AMENDMENTS RELATED TO TITLE V OF 1997 ACT.

SEC. 6007. AMENDMENTS RELATED TO TITLE V OF 1997 ACT. (a) Amendments Related to Section 501 of 1997 Act.— 112 STAT. 807 (1) Subsection (c) of section 2631 of the 1986 Code is amended to read as follows: “(c) Inflation Adjustment.— “(1) In general.— In the case of any calendar year after 1998, the $1,000,000 amount contained in subsection (a) shall be increased by an amount equal to— “(A) $1,000,000, multiplied by “(B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting ‘calendar year 1997’ 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 next lowest multiple of $10,000. “(2) Allocation of increase.— Any increase under paragraph (1) for any calendar year shall apply only to generation skipping transfers made during or after such calendar year; except that no such increase for calendar years after the calendar year in which the transferor dies shall apply to transfers by such transferor.”. (2) Subsection (f) of section 501 of the 1997 Act is amended by inserting “(other than the amendment made by subsection (d))” after ”this section”. (b) Amendments Related to Section 502 of 1997 Act.— (1) (A) Section 2033A of the 1986 Code is hereby moved to the end of part IV of subchapter A of chapter 11 of the 1986 Code and redesignated as section 2057. (B) So much of such section 2057 (as so redesignated) as precedes subsection (b) thereof is amended to read as follows: “SEC. 2057. FAMILY-OWNED BUSINESS INTERESTS. “(a) General Rule.— “(1) Allowance of deduction.— For purposes of the tax imposed by section 2001, in the case of an estate of a decedent to which this section applies, the value of the taxable estate shall be determined by deducting from the value of the gross estate the adjusted value of the qualified family owned business interests of the decedent which are described in subsection (b)(2). “(2) Maximum deduction.— The deduction allowed by this section shall not exceed $675,000. “(3) Coordination with unified credit.— “(A) In general.— Except as provided in subparagraph (B), if this section applies to an estate, the applicable exclusion amount under section 2010 shall be $625,000. “(B) Increase in unified credit if deduction is less than $675,000.— If the deduction allowed by this section is less than $675,000, the amount of the applicable exclusion amount under section 2010 shall be increased (but not above the amount which would apply to the estate without regard to this section) by the excess of $675,000 over the amount of the deduction allowed.”. (C) Subparagraph (A) of section 2057(b)(2) of the 1986 Code (as so redesignated) is amended by striking “(without regard to this section)”.112 STAT. 808 (D) Subsection (c) of section 2057 of the 1986 Code (as so redesignated) is amended by striking “(determined without regard to this section)”. (E) The table of sections for part III of subchapter A of chapter 11 of the 1986 Code is amended by striking the item relating to section 2033A. (F) The table of sections for part IV of such subchapter is amended by adding at the end the following new item: “Sec. 2057. Family owned business interests.”. (2) Section 2057(b)(3) of the 1986 Code (as so redesignated) is amended to read as follows: “(3) Includible gifts of interests.— The amount of the gifts of qualified family-owned business interests determined under this paragraph is the sum of— “(A) the amount of such gifts from the decedent to members of the decedent’s family taken into account under section 2001(b)(1)(B), plus “(B) the amount of such gifts otherwise excluded under section 2503(b), to the extent such interests are continuously held by members of such family (other than the decedent’s spouse) between the date of the gift and the date of the decedent’s death.”. (3) (A) Section 2057(e)(2)(C) of the 1986 Code (as so redesignated) is amended by striking “(as defined in section 543(a))” and inserting “(as defined in section 543(a) without regard to paragraph (2)(B) thereof) if such trade or business were a corporation”. (B) Clause (ii) of section 2057(e)(2)(D) of the 1986 Code (as so redesignated) is amended by striking “income of which is described in section 543(a) or” and inserting “personal holding company income (as defined in subparagraph (C)) or income described”. (C) Paragraph (2) of section 2057(e) of the 1986 Code (as so redesignated) is amended by adding at the end the following new flush sentence: “In the case of a lease of property on a net cash basis by the decedent to a member of the decedent’s family, income from such lease shall not be treated as personal holding company income for purposes of subparagraph (C), and such property shall not be treated as an asset described in subparagraph (D)(ii), if such income and property would not be so treated if the lessor had engaged directly in the activities engaged in by the lessee with respect to such property.”. (4) Paragraph (2) of section 2057(f) of the 1986 Code (as so redesignated) is amended— (A) by striking “(as determined under rules similar to the rules of section 2032A(c)(2)(B))”; and (B) by adding at the end the following new subparagraph: “(C) Adjusted tax difference.— For purposes of subparagraph (A)— “(i) In general.— The adjusted tax difference attributable to a qualified family-owned business interest is the amount which bears the same ratio to the adjusted tax difference with respect to the estate (determined under clause (ii)) as the value of such 112 STAT. 809interest bears to the value of all qualified family-owned business interests described in subsection (b)(2). “(i) Adjusted tax difference with respect to the estate.— For purposes of clause (i), the term ‘adjusted tax difference with respect to the estate’ means the excess of what would have been the estate tax liability but for the election under this section over the estate tax liability. For purposes of this clause, the term ‘estate tax liability’ means the tax imposed by section 2001 reduced by the credits allowable against such tax.”. (5) (A) Paragraph (1) of section 2057(e) of the 1986 Code (as so redesignated) is amended by adding at the end the following new flush sentence: “For purposes of the preceding sentence, a decedent shall be treated as engaged in a trade or business if any member of the decedent’s family is engaged in such trade or business.”. (B) Subsection (f) of section 2057 of the 1986 Code (as so redesignated) is amended by adding at the end the following new paragraph: “(3) Use in trade or business by family members.— A qualified heir shall not be treated as disposing of an interest described in subsection (e)(1)(A) by reason of ceasing to be engaged in a trade or business so long as the property to which such interest relates is used in a trade or business by any member of such individual’s family.”. (6) Paragraph (1) of section 2057(g) of the 1986 Code (as so redesignated) is amended by striking “or (M)”. (7) Paragraph (3) of section 2057(i) of the 1986 Code (as so redesignated) is amended by redesignating subparagraphs (L), (M), and (N) as subparagraphs (N), (O), and (P), respectively, and by inserting after subparagraph (K) the following new subparagraphs: “(L) Section 2032A(g) (relating to application to interests in partnerships, corporations, and trusts). “(M) Subsections (n) and (i) of section 2032A.”. (c) Amendments Related to Section 503 of the 1997 Act.— (1) Clause (iii) of section 6166(b)(7)(A) of the 1986 Code is amended to read as follows: “(iii) for purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.”. (2) Clause (iii) of section 6166(b)(8)(A) of the 1986 Code is amended to read as follows: “(iii) 2-percent interest rate not to apply.— For purposes of applying section 660l(j), the 2-percent portion (as defined in such section) shall be treated as being zero.”. (d) Amendment Related to Section 505 of the 1997 Act.— Paragraphs (1) and (2) of section 7479(a) of the 1986 Code are each amended by striking “an estate,” and inserting “an estate (or with respect to any property included therein),”. (e) Amendments Related to Section 506 of the 1997 Act.— (1) Paragraph (1) of section 506(e) of the 1997 Act is amended by striking “and (c)” and inserting “, (c), and (d)”. (2) (A) Paragraph (9) of section 6501(c) of the 1986 Code is amended by striking the last sentence.112 STAT. 810 (B) Subsection (f) of section 2001 of the 1986 Code is amended to read as follows: “(f) Valuation of Gifts.— “(1) In general.— If the time has expired under section 6501 within which a tax may be assessed under chapter 12 (or under corresponding provisions of prior laws) on— “(A) the transfer of property by gift made during a preceding calendar period (as defined in section 2502(b)); or “(B) an increase in taxable gifts required under section 2701(d), the value thereof shall, for purposes of computing the tax under this chapter, be the value as finally determined for purposes of chapter 12. “(2) Final determination.— For purposes of paragraph (1), a value shall be treated as finally determined for purposes of chapter 12 if— “(A) the value is shown on a return under such chapter and such value is not contested by the Secretary before the expiration of the time referred to in paragraph (1) with respect to such return; “(B) in a case not described in subparagraph (A), the value is specified by the Secretary and such value is not timely contested by the taxpayer; or “(C) the value is determined by a court or pursuant to a settlement agreement with the Secretary.”. (B) Subsection (c) of section 2504 of the 1986 Code is amended to read as follows: “(c) Valuation of Gifts.— If the time has expired under section 6501 within which a tax may be assessed under this chapter 12 (or under corresponding provisions of prior laws) on— “(1) the transfer of property by gift made during a preceding calendar period (as defined in section 2502(b)); or “(2) an increase in taxable gifts required under section 2701(d), the value thereof shall, for purposes of computing the tax under this chapter, be the value as finally determined (within the meaning of section 2001(f)(2)) for purposes of this chapter 12.”. (f) Amendments Related to Section 507 of 1997 Act.— (1) Paragraph (3) of section 1(g) of the 1986 Code is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C). (2) Section 641 of the 1986 Code is amended by striking subsection (c) and by redesignating subsection (d) as subsection (c). (3) Paragraph (4) of section 1361(e) of the 1986 Code is amended by striking “section 641(d)” and inserting “section 641(c)”. (4) Subparagraph (A) of section 6103(e)(1) of the 1986 Code is amended by striking clause (ii) and by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively. (g) Amendments Related to Section 508 of 1997 Act.— (1) Subsection (c) of section 2031 of the 1986 Code is amended by redesignating paragraph (9) as paragraph (10) and by inserting after paragraph (8) the following new paragraph:112 STAT. 811 “(9) Treatment of easements granted after death.— In any case in which the qualified conservation easement is granted after the date of the decedent’s death and on or before the due date (including extensions) for filing the return of tax imposed by section 2001, the deduction under section 2055(f) with respect to such easement shall be allowed to the estate but only if no charitable deduction is allowed under chapter 1 to any person with respect to the grant of such easement.”. (2) The first sentence of paragraph (6) of section 2031(c) of the 1986 Code is amended by striking all that follows “shall be made” and inserting “on or before the due date (including extensions) for filing the return of tax imposed by section 2001 and shall be made on such return.”.