(Introduced in House, as amended by Chairman Thomas)

HR 5638
IH

109th CONGRESS

2d Session

H. R. 5638

To amend the Internal Revenue Code of 1986 to increase the unified credit against the estate tax to an exclusion equivalent of $5,000,000 and to repeal the sunset provision for the estate and generation-skipping taxes, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

June 19, 2006

Mr. THOMAS (for himself, Mr. HULSHOF, and Mr. CRAMER) introduced the following bill; which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to increase the unified credit against the estate tax to an exclusion equivalent of $5,000,000 and to repeal the sunset provision for the estate and generation-skipping taxes, 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 'Permanent Estate Tax Relief Act of 2006'.

SEC. 2. REFORM AND EXTENSION OF ESTATE TAX AFTER 2009.

(a) Restoration of Unified Credit Against Gift Tax- Paragraph (1) of section 2505(a) of the Internal Revenue Code of 1986 (relating to general rule for unified credit against gift tax), after the application of subsection (g), is amended by striking '(determined as if the applicable exclusion amount were $1,000,000)'.

(b) Exclusion Equivalent of Unified Credit Equal to $5,000,000- Subsection (c) of section 2010 of such Code (relating to unified credit against estate tax) is amended to read as follows:

'(c) Applicable Credit Amount-

'(1) IN GENERAL- For purposes of this section, the applicable credit amount is the amount of the tentative tax which would be determined under the rate schedule set forth in section 2001(c) if the amount with respect to which such tentative tax is to be computed were the applicable exclusion amount.

"(2) APPLICABLE EXCLUSION AMOUNT. --

"(A) IN GENERAL. -- For purposes of this subsection, the applicable exclusion amount is $5,000,000.

"(B) INFLATION ADJUSTMENT. -- In the case of any decedent dying in a calendar year after 2010, the dollar amount in subparagraph (A) 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 by substituting 'calendar year 2009' for 'calendar year 1992' in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $100,000, such amount shall be rounded to the nearest multiple of $100,000."

(c) Rate Schedule-

(1) IN GENERAL- Subsection (c) of section 2001 of such Code (relating to rate schedule) is amended to read as follows:

'(c) Rate Schedule- The tentative tax is equal to the sum of--

'(1) the product of the rate specified in section 1(h)(1)(C) in effect on the date of the decedent's death multiplied by so much of the sum described in subsection (b)(1) as does not exceed $25,000,000, and

'(2) the product of twice the rate specified in section 1(h)(1)(C) in effect on the date of the decedent's death multiplied by so much of the sum described in subsection (b)(1) as equals or exceeds $25,000,000.'

(2) CONFORMING AMENDMENT- Section 2502(a) of such Code (relating computation of tax), after the application of subsection (g), is amended by adding at the end the following flush sentence:

'In computing the tentative tax under section 2001(c) for purposes of this subsection, 'the last day of the calendar year in which the gift was made' shall be substituted for 'the date of the decedent's death' each place it appears in such section.'

(d) Modifications of Estate and Gift Taxes to Reflect Differences in Unified Credit Resulting From Different Tax Rates-

(1) ESTATE TAX-

(A) IN GENERAL- Section 2001(b)(2) of such Code (relating to computation of tax) is amended by striking 'if the provisions of subsection (c) (as in effect at the decedent's death)' and inserting 'if the modifications described in subsection (g)'.

(B) MODIFICATIONS- Section 2001 of such Code is amended by adding at the end the following new subsection:

'(g) Modifications to Gift Tax Payable to Reflect Different Tax Rates- For purposes of applying subsection (b)(2) with respect to 1 or more gifts, the rates of tax under subsection (c) in effect at the decedent's death shall, in lieu of the rates of tax in effect at the time of such gifts, be used both to compute--

'(1) the tax imposed by chapter 12 with respect to such gifts, and

'(2) the credit allowed against such tax under section 2505, including in computing--

'(A) the applicable credit amount under section 2505(a)(1), and

'(B) the sum of the amounts allowed as a credit for all preceding periods under section 2505(a)(2).

For purposes of paragraph (2)(A), the applicable credit amount for any calendar year before 1998 is the amount which would be determined under section 2010(c) if the applicable exclusion amount were the dollar amount under section 6018(a)(1) for such year.'

(2) GIFT TAX- Section 2505(a) of such Code (relating to unified credit against gift tax), after the application of subsection (g), is amended by adding at the end the following new flush sentence:

'For purposes of applying paragraph (2) for any calendar year, the rates of tax used in computing the tax under section 2502(a)(2) for such calendar year shall, in lieu of the rates of tax in effect for preceding calendar periods, be used in determining the amounts allowable as a credit under this section for all preceding calendar periods.'

(e) Repeal of Deduction for State Death Taxes-

(1) IN GENERAL- Section 2058 of such Code (relating to State death taxes) is amended by adding at the end the following:

'(c) Termination- This section shall not apply to the estates of decedents dying after December 31, 2009.'

(2) CONFORMING AMENDMENT- Section 2106(a)(4) of such Code is amended by adding at the end the following new sentence: 'This paragraph shall not apply to the estates of decedents dying after December 31, 2009.'

(f) Effective Date- The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2009.

(g) Additional Modifications to Estate Tax-

(1) IN GENERAL- The following provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such provisions, are hereby repealed:

(A) Subtitles A and E of title V.

(B) Subsection (d), and so much of subsection (f)(3) as relates to subsection (d), of section 511.

(C) Paragraph (2) of subsection (b), and paragraph (2) of subsection (e), of section 521.

The Internal Revenue Code of 1986 shall be applied as if such provisions and amendments had never been enacted.

(2) SUNSET NOT TO APPLY TO TITLE V OF EGTRRA- Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act.

(3) REPEAL OF DEADWOOD-

(A) Sections 2011, 2057, and 2604 of the Internal Revenue Code of 1986 are hereby repealed.

(B) The table of sections for part II of subchapter A of chapter 11 of such Code is amended by striking the item relating to section 2011.

(C) The table of sections for part IV of subchapter A of chapter 11 of such Code is amended by striking the item relating to section 2057.

(D) The table of sections for subchapter A of chapter 13 of such Code is amended by striking the item relating to section 2604.

SEC. 3. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED SPOUSE.

(a) In General- Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (defining applicable credit amount), as amended by section 2(b), is amended by striking paragraph (2) and inserting the following new paragraphs:

'(2) APPLICABLE EXCLUSION AMOUNT- For purposes of this subsection, the applicable exclusion amount is the sum of--

'(A) the basic exclusion amount, and

'(B) in the case of a surviving spouse, the aggregate deceased spousal unused exclusion amount.

"(3) BASIC EXCLUSION AMOUNT. --

"(A) IN GENERAL. -- For purposes of this subsection, the basic exclusion amount is $5,000,000.

"(B) INFLATION ADJUSTMENT. -- In the case of any decedent dying in a calendar year after 2010, the dollar amount in subparagraph (A) 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 by substituting 'calendar year 2009' for 'calendar year 1992' in subparagraph (B) thereof.

If any amount as adjusted under the preceding sentence is not a multiple of $100,000, such amount shall be rounded to the nearest multiple of $100,000.".

'(4) AGGREGATE DECEASED SPOUSAL UNUSED EXCLUSION AMOUNT- For purposes of this subsection, the term 'aggregate deceased spousal unused exclusion amount' means the lesser of--

'(A) the basic exclusion amount, or

'(B) the sum of the deceased spousal unused exclusion amounts of the surviving spouse.

'(5) DECEASED SPOUSAL UNUSED EXCLUSION AMOUNT- For purposes of this subsection, the term 'deceased spousal unused exclusion amount' means, with respect to the surviving spouse of any deceased spouse dying after December 31, 2009, the excess (if any) of--

'(A) the applicable exclusion amount of the deceased spouse, over

'(B) the amount with respect to which the tentative tax is determined under section 2001(b)(1) on the estate of such deceased spouse.

'(6) SPECIAL RULES-

'(A) ELECTION REQUIRED- A deceased spousal unused exclusion amount may not be taken into account by a surviving spouse under paragraph (5) unless the executor of the estate of the deceased spouse files an estate tax return on which such amount is computed and makes an election on such return that such amount may be so taken into account. Such election, once made, shall be irrevocable. No election may be made under this subparagraph if such return is filed after the time prescribed by law (including extensions) for filing such return.

'(B) EXAMINATION OF PRIOR RETURNS AFTER EXPIRATION OF PERIOD OF LIMITATIONS WITH RESPECT TO DECEASED SPOUSAL UNUSED EXCLUSION AMOUNT- Notwithstanding any period of limitation in section 6501, after the time has expired under section 6501 within which a tax may be assessed under chapter 11 or 12 with respect to a deceased spousal unused exclusion amount, the Secretary may examine a return of the deceased spouse to make determinations with respect to such amount for purposes of carrying out this subsection.

'(7) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this subsection.'

(b) Conforming Amendments-

(1) Paragraph (1) of section 2505(a) of such Code, as amended by section 2, is amended to read as follows:

'(1) the applicable credit amount under section 2010(c) which would apply if the donor died as of the end of the calendar year, reduced by'.

(2) Section 2631(c) of such Code is amended by striking "the applicable exclusion amount" and inserting "the basic exclusion amount".

(3) Section 6018(a)(1) of such Code, after the application of section 2(g), is amended by striking 'applicable exclusion amount' and inserting 'basic exclusion amount'.

(c) Effective Date- The amendments made by this section shall apply to estates of decedents dying, generation-skipping transfers, and gifts made, after December 31, 2009.

SEC. 4. DEDUCTION FOR QUALIFIED TIMBER GAIN.

(a) In General- Part I of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

'SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN.

'(a) In General- In the case of a taxpayer which elects the application of this section for a taxable year, there shall be allowed a deduction against gross income equal to 60 percent of the lesser of--

'(1) the taxpayer's qualified timber gain for such year, or

'(2) the taxpayer's net capital gain for such year.

'(b) Qualified Timber Gain- For purposes of this section, the term 'qualified timber gain' means, with respect to any taxpayer for any taxable year, the excess (if any) of--

'(1) the sum of the taxpayer's gains described in subsections (a) and (b) of section 631 for such year, over

'(2) the sum of the taxpayer's losses described in such subsections for such year.

'(c) Special Rules for Pass-Thru Entities- In the case of any qualified timber gain of a pass-thru entity (as defined in section 1(h)(10))--

'(1) the election under this section shall be made separately by each taxpayer subject to tax on such gain, and

'(2) the Secretary may prescribe such regulations as are appropriate to apply this section to such gain.

'(d) Termination- No disposition of timber after December 31, 2008, shall be taken into account under subsection (b).'

(b) Coordination With Maximum Capital Gains Rates-

(1) TAXPAYERS OTHER THAN CORPORATIONS- Paragraph (2) of section 1(h) of such Code is amended to read as follows:

'(2) REDUCTION OF NET CAPITAL GAIN- For purposes of this subsection, the net capital gain for any taxable year shall be reduced (but not below zero) by the sum of--

'(A) the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii), and

'(B) in the case of a taxable year with respect to which an election is in effect under section 1203, the lesser of--

'(i) the amount described in paragraph (1) of section 1203(a), or

'(ii) the amount described in paragraph (2) of such section.'

(2) CORPORATIONS- Section 1201 of such Code is amended by redesignating subsection (b) as subsection (c) and inserting after subsection (a) the following new subsection:

'(b) Qualified Timber Gain not Taken Into Account- For purposes of this section, in the case of a corporation with respect to which an election is in effect under section 1203, the net capital gain for any taxable year shall be reduced (but not below zero) by the corporation's qualified timber gain (as defined in section 1203(b)).'

(c) Deduction Allowed Whether or not Individual Itemizes Other Deductions- Subsection (a) of section 62 of such Code is amended by inserting before the last sentence the following new paragraph:

'(21) QUALIFIED TIMBER GAINS- The deduction allowed by section 1203.'

(d) Deduction Allowed in Computing Adjusted Current Earnings- Subparagraph (C) of section 56(g)(4) of such Code is amended by adding at the end the following new clause:

'(vii) DEDUCTION FOR QUALIFIED TIMBER GAIN- Clause (i) shall not apply to any deduction allowed under section 1203.'

(e) Deduction Allowed in Computing Taxable Income of Electing Small Business Trusts- Subparagraph (C) of section 641(c)(2) of such Code is amended by inserting after clause (iii) the following new clause:

'(iv) The deduction allowed under section 1203.'

(f) Conforming Amendments-

(1) Subparagraph (B) of section 172(d)(2) of such Code is amended to read as follows:

'(B) the exclusion under section 1202 and the deduction under section 1203 shall not be allowed.'

(2) Paragraph (4) of section 642(c) of such Code is amended by striking the first sentence and inserting the following: 'To the extent that the amount otherwise allowable as a deduction under this subsection consists of gain described in section 1202(a) or qualified timber gain (as defined in section 1203(b)), proper adjustment shall be made for any exclusion allowable to the estate or trust under section 1202 and for any deduction allowable to the estate or trust under section 1203.'

(3) Paragraph (3) of section 643(a) of such Code is amended by striking the last sentence and inserting the following: 'The exclusion under section 1202 and the deduction under section 1203 shall not be taken into account.'

(4) Subparagraph (C) of section 643(a)(6) of such Code is amended to read as follows:

'(C) Paragraph (3) shall not apply to a foreign trust. In the case of such a trust--

'(i) there shall be included gains from the sale or exchange of capital assets, reduced by losses from such sales or exchanges to the extent such losses do not exceed gains from such sales or exchanges, and

'(ii) the deduction under section 1203 shall not be taken into account.'

(5) Paragraph (4) of section 691(c) of such Code is amended by inserting '1203,' after '1202,'

(6) Paragraph (2) of section 871(a) of such Code is amended by striking 'section 1202' and inserting 'sections 1202 and 1203'

(7) The table of sections for part I of subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:

'Sec. 1203. Deduction for qualified timber gain.'

(g) Effective Date-

(1) IN GENERAL- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(2) TAXABLE YEARS WHICH INCLUDE DATE OF ENACTMENT- In the case of any taxable year which includes the date of the enactment of this Act, for purposes of the Internal Revenue Code of 1986, the taxpayer's qualified timber gain shall not exceed the excess that would be described in section 1203(b) of such Code, as added by this section, if only dispositions of timber after such date were taken into account.