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: 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: 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: 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: 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.