[Congressional Record Volume 145, Number 77 (Wednesday, May 26, 1999)]
[Senate]
[Pages S6054-S6055]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KYL (for himself, Mr. Kerrey, Mr. Nickles, Mr. Breaux, Mr. 
        Mack, Mr. Robb, and Mr. Gramm):
  S. 1128. A bill to amend the Internal Revenue Code of 1986 to repeal 
the Federal estate and gift taxes and the tax on generation-skipping 
transfers, to provide for a carryover basis at death, and to establish 
a partial capital gains exclusion for inherited assets; to the 
Committee on Finance.


                   estate tax elimination act of 1999

  Mr. KYL. Mr. President, I rise today with my colleagues, Senators Bob 
Kerrey, Don Nickles, John Breaux, sConnie Mack, Chuck Robb, and Phil 
Gramm to introduce a bill that attempts to forge bipartisan consensus 
with regard to the future of the federal estate tax. The legislation we 
are offering today is titled the Estate Tax Elimination Act of 1999.

  Mr. President, we know that many Americans are troubled by the estate 
tax's complexity and high rates, and by the mere fact that it is 
triggered by a person's death rather than the realization of income. 
For a long time, I have advocated its repeal, because I believe death 
should not be a taxable event.
  Other people agree that the tax is problematic, but are concerned the 
appreciated value of certain assets might escape taxation forever if 
the estate tax is repealed while the step-up in basis allowed under 
Section 1014 of the Internal Revenue Code remains in effect.
  The legislation we are introducing today attempts to reconcile these 
positions by eliminating both the estate tax and the step-up, and 
attributing a carryover basis to inherited property so that all gains 
are taxed at the time the property is sold and income is realized. This 
is an explicit trade-off: estate-tax repeal for implementation of a 
carryover basis. Both must occur, or this plan will not work.
  The concept of a carryover basis is not new. It exists in current law 
with respect to gifts, Section 1015 of the Internal Revenue Code, and 
property transferred in cases of divorce, Section 1041, and in 
connection with involuntary conversions of property relating to theft, 
destruction, seizure, requisition, or condemnation.
  In the latter case, when an owner receives compensation for 
involuntarily converted property, a taxable gain normally results to 
the extent that the value of the compensation exceeds the basis of the 
converted property. However, Section 1033 of the Internal Revenue Code 
allows the taxpayer to defer the recognition of the gain until the 
property is sold. The Kyl-Kerrey bill would treat the transfer of 
property at death--perhaps the most involuntary conversion of all--the 
same way, deferring recognition of any gain until the inherited 
property is sold.
  Our bill would also establish a limited capital-gains exclusion for 
inherited property to ensure that small estates, which are currently 
exempt from tax by virtue of the unified credit and the step-up in 
basis, do not find themselves with a new tax liability when the 
proposed law takes effect.
  Mr. President, I have asked the Joint Tax Committee to review the 
proposal and provide an official revenue estimate. We are awaiting the 
results of that review now.
  I hope the members of the Finance Committee will take a serious and 
careful look at this bipartisan proposal. With it, we ought to be able 
to finally eliminate the estate tax--and do it this year.
  Mr. President, I ask unanimous consent that a section-by-section 
analysis of the bill be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

   S. __, the Estate Tax Elimination Act Section-by-Section Analysis

     Section 1. Short title
       Designates the bill, the ``Estate Tax Elimination Act of 
     1999.''
     Section 2. Repeal of certain Federal transfer taxes
       Repeals Subtitle B of the Internal Revenue Code (IRC), thus 
     eliminating the federal estate, gift, and generation-skipping 
     transfer taxes as of the date of enactment.
     Section 3. Termination of a step-up in basis at death
       Amends IRC Section 1014 to eliminate the step-up in basis 
     at death with respect to property acquired from a decedent 
     dying after the date of enactment. The basis for such 
     property is to be determined pursuant a new IRC Section 1022 
     (section 4 of the bill).
     Section 4. Carryover basis at death
       Establishes a new IRC Section 1022 to provide for carryover 
     basis for certain property acquired from a decedent.
       (a) If property is classified as carryover basis property, 
     its new basis in the hands of the acquiring person will be 
     its initial basis, increased by its allowable share of the 
     decedent's exclusion allowance determined under (c) below.
       (b) Carryover basis property means property which has been 
     acquired from a decedent who died after the date of 
     enactment, and which is not any of the following:

       (1) Property acquired from the decedent and sold, 
     exchanged, or otherwise disposed of by the acquiring person 
     before the decedent's death;
       (2) An item of income in respect of a decedent;
       (3) Life-insurance proceeds under IRC Section 2042;
       (4) Foreign personal holding company stock as described in 
     IRC Section 1014(b)(5); or
       (5) Property transferred to a surviving spouse, the value 
     of which would have been deductible from the value of the 
     taxable estate of the decedent under IRC Section 2056.
       (6) Tangible personal property (e.g., household effects) 
     valued at $50,000 or less which was a capital asset in the 
     hands of the decedent and for which the executor has made an 
     election on a required information return.
       (c) The decedent's general exclusion allowance is equal to 
     the lesser of:
       (1) an applicable amount for the year of the decedent's 
     death as follows:
         $650,000 in 1999
         $675,000 in 2000 and 2001
         $700,000 in 2002 and 2003
         $850,000 in 2004
         $950,000 in 2005
         $1 million in 2006 and thereafter.
     or the aggregate net appreciation (fair market value, less 
     initial basis) of all carryover basis property.

[[Page S6055]]

       Except that, if the decedent had a deceased spouse whose 
     own exclusion allowance was less than the applicable amount 
     for that spouse, the decedent's applicable amount will be 
     increased by the unallocated portion of the deceased spouse's 
     applicable amount.
       (2) As per current law, family-owned businesses and farms 
     would be eligible for an additional exclusion, which combined 
     with the general exclusion allowance could total up to $1.3 
     million.
       (3) The executor will allocate the exclusion-allowance 
     amount to the carryover basis property on a required 
     information return. Any allocation may be changed at any time 
     up to the 30th day after the initial-basis finality date, 
     which means the last day on which the initial basis of 
     property may be changed in an administrative or judicial 
     proceeding under new IRC Section 7480. The basis adjustment 
     for any property shall not exceed the net appreciation in 
     such property and may not increase the basis of such property 
     above its fair market value.
       In the case of any carryover basis property which was a 
     personal or household effect, the basis of such property in 
     the hands of the acquiring person shall not exceed its fair 
     market value for purposes of determining loss.
       A nonresident, not a citizen of the United States, is 
     ineligible for a basis adjustment based upon a decedent's 
     exclusion allowance.
       (d) Establishes a new IRC Section 7480 to provide 
     procedures for receiving a binding determination of the 
     initial basis of carryover basis property.
       (e) Establishes a new IRC Section 6039H to require an 
     executor to file an information return providing all of the 
     necessary information with respect to carryover basis 
     property. An executor is required to furnish, in writing, the 
     adjusted basis of such item to each person acquiring an item 
     or carryover basis property from a decedent.
                                 ______