H.R. 6225 (112th): To amend the Internal Revenue Code of 1986 to provide for economic growth and personal financial liberty, ...

...and for other purposes.

112th Congress, 2011–2013. Text as of Jul 26, 2012 (Introduced).

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I

112th CONGRESS

2d Session

H. R. 6225

IN THE HOUSE OF REPRESENTATIVES

July 26, 2012

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 for economic growth and personal financial liberty, and for other purposes.

1.

Table of contents

The table of contents for this Act is as follows:

Sec. 1. Table of contents.

Sec. 2. Findings.

Title I—EGTRRA, JGTRRA, and Certain Other Tax Relief Made Permanent

Sec. 101. EGTRRA, JGTRRA, and certain other tax relief made permanent.

Title II—Death Tax Repeal Permanency

Sec. 201. Repeal of estate and generation-skipping transfer taxes.

Sec. 202. Modifications of gift tax.

Title III—Alternative Minimum Tax Relief

Sec. 301. Extension for individuals.

Title IV—Capital Gains Inflation Relief

Sec. 401. Indexing of certain assets for purposes of determining gain or loss.

2.

Findings

The Congress finds the following:

(1)

According to the Tax Foundation, this year, before being able to work for themselves, Americans will work 107 days out of the year just to pay their taxes.

(2)

Tax Freedom Day, the day when Americans have finally earned enough money to pay their tax bills for the year and can begin to work for themselves, fell on April 17th.

(3)

Taxes are a greater burden on the family budget than food, clothing, and housing combined.

(4)

The Federal tax burden was 15.4 percent of gross domestic product in 2011.

(5)

The historical Federal tax burden of the previous few decades is 18.0 percent of gross domestic product.

(6)

Under current law, the tax burden will rise to 21.0 percent of gross domestic product within ten years, which would be the highest tax burden in United States history, even during wartime.

(7)

Families and business cannot bear a tax increase of this magnitude.

I

EGTRRA, JGTRRA, and Certain Other Tax Relief Made Permanent

101.

EGTRRA, JGTRRA, and certain other tax relief made permanent

(a)

Economic Growth and Tax Relief Reconciliation Act of 2001

Title IX of the Economic Growth and Tax Relief Reconciliation Act of 2001 is hereby repealed.

(b)

Income tax rates on dividends and net capital gain

Section 303 of the Jobs and Growth Tax Relief Reconciliation Act of 2003 is hereby repealed.

(c)

Deduction for State and local sales taxes

Paragraph (5) of section 164(b) of the Internal Revenue Code of 1986 is amended by striking subparagraph (I).

(d)

Deduction for tuition and related expenses

Section 222 of such Code is amended by striking subsection (e).

(e)

Increased expensing for small business

(1)

Dollar limitation

Paragraph (1) of section 179(b) of such Code is amended by striking subparagraphs (C) and (D) and inserting the following new subparagraph:

(C)

$125,000 in the case of taxable years beginning after 2011.

.

(2)

Increase in qualifying investment at which phaseout begins

Paragraph (2) of section 179(b) of such Code is amended by striking subparagraphs (C) and (D) and inserting the following new subparagraph:

(C)

$500,000 in the case of taxable years beginning after 2011.

.

(3)

Inflation adjustments

Paragraph (6) of section 179 of such Code is amended to read as follows:

(6)

Inflation adjustments

(A)

In general

In the case of any taxable year beginning in a calendar year after 2012, the $125,000 and $500,000 amounts in paragraphs (1)(C) and (2)(C) shall each 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 the calendar year in which the taxable year begins, by substituting calendar year 2011 for calendar year 1992 in subparagraph (B) thereof.

(B)

Rounding

(i)

Dollar limitation

If the amount in paragraph (1)(C), as increased under subparagraph (A), is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000.

(ii)

Phaseout amount

If the amount in paragraph (2)(C), as increased under subparagraph (A), is not a multiple of $10,000, such amount shall be rounded to the nearest multiple of $10,000.

.

(4)

Revocation of election

Paragraph (2) of section 179(c) of such Code (relating to election irrevocable) is amended by striking and before 2013.

(5)

Computer software

Clause (ii) of section 179(d)(1)(A) of such Code is amended by striking and before 2012.

(f)

Effective date

The amendments made by this section shall take effect on the date of the enactment of this Act.

II

Death Tax Repeal Permanency

201.

Repeal of estate and generation-skipping transfer taxes

(a)

Estate Tax Repeal

Subchapter C of chapter 11 of subtitle B of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

2210.

Termination

(a)

In general

Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying on or after the date of the enactment of this section.

(b)

Certain Distributions From Qualified Domestic Trusts

In applying section 2056A with respect to the surviving spouse of a decedent dying before the date of the enactment of this section—

(1)

section 2056A(b)(1)(A) shall not apply to distributions made after the 10-year period beginning on such date, and

(2)

section 2056A(b)(1)(B) shall not apply on or after such date.

.

(b)

Generation-Skipping Transfer Tax Repeal

Subchapter G of chapter 13 of subtitle B of such Code is amended by adding at the end the following new section:

2664.

Termination

This chapter shall not apply to generation-skipping transfers on or after the date of the enactment of this section.

.

(c)

Conforming Amendments

(1)

The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item:

Sec. 2210. Termination.

.

(2)

The table of sections for subchapter G of chapter 13 is amended by adding at the end the following new item:

Sec. 2664. Termination.

.

(d)

Restoration of pre-EGTRRA provisions not applicable

(1)

In general

Section 301 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 shall not apply to estates of decedents dying, and transfers made, on or after the date of the enactment of this Act.

(2)

Exception for stepped-up basis

Paragraph (1) shall not apply to the provisions of law amended by subtitle E of title V of the Economic Growth and Tax Relief Reconciliation Act of 2001 (relating to carryover basis at death; other changes taking effect with repeal).

(e)

Sunset not applicable

(1)

Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act in the case of estates of decedents dying, and transfers made, on or after the date of the enactment of this Act.

(2)

Section 304 of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 is hereby repealed.

(f)

Effective Date

The amendments made by this section shall apply to the estates of decedents dying, and generation-skipping transfers, after the date of the enactment of this Act.

202.

Modifications of gift tax

(a)

Computation of gift tax

Subsection (a) of section 2502 of the Internal Revenue Code of 1986 is amended to read as follows:

(a)

Computation of tax

(1)

In general

The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of—

(A)

a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over

(B)

a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for each of the preceding calendar periods.

(2)

Rate schedule

If the amount with respect to which the tentative tax to be computed is:The tentative tax is:
Not over $10,00018% of such amount.
Over $10,000 but not over $20,000$1,800, plus 20% of the excess over $10,000.
Over $20,000 but not over $40,000$3,800, plus 22% of the excess over $20,000.
Over $40,000 but not over $60,000$8,200, plus 24% of the excess over $40,000.
Over $60,000 but not over $80,000$13,000, plus 26% of the excess over $60,000.
Over $80,000 but not over $100,000$18,200, plus 28% of the excess over $80,000.
Over $100,000 but not over $150,000$23,800, plus 30% of the excess over $100,000.
Over $150,000 but not over $250,000$38,800, plus 32% of the excess of $150,000.
Over $250,000 but not over $500,000$70,800, plus 34% of the excess over $250,000.
Over $500,000$155,800, plus 35% of the excess of $500,000.

.

(b)

Treatment of Certain Transfers in Trust

Section 2511 (relating to transfers in general) is amended by adding at the end the following new subsection:

(c)

Treatment of Certain Transfers in Trust

Notwithstanding any other provision of this section and except as provided in regulations, a transfer in trust shall be treated as a taxable gift under section 2503, unless the trust is treated as wholly owned by the donor or the donor’s spouse under subpart E of part I of subchapter J of chapter 1.

.

(c)

Lifetime gift exemption

Paragraph (1) of section 2505(a) of the Internal Revenue Code of 1986 is amended to read as follows:

(1)

the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $5,000,000, reduced by

.

(d)

Conforming amendments

(1)

Section 2505(a) of such Code is amended by striking the last sentence.

(2)

The heading for section 2505 of such Code is amended by striking Unified.

(3)

The item in the table of sections for subchapter A of chapter 12 of such Code relating to section 2505 is amended to read as follows:

Sec. 2505. Credit against gift tax.

.

(e)

Effective date

The amendments made by this section shall apply to gifts made on or after the date of the enactment of this Act.

(f)

Transition rule

(1)

In general

For purposes of applying sections 1015(d), 2502, and 2505 of the Internal Revenue Code of 1986, the calendar year in which this Act is enacted shall be treated as 2 separate calendar years one of which ends on the day before the date of the enactment of this Act and the other of which begins on such date of enactment.

(2)

Application of section 2504(b)

For purposes of applying section 2504(b) of the Internal Revenue Code of 1986, the calendar year in which this Act is enacted shall be treated as one preceding calendar period.

III

Alternative Minimum Tax Relief

301.

Extension for individuals

(a)

Extension of exemption amount

Section 55(d)(1) of the Internal Revenue Code of 1986 is amended by inserting or 2012 after 2011 each place it appears in subparagraphs (A) and (B).

(b)

Extension of alternative minimum tax relief for nonrefundable personal credits

Section 26(a)(2) of such Code is amended—

(1)

by striking during 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, or 2011 and inserting after 1999 and before 2013, and

(2)

by striking 2011 in the heading thereof and inserting 2012.

(c)

Adjustment for Inflation

Section 55(d) of such Code is amended by adding at the end the following new paragraph:

(4)

Adjustment for inflation

(A)

In general

In the case of any taxable year beginning in a calendar year after 2011, the dollar amounts for 2011 in subparagraphs (A) and (B) of paragraph (1) for 2011 shall each 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 the calendar year in which the taxable year begins, by substituting calendar year 2010 for calendar year 1992 in subparagraph (B) thereof.

(B)

Rounding

If any amount in paragraph (1), as increased under subparagraph (A), is not a multiple of $50, such amount shall be rounded to the nearest multiple of $50.

.

(d)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2011.

IV

Capital Gains Inflation Relief

401.

Indexing of certain assets for purposes of determining gain or loss

(a)

In General

Part II of subchapter O of chapter 1 of the Internal Revenue Code of 1986 (relating to basis rules of general application) is amended by redesignating section 1023 as section 1024 and by inserting after section 1022 the following new section:

1023.

Indexing of certain assets for purposes of determining gain or loss

(a)

General rule

(1)

Indexed basis substituted for adjusted basis

Solely for purposes of determining gain or loss on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 3 years, the indexed basis of the asset shall be substituted for its adjusted basis.

(2)

Exception for depreciation, etc

The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person.

(3)

Written documentation requirement

Paragraph (1) shall apply only with respect to indexed assets for which the taxpayer has written documentation of the original purchase price paid or incurred by the taxpayer to acquire such asset.

(b)

Indexed asset

(1)

In general

For purposes of this section, the term indexed asset means—

(A)

common stock in a C corporation (other than a foreign corporation), or

(B)

tangible property,

which is a capital asset or property used in the trade or business (as defined in section 1231(b)).
(2)

Stock in certain foreign corporations included

For purposes of this section—

(A)

In general

The term indexed asset includes common stock in a foreign corporation which is regularly traded on an established securities market.

(B)

Exception

Subparagraph (A) shall not apply to—

(i)

stock of a foreign investment company,

(ii)

stock in a passive foreign investment company (as defined in section 1296),

(iii)

stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and

(iv)

stock in a foreign personal holding company.

(C)

Treatment of american depository receipts

An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation.

(c)

Indexed basis

For purposes of this section—

(1)

General rule

The indexed basis for any asset is—

(A)

the adjusted basis of the asset, increased by

(B)

the applicable inflation adjustment.

(2)

Applicable inflation adjustment

The applicable inflation adjustment for any asset is an amount equal to—

(A)

the adjusted basis of the asset, multiplied by

(B)

the percentage (if any) by which—

(i)

the gross domestic product deflator for the last calendar quarter ending before the asset is disposed of, exceeds

(ii)

the gross domestic product deflator for the last calendar quarter ending before the asset was acquired by the taxpayer.

The percentage under subparagraph (B) shall be rounded to the nearest 1/10 of 1 percentage point.
(3)

Gross domestic product deflator

The gross domestic product deflator for any calendar quarter is the implicit price deflator for the gross domestic product for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter).

(d)

Suspension of holding period where diminished risk of loss; treatment of short sales

(1)

In general

If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk.

(2)

Short sales

(A)

In general

In the case of a short sale of an indexed asset with a short sale period in excess of 3 years, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition.

(B)

Short sale period

For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale.

(e)

Treatment of regulated investment companies and real estate investment trusts

(1)

Adjustments at entity level

(A)

In general

Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity).

(B)

Exception for corporate shareholders

Under regulations—

(i)

in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation—

(I)

the determination of whether such distribution is a dividend shall be made without regard to this section, and

(II)

the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity’s net capital gain for the taxable year (determined without regard to this section) exceeds the entity’s net capital gain for such year determined with regard to this section, and

(ii)

there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities.

For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation.
(C)

Exception for qualification purposes

This section shall not apply for purposes of sections 851(b) and 856(c).

(D)

Exception for certain taxes imposed at entity level

(i)

Tax on failure to distribute entire gain

If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D).

(ii)

Other taxes

This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b).

(2)

Adjustments to interests held in entity

(A)

Regulated investment companies

Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as—

(i)

the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to

(ii)

the average of the fair market values of all assets held by such company at the close of each such month.

(B)

Real estate investment trusts

Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as—

(i)

the fair market value of the indexed assets held by such trust at the close of such quarter, bears to

(ii)

the fair market value of all assets held by such trust at the close of such quarter.

(C)

Ratio of 80 percent or more

If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent.

(D)

Ratio of 20 percent or less

If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero.

(E)

Look-thru of partnerships

For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership.

(3)

Treatment of return of capital distributions

Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired.

(4)

Qualified investment entity

For purposes of this subsection, the term qualified investment entity means—

(A)

a regulated investment company (within the meaning of section 851), and

(B)

a real estate investment trust (within the meaning of section 856).

(f)

Other pass-Thru entities

(1)

Partnerships

(A)

In general

In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners.

(B)

Special rule in the case of section 754 elections

In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect—

(i)

the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and

(ii)

with respect to the transferee partner, the partnership’s holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment.

(2)

S corporations

In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375.

(3)

Common trust funds

In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants.

(4)

Indexing adjustment disregarded in determining loss on sale of interest in entity

Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest.

(g)

Dispositions between related persons

(1)

In general

This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis.

(2)

Related persons defined

For purposes of this section, the term related persons means—

(A)

persons bearing a relationship set forth in section 267(b), and

(B)

persons treated as single employer under subsection (b) or (c) of section 414.

(h)

Transfers To increase indexing adjustment

If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase.

(i)

Special rules

For purposes of this section—

(1)

Treatment of improvements, etc

If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation—

(A)

such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and

(B)

such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof during the taxable year with respect to such property or stock is $1,000 or more.

A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section.
(2)

Assets which are not indexed assets throughout holding period

The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset.

(3)

Treatment of certain distributions

A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition.

(4)

Section cannot increase ordinary loss

To the extent that (but for this paragraph) this section would create or increase a net ordinary loss to which section 1231(a)(2) applies or an ordinary loss to which any other provision of this title applies, such provision shall not apply. The taxpayer shall be treated as having a long-term capital loss in an amount equal to the amount of the ordinary loss to which the preceding sentence applies.

(5)

Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer

If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application.

(j)

Regulations

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.

.

(b)

Clerical amendment

The table of sections for part II of subchapter O of chapter 1 of such Code is amended by striking the item relating to section 1023 and by inserting after the item relating to section 1022 the following new item:

Sec. 1023. Indexing of certain assets for purposes of determining gain or loss.

Sec. 1024. Cross references.

.

(c)

Effective date

The amendments made by this section shall apply to indexed assets acquired by the taxpayer after December 31, 2012, in taxable years ending after such date.