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prescribed by law for filing the return of the surviving spouse, a separate return for the taxable years of the decedent with respect to which the joint return was made, in which case the return made by the survivor shall constitute his separate return. “(5) DETERMINATION OF STATUS.—For the purposes of this section

“(A) the status as husband and wife of two individuals having taxable years begininng on the same day shall be determined

(i) if both have the same taxable year-as of the close of such year; and

“(ii) if one dies before the close of the taxable year of the otheras of the time of such death; and "(B) an individual who is legally separated from his spouse under a decree of divorce or of separate maintenance shall not be considered

as married. (6) TAX IN CASE OF JOINT RETURN.-For determination of combined normal tax and surtax under section 11 and section 12 (b) in case of joint return under this subsection, see section 12 (d). For tax in case of joint return of husband and wife electing to pay the tax under Supplement T,

see section 400.” SEC. 304. DEDUCTION FOR MEDICAL EXPENSES.

Section 23 (x) of the Internal Revenue Code (relating to deduction of medical, etc., expenses) is hereby amended by striking out the second and third sentences thereof and inserting in lieu thereof the following: “The deduction shall not be in excess of $1,250 multiplied by the number of exemptions allowed under section 25 (b) for the taxable year (exclusive of exemptions allowed under section 25 (b) (1) (B) or (C)), with a maximum deduction of $2,500, except that the maximum deduction shall be $5,000 in the case of a joint return of husband and wife under section 51 (b)." SEC. 305. TAXABLE YEARS TO WHICH AMENDMENTS APPLICABLE.

The amendments made by sections 301, 302, 303, and 304 shall be applicable with respect to taxable years beginning after December 31, 1947. The amendment made by section 303 shall also be applicable to taxable years of both husband and wife beginning on the same day in 1947 if at least one of such taxable years ends in 1948. For treatment of taxable years beginning in 1947 and ending in 1948, see section 601.

PART II-ESTATE TAX

Subpart 1–Repeal of 1942 Community Property Amendments SEC. 351. TRANSFERS OF COMMUNITY PROPERTY IN CONTEMPLATION

OF DEATH, ETC. Effective with respect to estates of decedents dying after the date of the enactment of this Act, section 811 (d) (5) of the Internal Revenue Code (relating to transfers of community property in contemplation of death, etc.) is hereby repealed. SEC. 352. JOINT AND COMMUNITY INTERESTS.

(a) Effective with respect to estates of decedents dying after the date of the enactment of this Act, section 811 (e) (2) of the Internal Revenue Code (relating to inclusion of community property in gross estate of decedent) is hereby repealed. (b) Such section 811 (e) is further amended

(1) by striking out of the heading of such subsection the words "AND COMMUNITY”; and

(2) by striking out of paragraph (1) the following: “(1) JOINT INTERESTS.—". SEC. 353. PROCEEDS OF LIFE INSURANCE.

Effective with respect to estates of decedents dying after the date of the enactment of this Act, section 811 (g) (4) of the Internal Revenue Code (relating to life insurance in the case of decedents in community-property States) is hereby repealed.

Subpart 2–Marital Deduction for Bequests, Etc., to Spouse SEC. 361. MARITAL DEDUCTION.

(a) Section 812 of the Internal Revenue Code (relating to deductions in computing net estate in the case of a citizen or resident of the United States) is hereby amended by adding at the end thereof a new subsection to read as follows:

“(e) BEQUESTS, ETC., TO SURVIVING SPOUSE.—

(1) ALLOWANCE OF MARITAL DEDUCTION.

“(A) In General.-An amount equal to the value of any interest in property passing from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.

“(B) Life Estate or Other Terminable Interests.—Where, upon the lapse of time, upon the occurrence of an event or contingency, or upon the failure of an event or contingency to occur, such interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed with respect to such interest

"(i) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse; and

(ii) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving

spouse. "(C) Interest of Spouse Conditioned on Survival For Limited Period.For the purposes of subparagraph (B) an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail upon the death of such spouse if

"(i) such death will cause a termination or failure of such interest only if it occurs within a period (not exceeding six months) after the decedent's death; and

“(ii) such spouse in fact does not die before the expiration of such period. “(D) Interest Of Surviving Spouse Reduced By Reason Of Estate, Etc., Taxes.—In determining for the purposes of subparagraph (A) the value of any interest in property passing to the surviving spouse there shall be taken into account the effect which a tax imposed by this chapter, or any estate, suco sion, legacy, or inheritance tax, has upon the net value to the surviving spouse of such interest.

“(E) Trust With Power Of Appointment In Surviving Spouse.—In the case of an interest in property passing from the decedent to a trust, if the trust will terminate upon the death of the surviving spouse of the decedent, and if under the terms of the trust such spouse is entitled for her life to all the income from the corpus of the trust, payable annually or at more frequent intervals, with the power to appoint by will the entire corpus to her estate, and with no power in herself or any other person to appoint or invade any part of the corpus during her life

"(i) the interest so passing shall, for the purposes of subparagraph (A), be considered as passing to the surviving spouse, and

“(ii) no part of the interest so passing shall, for the purposes of subparagraph (B) (i), be considered as passing to any person other

than the surviving spouse. This subparagraph shall be applicable only if, under the terms of the trust, such power to appoint by will is exercisable in all events.

“(F) Limitation On Aggregate Of Deductions.—The aggregate amount of the deductions allowed under this paragraph (computed without regard to this subparagraph) shall not exceed 50 per centum of the value of the adjusted gross estate, as defined in paragraph (2). “(2) COMPUTATION OF ADJUSTED GROSS ESTATE.

(A) General Rule.-Except as provided in subparagraph (B) of this paragraph the adjusted gross estate shall, for the purposes of paragraph (1) (F), be computed by substracting from the entire value of the gross estate the aggregate amount of the deductions allowed by subsection (b) of this section.

“(B) Special Rule In Cases Involving Community Property.-If the decedent and his surviving spouse at any time held property as community property under the law of any State, Territory, or possession of the United States, or of any foreign country, then the adjusted gross estate shall, for the purposes of paragraph (1) (F), be determined by subtracting from the entire value of the gross estate the sum of:

“(i) the value of property which is at the time of the death of the decedent held as such community property; and

“(ii) the value of property transferred by the decedent during his life, if at the time of such transfer the property was held as such community property; and

“(iii) the amount receivable as insurance under policies upon the life of the decedent to the extent purchased with premiums or other consideration paid out of property held as such community property; and

“(iv) an amount which bears the same ratio to the aggregate of the deductions allowed under subsection (b) of this section which the value of the property included in the gross estate, diminished by the amount subtracted under clauses (i), (ii), and (iii) of this sub

paragraph, bears to the entire value of the gross estate. For the purposes of clauses (i), (ii), and (iii), property shall be considered as 'held as such community property' if it was at any time acquired by the decedent (by one exchange or by a series of exchanges) in exchange for his interest in property held as such community property. The amount to be subtracted under clause (i), (ii), or (iii) shall not exceed the value of the interest in the property described therein

which is included in determining the value of the gross estate. “(3) DEFINITION.—For the purpose of this subsection an interest in property shall be considered as passing from the decedent to any person if and only if

“(A) such interest is bequeathed or devised to such person by the decedent; or

"(B) such interest is inherited by such person from the decedent; or

(C) such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent;

or

“(D) such interest has been transferred to such person by the decedent at any time; or

“(E) such interest was, at the time of the decedent's death, held by such person and the decedent (or by them and any other person) in joint ownership with right of survivorship; or

“(F) the decedent had a power (either alone or in conjunction with any person) to appoint such interest and if he appoints or has appointed such interest to such person, or if such person takes such interest in default upon the release or nonexercise of such power; or

“(G) such interest consists of proceeds of insurance upon the life of

the decedent." (b) The amendment made by subsection (a) of this section shall be applicable only with respect to estates of decedents dying after the date of the enactment of this Act. SEC. 362. PROPERTY PREVIOUSLY TAXED.

(a) Section 812 (c) of the Internal Revenue Code (relating to the deduction for property previously taxed) is hereby amended by adding after the first paragraph a new paragraph to read as follows:

“The following property shall not, for the purposes of this subsection, be considered as property with respect to which a deduction may be allowed: (A) property received from a prior decedent who died after the date of the enactment of the Revenue Act of 1948 and was at the time of such death the decedent's spouse, (B) property received by gift after such date from a donor who at the time of the gift was the decedent's spouse, and (C) property acquired in exchange for property described in clause (A) or (B).”

(b) Section 812 (c) is further amended by striking out “subsections (a) and (d)" and inserting in lieu thereof "subsections (a), (d), and (e)”.

PART III-GIFT TAX

SEC. 371. GIFTS OF COMMUNITY PROPERTY.

Section 1070 (d) of the Internal Revenue Code (relating to gifts of property held as community property) is amended by adding at the end thereof a new sentence to read as follows: “This subsection shall be applicable only to gifts made after the calendar year 1942 and on or before the date of the enactment of the Revenue Act of 1948."

SEC. 372. MARITAL DEDUCTION.

Section 1004 (a) of the Internal Revenue Code (relating to deductions in computing net gifts in the case of a citizen or resident of the United States) is hereby amended by adding at the end thereof a new paragraph to read as follows:

“(3) GIFT TO SPOUSE.—

(A) In General.—Where the donor transfers during the calendar year (and after the date of the enactment of the Revenue Act of 1948) by gift an interest in property to a donee who at the time of the gift is the donor's spouse—an amount ith respect to such interest equal to onehalf of its value.

“(B) Life Estate or Other Terminable Interest.—Where, upon the lapse of time, upon the occurrence of an event or contingency, or upon the failure of an event or contingency to occur, such interest transferred to the spouse will terminate or fail, no deduction shall be allowed with respect to such interest

“(i) if the donor retains in himself, or transfers or has transferred (for less than an adequate and full consideration in money or money's worth) to any person other than such donees spouse, an interest in such property, and if by reason of such retention or transfer the donor (or his heirs or assigns) or such person (or his heir or assigns) may possess or enjoy any part of such property after such termination or failure of the interest transferred to the donee spouse; or

“(ii) if the donor immediately after the transfer to the donee spouse has a power to appoint an interest in such property which he can exercise (either alone or in conjunction with any person) in such manner that the appointee may possess or enjoy any part of such property after such termination or failure of the interest transferred to the donee spouse. For the purposes of this clause the donor shall be considered as having immediately after the transfer to the donee spouse such power to appoint even though such power cannot be exercised until after the lapse of time, upon the occurrence of an event or contingency, or upon the failure of an

event or contingency to occur. An exercise or release at any time by the donor, either alone or in conjunction with any person, of a power to appoint an interest in property, even though not otherwise a transfer, shall, for the purposes of clause (i) of this subparagraph, be considered as a transfer by him.

“(C) Joint Interests.-If the interest is transferred to the donee spouse as sole joint tenant with the donor or as tenant by the entirety, the interest of the donor in the property which exists solely by reason of the possibility that the donor may survive the donee spouse, or that there may occur a severance of the tenancy, shall not be considered for the purposes of subparagraph (B) as an interest retained by the donor in himself.

“(D) Trust With Power Of Appointment In Donee Spouse.—Where the donor transfers in trust an interest in property, and the trust will terminate upon the death of his spouse, and under the terms of the trust his spouse is entitled for her life to all the income from the corpus of the trust, payable annually or at more frequent intervals, with the power to appoint by will the entire corpus to her estate, and with no power in herself or any other person to appoint or invade any part of the corpus during her life

“(i) the interest so transferred in trust shall, for the purposes of subparagraph (A), be considered as transferred to the donee spouse, and

“(ii) no part of the interest so transferred in trust shall, for the purposes of subparagraph (B) (i), be considered as retained in the

donor or transferred to any person other than the donee spouse. This subparagraph shall be applicable only if, under the terms of the trust, such power to appoint by will is exercisable in all events,

“(E) Community Property.-A deduction otherwise allowable under this paragraph shall be allowed only to the extent the transfer can be shown to represent a gift of property which does not fall within either of the two following classes :

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“(i) Property which is, at the time of the gift, held as community property under the law of any State, Territory, or possession of the United States, or of any foreign country; or

“(ii) Property which, although not so held, was at any time acquired by the donor (by one exchange or by a series of exchanges) in exchange for his interest in property held by him and the donee

spouse as community property.” SEC. 373. TECHNICAL AMENDMENTS.

Section 1004 (c) of the Internal Revenue Code is hereby amended to read as follows:

"(c) EXTENT OF DEDUCTIONS.—The deductions provided in subsection (a) (2) or (3) or in subsection (b) shall be allowed only to the extent that the gifts therein specified are included in the amount of gifts against which such deductions are applied." SEC. 374. GIFT OF HUSBAND OR WIFE TO THIRD PARTY.

Section 1000 of the Internal Revenue Code (relating to imposition of gift tax) is hereby amended by adding at the end thereof a new subsection to read as follows: “(f) GIFT OF HUSBAND OR WIFE TO THIRD PARTY.—

“(1) CONSIDERED AS MADE ONE-HALF BY EACH.

“(A) In General.-A gift made after the date of the enactment of the Revenue Act of 1948 by one spouse to any person other than his spouse shall, for the purposes of this chapter, be considered as made onehalf by him and one-half by his spouse, but only if at the time of the gift each spouse is a citizen or resident of the United States. For the purposes of this subsection an individual shall be considered as the spouse of another individual only if he is married to such individual at the time of the gift and does not remarry during the remainder of the calendar year.

“(B) Consent of Both Spouses.-Subparagraph (A) shall be applicable only if both spouses have signified (in accordance with the regulation provided for in paragraph (2)) their consent to the application of subparagraph (A) in the case of all such gifts made during the cal

endar year by either while married to the other. “(2) TIME AND MANNER OF SIGNIFYING CONSENT.-A consent under this subsection shall be signified at such time and in such manner as is provided under regulations prescribed by the Commissioner with the approval of the Secretary. The right to consent, and the right to revoke a consent previously signified, with respect to a calendar year, shall not exist on any day if a return for such year of one spouse (required otherwise than by reason of the application of paragraph (1)) filed on such day would be a return not timely filed.

“(3) JOINT AND SEVERAL LIABILITY FOR TAX.—If the consent required by paragraph (1) (B) is signified with respect to a gift made in any calendar year the liability with respect to the entire tax imposed by this chapter of each spouse for such year shall be joint and several."

TITLE IV-ADJUSTED GROSS INCOME OF LESS

THAN $5,000

SEC. 401. INDIVIDUALS WITH ADJUSTED GROSS INCOMES OF LESS

THAN $5,000. (a) IN GENERAL.-Section 400 of the Internal Revenue Code (relating to optional tax on individuals with adjusted gross incomes of less than $5,000) is hereby amended to read as follows: “SEC. 400. IMPOSITION OF TAX.

“In lieu of the taxes imposed by sections 11 and 12, there shall be levied, collected, and paid for each taxable year upon the net income of each individual whose adjusted gross income for such year is less than $5,000, and who has elected to pay the tax imposed by this supplemeent for such year, a tax as follows:

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