Estate and Gift Tax Reform Act

Estate and Gift Tax Reform Act - Amends the Internal Revenue Code to provide a single unified rate schedule for estate and gift taxes. Establishes progressive rates based on cumulative lifetime transfers and transfers at death. Determines the amount of estate tax by applying the unified rates to such cumulative transfers and then subtracting the taxes payable on lifetime transfers. Provides that for purposes of determining the amount of the gross estate, the amount of gift tax paid with respect to transfers made within three years of death shall be included in the decedent's gross estate. Provides, as a transitional rule, that the lifetime transfers taken into account in determining cumulative transfers at death, for purposes of imposing the estate tax under the unified schedule, shall only include taxable gifts made after December 31, 1976.

Repeals the estate and gift tax exemptions. Substitutes for such exemptions a credit against estate and gift taxes in the amount of $29,800.

Provides for an additional credit against the estate tax for specified farms and closely held businesses passing to a qualified heir. Defines "qualified heir" as a member of the decedent's family, including his spouse, lineal decendents, parents, and aunts and uncles of the decedent and their decendants. Makes such credit available where the value of a farm or closely held business included in a decedent's gross estate equals or exceeds 65 percent of the value of the gross estate. Stipulates that such credit shall be available only if the farm or closely held business has been owned by the decedent or his family for at least five out of the preceding eight years.

Provides that the amount of such credit shall be $25,000 multiplied by a percentage representing the portion of the decedent's estate consisting of the farm or other closely held business. Phases out such credit after the value of the gross estate exceeds $1,000,000.

Provides for the recapture of the estate tax benefit of such credit where there is a disposition of the business by the qualified heir to nonfamily members prior to the qualified heir's death or within 25 years of the death of the decedent.

Provides for a lien on the qualified interest in a farm or closely held business with respect to which an election of such credit has been made.

Increases the estate tax marital deduction to $250,000 or one-half of the decedent's gross estate, whichever is greater. Increases the gift tax marital deduction in the case of lifetime gifts to a spouse. Allows an unlimited marital deduction for the first $100,000 of lifetime gifts made to a spouse and, thereafter, a deduction for one-half of the aggregate lifetime gifts made to a spouse in excess of $200,000.

Imposes a tax on the unrealized appreciation of property transferred by a decedent. Provides that the basis of such property shall be its fair market value on December 31, 1976. Allows an election to carry over the decedent's basis in any property instead of having the appreciation taxed. Exempts the first $50,000 of appreciation from taxation. Excludes the appreciation of assets valued at less than $10,000 and which are not held for use in a trade or business or for the production of income from such tax. Allows the deduction of the appreciation tax in computing the value of the taxable estate for estate tax purposes.

Exempts from the appreciation tax any property transferred from the decedent if the income tax carries over to the recipient (income in respect of a decedent and survivor annuities).

Provides that if an election to carry over the decedent's basis in lieu of paying the appreciation tax is made, the basis of the property is to be increased by the Federal and State estate taxes attributable to the net appreciation in value for the property.

Allows the executor of an estate which includes real farm property to value the property as a farm, rather than its fair market value determined on the basis of its highest and best use. Imposes special qualifying conditions for such valuation, including: (1) the farm assets in the decedent's estate including both farm real property and personal property must be at least 50 percent of the decedent's gross estate (reduced by debts and expenses); (2) at least 25 percent of the adjusted value of the gross estate must be qualified farm real property; (3) the real property must pass to a qualified heir; (4) the real property must have been used or held for use as a farm for five of the last eight years prior to the decedent's death; and (5) there must have been material participation in the operation of the farm by the decedent or a member of his family in five years out of the eight years immediately preceding the decedent's death.

Provides for recapture of any tax benefits obtained by use of the reduced valuation if, prior to the death of the qualified heir or within 25 years of the death of the decedent, the property is disposed of to nonfamily members or ceases to be used for farming purposes.

Provides for a lien on all such real property with respect to which the farm valuation is elected.

Provides for a 15-year period for the payment of the estate tax attributable to the decedent's interest in a farm or closely held business, with a deferral of the tax for five years and installment payments over the next ten years. Requires, as a qualification for such deferral and installment treatment, the value of the closely held business or farm in the decedent's estate to be at least 65 percent of the gross estate.

Allows discretionary extensions of up to ten years to pay the estate tax for reasonable cause (rather than for "undue hardship" as under present law).

Provides for a lien for payment of the deferred taxes attributable to a closely held business or farm.

Imposes a tax, in the case of generation skipping transfers under a trust, upon a distribution of the trust assets to a generation skipping heir, or upon the termination of an intervening interest in the trust. Determines the tax by adding the value of the distributed property, or terminated interest, to the heir's taxable transfers and applying the heir's marginal transfer tax rate to the value of such interest.

Extends from nine months to 12 months the period after the decedent's death in which an estate tax return must be filed. Requires gift tax returns to be filed for any quarter only when the total cumulative gifts made during the taxable year exceed $25,000, or during the last quarter if the total does not reach $25,000.

Provides that if the Internal Revenue Service proposes a deficiency in the estate tax because of a higher valuation of the assets included in the decedent's gross estate, it must disclose to the executor during the settlement process the basis on which the higher valuation was determined.