[House Report 107-39]
[From the U.S. Government Publishing Office]



107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-39

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  PROVIDING FOR CONSIDERATION OF H.R. 8, DEATH TAX ELIMINATION ACT OF 
                                  2001

                                _______
                                

   April 3, 2001.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mr. Reynolds, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 111]

    The Committee on Rules, having had under consideration 
House Resolution 111, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                summary of provisions of the resolution

    The resolution provides for consideration in the House of 
H.R. 8, the Death Tax Elimination Act of 2001, under a modified 
closed rule. The rule provides one hour of debate equally 
divided and controlled by the chairman and ranking minority 
member of the Committee on Ways and Means. The rule waives all 
points of order against consideration of the bill.
    The rule provides that the amendment recommended by the 
Committee on Ways and Means now printed in the bill shall be 
considered as adopted. The rule further provides for 
consideration of the amendment in the nature of a substitute, 
printed in this report, if offered by Representative Rangel or 
his designee, which shall be considered as read and shall be 
separately debatable for one hour equally divided and 
controlled by the proponent and an opponent. The rule waives 
all points of order against the amendment in the nature of a 
substitute. Finally, the rule provides one motion to recommit 
with or without instructions.
    The waiver of all points of order includes a waiver of 
clause 4(a) of rule XIII (requiring a three-day layover of the 
committee report) and a waiver of section 303 of the 
Congressional Budget Act of 1974 (prohibiting consideration of 
legislation, as reported, providing new budget authority, 
changes in revenues, or changes in the public debt for a fiscal 
year until the budget resolution for that year has been agreed 
to).
    The waiver of clause 4(a) of rule XIII is needed because 
the report was not filed until Tuesday, April 3 and the bill 
may be considered by the House as early as Wednesday, April 4. 
The waiver of section 303 is necessary because Congress has not 
yet completed consideration of a budget resolution for FY 2002 
and, according to the Joint Committee on Taxation, the bill 
would decrease revenues and increase direct spending in FY 
2002.
    The waiver of all points of order against consideration of 
the minority substitute is necessary for the same general 
reason as are necessary for the bill.

                   summary of amendment made in order

    Rangel--Democratic Substitute. increases the current estate 
tax exclusion in 2002 from $675,000 to $2 million and doubles 
that amount for couples; phases in increases in the exclusion 
to $2.5 million ($5 million for married couples) by 2010; 
preserves the current law ``step up in basis'' provisions; 
repeals the mileage limitations of current law for tax-
benefitted conservation easements so tat all land would be 
eligible for the exclusion; repeals the current credit for 
inheritance and estate taxes paid to State; and limits the use 
of minority discounts to estate tax.

             text of amendment made in order under the rule

 Am Amendment To Be Offered by Representative Rangel of New York, or a 
                   Designee, Debatable for 60 Minutes

  Strike all after the enacting clause and insert the 
following:

SECTION 1. AMENDMENT OF 1986 CODE.

  Except as otherwise expressly provided, whenever in this Act 
an amendment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision 
of the Internal Revenue Code of 1986.

SEC. 2. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT.

  (a) In General.--Subsection (c) of section 2010 (relating to 
applicable credit amount) is amended by striking the table and 
inserting the following new table:

    ``In the case of estates of decedents                 The applicable
      dying, and gifts made, during:                exclusion amount is:
          2002..........................................     $2,000,000 
          2003 and 2004.................................     $2,100,000 
          2005 and 2006.................................     $2,200,000 
          2007 and 2008.................................     $2,300,000 
          2009..........................................     $2,400,000 
          2010 or thereafter............................   $2,500,000.''
  (b) Repeal of Special Benefit for Family-Owned Business 
Interests.--
          (1) Section 2057 is hereby repealed.
          (2) Paragraph (10) of section 2031(c) is amended by 
        inserting ``(as in effect on the day before the date of 
        the enactment of this parenthetical)'' before the 
        period.
          (3) The table of sections for part IV of subchapter A 
        of chapter 11 is amended by striking the item relating 
        to section 2057.
  (c) Correction of Technical Error Affecting Largest 
Estates.--Paragraph (2) of section 2001(c) is amended by 
striking ``$10,000,000'' and all that follows and inserting 
``$10,000,000. The amount of the increase under the preceding 
sentence shall not exceed the sum of the applicable credit 
amount under section 2010(c) and $359,200.''
  (d) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying, and gifts made, 
after December 31, 2001.

SEC. 3. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH 
                    TAXES.

  (a) Repeal of Credit.--Section 2011 (relating to credit for 
State death taxes) is hereby repealed.
  (b) Deduction for State Death Taxes.--Part IV of subchapter A 
of chapter 11 is amended by adding at the end the following new 
section:

``SEC. 2058. STATE DEATH TAXES.

  ``(a) Allowance of Deduction.--For purposes of the tax 
imposed by section 2001, the value of the taxable estate shall 
be determined by deducting from the value of the gross estate 
the amount of any estate, inheritance, legacy, or succession 
taxes actually paid to any State or the District of Columbia, 
in respect of any property included in the gross estate (not 
including any such taxes paid with respect to the estate of a 
person other than the decedent).
  ``(b) Period of Limitations.--The deduction allowed by this 
section shall include only such taxes as were actually paid and 
deduction therefor claimed within 4 years after the filing of 
the return required by section 6018, except that--
          ``(1) If a petition for redetermination of a 
        deficiency has been filed with the Tax Court within the 
        time prescribed in section 6213(a), then within such 4-
        year period or before the expiration of 60 days after 
        the decision of the Tax Court becomes final.
          ``(2) If, under section 6161 or 6166, an extension of 
        time has been granted for payment of the tax shown on 
        the return, or of a deficiency, then within such 4-year 
        period or before the date of the expiration of the 
        period of the extension.
          ``(3) If a claim for refund or credit of an 
        overpayment of tax imposed by this chapter has been 
        filed within the time prescribed in section 6511, then 
        within such 4-year period or before the expiration of 
        60 days from the date of mailing by certified mail or 
        registered mail by the Secretary to the taxpayer of a 
        notice of the disallowance of any part of such claim, 
        or before the expiration of 60 days after a decision by 
        any court of competent jurisdiction becomes final with 
        respect to a timely suit instituted upon such claim, 
        whichever is later.
Refund based on the deduction may (despite the provisions of 
sections 6511 and 6512) be made if claim therefor is filed 
within the period above provided. Any such refund shall be made 
without interest.''
  (c) Conforming Amendments.--
          (1) Subsection (a) of section 2012 is amended by 
        striking ``the credit for State death taxes provided by 
        section 2011 and''.
          (2) Subparagraph (A) of section 2013(c)(1) is amended 
        by striking ``2011,''.
          (3) Paragraph (2) of section 2014(b) is amended by 
        striking ``, 2011,''.
          (4) Sections 2015 and 2016 are each amended by 
        striking ``2011 or''.
          (5) Subsection (d) of section 2053 is amended to read 
        as follows:
  ``(d) Certain Foreign Death Taxes.--
          ``(1) In general.--Notwithstanding the provisions of 
        subsection (c)(1)(B) of this section, for purposes of 
        the tax imposed by section 2001, the value of the 
        taxable estate may be determined, if the executor so 
        elects before the expiration of the period of 
        limitation for assessment provided in section 6501, by 
        deducting from the value of the gross estate the amount 
        (as determined in accordance with regulations 
        prescribed by the Secretary) of any estate, succession, 
        legacy, or inheritance tax imposed by and actually paid 
        to any foreign country, in respect of any property 
        situated within such foreign country and included in 
        the gross estate of a citizen or resident of the United 
        States, upon a transfer by the decedent for public, 
        charitable, or religious uses described in section 
        2055. The determination under this paragraph of the 
        country within which property is situated shall be made 
        in accordance with the rules applicable under 
        subchapter B (sec. 2101 and following) in determining 
        whether property is situated within or without the 
        United States. Any election under this paragraph shall 
        be exercised in accordance with regulations prescribed 
        by the Secretary.
          ``(2) Condition for allowance of deduction.--No 
        deduction shall be allowed under paragraph (1) for a 
        foreign death tax specified therein unless the decrease 
        in the tax imposed by section 2001 which results from 
        the deduction provided in paragraph (1) will inure 
        solely for the benefit of the public, charitable, or 
        religious transferees described in section 2055 or 
        section 2106(a)(2). In any case where the tax imposed 
        by section 2001 is equitably apportioned among all the 
        transferees of property included in the gross estate, 
        including those described in sections 2055 and 
        2106(a)(2) (taking into account any exemptions, 
        credits, or deductions allowed by this chapter), in 
        determining such decrease, there shall be disregarded 
        any decrease in the Federal estate tax which any 
        transferees other than those described in sections 2055 
        and 2106(a)(2) are required to pay.
          ``(3) Effect on credit for foreign death taxes of 
        deduction under this subsection.--
                  ``(A) Election.--An election under this 
                subsection shall be deemed a waiver of the 
                right to claim a credit, against the Federal 
                estate tax, under a death tax convention with 
                any foreign country for any tax or portion 
                thereof in respect of which a deduction is 
                taken under this subsection.
                  ``(B) Cross reference.--

          ``See section 2014(f) for the effect of a deduction taken 
        under this paragraph on the credit for foreign death taxes.''

          (6) Subparagraph (A) of section 2056A(b)(10) is 
        amended--
                  (A) by striking ``2011,'', and
                  (B) by inserting ``2058,'' after ``2056,''.
          (7)(A) Subsection (a) of section 2102 is amended to 
        read as follows:
  ``(a) In General.--The tax imposed by section 2101 shall be 
credited with the amounts determined in accordance with 
sections 2012 and 2013 (relating to gift tax and tax on prior 
transfers).''
          (B) Section 2102 is amended by striking subsection 
        (b) and by redesignating subsection (c) as subsection 
        (b).
          (C) Section 2102(b)(5) (as redesignated by 
        subparagraph (B)) and section 2107(c)(3) are each 
        amended by striking ``2011 to 2013, inclusive,'' and 
        inserting ``2012 and 2013''.
          (8) Subsection (a) of section 2106 is amended by 
        adding at the end the following new paragraph:
          ``(4) State death taxes.--The amount which bears the 
        same ratio to the State death taxes as the value of the 
        property, as determined for purposes of this chapter, 
        upon which State death taxes were paid and which is 
        included in the gross estate under section 2103 bears 
        to the value of the total gross estate under section 
        2103. For purposes of this paragraph, the term `State 
        death taxes' means the taxes described in section 
        2011(a).''
          (9) Section 2201 is amended--
                  (A) by striking ``as defined in section 
                2011(d)'', and
                  (B) by adding at the end the following new 
                flush sentence:
``For purposes of this section, the additional estate tax is 
the difference between the tax imposed by section 2001 or 2101 
and the amount equal to 125 percent of the maximum credit 
provided by section 2011(b), as in effect before its repeal by 
the Tax Reduction Act of 2001.''
          (10) Paragraph (2) of section 6511(i) is amended by 
        striking ``2011(c), 2014(b),'' and inserting 
        ``2014(b)''.
          (11) Subsection (c) of section 6612 is amended by 
        striking ``section 2011(c) (relating to refunds due to 
        credit for State taxes),''.
          (12) The table of sections for part II of subchapter 
        A of chapter 11 is amended by striking the item 
        relating to section 2011.
          (13) The table of sections for part IV of subchapter 
        A of chapter 11 is amended by adding at the end the 
        following new item:

        ``Sec. 2058. State death taxes.''

  (d) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after December 31, 
2001.

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

  (a) In General.--Section 2031 (relating to definition of 
gross estate) 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.
          ``(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.''
  (c) Effective Date.--The amendments made by this section 
shall apply to transfers after the date of the enactment of 
this Act.

SEC. 5. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.

  (a) Repeal of Location Requirement.--Subparagraph (A) of 
section 2031(c)(8) (defining land subject to a conservation 
easement) is amended by striking clause (i) and redesignating 
clauses (ii) and (iii) as clauses (i) and (ii), respectively.
  (b) Clarification of Date for Determining Value of Land and 
Easement.--Section 2031(c)(2) (defining applicable percentage) 
is amended by adding at the end the following new sentence: 
``The values taken into account under the preceding sentence 
shall be such values as of the date of the contribution 
referred to in paragraph (8)(B).''.
  (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after December 31, 
2000.
  Amend the title so as to read: ``A bill to amend the Internal 
Revenue Code of 1986 to provide estate tax relief.''.

                                
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