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.