Text: H.R.5638 — 109th Congress (2005-2006)

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[Congressional Bills 109th Congress]
[From the U.S. Government Printing Office]
[H.R. 5638 Placed on Calendar Senate (PCS)]


                                                       Calendar No. 496
109th CONGRESS
  2d Session
                                H. R. 5638


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             June 23, 2006

                          Read the first time

                             June 26, 2006

            Read the second time and placed on the calendar

_______________________________________________________________________

                                 AN ACT


 
  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.

            Passed the House of Representatives June 22, 2006.

            Attest:

                                                 KAREN L. HAAS,

                                                                 Clerk.
                                                       Calendar No. 496

109th CONGRESS

  2d Session

                               H. R. 5638

_______________________________________________________________________

                                 AN ACT

  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.

_______________________________________________________________________

                             June 26, 2006

            Read the second time and placed on the calendar