S. 4490

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 4490 Introduced in Senate (IS)]

<DOC>

119th CONGRESS
2d Session
S. 4490

To amend the Internal Revenue Code of 1986 to provide a tax on the 
assets of trusts, and for other purposes.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

May 12, 2026

Mrs. Murray (for herself, Mr. Wyden, Mr. Van Hollen, Mr. Booker, and 
Ms. Alsobrooks) introduced the following bill; which was read twice and 
referred to the Committee on Finance

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide a tax on the 
assets of trusts, and for other purposes.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Fair Trusts for Fiscal 
Responsibility Act''.

SEC. 2. IMPOSITION OF TAX ON ASSETS OF TRUSTS.

(a) In General.--Subtitle B of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new chapter:

``CHAPTER 16--TAX ON TRUST ASSETS

``subchapter a--tax imposed

``subchapter b--trust withholding credit account

``subchapter c--definitions and other rules

``Subchapter A--Tax Imposed

``Sec. 2901. Imposition of tax.
``Sec. 2902. Computation of tax.

``SEC. 2901. IMPOSITION OF TAX.

``(a) In General.--There is hereby imposed a tax on the net value 
of all assets of an applicable trust held on the last day of any 
calendar year.
``(b) Limitation.--The amount of tax imposed under this chapter on 
any applicable trust shall not exceed the excess (if any) of--
``(1) product of--
``(A) the sum of--
``(i) the net value of all assets of the 
trust held as of the last day of the calendar 
year, plus
``(ii) the balance of the trust withholding 
credit account (as determined under section 
2911) as of such day, and
``(B) the highest rate of tax under section 2001(c) 
on the estates of decedents dying on such day, over
``(2) the amount determined under paragraph (1)(A)(ii).

``SEC. 2902. COMPUTATION OF TAX.

``(a) In General.--The tax imposed by section 2901 shall be equal 
to the sum of--
``(1) 0 percent of so much of the net value of all assets 
of the trust as does not exceed the 1 percent bracket 
threshold,
``(2) 1 percent of so much of the net value of all assets 
of the trust in excess of the 1 percent bracket threshold but 
not in excess of the 1.5 percent bracket threshold,
``(3) 1.5 percent of so much of the net value of all assets 
of the trust in excess of the 1.5 percent bracket threshold but 
not in excess of the 2 percent bracket threshold,
``(4) 2 percent of so much of the net value of all assets 
of the trust in excess of the 2 percent bracket threshold but 
not in excess of the 3 percent bracket threshold, plus
``(5) 3 percent of so much of the net value of all assets 
of the trust in excess of the 3 percent bracket threshold.
``(b) Determination of Bracket Thresholds.--
``(1) In general.--Except as otherwise provided in this 
chapter--
``(A) 1 percent bracket threshold.--The 1 percent 
bracket threshold shall be equal to the lesser of--
``(i) $50,000,000, or
``(ii) the sum of--
``(I) $0, plus
``(II) the lowest unused 1 percent 
bracket amount allocated to the trust 
from among all beneficiaries of the 
trust.
``(B) 1.5 percent bracket threshold.--The 1.5 
percent bracket threshold shall be equal to the lesser 
of--
``(i) $100,000,000, or
``(ii) the sum of--
``(I) the 1 percent bracket 
threshold, plus
``(II) the lowest unused 1.5 
percent bracket amount allocated to the 
trust from among all beneficiaries of 
the trust.
``(C) 2 percent bracket threshold.--The 2 percent 
bracket threshold shall be equal to the lesser of--
``(i) $250,000,000, or
``(ii) the sum of--
``(I) the 1.5 percent bracket 
threshold, plus
``(II) the lowest unused 2 percent 
bracket amount allocated to the trust 
from among all beneficiaries of the 
trust.
``(D) 3 percent bracket threshold.--The 3 percent 
bracket threshold shall be equal to the lesser of--
``(i) $1,000,000,000, or
``(ii) the sum of--
``(I) the 2 percent bracket 
threshold, plus
``(II) the lowest unused 3 percent 
bracket amount allocated to the trust 
from among all beneficiaries of the 
trust.
``(2) Treatment of corporations, partnerships, and 
trusts.--In the case of any trust all of the beneficiaries of 
which are corporations, partnerships, or trusts (after 
application of the rules of paragraphs (2) and (3) of section 
2922(b))--
``(A) the 1 percent bracket threshold shall be 
equal to the amount in effect under paragraph 
(1)(A)(i),
``(B) the 1.5 percent bracket threshold shall be 
equal to the amount in effect under paragraph 
(1)(B)(i),
``(C) the 2 percent bracket threshold shall be 
equal to the amount in effect under paragraph 
(1)(C)(i), and
``(D) the 3 percent bracket threshold shall be 
equal to the amount in effect under paragraph 
(1)(D)(i).
``(3) Inflation adjustment.--
``(A) In general.--In the case of any calendar year 
beginning after 2027, each of the dollar amounts in 
subparagraphs (A)(i), (B)(i), (C)(i), and (D)(i) of 
paragraph (1) shall be increased by an amount equal 
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment 
determined under section 1(f)(3) for such 
calendar year, determined by substituting in 
subparagraph (A)(ii) thereof `calendar year 
2026' for `calendar year 2016'.
``(B) Rounding.--If any amount as adjusted under 
subparagraph (A) is not a multiple of $10,000, such 
dollar amount shall be rounded to the next lowest 
multiple of $10,000.
``(c) Allocation of Unused Bracket Amounts.--
``(1) In general.--Except as otherwise provided in this 
subsection, the amount of any category of unused bracket amount 
allocated to any trust from a beneficiary shall be equal to the 
product of--
``(A) the maximum amount with respect to such 
category as determined under paragraph (3)(B), and
``(B) the ratio of--
``(i) the present value of the 
beneficiary's beneficial interest in such trust 
(determined as provided in section 
6039M(c)(3)), to
``(ii) the present value of the 
beneficiary's beneficial interest (as so 
determined) in all applicable trusts.
``(2) Election to assign different amounts.--A beneficiary 
may elect to allocate the amount of any category of unused 
bracket amount in a different manner than provided in paragraph 
(1), except that the aggregate amount of any category of unused 
bracket amounts allocated to all trusts for which such person 
is a beneficiary may not exceed the maximum amount with respect 
to such category as determined under paragraph (3)(B). An 
election made under this section shall be made at such time and 
in such manner as specified by the Secretary in regulations.
``(3) Categories of unused bracket amounts; maximum 
amount.--
``(A) Categories of unused bracket amounts.--For 
purposes of this subsection, the categories of unused 
bracket amounts are--
``(i) the unused 1 percent bracket amount,
``(ii) the unused 1.5 percent bracket 
amount,
``(iii) the unused 2 percent bracket 
amount, and
``(iv) the unused 3 percent bracket amount.
``(B) Maximum amount.--With respect to any person 
for any calendar year--
``(i) the maximum amount with respect to 
the unused 1 percent bracket amount shall be 
equal to the amount in effect under subsection 
(b)(1)(A)(i),
``(ii) the maximum amount with respect to 
the unused 1.5 percent bracket amount shall be 
equal to the amount in effect under subsection 
(b)(1)(B)(i),
``(iii) the maximum amount with respect to 
the unused 2 percent bracket amount shall be 
equal to the amount in effect under subsection 
(b)(1)(C)(i), and
``(iv) the maximum amount with respect to 
the unused 3 percent bracket amount shall be 
equal to the amount in effect under subsection 
(b)(1)(D)(i).
``(4) Special rule for certain beneficiaries.--
``(A) In general.--In the case of any beneficiary 
described in subparagraph (B), no amount shall be 
allocated under this section and the determination of 
the lowest amount allocated to a trust under 
subparagraphs (A)(ii)(II), (B)(ii)(II), (C)(ii)(II), 
and (D)(ii)(II) of subsection (b)(1) shall be 
determined without regard to such beneficiary.
``(B) Beneficiaries described.--A beneficiary is 
described in this subparagraph if--
``(i) such beneficiary is an exempt 
beneficiary, or
``(ii) such beneficiary is person described 
in section 6039M(b)(2).

``Subchapter B--Trust Withholding Credit Account

``Sec. 2911. Trust withholding credit account.

``SEC. 2911. TRUST WITHHOLDING CREDIT ACCOUNT.

``(a) In General.--Under rules established by the Secretary--
``(1) each applicable trust which is subject to a tax 
imposed under this chapter, and
``(2) each beneficiary of an applicable trust who receives 
a qualified distribution,
shall establish a trust withholding credit account.
``(b) Additions to Account.--
``(1) Trusts.--The balance of the trust withholding credit 
account for any applicable trust shall be increased by the 
amount of tax imposed under this chapter which is paid by or on 
behalf of the trust.
``(2) Beneficiaries.--
``(A) In general.--The balance of the trust 
withholding credit account for any beneficiary who 
receives a qualified distribution shall be increased by 
the ratable share with respect to such distribution.
``(B) Distributions to certain corporate 
shareholders and partners.----
``(i) In general.--For purposes of this 
section, in the case of a qualified 
distribution to a corporation or partnership 
with respect to which a shareholder or partner 
is treated as a beneficiary by reason of 
section 2922(b)(3)(B), such shareholder or 
partner (as the case may be) shall be treated 
as having directly received a qualified 
distribution in an amount equal to the 
applicable percentage of the amount of the 
distribution made to such corporation or 
partnership.
``(ii) Applicable percentage.--For purposes 
of this subparagraph, the applicable percentage 
is the percentage of the ownership interest 
held by such individual in the corporation or 
partnership at the time of the distribution 
(determined as provided under section 
2922(b)(3)(B)).
``(C) Limitation.--In the case of a qualified 
distribution which is a direct skip from a trust 
(within the meaning of chapter 13), the amount of the 
increase under subparagraph (A) shall be reduced by the 
amount of credit allowed under section 2604(c)(2) (if 
any) to the trust making the distribution.
``(c) Subtractions.--
``(1) Trusts.--The balance of the trust withholding credit 
account for any applicable trust shall be reduced by--
``(A) the ratable share with respect to any 
qualified distribution made by the trust, and
``(B) in the case of a taxable termination (as 
defined in section 2612), the sum of--
``(i) the amount of any credit allowed 
under section 2604(a), plus
``(ii) the product of--
``(I) the amount determined under 
section 2604(a)(1) with respect to such 
taxable termination, and
``(II) the excess of 1 over the 
inclusion ratio (as defined in section 
2642).
``(2) Beneficiaries.--The balance of the trust withholding 
credit account for any beneficiary shall be reduced by the 
amount of credits allowed to the beneficiary under sections 
2017, 2604(b), and 2604(c).
``(d) Qualified Distribution.--For purposes of this section--
``(1) In general.--The term `qualified distribution' means 
any distribution which--
``(A) is made from an applicable trust which is 
subject to a tax under this chapter, and
``(B) is made to any person other than an exempt 
beneficiary.
``(2) Special rule for certain trusts.--In the case of a 
property in an applicable trust which is includible in the 
gross estate of an individual, such property shall be treated 
as distributed from the applicable trust to the individual in a 
qualified distribution (and such individual shall be treated as 
the beneficiary of such trust for purposes of subsection 
(b)(2)) on the earlier of--
``(A) the date such property is distributed from 
the trust, or
``(B) the date of the death of such individual.
``(e) Ratable Share.--For purposes of this section, the term 
`ratable share' means, with respect to any qualified distribution, the 
amount which bears the same ratio to the balance of the trust 
withholding credit account (determined immediately before the qualified 
distribution) as--
``(1) the amount of the qualified distribution, bears to
``(2) the net value of assets of the trust (determined 
immediately before the qualified distribution).

``Subchapter C--Definitions and Other Rules

``Sec. 2921. Determination of net value of assets.
``Sec. 2922. Other definitions and special rules.

``SEC. 2921. DETERMINATION OF NET VALUE OF ASSETS.

``(a) In General.--For purposes of this chapter, the term `net 
value of all assets' means, as of any date, the value of all property 
of the trust, real or personal, tangible or intangible, wherever 
situated, reduced by any qualified debts owed by the taxpayer.
``(b) Value of Property.--
``(1) Tradable assets.--
``(A) In general.--In the case of any tradable 
asset, the value of such asset shall be the fair market 
value of such asset.
``(B) Tradable asset.--For purposes of this 
paragraph, the term `tradable asset' means any asset 
if--
``(i) interests in such asset are traded on 
an established securities market,
``(ii) interests in such assets are readily 
tradable on a secondary market (or the 
substantial equivalent thereof),
``(iii) interests in such assets are 
available on an online or electronic platform 
that regularly matches, or facilitates the 
matching of, buyers and sellers of such assets, 
or
``(iv) such asset is an asset for which the 
Secretary determines there is a reasonable 
basis to determine the asset's fair market 
value annually.
``(2) Other assets.--
``(A) In general.--In the case of any asset which 
is not a tradable asset, the value of such asset shall 
be--
``(i) in any case in which there has been a 
qualified appraisal (as defined in section 
170(f)(11)(E)) conducted within the 2-year 
period ending on the date the value is 
determined for purposes of this chapter, the 
value determined under such appraisal, and
``(ii) in any other case, the value of such 
property determined under such other method as 
prescribed by the Secretary.
``(B) Determination where no alternative method.--
If subparagraph (A)(i) does not apply and the Secretary 
has not prescribed a method under subparagraph (A)(ii), 
the value of such asset shall be the greater of--
``(i) the sum of--
``(I) the basis of such asset, and
``(II) the product of--
``(aa) the amount 
determined under subclause (I), 
and
``(bb) the sum of 1 percent 
and the long-term rate 
determined under section 
1274(d) for the applicable 
month, compounded semiannually, 
or
``(ii) the value of such property 
determined by a qualified appraisal (as defined 
in section 170(f)(11)(E)) conducted within the 
5-year period ending on the date the value is 
determined for purposes of this chapter.
``(C) Applicable month.--For purposes of 
subparagraph (B)(i)(II)--
``(i) In general.--Except as provided in 
clause (ii), the term `applicable month' means, 
with respect to any asset, the month in which 
such asset was acquired by the taxpayer.
``(ii) Certain assets with carryover 
basis.--In the case of any asset the basis in 
the hands of the taxpayer was determined by 
reference to the basis in the hands of another 
person, the term `applicable month' means the 
month in which such asset was acquired by such 
other person.
``(3) Limitation on discount by reason of family control.--
``(A) In general.--For purposes of this chapter, in 
the case of any interest in an entity other than an 
interest which is actively traded (within the meaning 
of section 1092), if the person who transferred such 
interest, the transferee, and members of the family of 
the transferor and transferee have control of such 
entity immediately before such transfer, no discount 
shall be allowed--
``(i) by reason of the fact that the 
transferor or transferee does not have control 
of such entity,
``(ii) by reason of the lack of 
marketability of the interest, or
``(iii) for any other reason.
``(B) Definitions.--In this paragraph, the terms 
`control' and `member of the family' have the same 
meanings given such terms in section 2704(c).
``(C) Attribution.--For purposes of this paragraph, 
the rule of section 2701(e)(3) shall apply for purposes 
of determining the interests held by any individual.
``(4) Valuation rules for certain nonbusiness assets held 
by nontradable entities.--
``(A) In general.--For purposes of this chapter, in 
the case of any interest in an entity other than an 
interest which is a tradable asset--
``(i) the value of any nonbusiness assets 
held by the entity with respect to such 
interest shall be determined as if the owner of 
the entity directly held its ratable share of 
such nonbusiness assets (and no valuation 
discount shall be allowed with respect to such 
nonbusiness assets), and
``(ii) such nonbusiness assets shall not be 
taken into account in determining the value of 
the interest in the entity and the basis of 
such nonbusiness assets shall not be taken into 
account in determining the basis of such 
interest under paragraph (2)(A)(i).
``(B) Nonbusiness assets.--For purposes of this 
paragraph--
``(i) In general.--The term `nonbusiness 
asset' means any asset other than an asset 
which is used in the active conduct of a trade 
or business.
``(ii) Passive assets treated as 
nonbusiness assets.--For purposes of clause 
(i), a passive asset shall be treated as a 
nonbusiness asset unless--
``(I) the asset is property 
described in paragraph (1) or (4) of 
section 1221(a) or is a hedge with 
respect to such property, or
``(II) the asset is real property 
used in the active conduct of 1 or more 
real property trades or businesses 
(within the meaning of section 
469(c)(7)(C)) in which the transferor 
materially participates and with 
respect to which the transferor meets 
the requirements of section 
469(c)(7)(B)(ii).
``(iii) Material participation.--For 
purposes of clause (ii)(II), material 
participation shall be determined under the 
rules of section 469(h), except that section 
469(h)(3) shall be applied without regard to 
the limitation to farming activity.
``(iv) Working capital treated as used in 
trade or business.--Any asset (including a 
passive asset) which is held as a part of the 
reasonably required working capital needs of a 
trade or business shall be treated as used in 
the active conduct of a trade or business.
``(C) Passive asset.--For purposes of this 
paragraph, the term `passive asset' means any--
``(i) cash or cash equivalents,
``(ii) stock in a corporation or any other 
equity, profits, or capital interest in any 
entity,
``(iii) evidence of indebtedness, option, 
forward or futures contract, notional principal 
contract, or derivative,
``(iv) asset described in clause (iii), 
(iv), or (v) of section 351(e)(1)(B),
``(v) annuity,
``(vi) real property used in 1 or more real 
property trades or businesses (as defined in 
section 469(c)(7)(C)),
``(vii) asset (other than a patent, 
trademark, or copyright) which produces royalty 
income,
``(viii) commodity,
``(ix) collectible (within the meaning of 
section 408(m)), or
``(x) any other asset specified in 
regulations prescribed by the Secretary.
``(D) Look-thru rule.--
``(i) In general.--If a nonbusiness asset 
of an entity described in subparagraph (A) 
consists of a 10-percent interest in any other 
entity, this paragraph shall be applied by 
disregarding the 10-percent interest and by 
treating the entity as holding directly its 
ratable share of the assets of the other 
entity.
``(ii) 10-percent interest.--The term `10-
percent interest' means--
``(I) in the case of an interest in 
a corporation, direct ownership of at 
least 10 percent (by vote or value) of 
the stock in such corporation,
``(II) in the case of an interest 
in a partnership, direct ownership of 
at least 10 percent of the capital or 
profits interest in the partnership, 
and
``(III) in any other case, direct 
ownership of at least 10 percent of the 
beneficial interests in the entity.
``(c) Qualified Debt.--For purposes of this section--
``(1) In general.--The term `qualified debt' means any debt 
other than any debt to a person--
``(A) who made a contribution to the trust,
``(B) who is a beneficiary of the trust, or
``(C) who is related (within the meaning of section 
267(b)) to the trust or to a person described in 
subparagraph (A) or (B).
``(2) Treatment of nonrecourse debt.--In the case of any 
debt which is nonrecourse debt, the amount of qualified debt 
shall not exceed the value of the property securing such debt.
``(d) Regulations.--Not later than 12 months after the date of the 
enactment of this section, the Secretary shall establish rules and 
methods for determining the value of any asset for purposes of this 
chapter, including rules for the valuation of assets that are not 
publicly traded or that do not have a readily ascertainable value.

``SEC. 2922. OTHER DEFINITIONS AND SPECIAL RULES.

``(a) Applicable Trust.--For purposes of this chapter--
``(1) In general.--The term `applicable trust' means any 
trust or any portion of a trust to the extent that such trust 
or portion--
``(A) is a United States person described in 
section 7701(a)(30)(E),
``(B) has one or more beneficiaries who are United 
States persons described in section 7701(a)(30), or
``(C) has one or more living grantors who are 
United States persons described in section 
7701(a)(30)(A).
For purposes of this paragraph, a living person who is related 
(determined under section 267(b), applied by substituting `5 
percent' for `50 percent' each place it appears) to a grantor 
described in subparagraph (C) shall be treated as a person 
described in such subparagraph.
``(2) Exceptions.--The term `applicable trust' does not 
include--
``(A) a trust--
``(i) which is an organization described in 
paragraphs (1) through (5) of section 2055(a), 
or
``(ii) from which only transfers described 
in section 2055(a) may be made,
``(B) a trust described in section 401(a) and 
exempt from tax under section 501(a),
``(C) a trust used to facilitate issuance of 
securities (as determined by the Secretary under 
regulations),
``(D) a trust which--
``(i) has a maximum duration of less than 1 
year, and
``(ii) is organized and operated 
exclusively for a commercial purpose determined 
by the Secretary to be applicable under this 
subsection, and
``(E) any trust or portion of a trust wherein the 
power to revest absolutely in the grantor title to the 
trust property to which such portion is attributable is 
exercisable solely by the grantor without the approval 
or consent of any other person.
``(b) Determination of Beneficiaries; Exempt Beneficiary.--For 
purposes of this chapter--
``(1) Contingent beneficiaries.--
``(A) In general.--Except as provided in 
subparagraph (B), the term `beneficiary' shall not 
include any person whose interest in an applicable 
trust is contingent on the death of another person with 
an interest in such trust.
``(B) Exception.--The term `beneficiary' shall 
include a person whose interest in an applicable trust 
is contingent on the death of another person with an 
interest in such trust if--
``(i) there exists one or more persons 
whose interest in such trust is not contingent 
on the death of another person, and
``(ii) the amount of funds that may be 
distributed to any such person are limited by 
the trust instrument or by means other than the 
sole discretion of the trustee.
``(2) Treatment of beneficiary trusts.--If a trust is the 
beneficiary of another trust, each trust or individual which 
holds a beneficial interest in such trust shall be treated as a 
beneficiary of such other trust.
``(3) Corporations and partnerships.--
``(A) In general.--Except for purposes of 
subparagraph (B), the term `beneficiary' shall not 
include a corporation or a partnership.
``(B) Treatment of 5-percent owners.--
``(i) In general.--The term `beneficiary' 
shall include--
``(I) any shareholder of a 
corporation which is the beneficiary of 
an applicable trust if such shareholder 
holds 5 percent or more of the stock 
(by vote or value) of such corporation, 
and
``(II) any partner of a partnership 
which is the beneficiary of an 
applicable trust if such partner owns 
more than 5 percent of the capital or 
profits interest in the partnership.
``(ii) Constructive ownership rules.--For 
purposes of clause (i), rules similar to the 
rules of paragraphs (2), (3), (4), and (5) of 
section 318(a) shall apply.
``(4) Exempt beneficiary.--The term `exempt beneficiary' 
means any beneficiary which is an organization described in 
section 2055(a).''.
(b) Information Reporting.--
(1) In general.--Subpart A of part III of subchapter A of 
chapter 61 of the Internal Revenue Code of 1986 is amended by 
inserting after section 6039L the following new section:

``SEC. 6039M. INFORMATION WITH RESPECT TO TRUST ASSET TAX.

``(a) Statement of Net Assets.--Not later than April 1 of each 
calendar year, every applicable trust shall file with the Secretary a 
statement setting forth--
``(1) the name and taxpayer identification number of such 
trust,
``(2) the net value of assets of such trust as of the last 
day of the preceding calendar year,
``(3) the name and taxpayer identification number of each 
beneficiary of such trust, and
``(4) the present value of the beneficial interests in the 
trust of each such beneficiary as of the last day of the 
preceding calendar year.
``(b) Allocation of Unused Bracket Amount.--
``(1) In general.--Not later than June 1 of each calendar 
year, each beneficiary of an applicable trust shall submit to 
the Secretary a statement setting forth--
``(A) the name and taxpayer identification number 
of such beneficiary,
``(B) the name and taxpayer identification number 
of each applicable trust of which such individual is a 
beneficiary, and
``(C) the amount of--
``(i) the unused 1 percent bracket amount 
allocated to each such trust under section 
2902(c),
``(ii) the unused 1.5 percent bracket 
amount allocated to each such trust under 
section 2902(c),
``(iii) the unused 2 percent bracket amount 
allocated to each such trust under section 
2902(c), and
``(iv) the unused 3 percent bracket amount 
allocated to each such trust under section 
2902(c).
``(2) Exception.--Paragraph (1) shall not apply to any 
person if the aggregate present value of beneficial interests 
in all trusts with respect to which such person is a 
beneficiary is less than $250,000.
``(3) Copies to trusts.--Each beneficiary required to 
submit a statement under paragraph (1) shall (on or before the 
day on which the statement was required to be filed) furnish to 
each applicable trust identified on the statement the 
information required under paragraph (1) with respect to such 
applicable trust.
``(c) Definitions and Other Rules.--For purposes of this section--
``(1) Applicable trust.--The term `applicable trust' has 
the meaning given such term under chapter 16.
``(2) Beneficiary.--The term `beneficiary' has the meaning 
given such term under section 2922(b).
``(3) Present value of beneficial interests.--The present 
value of a person's beneficial interest in a trust shall be 
determined in proportion to the actuarial interest of such 
person in such trust.''.
(2) Penalties.--
(A) Initial statements.--Section 6724(d)(1) of such 
Code is amended by striking ``and'' at the end of 
subparagraph (B), by striking ``and'' at the end of 
subparagraph (C), by striking the period at the end of 
subparagraph (D) and inserting ``, and'', and by 
inserting after subparagraph (D) the following new 
subparagraph:
``(E) any statement required to be filed under 
subsection (a) or (b)(1) of section 6039M.''.
(B) Copies.--Section 6724(d)(2) of such Code is 
amended by striking ``or'' at the end of subparagraph 
(NN), by striking the period at the end of subparagraph 
(OO) and inserting ``, or'', and by inserting after 
subparagraph (OO) the following new subparagraph:
``(PP) section 6039M(b)(3).''.
(3) Clerical amendment.--The table of sections for subpart 
A of part III of subchapter A of chapter 61 of such Code is 
amended by inserting after the item relating to section 6039L 
the following new item:

``Sec. 6039M. Information with respect to trust asset tax.''.
(c) No Deduction From Income Taxes.--Section 275 of the Internal 
Revenue Code of 1986 is amended by inserting after paragraph (6) the 
following new paragraph:
``(7) Taxes imposed by chapter 16.''.
(d) Clerical Amendment.--The table of chapters for the Internal 
Revenue Code of 1986 is amended by inserting after the item relating to 
chapter 15 the following new item:

``Chapter 16--Tax on Trust Assets''.

(e) Effective Date.--The amendments made by this section shall 
apply to calendar years beginning after December 31, 2026.

SEC. 3. COORDINATION WITH ESTATE AND GENERATION-SKIPPING AND ESTATE 
TAXES.

(a) Tax on Generation-Skipping Transfers.--
(1) Gross-up of taxable amount.--Subchapter C of chapter 13 
of the Internal Revenue Code of 1986 is amended by adding at 
the end the following new section:

``SEC. 2625. GROSS UP OF TAXABLE AMOUNT TO INCLUDE ADDITIONS TO TRUST 
WITHHOLDING CREDIT ACCOUNT.

``The taxable amount shall be increased--
``(1) in the case of a taxable termination, by the amount 
which bears the same ratio to the balance of the trust 
withholding credit account of the trust involved (determined 
under section 2911 immediately before the taxable termination) 
as--
``(A) the taxable amount (determined without regard 
to this section), bears to
``(B) the net value of assets of such trust 
(determined under chapter 16 immediately before such 
taxable distribution), and
``(2) in the case of a taxable distribution or a direct 
skip from a trust, by the amount which bears the same ratio to 
the balance of the trust withholding credit account of the 
trust from which the taxable distribution or direct skip, as 
the case may be, was made (determined under section 2911 
immediately before the taxable distribution) as--
``(A) the taxable amount (determined without regard 
to this section), bears to
``(B) the net value of assets of such trust 
(determined under chapter 16 immediately before such 
taxable distribution).''.
(2) Credit for trust withholding taxes.--Subchapter A of 
chapter 13 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new section:

``SEC. 2604. CREDIT FOR PREVIOUSLY PAID TRUST ASSET TAXES.

``(a) Taxable Terminations.--In the case of a taxable termination, 
there shall be allowed a credit against the tax imposed by section 2601 
an amount equal to the product of--
``(1) the amount which bears the same ratio to the balance 
of the trust withholding credit account of the trust involved 
(determined under section 2911 as of the time of the taxable 
termination) as--
``(A) the taxable amount (determined without regard 
to section 2625), bears to
``(B) the net value of assets of the trust 
(determined under chapter 16 as of the date of the 
taxable termination), and
``(2) the inclusion ratio.
``(b) Taxable Distributions.--In the case of a taxable 
distribution, there shall be allowed a credit against the tax imposed 
by section 2601 an amount equal to the product of--
``(1) the amount which bears the same ratio to the balance 
of the trust withholding credit account of the transferee 
involved (determined under section 2911 immediately after the 
time of the taxable distribution) as--
``(A) the taxable amount (determined without regard 
to section 2625), bears to
``(B) the net value of assets of the trust 
(determined under chapter 16 as of the time of the 
taxable distribution), and
``(2) the inclusion ratio.
``(c) Direct Skips.--
``(1) In general.--In the case of a direct skip, there 
shall be allowed a credit against the tax imposed by section 
2601 an amount equal to the lesser of--
``(A) the product of--
``(i) the balance of the trust withholding 
credit account of the person liable for such 
tax (determined under section 2911 immediately 
before the time of the direct skip), and
``(ii) the inclusion ratio, or
``(B) the amount of tax so imposed.
``(2) Direct skips from a trust.--In the case of a direct 
skip from a trust, the amount of the credit determined under 
this subsection shall not exceed the product of--
``(A) the amount which bears the same ratio to the 
balance of the trust withholding credit account of the 
trust involved (determined under section 2911 
immediately before the time of the direct skip) as--
``(i) the taxable amount (determined 
without regard to section 2625), bears to
``(ii) the net value of assets of the trust 
(determined under chapter 16 as of the time of 
the direct skip), and
``(B) the inclusion ratio.''.
(3) Clerical amendments.--
(A) The table of sections for subchapter A of 
chapter 13 of such Code is amended by adding at the end 
the following new item:

``Sec. 2604. Credit for previously paid trust asset taxes.''.
(B) The table of sections for subchapter A of 
chapter 13 of such Code is amended by adding at the end 
the following new item:

``Sec. 2625. Gross up of taxable amount to include additions to trust 
withholding credit account.''.
(b) Estate Tax.--
(1) Gross up of tax.--
(A) Citizens and residents.--Part III of subchapter 
A of chapter 11 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new section:

``SEC. 2047. TRUST WITHHOLDING CREDIT ACCOUNT BALANCE.

``The gross estate shall include the balance of the trust 
withholding credit account (determined under section 2911) of the 
decedent.''.
(B) Nonresidents not citizens.--Section 2103 of 
such Code is amended by adding at the end the following 
new sentence: ``For purposes of this section, the 
balance of the trust withholding credit account shall 
be treated as situated in the United States.''.
(2) Credit for previously paid trust withholding taxes.--
(A) Estates of citizens and residents.--Part II of 
subchapter A of chapter 11 of the Internal Revenue Code 
of 1986 is amended by adding at the end the following 
new section:

``SEC. 2017. CREDIT FOR PREVIOUSLY PAID TRUST ASSET TAXES.

``There shall be allowed as a credit against the tax imposed by 
section 2001 an amount equal to the balance of the trust withholding 
credit account (determined under section 2911) of the decedent.''.
(B) Estates of nonresidents not citizens.--Section 
2102(a) of the Internal Revenue Code of 1986 is amended 
by striking ``2012 and 2013 (relating to gift tax and 
tax on prior transfers)'' and inserting ``2012, 2013, 
and 2017''.
(C) Refunds of unused credits.--Section 6401(b) of 
the Internal Revenue Code of 1986 is amended by adding 
at the end the following new paragraph:
``(3) Estate tax credit for previously paid trust asset 
taxes.--
``(A) Citizens and residents.--If the amount 
allowable as credit under section 2017 exceeds the tax 
imposed under section 2001 (reduced by the amount of 
credits allowed under sections 2010 through 2016), the 
amount of such excess shall be considered an 
overpayment.
``(B) Nonresidents not citizens.--If the amount 
determined in accordance with section 2017 and 
allowable as a credit under section 2102 exceeds the 
tax imposed under section 2011 (reduced by the amount 
determined in accordance with sections 2012 and 2013 
and allowed as a credit under section 2102), the amount 
of such excess shall be considered an overpayment.''.
(3) Clerical amendments.--
(A) The table of sections for subchapter A of 
chapter 13 of such Code is amended by adding at the end 
the following new item:

``Sec. 2017. Credit for previously paid trust asset taxes.''.
(B) The table of sections for subchapter A of 
chapter 13 of such Code is amended by adding at the end 
the following new item:

``Sec. 2047. Trust withholding credit account balance.''.
(c) Effective Date.--The amendments made by this section shall 
apply to transfers made in calendar years beginning after, and 
decedents dying after, December 31, 2026.

SEC. 4. PAYMENT OF TAXES OF GRANTOR TRUSTS.

(a) In General.--Section 2503 of the Internal Revenue Code of 1986 
is amended--
(1) in subsection (a), by striking ``The term'' and 
inserting ``Subject to subsection (d), the term'', and
(2) by inserting after subsection (c) the following:
``(d) Payment of Tax on Income of Grantor Trust.--
``(1) In general.--Notwithstanding subsections (b) and (e), 
an amount equal to the applicable taxes paid with respect to an 
applicable grantor trust for any calendar year by a person who 
is the deemed owner of such trust (or portion thereof) shall be 
treated for purposes of this subtitle as a taxable gift made 
during such calendar year.
``(2) Applicable grantor trust.--For purposes of this 
subsection, the term `applicable grantor trust' means any 
trustor portion of a trust--
``(A) with respect to which the taxpayer is 
considered an owner under subpart E of part I of 
subchapter J of chapter 1, and
``(B) which is not fully revocable by the taxpayer.
``(3) Applicable taxes.--For purposes of this subsection, 
the term `applicable taxes' means, with respect to any 
applicable grantor trust--
``(A) taxes paid on income, and
``(B) taxes paid on the value of assets of the 
trust.
``(4) Reimbursement by trust.--Paragraph (1) shall not 
apply with respect to any amount paid by the deemed owner for 
any calendar year which is reimbursed by the applicable grantor 
trust during such calendar year.
``(5) Date of gift.--In the case of any amount treated for 
purposes of this subtitle as a taxable gift pursuant to 
paragraph (1), such gift shall be deemed to have occurred on 
the earlier of--
``(A) December 31 of the calendar year for which 
the tax is paid by the person who is the deemed owner,
``(B) the day before the date of the death of such 
person, or
``(C) the date on which such person renounces any 
right of reimbursement by the applicable grantor trust 
with respect to the calendar year for which the tax is 
paid by such person.
``(6) Deemed owner.--For purposes of this subsection, the 
term `deemed owner' has the same meaning given such term under 
section 1062(c).''.
(b) Conforming Amendments.--
(1) Section 2522 of the Internal Revenue Code of 1986 is 
amended--
(A) by redesignating subsection (f) as subsection 
(g), and
(B) by inserting after subsection (e) the following 
new subsection:
``(f) Denial of Deduction for Payment of Tax on Income of Grantor 
Trust.--No deduction shall be allowed under this section for any amount 
which is treated as a gift by reason of section 2503(d).''.
(2) Section 2523 of such Code is amended by adding at the 
end the following new subsection:
``(j) Denial of Deduction for Payment of Tax on Income of Grantor 
Trust.--No deduction shall be allowed under this section for any amount 
which is treated as a gift by reason of section 2503(d).''.
(c) Effective Dates.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.
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