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H.R. 2286: To amend the Internal Revenue Code of 1986 to treat property transferred by gift or at death as sold for fair market value, and for other purposes.


The text of the bill below is as of Mar 29, 2021 (Introduced).


I

117th CONGRESS

1st Session

H. R. 2286

IN THE HOUSE OF REPRESENTATIVES

March 29, 2021

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 treat property transferred by gift or at death as sold for fair market value, and for other purposes.

1.

Deemed realization of capital gains at time of gift or death

(a)

Treatment as sale

(1)

In general

Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

1261.

Gains from certain property transferred by gift or upon death

(a)

In general

Any property which is transferred by gift or at death shall be treated as sold for its fair market value on the date of such gift or death.

(b)

Exceptions

(1)

Spouse or surviving spouse

This section shall not apply to a transfer of property to the transferor’s spouse or surviving spouse if such spouse or surviving spouse is a citizen of the United States.

(2)

Certain tangible personal property

In the case of tangible personal property, this section shall apply only to the following:

(A)

Property held in connection with a trade or business.

(B)

Property held for investment.

(C)

Collectibles (as defined in section 408(m) (determined without regard to paragraph (3) thereof)).

(3)

Charitable contributions

This section shall not apply to any transfer to an organization described in section 170(c).

(c)

Special rules for trusts

(1)

Certain grantor trusts

In the case of any property which—

(A)

is held in a trust of which the grantor or another person is treated as the owner under subpart E of part I of subchapter J of chapter 1, and

(B)

is includible in the gross estate of the grantor or such other person under chapter 11,

such property shall be treated as transferred under subsection (a) when the grantor or such other person ceases to be treated as the owner of such property, or such property ceases to be includible in the gross estate of the grantor or such other person (including by reason of the death of the grantor or such other person, or the distribution of such property to a person other than the grantor or such other person).
(2)

Other trusts

In the case of any property held in trust and not described in paragraph (1), such property shall be treated as transferred under subsection (a) upon the transfer of such property to a trust.

(3)

Transfers from and modifications of trusts

Any modification of the direct or indirect beneficiaries of a trust (or the rights of the beneficiaries to trust assets) or any transfer or distribution of trust assets (including to another trust) shall be treated as a transfer described in subsection (a), unless the Secretary determines that any such transfer or modification is of a type which does not have the potential for tax avoidance.

(4)

Dynasty trusts

(A)

In general

Any property that is continuously held in trust and is not subject to subsection (a) for a period of 30 years shall be treated as transferred pursuant to subsection (a) at the end of such 30 year period.

(B)

Property held in trust on the effective date

Any property held in trust on January 1, 2022, that has been continuously held in trust for more than 30 years as of such date shall be treated as transferred pursuant to subsection (a) on such date.

(C)

Certain grantor trusts and qualifying spousal trusts

For purposes of this paragraph, property shall not be treated as held in trust during any period when such property is held by a trust described in paragraphs (1)(A) and (1)(B), or when such property is held by a qualifying spousal trust.

(5)

Qualifying spousal trust

(A)

In general

Paragraphs (1), (2), (3), and (4) shall not apply in the case of a qualifying spousal trust, and the property of such trust shall be treated as transferred under subsection (a)—

(i)

upon the death of the spousal beneficiary,

(ii)

upon the distribution of such property from such trust to any person other than the spousal beneficiary who is a citizen of the United States, or

(iii)

at such time such property ceases to be held by a qualifying spousal trust.

(B)

Qualifying spousal trust

For purposes of this section, a trust is a qualifying spousal trust if—

(i)

such trust is a qualified domestic trust (as defined in section 2056A),

(ii)

the sole current income beneficiary of such trust is the spouse or surviving spouse of the transferor of property to such trust, and

(iii)

such transferor (during the life of such transferor) or such spouse or surviving spouse has the power to appoint over the entire trust.

(d)

Exclusion of certain gifts

In the case of gifts made to any individual during the taxable year, so much of the dollar amount of such gifts to such individual as does not exceed the amount in effect for the calendar year under section 2503(b) in which the taxable year begins shall not be taken into account under subsection (a) for such taxable year.

(e)

Regulations

The Secretary shall prescribe such regulations as may be necessary to prevent the avoidance of the purposes of this section.

.

(2)

Clerical amendment

The table of sections for part IV of subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 1261. Gains from certain property transferred by gift or upon death.

.

(b)

Coordination of related party loss rules

Section 267 of such Code is amended by adding at the end the following new subsection:

(h)

Property treated as sold at death

Subsection (a)(1) shall not apply to any property that is transferred at death and treated as sold under section 1261.

.

(c)

Treatment of basis for gifts and bequests to which tax applies

(1)

Elimination of carryover basis for gifts

Section 1015(a) of such Code is amended—

(A)

by striking If the property and inserting the following:

(1)

Gifts before January 1, 2022

If the property

;

(B)

by inserting , and before January 1, 2022 after after December 31, 1920; and

(C)

by adding at the end the following new paragraph:

(2)

Gifts after December 31, 2021

If the property was acquired by gift after December 31, 2021, the basis shall be the fair market value of such property at the time of the gift.

.

(2)

Rules for transfers between spouses

(A)

In general

Section 1041(b) of such Code is amended to read as follows:

(b)

Transferee has transferor’s basis

In the case of any transfer of property described in subsection (a), the basis of the transferee in the property shall be the adjusted basis of the transferor.

.

(B)

Transfers at death

Section 1041(a) of such Code is amended by inserting (including at death) after transfer of property.

(C)

Conforming amendments

(i)

Section 1014 of such Code is amended by adding at the end the following new subsection:

(g)

Property acquired from decedent spouse

In the case of property which passes from the decedent to (or in trust for the benefit of) the decedent’s surviving spouse in a transfer described in section 1041(a)(1), the basis of such property in the hands of the transferee shall be determined under section 1041(b) and not this section.

, and

(ii)

Section 1015(e) of such Code is amended by striking 1041(b)(2) and inserting 1041(b).

(3)

Basis must be consistent with gains recognized in deemed realization

(A)

Property acquired from decedent

Section 1014 of such Code, as amended by the preceding provisions of this Act, is amended by adding at the end the following new subsection:

(h)

Basis must be consistent with gains recognized in deemed realization

The basis of any property to which subsection (a) applies shall not exceed the amount for which the property was treated as sold under section 1261.

.

(B)

Property acquired by gift

Section 1015 of such Code is amended by adding at the end the following new subsection:

(f)

Basis must be consistent with gains recognized in deemed realization

The basis of any property to which subsection (a)(2) applies shall not exceed the amount for which the property was treated as sold under section 1261.

.

(d)

Conforming amendments

(1)

Section 7477(a) of such Code is amended by striking chapter 12 and inserting chapter 1 or 12.

(2)

Section 7517(a) of such Code is amended by striking chapter 11 and inserting chapter 1, 11.

(e)

Effective date

The amendments made by this section shall apply to transfers by gift (including transfers treated as gifts by reason of the amendments made by this section), or at death by decedents dying, after December 31, 2021.

2.

Exclusion of certain amounts of realized capital gain

(a)

In general

Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting before section 140 the following new section:

139I.

Exclusion of gain from transfers of appreciated assets at death

(a)

In general

Gross income shall not include so much of the net capital gain for the taxable year from transfers at death to which 1261(a) applies as does not exceed $1,000,000.

(b)

Inflation adjustment

(1)

In general

In the case of any taxable year beginning after 2022, the $1,000,000 amount in subsection (a) 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 in subparagraph (A)(ii) thereof calendar year 2021 for calendar year 2016.

(2)

Rounding

If the dollar amount in subsection (a), after being increased under paragraph (1), is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000.

.

(b)

Clerical amendment

The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after section 139H the following new item:

Sec. 139I. Exclusion of gain from transfers of appreciated assets at death.

.

(c)

Effective date

The amendments made by this section shall apply to transfers at death by decedents dying after December 31, 2021, in taxable years beginning after such date.

3.

Information reporting of certain gifts

(a)

In general

Subpart B of part III of subchapter A of chapter 61 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

6050Z.

Returns relating to certain gifts and bequests

(a)

In general

In the case of an applicable transfer, the individual making such gift, or the executor in the case of a transfer at death, shall furnish to the Secretary the following information:

(1)

The name and taxpayer identification number of the person to whom such transfer was made.

(2)

A description of the property transferred.

(3)

The fair market value of the property transferred and the basis of such property to the transferee.

(b)

Applicable transfer

(1)

In general

For purposes of this section, the term applicable transfer means—

(A)

any gift (other than a covered security (as defined in section 6045(g)(3))) which is taken into account under section 1261, and

(B)

so much of any transfer at death (other than such a covered security) which is so taken into account under section 1261 and the gain from which is includible in gross income for the taxable year of such transfer.

(2)

De minimis

(A)

Gifts

For gifts not exceeding the limitation for such year under section 2503(b) and not taken into account under section 1261, see subsection (d) thereof.

(B)

Transfers at death

For amount of gain excluded from gross income in case of a transfer at death, see section 139I(a).

(c)

Statements To be furnished to persons with respect to whom information is required

Every person required to make a return under subsection (a) shall furnish to each person whose name is required to set forth in such return a written statement showing the information described in subsection (a).

(d)

Timing

The returns and statements required under this section shall be furnished at such time and in such form and manner as the Secretary shall by regulation prescribe.

.

(b)

Clerical amendment

The table of sections for subpart B of part III of subchapter A of chapter 61 of such Code is amended by adding at the end the following new item:

Sec. 6050Z. Returns relating to certain gifts.

.

(c)

Effective date

The amendments made by this section shall apply to transfers after December 31, 2021, in taxable years beginning after such date.

4.

Extension of time for payment of tax

(a)

Extension of time

(1)

In general

Subchapter B of chapter 62 of the Internal Revenue Code of 1986 is amended by adding at the end the following new section:

6168.

Extension of time for payment of capital gains on certain assets realized by reason of death

(a)

7-Year installment payment

(1)

In general

In the case of any gain with respect to eligible property that is recognized under section 1261 by reason of the death of the taxpayer, the taxpayer may elect to pay part or all of tax imposed on such gain in 2 or more (but not exceeding 7) equal installments.

(2)

Date for payment of installments

If an election is made under paragraph (1), the first installment shall be paid not later than the date on which the tax for the taxable year in which the gain described in paragraph (1) occurs is due, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.

(b)

Eligible capital asset

For purposes of this section, the term eligible property means any property other than personal property of a type which is actively traded (within the meaning of section 1092(d)(1)).

(c)

Portion of tax eligible

The amount of tax to which this section applies shall not exceed the excess of—

(1)

the tax computed under chapter 1 (determined after application of section 1261), over

(2)

the tax computed under chapter 1 (determined without regard to section 1261).

(d)

Election

Any election under subsection (a) shall be made not later than the time prescribed by section 6072 for filing the return of tax imposed under chapter 1 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax.

(e)

Proration of deficiency to installments

If an election is made under subsection (a) to pay any part of the tax imposed under chapter 1 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.

(f)

Time for payment of interest

If the time for payment of any amount of tax has been extended under this section, interest payable under section 6601 on any unpaid portion shall be paid annually at the same time as, and as part of, each installment payment of the tax.

(g)

Regulations

The Secretary shall prescribe such regulations as may be necessary to the application of this section.

(h)

Cross-References

(1)

Security

For authority of the Secretary to require security in the case of an extension under this section, see section 6165.

(2)

Interest

For provisions relating to interest on tax payable in installments under this section, see subsection (k) of section 6601.

.

(2)

Coordination with transferee liability

Section 6109 of such Code is amended by redesignating subsections (g), (h), and (i) as subsections (h), (i), and (j), respectively, and by inserting after subsection (f) the following new subsection:

(g)

Period of assessment in case of extension of time for payment of tax under section 1261

For purposes of subsection (c), the period of limitation for assessment against the transferor of any tax imposed under section 1261 the payment of which is extended under section 6168 shall not be treated as expiring earlier than the due date for the last payment under (a)(2) of such section.

.

(3)

Clerical amendment

The table of sections for subpart B of chapter 62 of such Code is amended by adding at the end the following new item:

Sec. 6168. Extension of time for payment of capital gains on certain assets realized by reason of death.

.

(b)

Interest

Section 6601 of such Code is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:

(k)

Special rate for tax extended under section 6168

If the time for payment of an amount of tax imposed by section 1261 is extended as provided in section 6168, in lieu of the annual rate provided by subsection (a), interest shall be paid at a rate equal to 45 percent of the annual rate provided by subsection (a). For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6168 shall be treated as an amount of tax payable in installments under such section.

.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2021.