
a corporation, direct 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, direct ownership of
at least 10 percent of the capital or
profits interest in the partnership,
and
``(III) in any other case, direct
ownership of at least 10 percent of the
beneficial interests in the entity.
``(c) Qualified Debt.--For purposes of this section--
``(1) In general.--The term `qualified debt' means any debt
other than any debt to a person--
``(A) who made a contribution to the trust,
``(B) who is a beneficiary of the trust, or
``(C) who is related (within the meaning of section
267(b)) to the trust or to a person described in
subparagraph (A) or (B).
``(2) Treatment of nonrecourse debt.--In the case of any
debt which is nonrecourse debt, the amount of qualified debt
shall not exceed the value of the property securing such debt.
``(d) Regulations.--Not later than 12 months after the date of the
enactment of this section, the Secretary shall establish rules and
methods for determining the value of any asset for purposes of this
chapter, including rules for the valuation of assets that are not
publicly traded or that do not have a readily ascertainable value.
``SEC. 2922. OTHER DEFINITIONS AND SPECIAL RULES.
``(a) Applicable Trust.--For purposes of this chapter--
``(1) In general.--The term `applicable trust' means any
trust or any portion of a trust to the extent that such trust
or portion--
``(A) is a United States person described in
section 7701(a)(30)(E),
``(B) has one or more beneficiaries who are United
States persons described in section 7701(a)(30), or
``(C) has one or more living grantors who are
United States persons described in section
7701(a)(30)(A).
For purposes of this paragraph, a living person who is related
(determined under section 267(b), applied by substituting `5
percent' for `50 percent' each place it appears) to a grantor
described in subparagraph (C) shall be treated as a person
described in such subparagraph.
``(2) Exceptions.--The term `applicable trust' does not
include--
``(A) a trust--
``(i) which is an organization described in
paragraphs (1) through (5) of section 2055(a),
or
``(ii) from which only transfers described
in section 2055(a) may be made,
``(B) a trust described in section 401(a) and
exempt from tax under section 501(a),
``(C) a trust used to facilitate issuance of
securities (as determined by the Secretary under
regulations),
``(D) a trust which--
``(i) has a maximum duration of less than 1
year, and
``(ii) is organized and operated
exclusively for a commercial purpose determined
by the Secretary to be applicable under this
subsection, and
``(E) any trust or portion of a trust wherein the
power to revest absolutely in the grantor title to the
trust property to which such portion is attributable is
exercisable solely by the grantor without the approval
or consent of any other person.
``(b) Determination of Beneficiaries; Exempt Beneficiary.--For
purposes of this chapter--
``(1) Contingent beneficiaries.--
``(A) In general.--Except as provided in
subparagraph (B), the term `beneficiary' shall not
include any person whose interest in an applicable
trust is contingent on the death of another person with
an interest in such trust.
``(B) Exception.--The term `beneficiary' shall
include a person whose interest in an applicable trust
is contingent on the death of another person with an
interest in such trust if--
``(i) there exists one or more persons
whose interest in such trust is not contingent
on the death of another person, and
``(ii) the amount of funds that may be
distributed to any such person are limited by
the trust instrument or by means other than the
sole discretion of the trustee.
``(2) Treatment of beneficiary trusts.--If a trust is the
beneficiary of another trust, each trust or individual which
holds a beneficial interest in such trust shall be treated as a
beneficiary of such other trust.
``(3) Corporations and partnerships.--
``(A) In general.--Except for purposes of
subparagraph (B), the term `beneficiary' shall not
include a corporation or a partnership.
``(B) Treatment of 5-percent owners.--
``(i) In general.--The term `beneficiary'
shall include--
``(I) any shareholder of a
corporation which is the beneficiary of
an applicable trust if such shareholder
holds 5 percent or more of the stock
(by vote or value) of such corporation,
and
``(II) any partner of a partnership
which is the beneficiary of an
applicable trust if such partner owns
more than 5 percent of the capital or
profits interest in the partnership.
``(ii) Constructive ownership rules.--For
purposes of clause (i), rules similar to the
rules of paragraphs (2), (3), (4), and (5) of
section 318(a) shall apply.
``(4) Exempt beneficiary.--The term `exempt beneficiary'
means any beneficiary which is an organization described in
section 2055(a).''.
(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 6039L the following new section:
``SEC. 6039M. INFORMATION WITH RESPECT TO TRUST ASSET TAX.
``(a) Statement of Net Assets.--Not later than April 1 of each
calendar year, every applicable trust shall file with the Secretary a
statement setting forth--
``(1) the name and taxpayer identification number of such
trust,
``(2) the net value of assets of such trust as of the last
day of the preceding calendar year,
``(3) the name and taxpayer identification number of each
beneficiary of such trust, and
``(4) the present value of the beneficial interests in the
trust of each such beneficiary as of the last day of the
preceding calendar year.
``(b) Allocation of Unused Bracket Amount.--
``(1) In general.--Not later than June 1 of each calendar
year, each beneficiary of an applicable trust shall submit to
the Secretary a statement setting forth--
``(A) the name and taxpayer identification number
of such beneficiary,
``(B) the name and taxpayer identification number
of each applicable trust of which such individual is a
beneficiary, and
``(C) the amount of--
``(i) the unused 1 percent bracket amount
allocated to each such trust under section
2902(c),
``(ii) the unused 1.5 percent bracket
amount allocated to each such trust under
section 2902(c),
``(iii) the unused 2 percent bracket amount
allocated to each such trust under section
2902(c), and
``(iv) the unused 3 percent bracket amount
allocated to each such trust under section
2902(c).
``(2) Exception.--Paragraph (1) shall not apply to any
person if the aggregate present value of beneficial interests
in all trusts with respect to which such person is a
beneficiary is less than $250,000.
``(3) Copies to trusts.--Each beneficiary required to
submit a statement under paragraph (1) shall (on or before the
day on which the statement was required to be filed) furnish to
each applicable trust identified on the statement the
information required under paragraph (1) with respect to such
applicable trust.
``(c) Definitions and Other Rules.--For purposes of this section--
``(1) Applicable trust.--The term `applicable trust' has
the meaning given such term under chapter 16.
``(2) Beneficiary.--The term `beneficiary' has the meaning
given such term under section 2922(b).
``(3) Present value of beneficial interests.--The present
value of a person's beneficial interest in a trust shall be
determined in proportion to the actuarial interest of such
person in such trust.''.
(2) Penalties.--
(A) Initial statements.--Section 6724(d)(1) of such
Code is amended by striking ``and'' at the end of
subparagraph (B), by striking ``and'' at the end of
subparagraph (C), by striking the period at the end of
subparagraph (D) and inserting ``, and'', and by
inserting after subparagraph (D) the following new
subparagraph:
``(E) any statement required to be filed under
subsection (a) or (b)(1) of section 6039M.''.
(B) Copies.--Section 6724(d)(2) of such Code is
amended by striking ``or'' at the end of subparagraph
(NN), by striking the period at the end of subparagraph
(OO) and inserting ``, or'', and by inserting after
subparagraph (OO) the following new subparagraph:
``(PP) section 6039M(b)(3).''.
(3) Clerical amendment.--The table of sections for subpart
A of part III of subchapter A of chapter 61 of such Code is
amended by inserting after the item relating to section 6039L
the following new item:
``Sec. 6039M. Information with respect to trust asset tax.''.
(c) No Deduction From Income Taxes.--Section 275 of the Internal
Revenue Code of 1986 is amended by inserting after paragraph (6) the
following new paragraph:
``(7) Taxes imposed by chapter 16.''.
(d) Clerical Amendment.--The table of chapters for the Internal
Revenue Code of 1986 is amended by inserting after the item relating to
chapter 15 the following new item:
``Chapter 16--Tax on Trust Assets''.
(e) Effective Date.--The amendments made by this section shall
apply to calendar years beginning after December 31, 2026.
SEC. 3. COORDINATION WITH ESTATE AND GENERATION-SKIPPING AND ESTATE
TAXES.
(a) Tax on Generation-Skipping Transfers.--
(1) Gross-up of taxable amount.--Subchapter C of chapter 13
of the Internal Revenue Code of 1986 is amended by adding at
the end the following new section:
``SEC. 2625. GROSS UP OF TAXABLE AMOUNT TO INCLUDE ADDITIONS TO TRUST
WITHHOLDING CREDIT ACCOUNT.
``The taxable amount shall be increased--
``(1) in the case of a taxable termination, by the amount
which bears the same ratio to the balance of the trust
withholding credit account of the trust involved (determined
under section 2911 immediately before the taxable termination)
as--
``(A) the taxable amount (determined without regard
to this section), bears to
``(B) the net value of assets of such trust
(determined under chapter 16 immediately before such
taxable distribution), and
``(2) in the case of a taxable distribution or a direct
skip from a trust, by the amount which bears the same ratio to
the balance of the trust withholding credit account of the
trust from which the taxable distribution or direct skip, as
the case may be, was made (determined under section 2911
immediately before the taxable distribution) as--
``(A) the taxable amount (determined without regard
to this section), bears to
``(B) the net value of assets of such trust
(determined under chapter 16 immediately before such
taxable distribution).''.
(2) Credit for trust withholding taxes.--Subchapter A of
chapter 13 of the Internal Revenue Code of 1986 is amended by
adding at the end the following new section:
``SEC. 2604. CREDIT FOR PREVIOUSLY PAID TRUST ASSET TAXES.
``(a) Taxable Terminations.--In the case of a taxable termination,
there shall be allowed a credit against the tax imposed by section 2601
an amount equal to the product of--
``(1) the amount which bears the same ratio to the balance
of the trust withholding credit account of the trust involved
(determined under section 2911 as of the time of the taxable
termination) as--
``(A) the taxable amount (determined without regard
to section 2625), bears to
``(B) the net value of assets of the trust
(determined under chapter 16 as of the date of the
taxable termination), and
``(2) the inclusion ratio.
``(b) Taxable Distributions.--In the case of a taxable
distribution, there shall be allowed a credit against the tax imposed
by section 2601 an amount equal to the product of--
``(1) the amount which bears the same ratio to the balance
of the trust withholding credit account of the transferee
involved (determined under section 2911 immediately after the
time of the taxable distribution) as--
``(A) the taxable amount (determined without regard
to section 2625), bears to
``(B) the net value of assets of the trust
(determined under chapter 16 as of the time of the
taxable distribution), and
``(2) the inclusion ratio.
``(c) Direct Skips.--
``(1) In general.--In the case of a direct skip, there
shall be allowed a credit against the tax imposed by section
2601 an amount equal to the lesser of--
``(A) the product of--
``(i) the balance of the trust withholding
credit account of the person liable for such
tax (determined under section 2911 immediately
before the time of the direct skip), and
``(ii) the inclusion ratio, or
``(B) the amount of tax so imposed.
``(2) Direct skips from a trust.--In the case of a direct
skip from a trust, the amount of the credit determined under
this subsection shall not exceed the product of--
``(A) the amount which bears the same ratio to the
balance of the trust withholding credit account of the
trust involved (determined under section 2911
immediately before the time of the direct skip) as--
``(i) the taxable amount (determined
without regard to section 2625), bears to
``(ii) the net value of assets of the trust
(determined under chapter 16 as of the time of
the direct skip), and
``(B) the inclusion ratio.''.
(3) Clerical amendments.--
(A) The table of sections for subchapter A of
chapter 13 of such Code is amended by adding at the end
the following new item:
``Sec. 2604. Credit for previously paid trust asset taxes.''.
(B) The table of sections for subchapter A of
chapter 13 of such Code is amended by adding at the end
the following new item:
``Sec. 2625. Gross up of taxable amount to include additions to trust
withholding credit account.''.
(b) Estate Tax.--
(1) Gross up of tax.--
(A) Citizens and residents.--Part III of subchapter
A of chapter 11 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new section:
``SEC. 2047. TRUST WITHHOLDING CREDIT ACCOUNT BALANCE.
``The gross estate shall include the balance of the trust
withholding credit account (determined under section 2911) of the
decedent.''.
(B) Nonresidents not citizens.--Section 2103 of
such Code is amended by adding at the end the following
new sentence: ``For purposes of this section, the
balance of the trust withholding credit account shall
be treated as situated in the United States.''.
(2) Credit for previously paid trust withholding taxes.--
(A) Estates of citizens and residents.--Part II of
subchapter A of chapter 11 of the Internal Revenue Code
of 1986 is amended by adding at the end the following
new section:
``SEC. 2017. CREDIT FOR PREVIOUSLY PAID TRUST ASSET TAXES.
``There shall be allowed as a credit against the tax imposed by
section 2001 an amount equal to the balance of the trust withholding
credit account (determined under section 2911) of the decedent.''.
(B) Estates of nonresidents not citizens.--Section
2102(a) of the Internal Revenue Code of 1986 is amended
by striking ``2012 and 2013 (relating to gift tax and
tax on prior transfers)'' and inserting ``2012, 2013,
and 2017''.
(C) Refunds of unused credits.--Section 6401(b) of
the Internal Revenue Code of 1986 is amended by adding
at the end the following new paragraph:
``(3) Estate tax credit for previously paid trust asset
taxes.--
``(A) Citizens and residents.--If the amount
allowable as credit under section 2017 exceeds the tax
imposed under section 2001 (reduced by the amount of
credits allowed under sections 2010 through 2016), the
amount of such excess shall be considered an
overpayment.
``(B) Nonresidents not citizens.--If the amount
determined in accordance with section 2017 and
allowable as a credit under section 2102 exceeds the
tax imposed under section 2011 (reduced by the amount
determined in accordance with sections 2012 and 2013
and allowed as a credit under section 2102), the amount
of such excess shall be considered an overpayment.''.
(3) Clerical amendments.--
(A) The table of sections for subchapter A of
chapter 13 of such Code is amended by adding at the end
the following new item:
``Sec. 2017. Credit for previously paid trust asset taxes.''.
(B) The table of sections for subchapter A of
chapter 13 of such Code is amended by adding at the end
the following new item:
``Sec. 2047. Trust withholding credit account balance.''.
(c) Effective Date.--The amendments made by this section shall
apply to transfers made in calendar years beginning after, and
decedents dying after, December 31, 2026.
SEC. 4. PAYMENT OF TAXES OF GRANTOR TRUSTS.
(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 applicable taxes paid with respect to 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
trustor portion of a 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) Applicable taxes.--For purposes of this subsection,
the term `applicable taxes' means, with respect to any
applicable grantor trust--
``(A) taxes paid on income, and
``(B) taxes paid on the value of assets of the
trust.
``(4) 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.
``(5) 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.
``(6) 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 amounts paid or incurred after the date of the enactment of
this Act.
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