Now You See It, Now You Don't: The 2001 Estate Tax Legislation
On June 7, 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "Act") into law.(1) The Act makes many significant changes to the tax law, perhaps most importantly in the estate tax area. Effective January 1, 2010, the Act repeals the estate and generation-skipping transfer taxes (but not the gift tax).(2) Then, in an example of political maneuvering unprecedented in the tax area, the Act "sunsets" on December 31, 2010 -- the entire Act is repealed as of the close of that date .(3) The Act sunsets because, without a sunset provision, a Senate parliamentary rule effectively would have required sixty votes to pass the legislation. This parliamentary rule (informally called the "Byrd rule") applies whenever tax legislation has a negative revenue effect beyond the ten-year budget projection period and, without the sunset provision, the Act would have had such a negative revenue effect. Thus, only by providing for a sunset could the legislation pass the Senate. This article highlights the major changes to the transfer tax regime effected by the Act.(4)
Rate Reductions
The Act repeals the estate and generation skipping transfer ("GST") taxes for decedents dying (and transfers made) after December 31, 2009.(5) Beginning in 2002, the top estate tax rates are reduced. Also beginning in 2002 the Act repeals the 5% surtax, which effectively phases out the benefit of the graduated rates for estates over $10 million.(6) Prior to total repeal, the estate tax rates are lowered incrementally, with the maximum rates as follows:
|
2002 |
50% |
|
2003 |
49% |
|
2004 |
48% |
|
2005 |
47% |
|
2006 |
46% |
|
2007-9 |
45%(7) |
Applicable Exclusion Amount
The Act makes major changes to the "applicable exclusion amount" (formerly known as the "unified credit" or "applicable credit amount") prior to the repeal of the estate tax in 2010. Currently, taxpayers can transfer $675,000 free of gift or estate tax.(8) This amount, pursuant to legislation enacted prior to the Act, was due to increase gradually over time, reaching $1 million in 2006 and thereafter.(9) The Act accelerates the increase of the exemption to $1 million into 2002.(10) Then, for purposes of the estate and GST taxes (but not the gift tax, which retains a $1 million maximum exclusion amount), the applicable exclusion amount is increased as follows:
|
2004-5 |
$1.5 million |
|
2006-8 |
$2.0 million |
|
2009 |
$3.5 million(11) |
Upon the sunset of the repeal of the estate tax, the exclusion amount would revert to $1 million (for decedents dying after December 31, 2010).(12)
The changes in the applicable exclusion amount and the repeal of the estate tax will affect a large number of wills that have been drafted using standard formula clauses for credit shelter and marital bequests. These formula clauses are designed to take full advantage of the applicable exclusion amount (sometimes called the credit shelter share), and they define the marital bequest by reference to the marital deduction.(13) In many instances, such a will may not accomplish the decedent's estate planning objectives, particularly as the applicable exclusion amount increases (and the marital share decreases). In the case of a decedent dying after 2010, the surviving spouse may receive nothing under such a will.
Example: Assume Husband is worth in excess of $4,000,000 at death and leaves a will dividing his estate into a credit shelter trust for the benefit of his children and a QTIP trust for the benefit of Wife. If Husband dies in 2001 when the applicable exclusion amount is $675,000, the credit shelter trust will be funded with $675,000, and Wife's QTIP trust will receive the balance of Husband's estate, or $3,325,000.
If Husband dies in 2009, the credit shelter trust will be funded with $3,500,000 (the applicable exclusion amount for 2009), and Wife's QTIP trust will receive only $500,000, the remaining balance of the estate.
If Husband dies in 2010 after repeal of the estate tax regime, barring state legislation providing for a different interpretation of such a will, Wife will be left with nothing.
State Death Tax Credit
One of the most dangerous potential pitfalls of the Act concerns the changes to the credit for state death taxes. Under current law, a credit against the Federal estate tax is allowed for certain death taxes paid to one or more states.(14) The maximum allowable credit reaches 16 percent for each dollar of the taxable estate in excess of $10,100,000.(15) The effect of these provisions is that a death tax imposed by a state that does not exceed the allowable Federal credit results in no net cost to a decedent's estate. Instead of paying 55 percent to the Federal government, an estate pays up to 16 percent to the state and the balance (for a total of the same 55 percent) to the Federal government. Most states impose a death tax that is equal to the maximum allowable Federal credit for state death taxes, thereby collecting, in effect from the Federal government, significant tax revenue.(16)
The Act phases out the allowable credit for state death taxes, but the phase out is not in proportion to reductions in the estate tax rate. Rather, for decedents dying in 2002, the allowable credit is 75 percent of the credit that would be allowable under existing law; in 2003, the allowable credit is 50 percent; and in 2004, it is 25 percent of the currently allowable credit.(17) In 2005 (and thereafter), the credit is eliminated, but a deduction is allowed instead for any state death taxes paid.(18) The result of this disproportion between the Federal estate tax rate reduction and the phase out of the state death tax credit is that the Federal government, while reducing the maximum estate tax rate for the benefit of taxpayers, will nevertheless collect more money at the margin than it was collecting before, with the burden of rate reductions being borne entirely by the states. It remains to be seen what action the states might take to preserve their revenue stream.
The state death tax credit phase out rules have particularly dangerous ramifications for taxpayers living in states, such as New York, that impose a death tax that does not automatically adjust to the maximum allowable Federal credit. For New York constitutional reasons, New York tax law does not automatically conform to changes to the Federal tax law; rather, separate and specific New York legislative action is required.(19) New York now imposes a state death tax equal to the maximum allowable Federal credit for state death taxes based upon the Federal estate tax law as in effect on July 22, 1998.(20) If New York were not to modify its death tax, it would continue to impose a death tax of up to 16 percent, even though the allowable Federal credit is reduced or entirely eliminated. New York officials have been informed of this problem and are reportedly in favor of seeking legislation to ensure that the New York death tax does not result in any net cost to New York decedents. If New York does not change its law, the effective maximum estate tax rates, including both Federal and State estate taxes, will be as follows:
|
2001 |
55% |
|
2002 |
54% |
|
2003 |
57% |
|
2004 |
60% |
|
2005 |
55.5% |
|
2006 |
54.6% |
|
2007-9 |
53.8% |
|
2010 |
16% |
|
2011 |
55% |
Basis Step-Up
Under current law, property included in a decedent's estate receives a fair market value basis for income tax purposes, such that a sale of the property at its estate tax value results in no gain or loss.(21) Part of the revenue trade-off for the repeal of the estate tax is the repeal of this unlimited "step-up" in basis at death, effective with repeal of the estate tax.(22) The general regime of basis being marked-to-market is replaced with a "carryover" basis rule.(23) However, a limited basis step-up of $1.3 million still would be allowed, with an additional $3 million of basis increase being allowed for property passing either outright to a surviving spouse or to a "QTIP" trust for the spouse's benefit.(24)
Property acquired from a decedent under the carryover basis rule is treated as if it had been acquired by gift and the character of any gain or loss realized on the sale of the transferred property is carried over to the beneficiary.(25) A beneficiary who acquires property by reason of a decedent's death will receive a basis in the transferred property equal to the lesser of (1) the decedent's adjusted basis in the property at the date of death and (2) the fair market value of the property at the date of death.(26)
The limited basis step-up rule generally permits each decedent's estate to increase the basis of assets transferred by up to a total of $1.3 million.(27) This $1.3 million may be increased further by the decedent's unused capital losses, net operating losses, and certain other "built-in" losses.(28) In addition, the estate may increase the basis of property transferred to a surviving spouse by an additional $3 million, thus allowing a total basis step-up of $4.3 million for property transferred to a surviving spouse.(29) The rules are different for non-U.S. resident non-U.S. citizen decedents, however. In the case of a non-U.S. decedent, the basis step-up of $1.3 million is limited to $60,000, and any carryover or "built-in" losses may not be used to increase the basis further.(30) The executor of the decedent's estate is given the discretion to allocate the basis increase among the decedent's assets, subject to the limitation that no asset's basis may be increased above the asset's fair market value on the decedent's date of death.(31)
A carryover basis regime is not a new tax concept. In certain areas of the income tax law, deferral may be achieved at the price of a carryover basis. For example, a "like-kind exchange" defers recognition of gain on the exchange of one property for another property of like kind. The gain is preserved because the taxpayer's basis in the replacement property received in the exchange is determined by reference to the basis of the property that was transferred in the exchange.(32) A taxpayer may have planned to continue deferral through one or more section 1031 exchanges, expecting to hold the replacement property until death. At death, the gain would be eliminated under the basis step-up rule. Since the post-death basis started with the date of death value of the asset, information and records regarding pre-death carryover basis transactions would become irrelevant. Obviously, this plan will no longer be possible when the basis step-up rule has been repealed. Accurate and detailed records on each asset's basis will need to have been maintained (and retained); these records will also be required under the new reporting requirements (discussed below in more detail) to substantiate an executor's allocation of the limited basis step-up among an estate's assets.(33)
The elimination of the unlimited basis step-up raises a potentially serious issue regarding the treatment of encumbered property where the amount of the debt exceeds the basis of the property. Without the basis step-up at death, the transfer of such a property by a decedent's estate to the decedent's heirs might result in taxable gain to the extent of the excess of the debt over the basis. This issue was addressed in the Act, which provides that neither a decedent nor a decedent's estate recognizes gain when property with mortgage in excess of basis is acquired by a decedent's estate or heirs.(34) However, the estate and the heirs receive the encumbered property with a carryover basis (increased by any portion of the limited step-up allocated by the decedent's executor to the property) and therefore subject to an inherent income tax liability upon its disposition.
Example: Assume Parent's sole asset is a building with a fair market value of $20,000,000, subject to a mortgage of $18,000,000. Parent has a tax basis in the building of zero (0). In her will, Parent leaves her estate to Son, who wants to sell the building. If Parent dies in 2002, her taxable estate after taking into account the applicable credit amount will be $1,000,000, and the estate tax owed will be $345,800. Son will receive the building with a stepped-up basis equal to the date of death value of the building, or $20,000,000. After Son sells the building, he will have to use the proceeds to repay the mortgage, as well as the estate tax owed. No income taxes will be incurred upon the sale due to the stepped-up basis. After paying all debts and taxes, Son will be left with net proceeds of $1,654,200.
If Parent instead dies in 2010, Son will receive only a limited step-up in basis of $1,300,000. Therefore, although no estate taxes will be owed, Son will have to recognize gain upon the sale of the building in the amount of $18,700,000. The income taxes incurred on this gain at a rate of 25 percent will be $4,675,000, or $2,675,000 in excess of the sales proceeds. Thus, Son is significantly worse off with repeal of the estate tax and a carryover basis, ending up $2,675,000 behind instead of $1,654,200 ahead.
The special rule disregarding liabilities in excess of basis is not available for property passing to a tax-exempt or foreign beneficiary.(35) Estates must generally recognize gain in the amount of liabilities in excess of basis upon the distribution of such property to (1) any United States or foreign governmental entity, (2) any organization exempt from U.S. income tax, (3) any foreign person, excluding foreign partnerships and other foreign pass-thru entities, and (4) any person, if such property is transferred for the purpose of tax avoidance.(36) Moreover, transfers to certain foreign recipients will be effectively treated as sales at fair market value.(37) Under current I.R.C. Section 684, transfers from United States persons to foreign estates or trusts are treated as sales at fair market value; however, the Act expands this rule to include transfers by the estates of U.S. persons to any nonresident alien, as well as foreign estates and trusts.(38)
Under the current step-up in basis regime, if appreciated property is transferred by an estate or trust in satisfaction of a pecuniary bequest or a right to receive a certain dollar amount, the transferor is required to recognize gain in an amount equal to the difference between the property's fair market value on the date of transfer and the transferor's basis.(39) Under the new carryover basis regime, if appreciated property is distributed by an estate in satisfaction of a pecuniary bequest, no gain will be recognized on distribution, except to the extent that the property has appreciated after the date of death of the decedent.(40) A similar rule will apply to distributions from a trust by reason of the decedent's death, if the appreciated property is distributed in satisfaction of a right to receive a specific dollar amount which is the equivalent of a pecuniary bequest.(41) In either instance, the recipient will receive a carryover basis in the property increased by any gain recognized by the estate or trust.(42)
Reporting Requirements
Under the Act, even though no estate tax is imposed in 2010, there will be extensive reporting requirements for decedents with assets of more than $1.3 million.(43) Thus, it still will be necessary to value all of a decedent's assets. Information to be reflected on the required informational return ("Section 6018 return"), which replaces the estate tax return, includes the fair market value and basis of each asset in the hands of the decedent, whether the asset would generate ordinary income or capital gain upon sale, the decedent's holding period in the asset, the amount of basis increase allocated to the asset, and the recipient of the asset.(44) A Section 6018 return also is required to be filed with respect to property acquired by the decedent (other than from a spouse) within three years of the decedent's death, regardless of whether the $1.3 million threshold is met. This rule generally applies with respect to appreciated property the transfer of which (within three years of the decedent's death) was reported on a gift tax return under I.R.C. Section 6019.(45) In many cases, it may be difficult, if not impossible, to gather the information necessary to prepare the Section 6018 return within the time frame provided. This return must be filed with the decedent's final income tax return, which is generally due on April 15 of the year following the year of death.
Generally, the executor is responsible for filing the estate's Section 6018 return. In the event that an executor is unable to make a complete return as to any property transferred by the estate, however, the executor must at a minimum provide a description of the property and the name of each person holding any interest in the property.(46) Upon notice from the Secretary, those persons named in the Section 6018 return as holding interests in the property then will become responsible for filing such return.(47) Each individual who is responsible for filing an estate or gift tax return also must provide each recipient listed on such return with the contact information of the person filing the return, as well as the information specified in the return relating to the property received by the recipient.(48)
To enforce these informational filing requirements, the Act provides for various penalties.(49) Any person failing to file a Section 6018 return for transfers at death exceeding $1.3 million is subject to a penalty of $10,000; the penalty for failure to file a return on gifts received within three years of death is $500 for each failure.(50) Any person failing to provide a beneficiary with the required information will be subject to a penalty of $50 for each failure.(51) No penalty will be imposed for failures due to reasonable cause, but any failure to file due to intentional disregard will be subject to a penalty equal to 5% of the fair market value of the property for which reporting was required.(52)
Installment Payments
Under current law, the estate tax generally is due within nine months of the decedent's death;(53) however, by making the election to pay any estate tax attributable to an interest in a closely held business in installments, the time for payment can be extended by up to 14 years.(54) To be eligible for such installment payments, the decedent's interest in the closely held business must exceed 35% of the decedent's adjusted gross estate (i.e., the gross estate minus deductions allowed under IRC Sections 2053 and 2054).(55) In addition, where the closely held business is operated through a partnership or corporation, an "interest in a closely held business" for purposes of this rule generally means a 20% interest in a partnership or corporation that has 15 or fewer partners or shareholders, as the case may be.(56) The deferral available under the installment rule generally applies only with respect to business (rather than investment) assets.
The Act expands the availability of installment payments to estates by (1) increasing the number of allowable partners and shareholders in closely held businesses from 15 to 45 and (2) treating stock in qualifying lending and financing businesses as active assets eligible for an installment payment election.(57) Estates with interests in qualifying lending and financing businesses are limited to 5 equal installments, rather than the 10 installments available to estates with interests in other eligible closely-held businesses.(58)
The changes to the installment payment provisions apply to estates of decedents dying after December 31, 2001.
No Repeal of the Gift Tax
Congress was concerned that the repeal of the estate tax and the continued entitlement to a step-up in basis of up to $1.3 million, plus the additional $3 million for spouses, could lead to abusive transactions, such as family members making gifts to elderly relatives in the expectation of receiving the property back with an increased basis. To combat this perceived problem, the Act does not eliminate the gift tax. Instead, effective with the repeal of the estate tax in 2010, the gift tax continues in its present form, but with a maximum gift tax rate equal to the highest income tax rate (which would be 35 percent under the Act) and a lifetime exemption amount of $1 million.(59) The Act makes no changes (before or after 2010) to the amount of the $10,000 "annual exclusion."
GST and Other Changes
The Act makes a number of other significant changes to the estate and GST tax regimes. Most notably, the complicated "qualified family owned business interest" deduction is repealed for decedents dying after December 31, 2003.(60) In addition, some of the rules governing allocation of the GST exemption are made more flexible and forgiving, effective for transfers after December 31, 2000.(61) While doing little to solve the planning horrors posed by the GST tax, these changes eliminate some traps for the unwary and, in certain situations, permit retroactive GST tax exemption allocations to be made with the benefit of hindsight.
Currently, if a donor makes a transfer subject to the estate or gift tax of an interest in property to a skip person (i.e., a person two or more generations below the donor and certain trusts with only skip persons as beneficiaries), referred to as a "direct skip," any unused GST tax exemption (currently $1,060,000) is automatically allocated to the transfer to the extent necessary to create an inclusion ratio for such property equal to zero.(62) Certain other deemed allocations are made at an individual's death, if any unused GST tax exemption remains.(63) To avoid these deemed allocations, a transferor must allocate any unused GST tax exemption on a timely-filed gift tax return reporting the transfer.
The Act provides for another automatic allocation of the GST tax exemption. Transfers in trust can result in generation-skipping transfers that are not "direct skips" under the GST rules. Under current law, in order to allocate exemption during the grantor's lifetime to a lifetime transfer in trust that is not a direct skip, an affirmative allocation must be made. If the provisions of a trust meet certain criteria relating to the likelihood that a generation-skipping transfer will result at some time in the future,(64) the Act provides for the automatic allocation of an individual's remaining unused GST tax exemption to property transferred to such a trust to the extent necessary to produce the lowest possible inclusion ratio for such property.(65) An individual may elect out of this automatic allocation and may elect to treat any trust as a GST trust.(66)
The Act also provides for a retroactive allocation of the GST tax exemption in certain circumstances where an unnatural order of deaths has caused an unexpected GST tax exposure.(67) The Act allows a transferor retroactively to allocate any unused GST tax exemption to any previous transfer(s) to the trust on a chronological basis, if a lineal descendant of the transferor has predeceased the transferor.
Other significant changes to the GST tax include: (1) the simplification of the requirements for severing a GST trust into two trusts, one with an inclusion ratio of zero and the other with an inclusion greater than zero;(68) (2) the addition of provisions allowing relief for an inadvertent failure to make an allocation of GST tax exemption on a timely-filed gift tax return;(69) and (3) the addition of provisions providing that substantial compliance with the statutory and regulatory requirements for allocating GST tax exemption will be sufficient to establish that such exemption was allocated to a particular trust or transfer.(70)
Conclusion
What Congress and the President will do after the current year's legislative dust has settled is unclear. As indicated above, the Act sunsets at the close of 2010 because there were less than 60 votes in the Senate. Next year, the Senate could vote to push back the effective date of the sunset provisions from December 31, 2010 to December 31, 2011, and such a change would similarly not require 60 votes to pass. The authors understand the general view in Congress to be that the current state of the law, after passage of the Act, is unworkable and must be changed. How or when changes may be made is unclear, particularly since the two parties have opposing views about what they perceive to be the shortcomings of the Act. Given the recent change in party control in the Senate, any prognostication concerning future legislative action is perhaps even riskier than normal.
FOOTNOTES____________________________
1. Pub. L. No. 107-16, (2001).
2. Act Search7RHSearch7RH 501(a), (b), 511(d) (adding Search7RHSearch7RH 2210, 2664 to the Internal Revenue Code of 1986, as amended (hereafter, "I.R.C."); amending Search7RH 2502(a)).
3. Id. Search7RH 901(a)(2).
4. Provisions of the Act that are not covered by this Article include: (i) the expansion of the estate tax rule for conservation easements; (ii) the modification of certain valuation rules under the generation skipping transfer tax; (iii) the continuation of the estate tax for certain property distributed from or held in qualified domestic trusts; (iv) the exclusion of gain on the sale of a principal residence made available to an heir of a decedent in certain cases; and (v) the waiver of the statute of limitations for certain refunds of taxes relating to farm valuations.
5. Act Search7RH 501(a), (b).
6. Id. at Search7RH 511(a), (b) (amending I.R.C. Search7RH 2001(c)).
7. Id. Search7RH 511(c) (adding I.R.C. Search7RH 2001(c)(2)).
8. I.R.C. Search7RH 2010(c).
9. Id.
10. Act Search7RH 521(a) (amending I.R.C. Search7RH 2010(c)).
11. Id. Search7RH 521(a)-(c) (amending I.R.C. Search7RHSearch7RH 2010(c), 2505(a)(1), 2631(c)).
12. Id. Search7RH 901(b).
13. A will designed in such a manner might divide the decedent's residuary estate into (i) a marital share, defined as "the smallest amount that will minimize the Federal estate tax payable with respect to my estate," and (ii) a credit shelter share, defined as "the balance of my residuary estate remaining after subtracting the marital share."
14. I.R.C. Search7RH 2011.
15. I.R.C. Search7RH 2011(b).
16. E.g., 2000 Fla. Laws ch. 198.02; Conn. Gen. Stat. Search7RH12-391 (2001).
17. Act Search7RH 531(a)(3) (adding I.R.C. Search7RH 2011(b)(2)).
18. Id. at Search7RH 532 (adding I.R.C. Search7RHSearch7RH 2011(g), 2058).
19. N.Y. Const. art. III, Search7RH 22.
20. N.Y. Tax Search7RH 951 (2001).
21. I.R.C. Search7RH 1014.
22. Act Search7RH 541 (adding I.R.C. Search7RH 1014(f)).
23. Id. Search7RH 542(a) (adding I.R.C. Search7RH 1022).
24. Id. (at new I.R.C. Search7RH 1022(b)).
25. Id. (at new I.R.C. Search7RH 1022(a)(1)); see, H.R. Rept. No. 107-85, at 81 (2001).
26. Act Search7RH 542(a) (at new I.R.C. Search7RH 1022(a)(2)). These carryover basis rules apply to property acquired from a decedent, including certain categories of property described under I.R.C. section 1014(b) that currently receive a step-up in basis. Property acquired from a decedent includes: (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 in trust to pay the income for life to or on the order or direction of the decedent, with the right reserved to the decedent at all times before his death to revoke the trust; (3) property transferred by the decedent during his lifetime in trust to pay the income for life to or on the order or direction of the decedent with the right reserved to the decedent at all times before his death to make any change to the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust; and (4) property passing from the decedent to the extent that such property passed without full and adequate consideration. Id. (at new I.R.C. Search7RH 1022(e)).
27. Id. (at new I.R.C. Search7RH 1022(b)(2)(B)).
28. Id. (at new I.R.C. Search7RH 1022(b)(2)(C)).
29. Id. (at new I.R.C. Search7RH 1022(c)(2)(B)). In the case of property held by the decedent as joint tenant with the surviving spouse, one-half of such property is treated as having been owned by the decedent and is eligible for the basis step-up. Id. (at new I.R.C. Search7RH 1022(d)(1)(B)(i)(I)). If the surviving joint tenant is someone other than the decedent's spouse then only that portion attributable to the consideration furnished by the decedent will be eligible for the basis step-up. Id. (at new I.R.C. Search7RH 1022(D)(1)(B)(i)(II)). Other property treated as owned by the decedent includes: (1) a surviving spouse's one-half share of community property if at least one-half of the property was owned by and acquired from the decedent and (2) property transferred by the decedent during his lifetime to a revocable trust. Id. (at new I.R.C. Search7RH 1022(d)(1)(B)(iv)(ii)). Property not eligible for a basis step-up includes: (1) property over which the decedent holds a power of appointment; (2) property acquired by the decedent by gift (other than from a spouse) during the three-year period ending on the decedent's date of death; and (3) stock held in certain foreign entities. Id. (at new I.R.C. Search7RH 1022(d)(1)(B)(iii), (C)(i), (D)).
30. Id. (at new I.R.C. Search7RH 1022(b)(3)).
31. Id. (at new I.R.C. Search7RH 1022(d)(2), (3)).
32. See, I.R.C. Search7RH 1031 (providing nonrecognition of gain and a carryover basis for certain like-kind exchange transactions).
33. Act Search7RH 542(b) (adding I.R.C. Search7RH 6018(c)) (enumerating information required on return).
34. Id. (at new I.R.C. Search7RH 1022(g)).
35. Id. (at new I.R.C. Search7RH 1022(g)).
36. Id. (at new I.R.C. Search7RH 1022(g)(2)).
37. Id. Search7RH 542(e) (amending I.R.C. Search7RH 684(a), (b)).
38. Id. Search7RH 542(e)(1)(A) (amending I.R.C. Search7RH 684(a)). There are exceptions for lifetime transfers to nonresident aliens and for transfers to trusts treated as owned by a U.S. person under section 671. Id. Search7RH 542(e)(1)(B) (amending I.R.C. Search7RH 684(b)).
39. Treas. Reg. Search7RH 1.661(a)-2(f)(1) (CCH 2001).
40. Act Search7RH 542(d) (amending I.R.C. Search7RH 1040(a)).
41. Id. (amended I.R.C. Search7RH 1040(b)).
42. Id. (amended I.R.C. Search7RH 1040(c)).
43. Id. at Search7RH 542(b)(1) (amending I.R.C. Search7RH 6018).
44. Id. (at new I.R.C. Search7RH 6018(c)).
45. Id. (at new I.R.C. Search7RH 6018(b)(2)).
46. Id. (at new I.R.C. Search7RH 6018(b)(4)).
47. Id.
48. Id. (at new I.R.C. Search7RH 6018(e)); Id. at Search7RH 542(b)(2) (at new I.R.C. Search7RH 6019(b)).
49. Act Search7RH 542(b)(4) (adding I.R.C. Search7RH 6716).
50. Id. (at new I.R.C. Search7RH 6716(a)).
51. Id. (at new I.R.C. Search7RH 6716(b)).
52. Id. (at new I.R.C. Search7RH 6716(c), (d)).
53. I.R.C. Search7RH 6075(a).
54. Id. Search7RH 6166(a), (b)(6).
55. Id.
56. I.R.C. Search7RH 6166(b)(1).
57. Act Search7RH 571(a) (amending I.R.C. Search7RH 6166(b)(1)); Id. Search7RH 572(a) (adding I.R.C. Search7RH 6166(b)(10)).
58. Id. Search7RH 572(a) (at new I.R.C. Search7RH 6166(b)(10)(A)(iii)). The Act also makes certain changes to the installment payment rules governing businesses held through holding companies. Id. Search7RH 572(a)[sic] (amending I.R.C. Search7RH 6166(b)(8)(B)).
59. Id. Search7RHSearch7RH 511(d), 521(b) (amending I.R.C. Search7RHSearch7RH 2502(a), 2505(a)(1)).
60. Act Search7RH 521(d) (adding I.R.C. Search7RH2057(j)).
61. Id. Search7RH 561(a), (c) (amending I.R.C. Search7RH 2632)
62. I.R.C. Search7RH 2632(b); see, Id. Search7RH 2642(a) (defining inclusion ratio); Id. at Search7RH 2641(a) (describing calculation of GST tax rate).
63. I.R.C. Search7RH 2632(c).
64. For example, exemption would not be automatically allocated to a trust for the benefit of the grantor's child if the trust is expected to terminate when the beneficiary attains age 45 and the assets will pass to the child's issue (the grantor's grandchildren) only if the child dies before age 45. On the other hand, exemption would be automatically allocated to a trust for the child if the trust is to remain in existence for the life of the child and the assets will pass to the child's issue on the death of the child.
65. Act Search7RH 561(a) (amending I.R.C. Search7RH 2632).
66. Id. (at new I.R.C. Search7RH 2632(c)(5)).
67. Id. (at new I.R.C. Search7RH 2632(d)); see, H.R. Rept. No. 107-85, at 99 (2001).
68. See, Act Search7RH 562 (adding I.R.C. Search7RH 2642(a)(3)).
69. See, Id. Search7RH 564 (at new I.R.C. Search7RH 2642(g)(1)).
70. See, Id. Search7RH 564 (at new I.R.C. Search7RH 2642(g)(2)).