H.R. 1264 (107th): Tax Reduction Act of 2001

107th Congress, 2001–2002. Text as of Mar 28, 2001 (Introduced).

Status & Summary | PDF | Source: GPO

HR 1264 IH

107th CONGRESS

1st Session

H. R. 1264

To amend the Internal Revenue Code of 1986 to provide individual income tax rate reductions, tax relief to families with children, marriage penalty relief, and to immediately eliminate the estate tax for two-thirds of all decedents currently subject to the estate tax.

IN THE HOUSE OF REPRESENTATIVES

March 28, 2001

Mr. RANGEL (for himself and Mr. PASCRELL) 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 provide individual income tax rate reductions, tax relief to families with children, marriage penalty relief, and to immediately eliminate the estate tax for two-thirds of all decedents currently subject to the estate tax.

    Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    (a) SHORT TITLE- This Act may be cited as the ‘Tax Reduction Act of 2001’.

    (b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

    (c) SECTION 15 NOT TO APPLY- No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986.

TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS; EXPANSION OF EARNED INCOME CREDIT ASSISTANCE

SEC. 101. INDIVIDUAL INCOME TAX RATE REDUCTIONS.

    (a) IN GENERAL- Section 1 is amended by adding at the end the following new subsection:

    ‘(i) 12 PERCENT RATE BRACKET-

      ‘(1) IN GENERAL- In the case of taxable years beginning after December 31, 2000--

        ‘(A) the rate of tax under subsections (a), (b), (c), and (d) on taxable income not over the initial bracket amount shall be 12 percent, and

        ‘(B) the 15 percent rate of tax shall apply only to taxable income over the initial bracket amount.

      ‘(2) INITIAL BRACKET AMOUNT- For purposes of this subsection--

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), the initial bracket amount is--

          ‘(i) $20,000 in the case of subsection (a),

          ‘(ii) 80 percent of the dollar amount in clause (i) in the case of subsection (b), and

          ‘(iii) 50 percent of the dollar amount in clause (i) in the case of subsections (c) and (d).

        ‘(B) PHASEIN- The initial bracket amount is--

          ‘(i) 1/4 the amount otherwise applicable under subparagraph (A) in the case of taxable years beginning during 2001, and

          ‘(ii) 1/2 such amount otherwise applicable under subparagraph (A) in the case of taxable years beginning during 2002.

      ‘(3) INFLATION ADJUSTMENT-

        ‘(A) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2003, the $20,000 amount under paragraph (2)(A)(i) shall be increased by an amount equal to--

          ‘(i) such dollar amount, multiplied by

          ‘(ii) the cost-of-living adjustment determined under subsection (f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2002’ for ‘calendar year 1992’ in subparagraph (B) thereof.

        ‘(B) ROUNDING RULES- If any amount after adjustment under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.

      ‘(4) ADJUSTMENT OF TABLES- The Secretary shall adjust the tables prescribed under subsection (f) to carry out this subsection.’

    (b) ADJUSTMENT IN COMPUTATION OF ALTERNATIVE MINIMUM TAX- Paragraph (2) of section 55(a) is amended to read as follows:

      ‘(2) the sum of--

        ‘(A) the regular tax for the taxable year, plus

        ‘(B) in the case of an individual, 3 percent of so much of the individual’s taxable income for the taxable year as is taxed at 12 percent.’

    (c) REPEAL OF REDUCTION OF REFUNDABLE TAX CREDITS-

      (1) Subsection (d) of section 24 is amended by striking paragraph (2) and redesignating paragraph (3) as paragraph (2).

      (2) Section 32 is amended by striking subsection (h).

    (d) CONFORMING AMENDMENT- Subclause (II) of section 1(g)(7)(B)(ii) is amended by striking ‘15 percent’ and inserting ‘12 percent’.

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

    (f) PROTECTION OF SOCIAL SECURITY AND MEDICARE- The amounts transferred to any trust fund under the Social Security Act shall be determined as if this Act had not been enacted.

SEC. 102. MODIFICATIONS TO EARNED INCOME TAX CREDIT.

    (a) INCREASES IN PERCENTAGES AND AMOUNTS USED TO DETERMINE CREDIT; MARRIAGE PENALTY RELIEF-

      (1) IN GENERAL- Subsection (b) of section 32 is amended to read as follows:

    ‘(b) PERCENTAGES AND AMOUNTS-

      ‘(1) PERCENTAGES- The credit percentage, the initial phaseout percentage, and the final phaseout percentage shall be determined as follows:

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‘In the case of an eligible individual with: The credit percentage is: The initial phaseout percentage is: The final phaseout percentage is: 
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1 qualifying child                           34                        15.98                               18.98                             
2 or more qualifying children                40                        21.06                               24.06                             
No qualifying children                       7.65                      7.65                                7.65                              
---------------------------------------------------------------------------------------------------------------------------------------------

      ‘(2) AMOUNTS-

        ‘(A) IN GENERAL- The earned income amount and the initial phaseout amount shall be determined as follows:

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‘In the case of an eligible individual with: The earned income amount is: The initial phaseout amount is: 
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1 qualifying child                           $8,140                       $13,470                         
2 or more qualifying children                $10,820                      $13,470                         
No qualifying children                       $4,900                       $6,130.                         
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        In the case of a joint return where there is at least 1 qualifying child, the initial phaseout amount shall be $2,500 greater than the amount otherwise applicable under the preceding sentence.

        ‘(B) FINAL PHASEOUT AMOUNT- The final phaseout amount is $26,000 ($28,500 in the case of a joint return).’

      (2) MODIFICATION OF COMPUTATION OF PHASEOUT- Paragraph (2) of section 32(a) is amended to read as follows:

      ‘(2) PHASEOUT OF CREDIT- The amount of the credit allowable to a taxpayer under paragraph (1) for any taxable year shall be reduced (but not below zero) by the sum of--

        ‘(A) the initial phaseout percentage of so much of the total income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the initial phaseout amount but does not exceed the final phaseout amount, plus

        ‘(B) the final phaseout percentage of so much of the total income (or, if greater, the earned income) of the taxpayer for the taxable year as exceeds the final phaseout amount.’

      (3) TOTAL INCOME- Paragraph (5) of section 32(c) is amended to read as follows:

      ‘(5) TOTAL INCOME- The term ‘total income’ means adjusted gross income determined without regard to--

        ‘(A) the deductions referred to in paragraphs (6), (7), (9), (10), (15), (16), and (17) of section 62(a),

        ‘(B) the deduction allowed by section 162(l), and

        ‘(C) the deduction allowed by section 164(f).’

      (4) CONFORMING AMENDMENTS-

        (A) Subsection (j) of section 32 is amended to read as follows:

    ‘(j) INFLATION ADJUSTMENT-

      ‘(1) IN GENERAL- In the case of any taxable year beginning after 2002, each of the dollar amounts in subsection (b)(2) 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 ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph (B) thereof.

      ‘(2) ROUNDING- If any dollar amount, after being increased under paragraph (1), is not a multiple of $10, such dollar amount shall be rounded to the nearest multiple of $10.’

        (B) Subparagraph (C) of section 32(c)(1) is amended by striking ‘modified adjusted gross income’ and inserting ‘total income’.

        (C) Paragraph (2) of section 32(f) is amended to read as follows:

      ‘(2) REQUIREMENTS FOR TABLES-

        ‘(A) IN GENERAL- The provisions of subsection (a)(1) and the provisions of subsection (a)(2) shall be reflected in separate tables prescribed under paragraph (1).

        ‘(B) SUBSECTION (a)(1) TABLE- The tables prescribed under paragraph (1) to reflect the provisions of subsection (a)(1) shall have income brackets of not greater than $50 each for earned income between $0 and the earned income amount.

        ‘(C) SUBSECTION (a)(2) TABLE- The tables prescribed under paragraph (1) to reflect the provisions of subsection (a)(2) shall have income brackets of not greater than $50 each for total income (or, if greater, the earned income) above the initial phaseout threshold.’

    (b) REPEAL OF DENIAL OF CREDIT WHERE INVESTMENT INCOME- Section 32 is amended by striking subsection (i).

    (c) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME-

      (1) IN GENERAL- Section 32(c)(2)(A)(i) (defining earned income) is amended by inserting ‘, but only if such amounts are includible in gross income for the taxable year’ after ‘other employee compensation’.

      (2) CONFORMING AMENDMENT- Section 32(c)(2)(B) is amended by striking ‘and’ at the end of clause (iv), by striking the period at the end of clause (v) and inserting ‘, and’, and by adding at the end the following new clause:

          ‘(vi) the requirement under subparagraph (A)(i) that an amount be includible in gross income shall not apply if such amount is exempt from tax under section 7873 or is derived directly from restricted and allotted land under the Act of February 8, 1887 (commonly known as the Indian General Allotment Act) (25 U.S.C. 331 et seq.) or from land held under Acts or treaties containing an exception provision similar to the Indian General Allotment Act.’

    (d) MODIFICATION OF JOINT RETURN REQUIREMENT- Subsection (d) of section 32 is amended to read as follows:

    ‘(d) MARRIED INDIVIDUALS-

      ‘(1) IN GENERAL- If the taxpayer is married at the close of the taxable year, the credit shall be allowed under subsection (a) only if the taxpayer and his spouse file a joint return for the taxable year.

      ‘(2) MARITAL STATUS- For purposes of paragraph (1), an individual legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered as married.

      ‘(3) CERTAIN MARRIED INDIVIDUALS LIVING APART- For purposes of paragraph (1), if--

        ‘(A) an individual --

          ‘(i) is married and files a separate return, and

          ‘(ii) has a qualifying child who is a son, daughter, stepson, or stepdaughter of such individual, and

        ‘(B) during the last 6 months of such taxable year, such individual and such individual’s spouse do not have the same principal place of abode,

      such individual shall not be considered as married.’

    (e) EXPANSION OF MATHEMATICAL ERROR AUTHORITY- Paragraph (2) of section 6213(g) is amended by striking ‘and’ at the end of subparagraph (K), by striking the period at the end of subparagraph (L) and inserting ‘, and’, and by inserting after subparagraph (L) the following new subparagraph:

        ‘(M) the entry on the return claiming the credit under section 32 with respect to a child if, according to the Federal Case Registry of Child Support Orders established under section 453(h) of the Social Security Act, the taxpayer is a noncustodial parent of such child.’

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

TITLE II--MARRIAGE PENALTY RELIEF

SEC. 201. MARRIAGE PENALTY RELIEF.

    (a) STANDARD DEDUCTION-

      (1) IN GENERAL- Paragraph (2) of section 63(c) (relating to standard deduction) is amended--

        (A) by striking ‘$5,000’ in subparagraph (A) and inserting ‘twice the dollar amount in effect under subparagraph (C) for the taxable year’,

        (B) by adding ‘or’ at the end of subparagraph (B),

        (C) by striking ‘in the case of’ and all that follows in subparagraph (C) and inserting ‘in any other case.’, and

        (D) by striking subparagraph (D).

      (2) INCREASE ALLOWED AS DEDUCTION IN DETERMINING MINIMUM TAX- Subparagraph (E) of section 56(b)(1) is amended by adding at the end the following new sentence: ‘The preceding sentence shall not apply to so much of the standard deduction under subparagraph (A) of section 63(c)(2) as exceeds the amount which would be such deduction but for the amendment made by section 201(a)(1) of the Tax Reduction Act of 2001.’

      (3) TECHNICAL AMENDMENTS-

        (A) Subparagraph (B) of section 1(f)(6) is amended by striking ‘(other than with’ and all that follows through ‘shall be applied’ and inserting ‘(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied’.

        (B) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence:

      ‘The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2000.

TITLE III--ESTATE TAX RELIEF.

SEC. 301. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT.

    (a) IN GENERAL- Subsection (c) of section 2010 (relating to applicable credit amount) is amended by striking the table and inserting the following new table:

‘In the case of estates of decedents

--The applicable

dying, and gifts made, during:

--exclusion amount is:

2002

--$2,000,000

2003 and 2004

--$2,100,000

2005 and 2006

--$2,200,000

2007 and 2008

--$2,300,000

2009

--$2,400,000

2010 or thereafter

--$2,500,000.’

    (b) REPEAL OF SPECIAL BENEFIT FOR FAMILY-OWNED BUSINESS INTERESTS-

      (1) Section 2057 is hereby repealed.

      (2) Paragraph (10) of section 2031(c) is amended by inserting ‘(as in effect on the day before the date of the enactment of this parenthetical)’ before the period.

      (3) The table of sections for part IV of subchapter A of chapter 11 is amended by striking the item relating to section 2057.

    (c) CORRECTION OF TECHNICAL ERROR AFFECTING LARGEST ESTATES- Paragraph (2) of section 2001(c) is amended by striking ‘$10,000,000’ and all that follows and inserting ‘$10,000,000. The amount of the increase under the preceding sentence shall not exceed the sum of the applicable credit amount under section 2010(c) and $359,200.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2001.

SEC. 302. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH TAXES.

    (a) REPEAL OF CREDIT- Section 2011 (relating to credit for State death taxes) is hereby repealed.

    (b) DEDUCTION FOR STATE DEATH TAXES- Part IV of subchapter A of chapter 11 is amended by adding at the end the following new section:

‘SEC. 2058. STATE DEATH TAXES.

    ‘(a) ALLOWANCE OF DEDUCTION- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent).

    ‘(b) PERIOD OF LIMITATIONS- The deduction allowed by this section shall include only such taxes as were actually paid and deduction therefor claimed within 4 years after the filing of the return required by section 6018, except that--

      ‘(1) If a petition for redetermination of a deficiency has been filed with the Tax Court within the time prescribed in section 6213(a), then within such 4-year period or before the expiration of 60 days after the decision of the Tax Court becomes final.

      ‘(2) If, under section 6161 or 6166, an extension of time has been granted for payment of the tax shown on the return, or of a deficiency, then within such 4-year period or before the date of the expiration of the period of the extension.

      ‘(3) If a claim for refund or credit of an overpayment of tax imposed by this chapter has been filed within the time prescribed in section 6511, then within such 4-year period or before the expiration of 60 days from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance of any part of such claim, or before the expiration of 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon such claim, whichever is later.

    Refund based on the deduction may (despite the provisions of sections 6511 and 6512) be made if claim therefor is filed within the period above provided. Any such refund shall be made without interest.’

    (c) CONFORMING AMENDMENTS-

      (1) Subsection (a) of section 2012 is amended by striking ‘the credit for State death taxes provided by section 2011 and’.

      (2) Subparagraph (A) of section 2013(c)(1) is amended by striking ‘2011,’.

      (3) Paragraph (2) of section 2014(b) is amended by striking ‘, 2011,’.

      (4) Sections 2015 and 2016 are each amended by striking ‘2011 or’.

      (5) Subsection (d) of section 2053 is amended to read as follows:

    ‘(d) CERTAIN FOREIGN DEATH TAXES-

      ‘(1) IN GENERAL- Notwithstanding the provisions of subsection (c)(1)(B) of this section, for purposes of the tax imposed by section 2001, the value of the taxable estate may be determined, if the executor so elects before the expiration of the period of limitation for assessment provided in section 6501, by deducting from the value of the gross estate the amount (as determined in accordance with regulations prescribed by the Secretary) of any estate, succession, legacy, or inheritance tax imposed by and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United States, upon a transfer by the decedent for public, charitable, or religious uses described in section 2055. The determination under this paragraph of the country within which property is situated shall be made in accordance with the rules applicable under subchapter B (sec. 2101 and following) in determining whether property is situated within or without the United States. Any election under this paragraph shall be exercised in accordance with regulations prescribed by the Secretary.

      ‘(2) CONDITION FOR ALLOWANCE OF DEDUCTION- No deduction shall be allowed under paragraph (1) for a foreign death tax specified therein unless the decrease in the tax imposed by section 2001 which results from the deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2). In any case where the tax imposed by section 2001 is equitably apportioned among all the transferees of property included in the gross estate, including those described in sections 2055 and 2106(a)(2) (taking into account any exemptions, credits, or deductions allowed by this chapter), in determining such decrease, there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described in sections 2055 and 2106(a)(2) are required to pay.

      ‘(3) EFFECT ON CREDIT FOR FOREIGN DEATH TAXES OF DEDUCTION UNDER THIS SUBSECTION-

        ‘(A) ELECTION- An election under this subsection shall be deemed a waiver of the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country for any tax or portion thereof in respect of which a deduction is taken under this subsection.

        ‘(B) CROSS REFERENCE-

‘See section 2014(f) for the effect of a deduction taken under this paragraph on the credit for foreign death taxes.’

      (6) Subparagraph (A) of section 2056A(b)(10) is amended--

        (A) by striking ‘2011,’, and

        (B) by inserting ‘2058,’ after ‘2056,’.

      (7)(A) Subsection (a) of section 2102 is amended to read as follows:

    ‘(a) IN GENERAL- The tax imposed by section 2101 shall be credited with the amounts determined in accordance with sections 2012 and 2013 (relating to gift tax and tax on prior transfers).’

      (B) Section 2102 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b).

      (C) Section 2102(b)(5) (as redesignated by subparagraph (B)) and section 2107(c)(3) are each amended by striking ‘2011 to 2013, inclusive,’ and inserting ‘2012 and 2013’.

      (8) Subsection (a) of section 2106 is amended by adding at the end the following new paragraph:

      ‘(4) STATE DEATH TAXES- The amount which bears the same ratio to the State death taxes as the value of the property, as determined for purposes of this chapter, upon which State death taxes were paid and which is included in the gross estate under section 2103 bears to the value of the total gross estate under section 2103. For purposes of this paragraph, the term ‘State death taxes’ means the taxes described in section 2011(a).’

      (9) Section 2201 is amended--

        (A) by striking ‘as defined in section 2011(d)’, and

        (B) by adding at the end the following new flush sentence:

    ‘For purposes of this section, the additional estate tax is the difference between the tax imposed by section 2001 or 2101 and the amount equal to 125 percent of the maximum credit provided by section 2011(b), as in effect before its repeal by the Tax Reduction Act of 2001.’

      (10) Paragraph (2) of section 6511(i) is amended by striking ‘2011(c), 2014(b),’ and inserting ‘2014(b)’.

      (11) Subsection (c) of section 6612 is amended by striking ‘section 2011(c) (relating to refunds due to credit for State taxes),’.

      (12) The table of sections for part II of subchapter A of chapter 11 is amended by striking the item relating to section 2011.

      (13) The table of sections for part IV of subchapter A of chapter 11 is amended by adding at the end the following new item:

‘Sec. 2058. State death taxes.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying after December 31, 2001.

SEC. 303. VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS; LIMITATION ON MINORITY DISCOUNTS.

    (a) IN GENERAL- Section 2031 (relating to definition of gross estate) is amended by redesignating subsection (d) as subsection (f) and by inserting after subsection (c) the following new subsections:

    ‘(d) VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS- For purposes of this chapter and chapter 12--

      ‘(1) IN GENERAL- In the case of the transfer of any interest in an entity other than an interest which is actively traded (within the meaning of section 1092)--

        ‘(A) the value of any nonbusiness assets held by the entity shall be determined as if the transferor had transferred such assets directly to the transferee (and no valuation discount shall be allowed with respect to such nonbusiness assets), and

        ‘(B) the nonbusiness assets shall not be taken into account in determining the value of the interest in the entity.

      ‘(2) NONBUSINESS ASSETS- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘nonbusiness asset’ means any asset which is not used in the active conduct of 1 or more trades or businesses.

        ‘(B) EXCEPTION FOR CERTAIN PASSIVE ASSETS- Except as provided in subparagraph (C), a passive asset shall not be treated for purposes of subparagraph (A) as used in the active conduct of a trade or business unless--

          ‘(i) the asset is property described in paragraph (1) or (4) of section 1221(a) or is a hedge with respect to such property, or

          ‘(ii) the asset is real property used in the active conduct of 1 or more real property trades or businesses (within the meaning of section 469(c)(7)(C)) in which the transferor materially participates and with

respect to which the transferor meets the requirements of section 469(c)(7)(B)(ii).

        For purposes of clause (ii), material participation shall be determined under the rules of section 469(h), except that section 469(h)(3) shall be applied without regard to the limitation to farming activity.

        ‘(C) EXCEPTION FOR WORKING CAPITAL- Any asset (including a passive asset) which is held as a part of the reasonably required working capital needs of a trade or business shall be treated as used in the active conduct of a trade or business.

      ‘(3) PASSIVE ASSET- For purposes of this subsection, the term ‘passive asset’ means any--

        ‘(A) cash or cash equivalents,

        ‘(B) except to the extent provided by the Secretary, stock in a corporation or any other equity, profits, or capital interest in any entity,

        ‘(C) evidence of indebtedness, option, forward or futures contract, notional principal contract, or derivative,

        ‘(D) asset described in clause (iii), (iv), or (v) of section 351(e)(1)(B),

        ‘(E) annuity,

        ‘(F) real property used in 1 or more real property trades or businesses (as defined in section 469(c)(7)(C)),

        ‘(G) asset (other than a patent, trademark, or copyright) which produces royalty income,

        ‘(H) commodity,

        ‘(I) collectible (within the meaning of section 401(m)), or

        ‘(J) any other asset specified in regulations prescribed by the Secretary.

      ‘(4) Look-thru rules-

        ‘(A) IN GENERAL- If a nonbusiness asset of an entity consists of a 10-percent interest in any other entity, this subsection shall be applied by disregarding the 10-percent interest and by treating the entity as holding directly its ratable share of the assets of the other entity. This subparagraph shall be applied successively to any 10-percent interest of such other entity in any other entity.

        ‘(B) 10-PERCENT INTEREST- The term ‘10-percent interest’ means--

          ‘(i) in the case of an interest in a corporation, ownership of at least 10 percent (by vote or value) of the stock in such corporation,

          ‘(ii) in the case of an interest in a partnership, ownership of at least 10 percent of the capital or profits interest in the partnership, and

          ‘(iii) in any other case, ownership of at least 10 percent of the beneficial interests in the entity.

      ‘(5) COORDINATION WITH SUBSECTION (b)- Subsection (b) shall apply after the application of this subsection.

    ‘(e) LIMITATION ON MINORITY DISCOUNTS- For purposes of this chapter and chapter 12, in the case of the transfer of any interest in an entity other than an interest which is actively traded (within the meaning of section 1092), no discount shall be allowed by reason of the fact that the transferee does not have control of such entity if the transferee and members of the family (as defined in section 2032A(e)(2)) of the transferee have control of such entity.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to transfers after the date of the enactment of this Act.