Section 503(d)(2)

PUBLIC LAW 105–34—AUG. 5, 1997

TAXPAYER RELIEF ACT OF 1997

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TITLE V—ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

Subtitle A—Estate and Gift Tax Provisions

Sec. 501. Cost-of-living adjustments relating to estate and gift tax provisions.

Sec. 502. Family-owned business exclusion.

Sec. 503. Modifications to rate of interest on portion of estate tax extended under section 6166.

Sec. 504. Extension of treatment of certain rents under section 2032A to lineal descendants.

Sec. 505. Clarification of judicial review of eligibility for extension of time for payment of estate tax.

Sec. 506. Gifts may not be revalued for estate tax purposes after expiration of statute of  limitations.

Sec. 507. Repeal of throwback rules applicable to certain domestic trusts.

Sec. 508. Treatment of land subject to a qualified conservation easement.

Subtitle B—Generation-Skipping Tax Provision

Sec. 511. Expansion of exception from generation-skipping transfer tax for transfers to individuals with deceased parents.

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SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF ESTATE TAX EXTENDED UNDER SECTION 6166.

(a) IN GENERAL.—Paragraphs (1) and (2) of section 6601(j) (relating to 4-percent rate on certain portion of estate tax extended under section 6166) are amended to read as follows:

‘‘(1) IN GENERAL.—If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6166, then in lieu of the annual rate provided by subsection

(a)—

‘‘(A) interest on the 2-percent portion of such amount shall be paid at the rate of 2 percent, and

‘‘(B) interest on so much of such amount as exceeds the 2-percent portion shall be paid at a rate equal to 45 percent of the annual rate provided by subsection (a).

For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6166 shall be treated as an amount of tax payable in installments under such section.

‘‘(2) 2-PERCENT PORTION.—For purposes of this subsection, the term ‘2-percent portion’ means the lesser of—

‘‘(A)(i) the amount of the tentative tax which would be determined under the rate schedule set forth in section 2001(c) if the amount with respect to which such tentative tax is to be computed were the sum of $1,000,000 and the applicable exclusion amount in effect under section 2010(c), reduced by

‘‘(ii) the applicable credit amount in effect under section 2010(c), or

‘‘(B) the amount of the tax imposed by chapter 11 which is extended as provided in section 6166.’’.

 (b) DISALLOWANCE OF INTEREST DEDUCTION.—

(1) ESTATE TAX.—Paragraph (1) of section 2053(c) is amended by adding at the end the following new subparagraph:

‘‘(D) SECTION 6166 INTEREST.—No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.’’.

(2) INCOME TAX.—

(A) Section 163 is amended by redesignating subsection (k) as subsection (l) and by inserting after subsection (j) the following new subsection:

‘‘(k) SECTION 6166 INTEREST.—No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.’’.

(B) Subparagraph (E) of section 163(h)(2) is amended by striking ‘‘or 6166’’ and all that follows and inserting a period.

(c) CONFORMING AMENDMENTS.—

(1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of section 6166(b) are amended by striking ‘‘4-percent’’ each place it appears (including the heading) and inserting ‘‘2-percent’’.

(2) Paragraph (4) of section 6601(j), as redesignated by section 501(e), is amended by striking ‘‘4-percent’’ each place it appears and inserting ‘‘2-percent’’.

(3) The subsection heading for section 6601(j) is amended by striking ‘‘4-PERCENT’’ and inserting ‘‘2-PERCENT’’.

(d) EFFECTIVE DATE.—

(1) IN GENERAL.—The amendments made by this section shall apply to estates of decedents dying after December 31, 1997.

(2) ELECTION.—In the case of the estate of any decedent dying before January 1, 1998, with respect to which there is an election under section 6166 of the Internal Revenue Code of 1986, the executor of the estate may elect to have the amendments made by this section apply with respect to installments due after the effective date of the election; except that the 2-percent portion of such installments shall be equal to the amount which would be the 4-percent portion of such installments without regard to such election. Such an election shall be made before January 1, 1999 in the manner prescribed by the Secretary of the Treasury and, once made, is irrevocable.

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