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 100 STAT. 2708

PUBLIC LAW 99-514—OCT. 22, 1986 (43) EXTENSION OF ADVANCE REFUNDING FOR CERTAIN FACILI-

TiES.—Paragraph (4) of section 631(c) of the Tax Reform Act of 1984 is amended— (A) by striking out the second sentence thereof, (B) by adding at the end thereof the following new sentence: "In the case of refunding obligations not exceeding $100,000,000 issued by the Alabama State Docks Department, the first sentence of this paragraph shall be applied by substituting 'December 31, 1987' for 'December 31, 1984'." (44) POOL BONDS.—The following amounts of pool bonds are exempt from the arbitrage rebate requirement of section 148(f) of the 1986 Code: Pool Tennessee Utility Districts Pool New Mexico Hospitals Bond Pool Pennsylvania Local Government Investment Trust Pool Indiana Bond Bank Pool Hernando County, Florida Bond Pool Utah Municipal Finance Cooperative Pool North Carolina League of Municipalities Pool Kentucky Municipal League Bond Pool Kentucky Association of Counties Bond Pool Homewood Municipal Bond Pool Colorado Association of School Boards Pool Tennessee Municipal League Pooled Bonds Georgia Municipal Association Pool (45)

CERTAIN

CARRYFORWARD

Maximum Bond Amount $80,000,000 $35,000,000 $375,000,000 $240,000,000 $300,000,000 $262,000,000 $200,000,000 $170,000,000 $100,000,000 $50,000,000 $300,000,000 $75,000,000 $130,000,000

ELECTIONS.—Notwithstanding

any other provision of this title— (A) In the case of a metropolitan service district created pursuant to State revised statutes, chapter 268, up to $100,000,000 unused 1985 bond authority may be carried forward to any year until 1989 (regardless of the date on which such carryforward election is made). (B) I f (i) official action was taken by an industrial development board on September 16, 1985, with respect to the issuance of not more than $98,500,000, of waste water treatment revenue bonds, and (ii) an executive order of the governor granted a carryforward of State bond authority for such project on December 30, 1985, such carryforward election shall be valid for any year through 1988. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $98,500,000. (46) TREATMENT OF CERTAIN OBLIGATIONS TO FINANCE HYDROELECTRIC GENERATING FACILITY.—If—

(A) obligations are issued in an amount not exceeding $5,000,000 to finance the construction of a hydroelectric generating facility located on the North Fork of Cache Creek in Lake County, California, which was the subject of a preliminary resolution of the issuer of the obligations on June 29, 1982, or are issued to refund any of such obligations, (B) substantially all of the electrical power generated by such facility is to be sold to a nongovernmental person

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pursuant to a long-term power sales agreement in accord ance with the Public Utility Regulatory Policies Act of 1978, and (C) the initially issued obligations are issued on or before December 31, 1986, and any of such refunding obligations are issued on or before December 31, 1996, then the person referred to in subparagraph (B) shall not be treated as a principal user of such facilities by reason of such sales for purposes of subparagraphs (D) and (E) of section 103(b)(6) of the 1954 Code. (47) TREATMENT OF CERTAIN OBLIGATIONS TO FINANCE STEAM AND ELECTRIC COGENERATION FACILITY.—IF—

(A) obligations are issued on or before December 31, 1986, in an amount not exceeding $4,400,000 to finance a facility for the generation and transmission of steam and electricity having a maximum electrical capacity of approximately 5.3 megawatts and located within the City of San Jose, California, or are issued to refund any of such obligations, (B) substantially all of the electrical power generated by such facility that is not sold to an institution of higher education created by statute of the State of California is to be sold to a nongovernmental person pursuant to a longterm power sales agreement in accordance with the Public Utility Regulatory Policies Act of 1978, and (C) the initially issued obligations are issued on or before December 31, 1986, and any of such refunding obligations are issued on or before December 31, 1996, then the nongovernmental person referred to in subparagraph (B) shall not be treated as a principal user of such facilities by reason of such sales for purposes of subparagraphs (D) and (E) of section 1030t)X6) of the Internal Revenue (Dode of 1954. (48) TREATMENT OF CERTAIN OBLIGATIONS.—A bond which is not an industrial development bond under section 103(b)(2) of the Internal Revenue Code of 1954 shall not be treated as a private activity bond for purposes of part IV of subchapter B of chapter 1 of the 1986 Code if 95 percent or more of the net proceeds of the issue of which such bond is a part are used to provide facilities described in either of the following subparagraphs: (A) A facility is described in this subparagraph if it is a governmentally-owned and operated State fair and exposition center with respect to which— (i) the 1985 session of the State legislature authorized revenue bonds to be issued in a maximum amount of $10,000,000, and (ii) a market feasibility study dated June 30, 1986, relating to a major capital improvemental program at the facility Was prepared for the advisory board of the State fair and exposition center by a certified public accounting firm. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $10,000,000. (B) A facility is described in this subparagraph if it is a convention, trade, or spectator facility which is to be located in the State with respect to which subparagraph (O) applies and with respect to which feasibility and preliminary design consultants were hired on May 1, 1985 and

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 100 STAT. 2710

PUBLIC LAW 99-514—OCT. 22, 1986 October 31, 1985. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $175,000,000. (49)

TRANSITION RULE FOR REFUNDING CERTAIN HOUSING

BONDS.—Sections 146 and 149(d) of the 1986 Code shall not apply to the refunding of any bond issued under section 11(b) of the Housing Act of 1937 before December 31, 1983, if— (A) the bond has an original term to maturity of at least 40 years, (B) the maturity date of the refunding bonds does not exceed the maturity date of the refunded bonds, (C) the amount of the refunding bonds does not exceed the outstanding amount of the refunded bonds, (D) the interest rate on the refunding bonds is lower than the interest rate of the refunded bonds, and (E) the refunded bond is required to be redeemed not later than the earliest date on which such bond could be redeemed at par. (50) TRANSITION BONDS SUBJECT TO CERTAIN RULES.—In

the

case of any bond to which any provision of this subsection applies— (A) MINIMUM TAX TREATMENT.—Any bond which, without regard to this section, would be a private activity bond (as defined in section 141(a) of the 1986 Code) shall be so treated for purposes of section 55 of such Code unless such bond would not be described in section 103(b)(2) or (o)(2) of the 1954 Code were such bond issued before August 16, 1986. (B) CERTAIN RESTRICTIONS APPLY.—Except as otherwise

expressly provided, sections 103 and 103A of the 1954 Code shall be applied as if the requirements of section 148 and subsections (d) and (g) of section 149 of the 1986 Code were included in each such section. (51) CERTAIN ADDITIONAL PROJECTS.—Section 141(a) of the 1986 Code shall be applied by substituting "25" for "10" each place it appears and by not applying sections 141(a)(3) and 141(c)(l)(B) to bonds substantially all of the proceeds are used for— (A) A project is described in this subparagraph if it consists of a capital improvements program for a metropolitan sewer district, with respect to which a proposition was submitted to voters on August 7, 1984. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $60,000,000. (B) Facilities described in this subparagraph if it consists of additions, extensions, and improvements to the wastewater system for Lakeland, Florida. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $20,000,000. (C) A project is described in this subparagraph if it is the Central Valley Water Reclamation Project in Utah. The aggregate face amount of obligations to which this subparagraph applies shall not exceed $100,000,000. (D) A project is described in this subparagraph if it is a project to construct approximately 26 miles of toll expressways, with respect to which any appeal to validation was filed July 11, 1986. The aggregate face amount of obliga-

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tions to which this subparagraph applies shall not exceed $450,000,000. (52) TERMINATION.—This section shall not apply to any bond issued after December 31, 1990. SEC. 1318. DEFINITIONS, ETC., RELATING TO EFFECTIVE DATES AND TRANSITIONAL RULES.

For purposes of this subtitle— (1) 1954 CODE.—The term "1954 Code" means the Internal Revenue Code of 1954 as in effect on the day before the date of the enactment of this Act. (2) 1986 CODE.—The term "1986 Code" means the Internal Revenue Code of 1986 as amended by this Act. (3) BOND.—The term "bond" includes any obligation. (4) ADVANCE REFUND.—A bond shall be treated as issued to advance refund another bond if it is issued more than 90 days before the redemption of the refunded bond. (5) NET PROCEEDS.—The term "net proceeds" has the meaning given such term by section 150(a) of the 1986 Code. (6) CONTINUED APPLICATION OF THE 1954 CODE.—Nothing in

this subtitle shall be construed to exempt any bond from any provision of the 1954 Code by reason of a delay in (or exemption from) the application of any amendment made by subtitle A. (7) TREATMENT AS EXEMPT FACILITY.—Any bond which is treated as an exempt facility bond by section 1316 or 1317 shall not fail to be so treated by reason of subsection (b) of section 142 of the 1986 Code.

TITLE XIV—TRUSTS AND ESTATES; UNEARNED INCOME OF CERTAIN MINOR CHILDREN; GIFT AND ESTATE TAXES; GENERATION-SKIPPING TRANSFER TAX Subtitle A—Income Taxation of Trusts and Estates SEC. 1401. GRANTOR TREATED AS HOLDING ANY POWER OR INTEREST OF GRANTOR'S SPOUSE.

(a) IN GENERAL.—Section 672 (relating to definitions and rules) is amended by adding at the end thereof the following new subsection: "(e) GRANTOR TREATED AS HOLDING ANY POWER OR INTEREST OF GRANTOR'S SPOUSE.—For purposes of this subpart, if a grantor's

spouse is living with the grantor at the time of the creation of any power or interest held by such spouse, the grantor shall be treated as holding such power or interest." (b) EFFECTIVE DATE.—The amendment made by this section shall apply with respect to transfers in trust made after March 1, 1986. SEC. 1402. LIMITATIONS TO REVERSIONARY INTEREST RULE EXCEPTIONS.

(a) IN GENERAL.—Section 673 (relating to reversionary interest) is amended to read as follows:

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 100 STAT. 2712

PUBLIC LAW 99-514—OCT. 22, 1986

"SEC. 673. REVERSIONARY INTERESTS.

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.

"(a) GENERAL RULE.—The grantor shall be treated as the owner of any portion of a trust in which he has a reversionary interest in either the corpus or the income therefrom, if, as of the inception of that portion of the trust, the value of such interest exceeds 5 percent of the value of such portion. "(b) REVERSIONARY INTEREST TAKING EFFECT AT DEATH OF MINOR LINEAL DESCENDANT BENEFICIARY.—In the case of any beneficiary

who— "(1) is a lineal descendant of the grantor, and "(2) holds all of the present interests in any portion of a trust, the grantor shall not be treated under subsection (a) as the owner of such portion solely by reason of a reversionary interest in such portion which takes effect upon the death of such beneficiary before such beneficiary attains age 21." 0?) CONFORMING AMENDMENTS.—

(1) Paragraph (2) of section 674(b) (relating to exceptions for certain powers) is amended— (A) by striking out "the expiration of a period" and inserting in lieu thereof "the occurrence of an event", (B) by striking out "the expiration of the period" and inserting in lieu thereof "the occurrence of the event", and (C) by striking out "EXPIRATION OF 10-YEAR PERIOD" in the heading thereof and inserting in lieu thereof "OCCURRENCE OF EVENT".

(2) Subsection (b) of section 676 (relating to power to revoke) is amended— (A) by striking out "the expiration of a period" and inserting in lieu thereof "the occurrence of an event", (B) by striking out "the expiration of such period" and inserting in lieu thereof "the occurrence of such event", and (C) by striking out "EXPIRATION OF 10-YEAR PERIOD" in the heading thereof and inserting in lieu thereof "OCCURRENCE OF EVENT".

(3) Subsection (a) of section 677 (relating to income for benefit of grantor) is amended— (A) by striking out "the expiration of a period" and inserting in lieu thereof "the occurrence of an event", and (B) by striking out "the expiration of the period" and inserting in lieu thereof "the occurrence of the event". (c) EFFECTIVE DATE.—

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply with respect to transfers in trust made after March 1, 1986. (2) TRANSFERS PURSUANT TO PROPERTY SETTLEMENT AGREE-

MENT.—The amendments made by this section shall not apply to any transfer in trust made after March 1, 1986, pursuant to a binding property settlement agreement entered into on or before March 1, 1986, which required the taxpayer to establish a grantor trust and for the transfer of a specified sum of money or property to the trust by the taxpayer. This paragraph shall apply only to the extent of the amount required to be transferred under the agreement described in the preceding sentence. .•.*.'•,..«*..« i„.,<,,-...:...

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Page:United States Statutes at Large Volume 100 Part 3.djvu/905

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2713

SEC. 1403. TAXABLE YEAR OF TRUSTS TO BE CALENDAR YEAR.

(a) IN GENERAL.—Subpart A of part I of subchapter J of chapter 1 (relating to general rules for taxation of estates and trusts) is amended by adding at the end thereof the following new section: "SEC. 645. TAXABLE YEAR OF TRUSTS.

"(a) IN GENERAL.—For purposes of this subtitle, the taxable year of any trust shall be the calendar year. "(b) EXCEPTION FOR TRUSTS EXEMPT FROM TAX AND CHARITABLE

TRUSTS.—Subsection (a) shall not apply to a trust exempt from taxation under section 501(a) or to a trust described in section 4947(a)(1)." (b) CLERICAL AMENDMENT.—The table of sections of subpart A of part I of subchapter J of chapter 1 is amended by adding at the end thereof the following new item: "Sec. 645, Taxable year of trusts." (c) EFFECTIVE DATE; TRANSITION RULE.— (1) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 1986. (2) TRANSITION RULE.—With respect to any trust beneficiary who is required to include in gross income amounts under sections 652(a) or 662(a) of the Internal Revenue Code of 1986 in the 1st taxable year of the beneficiary beginning after December 31, 1986, by reason of any short taxable year of the trust required by the amendments made by this section, such income shall be ratably included in the income of the trust beneficiary over the 4-taxable year period beginning with such taxable year. SEC. 1404. TRUSTS AND CERTAIN ESTATES TO MAKE ESTIMATED PAYMENTS OF INCOME TAXES.

(a) IN GENERAL.—Subsection (k) of section 6654 (relating to failure by individual to pay estimated income tax) is amended to read as follows: "(k) TRUSTS AND CERTAIN ESTATES.—This section shall apply to— "(1) any trust, and "(2) any estate with respect to any taxable year ending 2 or more years after the date of the death of the decedent's death." (b) CERTAIN PAYMENTS OF ESTIMATED TAX BY A TRUST.—Section

643 is amended by adding at the end thereof the following new subsection: "(g) CERTAIN PAYMENTS OF ESTIMATED TAX TREATED AS PAID BY BENEFICIARY.—

"(1) IN GENERAL.—In the case of a trust— "(A) the trustee may elect to treat any portion of a payment of estimated tax made by such trust for any taxable year of the trust as a payment made by a beneficiary of such trust, "(B) any amount so treated shall be treated as paid or credited to the beneficiary on the last day of such taxable year, and "(C) for purposes of subtitle F, the amount so treated— "(i) shall not be treated as a payment of estimated tax made by the trust, but "(ii) shall be treated as a payment of estimated tax made by such beneficiary on January 15 following the taxable year.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/906

 100 STAT. 2714

PUBLIC LAW 99-514—OCT. 22, 1986 The preceding sentence shall apply only to the extent the payments of estimated tax made by the trust for the taxable year exceed the tax imposed by this chapter shown on its return for the taxable year. "(2) TIME FOR MAKING ELECTION.—An election under paragraph (1) may be made— "(A) only on the trust's return of the tax imposed by this chapter for the taxable year, and "(B) only if such return is filed on or before the 65th day after the close of the taxable year." (c) CONFORMING AMENDMENTS.—

(1) Section 6152 (relating to installment payments) is repealed. (2) Section 6215(b) (relating to cross references) is amended by striking out paragraph (7) and redesignating paragraph (8) as paragraph (7). (3) Paragraph (2) of section 6601 (relating to last date prescribed for payment) is amended— (A) by striking out "6152(a), 6156(a), or 6158(a)" and inserting in lieu thereof "6156(a) or 6158(a)", and (B) by striking out "6152(b), 6156(b), or 6158(a)" in subparagraph (A) and inserting in lieu thereof "615603) or 6158(a)". (4) The table of sections for subchapter A of chapter 62 is amended by striking out the item relating to section 6152. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986.

Subtitle B—Unearned Income of Certain Minor Children SEC. 1411. UNEARNED INCOME OF CERTAIN MINOR CHILDREN.

(a) GENERAL RULE.—Section 1, as amended by section 101, is amended by inserting after subsection (h) the following new subsection: "(i) CERTAIN UNEARNED INCOME OF MINOR CHILDREN TAXED AS IF PARENT'S INCOME.—

"(1) IN GENERAL.—In the case of any child to whom this subsection applies, the tax imposed by this section shall be equal to the greater of— "(A) the tax imposed by this section without regard to this subsection, or "(B) the sum of— "(i) the tax which would be imposed by this section if the taxable income of such child for the taxable year were reduced by the net unearned income of such child, plus "(ii) such child's share of the allocable parental tax. "(2) CHILD TO WHOM SUBSECTION APPLIES.—This subsection shall apply to any child for any taxable year if— "(A) such child has not attained age 14 before the close of the taxable year, and "(B) either parent of such child is alive at the close of the taxable year. _. . - _

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100 STAT. 2715

"(3) ALLOCABLE PARENTAL TAX.—For purposes of this subsection— "(A) IN GENERAL.—The term 'allocable parental tax' means the excess of— "(i) the tax which would be imposed by this section on the parent's taxable income if such income included the net unearned income of all children of the parent to whom this subsection applies, over "(ii) the tax imposed by this section on the parent without regard to this subsection. For purposes of clause (i), net unearned income of all children of the parent shall not be taken into account in computing any deduction or credit of the parent. "(B) CHILD'S SHARE.—A child's share of any allocable parental tax of a parent shall be equal to an amount which bears the same ratio to the total allocable parental tax as the child's net unearned income bears to the aggregate net unearned income of all children of such parent to whom this subsection applies. "(4) NET UNEARNED INCOME.—For purposes of this subsection— "(A) IN GENERAL.—The term 'net unearned income' means the excess of— "(i) the portion of the gross income for the taxable year which is not earned income (as defined in section 911(d)(2)), over "(ii) the sum of— "(I) the amount in effect for the taxable year under section 63(c)(5)(A) (relating to limitation on standard deduction in the case of certain dependents), plus "(II) the greater of the amount described in subclause (I) or, if the child itemizes his deduction for the taxable year, the amount of the deductions allowed by this chapter for the taxable year which are directly connected with the production of the portion of gross income referred to in clause (i). "(B) LIMITATION BASED ON TAXABLE INCOME.—The amount of the net unearned income for any taxable year shall not exceed the individual's taxable income for such taxable year. "(5) SPECIAL RULES FOR DETERMINING PARENT TO WHOM SUBSECTION APPLIES.—For purposes of this subsection, the parent whose

taxable income shall be taken into account shall be— "(A) in the case of parents who are not married (within the meaning of section 7703), the custodial parent of the child, and ^ "(B) in the case of married individuals filing separately, the individual with the greater taxable income. "(6) PROVIDING OF PARENT'S TIN.—The parent of any child to whom this subsection applies for any taxable year shall provide the TIN of such parent to such child and such child shall include such TIN on the child's return of tax imposed by this section for such taxable year." (b) DISCLOSURE OF INFORMATION.—Subparagraph (A) of section

6103(e)(1) (relating to disclosure to persons having material interest) is amended by striking out "or" at the end of clause (ii), by inserting

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 100 STAT. 2716

PUBLIC LAW 99-514—OCT. 22, 1986

"or" at the end of clause (iii), and by adding at the end thereof the following new clause: "(iv) the child of that individual (or such child's legal representative) to the extent necessary to comply with the provisions of section 10);"(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 1986.

Subtitle C—Gift and Estate Taxes SEC. 1421. INFORMATION NECESSARY FOR VALID SPECIAL USE VALUATION ELECTION.

(a) IN GENERAL.—In the case of any decedent dying before January 1, 1986, if the executor— (1) made an election under section 2032A of the Internal Revenue Code of 1954 on the return of tax imposed by section 2001 of such Code within the time prescribed for filing such return (including extensions thereof), and (2) provided substantially all the information with respect to such election required on such return of tax, such election shall be a valid election for purposes of section 2032A of such Code. (b) EXECUTOR MUST PROVIDE INFORMATION.—An election described

in subsection (a) shall not be valid if the Secretary of the Treasury or his delegate after the date of the enactment of this Act requests information from the executor with respect to such election and the executor does not provide such information within 90 days of receipt of such request. (c) EFFECTIVE DATE.—The provisions of this section shall not apply to the estate of any decedent if before the date of the enactment of this Act the statute of limitations has expired with respect to— (1) the return of tax imposed by section 2001 of the Internal Revenue Code of 1954, and (2) the period during which a claim for credit or refund may be timely filed. (d) SPECIAL RULE FOR CERTAIN ESTATE.—Notwithstanding subsec-

tion (a)(2), the provisions of this section shall apply to the estate of an individual who died on January 30, 1984, and with respect to which— (1) a Federal estate tax return was filed on October 30, 1984, electing current use valuation, and (2) the agreement required under section 2032A was filed on November 9, 1984. SEC. 1422. GIFT AND ESTATE TAX DEDUCTIONS FOR CERTAIN CONSERVATION EASEMENT DONATIONS.

(a) ESTATE TAX.—Section 2055 (relating to transfers for public, charitable, and religious uses) is amended— (1) by redesignating subsection (f) as subsection (g), and (2) by inserting after subsection (e) the following new subsection: "(f) SPECIAL RULE FOR IRREVOCABLE TRANSFERS OF EASEMENTS IN

REAL PROPERTY.—A deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property interest (as defined in section 170(h)(2)(C)) which meets the requirements of section 170(h) (without regard to paragraph (4)(A) thereof)."

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100 STAT. 2717

(b) GIFT TAX.—Section 2522 (relating to charitable and similar gifts) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: "(d) SPECIAL RULE FOR IRREVOCABLE TRANSFERS OF EASEMENTS IN

REAL PROPERTY.—A deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property interest (as defined in section 170(h)(2)(C)) which meets the requirements of section 170(h) (without regard to paragraph (4)(A) thereof)." (c) CONFORMING AMENDMENT.—Subparagraph (F)(ii) of section 2106(a)(2) is amended by striking out "section 2055(f)" and inserting in lieu thereof "section 2055(g)". (d) SPECIAL DONATIONS.—If the Secretary of the Interior acquires by donation after December 31, 1986, a conservation easement (within the meaning of section 2(h) of S. 720, 99th Congress, 1st Session, as in effect on August 16, 1986), such donation shall qualify for treatment under section 2055(f) or 2522(d) of the Internal Revenue Code of 1954, as added by this section. (e) EFFECTIVE DATE.—The amendments made by this section shall apply to transfers and contributions made after December 31, 1986. SEC. 1423. CONVEYANCE OF CERTAIN REAL AND PERSONAL PROPERTY OF DECEDENT TO CHARITABLE FOUNDATION TREATED AS CHARITABLE CONTRIBUTION.

Notwithstanding any other law or any rule of law (including res judicata, laches, or lapse of time), in the case of any real property or personal property located in Bangkok, Thailand, which— (1) was owned by James H.W. Thompson at the time of his death, and (2) has been transferred to the Jim Thompson Foundation (also known as the J.H.W. Thompson Foundation), a charitable foundation established in Thailand for the purpose of operating a museum consisting of such real and personal property, such property shall be treated, for purposes of section 2055 of the Internal Revenue Code of 1954 (relating to deductions for transfers for public, charitable, and religious uses), as having been transferred as a bequest or a devise directly from the estate of James H.W. Thompson to the Jim Thompson Foundation and the value of such property included in the gross estate shall be deducted from the gross estate of James H.W. Thompson for purposes of the tax imposed by section 2001 of such Code.

Subtitle D—Generation-Skipping Transfers SEC. 1431. NEW TAX ON GENERATION-SKIPPING TRANSFERS.

(a) GENERAL RULE.—Chapter 13 (relating to tax on certain generation-skipping transfers) is amended to read as follows:

"CHAPTER 13—TAX ON GENERATION-SKIPPING TRANSFERS "Subchapter "Subchapter "Subchapter "Subchapter "Subchapter "Subchapter "Subchapter

A. Tax imposed. B. Generation-skipping transfers. C. Taxable amount. D. GST exemption. E. Applicable rate; inclusion ratio. F. Other definitions and special rules. G. Administration.

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 100 STAT. 2718

PUBLIC LAW 99-514—OCT. 22, 1986 "Subchapter A—Tax Imposed "Sec. "Sec. "Sec. "Sec.

2601. Tax imposed. 2602. Amount of tax. 2603. Liability for tax. 2604. Credit for certain State taxes.

"SEC. 2601. TAX IMPOSED.

"A tax is hereby imposed on every generation-skipping transfer (within the meaning of subchapter B). "SEC. 2602. AMOUNT OF TAX.

"The amount of the tax imposed by section 2601 is— "(1) the taxable amount (determined under subchapter C), multiplied by "(2) the applicable rate (determined under subchapter E). "SEC. 2603. LIABILITY FOR TAX. "(a) PERSONAL LIABILITY.— "(1) TAXABLE DISTRIBUTIONS.—In the case of a taxable dis-

tribution, the tax imposed by section 2601 shall be paid by the transferee. "(2) TAXABLE TERMINATION.—In the case of a taxable termination or a direct skip from a trust, the tax shall be paid by the trustee. "(3) DIRECT SKIP.—In the case of a direct skip (other than a direct skip from a trust), the tax shall be paid by the transferor. "0)) SOURCE OF TAX.—Unless otherwise directed pursuant to the governing instrument by specific reference to the tax imposed by this chapter, the tax imposed by this chapter on a generationskipping transfer shall be charged to the property constituting such transfer. "(c) CROSS REFERENCE.— "For provisions making estate and gift tax provisions with respect to transferee liability, liens, and related matters applicable to the tax imposed by section 2601, see section 2661. "SEC. 2604. CREDIT FOR CERTAIN STATE TAXES.

"(a) GENERAL RULE.—If a generation-skipping transfer (other than a direct skip) occurs at the same time as and as a result of the death of an individual, a credit against the tax imposed by section 2601 shall be allowed in an amount equal to the generation-skipping transfer tax actually paid to any State in respect to any property included in the generation-skipping transfer. "(b) LIMITATION.—The aggregate amount allowed as a credit under this section with respect to any transfer shall not exceed 5 percent of the amount of the tax imposed by section 2601 on such transfer.

"Subchapter B—Generation-Skipping Transfers "Sec. 2611. Generation-skipping transfer defined. "Sec. 2612. Taxable termination; taxable distribution; direct skip. "Sec. 2613. Skip person and non-skip person defined. "SEC. 2611. GENERATION-SKIPPING TRANSFER DEFINED.

"(a) IN GENERAL.—For purposes of this chapter, the term 'generation-skipping transfers' mean— "(1) a taxable distribution.

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100 STAT. 2719

"(2) a taxable termination, and "(3) a direct skip. "(b) CERTAIN TRANSFERS EXCLUDED.—The term 'generation-skipping transfer' does not include— "(1) any transfer (other than a direct skip) from a trust, to the extent such transfer is subject to a tax imposed by chapter 11 or 12 with respect to a person in the 1st generation below that of the grantor, and "(2) any transfer which, if made inter vivos by an individual, would not be treated as a taxable gift by reason of section 2503(e) (relating to exclusion of certain transfers for educational or medical expenses), and "(3) any transfer to the extent— "(A) the property transferred was subject to a prior tax imposed under this chapter, "(B) the transferee in the prior transfer was assigned to the same generation as (or a lower generation than) the generation assignment of the transferee in this transfer, and "(C) such transfers do not have the effect of avoiding tax under this chapter with respect to any transfer. "SEC. 2612. TAXABLE TERMINATION; TAXABLE DISTRIBUTION; DIRECT SKIP. "(a) TAXABLE TERMINATION.— "(1) GENERAL RULE.—For

purposes of this chapter, the term 'taxable termination' means the termination (by death, lapse of time, release of power, or otherwise) of an interest in property held in a trust unless— "(A) immediately after such termination, a non-skip person has an interest in such property, or "(B) at no time after such termination may a distribution (including distributions on termination) be made from such trust to a skip person. "(2) CERTAIN PARTIAL TERMINATIONS TREATED AS TAXABLE.—If,

upon the termination of an interest in property held in a trust, a specified portion of the trust assets are distributed to skip persons who are lineal descendants of the holder of such interest (or to 1 or more trusts for the exclusive benefit of such persons), such termination shall constitute a taxable termination with respect to such portion of the trust property. "(b) TAXABLE DISTRIBUTION.—For purposes of this chapter, the term 'taxable distribution' means any distribution from a trust to a skip person (other than a taxable termination or a direct skip). "(c) DIRECT SKIP.—For purposes of this chapter— "(1) IN GENERAL.—The term 'direct skip' means a transfer subject to a tax imposed by chapter 11 or 12 of an interest in property to a skip person. "(2) SPECIAL RULE FOR TRANSFERS TO GRANDCHILDREN.—For

purposes of determining whether any transfer is a direct skip, if— "(A) an individual is a grandchild of the transferor (or the transferor's spouse or former spouse), and "(B) as of the time of the transfer, the parent of such individual who is a lineal descendant of the transferor (or the transferor's spouse or former spouse) is dead.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/912

 100 STAT. 2720

PUBLIC LAW 99-514—OCT. 22, 1986 such individual shall be treated as if such individual were a child of the transferor and all of that grandchild's children shall be treated as if they were grandchildren of the transferor. In the case of lineal descendants below a grandchild, the preceding sentence may be reapplied.

"SEC. 2613. SKIP PERSON AND NONSKIP PERSON DEFINED.

"(a) SKIP PERSON.—For purposes of this chapter, the term 'skip person' means— "(1) a person assigned to a generation which is 2 or more generations below the generation assignment of the transferor, or "(2) a trust— "(A) if all interests in such trust are held by skip persons, or "(B) if— "(i) there is no person holding an interest in such trust, and "(ii) at no time after such transfer may a distribution (including distributions on termination) be made from such trust to a nonskip person. "(b) NON-SKIP PERSON.—For purposes of this chapter, the term 'non-skip person' means any person who is not a skip person.

"Subchapter C—Taxable Amount "Sec. "Sec. "Sec. "Sec.

2621. Taxable amount in case of taxable distribution. 2622. Taxable amount in case of taxable termination. 2623. Taxable amount in case of direct skip. 2624. Valuation.

"SEC. 2621. TAXABLE AMOUNT IN CASE OF TAXABLE DISTRIBUTION.

"(a) IN GENERAL.—For purposes of this chapter, the taxable amount in the case of any taxable distribution shall be— "(1) the value of the property received by the transferee, reduced by "(2) any expense incurred by the transferee in connection with the determination, collection, or refund of the tax imposed by this chapter with respect to such distribution. "(b) PAYMENT OF GST TAX TREATED AS TAXABLE DISTRIBUTION.—

For purposes of this chapter, if any of the tax imposed by this chapter with respect to any taxable distribution is paid out of the trust, an amount equal to the portion so paid shall be treated as a taxable distribution. "SEC. 2622. TAXABLE AMOUNT IN CASE OF TAXABLE TERMINATION.

"(a) IN GENERAL.—For purposes of this chapter, the taxable amount in the case of a taxable termination shall be— "(1) the value of all property with respect to which the taxable termination has occurred, reduced by "(2) any deduction allowed under subsection (b). "(b) DEDUCTION FOR CERTAIN EXPENSES.—For purposes of subsection (a), there shall be allowed a deduction similar to the deduction allowed by section 2053 (relating to expenses, indebtedness, and taxes) for amounts attributable to the property with respect to which the taxable termination has occurred.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/913

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2721

"SEC. 2623. TAXABLE AMOUNT IN CASE OF DIRECT SKIP.

"For purposes of this chapter, the taxable amount in the case of a direct skip shall be the value of the property received by the transferee. "SEC. 2624. VALUATION.

"(a) GENERAL RULE.—Except as otherwise provided in this chapter, property shall be valued as of the time of the generationskipping transfer. "(b) ALTERNATE VALUATION AND SPECIAL USE VALUATION ELECTIONS APPLY TO CERTAIN DIRECT SKIPS.—In the case of any direct

skip of property which is included in the transferor's gross estate, the value of such property for purposes of this chapter shall be the same as its value for purposes of chapter 11 (determined with regard to sections 2032 and 2032A). "(c) ALTERNATE VALUATION ELECTION PERMITTED IN THE CASE OF TAXABLE TERMINATIONS OCCURRING AT DEATH.—If 1 or more taxable

terminations with respect to the same trust occur at the same time as and as a result of the death of an individual, an election may be made to value all of the property included in such terminations in accordance with section 2032. "(d) REDUCTION FOR CONSIDERATION PROVIDED BY TRANSFEREE.—

For purposes of this chapter, the value of the property transferred shall be reduced by the amount of any consideration provided by the transferee.

"Subchapter D—GST Exemption "Sec. 2631. GST exemption. "Sec. 2632. Special rules for allocation of GST exemption. "SEC. 2631. GST EXEMPTION.

"(a) GENERAL RULE.—For purposes of determining the inclusion ratio, every individual shall be allowed a GST exemption of $1,000,000 which may be allocated by such individual (or his executor) to any property with respect to which such individual is the transferor. "(b) ALLOCATIONS IRREVOCABLE.—Any allocation under subsection (a), once made, shall be irrevocable. "SEC. 2632. SPECIAL RULES FOR ALLOCATION OF GST EXEMPTION. "(a) TIME AND MANNER OF ALLOCATION.—

"(1) TIME.—Any allocation by an individual of his GST exemption under section 2631(a) may be made at any time on or before the date prescribed for filing the estate tax return for such individual's estate (determined with regard to extensions), regardless of whether such a return is required to be filed. "(2) MANNER.—The Secretary shall prescribe by forms or regulations the manner in which any allocation referred to in paragraph (1) is to be made. "Ob) DEEMED ALLOCATION TO CERTAIN LIFETIME DIRECT SKIPS.—

"(1) IN GENERAL.—If any individual makes a direct skip during his lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the direct skip exceeds such unused

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Page:United States Statutes at Large Volume 100 Part 3.djvu/914

 100 STAT. 2722

PUBLIC LAW 99-514—OCT. 22, 1986 portion, the entire unused portion shall be allocated to the property transferred. "(2) UNUSED PORTION.—For purposes of paragraph (1), the

unused portion of an individual's GST exemption is that portion of such exemption which has not previously been allocated by such individual (or treated as allocated under paragraph (1)) with respect to a prior direct skip. "(3) SUBSECTION NOT TO APPLY IN CERTAIN CASES.—An individ-

ual may elect to have this subsection not apply to a transfer. "(c) ALLOCATION OF UNUSED GST EXEMPTION.—

"(1) IN GENERAL.—Any portion of an individual's GST exemption which has not been allocated within the time prescribed by subsection (a) shall be deemed to be allocated as follows— "(A) first, to property which is the subject of a direct skip occurring at such individual's death, and "(B) second, to trusts with respect to which such individual is the transferor and from which a taxable distribution or a taxable termination might occur at or after such individual's death. "(2) ALLOCATION WITHIN CATEGORIES.—

"(A) IN GENERAL.—The allocation under paragraph (1) shall be made among the properties described in subparagraph (A) thereof and the trusts described in subparagraph (B) thereof, as the case may be, in proportion to the respective amounts (at the time of allocation) of the nonexempt portions of such properties or trusts. "(B) NONEXEMPT PORTION.—For purposes of subparagraph (A), the term 'nonexempt portion means the value (at the time of allocation) of the property or trust, multiplied by the inclusion ratio with respect to such property or trust.

"Subchapter E—Applicable Rate; Inclusion Ratio "Sec. 2641. Applicable rate. "Sec. 2642. Inclusion ratio. "SEC. 2641. APPLICABLE RATE.

"(a) GENERAL RULE.—For purposes of this chapter, the term 'applicable rate' means, with respect to any generation-skipping transfer, the product of— "(1) the maximum Federal estate tax rate, and "(2) the inclusion ratio with respect to the transfer. "(b) MAXIMUM FEDERAL ESTATE TAX RATE.—For purposes of

subsection (a), the term 'maximum Federal estate tax rate' means the maximum rate imposed by section 2001 on the estates of decedents dying at the time of the taxable distribution, taxable termination, or direct skip, as the case may be. "SEC. 2642. INCLUSION RATIO.

"(a) INCLUSION RATIO DEFINED.—For purposes of this chapter— "(1) IN GENERAL.—Except as otherwise provided in this section, the inclusion ratio with respect to any property transferred in a generation-skipping transfer shall be the excess (if any) of 1 over— "(A) except as provided in subparagraph (B), the applicable fraction determined for the trust from which such transfer is made, or

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Page:United States Statutes at Large Volume 100 Part 3.djvu/915

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2723

"(B) in the case of a direct skip, the applicable fraction determined for such skip. "(2) APPLICABLE FRACTION.—For purposes of paragraph (1), the

applicable fraction is a fraction— "(A) the numerator of which is the amount of the GST exemption allocated to the trust (or in the case of a direct skip, allocated to the property transferred in such skip), and "(B) the denominator of which is— "(i) the value of the property transferred to the trust (or involved in the direct skip), reduced by "(ii) the sum of— "(I) any Federal estate tax or State death tax actually recovered from the trust attributable to such property, and "(II) any charitable deduction allowed under section 2055 or 2522 with respect to such property. Except as provided in paragraphs (3) and (4) of subsection (b), the value determined under subparagraph (B)(i) shall be of the property as of the time of the transfer to the trust (or the direct skip). "(b) VALUATION RULES, ETC.— "(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED

ALLOCATION MADE.—If the allocation of the GST exemption to any property is made on a timely filed gift tax return required by section 6019 or is deemed to be made under section 2632(b)(1)— "(A) the value of such property for purposes of subsection (a) shall be its value for purposes of chapter 12, and "(B) such allocation shall be effective on and after the date of such transfer. "(2) TRANSFERS AND ALLOCATIONS AT OR AFTER DEATH.— "(A) TRANSFERS AT DEATH.—If property is transferred

as a result of the death of the transferor, the value of such property for purposes of subsection (a) shall be its value for purposes of chapter 11. "(B) ALLOCATIONS AT OR AFTER DEATH OF TRANSFEROR.—

Any allocation at or after the death of the transferor shall be effective on and after the date of the death of the transferor. "(3) INTER VIVOS ALLOCATIONS NOT MADE ON TIMELY FILED GIFT

TAX RETURN.—If any allocation of the GST exemption to any property is made during the life of the transferor but is not made on a timely filed gift tax return required by section 6019 and is not deemed to be made under section 2632(b)(l)— "(A) the value of such property for purposes of subsection (a) shall be determined as of the time such allocation is filed with the Secretary, and "(B) such allocation shall be effective on and after the date on which such allocation is filed with the Secretary. "(4) QTIP TRUSTS.—If the value of property is included in the estate of a spouse by virtue of section 2044, and if such spouse is treated as the transferor of such property under section 2652(a), the value of such property for purposes of subsection (a) shall be its value for purposes of chapter 11 in the estate of such spouse. "(c) TREATMENT OF CERTAIN NONTAXABLE GIFTS.— "(1) DIRECT SKIPS.—In the case of any direct

skip which is a

nontaxable gift, the inclusion ratio shall be zero. "(2) TREATMENT OF NONTAXABLE GIFTS MADE TO TRUSTS.—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/916

 100 STAT. 2724

PUBLIC LAW 99-514—OCT. 22, 1986 "(A) IN GENERAL.—Except as provided in subparagraph (B), any nontaxable gift which is not a direct skip and which is made to a trust shall not be taken into account under subsection (a)(2)(B). "(B) DETERMINATION OF 1ST TRANSFER TO TRUST.—In the

case of any nontaxable gift referred to in subparagraph (A) which is the 1st transfer to the trust, the inclusion ratio for such trust shall be zero. "(3) NONTAXABLE GIFT.—For purposes of this section, the term 'nontaxable gift' means any transfer of property to the extent such transfer is not treated as a taxable gift by reason of— "(A) section 2503(b) (taking into account the application of section 2513), or "(B) section 2503(e). "(d) SPECIAL RULES WHERE MORE THAN 1 TRANSFER MADE TO TRUST.—

^

"(1) IN GENERAL.—If a transfer of property (other than a nontaxable gift) is made to a trust in existence before such transfer, the applicable fraction for such trust shall be recomputed as of the time of such transfer in the manner provided in paragraph (2). "(2) APPLICABLE FRACTION.—In the case of any such transfer, the recomputed applicable fraction is a fraction— "(A) the numerator of which is the sum of— "(i) the amount of the GST exemption allocated to property involved in such transfer, plus "(ii) the nontax portion of such trust immediately before such transfer, and "(B) the denominator of which is the sum of— "(i) the value of the property involved in such transfer, reduced by any charitable deduction allowed under section 2055 or 2522 with respect to such property, and "(ii) the value of all of the property in the trust (immediately before such transfer). "(3) NONTAX PORTION.—For purposes of paragraph (2), the

term 'nontax portion' means the product of— "(A) the value of all of the property in the trust, and "(B) the applicable fraction in effect for such trust. "(4) SIMILAR RECOMPUTATION IN CASE OF CERTAIN LATE ALLOCATIONS.—If^

"(A) any allocation of the GST exemption to property transferred to a trust is not made on a timely filed gift tax return required by section 6019, and "(B) there was a previous allocation with respect to property transferred to such trust, the applicable fraction for such trust shall be recomputed as of the time of such allocation under rules similar to the rules of paragraph (2).

"Subchapter F—Other Definitions and Special Rules "Sec. "Sec. "Sec. "Sec.

2651. 2652. 2653. 2654.

Generation assignment. Other definitions. Taxation of multiple skips. Special rules.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/917

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2725

"SEC. 2651. GENERATION ASSIGNMENT.

"(a) IN GENERAL.—For purposes of this chapter, the generation to which any person (other than the transferor) belongs shall be determined in accordance with the rules set forth in this section. "(b) LINEAL DESCENDANTS.—

"(1) IN GENERAL.—An individual who is a lineal descendant of a grandparent of the transferor shall be assigned to that generation which results from comparing the number of generations between the grandparent and such individual with the number of generations between the grandparent and the transferor. "(2) O N SPOUSE'S SIDE.—An individual who is a lineal descendant of a grandparent of a spouse of the transferor (other than such spouse) shall be assigned to that generation which results from comparing the number of generations between such grandparent and such individual with the number of generations between such grandparent and such spouse. "(3) TREATMENT OF LEGAL ADOPTIONS, ETC.—For purposes of this subsection— "(A) LEGAL ADOPTIONS.—A relationship by legal adoption shall be treated as a relationship by blood. "(B) RELATIONSHIPS BY HALF-BLOOD.—A relationship by the half-blood shall be treated as a relationship of the whole-blood. "(c) MARITAL RELATIONSHIP.— "(1) MARRIAGE TO TRANSFEROR.—An

individual who has been married at any time to the transferor shall be assigned to the transferor's generation. "(2) MARRIAGE TO OTHER LINEAL DESCENDANTS.—An individual who has been married at any time to an individual described in subsection (b) shall be assigned to the generation of the individual so described. "(d) PERSONS WHO ARE NOT LINEAL DESCENDANTS.—An individual who is not assigned to a generation by reason of the foregoing provisions of this section shall be assigned to a generation on the basis of the date of such individual's birth with— "(1) an individual born not more than 12 y2 years after the date of the birth of the transferor assigned to the transferor's generation, "(2) an individual born more than 12V2 years but not more than 37 V years after the date of the birth of the transferor a assigned to the first generation younger than the transferor, and "(3) similar rules for a new generation every 25 years. "(e) OTHER SPECIAL RULES.— "(1) INDIVIDUALS ASSIGNED TO MORE THAN i GENERATION.—

Except as provided in regulations, an individual who, but for this subsection, would be assigned to more than 1 generation shall be assigned to the youngest such generation. "(2) INTERESTS THROUGH ENTITIES.—Except as provided in paragraph (3), if an estate, trust, partnership, corporation, or other entity has an interest in property, each individual having a beneficial interest in such entity shall be treated as having an interest in such property and shall be assigned to a generation under the foregoing provisions of this subsection. "(3) TREATMENT OF CERTAIN CHARITABLE ORGANIZATIONS.—Any

organization described in section 511(a)(2) and any charitable

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Page:United States Statutes at Large Volume 100 Part 3.djvu/918

 100 STAT. 2726

PUBLIC LAW 99-514—OCT. 22, 1986 trust described in section 511(b)(2) shall be assigned to the transferor's generation.

"SEC. 2652. OTHER DEFINITIONS. "(a) TRANSFEROR.—For purposes of this chapter— "(1) IN GENERAL.—Except as provided in this subsection or section 2653(a), the term 'transferor' means— "(A) in the case of a transfer of a kind subject to the tax imposed by chapter 11, the decedent, and "(B) in the case of a transfer of a kind subject to the tax imposed by chapter 12, the donor. "(2) GiFT-spuTTiNG BY MARRIED COUPLES.—If, Under section 2513, one-half of a gift is treated as made by an individual and one-half of such gift is treated as made by the spouse of such individual, such gift shall be so treated for purposes of this chapter. "(3) SPECIAL ELECTION FOR QUALIFIED TERMINABLE INTEREST

PROPERTY.—In the case of— "(A) any property with respect to which a deduction is allowed to the decedent under section 2056 by reason of subsection (b)(7) thereof, and "(B) any property with respect to which a deduction to the donor spouse is allowed under section 2523 by reason of subsection (f) thereof, the estate of the decedent or the donor spouse, as the case may be, may elect to treat such property for purposes of this chapter as if the election to be treated as qualified terminable interest property had not been made. "(h) TRUST AND TRUSTEE.—

"(1) TRUST.—The term 'trust' includes any arrangement (other than an estate) which, although not a trust, has substantially the same effect as a trust. "(2) TRUSTEE.—In the case of an arrangement which is not a trust but which is treated as a trust under this subsection, the term 'trustee' shall mean the person in actual or constructive possession of the property subject to such arrangement. "(3) EXAMPLES.—Arrangements to which this subsection applies include arrangements involving life estates and remainders, estates for years, and insurance and annuity contracts. "(c) INTEREST.—

"(1) IN GENERAL.—A person has an interest in property held in trust if (at the time the determination is made) such person— "(A) has a right (other than a future right) to receive income or corpus from the trust, "(B) is a permissible current recipient of income or corpus from the trust and is not described in section 2055(a), or "(C) is described in section 2055(a) and the trust is— "(i) a charitable remainder annuity trust, "(ii) a charitable remainder unitrust within the meaning of section 664, or "(iii) a pooled income fund within the meaning of section 642(c)(5). "(2) CERTAIN NOMINAL INTERESTS DISREGARDED.—For purposes of paragraph (1), an interest which is used primarily to postpone or avoid the tax imposed by this chapter shall be disregarded.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/919

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2727

"SEC. 2653. TAXATION OF MULTIPLE SKIPS.

"(a) GENERAL RULE.—For purposes of this chapter, if— "(1) there is a generation-skipping transfer of any property, and "(2) immediately after such transfer such property is held in trust, for purposes of applying this chapter (other than section 2651) to subsequent transfers from the portion of such trust attributable to such property, the trust will be treated as if the transferor of such property were assigned to the first generation above the highest generation of any person who has an interest in such trust immediately after the transfer. "(b) TRUST RETAINS INCLUSION RATIO.—

"(1) IN GENERAL.—Except as provided in paragraph (2), the provisions of subsection (a) shall not affect the inclusion ratio determined with respect to any trust. Under regulations prescribed by the Secretary, notwithstanding the preceding sentence, proper adjustment shall be made to the inclusion ratio with respect to such trust to take into account any tax under this chapter borne by such trust which is imposed by this chapter on the transfer described in subsection (a). "(2) SPECIAL RULE FOR POUR-OVER TRUST.—

"(A) IN GENERAL.—If the generation-skipping transfer referred to in subsection (a) involves the transfer of property from 1 trust to another trust (hereinafter in this paragraph referred to as the 'pour-over trust'), the inclusion ratio for the pour-over trust shall be determined by treating the nontax portion of such distribution as if it were a part of a GST exemption allocated to such trust. "(B) NONTAX PORTION.—For purposes of subparagraph (A), the nontax portion of any distribution is the amount of such distribution multiplied by the applicable fraction which applies to such distribution. "SEC. 2654. SPECIAL RULES. "(a) BASIS ADJUSTMENT.—

"(1) IN GENERAL.—Except as provided in paragraph (2), if property is transferred in a generation-skipping transfer, the basis of such property shall be increased (but not above the fair market value of such property) by an amount equal to that portion of the tax imposed by section 2601 (computed without regard to section 2604) with respect to the transfer which is attributable to the excess of the fair market value of such property over its adjusted basis immediately before the transfer. "(2) CERTAIN TRANSFERS AT DEATH.—If property is transferred in a taxable termination which occurs at the same time as and as a result of the death of an individual, the basis of such property shall be adjusted in a manner similar to the manner provided under section 1014(a); except that, if the inclusion ratio with respect to such property is less than 1, any increase in basis shall be limited by multiplying such increase by the inclusion ratio. "(b) SEPARATE SHARES TREATED AS SEPARATE TRUSTS.—Substan-

tially separate and independent shares of different beneficiaries in a trust shall be treated as separate trusts. "(c) DISCLAIMERS.—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/920

 100 STAT. 2728

PUBLIC LAW 99-514—OCT. 22, 1986 "For provisions relating to the effect of a qualified disclaimer for purposes of this chapter, see section 2518.

"(d) LIMITATION ON PERSONAL LIABILITY OF TRUSTEE.—A trustee shall not be personally liable for any increase in the tax imposed by section 2601 which is attributable to the fact that— "(1) section 2642(c) (relating to exemption of certain nontaxable gifts) does not apply to a transfer to the trust which was made during the life of the transferor and for which a gift tax return was not filed, or "(2) the inclusion ratio with respect to the trust is greater than the amount of such ratio as computed on the basis of the return on which was made (or was deemed made) an allocation of the GST exemption to property transferred to such trust. The preceding sentence shall not apply if the trustee has knowledge of facts sufficient reasonably to conclude that a gift tax return was required to be filed or that the inclusion ratio was erroneous.

"Subchapter G—Administration "Sec. 2661. Administration. "Sec. 2662. Return requirements. "Sec. 2663. Regulations. "SEC. 2661. ADMINISTRATION.

"Insofar as applicable and not inconsistent with the provisions of this chapter— "(1) except as provided in paragraph (2), all provisions of subtitle F (including penalties) applicable to the gift tax, to chapter 12, or to section 2501, are hereby made applicable in respect of the generation-skipping transfer tax, this chapter, or section 2601, as the case may be, and "(2) in the case of a generation-skipping transfer occurring at the same time as and as a result of the death of an individual, all provisions of subtitle F (including penalties) applicable to the estate tax, to chapter 11, or to section 2001 are hereby made applicable in respect of the generation-skipping transfer tax, this chapter, or section 2601 (as the case may be). "SEC. 2662. RETURN REQUIREMENTS.

"(a) IN GENERAL.—The Secretary shall prescribe by regulations the person who is required to make the return with respect to the tax imposed by this chapter and the time by which any such return must be filed. To the extent practicable, such regulations shall provide that— "(1) the person who is required to make such return shall be the person liable under section 2603(a) for payment of such tax, and "(2) the return shall be filed— "(A) in the case of a direct skip (other than from a trust), on or before the date on which an estate or gift tax return is required to be filed with respect to the transfer, and "(B) in all other cases, on or before the 15th day of the 4th month after the close of the taxable year of the person required to make such return in which such transfer occurs.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/921

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2729

"(b) INFORMATION RETURNS.—The Secretary may by regulations

require a return to be filed containing such information as he determines to be necessary for purposes of this chapter. "SEC. 2663. REGULATIONS.

"The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this chapter, including— "(1) such regulations as may be necessary to coordinate the provisions of this chapter with the recapture tax imposed under section 2032A(c), and "(2) regulations (consistent with the principles of chapters 11 and 12) providing for the application of this chapter in the case of transferors who are nonresidents not citizens of the United States." (b) CLERICAL AMENDMENT.—The table of chapters for subtitle B is amended by striking out the item relating to chapter 13 and inserting in lieu thereof the following: "CHAPTER 13. Tax on generation-skipping transfers." SEC. 1432. RELATED AMENDMENTS. (a) INCOME TAX DEDUCTION FOR GENERATION-SKIPPING TRANSFER TAX.—

(1) IN GENERAL.—Subsection (a) of section 164 (relating to deduction for certain taxes), as amended by section 134, is amended by inserting after paragraph (4) the following new paragraph: "(5) the GST tax imposed on income distributions." (2) DEFINITIONS.—Subsection (b) of section 164, as so amended, is amended by adding at the end thereof the following new paragraph: "(4) SPECIAL RULES FOR GST TAX.—

"(A) IN GENERAL.—The GST tax imposed on income distributions is— "(i) the tax imposed by section 2601, and "(ii) any State tax described in section 2604, but only to the extent such tax is imposed on a transfer which is included in the gross income of the distributee and to which section 666 does not apply. "(B) SPECIAL RULE FOR TAX PAID BEFORE DUE DATE.—Any

tax referred to in subparagraph (A) imposed with respect to a transfer occurring during the taxable year of the distributee (or, in the case of a taxable termination, the trust) which is paid not later than the time prescribed by law (including extensions) for filing the return with respect to such transfer shall be treated as having been paid on the last day of the taxable year in which the transfer was made." (3) DEDUCTION FOR TAX IN CASE OF TAXABLE TERMINATIONS.—

Paragraph (3) of section 691(c) (relating to deduction for estate tax) is amended to read as follows: "(3) SPECIAL RULE FOR GENERATION-SKIPPING TRANSFERS.—In

the case of any tax imposed by chapter 13 on a taxable termination or a direct skip occurring as a result of the death of the transferor, there shall be allowed a deduction (under principles similar to the principles of this subsection) for the portion of such tax attributable to items of gross income of the trust which

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Page:United States Statutes at Large Volume 100 Part 3.djvu/922

 100 STAT. 2730

PUBLIC LAW 99-514—OCT. 22, 1986 were not properly includible in the gross income of the trust for periods before the date of such termination."

(b) DISTRIBUTIONS IN REDEMPTION OF STOCK TO PAY GENERATIONSKIPPING TRANSFER TAXES.—Subsection (d) of section 303 is amended

to read as follows: "(d) SPECIAL RULES FOR GENERATION-SKIPPING TRANSFERS.—Where

stock in a corporation is the subject of a generation-skipping transfer (within the meaning of section 2611(a)) occurring at the same time as and as a result of the death of an individual— "(1) the stock shall be deemed to be included in the gross estate of such individual; "(2) taxes of the kind referred to in subsection (a)(1) which are imposed because of the generation-skipping transfer shall be treated as imposed because of such individual's death (and for this purpose the tax imposed by section 2601 shall be treated as an estate tax); "(3) the period of distribution shall be measured from the date of the generation-skipping transfer; and "(4) the relationship of stock to the decedent's estate shall be measured with reference solely to the amount of the generationskipping transfer." (C) AVAILABILITY OF ALTERNATE VALUATION ELECTION.—

(1) IN GENERAL.—Paragraph (2) of section 2032(c) (relating to election must decrease gross estate and estate tax) is amended to read as follows: "(2) the sum of the tax imposed by this chapter and the tax imposed by chapter 13 with respect to property includible in the decedent's gross estate (reduced by credits allowable against such taxes)." (2) CONFORMING AMENDMENT.—Subsection (g) of section 2013

is hereby repealed. (d) GENERATION-SKIPPING TAX TREATED AS TAXABLE GIFT.—

(1) IN GENERAL.—Subchapter B of chapter 12 is amended by inserting after section 2514 the following new section: "SEC. 2515. TREATMENT OF GENERATION-SKIPPING TRANSFER TAX.

"In the case of any taxable gift which is a direct skip (within the meaning of chapter 13), the amount of such gift shall be increased by the amount of any tax imposed on the transferor under chapter 13 with respect to such gift." (2) CLERICAL AMENDMENT.—The table of sections for subchapter B of chapter 12 is amended by inserting after the item relating to section 2514 the following new item: "Sec. 2515. Treatment of generation-skipping transfer tax." (e) EXTENSION OF TIME FOR PAYMENT OF TAX ON CERTAIN DIRECT

SKIPS.—Section 6166 is amended by redesignating subsections (i) and (j) as subsections (j) and (k), respectively, and by inserting after subsection (h) the following new subsection: "(i) SPECIAL RULE FOR CERTAIN DIRECT SKIPS.—To the extent that an interest in a closely held business is the subject of a direct skip (within the meaning of section 2612(c)) occurring at the same time as and as a result of the decedent's death, then for purposes of this section any tax imposed by section 2601 on the transfer of such interest shall be treated as if it were additional tax imposed by section 2001." . i ^ ^

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Page:United States Statutes at Large Volume 100 Part 3.djvu/923

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2731

SEC. 1433. EFFECTIVE DATES.

(a) GENERAL RULE.—Except as provided in subsection (b), the amendments made by this part shall apply to any generationskipping transfer (within the meaning of section 2611 of the Internal Revenue Code of 1986) made after the date of the enactment of this Act. (h) SPECIAL RULES.— (1) TREATMENT OF CERTAIN INTER VIVOS TRANSFERS MADE AFTER

SEPTEMBER 25, 1985.—For purposes of subsection (a) (and chapter 13 of the Internal Revenue Code of 1986 as amended by this part), any inter vivos transfer after September 25, 1985, and on or before the date of the enactment of this Act shall be treated as if it were made on the 1st day after the date of enactment of this Act. (2) EXCEPTIONS.—The amendments made by this part shall not apply to— (A) any generation-skipping transfer under a trust which was irrevocable on September 25, 1985, but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985, (B) any generation-skipping transfer under a will executed before the date of the enactment of this Act if the decedent dies before January 1, 1987, and (C) any generation-skipping transfer— (i) under a trust to the extent such trust consists of property included in the gross estate of a decedent (other than property transferred by the decedent during his life after the date of the enactment of this Act), or reinvestments thereof, or (ii) which is a direct skip which occurs by reason of the death of any decedent; but only if such decedent was, on the date of the enactment of this Act, under a mental disability to change the disposition of his property and did not regain his competence to dispose of such property before the date of his death. (3) TREATMENT OF CERTAIN TRANSFERS TO GRANDCHILDREN.—

For purposes of chapter 13 of the Internal Revenue Code of 1986, the term "direct skip" shall not include any transfer before January 1, 1990, from a transferor to a grandchild of the transferor to the extent that the aggregate transfers from such transferor to such grandchild do not exceed $2,000,000. (c) REPEAL OF EXISTING TAX ON GENERATION-SKIPPING TRANSFERS.—

(1) IN GENERAL.—In the case of any tax imposed by chapter 13 of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of this Act), such tax (including interest, additions to tax, and additional amounts) shall not be assessed and if assessed, the assessment shall be abated, and if collected, shall be credited or refunded (with interest) as an overpayment. (2) WAIVER OF STATUTE OF LIMITATIONS.—If on the date of the enactment of this Act (or at any time within 1 year after such date of enactment) refund or credit of any overpayment of tax resulting from the application of paragraph (1) is barred by any law or rule of law, refund or credit of such overpayment shall, nevertheless, be made or allowed if claim therefore is filed

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Page:United States Statutes at Large Volume 100 Part 3.djvu/924

 100 STAT. 2732

PUBLIC LAW 99-514—OCT. 22, 1986 before the date 1 year after the date of the enactment of this Act. (d) ELECTION FOR CERTAIN TRANSFERS BENEFITING GRANDCHILD.—

(1) IN GENERAL.—For purposes of chapter 13 of the Internal Revenue Code of 1986 (as amended by this Act) and subsection (b) of this section, any transfer in trust for the benefit of a grandchild of a transferor shall be treated as a direct skip if— (A) the transfer occurs before the date of enactment of this Act, (B) the transfer would be a direct skip except for the fact that the trust instrument provides that, if the grandchild dies before vesting of the interest transferred, the interest is transferred to the grandchild's heir (rather than the grandchild's estate), and (C) an election under this subsection applies to such transfer. Any transfer treated as a direct skip by reason of the preceding sentence shall be subject to Federal estate tax on the grandchild's death in the same manner as if the contingent gift over had been to the grandchild's estate. (2) ELECTION.—An election under paragraph (1) shall be made at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe.

TITLE XV—COMPLIANCE AND TAX ADMINISTRATION Subtitle A—Revision of Certain Penalties, Etc. SEC. 1501. PENALTY FOR FAILURE TO FILE INFORMATION RETURNS OR STATEMENTS.

(a) GENERAL RULE.—Subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end thereof the following new part: "PART II—FAILURE TO FILE CERTAIN INFORMATION RETURNS OR STATEMENTS "Sec. "Sec. "Sec. "Sec.

6721. Failure to file certain information returns. 6722. Failure to furnish certain payee statements. 6723. Failure to include correct information. 6724. Waiver; definitions and special rules.

"SEC. 6721. FAILURE TO FILE CERTAIN INFORMATION RETURNS.

"(a) GENERAL RULE.—In the case of each failure to file an information return with the Secretary on the date prescribed therefor (determined with regard to any extension of time for filing), the person failing to so file such return shall pay $50 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000. "(b) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more failures to which subsection (a) applies are due to intentional disregard of the filing requirement, then, with respect to each such failure— "(1) the penalty imposed under subsection (a) shall be $100, or, if greater—

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Page:United States Statutes at Large Volume 100 Part 3.djvu/925

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2733

"(A) in the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050J, 6050K, or 6050L, 10 percent of the aggregate amount of the items required to be reported, or "(B) in the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate amount of the items required to be reported, and "(2) in the case of any penalty determined under paragraph (D"(A) the $100,000 limitation under subsection (a) shall not apply, and "(B) such penalty shall not be taken into account in applying the $100,000 limitation to penalties not determined under paragraph (1). "SEC. 6722. FAILURE TO FURNISH CERTAIN PAYEE STATEMENTS.

"(a) GENERAL RULE.—In the case of each failure to furnish a payee statement on the date prescribed therefor to the person to whom such statement is required to be furnished, the person failing to so furnish such statement shall pay $50 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000. "(b) FAILURE TO NOTIFY PARTNERSHIP OF EXCHANGE OF PARTNERSHIP INTEREST.—In the case of any person who fails to furnish the

notice required by section 6050K(c)(l) on the date prescribed therefor, such person shall pay a penalty of $50 for each such failure. "SEC. 6723. FAILURE TO INCLUDE CORRECT INFORMATION. "(a) GENERAL RULE.—If^

"(1) any person files an information return or furnishes a payee statement, and "(2) such person does not include all of the information required to be shown on such return or statement or includes incorrect information, such person shall pay $5 for each return or statement with respect to which such failure occurs, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $20,000. "(b) PENALTY IN CASE OF INTENTIONAL DISREGARD.—If 1 or more failures to which subsection (a) applies are due to intentional disregard of the correct information reporting requirement, then, with respect to each such failure— "(1) the penalty imposed under subsection (a) shall be $100, or, if greater— "(A) in the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050J, 6050K, or 6050L, 10 percent of the aggregate amount of the items required to be reported correctly, or "(B) in the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate amount of the items required to be reported correctly, and "(2) in the case of any penalty determined under paragraph (D"(A) the $20,000 limitation under subsection (a) shall not apply, and

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Page:United States Statutes at Large Volume 100 Part 3.djvu/926

 100 STAT. 2734

PUBLIC LAW 99-514—OCT. 22, 1986

"(B) such penalty shall not be taken into account in applying the $20,000 limitation to penalties not determined under paragraph (1). "(c) COORDINATION WITH SECTION 6676.—No penalty shall be imposed under subsection (a) or (b) with respect to any return or statement if a penalty is imposed under section 6676 (relating to failure to supply identifying number) with respect to such return or statement. "SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.

"(a) REASONABLE CAUSE WAIVER.—No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect. "(b) PAYMENT OF PENALTY.—Any penalty imposed by this part shall be paid on notice and demand by the Secretary and in the same manner as tax. "(c) SPECIAL RULES FOR FAILURE To FILE INTEREST AND DIVIDEND RETURNS OR STATEMENTS.— "(1) HIGHER STANDARDS FOR WAIVER.—In the case of any

interest or dividend return or statement— "(A) subsection (a) shall not apply, but "(B) no penalty shall be imposed under this part if it is shown that the person otherwise liable for such penalty exercised due diligence in attempting to satisfy the requirement with respect to such return or statement. "(2) LIMITATIONS NOT TO APPLY.—In the case of any interest or dividend return or statement— "(A) the $100,000 limitations of sections 6721(a) and 6722(a) and the $20,000 limitation of section 6723(a) shall not apply (and any penalty imposed on any failure involving such a return or statement shall not be taken into account in applying such limitations to other penalties), and "(B) penalties imposed with respect to such returns or statements shall not be taken into account for purposes of applying such limitations with respect to other returns or statements. "(3) SELF ASSESSMENT.—Any penalty imposed under this part on any person with respect to an interest or dividend return or statement— "(A) shall be assessed and collected in the same manner as an excise tax imposed by subtitle D, and "(B) shall be due and payable on April 1 of the calendar year following the calendar year for which such return or statement is required. "(4) 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 under this part with respect to an interest or dividend return or statement. "(5) INTEREST OR DIVIDEND RETURN OR STATEMENT.—For purposes of this subsection, the term "interest or dividend return or statement' means— "(A) any return required by section 6042(a)(1), 6044(a)(1), or 6049(a), and "^B) any statement required under section 6042(c), 6044(e), or 6049(c).

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Page:United States Statutes at Large Volume 100 Part 3.djvu/927

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2735

"(d) DEFINITIONS.—For purposes of this part— "(1) INFORMATION RETURN.—The term 'information return' means— "(A) any statement of the amount of payments to another person required by— "(i) section 6041(a) or (b) (relating to certain information at source), rl%u3 "(ii) section 6042(a)(l) (relating to payments of dividends), 1; "(iii) section 6044(a)(1) (relating to payments of patronage dividends), oi 1 4 "(iv) section 6049(a) (relating to payments of interest), "(v) section 6050A(a) (relating to reporting require'iSi ments of certain fishing boat operators), "(vi) section 6050N(a) (relating to payments of royal';? ties), or "(vii) section 6051(d) (relating to information returns with respect to income tax withheld), and "(B) any return required by— "(i) section 4997(a) (relating to information with respect to windfall profit tax on crude oil), "(ii) section 6041A (a) or (b) (relating to returns of direct sellers), ^ "(iii) section 6045(a) or (d) (relating to returns of brokers), 3*' "(iv) section 6050H(a) (relating to mortgage interest received in trade or business from individuals), "(v) section 60501(a) (relating to cash received in trade or business), "(vi) section 6050J(a) (relating to foreclosures and abandonments of security), "(vii) section 6050K(a) (relating to exchanges of certain partnership interests), "(viii) section 6050L(a) (relating to returns relating to ?'' certain dispositions of donated property), "(ix) section 6052(a) (relating to reporting payment of wages in the form of group-term life insurance), or "(x) section 6053(c)(l) (relating to reporting with respect to certain tips). "(2) PAYEE STATEMENT.—The term 'payee statement' means any statement required to be furnished under— "(A) section 4997(a) (relating to records and information; regulations), "(B) section 6031(b), 6034A, or 6037(b) (relating to statements furnished by certain pass-thru entities), "(C) section 6039(a) (relating to information required in connection with certain options), "(D) section 6041(d) (relating to information at source), "(E) section 6041A(e) (relating to returns regarding payments of remuneration for services and direct sales), "(F) section 6042(c) (relating to returns regarding payments of dividends and corporate earnings and profits), "(G) section 6044(e) (relating to returns regarding payments of patronage dividends), "(H) section 6045(b) or (d) (relating to returns of brokers), "(I) section 6049(c) (relating to returns regarding payments of interest).

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Page:United States Statutes at Large Volume 100 Part 3.djvu/928

 100 STAT. 2736

PUBLIC LAW 99-514—OCT. 22, 1986 "(J) section 6050A(b) (relating to reporting requirements of certain fishing boat operators), "(K) section 6050C (relating to information regarding windfall profit tax on domestic crude oil), "(L) section 6050H(d) (relating to returns relating to mortgage interest received in trade or business from individuals), "(M) section 60501(e) (relating to returns relating to cash received in trade or business), "(N) section 6050J(e) (relating to returns relating to foreclosures and abandonments of security), "(O) section 6050K03) (relating to returns relating to exchanges of certain partnership interests), "(P) section 6050L(c) (relating to returns relating to certain dispositions of donated property), "(Q) section 6050N(b) (relating to returns regarding payments of royalties), "(R) section 6051 (relating to receipts for employees), "(S) section 6052(b) (relating to returns regarding payment of wages in the form of group-term life insurance), or "(T) section 6053(b) or (c) (relating to reports of tips)."

(b) INCREASE IN MAXIMUM PENALTY FOR FAILURE To SUPPLY IDENTIFYING NUMBERS.—Subsection (a) of section 6676 (relating to

failure to supply identifying numbers) is amended by striking out "$50,000" and inserting in lieu thereof "$100,000". (c) CLARIFICATION OF PENALTY FOR FAILURE To FURNISH PAYEE STATEMENTS.—

(1) Subsection (d) of section 6041 is amended to read as follows: "(d) STATEMENTS TO B E 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 with respect to whom such a return is required a written statement showing— "(1) the name and address of the person required to make such return, and "(2) the aggregate amount of payments to the person required to be shown on the return. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made. To the extent provided in regulations prescribed by the Secretary, this subsection shall also apply to persons required to make returns under subsection (b)." (2) Subsection (c) of section 6042 is amended to read as follows: "(c) STATEMENTS TO B E 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 be set forth in such return a written statement showing— (1) the name and address of the person required to make such return, and "(2) the aggregate amount of payments to the person required to be shown on the return. The written statement required under the preceding sentence shall be furnished (either in person or in a statement mailing by firstclass mail which includes adequate notice that the statement is enclosed) to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was

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Page:United States Statutes at Large Volume 100 Part 3.djvu/929

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2737

required to be made and shall be in such form as the Secretary may prescribe by regulations." (3) Subsection (e) of section 6044 is amended to read as follows: "(e) STATEMENTS TO B E FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—Every cooperative required to

make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return a written statement showing— "(1) the name and address of the cooperative required to make such return, and "(2) the aggregate amount of payments to the person required to be shown on the return. The written statement required under the preceding sentence shall be furnished (either in person or in a statement mailing by firstclass mail which includes adequate notice that the statement is enclosed) to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made and shall be in such form as the Secretary may prescribe by regulations." (4) Subsection (b) of section 6045 is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO CUSTOMERS.—Every person required to make a return under subsection (a) shall furnish to each customer whose name is required to be set forth in such return a written statement showing— "(1) the name and address of the person required to make such return, and "(2) the information required to be shown on such return with respect to such customer. The written statement required under the preceding sentence shall be furnished to the customer on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (5) Subsection (c) of section 6049 is amended to read as follows: "(c) STATEMENTS TO B E FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—

"(1) IN GENERAL.—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 a written statement showing— "(A) the name and address of the person required to make such return, and Ih "(B) the aggregate amount of payments to, or the aggregate amount includible in the gross income of, the person required to be shown on the return. "(2) TIME AND FORM OF STATEMENT.—The written statement

under paragraph (1)— "(A) shall be furnished (either in person or in a statement mailing by first-class mail which includes adequate notice that the statement is enclosed) to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made, and "(B) shall be in such form as the Secretary may prescribe by regulations." (6) Subsection (b) of section 6050A is amended to read as follows:

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Page:United States Statutes at Large Volume 100 Part 3.djvu/930

 100 STAT. 2738

PUBLIC LAW 99-514—OCT. 22, 1986

"(b) WRITTEN STATEMENT.—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 a written statement showing the information relating to such person required to be contained in such return. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (7) Subsection (b) of section 6050B is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO INDIVIDUALS WITH RESPECT

To WHOM INFORMATION IS REQUIRED.—Every person required to

make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing— "(1) the name and address of the person required to make such return, and "(2) the aggregate amount of payments to the individual required to be shown on such return. The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (8) Subsection (b) of section 6050E is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO INDIVIDUALS WITH RESPECT

To WHOM INFORMATION Is REQUIRED.—Every person required to

make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing— "(1) the name of the State or political subdivision thereof, and "(2) the information required to be shown on the return with respect to refunds, credits, and offsets to the individual. The written statement required under the preceding sentence shall be furnished to the individual during January of the calendar year following the calendar year for which the return under subsection (a) was required to be made. No statement shall be required under this subsection with respect to any individual if it is determined (in the manner provided by regulations) that such individual did not claim itemized deductions under chapter 1 for the taxable year giving rise to the refund, credit, or offset." (9) Subsection (b) of section 6050F is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—Every person required to make a

return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing— "(1) the name of the agency making the payments, and "(2) the aggregate amount of payments, of repayments, and of reductions, with respect to the individual required to be shown on such return. The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made."

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Page:United States Statutes at Large Volume 100 Part 3.djvu/931

 PUBLIC LAW 99-514—OCT. 22, 1986

100 STAT. 2739

(10) Subsection (h) of section 6050G is amended to read as follows: "(h) STATEMENTS TO B E FURNISHED TO PERSONS WITH RESPECT TO WHOM INFORMATION IS REQUIRED.—The Railroad Retirement Board

shall furnish to each individual whose name is required to be set forth in the return under subsection (a) a written statement showing— "(1) the aggregate amount of payments to such individual, and of employee contributions with respect thereto, required to be shown on the return, and "(2) such other information as the Secretary may require. The written statement required under the preceding sentence shall be furnished to the individual on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (11) Subsection (d) of section 6050H is amended to read as follows: "(d) STATEMENTS TO B E FURNISHED TO INDIVIDUALS WITH RESPECT To WHOM INFORMATION Is REQUIRED.—Every person required to

make a return under subsection (a) shall furnish to each individual whose name is required to be set forth in such return a written statement showing— "(1) the name and address of the person required to make such return, and "(2) the aggregate amount of interest described in subsection (a)(2) received by the person required to make such return from the individual to whom the statement is required to be furnished. The written statement required under the preceding sentence shall be furnished on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (12) Subsection (e) of section 60501 is amended to read as follows: "(e) STATEMENTS TO B E 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 be set forth in such return a written statement showing— "(1) the name and address of the person required to make such return, and "(2) the aggregate amount of cash described in subsection (a) received by the person required to make such return. The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (13) Subsection (h) of section 6050K is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO TRANSFEROR AND TRANS-

FEREE.—Every partnership required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return a written statement showing— "(1) the name and address of the partnership required to make such return, and "(2) the information required to be shown on the return with respect to such person.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/932

 100 STAT. 2740

PUBLIC LAW 99-514—OCT. 22, 1986

The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (14) Subsection (h) of section 6052 is amended to read as follows: "(b) STATEMENTS TO B E FURNISHED TO EMPLOYEES WITH RESPECT

To WHOM INFORMATION Is REQUIRED.—Every employer required to

make a return under subsection (a) shall furnish to each employee whose name is required to be set forth in such return a written statement showing the cost of the group-term life insurance shown on such return. The written statement required under the preceding sentence shall be furnished to the employee on or before January 31 of the year following the calendar year for which the return under subsection (a) was required to be made." (15) Subsection (a) of section 6034A is amended— (A) by striking out "making the return required to be ^ filed" and inserting in lieu thereof "required to file a return", (B) by striking out "was filed" and inserting in lieu thereof "was required to be filed", and (C) by striking out "shown on such return" and inserting in lieu thereof "required to be shown on such return". (16) Subsection (b) of section 6031 (relating to return of partnership income) is amended— (A) by striking out "was filed" and inserting in lieu ' thereof "was required to be filed", and (B) by striking out "shown on such return" and inserting in lieu thereof "required to be shown on such return". (d) CONFORMING AMENDMENTS.—

(1)(A) Section 6652 is amended— (i) by striking out subsection (a) and by redesignating I i subsections (b) through (k) as subsections (a) through (j), respectively, and ' (ii) by striking out "OTHER RETURNS" in the heading of subsection (a) (as so redesignated) and inserting in lieu thereof "RETURNS WITH RESPECT TO CERTAIN PAYMENTS AGGREGATING LESS THAN $10".

(B) Subsection (g) of section 219 is amended by striking out "section 6652(h)" and inserting in lieu thereof "section 6652(g)". (C) Sections 6033(e), 6034(c), and 6043(c) are each amended by striking out "section 6652(d)" and inserting in lieu thereof "section 6652(c)". (D) Sections 6047(e)(1) and 6058(f) are each amended by striking out "section 6652(f)" and inserting in lieu thereof "section 6652(e)". (E) Paragraph (1) of section 6050C(d) is amended by striking out "section 6652(b)" and inserting in lieu thereof "section 6722". (F) Subsection (g) of section 6057 is amended by striking out "section 6652(e)" and inserting in lieu thereof "section 6652(d)". (2) Section 6678 is hereby repealed. (3) Subchapter B of chapter 68 is amended by inserting after the subchapter heading the following: i

"Part I. General provisions. "Part II. Failure to file certain information returns or statements.

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Page:United States Statutes at Large Volume 100 Part 3.djvu/933

 PUBLIC LAW 99-514—OCT. 22, 1986 a

100 STAT. 2741

"PART I—GENERAL PROVISIONS".

(4) The table of sections for subchapter B of chapter 68 (as jn effect before the amendment made by paragraph (3)) is amended by striking out the item relating to section 6678. (e) EFFECTIVE DATE.—The amendments made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 1986, except that the amendments made by subsections (c)(2), (c)(3), and (c)(5) shall apply to returns the due for which (determined without regard to extensions) is after the date of the enactment of this Act. SEC. 1502. INCREASE IN PENALTY FOR FAILURE TO PAY TAX.

(a) GENERAL RULE.—Section 6651 (relating to failure to file tax return or to pay tax) is amended by redesignating subsection (d) as subsection (e) and by inserting after subsection (c) the following new subsection: "(d) INCREASE IN PENALTY FOR FAILURE TO PAY TAX IN CERTAIN CASES.—

.

"(1) IN GENERAL.—In the case of each month (or fraction thereof) beginning after the day described in paragraph (2) of this subsection, paragraphs (2) and (3) of subsection (a) shall be applied by substituting '1 percent' for '0.5 percent' each place it appears. "(2) DESCRIPTION.—For purposes of paragraph (1), the day described in this paragraph is the earlier of^ "(A) the day 10 days after the date on which notice is given under section 6331(d), or "(B) the day on which notice and demand for immediate payment is given under the last sentence of section 6331(a)." (b) REPEAL OF CERTAIN REDUCTION IN FAILURE TO PAY PENALTY.—

Paragraph (1) of section 6651(c) is amended to read as follows: "(1) ADDITIONS UNDER MORE THAN ONE PARAGRAPH.—With

respect to any return, the amount of the addition under paragraph (1) of subsection (a) shall be reduced by the amount of the addition under paragraph (2) of subsection (a) for any month (or fraction thereof to which an addition to tax applies under both paragraphs (1) and (2). In any case described in the last sentence of subsection (a), the amount of the addition under paragraph (1) of subsection (a) shall not be reduced under the preceding sentence below the amount provided in such last sentence. (c) EFFECTIVE DATES.— (1) SUBSECTION (a).—The amendments made by subsection (a)

shall apply— (A) to failures to pay which begin after December 31, 1986, and (B) to failures to pay which begin on or before December 31, 1986, if after December 31, 1986— ' (i) notice (or renotice) under section 6331(d) of the Internal Revenue Code of 1954 is given with respect to such failure, or (ii) notice and demand for immediate payment of the underpayment is made under the last sentence of section 6331(a) of such Code. ! In the case of a failure to pay described in subparagraph (B), paragraph (2) of section 6651(d) of such Code (as added by

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