US Codex
Bill
Notes

To amend the Internal Revenue Code of 1986 to treat property transferred by gift or at death as sold for fair market value, and for other purposes.

H.R. 2286 · 117th Congress · Mar 29, 2021 · Lineage

A BILL

Section 1 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 property which is transferred by gift or at death shall be treated as sold for its fair market value on the date of such gift or death.

“(b) Exceptions

“(1) Spouse or surviving spouse—This section shall not apply to a transfer of property to the transferor’s spouse or surviving spouse if such spouse or surviving spouse is a citizen of the United States.

“(2) Certain tangible personal property—In the case of tangible personal property, this section shall apply only to the following:

“(A) Property held in connection with a trade or business.

“(B) Property held for investment.

“(C) Collectibles (as defined in section 408(m) (determined without regard to paragraph (3) thereof)).

“(3) Charitable contributions—This section shall not apply to any transfer to an organization described in section 170(c).

“(c) Special rules for trusts

“(1) Certain grantor trusts—In the case of any property which—

“(A) is held in a trust of which the grantor or another person is treated as the owner under subpart E of part I of subchapter J of chapter 1, and

“(B) is includible in the gross estate of the grantor or such other person under chapter 11,

“(2) Other trusts—In the case of any property held in trust and not described in paragraph (1), such property shall be treated as transferred under subsection (a) upon the transfer of such property to a trust.

“(3) Transfers from and modifications of trusts—Any modification of the direct or indirect beneficiaries of a trust (or the rights of the beneficiaries to trust assets) or any transfer or distribution of trust assets (including to another trust) shall be treated as a transfer described in subsection (a), unless the Secretary determines that any such transfer or modification is of a type which does not have the potential for tax avoidance.

“(4) Dynasty trusts

“(A) In general—Any property that is continuously held in trust and is not subject to subsection (a) for a period of 30 years shall be treated as transferred pursuant to subsection (a) at the end of such 30 year period.

“(B) Property held in trust on the effective date—Any property held in trust on January 1, 2022, that has been continuously held in trust for more than 30 years as of such date shall be treated as transferred pursuant to subsection (a) on such date.

“(C) Certain grantor trusts and qualifying spousal trusts—For purposes of this paragraph, property shall not be treated as held in trust during any period when such property is held by a trust described in paragraphs (1)(A) and (1)(B), or when such property is held by a qualifying spousal trust.

“(5) Qualifying spousal trust

“(A) In general—Paragraphs (1), (2), (3), and (4) shall not apply in the case of a qualifying spousal trust, and the property of such trust shall be treated as transferred under subsection (a)—

“(i) upon the death of the spousal beneficiary,

“(ii) upon the distribution of such property from such trust to any person other than the spousal beneficiary who is a citizen of the United States, or

“(iii) at such time such property ceases to be held by a qualifying spousal trust.

“(B) Qualifying spousal trust—For purposes of this section, a trust is a qualifying spousal trust if—

“(i) such trust is a qualified domestic trust (as defined in section 2056A),

“(ii) the sole current income beneficiary of such trust is the spouse or surviving spouse of the transferor of property to such trust, and

“(iii) such transferor (during the life of such transferor) or such spouse or surviving spouse has the power to appoint over the entire trust.

“(d) Exclusion of certain gifts—In the case of gifts made to any individual during the taxable year, so much of the dollar amount of such gifts to such individual as does not exceed the amount in effect for the calendar year under section 2503(b) in which the taxable year begins shall not be taken into account under subsection (a) for such taxable year.

“(e) Regulations—The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance of the purposes of this section.”

(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)
Coordination of related party loss rules— Section 267 of such Code is amended by adding at the end the following new subsection:

“(h) Property treated as sold at death—Subsection (a)(1) shall not apply to any property that is transferred at death and treated as sold under section 1261.”

(c)
Treatment of basis for gifts and bequests to which tax applies—
(1)
Elimination of carryover basis for gifts— Section 1015(a) of such Code is amended—
(A)
by striking “If the property” and inserting the following:

“(1) Gifts before January 1, 2022—If the property”

(B)
by inserting “, and before January 1, 2022” after “after December 31, 1920”; and
(C)
by adding at the end the following new paragraph:

“(2) Gifts after December 31, 2021—If the property was acquired by gift after December 31, 2021, the basis shall be the fair market value of such property at the time of the gift.”

(2)
Rules for transfers between spouses—
(A)
In general— Section 1041(b) of such Code 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)
Transfers at death— Section 1041(a) of such Code is amended by inserting “(including at death)” after “transfer of property”.
(C)
Conforming amendments—
(i)
Section 1014 of such Code is amended by adding at the end the following new subsection:

“(g) Property acquired from decedent spouse—In the case of property which passes from the decedent to (or in trust for the benefit of) the decedent’s surviving spouse 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.”

(ii)
Section 1015(e) of such Code is amended by striking “1041(b)(2)” and inserting “1041(b)”.
(3)
Basis must be consistent with gains recognized in deemed realization—
(A)
Property acquired from decedent— Section 1014 of such Code, as amended by the preceding provisions of this Act, is amended by adding at the end the following new subsection:

“(h) Basis must be consistent with gains recognized in deemed realization—The basis of any property to which subsection (a) applies shall not exceed the amount for which the property was treated as sold under section 1261.”

(B)
Property acquired by gift— Section 1015 of such Code is amended by adding at the end the following new subsection:

“(f) Basis must be consistent with gains recognized in deemed realization—The basis of any property to which subsection (a)(2) applies shall not exceed the amount for which the property was treated as sold under section 1261.”

(d)
Conforming amendments—
(1)
Section 7477(a) of such Code is amended by striking “chapter 12” and inserting “chapter 1 or 12”.
(2)
Section 7517(a) of such Code is amended by striking “chapter 11” and inserting “chapter 1, 11”.
(e)
Effective date— The amendments made by this section shall apply to transfers by gift (including transfers treated as gifts by reason of the amendments made by this section), or at death by decedents dying, after December 31, 2021.

Sec. 2 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 is amended by inserting before section 140 the following new section:

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

“(a) In general—Gross income shall not include so much of the net capital gain for the taxable year from transfers at death to which 1261(a) applies as does not exceed $1,000,000.

“(b) Inflation adjustment

“(1) In general—In the case of any taxable year beginning after 2022, the $1,000,000 amount in subsection (a) shall 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 2021” for “calendar year 2016”.

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

(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 transfers at death by decedents dying after December 31, 2021, in taxable years beginning after such date.

Sec. 3 Information reporting of certain gifts

(a)
In general— Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

“6050Z. Returns relating to certain gifts and bequests

“(a) In general—In the case of an applicable transfer, the individual making such gift, or the executor in the case of a transfer at death, shall furnish to the Secretary the following information:

“(1) The name and taxpayer identification number of the person to whom such transfer was made.

“(2) A description of the property transferred.

“(3) The fair market value of the property transferred and the basis of such property to the transferee.

“(b) Applicable transfer

“(1) In general—For purposes of this section, the term applicable transfer means—

“(A) any gift (other than a covered security (as defined in section 6045(g)(3))) which is taken into account under section 1261, and

“(B) so much of any transfer at death (other than such a covered security) which is so taken into account under section 1261 and the gain from which is includible in gross income for the taxable year of such transfer.

“(2) De minimis

“(A) Gifts—For gifts not exceeding the limitation for such year under section 2503(b) and not taken into account under section 1261, see subsection (d) thereof.

“(B) Transfers at death—For amount of gain excluded from gross income in case of a transfer at death, see section 139I(a).

“(c) Statements To be furnished to persons with respect to whom information is required—Every person required to make a return under subsection (a) shall furnish to each person whose name is required to set forth in such return a written statement showing the information described in subsection (a).

“(d) Timing—The returns and statements required under this section shall be furnished at such time and in such form and manner as the Secretary shall by regulation prescribe.”

(b)
Clerical amendment— The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new item:
(c)
Effective date— The amendments made by this section shall apply to transfers after December 31, 2021, in taxable years beginning after such date.

Sec. 4 Extension of time for payment of tax

(a)
Extension of time—
(1)
In general— Subchapter 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) 7-Year installment payment

“(1) In general—In the case of any gain with respect to eligible property 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 7) 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 property means any property 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)
Coordination with transferee liability— Section 6109 of such Code is amended by redesignating subsections (g), (h), and (i) as subsections (h), (i), and (j), respectively, and by inserting after subsection (f) the following new subsection:

“(g) Period of assessment in case of extension of time for payment of tax under section 1261—For purposes of subsection (c), the period of limitation for assessment against the transferor of any tax imposed under section 1261 the payment of which is extended under section 6168 shall not be treated as expiring earlier than the due date for the last payment under (a)(2) of such section.”

(3)
Clerical amendment— The table of sections for subpart B of chapter 62 of such Code is amended by adding at the end the following new item:
(b)
Interest— Section 6601 of such Code 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 section 1261 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.”

(c)
Effective date— The amendments made by this section shall apply to taxable years beginning after December 31, 2021.