TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.

SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009. (a) General Rule.—Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section: “SEC. 1022. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009. “(a) In General.—Except as otherwise provided in this section— “(1) property acquired from a decedent dying after December 31, 2009, shall be treated for purposes of this subtitle as transferred by gift, and “(2) the basis of the person acquiring property from such a decedent shall be the lesser of— “(A) the adjusted basis of the decedent, or “(B) the fair market value of the property at the date of the decedent’s death. “(b) Basis Increase for Certain Property.— “(1) In general.—In the case of property to which this subsection applies, the basis of such property under subsection (a) shall be increased by its basis increase under this subsection. “(2) Basis increase.—For purposes of this subsection— “(A) In general.—The basis increase under this subsection for any property is the portion of the aggregate basis increase which is allocated to the property pursuant to this section. “(B) Aggregate basis increase.—In the case of any estate, the aggregate basis increase under this subsection is $1,300,000. “(C) Limit increased by unused built-in losses and loss carryovers.—The limitation under subparagraph (B) shall be increased by— “(i) the sum of the amount of any capital loss carryover under section 1212(b), and the amount of any net operating loss carryover under section 172, which would (but for the decedent’s death) be carried from the decedent’s last taxable year to a later taxable year of the decedent, plus “(ii) the sum of the amount of any losses that would have been allowable under section 165 if the property acquired from the decedent had been sold at fair market value immediately before the decedent’s death.115 STAT. 77 “(3) Decedent nonresidents who are not citizens of the united states.—In the case of a decedent nonresident not a citizen of the United States— “(A) paragraph (2)(B) shall be applied by substituting ‘$60,000’ for ‘$1,300,000’, and “(B) paragraph (2)(C) shall not apply. “(c) Additional Basis Increase for Property Acquired by Surviving Spouse.— “(1) In general.—In the case of property to which this subsection applies and which is qualified spousal property, the basis of such property under subsection (a) (as increased under subsection (b)) shall be increased by its spousal property basis increase. “(2) Spousal property basis increase.—For purposes of this subsection— “(A) In general.—The spousal property basis increase for property referred to in paragraph (1) is the portion of the aggregate spousal property basis increase which is allocated to the property pursuant to this section. “(B) Aggregate spousal property basis increase.—In the case of any estate, the aggregate spousal property basis increase is $3,000,000. “(3) Qualified spousal property.—For purposes of this subsection, the term ‘qualified spousal property’ means— “(A) outright transfer property, and “(B) qualified terminable interest property. “(4) Outright transfer property.—For purposes of this subsection— “(A) In general.—The term ‘outright transfer property’ means any interest in property acquired from the decedent by the decedent’s surviving spouse. “(B) Exception.—Subparagraph (A) shall not apply where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail— “(i)(I) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money’s worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse), and “(II) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse, or “(ii) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust. For purposes of this subparagraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term. “(C) Interest of spouse conditional on survival for limited period.—For purposes of this paragraph, an 115 STAT. 78interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if— “(i) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent’s death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event, and “(ii) such termination or failure does not in fact occur. “(5) Qualified terminable interest property.—For purposes of this subsection— “(A) In general.—The term ‘qualified terminable interest property’ means property— “(i) which passes from the decedent, and “(ii) in which the surviving spouse has a qualifying income interest for life. “(B) Qualifying income interest for life.—The surviving spouse has a qualifying income interest for life if— “(i) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and “(ii) no person has a power to appoint any part of the property to any person other than the surviving spouse. Clause (ii) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified). “(C) Property includes interest therein.—The term ‘property’ includes an interest in property. “(D) Specific portion treated as separate property.—A specific portion of property shall be treated as separate property. For purposes of the preceding sentence, the term ‘specific portion’ only includes a portion determined on a fractional or percentage basis. “(d) Definitions and Special Rules for Application of Subsections (b) and (C).— “(1) Property to which subsections (b) and (c) apply.— “(A) In general.—The basis of property acquired from a decedent may be increased under subsection (b) or (c) only if the property was owned by the decedent at the time of death. “(B) Rules relating to ownership.— “(i) Jointly held property.—In the case of property which was owned by the decedent and another person as joint tenants with right of survivorship or tenants by the entirety— “(I) if the only such other person is the surviving spouse, the decedent shall be treated as the owner of only 50 percent of the property,115 STAT. 79 “(II) in any case (to which subclause (I) does not apply) in which the decedent furnished consideration for the acquisition of the property, the decedent shall be treated as the owner to the extent of the portion of the property which is proportionate to such consideration, and “(III) in any case (to which subclause (I) does not apply) in which the property has been acquired by gift, bequest, devise, or inheritance by the decedent and any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, the decedent shall be treated as the owner to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants with right of survivorship. “(ii) Revocable trusts.—The decedent shall be treated as owning property transferred by the decedent during life to a qualified revocable trust (as defined in section 645(b)(1)). “(iii) Powers of appointment.—The decedent shall not be treated as owning any property by reason of holding a power of appointment with respect to such property. “(iv) Community property.—Property which represents the surviving spouse’s one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State or possession of the United States or any foreign country shall be treated for purposes of this section as owned by, and acquired from, the decedent if at least one-half of the whole of the community interest in such property is treated as owned by, and acquired from, the decedent without regard to this clause. “(C) Property acquired by decedent by gift within 3 years of death.— “(i) In general.—Subsections (b) and (c) shall not apply to property acquired by the decedent by gift or by inter vivos transfer for less than adequate and full consideration in money or money’s worth during the 3-year period ending on the date of the decedent’s death. “(ii) Exception for certain gifts from spouse.—Clause (i) shall not apply to property acquired by the decedent from the decedent’s spouse unless, during such 3-year period, such spouse acquired the property in whole or in part by gift or by inter vivos transfer for less than adequate and full consideration in money or money’s worth. “(D) Stock of certain entities.—Subsections (b) and (c) shall not apply to— “(i) stock or securities of a foreign personal holding company, “(ii) stock of a DISC or former DISC, “(iii) stock of a foreign investment company, or 115 STAT. 80 “(iv) stock of a passive foreign investment company unless such company is a qualified electing fund (as defined in section 1295) with respect to the decedent. “(2) Fair market value limitation.—The adjustments under subsections (b) and (c) shall not increase the basis of any interest in property acquired from the decedent above its fair market value in the hands of the decedent as of the date of the decedent’s death. “(3) Allocation rules.— “(A) In general.—The executor shall allocate the adjustments under subsections (b) and (c) on the return required by section 6018. “(B) Changes in allocation.—Any allocation made pursuant to subparagraph (A) may be changed only as provided by the Secretary. “(4) Inflation adjustment of basis adjustment amounts.— “(A) In general.—In the case of decedents dying in a calendar year after 2010, the $1,300,000, $60,000, and $3,000,000 dollar amounts in subsections (b) and (c)(2)(B) shall each be increased by an amount equal to the product of— “(i) such dollar amount, and “(ii) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year, determined by substituting ‘2009’ for ‘1992’ in subparagraph (B) thereof. “(B) Rounding.—If any increase determined under subparagraph (A) is not a multiple of— “(i) $100,000 in the case of the $1,300,000 amount, “(ii) $5,000 in the case of the $60,000 amount, and “(iii) $250,000 in the case of the $3,000,000 amount, such increase shall be rounded to the next lowest multiple thereof. “(e) Property Acquired From the Decedent.—For purposes of this section, the following property shall be considered to have been acquired from the decedent: “(1) Property acquired by bequest, devise, or inheritance, or by the decedent’s estate from the decedent. “(2) Property transferred by the decedent during his lifetime— “(A) to a qualified revocable trust (as defined in section 645(b)(1)), or “(B) to any other trust with respect to which the decedent reserved the right to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust. “(3) Any other property passing from the decedent by reason of death to the extent that such property passed without consideration. “(f) Coordination With Section 691.—This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691. “(g) Certain Liabilities Disregarded.—115 STAT. 81 “(1) In general.—In determining whether gain is recognized on the acquisition of property— “(A) from a decedent by a decedent’s estate or any beneficiary other than a tax-exempt beneficiary, and “(B) from the decedent’s estate by any beneficiary other than a tax-exempt beneficiary, and in determining the adjusted basis of such property, liabilities in excess of basis shall be disregarded. “(2) Tax-exempt beneficiary.—For purposes of paragraph (1), the term ‘tax-exempt beneficiary’ means— “(A) the United States, any State or political subdivision thereof, any possession of the United States, any Indian tribal government (within the meaning of section 7871), or any agency or instrumentality of any of the foregoing, “(B) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by chapter 1, “(C) any foreign person or entity (within the meaning of section 168(h)(2)), and “(D) to the extent provided in regulations, any person to whom property is transferred for the principal purpose of tax avoidance. “(h) Regulations.—The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.”. (b) Information Returns, Etc.— (1) Large transfers at death.—So much of subpart C of part II of subchapter A of chapter 61 as precedes section 6019 is amended to read as follows: “Subpart C—Returns Relating to Transfers During Life or at Death “Sec. 6018. Returns relating to large transfers at death. “Sec. 6019. Gift tax returns. “SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH. “(a) In General.—If this section applies to property acquired from a decedent, the executor of the estate of such decedent shall make a return containing the information specified in subsection (c) with respect to such property. “(b) Property to Which Section Applies.— “(1) Large transfers.—This section shall apply to all property (other than cash) acquired from a decedent if the fair market value of such property acquired from the decedent exceeds the dollar amount applicable under section 1022(b)(2)(B) (without regard to section 1022(b)(2)(C)). “(2) Transfers of certain gifts received by decedent within 3 years of death.—This section shall apply to any appreciated property acquired from the decedent if— “(A) subsections (b) and (c) of section 1022 do not apply to such property by reason of section 1022(d)(1)(C), and “(B) such property was required to be included on a return required to be filed under section 6019. “(3) Nonresidents not citizens of the united states.—In the case of a decedent who is a nonresident not a citizen of the United States, paragraphs (1) and (2) shall be applied—115 STAT. 82 “(A) by taking into account only— “(i) tangible property situated in the United States, and “(ii) other property acquired from the decedent by a United States person, and “(B) by substituting the dollar amount applicable under section 1022(b)(3) for the dollar amount referred to in paragraph (1). “(4) Returns by trustees or beneficiaries.—If the executor is unable to make a complete return as to any property acquired from or passing from the decedent, the executor shall include in the return a description of such property and the name of every person holding a legal or beneficial interest therein. Upon notice from the Secretary, such person shall in like manner make a return as to such property. “(c) Information Required to be Furnished.—The information specified in this subsection with respect to any property acquired from the decedent is— “(1) the name and TIN of the recipient of such property, “(2) an accurate description of such property, “(3) the adjusted basis of such property in the hands of the decedent and its fair market value at the time of death, “(4) the decedent’s holding period for such property, “(5) sufficient information to determine whether any gain on the sale of the property would be treated as ordinary income, “(6) the amount of basis increase allocated to the property under subsection (b) or (c) of section 1022, and “(7) such other information as the Secretary may by regulations prescribe. “(d) Property Acquired From Decedent.—For purposes of this section, section 1022 shall apply for purposes of determining the property acquired from a decedent. “(e) Statements to be Furnished to Certain Persons.—Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing— “(1) the name, address, and phone number of the person required to make such return, and “(2) the information specified in subsection (c) with respect to property acquired from, or passing from, the decedent to the person required to receive such statement. The written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.”. (2) Gifts.—Section 6019 (relating to gift tax returns) is amended— (A) by striking “Any individual” and inserting “(a) IN GENERAL.—Any individual”, and (B) by adding at the end the following new subsection: “(b) Statements to be Furnished to Certain Persons.—Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing— “(1) the name, address, and phone number of the person required to make such return, and115 STAT. 83 “(2) the information specified in such return with respect to property received by the person required to receive such statement. The written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.”. (3) Time for filing section 6018 returns.— (A) Returns relating to large transfers at death.—Subsection (a) of section 6075 is amended to read as follows: “(a) Returns Relating to Large Transfers at Death.—The return required by section 6018 with respect to a decedent shall be filed with the return of the tax imposed by chapter 1 for the decedent’s last taxable year or such later date specified in regulations prescribed by the Secretary.”. (B) Conforming amendments.—Paragraph (3) of section 6075(b) is amended— (i) by striking “estate tax return” in the heading and inserting “section 6018 return”, and (ii) by striking “(relating to estate tax returns)” and inserting “(relating to returns relating to large transfers at death)”. (4) Penalties.—Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end the following new section: “SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN TRANSFERS AT DEATH AND GIFTS. “(a) Information Required to be Furnished to the Secretary.—Any person required to furnish any information under section 6018 who fails to furnish such information on the date prescribed therefor (determined with regard to any extension of time for filing) shall pay a penalty of $10,000 ($500 in the case of information required to be furnished under section 6018(b)(2)) for each such failure. “(b) Information Required to be Furnished to Beneficiaries.—Any person required to furnish in writing to each person described in section 6018(e) or 6019(b) the information required under such section who fails to furnish such information shall pay a penalty of $50 for each such failure. “(c) Reasonable Cause Exception.—No penalty shall be imposed under subsection (a) or (b) with respect to any failure if it is shown that such failure is due to reasonable cause. “(d) Intentional Disregard.—If any failure under subsection (a) or (b) is due to intentional disregard of the requirements under sections 6018 and 6019(b), the penalty under such subsection shall be 5 percent of the fair market value (as of the date of death or, in the case of section 6019(b), the date of the gift) of the property with respect to which the information is required. “(e) Deficiency Procedures Not to Apply.—Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by this section.”. (5) Clerical amendments.—115 STAT. 84 (A) The table of sections for part I of subchapter B of chapter 68 is amended by adding at the end the following new item: “Sec. 6716. Failure to file information with respect to certain transfers at death and gifts.”. (B) The item relating to subpart C in the table of subparts for part II of subchapter A of chapter 61 is amended to read as follows: “Subpart C. Returns relating to transfers during life or at death.”. (c) Exclusion of Gain on Sale of Principal Residence Made Available to Heir of Decedent in Certain Cases.—Subsection (d) of section 121 (relating to exclusion of gain from sale of principal residence) is amended by adding at the end the following new paragraph: “(9) Property acquired from a decedent.—The exclusion under this section shall apply to property sold by— “(A) the estate of a decedent, “(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and “(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1)) established by the decedent, determined by taking into account the ownership and use by the decedent.”. (d) Transfers of Appreciated Carryover Basis Property to Satisfy Pecuniary Bequest.— (1) In general.—Section 1040 (relating to transfer of certain farm, etc., real property) is amended to read as follows: “SEC. 1040. USE OF APPRECIATED CARRYOVER BASTS PROPERTY TO SATISFY PECUNIARY BEQUEST. “(a) In General.—If the executor of the estate of any decedent satisfies the right of any person to receive a pecuniary bequest with appreciated property, then gain on such exchange shall be recognized to the estate only to the extent that, on the date of such exchange, the fair market value of such property exceeds such value on the date of death. “(b) Similar Rule for Certain Trusts.—To the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where— “(1) by reason of the death of the decedent, a person has a right to receive from a trust a specific dollar amount which is the equivalent of a pecuniary bequest, and “(2) the trustee of a trust satisfies such right with property. “(c) Basis of Property Acquired in Exchange Described in Subsection (a) or (b).—The basis of property acquired in an exchange with respect to which gain realized is not recognized by reason of subsection (a) or (b) shall be the basis of such property immediately before the exchange increased by the amount of the gain recognized to the estate or trust on the exchange.”. (2) The item relating to section 1040 in the table of sections for part HI of subchapter O of chapter 1 is amended to read as follows: “Sec. 1040. Use of appreciated carryover basis property to satisfy pecuniary bequest.”. (e) Amendments Related to Carryover Basis.—115 STAT. 85 (1) Recognition of gain on transfers to nonresidents.— (A) Subsection (a) of section 684 is amended by inserting “or to a nonresident alien” after “or trust”. (B) Subsection (b) of section 684 is amended to read as follows: “(b) Exceptions.— “(1) Transfers to certain trusts.—Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any United States person is treated as the owner of such trust under section 671. “(2) Lifetime transfers to nonresident aliens.—Subsection (a) shall not apply to a lifetime transfer to a nonresident alien.”. (C) The section heading for section 684 is amended by inserting “and nonresident aliens” after “estates”. (D) The item relating to section 684 in the table of sections for subpart F of part I of subchapter J of chapter 1 is amended by inserting “and nonresident aliens” after “estates”. (2) Capital gain treatment for inherited art work or similar property.— (A) In general.—Subparagraph (C) of section 1221(a)(3) (defining capital asset) is amended by inserting “(other than by reason of section 1022)” after “is determined”. (B) Coordination with section 170.—Paragraph (1) of section 170(e) (relating to certain contributions of ordinary income and capital gain property) is amended by adding at the end the following; “For purposes of this paragraph, the determination of whether property is a capital asset shall be made without regard to the exception contained in section 1221(a)(3)(C) for basis determined under section 1022.”. (3) Definition of executor.—Section 7701(a) (relating to definitions) is amended by adding at the end the following: “(47) Executor.—The term ‘executor’ means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.”. (4) Certain trusts.—Subparagraph (A) of section 4947(a)(2) is amended by inserting “642(c),” after “170(f)(2)(B)”. (5) Other amendments.— (A) Section 1246 is amended by striking subsection (e). (B) Subsection (e) of section 1291 is amended— (i) by striking “(e),”; and (ii) by striking “; except that” and all that follows and inserting a period. (C) Section 1296 is amended by striking subsection (i).115 STAT. 86 (6) Clerical amendment.—The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item: “Sec. 1022. Treatment of property acquired from a decedent dying after December 31, 2009.”. (f) Effective Date.— (1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to estates of decedents dying after December 31, 2009. (2) Transfers to nonresidents.—The amendments made by subsection (e)(1) shall apply to transfers after December 31, 2009. (3) Section 4947.—The amendment made by subsection (e)(4) shall apply to deductions for taxable years beginning after December 31, 2009.