House Passes Estate Tax Bill

We can also expect the Senate to pass Senate Bill 2784 soon. The Senate bill would provide for “permanent reform” and includes portability of the Unified Credit Equivalent Amount between spouses.

The fight will then go to the Conference Committee to decide if we get a one year patch fix or “permanent” relief.

Click “Continue Reading” for the the AP report and the full text of both pieces of legislation.

Thanks to David K. Cahoone, JD, LL.M. for this news.

AP

The House voted Thursday to permanently extend a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month.

WASHINGTON — The House voted Thursday to permanently extend a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month.

A similar effort is afoot in the Senate, but the health care debate there could preclude action on the estate tax before Congress breaks later this month for holidays. There are also disagreements among senators over the tax rate and the size of estates that should be exempt, further clouding the bill’s prospects.

Lawmakers, however, don’t want to delay action until next year because they are wary of enacting retroactive tax changes.

Under the House bill, estates smaller than $3.5 million would continue to be exempt from the tax. Married couples, with a little estate planning, could exempt a total of $7 million. That leaves less than 1 percent of all estates subject to the tax.

The bill passed by a 225-200 vote, with all Republicans opposed. Majority Democrats argued that a permanent tax rate makes it easier for families and small business owners to do estate planning, noting that fewer than 1 percent of all estates are subject to the tax.

“In America, it’s not a sin to be rich nor is it a crime to die rich,” said Rep. Jared Polis, D-Colo. “This bill gives our nation’s wealthiest families the ability to know exactly what their obligation to the nation that fostered their wealth will be, and it is fair and it is just.”

The bill follows the federal budget proposed by President Obama. But many Republicans called for permanent repeal of the estate tax, arguing it hurts families that pass down farms and small businesses to their children.

“The majority claims to be offering certainty to taxpayers and I suppose in a way they are — they are certainly repealing the hope of ever eliminating the death tax,” said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.

Under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher 55 percent rate. During the year without an estate tax, all estates would be subject to a 15 percent capital gains tax that they now avoid.

“If Congress does not act on this issue this month, you would have a wildly fluctuating scenario of different estate tax levels, making it impossible for families to plan,” said Rep. Earl Pomeroy, D-N.D., chief sponsor of the House bill.

Some liberals have complained that the bill is a giveaway to the rich because it would result in lower rates in future years than what current law provides. Conservatives have labeled the estate tax a “death tax” and argue it should be repealed permanently.

“We’re trying to forge a compromise that resolves this issue once and for all,” Pomeroy said.

Rep. Louie Gohmert, R-Texas, likened the estate tax to stealing from the dead.

“After someone dies and someone comes in and steals from them, we consider that in most society reprehensible,” said Gohmert, a former judge. “I have sentenced people personally to prison for doing that.”

The quirk in the law, in which the estate tax would disappear for only a year, came out of a series of tax cuts enacted in 2001. Many Republicans, who controlled Congress at the time, wanted to permanently repeal the estate tax then. But they settled on a gradual reduction, with a one-year repeal, to reduce the impact on the federal budget deficit.

Under current law, the estate tax would return in 2011 with a $1 million exemption and top rate of 55 percent, unless Congress acts.

Permanently extending the tax with a top rate of 45 percent on estates larger than $3.5 million would raise about $14 billion a year. However, it would raise less tax revenue than current law over the next 10 years — an estimated $234 billion less — because the tax rate would be lower in future years. The lost revenue would be covered with increased borrowing.

Under current law, if someone inherits a $5 million estate in 2009, they would pay $675,000 in federal estate taxes, according to an analysis by Deloitte Tax. In 2010, they would pay no estate tax but the estate would be subject to a 15 percent capital gains tax. If they inherit the $5 million estate in 2011, they would pay $2,045,000 in estate taxes, according to the analysis.

Under the House bill, they would pay $675,000 in estate taxes, regardless of which year the estate is inherited.

Currently, the tax affects few estates. In 2009, about 5,500 estates will be subject to the tax, according to projections from the Tax Policy Center, a Washington think tank. That’s 0.23 percent of all estates.

To amend the Internal Revenue Code of 1986 to permanently extend the estate tax as in effect in 2009, and for other purposes. (Introduced in Senate)

S 2784 IS

111th CONGRESS

1st Session

S. 2784

To amend the Internal Revenue Code of 1986 to permanently extend the estate tax as in effect in 2009, and for other purposes.

IN THE SENATE OF THE UNITED STATES

NOVEMBER 17, 2009

Mr. CARPER (for himself and Mr. VOINOVICH) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to permanently extend the estate tax as in effect in 2009, 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. PERMANENT EXTENSION OF ESTATE TAX AS IN EFFECT IN 2009.

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

(b) Exclusion Equivalent of Unified Credit Equal to $3,500,000- Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (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 section 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount.

`(2) APPLICABLE EXCLUSION AMOUNT-

`(A) IN GENERAL- For purposes of this subsection, the applicable exclusion amount is $3,500,000.

`(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 $10,000, such amount shall be rounded to the nearest multiple of $10,000.’.

(c) Maximum Estate Tax Rate Equal to 45 Percent-

(1) IN GENERAL- Subsection (c) of section 2001 of the Internal Revenue Code of 1986 (relating to imposition and rate of tax) is amended–

(A) by striking `but not over $2,000,000′ in the table contained in paragraph (1),

(B) by striking the last 2 items in such table,

(C) by striking `(1) IN GENERAL- ‘, and

(D) by striking paragraph (2).

(2) CONFORMING AMENDMENT- Paragraphs (1) and (2) of section 2102(b) of such Code are amended to read as follows:

`(1) IN GENERAL- A credit in an amount that would be determined under section 2010 as the applicable credit amount if the applicable exclusion amount were $60,000 shall be allowed against the tax imposed by section 2101.

`(2) RESIDENTS OF POSSESSIONS OF THE UNITED STATES- In the case of a decedent who is considered to be a `nonresident not a citizen of the United States’ under section 2209, the credit allowed under this subsection shall not be less than the proportion of the amount that would be determined under section 2010 as the applicable credit amount if the applicable exclusion amount were $175,000 which the value of that part of the decedent’s gross estate which at the time of the decedent’s death is situated in the United States bears to the value of the decedent’s entire gross estate, wherever situated.’.

(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 the Internal Revenue Code of 1986 (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) 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 in effect 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) 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.

(f) 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-

(A) 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.’.

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

(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. 2. UNIFIED CREDIT INCREASED BY UNUSED UNIFIED CREDIT OF DECEASED SPOUSE.

(a) In General- Section 2010(c) of the Internal Revenue Code of 1986, as amended by section 1(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 $3,500,000.

`(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 $10,000, such amount shall be rounded to the nearest multiple of $10,000.

`(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 computed with respect to each deceased spouse 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 basic 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 the Internal Revenue Code of 1986, as amended by section 1(a), is amended to read as follows:

`(1) the applicable credit amount in effect 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 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. 3. SENSE OF THE SENATE REGARDING REVENUE NEUTRALITY.

It is the sense of the Senate that any reduction in Federal revenues resulting from the provisions of, and amendments made by, this Act should be fully offset.

Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (Introduced in House)

HR 4154 IH

111th CONGRESS

1st Session

H. R. 4154

To amend the Internal Revenue Code of 1986 to repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 19, 2009

Mr. POMEROY 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 repeal the new carryover basis rules in order to prevent tax increases and the imposition of compliance burdens on many more estates than would benefit from repeal, to retain the estate tax with a $3,500,000 exemption, 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 for Families, Farmers, and Small Businesses Act of 2009′.

SEC. 2. RETENTION 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- Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act.

(c) Conforming Amendments-

(1) Sections 511(d) and 521(b)(2) of the Economic Growth and Tax Relief Reconciliation Act of 2001, and the amendments made by such sections, are hereby repealed; and the Internal Revenue Code of 1986 shall be applied as if such sections, and amendments, had never been enacted.

(2) Subsection (c) of section 2511 of the Internal Revenue Code of 1986 is hereby repealed.

SEC. 3. MODIFICATIONS TO ESTATE AND GIFT TAXES.

(a) $3,500,000 Applicable Exclusion Amount- Subsection (c) of section 2010 of the Internal Revenue Code of 1986 (relating to applicable credit amount) is amended by striking all that follows `the applicable exclusion amount’ and inserting `. For purposes of the preceding sentence, the applicable exclusion amount is $3,500,000.’.

(b) Freeze Maximum Estate and Gift Tax Rates at 45 Percent- Subsection (c) of section 2001 of such Code is amended–

(1) by striking paragraph (2),

(2) by striking so much of paragraph (1) as precedes the table contained therein, and

(3) by striking the last 2 items in the table and inserting the following new item:

——————————————————————————————-

——————————————————————————————-

`Over $1,500,000 $555,800, plus 45 percent of the excess of such amount over $1,500,000.’.

——————————————————————————————-

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