[House Report 109-35]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     109-35

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PROVIDING FOR CONSIDERATION OF H.R. 8, DEATH TAX REPEAL PERMANENCY ACT 
                                OF 2005

                                _______
                                

   April 12, 2005.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

Mr. Hastings of Washington, from the Committee on Rules, submitted the 
                               following

                              R E P O R T

                       [To accompany H. Res. 202]

    The Committee on Rules, having had under consideration 
House Resolution 202, 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 the consideration of H.R. 8, 
the Death Tax Repeal Permanency Act of 2005, under a structured 
rule. The rule provides one hour of debate in the House equally 
divided and controlled by the chairman and ranking minority 
member of the Committee on Ways and Means.
    The rule provides for consideration of the amendment in the 
nature of a substitute printed in this report, if offered by 
Representative Pomeroy 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 printed in this report.
    Finally, the rule provides one motion to recommit with or 
without instructions.

                         EXPLANATION OF WAIVERS

    The Committee is not aware of any points of order against 
the amendment printed in this report. The waiver of all points 
of order against the amendment is prophylactic in nature.

                   SUMMARY OF AMENDMENT MADE IN ORDER

    Pomeroy: Amendment in the Nature of a Substitute. 
Immediately eliminates the estate tax for most estates. 
Increases the estate tax exclusion to $3 million, effective 
January 1, 2004. Partially offsets the cost of increasing the 
exclusion by freezing existing estate tax rates, eliminating 
the ability to claim valuation discounts by holding property 
through partnerships, and restoring the prior law phaseout of 
the benefit of the graduated rates and exclusion. Repeals the 
carryover basis rules contained in the 2001 tax bill, in doing 
so the substitute would continue the favorable current law 
step-up in basis rules that eliminate capital gains taxes on 
increases in value before death.

                    TEXT OF AMENDMENT MADE IN ORDER

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Certain and Immediate Estate 
Tax Relief Act of 2005''.

SEC. 2. RETENTION OF ESTATE TAX; REPEAL OF CARRYOVER BASIS.

  (a) In General.--Subtitles A and E of title V of the Economic 
Growth and Tax Relief Reconciliation Act of 2001, and the 
amendments made by such subtitles, are hereby repealed; and the 
Internal Revenue Code of 1986 shall be applied as if such 
subtitles, and amendments, had never been enacted.
  (b) Sunset Not To Apply.--Section 901 of the Economic Growth 
and Tax Relief Reconciliation Act of 2001 shall not apply to 
title V of such Act.
  (c) Conforming Amendments.--Subsections (d) and (e) of 
section 511 of the Economic Growth and Tax Relief 
Reconciliation Act of 2001, and the amendments made by such 
subsections, are hereby repealed; and the Internal Revenue Code 
of 1986 shall be applied as if such subsections, and 
amendments, had never been enacted.

SEC. 3. MODIFICATIONS TO ESTATE TAX.

  (a) Immediate Increase in Exclusion Equivalent of Unified 
Credit.--Subsection (c) of section 2010 of the Internal Revenue 
Code of 1986 (relating to applicable credit amount) is amended 
by striking all that follows ``the applicable exclusion 
amount'' and inserting ``. For purposes of the preceding 
sentence, the applicable exclusion amount is $3,500,000 
($3,000,000 in the case of estates of decedents dying before 
2009).''.
  (b) Freeze Maximum Estate Tax Rate at 47 Percent; Restoration 
of Phaseout of Graduated Rates and Unified Credit.--
          (1) Paragraph (1) of section 2001(c) of such Code is 
        amended by striking the last 2 items in the table and 
        inserting the following new item:


``Over $2,000,000......................  $780,800, plus 47 percent of
                                          the excess of such amount over
                                          $2,000,000.''.

          (2) Paragraph (2) of section 2001(c) of such Code is 
        amended to read as follows:
          ``(2) Phaseout of graduated rates and unified 
        credit.--The tentative tax determined under paragraph 
        (1) shall be increased by an amount equal to 5 percent 
        of so much of the amount (with respect to which the 
        tentative tax is to be computed) as exceeds 
        $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 
        $159,200.''.
  (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying, and gifts made, 
after December 31, 2005.

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 (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.''.
  (b) Effective Date.--The amendments made by this section 
shall apply to transfers after the date of the enactment of 
this Act.
  Amend the title so as to read: ``A bill to amend the Internal 
Revenue Code of 1986 to retain the estate tax with an immediate 
increase in the exemption, to repeal the new carryover basis 
rules in order to prevent tax increases and the imposition of 
compliance burdens on many more estates than would benefit from 
repeal, and for other purposes.''.

                                  
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