H.R. 5421

To amend the Internal Revenue Code of 1986 to restore the estate tax and repeal the carryover basis rule, to increase the estate and gift tax unified credit to an exclusion equivalent of $5,000,000, and to reduce the rate of the estate and gifts taxes to the generally applicable capital gains income tax rate.

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I

109th CONGRESS

2d Session

H. R. 5421

IN THE HOUSE OF REPRESENTATIVES

May 18, 2006

Mr. Peterson of Minnesota (for himself, Mr. Latham, and Mr. Marshall) 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 restore the estate tax and repeal the carryover basis rule, to increase the estate and gift tax unified credit to an exclusion equivalent of $5,000,000, and to reduce the rate of the estate and gifts taxes to the generally applicable capital gains income tax rate.

1.

Restoration 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of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such subtitles, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such subtitles, and amendments, had never been enacted.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

(1)

Subsection (a) of section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking this Act and all that follows and inserting this Act (other than title V) shall not apply to taxable, plan, or limitation years beginning after December 31, 2010..

(2)

Subsection (b) of such section 901 is amended by striking , estates, gifts, and transfers.

(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the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such subsections, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such subsections, and amendments, had never been enacted.

2.

Estate and gift tax rates reduced to 15 percent or, if lower, the generally applicable capital gains rate for individuals

(a)

Estate tax

(1)

In general

Section 2001 of the Internal Revenue Code of 1986 (relating to estate tax) is amended by striking subsections (b) and (c) and by inserting after subsection (a) the following new subsection:

(b)

Computation of tax

The tax imposed by this section shall be the amount equal to the excess (if any) of—

(1)

15 percent of the sum of—

(A)

the amount of the taxable estate, and

(B)

the amount of the adjusted taxable gifts, over

(2)

the aggregate amount of tax paid under chapter 12 with respect to gifts made by the decedent after December 31, 1976.

For purposes of subparagraph (A)(ii), the term adjusted taxable gifts means the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent.

.

(2)

Conforming amendments

(A)

Subsection (c) of section 2010 of such Code is amended by striking the applicable credit amount and all that follows through the applicable exclusion amount and inserting the applicable credit amount shall be the applicable percentage (as defined in section 2001(b)(2)) of the applicable exclusion amount.

(B)

Subsection (b) of section 2101 of such Code is amended to read as follows:

(b)

Computation of tax

The tax imposed by this section shall be the amount equal to the excess (if any) of—

(1)

15 percent of the sum of—

(A)

the amount of the taxable estate, and

(B)

the amount of the adjusted taxable gifts, over

(2)

the aggregate amount of tax paid under chapter 12 with respect to gifts made by the decedent after December 31, 1976.

.

(C)

Subsection (c) of section 2102 of such Code, as in effect prior to its redesignation by section 532(c)(7)(B) of the Economic Growth and Tax Relief Reconciliation Act of 2001, is amended—

(i)

by striking $13,000 each place it appears and inserting $12,000, and

(ii)

by striking $46,800 and inserting $35,000.

(D)

Subsection (a) of section 2201 of such Code is amended by striking rate schedule set forth in section 2001(c) and inserting applicable percentage (as defined in section 2001(b)(2).

(b)

Gift tax

(1)

In general

Section 2502 of such Code is amended to read as follows:

2502.

Rate of tax

(a)

General rule

The tax imposed by section 2501 for each calendar year shall be an amount equal to 15 percent of the sum of the taxable gifts for such calendar year.

(b)

Tax to be paid by donor

The tax imposed by section 2501 shall be paid by the donor.

.

(2)

Conforming amendments

(A)

Subchapter A of chapter 12 of such Code is amended by striking section 2504.

(B)

The table of sections for such subchapter is amended by striking the item relating to section 2504.

(c)

Effective date

The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2006.

3.

$5,000,000 exemption from estate and gift taxes

(a)

In general

Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (relating to applicable credit amount), as amended by section 2, is amended by striking the applicable exclusion amount and all that follows and inserting $5,000,000..

(b)

Gift tax

Paragraph (1) of section 2505(a) of such Code (relating to general rule) is amended by striking (determined as if the applicable exclusion amount were $1,000,000).

(c)

Effective date

The amendment made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2006.