Title II — Revenue provisions

S. 2231 · 116th Congress · Jul 23, 2019 · Lineage

II Revenue provisions

A Estate and gift tax provisions

Sec. 201 Modification of estate tax rate and basic exclusion amount

(a)

Permanent extension of maximum estate tax rate and basic exclusion amount as in effect in 2009—

(1)

Maximum estate tax rate— The last row of the table contained in subsection (c) of section 2001 of the Internal Revenue Code of 1986 is amended by striking “40 percent” and inserting “45 percent”.

(2)

Basic exclusion amount— Paragraph (3) of section 2010(c) of the Internal Revenue Code of 1986 is amended to read as follows:

“(3) Basic exclusion amount—For purposes of this subsection, the basic exclusion amount is $3,500,000.”

(b)

Additional taxes for estates over $10,000,000— The table contained in section 2001(c), as amended by subsection (a), is amended—

(1)

by inserting “but not over $10,000,000” after “Over $1,000,000” in the last row; and

(2)

by adding at the end the following:

(c)

Effective date— The amendments made by this section shall apply to estates of decedents dying and gifts made after December 31, 2019.

Sec. 202 Required minimum 10-year term, etc., for grantor retained annuity trusts

(a)

In general— Subsection (b) of section 2702 is amended—

(1)

by redesignating paragraphs (1), (2), and (3) as subparagraphs (A), (B), and (C), respectively, and by moving such subparagraphs (as so redesignated) 2 ems to the right;

(2)

by striking “For purposes of” and inserting the following:

“(1) In general—For purposes of”

(3)

by striking “paragraph (1) or (2)” in paragraph (1)(C) (as so redesignated) and inserting “subparagraph (A) or (B)”; and

(4)

by adding at the end the following new paragraph:

“(2) Additional requirements with respect to grantor retained annuities—For purposes of subsection (a), in the case of an interest described in paragraph (1)(A) (determined without regard to this paragraph) which is retained by the transferor, such interest shall be treated as described in such paragraph only if—

“(A) the right to receive the fixed amounts referred to in such paragraph is for a term of not less than 10 years and not more than the life expectancy of the annuitant plus 10 years,

“(B) such fixed amounts, when determined on an annual basis, do not decrease during the term described in subparagraph (A), and

“(C) the remainder interest has a value, as determined as of the time of the transfer, which is—

“(i) not less than an amount equal to the greater of—

“(I) 25 percent of the fair market value of the property in the trust, or

“(II) $500,000, and

“(ii) not greater than the fair market value of the property in the trust.”

(b)

Effective date— The amendments made by this section shall apply to transfers made after the date of the enactment of this Act.

Sec. 203 Certain transfer tax rules applicable to grantor trusts

(a)

In general— Subtitle B is amended by adding at the end the following new chapter:

“16 Special rules for grantor trusts

“2901. Application of transfer taxes

“(a) In general—In the case of any portion of a trust to which this section applies—

“(1) the value of the gross estate of the deceased deemed owner of such portion shall include all assets attributable to that portion at the time of the death of such owner,

“(2) any distribution from such portion to one or more beneficiaries during the life of the deemed owner of such portion shall be treated as a transfer by gift for purposes of chapter 12, and

“(3) if at any time during the life of the deemed owner of such portion, such owner ceases to be treated as the owner of such portion under subpart E of part 1 of subchapter J of chapter 1, all assets attributable to such portion at such time shall be treated for purposes of chapter 12 as a transfer by gift made by the deemed owner.

“(b) Portion of trust to which section applies—This section shall apply to—

“(1) the portion of a trust with respect to which the grantor is the deemed owner, and

“(2) the portion of the trust to which a person who is not the grantor is a deemed owner by reason of the rules of subpart E of part 1 of subchapter J of chapter 1, and such deemed owner engages in a sale, exchange, or comparable transaction with the trust that is disregarded for purposes of subtitle A.

“(c) Exceptions—This section shall not apply to—

“(1) any trust that is includible in the gross estate of the deemed owner (without regard to subsection (a)(1)), and

“(2) any other type of trust that the Secretary determines by regulations or other guidance does not have as a significant purpose the avoidance of transfer taxes.

“(d) Deemed owner defined—For purposes of this section, the term deemed owner means any person who is treated as the owner of a portion of a trust under subpart E of part 1 of subchapter J of chapter 1.

“(e) Reduction for taxable gifts to trust made by owner—The amount to which subsection (a) applies shall be reduced by the value of any transfer by gift by the deemed owner to the trust previously taken into account by the deemed owner under chapter 12.

“(f) Liability for payment of tax—Any tax imposed pursuant to subsection (a) shall be a liability of the trust.”

(b)

Clerical amendment— The table of chapters for subtitle B is amended by adding at the end the following new item:

(c)

Effective date— The amendments made by this section shall apply—

(1)

to trusts created on or after the date of the enactment of this Act;

(2)

to any portion of a trust established before the date of the enactment of this Act which is attributable to a contribution made on or after such date; and

(3)

to any portion of a trust established before the date of the enactment of this Act to which section 2901(a) of the Internal Revenue Code of 1986 (as added by subsection (a)) applies by reason of a transaction described in section 2901(b)(2) of such Code on or after such date.

Sec. 204 Simplifying gift tax exclusion for annual gifts

(a)

In general— Section 2503 of the Internal Revenue Code of 1986 is amended—

(1)

by striking paragraph (1) of subsection (b) and inserting the following:

“(1) In general

“(A) Limit per donee—In the case of gifts made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year.

“(B) Cumulative limit per donor

“(i) In general—The aggregate amount excluded under subparagraph (A) with respect to all transfers described in clause (ii) made by the donor during the calendar year shall not exceed $50,000.

“(ii) Transfers subject to limitation—The transfers described in this clause are—

“(I) a transfer in trust (with the exception of any transfer to a trust described in section 2642(c)(2)),

“(II) a transfer of an interest in a passthrough entity,

“(III) a transfer of an interest subject to a prohibition on sale, and

“(IV) any other transfer of property that, without regard to withdrawal, put, or other such rights in the donee, cannot immediately be liquidated by the donee.”

(2)

by striking subsection (c).

(b)

Conforming amendments—

(1)

Subparagraph (B) of section 529(c)(2) of the Internal Revenue Code of 1986 is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A).

(2)

Clause (i) of section 529A(b)(2)(B) of such Code is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A)”.

(3)

Paragraph (2) of section 2523(i) of such Code is amended by striking “section 2503(b)” and inserting “section 2503(b)(1)(A)”.

(4)

Subsection (c) of such Code of section 2801 is amended by striking “2503(b)” and inserting “2503(b)(1)(A)”.

(c)

Regulations— The Secretary of the Treasury, or the Secretary of the Treasury's delegate, may prescribe such regulations or other guidance as may be necessary or appropriate to carry out the amendments made by this section.

(d)

Effective date— The amendments made by this section shall apply to any calendar year beginning after the date of the enactment of this Act.

Sec. 205 Modification of rules for value of certain farm real property

(a)

Increase in limitation—

(1)

In general— Paragraph (2) of section 2032A(a) of the Internal Revenue Code of 1986 is amended by striking “$750,000” and inserting “$3,000,000”.

(2)

Inflation adjustment— Paragraph (3) of section 2032A(a) of such Code is amended—

(A)

by striking “1998” and inserting “2020”;

(B)

by striking “$750,000” and inserting “$3,000,000” in subparagraph (A); and

(C)

by striking “calendar year 1997” and inserting “calendar year 2019” in subparagraph (B).

(b)

Qualified use limited to farming purposes—

(1)

In general— Section 2032A(b)(2) is amended by striking “the devotion of the property” and all that follows and inserting “the devotion of the property to use as a farm for farming purposes.”.

(2)

Conforming amendments—

(A)

Subsections (c)(6)(A), (h)(3), and (i)(3) of section 2032A of the such Code are each amended by striking “subparagraph (A) or (B) of”.

(B)

The heading of section 2032A of such Code (and the item relating to section 2032A in the table of sections for part III of subchapter A of chapter 11 of such Code) is amended by striking “, etc.,”.

(c)

Effective date— The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2019.

B Reform of taxation of capital income

Sec. 211 Increase in capital gains rate

(a)

In general— Section 1(h)(1)(D) of the Internal Revenue Code of 1986 is amended by striking “20 percent” and inserting “24.2 percent”.

(b)

Minimum tax— Section 55(b)(3)(D) of the Internal Revenue Code of 1986 is amended by striking “20 percent” and inserting “24.2 percent”.

(c)

Conforming amendments— The following provisions are each amended by striking “20 percent” and inserting “20.4 percent”:

(1)

Section 531 of the Internal Revenue Code of 1986.

(2)

Section 541 of the Internal Revenue Code of 1986.

(3)

Section 1445(e)(1) of the Internal Revenue Code of 1986.

(4)

Section 1445(e)(6) of the Internal Revenue Code of 1986.

(5)

The second sentence of section 7518(g)(6)(A) of the Internal Revenue Code of 1986.

(6)

Section 53511(f)(2) of title 46, United States Code.

(d)

Effective dates—

(1)

In general— Except as otherwise provided, the amendments made by this section shall apply to taxable years beginning after December 31, 2019.

(2)

Withholding— The amendments made by paragraphs (3) and (4) of subsection (c) shall apply to amounts paid on or after January 1, 2019.

Sec. 212 Deemed realization of capital gains at time of gift or death

(a)

Treatment as sale—

(1)

In general— Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“1261. Gains from certain property transferred by gift or upon death

“(a) In general—Any capital asset which is transferred by gift or upon death shall be treated as sold for its fair market value on the date of such gift, death, or transfer.

“(b) Exceptions

“(1) Tangible property—This section shall not apply to any tangible personal property other than a collectible (as defined in section 408(m) without regard to paragraph (3) thereof).

“(2) Spousal exception—This section shall not apply to any transfer if such transfer is made to the spouse or surviving spouse of the transferor.

“(3) Gifts to charity—This section shall not apply to any transfer if such transfer is made to an organization described in section 170(c).”

(2)

Clerical amendment— The table of sections for part IV of subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:

(b)

Treatment of basis for gifts and bequests to which tax applies—

(1)

Elimination of carryover basis for gifts— Subsection (a) section 1015 of the Internal Revenue Code of 1986 is amended—

(A)

by striking “If the property” and inserting the following:

“(1) Gifts before January 1, 2020—If the property”

(B)

by inserting “and before January 1, 2020” after “after December 31, 1920”; and

(C)

by adding at the end the following new paragraph:

“(2) Gifts after December 31, 2019

“(A) In general—If the property was acquired by gift after December 31, 2019, the basis shall be the fair market value of such property at the time of the gift.

“(B) Special rules for charitable organizations—In the case of any property acquired by an organization described in section 170(c) by gift, subparagraph (A) shall not apply and paragraph (1) shall be applied without regard to the phrase “and before January 1, 2020”.”

(2)

Property acquired from decedent spouses— Section 1014 of such Code is amended by adding at the end the following new subsection:

“(g) Property acquired from decedent spouses—In the case of any property acquired from or which has passed from a decedent in a transfer described in section 1041(a)(1), the basis of such property in the hands of the transferee shall be determined under section 1041(b) and not this section.”

(3)

Rule for transfers between spouses—

(A)

In general— Section 1041(b) of the Internal Revenue Code of 1986 is amended to read as follows:

“(b) Transferee has transferor's basis—In the case of any transfer of property described in subsection (a), the basis of the transferee in the property shall be the adjusted basis of the transferor.”

(B)

Conforming amendment— Section 1015(e) of such Code is amended by striking “1041(b)(2)” and inserting “1041(b)”.

Sec. 213 Exclusion of certain amounts of realized capital gain

(a)

In general— Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986, as amended by section 111, is amended by inserting after section 139H the following new section:

“139I. Exclusion gain from transfers of appreciated assets by gift or at death

“(a) In general—Gross income shall not include so much of the aggregate gain from transfers at death described in 1261(a) of any capital asset as does not exceed $100,000.

“(b) Special rules for real property used for farming

“(1) In general

“(A) Application of section—In the case of qualified real property—

“(i) subsection (a) shall be applied separately to such qualified real property and other property, and

“(ii) in applying subsection (a) to such qualified real property, “the applicable amount” shall be substituted for “$100,000”.

“(B) Applicable amount—For purposes of subparagraph (A), the applicable amount is an amount equal to the sum of—

“(i) $1,000,000, plus

“(ii) the excess (not less than zero) of the amount in effect under subsection (a) over the aggregate amount of gain from transfers at death described in section 1261(a) of capital assets other than qualified real property.

“(2) Imposition of additional tax

“(A) In general—The Secretary shall, by regulations, provide for recapturing the benefit under any exclusion allowable under paragraph (1) with respect to any qualified real property if, within 10 years after the decedent's death and before the death of the qualified heir—

“(i) the qualified heir disposes of any interest in qualified real property (other than by a disposition to a member of his family), or

“(ii) the qualified heir ceases to use for the qualified use the qualified real property which was acquired (or passed) from the decedent.

“(B) Liability—The benefit recaptured under subparagraph (A) shall be recaptured from the qualified heir.

“(3) Definitions—Any term used in this subsection which is also used in section 2032A shall have the meaning given such term under section 2032A.

“(c) Inflation adjustment

“(1) In general—In the case of any taxable year beginning after 2020, the $100,000 amount in subsection (a) and the $1,000,000 in subsection (b)(1)(B)(i) shall each be increased by an amount equal to—

“(A) such dollar amount, multiplied by

“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting in subparagraph (A)(ii) thereof “calendar year 2019” for “calendar year 2016”.

“(2) Rounding

“(A) In general—If the dollar amount in subsection (a), after being increased under paragraph (1), is not a multiple of $10,000, such dollar amount shall be rounded to the next lowest multiple of $10,000.

“(B) Qualified real property—If the dollar amount in subsection (b)(1)(B)(i), after being increased under paragraph (1), is not a multiple of $100,000, such amount shall be rounded to the next lowest multiple of $100,000.”

(b)

Clerical amendment— The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after section 139H the following new item:

(c)

Effective date— The amendments made by this section shall apply to taxable years beginning after December 31, 2019.

Sec. 214 Extension of time for payment of tax

(a)

Extension of time—

(1)

In general— Subpart B of chapter 62 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“6168. Extension of time for payment of capital gains on certain assets realized by reason of death

“(a) 15-Year installment payment

“(1) In general—In the case of any gain with respect to an eligible capital asset that is recognized under section 1261 by reason of the death of the taxpayer, the taxpayer may elect to pay part or all of tax imposed on such gain in 2 or more (but not exceeding 15) equal installments.

“(2) Date for payment of installments—If an election is made under paragraph (1), the first installment shall be paid not later than the date on which the tax for the taxable year in which the gain described in paragraph (1) occurs is due, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.

“(b) Eligible capital asset—For purposes of this section, the term eligible capital asset means any capital asset other than personal property of a type which is actively traded (within the meaning of section 1092(d)(1)).

“(c) Portion of tax eligible—The amount of tax to which this section applies shall not exceed the excess of—

“(1) the tax computed under chapter 1 (determined after application of section 1261), over

“(2) the tax computed under chapter 1 (determined without regard to section 1261).

“(d) Election—Any election under subsection (a) shall be made not later than the time prescribed by section 6072 for filing the return of tax imposed under chapter 1 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax.

“(e) Proration of deficiency to installments—If an election is made under subsection (a) to pay any part of the tax imposed under chapter 1 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

“(f) Time for payment of interest—If the time for payment of any amount of tax has been extended under this section, interest payable under section 6601 on any unpaid portion shall be paid annually at the same time as, and as part of, each installment payment of the tax.

“(g) Regulations—The Secretary shall prescribe such regulations as may be necessary to the application of this section.

“(h) Cross References

“(1) Security—For authority of the Secretary to require security in the case of an extension under this section, see section 6165.

“(2) Interest—For provisions relating to interest on tax payable in installments under this section, see subsection (k) of section 6601.”

(2)

Clerical amendment— The table of sections for subpart B of chapter 62 is amended by adding at the end the following new item:

(b)

Interest— Section 6601 of the Internal Revenue Code of 1986 is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:

“(k) Special rate for tax extended under section 6168—If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6168, in lieu of the annual rate provided by subsection (a), interest shall be paid at a rate equal to 45 percent of the annual rate provided by subsection (a). For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6168 shall be treated as an amount of tax payable in installments under such section.”

Sec. 215 Waiver of penalty for underpayment of estimated tax

Section 6654(e)(3) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

“(C) Capital gains payable upon death—No addition to tax shall be imposed under subsection (a) with respect to any underpayment if the taxpayer died during the taxable year and the Secretary determines that the amount of the underpayment is due to capital gains that were realized by reason of section 1261.”

Sec. 216 Effective date

Except as otherwise provided, the amendments made by this subtitle shall apply to transfers after December 31, 2019, in taxable years beginning after such date.