N.Y.
Tax Law Section 999-A
Appendix to article twenty-six
(a)
General.--The value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.(b)
Valuation of unlisted stock and securities.--In the case of stock and securities of a corporation the value of which, by reason of their not being listed on an exchange and by reason of the absence of sales thereof, cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined by taking into consideration, in addition to all other factors, the value of stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange.(c)
Estate tax with respect to land subject to a qualified conservation easement.-- (1) In general.--If the executor makes the election described in paragraph (6), then, except as otherwise provided in this subsection, there shall be excluded from the gross estate the lesser of-- (A) the applicable percentage of the value of land subject to a qualified conservation easement, reduced by the amount of any deduction under section 2055(f) with respect to such land, or (B) the exclusion limitation.(2)
Applicable percentage.--For purposes of paragraph (1), the term “applicable percentage” means 40 percent reduced (but not below zero) by 2 percentage points for each percentage point (or fraction thereof) by which the value of the qualified conservation easement is less than 30 percent of the value of the land (determined without regard to the value of such easement and reduced by the value of any retained development right (as defined in paragraph (5)). The values taken into account under the preceding sentence shall be such values as of the date of the contribution referred to in paragraph (8)(B).(3)
Exclusion limitation.--For purposes of paragraph (1), the exclusion limitation is the limitation determined in accordance with the following table: In the case of estates of decedents dying The exclusion limitation during: is: 1998..................................... 100,000 1999..................................... 200,000 2000..................................... 300,000 2001..................................... 400,000 2002 or thereafter....................... 500,000 (4) Treatment of certain indebtedness.-- (A) In general.--The exclusion provided in paragraph (1) shall not apply to the extent that the land is debt-financed property. (B) Definitions.--For purposes of this paragraph-- (i) Debt-financed property.--The term “debt-financed property” means any property with respect to which there is an acquisition indebtedness (as defined in clause (ii)) on the date of the decedent’s death.(ii)
Acquisition indebtedness.--The term “acquisition indebtedness” means, with respect to debt-financed property, the unpaid amount of-- (I) the indebtedness incurred by the donor in acquiring such property, (II) the indebtedness incurred before the acquisition of such property if such indebtedness would not have been incurred but for such acquisition, (III) the indebtedness incurred after the acquisition of such property if such indebtedness would not have been incurred but for such acquisition and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition, and (IV) the extension, renewal, or refinancing of an acquisition indebtedness.(5)
Treatment of retained development right.-- (A) In general.--Paragraph (1) shall not apply to the value of any development right retained by the donor in the conveyance of a qualified conservation easement. (B) Termination of retained development right.--If every person in being who has an interest (whether or not in possession) in the land executes an agreement to extinguish permanently some or all of any development rights (as defined in subparagraph (D)) retained by the donor on or before the date for filing the return of the tax imposed by section 2001, then any tax imposed by section 2001 shall be reduced accordingly. Such agreement shall be filed with the return of the tax imposed by section 2001. The agreement shall be in such form as the Secretary shall prescribe. (C) Additional tax.--Any failure to implement the agreement described in subparagraph (B) not later than the earlier of-- (i) the date which is 2 years after the date of the decedent’s death, or(ii)
the date of the sale of such land subject to the qualified conservation easement, shall result in the imposition of an additional tax in the amount of the tax which would have been due on the retained development rights subject to such agreement. Such additional tax shall be due and payable on the last day of the 6th month following such date. (D) Development right defined.--For purposes of this paragraph, the term “development right” means any right to use the land subject to the qualified conservation easement in which such right is retained for any commercial purpose which is not subordinate to and directly supportive of the use of such land as a farm for farming purposes (within the meaning of section 2032A(e)(5)).(6)
Election.--The election under this subsection shall be made on or before the due date (including extensions) for filing the return of tax imposed by section 2001 and shall be made on such return. Such an election, once made, shall be irrevocable.(7)
Calculation of estate tax due.--An executor making the election described in paragraph (6) shall, for purposes of calculating the amount of tax imposed by section 2001, include the value of any development right (as defined in paragraph (5)) retained by the donor in the conveyance of such qualified conservation easement. The computation of tax on any retained development right prescribed in this paragraph shall be done in such manner and on such forms as the Secretary shall prescribe.(8)
Definitions.--For purposes of this subsection-- (A) Land subject to a qualified conservation easement.--The term “land subject to a qualified conservation easement” means land-- (i) which is located in the United States or any possession of the United States, (ii) which was owned by the decedent or a member of the decedent’s family at all times during the 3-year period ending on the date of the decedent’s death, and(iii)
with respect to which a qualified conservation easement has been made by an individual described in subparagraph (C), as of the date of the election described in paragraph (6). (B) Qualified conservation easement.--The term “qualified conservation easement” means a qualified conservation contribution (as defined in section 170(h)(1)) of a qualified real property interest (as defined in section 170(h)(2)(C)), except that clause (iv) of section 170(h)(4)(A) shall not apply, and the restriction on the use of such interest described in section 170(h)(2)(C) shall include a prohibition on more than a de minimis use for a commercial recreational activity. (C) Individual described.--An individual is described in this subparagraph if such individual is-- (i) the decedent, (ii) a member of the decedent’s family, (iii) the executor of the decedent’s estate, or(iv)
the trustee of a trust the corpus of which includes the land to be subject to the qualified conservation easement. (D) Member of family.--The term “member of the decedent’s family” means any member of the family (as defined in section 2032A(e)(2)) of the decedent.(9)
Treatment of easements granted after death.--In any case in which the qualified conservation easement is granted after the date of the decedent’s death and on or before the due date (including extensions) for filing the return of tax imposed by section 2001, the deduction under section 2055(f) with respect to such easement shall be allowed to the estate but only if no charitable deduction is allowed under chapter 1 to any person with respect to the grant of such easement.(10)
Application of this section to interests in partnerships, corporations, and trusts.--This section shall apply to an interest in a partnership, corporation, or trust if at least 30 percent of the entity is owned (directly or indirectly) by the decedent, as determined under the rules described in section 2057(e)(3).(d)
Cross reference.-- For executor’s right to be furnished on request a statement regarding any valuation made by the Secretary within the gross estate, see section 7517. § 2032. Alternate Valuation.(a)
General.--The value of the gross estate may be determined, if the executor so elects, by valuing all the property included in the gross estate as follows:(1)
In the case of property distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date of distribution, sale, exchange, or other disposition.(2)
In the case of property not distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date 6 months after the decedent’s death.(3)
Any interest or estate which is affected by mere lapse of time shall be included at its value as of the time of death (instead of the later date) with adjustment for any difference in its value as of the later date not due to mere lapse of time.(b)
Special rules.--No deduction under this chapter of any item shall be allowed if allowance for such items is in effect given by the alternate valuation provided by this section. Wherever in any other subsection or section of this chapter reference is made to the value of property at the time of the decedent’s death, such reference shall be deemed to refer to the value of such property used in determining the value of the gross estate. In case of an election made by the executor under this section, then-- (1) for purposes of the charitable deduction under section 2055 or 2106(a)(2), any bequest, legacy, devise, or transfer enumerated therein, and(2)
for the purpose of the marital deduction under section 2056, any interest in property passing to the surviving spouse, shall be valued as of the date of the decedent’s death with adjustment for any difference in value (not due to mere lapse of time or the occurrence or nonoccurrence of a contingency) of the property as of the date 6 months after the decedent’s death (substituting, in the case of property distributed by the executor or trustee, or sold, exchanged, or otherwise disposed of, during such 6-month period, the date thereof).(c)
Election must decrease gross estate and estate tax.--No election may be made under this section with respect to an estate unless such election will decrease-- (1) the value of the gross estate, and(2)
the sum of the tax imposed by this chapter and the tax imposed by chapter 13 with respect to property includible in the decedent’s gross estate (reduced by credits allowable against such taxes).(d)
Election.-- (1) In general.--The election provided for in this section shall be made by the executor on the return of the tax imposed by this chapter. Such election, once made, shall be irrevocable.(2)
Exception.--No election may be made under this section if such return is filed more than 1 year after the time prescribed by law (including extensions) for filing such return. § 2032A. Valuation of Certain Farm, Etc., Real Property.(a)
Value based on use under which property qualifies.-- (1) General rule.--If-- (A) the decedent was (at the time of his death) a citizen or resident of the United States, and (B) the executor elects the application of this section and files the agreement referred to in subsection (d)(2), then, for purposes of this chapter, the value of qualified real property shall be its value for the use under which it qualifies, under subsection (b), as qualified real property.(2)
Limitation on aggregate reduction in fair market value.--The aggregate decrease in the value of qualified real property taken into account for purposes of this chapter which results from the application of paragraph (1) with respect to any decedent shall not exceed $750,000.(3)
Inflation adjustment.--In the case of estates of decedents dying in a calendar year after 1998, the $750,000 amount contained in paragraph (2) shall be increased by an amount equal to-- (A) $750,000, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting “calendar year 1997” for “calendar year 1992” in subparagraph (B) thereof. If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000.(b)
Qualified real property.-- (1) In general.--For purposes of this section, the term “qualified real property” means real property located in the United States which was acquired from or passed from the decedent to a qualified heir of the decedent and which, on the date of the decedent’s death, was being used for a qualified use by the decedent or a member of the decedent’s family, but only if-- (A) 50 percent or more of the adjusted value of the gross estate consists of the adjusted value of real or personal property which-- (i) on the date of the decedent’s death, was being used for a qualified use by the decedent or a member of the decedent’s family, and(ii)
was acquired from or passed from the decedent to a qualified heir of the decedent. (B) 25 percent or more of the adjusted value of the gross estate consists of the adjusted value of real property which meets the requirements of subparagraphs (A)(ii) and (C), (C) during the 8-year period ending on the date of the decedent’s death there have been periods aggregating 5 years or more during which-- (i) such real property was owned by the decedent or a member of the decedent’s family and used for a qualified use by the decedent or a member of the decedent’s family, and(ii)
there was material participation by the decedent or a member of the decedent’s family in the operation of the farm or other business, and (D) such real property is designated in the agreement referred to in subsection (d)(2).(2)
Qualified use.--For purposes of this section, the term “qualified use” means the devotion of the property to any of the following: (A) use as a farm for farming purposes, or (B) use in a trade or business other than the trade or business of farming.(3)
Adjusted value.--For purposes of paragraph (1), the term “adjusted value” means-- (A) in the case of the gross estate, the value of the gross estate for purposes of this chapter (determined without regard to this section), reduced by any amounts allowable as a deduction under paragraph (4) of section 2053(a), or (B) in the case of any real or personal property, the value of such property for purposes of this chapter (determined without regard to this section), reduced by any amounts allowable as a deduction in respect of such property under paragraph (4) of section 2053(a).(4)
Decedents who are retired or disabled.-- (A) In general.--If, on the date of the decedent’s death, the requirements of paragraph (1)(C)(ii) with respect to the decedent for any property are not met, and the decedent-- (i) was receiving old-age benefits under title II of the Social Security Act for a continuous period ending on such date, or(ii)
was disabled for a continuous period ending on such date, then paragraph (1)(C)(ii) shall be applied with respect to such property by substituting “the date on which the longer of such continuous periods began” for “the date of the decedent’s death” in paragraph (1)(C). (B) Disabled defined.--For purposes of subparagraph (A), an individual shall be disabled if such individual has a mental or physical impairment which renders him unable to materially participate in the operation of the farm or other business. (C) Coordination with recapture.--For purposes of subsection (c)(6)(B)(i), if the requirements of paragraph (1)(C)(ii) are met with respect to any decedent by reason of subparagraph (A), the period ending on the date on which the continuous period taken into account under subparagraph (A) began shall be treated as the period immediately before the decedent’s death.(5)
Special rules for surviving spouses.-- (A) In general.--If property is qualified real property with respect to a decedent (hereinafter in this paragraph referred to as the “first decedent”) and such property was acquired from or passed from the first decedent to the surviving spouse of the first decedent, for purposes of applying this subsection and subsection (c) in the case of the estate of such surviving spouse, active management of the farm or other business by the surviving spouse shall be treated as material participation by such surviving spouse in the operation of such farm or business. (B) Special rule.--For the purposes of subparagraph (A), the determination of whether property is qualified real property with respect to the first decedent shall be made without regard to subparagraph (D) of paragraph (1) and without regard to whether an election under this section was made. (C) Coordination with paragraph (4).--In any case in which to do so will enable the requirements of paragraph (1)(C)(ii) to be met with respect to the surviving spouse, this subsection and subsection (c) shall be applied by taking into account any application of paragraph (4).(c)
Tax treatment of dispositions and failures to use for qualified use.-- (1) Imposition of additional estate tax.--If, within 10 years after the decedent’s death and before the death of the qualified heir-- (A) the qualified heir disposes of any interest in qualified real property (other than by a disposition to a member of his family), or (B) the qualified heir ceases to use for the qualified use the qualified real property which was acquired (or passed) from the decedent, then, there is hereby imposed an additional estate tax.(2)
Amount of additional tax.-- (A) In general.--The amount of the additional tax imposed by paragraph (1) with respect to any interest shall be the amount equal to the lesser of-- (i) the adjusted tax difference attributable to such interest, or(ii)
the excess of the amount realized with respect to the interest (or, in any case other than a sale or exchange at arm’s length, the fair market value of the interest) over the value of the interest determined under subsection (a). (B) Adjusted tax difference attributable to interest.--For purposes of subparagraph (A), the adjusted tax difference attributable to an interest is the amount which bears the same ratio to the adjusted tax difference with respect to the estate (determined under subparagraph (C)) as-- (i) the excess of the value of such interest for purposes of this chapter (determined without regard to subsection (a)) over the value of such interest determined under subsection (a), bears to (ii) a similar excess determined for all qualified real property. (C) Adjusted tax difference with respect to the estate.--For purposes of subparagraph (B), the term “adjusted tax difference with respect to the estate” means the excess of what would have been the estate tax liability but for subsection (a) over the estate tax liability. For purposes of this subparagraph, the term “estate tax liability” means the tax imposed by section 2001 reduced by the credits allowable against such tax. (D) Partial dispositions.--For purposes of this paragraph, where the qualified heir disposes of a portion of the interest acquired by (or passing to) such heir (or a predecessor qualified heir) or there is a cessation of use of such a portion-- (i) the value determined under subsection (a) taken into account under subparagraph (A)(ii) with respect to such portion shall be its pro rata share of such value of such interest, and(ii)
the adjusted tax difference attributable to the interest taken into account with respect to the transaction involving the second or any succeeding portion shall be reduced by the amount of the tax imposed by this subsection with respect to all prior transactions involving portions of such interest. (E) Special rule for disposition of timber.--In the case of qualified woodland to which an election under subsection (e)(13)(A) applies, if the qualified heir disposes of (or severs) any standing timber on such qualified woodland-- (i) such disposition (or severance) shall be treated as a disposition of a portion of the interest of the qualified heir in such property, and(ii)
the amount of the additional tax imposed by paragraph (1) with respect to such disposition shall be an amount equal to the lesser of-- (I) the amount realized on such disposition (or, in any case other than a sale or exchange at arm’s length, the fair market value of the portion of the interest disposed or severed), or (II) the amount of additional tax determined under this paragraph (without regard to this subparagraph) if the entire interest of the qualified heir in the qualified woodland had been disposed of, less the sum of the amount of the additional tax imposed with respect to all prior transactions involving such woodland to which this subparagraph applied. For purposes of the preceding sentence, the disposition of a right to sever shall be treated as the disposition of the standing timber. The amount of additional tax imposed under paragraph (1) in any case in which a qualified heir disposes of his entire interest in the qualified woodland shall be reduced by any amount determined under this subparagraph with respect to such woodland.(3)
Only 1 additional tax imposed with respect to any 1 portion.--In the case of an interest acquired from (or passing from) any decedent, if subparagraph (A) or (B) of paragraph (1) applies to any portion of an interest, subparagraph (B) or (A), as the case may be, of paragraph (1) shall not apply with respect to the same portion of such interest.(4)
Due date.--The additional tax imposed by this subsection shall become due and payable on the day which is 6 months after the date of the disposition or cessation referred to in paragraph (1).(5)
Liability for tax; furnishing of bond.--The qualified heir shall be personally liable for the additional tax imposed by this subsection with respect to his interest unless the heir has furnished bond which meets the requirements of subsection (e)(11).(6)
Cessation of qualified use.--For purposes of paragraph (1)(B), real property shall cease to be used for the qualified use if-- (A) such property ceases to be used for the qualified use set forth in subparagraph (A) or (B) of subsection (b)(2) under which the property qualified under subsection (b), or (B) during any period of 8 years ending after the date of the decedent’s death and before the date of the death of the qualified heir, there had been periods aggregating more than 3 years during which-- (i) in the case of periods during which the property was held by the decedent, there was no material participation by the decedent or any member of his family in the operation of the farm or other business, and(ii)
in the case of periods during which the property was held by any qualified heir, there was no material participation by such qualified heir or any member of his family in the operation of the farm or other business.(7)
Special rules.-- (A) No tax if use begins within 2 years.--If the date on which the qualified heir begins to use the qualified real property (hereinafter in this subparagraph referred to as the commencement date) is before the date 2 years after the decedent’s death-- (i) no tax shall be imposed under paragraph (1) by reason of the failure by the qualified heir to so use such property before the commencement date, and(ii)
the 10-year period under paragraph (1) shall be extended by the period after the decedent’s death and before the commencement date. (B) Active management by eligible qualified heir treated as material participation.--For purposes of paragraph (6)(B)(ii), the active management of a farm or other business by-- (i) an eligible qualified heir, or(ii)
a fiduciary of an eligible qualified heir described in clause (ii) or (iii) of subparagraph (C), shall be treated as material participation by such eligible qualified heir in the operation of such farm or business. In the case of an eligible qualified heir described in clause (ii), (iii), or(iv)
of subparagraph (C), the preceding sentence shall apply only during periods during which such heir meets the requirements of such clause. (C) Eligible qualified heir.--For purposes of this paragraph, the term “eligible qualified heir” means a qualified heir who-- (i) is the surviving spouse of the decedent, (ii) has not attained the age of 21, (iii) is disabled (within the meaning of subsection (b)(4)(B)), or(iv)
is a student. (D) Student.--For purposes of subparagraph (C), an individual shall be treated as a student with respect to periods during any calendar year if (and only if) such individual is a student (within the meaning of section 152(f)(2)) for such calendar year. (E) Certain rents treated as qualified use.--For purposes of this subsection, a surviving spouse or lineal descendant of the decedent shall not be treated as failing to use qualified real property in a qualified use solely because such spouse or descendant rents such property to a member of the family of such spouse or descendant on a net cash basis. For purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such individual by blood.(8)
Qualified conservation contribution is not a disposition.--A qualified conservation contribution (as defined in section 170(h)) by gift or otherwise shall not be deemed a disposition under subsection (c)(1)(A).(d)
Election; agreement.-- (1) Election.--The election under this section shall be made on the return of the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable.(2)
Agreement.--The agreement referred to in this paragraph is a written agreement signed by each person in being who has an interest (whether or not in possession) in any property designated in such agreement consenting to the application of subsection (c) with respect to such property.(3)
Modification of election and agreement to be permitted.--The Secretary shall prescribe procedures which provide that in any case in which the executor makes an election under paragraph (1) (and submits the agreement referred to in paragraph (2)) within the time prescribed therefor, but-- (A) the notice of election, as filed, does not contain all required information, or (B) signatures of 1 or more persons required to enter into the agreement described in paragraph (2) are not included on the agreement as filed, or the agreement does not contain all required information, the executor will have a reasonable period of time (not exceeding 90 days) after notification of such failures to provide such information or signatures.(e)
Definitions; special rules.--For purposes of this section-- (1) Qualified heir.--The term “qualified heir” means, with respect to any property, a member of the decedent’s family who acquired such property (or to whom such property passed) from the decedent. If a qualified heir disposes of any interest in qualified real property to any member of his family, such member shall thereafter be treated as the qualified heir with respect to such interest.(2)
Member of family.--The term “member of the family” means, with respect to any individual, only-- (A) an ancestor of such individual, (B) the spouse of such individual, (C) a lineal descendant of such individual, of such individual’s spouse, or of a parent of such individual, or (D) the spouse of any lineal descendant described in subparagraph (C). For purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such individual by blood.(3)
Certain real property included.--In the case of real property which meets the requirements of subparagraph (C) of subsection (b)(1), residential buildings and related improvements on such real property occupied on a regular basis by the owner or lessee of such real property or by persons employed by such owner or lessee for the purpose of operating or maintaining such real property, and roads, buildings, and other structures and improvements functionally related to the qualified use shall be treated as real property devoted to the qualified use.(4)
Farm.--The term “farm” includes stock, dairy, poultry, fruit, furbearing animal, and truck farms, plantations, ranches, nurseries, ranges, greenhouses or other similar structures used primarily for the raising of agricultural or horticultural commodities, and orchards and woodlands.(5)
Farming purposes.--The term “farming purposes” means- (A) cultivating the soil or raising or harvesting any agricultural or horticultural commodity (including the raising, shearing, feeding, caring for, training, and management of animals) on a farm; (B) handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of the commodity so treated; and (C)(i) the planting, cultivating, caring for, or cutting of trees, or(ii)
the preparation (other than milling) of trees for market.(6)
Material participation.--Material participation shall be determined in a manner similar to the manner used for purposes of paragraph (1) of section 1402(a) (relating to net earnings from self-employment).(7)
Method of valuing farms.-- (A) In general.--Except as provided in subparagraph (B), the value of a farm for farming purposes shall be determined by dividing-- (i) the excess of the average annual gross cash rental for comparable land used for farming purposes and located in the locality of such farm over the average annual State and local real estate taxes for such comparable land, by (ii) the average annual effective interest rate for all new Federal Land Bank loans. For purposes of the preceding sentence, each average annual computation shall be made on the basis of the 5 most recent calendar years ending before the date of the decedent’s death. (B) Value based on net share rental in certain cases.-- (i) In general.--If there is no comparable land from which the average annual gross cash rental may be determined but there is comparable land from which the average net share rental may be determined, subparagraph (A)(i) shall be applied by substituting “average annual net share rental” for “average annual gross cash rental”.(ii)
Net share rental.--For purposes of this paragraph, the term “net share rental” means the excess of-- (I) the value of the produce received by the lessor of the land on which such produce is grown, over (II) the cash operating expenses of growing such produce which, under the lease, are paid by the lessor. (C) Exception.--The formula provided by subparagraph (A) shall not be used-- (i) where it is established that there is no comparable land from which the average annual gross cash rental may be determined, or(ii)
where the executor elects to have the value of the farm for farming purposes determined and that there is no comparable land from which the average net share rental may be determined under paragraph (8).(8)
Method of valuing closely held business interests, etc.--In any case to which paragraph (7)(A) does not apply, the following factors shall apply in determining the value of any qualified real property: (A) The capitalization of income which the property can be expected to yield for farming or closely held business purposes over a reasonable period of time under prudent management using traditional cropping patterns for the area, taking into account soil capacity, terrain configuration, and similar factors, (B) The capitalization of the fair rental value of the land for farmland or closely held business purposes, (C) Assessed land values in a State which provides a differential or use value assessment law for farmland or closely held business, (D) Comparable sales of other farm or closely held business land in the same geographical area far enough removed from a metropolitan or resort area so that nonagricultural use is not a significant factor in the sales price, and (E) Any other factor which fairly values the farm or closely held business value of the property.(9)
Property acquired from decedent.--Property shall be considered to have been acquired from or to have passed from the decedent if-- (A) such property is so considered under section 1014(b) (relating to basis of property acquired from a decedent), (B) such property is acquired by any person from the estate, or (C) such property is acquired by any person from a trust (to the extent such property is includible in the gross estate of the decedent).(10)
Community property.--If the decedent and his surviving spouse at any time held qualified real property as community property, the interest of the surviving spouse in such property shall be taken into account under this section to the extent necessary to provide a result under this section with respect to such property which is consistent with the result which would have obtained under this section if such property had not been community property.(11)
Bond in lieu of personal liability.--If the qualified heir makes written application to the Secretary for determination of the maximum amount of the additional tax which may be imposed by subsection (c) with respect to the qualified heir’s interest, the Secretary (as soon as possible, and in any event within 1 year after the making of such application) shall notify the heir of such maximum amount. The qualified heir, on furnishing a bond in such amount and for such period as may be required, shall be discharged from personal liability for any additional tax imposed by subsection (c) and shall be entitled to a receipt or writing showing such discharge.(12)
Active management.--The term “active management” means the making of the management decisions of a business (other than the daily operating decisions).(13)
Special rules for woodlands.-- (A) In general.--In the case of any qualified woodland with respect to which the executor elects to have this subparagraph apply, trees growing on such woodland shall not be treated as a crop. (B) Qualified woodland.--The term “qualified woodland” means any real property which-- (i) is used in timber operations, and(ii)
is an identifiable area of land such as an acre or other area for which records are normally maintained in conducting timber operations. (C) Timber operations.--The term “timber operations” means-- (i) the planting, cultivating, caring for, or cutting of trees, or(ii)
the preparation (other than milling) of trees for market. (D) Election.--An election under subparagraph (A) shall be made on the return of the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such an election, once made, shall be irrevocable.(14)
Treatment of replacement property acquired in section 1031 or 1033 transactions.-- (A) In general.--In the case of any qualified replacement property, any period during which there was ownership, qualified use, or material participation with respect to the replaced property by the decedent or any member of his family shall be treated as a period during which there was such ownership, use, or material participation (as the case may be) with respect to the qualified replacement property. (B) Limitation.--Subparagraph (A) shall not apply to the extent that the fair market value of the qualified replacement property (as of the date of its acquisition) exceeds the fair market value of the replaced property (as of the date of its disposition). (C) Definitions.--For purposes of this paragraph-- (i) Qualified replacement property.--The term “qualified replacement property” means any real property which is-- (I) acquired in an exchange which qualifies under section 1031, or (II) the acquisition of which results in the nonrecognition of gain under section 1033. Such term shall only include property which is used for the same qualified use as the replaced property was being used before the exchange.(ii)
Replaced property.--The term “replaced property” means-- (I) the property transferred in the exchange which qualifies under section 1031, or (II) the property compulsorily or involuntarily converted (within the meaning of section 1033).(f)
Statute of limitations.--If qualified real property is disposed of or ceases to be used for a qualified use, then-- (1) the statutory period for the assessment of any additional tax under subsection (c) attributable to such disposition or cessation shall not expire before the expiration of 3 years from the date the Secretary is notified (in such manner as the Secretary may by regulations prescribe) of such disposition or cessation (or if later in the case of an involuntary conversion or exchange to which subsection (h) or (i) applies, 3 years from the date the Secretary is notified of the replacement of the converted property or of an intention not to replace or of the exchange of property), and(2)
such additional tax may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.(g)
Application of this section and section 6324B to interests in partnerships, corporations, and trusts.--The Secretary shall prescribe regulations setting forth the application of this section and section 6324B in the case of an interest in a partnership, corporation, or trust which, with respect to the decedent, is an interest in a closely held business (within the meaning of paragraph (1) of section 6166(b)). For purposes of the preceding sentence, an interest in a discretionary trust all the beneficiaries of which are qualified heirs shall be treated as a present interest.(h)
Special rules for involuntary conversions of qualified real property.-- (1) Treatment of converted property.-- (A) In general.--If there is an involuntary conversion of an interest in qualified real property-- (i) no tax shall be imposed by subsection (c) on such conversion if the cost of the qualified replacement property equals or exceeds the amount realized on such conversion, or(ii)
if clause (i) does not apply, the amount of the tax imposed by subsection (c) on such conversion shall be the amount determined under subparagraph (B). (B) Amount of tax where there is not complete reinvestment.--The amount determined under this subparagraph with respect to any involuntary conversion is the amount of the tax which (but for this subsection) would have been imposed on such conversion reduced by an amount which-- (i) bears the same ratio to such tax, as (ii) the cost of the qualified replacement property bears to the amount realized on the conversion.(2)
Treatment of replacement property.--For purposes of subsection (c)-- (A) any qualified replacement property shall be treated in the same manner as if it were a portion of the interest in qualified real property which was involuntarily converted; except that with respect to such qualified replacement property the 10-year period under paragraph (1) of subsection (c) shall be extended by any period, beyond the 2-year period referred to in section 1033(a)(2)(B)(i), during which the qualified heir was allowed to replace the qualified real property, (B) any tax imposed by subsection (c) on the involuntary conversion shall be treated as a tax imposed on a partial disposition, and (C) paragraph (6) of subsection (c) shall be applied-- (i) by not taking into account periods after the involuntary conversion and before the acquisition of the qualified replacement property, and(ii)
by treating material participation with respect to the converted property as material participation with respect to the qualified replacement property.(3)
Definitions and special rules.--For purposes of this subsection-- (A) Involuntary conversion.--The term “involuntary conversion” means a compulsory or involuntary conversion within the meaning of section 1033. (B) Qualified replacement property.--The term “qualified replacement property” means-- (i) in the case of an involuntary conversion described in section 1033(a)(1), any real property into which the qualified real property is converted, or(ii)
in the case of an involuntary conversion described in section 1033(a)(2), any real property purchased by the qualified heir during the period specified in section 1033(a)(2)(B) for purposes of replacing the qualified real property. Such term only includes property which is to be used for the qualified use set forth in subparagraph (A) or (B) of subsection (b)(2) under which the qualified real property qualified under subsection (a).(4)
Certain rules made applicable.--The rules of the last sentence of section 1033(a)(2)(A) shall apply for purposes of paragraph (3)(B)(ii).(i)
Exchanges of qualified real property.-- (1) Treatment of property exchanged.-- (A) Exchanges solely for qualified exchange property.--If an interest in qualified real property is exchanged solely for an interest in qualified exchange property in a transaction which qualifies under section 1031, no tax shall be imposed by subsection (c) by reason of such exchange. (B) Exchanges where other property received.--If an interest in qualified real property is exchanged for an interest in qualified exchange property and other property in a transaction which qualifies under section 1031, the amount of the tax imposed by subsection (c) by reason of such exchange shall be the amount of tax which (but for this subparagraph) would have been imposed on such exchange under subsection (c)(1), reduced by an amount which-- (i) bears the same ratio to such tax, as (ii) the fair market value of the qualified exchange property bears to the fair market value of the qualified real property exchanged. For purposes of clause (ii) of the preceding sentence, fair market value shall be determined as of the time of the exchange.(2)
Treatment of qualified exchange property.--For purposes of subsection (c)-- (A) any interest in qualified exchange property shall be treated in the same manner as if it were a portion of the interest in qualified real property which was exchanged, (B) any tax imposed by subsection (c) by reason of the exchange shall be treated as a tax imposed on a partial disposition, and (C) paragraph (6) of subsection (c) shall be applied by treating material participation with respect to the exchanged property as material participation with respect to the qualified exchange property.(3)
Qualified exchange property.--For purposes of this subsection, the term “qualified exchange property” means real property which is to be used for the qualified use set forth in subparagraph (A) or (B) of subsection (b)(2) under which the real property exchanged therefor originally qualified under subsection (a). § 2033. Property in Which the Decedent had an Interest. The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death. § 2034. Dower or Curtesy Interests. The value of the gross estate shall include the value of all property to the extent of any interest therein of the surviving spouse, existing at the time of the decedent’s death as dower or curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy. § 2035. Adjustments for Certain Gifts Made Within Three Years of Decedent’s Death.(a)
Inclusion of certain property in gross estate.--If-- (1) the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent’s death, and(2)
the value of such property (or an interest therein) would have been included in the decedent’s gross estate under section 2036, 2037, 2038, or 2042 if such transferred interest or relinquished power had been retained by the decedent on the date of his death, the value of the gross estate shall include the value of any property (or interest therein) which would have been so included.(b)
Inclusion of gift tax on gifts made during 3 years before decedent’s death.--The amount of the gross estate (determined without regard to this subsection) shall be increased by the amount of any tax paid under chapter 12 by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of the decedent’s death.(c)
Other rules relating to transfers within 3 years of death.-- (1) In general.--For purposes of-- (A) section 303(b) (relating to distributions in redemption of stock to pay death taxes), (B) section 2032A (relating to special valuation of certain farms, etc., real property), and (C) subchapter C of chapter 64 (relating to lien for taxes), the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, during the 3-year period ending on the date of the decedent’s death.(2)
Coordination with section 6166.--An estate shall be treated as meeting the 35 percent of adjusted gross estate requirement of section 6166(a)(1) only if the estate meets such requirement both with and without the application of subsection (a).(3)
Marital and small transfers.--Paragraph (1) shall not apply to any transfer (other than a transfer with respect to a life insurance policy) made during a calendar year to any donee if the decedent was not required by section 6019 (other than by reason of section 6019(2)) to file any gift tax return for such year with respect to transfers to such donee.(d)
Exception.--Subsection (a) and paragraph (1) of subsection (c) shall not apply to any bona fide sale for an adequate and full consideration in money or money’s worth.(e)
Treatment of certain transfers from revocable trusts.--For purposes of this section and section 2038, any transfer from any portion of a trust during any period that such portion was treated under section 676 as owned by the decedent by reason of a power in the grantor (determined without regard to section 672(e)) shall be treated as a transfer made directly by the decedent. § 2036. Transfers with Retained Life Estate.(a)
General rule.--The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death-- (1) the possession or enjoyment of, or the right to the income from, the property, or(2)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.(b)
Voting rights.-- (1) In general.--For purposes of subsection (a)(1), the retention of the right to vote (directly or indirectly) shares of stock of a controlled corporation shall be considered to be a retention of the enjoyment of transferred property.(2)
Controlled corporation.--For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent’s death, the decedent owned (with the application of section 318), or had the right (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock.(3)
Coordination with section 2035.--For purposes of applying section 2035 with respect to paragraph (1), the relinquishment or cessation of voting rights shall be treated as a transfer of property made by the decedent.(c)
Limitation on application of general rule.--This section shall not apply to a transfer made before March 4, 1931; nor to a transfer made after March 3, 1931, and before June 7, 1932, unless the property transferred would have been includible in the decedent’s gross estate by reason of the amendatory language of the joint resolution of March 3, 1931 (46 Stat. 1516). § 2037. Transfers Taking Effect at Death.(a)
General rule.--The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after September 7, 1916, made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, if-- (1) possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and(2)
the decedent has retained a reversionary interest in the property (but in the case of a transfer made before October 8, 1949, only if such reversionary interest arose by the express terms of the instrument of transfer), and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property.(b)
Special rules.--For purposes of this section, the term “reversionary interest” includes a possibility that property transferred by the decedent-- (1) may return to him or his estate, or(2)
may be subject to a power of disposition by him, but such term does not include a possibility that the income alone from such property may return to him or become subject to a power of disposition by him. The value of a reversionary interest immediately before the death of the decedent shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, under regulations prescribed by the Secretary. In determining the value of a possibility that property may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such property may return to the decedent or his estate. Notwithstanding the foregoing, an interest so transferred shall not be included in the decedent’s gross estate under this section if possession or enjoyment of the property could have been obtained by any beneficiary during the decedent’s life through the exercise of a general power of appointment (as defined in section 2041) which in fact was exercisable immediately before the decedent’s death. § 2038. Revocable Transfers.(a)
In general.--The value of the gross estate shall include the value of all property-- (1) Transfers after June 22, 1936.--To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death.(2)
Transfers on or before June 22, 1936.--To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power during the 3-year period ending on the date of the decedent’s death. Except in the case of transfers made after June 22, 1936, no interest of the decedent of which he has made a transfer shall be included in the gross estate under paragraph (1) unless it is includible under this paragraph.(b)
Date of existence of power.--For purposes of this section, the power to alter, amend, revoke, or terminate shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment, revocation, or termination takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised. In such cases proper adjustment shall be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose, if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death. § 2039. Annuities.(a)
General.--The gross estate shall include the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement entered into after March 3, 1931 (other than as insurance under policies on the life of the decedent), if, under such contract or agreement, an annuity or other payment was payable to the decedent, or the decedent possessed the right to receive such annuity or payment, either alone or in conjunction with another for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.(b)
Amount includible.--Subsection (a) shall apply to only such part of the value of the annuity or other payment receivable under such contract or agreement as is proportionate to that part of the purchase price therefor contributed by the decedent. For purposes of this section, any contribution by the decedent’s employer or former employer to the purchase price of such contract or agreement (whether or not to an employee’s trust or fund forming part of a pension, annuity, retirement, bonus or profit sharing plan) shall be considered to be contributed by the decedent if made by reason of his employment. § 2040. Joint Interests.(a)
General rule.--The value of the gross estate shall include the value of all property to the extent of the interest therein held as joint tenants with right of survivorship by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money’s worth: Provided, That where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money’s worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants with right of survivorship.(b)
Certain joint interests of husband and wife.-- (1) Interests of spouse excluded from gross estate.--Notwithstanding subsection (a), in the case of any qualified joint interest, the value included in the gross estate with respect to such interest by reason of this section is one-half of the value of such qualified joint interest.(2)
Qualified joint interest defined.--For purposes of paragraph (1), the term “qualified joint interest” means any interest in property held by the decedent and the decedent’s spouse as-- (A) tenants by the entirety, or (B) joint tenants with right of survivorship, but only if the decedent and the spouse of the decedent are the only joint tenants. § 2041. Powers of Appointment.(a)
In general.--The value of the gross estate shall include the value of all property-- (1) Powers of appointment created on or before October 21, 1942.--To the extent of any property with respect to which a general power of appointment created on or before October 21, 1942, is exercised by the decedent-- (A) by will, or (B) by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent’s gross estate under sections 2035 to 2038, inclusive; but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof. If a general power of appointment created on or before October 21, 1942, has been partially released so that it is no longer a general power of appointment, the exercise of such power shall not be deemed to be the exercise of a general power of appointment if-- (i) such partial release occurred before November 1, 1951, or(ii)
the donee of such power was under a legal disability to release such power on October 21, 1942, and such partial release occurred not later than 6 months after the termination of such legal disability.(2)
Powers created after October 21, 1942.--To the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, 1942, or with respect to which the decedent has at any time exercised or released such a power of appointment by a disposition which is of such nature that if it were a transfer of property owned by the decedent, such property would be includible in the decedent’s gross estate under sections 2035 to 2038, inclusive. For purposes of this paragraph (2), the power of appointment shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the exercise of the power takes effect only on the expiration of a stated period after its exercise, whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised.(3)
Creation of another power in certain cases.--To the extent of any property with respect to which the decedent-- (A) by will, or (B) by a disposition which is of such nature that if it were a transfer of property owned by the decedent such property would be includible in the decedent’s gross estate under section 2035, 2036, or 2037, exercises a power of appointment created after October 21, 1942, by creating another power of appointment which under the applicable local law can be validly exercised so as to postpone the vesting of any estate or interest in such property, or suspend the absolute ownership or power of alienation of such property, for a period ascertainable without regard to the date of the creation of the first power.(b)
Definitions.--For purposes of subsection (a)-- (1) General power of appointment.--The term “general power of appointment” means a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate; except that-- (A) A power to consume, invade, or appropriate property for the benefit of the decedent which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the decedent shall not be deemed a general power of appointment. (B) A power of appointment created on or before October 21, 1942, which is exercisable by the decedent only in conjunction with another person shall not be deemed a general power of appointment. (C) In the case of a power of appointment created after October 21, 1942, which is exercisable by the decedent only in conjunction with another person-- (i) If the power is not exercisable by the decedent except in conjunction with the creator of the power--such power shall not be deemed a general power of appointment.(ii)
If the power is not exercisable by the decedent except in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of the decedent--such power shall not be deemed a general power of appointment. For the purposes of this clause a person who, after the death of the decedent, may be possessed of a power of appointment (with respect to the property subject to the decedent’s power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the decedent’s power.(iii)
If (after the application of clauses (i) and (ii)) the power is a general power of appointment and is exercisable in favor of such other person--such power shall be deemed a general power of appointment only in respect of a fractional part of the property subject to such power, such part to be determined by dividing the value of such property by the number of such persons (including the decedent) in favor of whom such power is exercisable. For purposes of clauses (ii) and (iii), a power shall be deemed to be exercisable in favor of a person if it is exercisable in favor of such person, his estate, his creditors, or the creditors of his estate.(2)
Lapse of power.--The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The preceding sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property, which could have been appointed by exercise of such lapsed powers, exceeded in value, at the time of such lapse, the greater of the following amounts: (A) $5,000, or (B) 5 percent of the aggregate value, at the time of such lapse, of the assets out of which, or the proceeds of which, the exercise of the lapsed powers could have been satisfied.(3)
Date of creation of power.--For purposes of this section, a power of appointment created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942. § 2042. Proceeds of Life Insurance. The value of the gross estate shall include the value of all property-- (1) Receivable by the executor.--To the extent of the amount receivable by the executor as insurance under policies on the life of the decedent.(2)
Receivable by other beneficiaries.--To the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. For purposes of the preceding sentence, the term “incident of ownership” includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of the value of the policy immediately before the death of the decedent. As used in this paragraph, the term “reversionary interest” includes a possibility that the policy, or the proceeds of the policy, may return to the decedent or his estate, or may be subject to a power of disposition by him. The value of a reversionary interest at any time shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, pursuant to regulations prescribed by the Secretary. In determining the value of a possibility that the policy or proceeds thereof may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his estate. § 2043. Transfers for Insufficient Consideration.(a)
In general.--If any one of the transfers, trusts, interests, rights, or powers enumerated and described in sections 2035 to 2038, inclusive, and section 2041 is made, created, exercised, or relinquished for a consideration in money or money’s worth, but is not a bona fide sale for an adequate and full consideration in money or money’s worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent.(b)
Marital rights not treated as consideration.-- (1) In general.--For purposes of this chapter, a relinquishment or promised relinquishment of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent’s property or estate, shall not be considered to any extent a consideration “in money or money’s worth”.(2)
Exception.--For purposes of section 2053 (relating to expenses, indebtedness, and taxes), a transfer of property which satisfies the requirements of paragraph (1) of section 2516 (relating to certain property settlements) shall be considered to be made for an adequate and full consideration in money or money’s worth. § 2044. Certain Property for Which Marital Deduction Was Previously Allowed.(a)
General rule.--The value of the gross estate shall include the value of any property to which this section applies in which the decedent had a qualifying income interest for life.(b)
Property to which this section applies.--This section applies to any property if-- (1) a deduction was allowed with respect to the transfer of such property to the decedent-- (A) under section 2056 by reason of subsection (b)(7) thereof, or (B) under section 2523 by reason of subsection (f) thereof, and(2)
section 2519 (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part or all of such property.(c)
Property treated as having passed from decedent.--For purposes of this chapter and chapter 13, property includible in the gross estate of the decedent under subsection (a) shall be treated as property passing from the decedent. § 2045. Prior Interests. Except as otherwise specifically provided by law, sections 2034 to 2042, inclusive, shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whenever made, created, arising, existing, exercised, or relinquished. § 2046. Disclaimers. For provisions relating to the effect of a qualified disclaimer for purposes of this chapter, see section 2518. § 2053. Expenses, indebtedness, and taxes.(a)
General rule.--For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts-- (1) for funeral expenses, (2) for administration expenses, (3) for claims against the estate, and(4)
for unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate, as are allowable by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.(b)
Other administration expenses.--Subject to the limitations in paragraph (1) of subsection (c), there shall be deducted in determining the taxable estate amounts representing expenses incurred in administering property not subject to claims which is included in the gross estate to the same extent such amounts would be allowable as a deduction under subsection (a) if such property were subject to claims, and such amounts are paid before the expiration of the period of limitation for assessment provided in section 6501.(c)
Limitations.-- (1) Limitations applicable to subsections (a) and (b).-- (A) Consideration for claims.--The deduction allowed by this section in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded on a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money’s worth; except that in any case in which any such claim is founded on a promise or agreement of the decedent to make a contribution or gift to or for the use of any donee described in section 2055 for the purposes specified therein, the deduction for such claims shall not be so limited, but shall be limited to the extent that it would be allowable as a deduction under section 2055 if such promise or agreement constituted a bequest. (B) Certain taxes.--Any income taxes on income received after the death of the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes, shall not be deductible under this section. (C) Certain claims by remaindermen.--No deduction shall be allowed under this section for a claim against the estate by a remainderman relating to any property described in section 2044. (D) Section 6166 interest.--No deduction shall be allowed under this section for any interest payable under section 6601 on any unpaid portion of the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under section 6166.(2)
Limitations applicable only to subsection (a).--In the case of the amounts described in subsection (a), there shall be disallowed the amount by which the deductions specified therein exceed the value, at the time of the decedent’s death, of property subject to claims, except to the extent that such deductions represent amounts paid before the date prescribed for the filing of the estate tax return. For purposes of this section, the term “property subject to claims” means property includible in the gross estate of the decedent which, or the avails of which, would under the applicable law, bear the burden of the payment of such deductions in the final adjustment and settlement of the estate, except that the value of the property shall be reduced by the amount of the deduction under section 2054 attributable to such property.(d)
Certain foreign death taxes.-- (1) In general.--Notwithstanding the provisions of subsection (c)(1)(B), for purposes of the tax imposed by section 2001, the value of the taxable estate may be determined, if the executor so elects before the expiration of the period of limitation for assessment provided in section 6501, by deducting from the value of the gross estate the amount (as determined in accordance with regulations prescribed by the Secretary) of any estate, succession, legacy, or inheritance tax imposed by and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United States, upon a transfer by the decedent for public, charitable, or religious uses described in section 2055. The determination under this paragraph of the country within which property is situated shall be made in accordance with the rules applicable under subchapter B (sec. 2101 and following) in determining whether property is situated within or without the United States. Any election under this paragraph shall be exercised in accordance with regulations prescribed by the Secretary.(2)
Condition for allowance of deduction.--No deduction shall be allowed under paragraph (1) for a foreign death tax specified therein unless the decrease in the tax imposed by section 2001 which results from the deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2). In any case where the tax imposed by section 2001 is equitably apportioned among all the transferees of property included in the gross estate, including those described in sections 2055 and 2106(a)(2) (taking into account any exemptions, credits, or deductions allowed by this chapter), in determining such decrease, there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described in sections 2055 and 2106(a)(2) are required to pay.(3)
Effect on credit for foreign death taxes of deduction under this subsection.-- (A) Election.--An election under this subsection shall be deemed a waiver of the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country for any tax or portion thereof in respect of which a deduction is taken under this subsection. (B) Cross reference.-- See section 2011(d) for the effect of a deduction taken under this paragraph on the credit for foreign death taxes.(e)
Marital rights.-- For provisions treating certain relinquishments of marital rights as consideration in money or money’s worth, see section 2043(b)(2). § 2054. Losses. For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise. § 2055. Transfers for public, charitable, and religious uses.(a)
In general.--For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers-- (1) to or for the use of the United States, any State, any political subdivision thereof, or the District of Columbia, for exclusively public purposes;(2)
to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;(3)
to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, such trust, fraternal society, order, or association would not be disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and such trustee or trustees, or such fraternal society, order, or association, does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;(4)
to or for the use of any veterans’ organization incorporated by Act of Congress, or of its departments or local chapters or posts, no part of the net earnings of which inures to the benefit of any private shareholder or individual; or(5)
to an employee stock ownership plan if such transfer qualifies as a qualified gratuitous transfer of qualified employer securities within the meaning of section 664(g). For purposes of this subsection, the complete termination before the date prescribed for the filing of the estate tax return of a power to consume, invade, or appropriate property for the benefit of an individual before such power has been exercised by reason of the death of such individual or for any other reason shall be considered and deemed to be a qualified disclaimer with the same full force and effect as though he had filed such qualified disclaimer. Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).(b)
Powers of appointment.--Property includible in the decedent’s gross estate under section 2041 (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.(c)
Death taxes payable out of bequests.--If the tax imposed by section 2001, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this section, then the amount deductible under this section shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes.(d)
Limitation on deduction.--The amount of the deduction under this section for any transfer shall not exceed the value of the transferred property required to be included in the gross estate.(e)
Disallowance of deductions in certain cases.-- (1) No deduction shall be allowed under this section for a transfer to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections.(2)
Where an interest in property (other than an interest described in section 170(f)(3)(B)) passes or has passed from the decedent to a person, or for a use, described in subsection (a), and an interest (other than an interest which is extinguished upon the decedent’s death) in the same property passes or has passed (for less than an adequate and full consideration in money or money’s worth) from the decedent to a person, or for a use, not described in subsection (a), no deduction shall be allowed under this section for the interest which passes or has passed to the person, or for the use, described in subsection (a) unless-- (A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or (B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).(3)
Reformations to comply with paragraph (2).-- (A) In general.--A deduction shall be allowed under subsection (a) in respect of any qualified reformation. (B) Qualified reformation.--For purposes of this paragraph, the term “qualified reformation” means a change of a governing instrument by reformation, amendment, construction, or otherwise which changes a reformable interest into a qualified interest but only if-- (i) any difference between-- (I) the actuarial value (determined as of the date of the decedent’s death) of the qualified interest, and (II) the actuarial value (as so determined) of the reformable interest, does not exceed 5 percent of the actuarial value (as so determined) of the reformable interest, (ii) in the case of-- (I) a charitable remainder interest, the nonremainder interest (before and after the qualified reformation) terminated at the same time, or (II) any other interest, the reformable interest and the qualified interest are for the same period, and(iii)
such change is effective as of the date of the decedent’s death. A nonremainder interest (before reformation) for a term of years in excess of 20 years shall be treated as satisfying subclause (I) of clause (ii) if such interest (after reformation) is for a term of 20 years. (C) Reformable interest.--For purposes of this paragraph-- (i) In general.--The term “reformable interest” means any interest for which a deduction would be allowable under subsection (a) at the time of the decedent’s death but for paragraph (2).(ii)
Beneficiary’s interest must be fixed.--The term “reformable interest” does not include any interest unless, before the remainder vests in possession, all payments to persons other than an organization described in subsection (a) are expressed either in specified dollar amounts or a fixed percentage of the fair market value of the property. For purposes of determining whether all such payments are expressed as a fixed percentage of the fair market value of the property, section 664(d)(3) shall be taken into account.(iii)
Special rule where timely commencement of reformation.--Clause (ii) shall not apply to any interest if a judicial proceeding is commenced to change such interest into a qualified interest not later than the 90th day after-- (I) if an estate tax return is required to be filed, the last date (including extensions) for filing such return, or (II) if no estate tax return is required to be filed, the last date (including extensions) for filing the income tax return for the 1st taxable year for which such a return is required to be filed by the trust.(iv)
Special rule for will executed before January 1, 1979, etc.--In the case of any interest passing under a will executed before January 1, 1979, or under a trust created before such date, clause (ii) shall not apply. (D) Qualified interest.--For purposes of this paragraph, the term “qualified interest” means an interest for which a deduction is allowable under subsection (a). (E) Limitation.--The deduction referred to in subparagraph (A) shall not exceed the amount of the deduction which would have been allowable for the reformable interest but for paragraph (2). (F) Special rule where income beneficiary dies.--If (by reason of the death of any individual, or by termination or distribution of a trust in accordance with the terms of the trust instrument) by the due date for filing the estate tax return (including any extension thereof) a reformable interest is in a wholly charitable trust or passes directly to a person or for a use described in subsection (a), a deduction shall be allowed for such reformable interest as if it had met the requirements of paragraph (2) on the date of the decedent’s death. For purposes of the preceding sentence, the term “wholly charitable trust” means a charitable trust which, upon the allowance of a deduction, would be described in section 4947(a)(1). (G) Statute of limitations.--The period for assessing any deficiency of any tax attributable to the application of this paragraph shall not expire before the date 1 year after the date on which the Secretary is notified that such reformation (or other proceeding pursuant to subparagraph (J)1 has occurred. (H) Regulations.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including regulations providing such adjustments in the application of the provisions of section 508 (relating to special rules relating to section 501(c)(3) organizations), subchapter J (relating to estates, trusts, beneficiaries, and decedents), and chapter 42 (relating to private foundations) as may be necessary by reason of the qualified reformation. (I) Reformations permitted in case of remainder interests in residence or farm, pooled income funds, etc.--The Secretary shall prescribe regulations (consistent with the provisions of this paragraph) permitting reformations in the case of any failure-- (i) to meet the requirements of section 170(f)(3)(B) (relating to remainder interests in personal residence or farm, etc.), or(ii)
to meet the requirements of section 642(c)(5). (J) Void or reformed trust in cases of insufficient remainder interests.--In the case of a trust that would qualify (or could be reformed to qualify pursuant to subparagraph (B)) but for failure to satisfy the requirement of paragraph (1)(D) or (2)(D) of section 664(d), such trust may be-- (i) declared null and void ab initio, or(ii)
changed by reformation, amendment, or otherwise to meet such requirement by reducing the payout rate or the duration (or both) of any noncharitable beneficiary’s interest to the extent necessary to satisfy such requirement, pursuant to a proceeding that is commenced within the period required in subparagraph (C)(iii). In a case described in clause (i), no deduction shall be allowed under this title for any transfer to the trust and any transactions entered into by the trust prior to being declared void shall be treated as entered into by the transferor.(4)
Works of art and their copyrights treated as separate properties in certain cases.-- (A) In general.--In the case of a qualified contribution of a work of art, the work of art and the copyright on such work of art shall be treated as separate properties for purposes of paragraph (2). (B) Work of art defined.--For purposes of this paragraph, the term “work of art” means any tangible personal property with respect to which there is a copyright under Federal law. (C) Qualified contribution defined.--For purposes of this paragraph, the term “qualified contribution” means any transfer of property to a qualified organization if the use of the property by the organization is related to the purpose or function constituting the basis for its exemption under section 501. (D) Qualified organization defined.--For purposes of this paragraph, the term “qualified organization” means any organization described in section 501(c)(3) other than a private foundation (as defined in section 509). For purposes of the preceding sentence, a private operating foundation (as defined in section 4942(j)(3)) shall not be treated as a private foundation.(5)
Contributions to donor advised funds.--A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2)) shall only be allowed if-- (A) the sponsoring organization (as defined in section 4966(d)(1)) with respect to such donor advised fund is not-- (i) described in paragraph (3) or (4) of subsection (a), or(ii)
a type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and (B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of section 170(f)(8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.(f)
Special rule for irrevocable transfers of easements in real property.--A deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property interest (as defined in section 170(h)(2)(C)) which meets the requirements of section 170(h) (without regard to paragraph (4)(A) thereof).(g)
Cross references.-- (1) For option as to time for valuation for purpose of deduction under this section, see section 2032.(2)
For treatment of certain organizations providing child care, see section 501(k).(3)
For exemption of gifts and bequests to or for the benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (2 U.S.C. 161).(4)
For treatment of gifts and bequests for the benefit of the Naval Historical Center as gifts or bequests to or for the use of the United States, see section 7222 of Title 10, United States Code.(5)
For treatment of gifts and bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use of the United States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191).(6)
For treatment of gifts, devises, or bequests accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency as gifts, devises, or bequests to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956.(7)
For treatment of gifts or bequests of money accepted by the Attorney General for credit to “Commissary Funds, Federal Prisons” as gifts or bequests to or for the use of the United States, see section 4043 of Title 18, United States Code.(8)
For payment of tax on gifts and bequests of United States obligations to the United States, see section 3113(e) of Title 31, United States Code.(9)
For treatment of gifts and bequests for benefit of the Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of Title 10, United States Code.(10)
For treatment of gifts and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for the use of the United States, see section 6974 of Title 10, United States Code.(11)
For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of Title 44, United States Code.(12)
For treatment of gifts and bequests to or for the use of Indian tribal governments (or their subdivisions), see section 7871. § 2056. Bequests, etc., to surviving spouse.(a)
Allowance of marital deduction.--For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed 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)
Limitation in the case of life estate or other terminable interest.-- (1) General rule.--Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest-- (A) 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 (or the estate of such spouse); and (B) 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; and no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under subparagraphs (A) and (B))-- (C) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust. For purposes of this paragraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.(2)
Interest in unidentified assets.--Where the assets (included in the decedent’s gross estate) out of which, or the proceeds of which, an interest passing to the surviving spouse may be satisfied include a particular asset or assets with respect to which no deduction would be allowed if such asset or assets passed from the decedent to such spouse, then the value of such interest passing to such spouse shall, for purposes of subsection (a), be reduced by the aggregate value of such particular assets.(3)
Interest of spouse conditional on survival for limited period.--For purposes of this subsection, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if-- (A) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent’s death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event; and (B) such termination or failure does not in fact occur.(4)
Valuation of interest passing to surviving spouse.--In determining for purposes of subsection (a) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this section-- (A) there shall be taken into account the effect which the tax imposed by section 2001, or any estate, succession, legacy, or inheritance tax, has on the net value to the surviving spouse of such interest; and (B) where such interest or property is encumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the passing of such interest, such encumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined.(5)
Life estate with power of appointment in surviving spouse.--In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse-- (A) the interest or such portion thereof so passing shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and (B) no part of the interest so passing shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse. This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.(6)
Life insurance or annuity payments with power of appointment in surviving spouse.--In the case of an interest in property passing from the decedent consisting of proceeds under a life insurance, endowment, or annuity contract, if under the terms of the contract such proceeds are payable in installments or are held by the insurer subject to an agreement to pay interest thereon (whether the proceeds, on the termination of any interest payments, are payable in a lump sum or in annual or more frequent installments), and such installment or interest payments are payable annually or at more frequent intervals, commencing not later than 13 months after the decedent’s death, and all amounts, or a specific portion of all such amounts, payable during the life of the surviving spouse are payable only to such spouse, and such spouse has the power to appoint all amounts, or such specific portion, payable under such contract (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), with no power in any other person to appoint such amounts to any person other than the surviving spouse-- (A) such amounts shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and (B) no part of such amounts shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse. This paragraph shall apply only if, under the terms of the contract, such power in the surviving spouse to appoint such amounts, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.(7)
Election with respect to life estate for surviving spouse.-- (A) In general.--In the case of qualified terminable interest property-- (i) for purposes of subsection (a), such property shall be treated as passing to the surviving spouse, and(ii)
for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse. (B) Qualified terminable interest property defined.--For purposes of this paragraph-- (i) In general.--The term “qualified terminable interest property” means property-- (I) which passes from the decedent, (II) in which the surviving spouse has a qualifying income interest for life, and (III) to which an election under this paragraph applies.(ii)
Qualifying income interest for life.--The surviving spouse has a qualifying income interest for life if-- (I) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and (II) no person has a power to appoint any part of the property to any person other than the surviving spouse. Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).(iii)
Property includes interest therein.--The term “property” includes an interest in property.(iv)
Specific portion treated as separate property.--A specific portion of property shall be treated as separate property.(v)
Election.--An election under this paragraph with respect to any property shall be made by the executor on the return of tax imposed by section 2001. Such an election, once made, shall be irrevocable. (C) Treatment of survivor annuities.--In the case of an annuity included in the gross estate of the decedent under section 2039 (or, in the case of an interest in an annuity arising under the community property laws of a State, included in the gross estate of the decedent under section 2033) where only the surviving spouse has the right to receive payments before the death of such surviving spouse-- (i) the interest of such surviving spouse shall be treated as a qualifying income interest for life, and(ii)
the executor shall be treated as having made an election under this subsection with respect to such annuity unless the executor otherwise elects on the return of tax imposed by section 2001. An election under clause (ii), once made, shall be irrevocable.(8)
Special rule for charitable remainder trusts.-- (A) In general.--If the surviving spouse of the decedent is the only beneficiary of a qualified charitable remainder trust who is not a charitable beneficiary nor an ESOP beneficiary, paragraph (1) shall not apply to any interest in such trust which passes or has passed from the decedent to such surviving spouse. (B) Definitions.--For purposes of subparagraph (A)-- (i) Charitable beneficiary.--The term “charitable beneficiary” means any beneficiary which is an organization described in section 170(c).(ii)
ESOP beneficiary.--The term “ESOP beneficiary” means any beneficiary which is an employee stock ownership plan (as defined in section 4975(e)(7)) that holds a remainder interest in qualified employer securities (as defined in section 664(g)(4)) to be transferred to such plan in a qualified gratuitous transfer (as defined in section 664(g)(1)).(iii)
Qualified charitable remainder trust.--The term “qualified charitable remainder trust” means a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664).(9)
Denial of double deduction.--Nothing in this section or any other provision of this chapter shall allow the value of any interest in property to be deducted under this chapter more than once with respect to the same decedent.(10)
Specific portion.--For purposes of paragraphs (5), (6), and(7)
(B)(iv), the term “specific portion” only includes a portion determined on a fractional or percentage basis.(c)
Definition.--For purposes of this section, an interest in property shall be considered as passing from the decedent to any person if and only if-- (1) such interest is bequeathed or devised to such person by the decedent;(2)
such interest is inherited by such person from the decedent;(3)
such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent;(4)
such interest has been transferred to such person by the decedent at any time;(5)
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;(6)
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 on the release or nonexercise of such power; or(7)
such interest consists of proceeds of insurance on the life of the decedent receivable by such person. Except as provided in paragraph (5) or (6) of subsection (b), where at the time of the decedent’s death it is not possible to ascertain the particular person or persons to whom an interest in property may pass from the decedent, such interest shall, for purposes of subparagraphs (A) and (B) of subsection (b)(1), be considered as passing from the decedent to a person other than the surviving spouse. § 2103. Definition of Gross Estate. For the purpose of the tax imposed by section 2101, the value of the gross estate of every decedent nonresident not a citizen of the United States shall be that part of his gross estate (determined as provided in section 2031) which at the time of his death is situated in the United States. § 2104. Property Within the United States.(a)
Stock in corporation.--For purposes of this subchapter shares of stock owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States only if issued by a domestic corporation.(b)
Revocable transfers and transfers within 3 years of death.--For purposes of this subchapter, any property of which the decedent has made a transfer, by trust or otherwise, within the meaning of sections 2035 to 2038, inclusive, shall be deemed to be situated in the United States, if so situated either at the time of the transfer or at the time of the decedent’s death.(c)
Debt obligations.--For purposes of this subchapter, debt obligations of- (1) a United States person, or(2)
the United States, a State or any political subdivision thereof, or the District of Columbia, owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States. With respect to estates of decedents dying after December 31, 1969, deposits with a domestic branch of a foreign corporation, if such branch is engaged in the commercial banking business, shall, for purposes of this subchapter, be deemed property within the United States. This subsection shall not apply to a debt obligation to which section 2105(b) applies. § 2105. Property Without the United States.(a)
Proceeds of life insurance.--For purposes of this subchapter, the amount receivable as insurance on the life of a nonresident not a citizen of the United States shall not be deemed property within the United States.(b)
Bank deposits and certain other debt obligations.--For purposes of this subchapter, the following shall not be deemed property within the United States-- (1) amounts described in section 871(i)(3), if any interest thereon would not be subject to tax by reason of section 871(i)(1) were such interest received by the decedent at the time of his death, (2) deposits with a foreign branch of a domestic corporation or domestic partnership, if such branch is engaged in the commercial banking business, (3) debt obligations, if, without regard to whether a statement meeting the requirements of section 871(h)(5) has been received, any interest thereon would be eligible for the exemption from tax under section 871(h)(1) were such interest received by the decedent at the time of his death, and(4)
obligations which would be original issue discount obligations as defined in section 871(g)(1) but for subparagraph (B)(i) thereof, if any interest thereon (were such interest received by the decedent at the time of his death) would not be effectively connected with the conduct of a trade or business within the United States. Notwithstanding the preceding sentence, if any portion of the interest on an obligation referred to in paragraph (3) would not be eligible for the exemption referred to in paragraph (3) by reason of section 871(h)(4) if the interest were received by the decedent at the time of his death, then an appropriate portion (as determined in a manner prescribed by the Secretary) of the value (as determined for purposes of this chapter) of such debt obligation shall be deemed property within the United States.(c)
Works of art on loan for exhibition.--For purposes of this subchapter, works of art owned by a nonresident not a citizen of the United States shall not be deemed property within the United States if such works of art are-- (1) imported into the United States solely for exhibition purposes, (2) loaned for such purposes, to a public gallery or museum, no part of the net earnings of which inures to the benefit of any private stockholder or individual, and(3)
at the time of the death of the owner, on exhibition, or enroute to or from exhibition, in such a public gallery or museum. § 2503.(a)
General Definition - The term “taxable gifts” means the total amount of gifts made during the calendar year, less deductions provided in subchapter C (section 2522 and following).(b)
Exclusions from gifts.(1)
In general.--In the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a), be included in the total amount of gifts made during such year. Where there has been a transfer to any person of a present interest in property, the possibility that such interest may be diminished by the exercise of a power shall be disregarded in applying this subsection, if no part of such interest will at any time pass to any other person.(2)
Inflation adjustment.--In the case of gifts made in a calendar year after 1998, the $10,000 amount contained in paragraph (1) shall be increased by an amount equal to-- (A) $10,000, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting “calendar year 1997” for “calendar year 1992” in subparagraph (B) thereof. If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.(c)
Transfer for the benefit of minor. -- No part of a gift to an individual who has not attained the age of 21 years on the date of such transfer shall be considered a gift of a future interest in property for purposes of subsection (b) if the property and the income therefrom- (1) may be expended by, or for the benefit of, the donee before his attaining the age of 21 years, and(2)
will to the extent not so expended- (A) pass to the donee on his attaining the age of 21 years, and (B) in the event the donee dies before attaining the age of 21 years, be payable to the estate of the donee or as he may appoint under a general power of appointment as defined in section 2514(c). {(d) Repealed. Pub. L. 97-34, title III, § 311(h)(5), Aug. 13, 1981, 95 Stat. 282} (e) Exclusion for certain transfers for educational expenses or medical expenses.(1)
In general. Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.(2)
Qualified transfer. For purposes of this subsection, the term “qualified transfer” means any amount paid on behalf of an individual- (A) as tuition to an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or (B) to any person who provides medical care (as defined in section 213(d)) with respect to such individual as payment for such medical care.(f)
Waiver of certain pension rights. If any individual waives, before the death of a participant, any survivor benefit, or right to such benefit, under section 401(a)(11) or 417, such waiver shall not be treated as a transfer of property by gift for purposes of this chapter.(g)
Treatment of certain loans of artworks.(1)
In general. For purposes of this subtitle, any loan of a qualified work of art shall not be treated as a transfer (and the value of such qualified work of art shall be determined as if such loan had not been made) if- (A) such loan is to an organization described in section 501(c)(3) and exempt from tax under section 501(c) (other than a private foundation), and (B) the use of such work by such organization is related to the purpose or function constituting the basis for its exemption under section 501.(2)
Definitions. For purposes of this section- (A) Qualified work of art. The term “qualified work of art” means any archaeological, historic, or creative tangible personal property. (B) Private foundation. The term “private foundation” has the meaning given such term by section 509, except that such term shall not include any private operating foundation (as defined in section 4942(j)(3)). § 2511. Transfers in general.(a)
Scope. Subject to the limitations contained in this chapter, the tax imposed by section 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible; but in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property is situated within the United States.(b)
Intangible property. For purposes of this chapter, in the case of a nonresident not a citizen of the United States who is excepted from the application of section 2501(a)(2)- (1) shares of stock issued by a domestic corporation, and(2)
debt obligations of- --(A) a United States person, or --(B) the United States, a State or any political subdivision thereof, or the District of Columbia, --which are owned and held by such nonresident shall be deemed to be property situated within the United States. § 2512. Valuation of gifts.(a)
If the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift.(b)
Where property is transferred for less than an adequate and full consideration in money or money’s worth, then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year. § 2513. Gift by husband or wife to third party.(a)
Considered as made one-half by each.(1)
In general. A gift made by one spouse to any person other than his spouse shall, for the purposes of this chapter, be considered as made one-half 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. This paragraph shall not apply with respect to a gift by a spouse of an interest in property if he creates in his spouse a general power of appointment, as defined in section 2514(c), over such interest. For purposes of this section, 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.(2)
Consent of both spouses. Paragraph (1) shall apply only if both spouses have signified (under the regulations provided for in subsection (b)) their consent to the application of paragraph (1) in the case of all such gifts made during the calendar year by either while married to the other.(b)
Manner and time of signifying consent.(1)
Manner. A consent under this section shall be signified in such manner as is provided under regulations prescribed by the Secretary.(2)
Time. Such consent may be so signified at any time after the close of the calendar year in which the gift was made, subject to the following limitations- --(A) The consent may not be signified after the 15th day of April following the close of such year, unless before such 15th day no return has been filed for such year by either spouse, in which case the consent may not be signified after a return for such year is filed by either spouse. --(B) The consent may not be signified after a notice of deficiency with respect to the tax for such year has been sent to either spouse in accordance with section 6212(a).(c)
Revocation of consent. Revocation of a consent previously signified shall be made in such manner as in provided under regulations prescribed by the Secretary, but the right to revoke a consent previously signified with respect to a calendar year- (1) shall not exist after the 15th day of April following the close of such year if the consent was signified on or before such 15th day; and(2)
shall not exist if the consent was not signified until after such 15th day.(d)
Joint and several liability for tax. If the consent required by subsection (a)(2) 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. § 2514. Powers of appointment.(a)
Powers created on or before October 21, 1942. An exercise of a general power of appointment created on or before October 21, 1942, shall be deemed a transfer of property by the individual possessing such power; but the failure to exercise such a power or the complete release of such a power shall not be deemed an exercise thereof. If a general power of appointment created on or before October 21, 1942, has been partially released so that it is no longer a general power of appointment, the subsequent exercise of such power shall not be deemed to be the exercise of a general power of appointment if- (1) such partial release occurred before November 1, 1951, or(2)
the donee of such power was under a legal disability to release such power on October 21, 1942, and such partial release occurred not later than six months after the termination of such legal disability.(b)
Powers created after October 21, 1942. The exercise or release of a general power of appointment created after October 21, 1942, shall be deemed a transfer of property by the individual possessing such power.(c)
Definition of general power of appointment. For purposes of this section, the term “general power of appointment” means a power which is exercisable in favor of the individual possessing the power (hereafter in this subsection referred to as the “possessor”), his estate, his creditors, or the creditors of his estate; except that- (1) A power to consume, invade, or appropriate property for the benefit of the possessor which is limited by an ascertainable standard relating to the health, education, support, or maintenance of the possessor shall not be deemed a general power of appointment.(2)
A power of appointment created on or before October 21, 1942, which is exercisable by the possessor only in conjunction with another person shall not be deemed a general power of appointment.(3)
In the case of a power of appointment created after October 21, 1942, which is exercisable by the possessor only in conjunction with another person- --(A) if the power is not exercisable by the possessor except in conjunction with the creator of the power-such power shall not be deemed a general power of appointment; --(B) if the power is not exercisable by the possessor except in conjunction with a person having a substantial interest, in the property subject to the power, which is adverse to exercise of the power in favor of the possessor-such power shall not be deemed a general power of appointment. For the purposes of this subparagraph a person who, after the death of the possessor, may be possessed of a power of appointment (with respect to the property subject to the possessor’s power) which he may exercise in his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such exercise of the possessor’s power; --(C) if (after the application of subparagraphs (A) and (B)) the power is a general power of appointment and is exercisable in favor of such other person-such power shall be deemed a general power of appointment only in respect of a fractional part of the property subject to such power, such part to be determined by dividing the value of such property by the number of such persons (including the possessor) in favor of whom such power is exercisable. --For purposes of subparagraphs (B) and (C), a power shall be deemed to be exercisable in favor of a person if it is exercisable in favor of such person, his estate, his creditors, or the creditors of his estate.(d)
Creation of another power in certain cases. If a power of appointment created after October 21, 1942, is exercised by creating another power of appointment which, under the applicable local law, can be validly exercised so as to postpone the vesting of any estate or interest in the property which was subject to the first power, or suspend the absolute ownership or power of alienation of such property, for a period ascertainable without regard to the date of the creation of the first power, such exercise of the first power shall, to the extent of the property subject to the second power, be deemed a transfer of property by the individual possessing such power.(e)
Lapse of power. The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The rule of the preceding sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts:(1)
$5,000, or(2)
5 percent of the aggregate value of the assets out of which, or the proceeds of which, the exercise of the lapsed powers could be satisfied.(f)
Date of creation of power. For purposes of this section a power of appointment created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942. § 2516. Certain property settlements. Where a husband and wife enter into a written agreement relative to their marital and property rights and divorce occurs within the 3-year period beginning on the date 1 year before such agreement is entered into (whether or not such agreement is approved by the divorce decree), any transfers of property or interests in property made pursuant to such agreement- (1) to either spouse in settlement of his or her marital or property rights, or(2)
to provide a reasonable allowance for the support of issue of the marriage during minority, --shall be deemed to be transfers made for a full and adequate consideration in money or money’s worth. § 2518. Disclaimers.(a)
General Rule. - For purposes of this subtitle, if a person makes a qualified disclaimer with respect to any interest in property, this subtitle shall apply with respect to such interest as if the interest had never been transferred to such person.(b)
Qualified Disclaimer Defined. - For purposes of subsection (a), the term “qualified disclaimer” means an irrevocable and unqualified refusal by a person to accept an interest in property but only if - (1) such refusal is in writing, (2) such writing is received by the transferor of the interest, his legal representative, or the holder of the legal title to the property to which the interest relates not later than the date which is 9 months after the later of - (A) the date on which the transfer creating the interest in such person is made, or (B) the day on which such person attains age 21, (3) such person has not accepted the interest or any of its benefits, and(4)
as a result of such refusal, the interest passes without any direction on the part of the person making the disclaimer and passes either - (A) to the spouse of the decedent, or (B) to a person other than the person making the disclaimer.(c)
Other rules. For purposes of subsection (a)- (1) Disclaimer of undivided portion of interest. A disclaimer with respect to an undivided portion of an interest which meets the requirements of the preceding sentence shall be treated as a qualified disclaimer of such portion of the interest.(2)
Powers. A power with respect to property shall be treated as an interest in such property.(3)
Certain transfers treated as disclaimers. A written transfer of the transferor’s entire interest in the property- (A) which meets requirements similar to the requirements of paragraphs (2) and (3) of subsection (b), and (B) which is to a person or persons who would have received the property had the transferor made a qualified disclaimer (within the meaning of subsection (b)), --shall be treated as a qualified disclaimer. § 2519. Dispositions of certain life estates.(a)
General rule --For purposes of this chapter and chapter 11, any disposition of all or part of a qualifying income interest for life in any property to which this section applies shall be treated as a transfer of all interests in such property other than the qualifying income interest.(b)
Property to which this subsection applies. This section applies to any property if a deduction was allowed with respect to the transfer of such property to the donor- (1) under section 2056 by reason of subsection (b)(7) thereof, or(2)
under section 2523 by reason of subsection (f) thereof.(c)
Cross reference --For right of recovery for gift tax in the case of property treated as transferred under this section, see section 2207A(b). § 2522. Charitable and similar gifts.(a)
Citizens or residents. In computing taxable gifts for the calendar year, there shall be allowed as a deduction in the case of a citizen or resident the amount of all gifts made during such year to or for the use of- (1) the United States, any State, or any political subdivision thereof, or the District of Columbia, for exclusively public purposes;(2)
a corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;(3)
a fraternal society, order, or association, operating under the lodge system, but only if such gifts are to be used exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals;(4)
posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units, or societies are organized in the United States or any of its possessions, and if no part of their net earnings insures to the benefit of any private shareholder or individual. Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).(b)
Nonresidents. In the case of a nonresident not a citizen of the United States, there shall be allowed as a deduction the amount of all gifts made during such year to or for the use of- (1) the United States, any State, or any political subdivision thereof, or the District of Columbia, for exclusively public purposes;(2)
a domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, which is not disqualified for tax exemption under section 501(c)(3) by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;(3)
a trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office; but only if such gifts are to be used within the United States exclusively for such purposes;(4)
a fraternal society, order, or association, operating under the lodge system, but only if such gifts are to be used within the United States exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals;(5)
posts or organizations of war veterans, or auxiliary units or societies of any such posts or organizations, if such posts, organizations, units, or societies are organized in the United States or any of its possessions, and if no part of their net earnings inures to the benefit of any private shareholder or individual.(c)
Disallowance of deductions in certain cases.(1)
No deduction shall be allowed under this section for a gift to of 1 for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections.(2)
Where a donor transfers an interest in property (other than an interest described in section 170(f)(3)(B)) to a person, or for a use, described in subsection (a) or (b) and an interest in the same property is retained by the donor, or is transferred or has been transferred (for less than an adequate and full consideration in money or money’s worth) from the donor to a person, or for a use, not described in subsection (a) or (b), no deduction shall be allowed under this section for the interest which is, or has been transferred to the person, or for the use, described in subsection (a) or (b), unless- (A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income fund (described in section 642(c)(5)), or (B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).(3)
Rules similar to the rules of section 2055(e)(4) shall apply for purposes of paragraph (2).(4)
Reformations to comply with paragraph (2). (A) In general -- A deduction shall be allowed under subsection (a) in respect of any qualified reformation (within the meaning of section 2055(e)(3)(B)). (B) Rules similar to section 2055(e)(3) to apply -- For purposes of this paragraph, rules similar to the rules of section 2055(e)(3) shall apply.(5)
Contributions to donor advised funds. A deduction otherwise allowed under subsection (a) for any contribution to a donor advised fund (as defined in section 4966(d)(2)) shall only be allowed if- --(A) the sponsoring organization (as defined in section 4966(d)(1)) with respect to such donor advised fund is not- --(i) described in paragraph (3) or (4) of subsection (a), or --(ii) a type III supporting organization (as defined in section 4943(f)(5)(A)) which is not a functionally integrated type III supporting organization (as defined in section 4943(f)(5)(B)), and --(B) the taxpayer obtains a contemporaneous written acknowledgment (determined under rules similar to the rules of section 170(f)(8)(C)) from the sponsoring organization (as so defined) of such donor advised fund that such organization has exclusive legal control over the assets contributed.(d)
Special rule for irrevocable transfers of easements in real property. A deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property interest (as defined in section 170(h)(2)(C)) which meets the requirements of section 170(h) (without regard to paragraph (4)(A) thereof).(e)
Special rules for fractional gifts (1) Denial of deduction in certain cases (A) In general --No deduction shall be allowed for a contribution of an undivided portion of a taxpayer’s entire interest in tangible personal property unless all interests in the property are held immediately before such contribution by- --(i) the taxpayer, or --(ii) the taxpayer and the donee. (B) Exceptions --The Secretary may, by regulation, provide for exceptions to subparagraph (A) in cases where all persons who hold an interest in the property make proportional contributions of an undivided portion of the entire interest held by such persons.(2)
Recapture of deduction in certain cases; addition to tax (A) In general. The Secretary shall provide for the recapture of an amount equal to any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer’s entire interest in tangible personal property- --(i) in any case in which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee is no longer in existence, to any person described in section 170(c)) on or before the earlier of- --(I) the date that is 10 years after the date of the initial fractional contribution, or --(II) the date of the death of the donor, and --(ii) in any case in which the donee has not, during the period beginning on the date of the initial fractional contribution and ending on the date described in clause (i)- --(I) had substantial physical possession of the property, and --(II) used the property in a use which is related to a purpose or function constituting the basis for the organizations’ exemption under section 501. (B) Addition to tax. The tax imposed under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured. (C) Initial fractional contribution. For purposes of this paragraph, the term “initial fractional contribution” means, with respect to any donor, the first gift of an undivided portion of the donor’s entire interest in any tangible personal property for which a deduction is allowed under subsection (a) or (b).(f)
Cross references --(1) For treatment of certain organizations providing child care, see section 501(k). --(2) For exemption of certain gifts to or for the benefit of the United States and for rules of construction with respect to certain bequests, see section 2055(f). --(3) For treatment of gifts to or for the use of Indian tribal governments (or their subdivisions), see section 7871. § 2523. Gift to spouse (a) Allowance of deduction. Where a donor transfers during the calendar year by gift an interest in property to a donee who at the time of the gift is the donor’s spouse, there shall be allowed as a deduction in computing taxable gifts for the calendar year an amount with respect to such interest equal to its value.(b)
Life estate or other terminable interest. Where, on the lapse of time, on the occurrence of an event or contingency, or on 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- (1) 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 donee spouse (or the estate of such 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 heirs 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(2)
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 purposes of this paragraph, 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 on 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 purposes of paragraph (1), be considered as a transfer by him. Except as provided in subsection (e), where at the time of the transfer it is impossible to ascertain the particular person or persons who may receive from the donor an interest in property so transferred by him, such interest shall, for purposes of paragraph (1), be considered as transferred to a person other than the donee spouse.(c)
Interest in unidentified assets. Where the assets out of which, or the proceeds of which, the interest transferred to the donee spouse may be satisfied include a particular asset or assets with respect to which no deduction would be allowed if such asset or assets were transferred from the donor to such spouse, then the value of the interest transferred to such spouse shall, for purposes of subsection (a), be reduced by the aggregate value of such particular assets.(d)
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 purposes of subsection (b) as an interest retained by the donor in himself.(e)
Life estate with power of appointment in donee spouse. Where the donor transfers an interest in property, if by such transfer his spouse is entitled for life to all of the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the donee spouse to appoint the entire interest, or such specific portion (exercisable in favor of such donee spouse, or of the estate of such donee spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of such interest, or such portion, to any person other than the donee spouse- (1) the interest, or such portion, so transferred shall, for purposes of subsection (a) be considered as transferred to the donee spouse, and(2)
no part of the interest, or such portion, so transferred shall, for purposes of subsection (b)(1), be considered as retained in the donor or transferred to any person other than the donee spouse. This subsection shall apply only if, by such transfer, such power in the donee spouse to appoint the interest, or such portion, whether exercisable by will or during life, is exercisable by such spouse alone and in all events. For purposes of this subsection, the term “specific portion” only includes a portion determined on a fractional or percentage basis.(f)
Election with respect to life estate for donee spouse.(1)
In general In the case of qualified terminable interest property- (A) for purposes of subsection (a), such property shall be treated as transferred to the donee spouse, and (B) for purposes of subsection (b)(1), no part of such property shall be considered as retained in the donor or transferred to any person other than the donee spouse.(2)
Qualified terminable interest property. For purposes of this subsection, the term “qualified terminable interest property” means any property- (A) which is transferred by the donor spouse, (B) in which the donee spouse has a qualifying income interest for life, and (C) to which an election under this subsection applies.(3)
Certain rules made applicable. For purposes of this subsection, rules similar to the rules of clauses (ii), (iii), and(iv)
of section 2056(b)(7)(B) shall apply and the rules of section 2056(b)(10) shall apply.(4)
Election. (A) Time and manner. An election under this subsection with respect to any property shall be made on or before the date prescribed by section 6075(b) for filing a gift tax return with respect to the transfer (determined without regard to section 6019(2)) and shall be made in such manner as the Secretary shall by regulations prescribe. (B) Election irrevocable. An election under this subsection, once made, shall be irrevocable.(5)
Treatment of interest retained by donor spouse. (A) In general. In the case of any qualified terminable interest property- (i) such property shall not be includible in the gross estate of the donor spouse, and(ii)
any subsequent transfer by the donor spouse of an interest in such property shall not be treated as a transfer for purposes of this chapter. (B) Subparagraph (A) not to apply after transfer by donee spouse. Subparagraph (A) shall not apply with respect to any property after the donee spouse is treated as having transferred such property under section 2519, or such property is includible in the donee spouse’s gross estate under section 2044.(6)
Treatment of joint and survivor annuities. In the case of a joint and survivor annuity where only the donor spouse and donee spouse have the right to receive payments before the death of the last spouse to die- --(A) the donee spouse’s interest shall be treated as a qualifying income interest for life, --(B) the donor spouse shall be treated as having made an election under this subsection with respect to such annuity unless the donor spouse otherwise elects on or before the date specified in paragraph (4)(A), --(C) paragraph (5) and section 2519 shall not apply to the donor spouse’s interest in the annuity, and --(D) if the donee spouse dies before the donor spouse, no amount shall be includible in the gross estate of the donee spouse under section 2044 with respect to such annuity. An election under subparagraph (B), once made, shall be irrevocable.(g)
Special rule for charitable remainder trusts.(1)
In general. If, after the transfer, the donee spouse is the only noncharitable beneficiary (other than the donor) of a qualified charitable remainder trust, subsection (b) shall not apply to the interest in such trust which is transferred to the donee spouse.(2)
Definitions. For purposes of paragraph (1), the term “noncharitable beneficiary” and “qualified charitable remainder trust” have the meanings given to such terms by section 2056(b)(8)(B).(h)
Denial of double deduction. Nothing in this section or any other provision of this chapter shall allow the value of any interest in property to be deducted under this chapter more than once with respect to the same donor. § 2524. Extent of deductions. The deductions provided in sections 2522 and 2523 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. § 2701. Special valuation rules in case of transfers of certain interests in corporations or partnerships.(a)
Valuation rules.(1)
In general. Solely for purposes of determining whether a transfer of an interest in a corporation or partnership to (or for the benefit of) a member of the transferor’s family is a gift (and the value of such transfer), the value of any right- --(A) which is described in subparagraph (A) or (B) of subsection (b)(1), and --(B) which is with respect to any applicable retained interest that is held by the transferor or an applicable family member immediately after the transfer, --shall be determined under paragraph (3). This paragraph shall not apply to the transfer of any interest for which market quotations are readily available (as of the date of transfer) on an established securities market.(2)
Exceptions for marketable retained interests, etc. Paragraph (1) shall not apply to any right with respect to an applicable retained interest if- --(A) market quotations are readily available (as of the date of the transfer) for such interest on an established securities market, --(B) such interest is of the same class as the transferred interest, or --(C) such interest is proportionally the same as the transferred interest, without regard to nonlapsing differences in voting power (or, for a partnership, nonlapsing differences with respect to management and limitations on liability). --Subparagraph (C) shall not apply to any interest in a partnership if the transferor or an applicable family member has the right to alter the liability of the transferee of the transferred property. Except as provided by the Secretary, any difference described in subparagraph (C) which lapses by reason of any Federal or State law shall be treated as a nonlapsing difference for purposes of such subparagraph.(3)
Valuation of rights to which paragraph (1) applies. (A) In general. The value of any right described in paragraph (1), other than a distribution right which consists of a right to receive a qualified payment, shall be treated as being zero. (B) Valuation of certain qualified payments. If- --(i) any applicable retained interest confers a distribution right which consists of the right to a qualified payment, and --(ii) there are 1 or more liquidation, put, call, or conversion rights with respect to such interest, the value of all such rights shall be determined as if each liquidation, put, call, or conversion right were exercised in the manner resulting in the lowest value being determined for all such rights. (C) Valuation of qualified payments where no liquidation, etc. rights. In the case of an applicable retained interest which is described in subparagraph (B)(i) but not subparagraph (B)(ii), the value of the distribution right shall be determined without regard to this section.(4)
Minimum valuation of junior equity. (A) In general. In the case of a transfer described in paragraph (1) of a junior equity interest in a corporation or partnership, such interest shall in no event be valued at an amount less than the value which would be determined if the total value of all of the junior equity interests in the entity were equal to 10 percent of the sum of- --(i) the total value of all of the equity interests in such entity, plus --(ii) the total amount of indebtedness of such entity to the transferor (or an applicable family member). (B) Definitions. For purposes of this paragraph- (i) Junior equity interest. The term “junior equity interest” means common stock or, in the case of a partnership, any partnership interest under which the rights as to income and capital (or, to the extent provided in regulations, the rights as to either income or capital) are junior to the rights of all other classes of equity interests.(ii)
Equity interest. The term “equity interest” means stock or any interest as a partner, as the case may be.(b)
Applicable retained interests. For purposes of this section- (1) In general. The term “applicable retained interest” means any interest in an entity with respect to which there is- --(A) a distribution right, but only if, immediately before the transfer described in subsection (a)(1), the transferor and applicable family members hold (after application of subsection (e)(3)) control of the entity, or --(B) a liquidation, put, call, or conversion right.(2)
Control. For purposes of paragraph (1)- (A) Corporations. In the case of a corporation, the term “control” means the holding of at least 50 percent (by vote or value) of the stock of the corporation. (B) Partnerships. In the case of a partnership, the term “control” means- --(i) the holding of at least 50 percent of the capital or profits interests in the partnership, or --(ii) in the case of a limited partnership, the holding of any interest as a general partner. (C) Applicable family member. For purposes of this subsection, the term “applicable family member” includes any lineal descendant of any parent of the transferor or the transferor’s spouse.(c)
Distribution and other rights; qualified payments. For purposes of this section- (1) Distribution right. (A) In general. The term “distribution right” means- --(i) a right to distributions from a corporation with respect to its stock, and --(ii) a right to distributions from a partnership with respect to a partner’s interest in the partnership. (B) Exceptions. The term “distribution right” does not include- --(i) a right to distributions with respect to any interest which is junior to the rights of the transferred interest, --(ii) any liquidation, put, call, or conversion right, or --(iii) any right to receive any guaranteed payment described in section 707(c) of a fixed amount.(2)
Liquidation, etc. rights. (A) In general. The term “liquidation, put, call, or conversion right” means any liquidation, put, call, or conversion right, or any similar right, the exercise or nonexercise of which affects the value of the transferred interest. (B) Exception for fixed rights.(i)
In general. The term “liquidation, put, call, or conversion right” does not include any right which must be exercised at a specific time and at a specific amount.(ii)
Treatment of certain rights. If a right is assumed to be exercised in a particular manner under subsection (a)(3)(B), such right shall be treated as so exercised for purposes of clause (i). (C) Exception for certain rights to convert. The term “liquidation, put, call, or conversion right” does not include any right which- --(i) is a right to convert into a fixed number (or a fixed percentage) of shares of the same class of stock in a corporation as the transferred stock in such corporation under subsection (a)(1) (or stock which would be of the same class but for nonlapsing differences in voting power), --(ii) is nonlapsing, --(iii) is subject to proportionate adjustments for splits, combinations, reclassifications, and similar changes in the capital stock, and --(iv) is subject to adjustments similar to the adjustments under subsection (d) for accumulated but unpaid distributions. --A rule similar to the rule of the preceding sentence shall apply for partnerships.(3)
Qualified payment. (A) In general. Except as otherwise provided in this paragraph, the term “qualified payment” means any dividend payable on a periodic basis under any cumulative preferred stock (or a comparable payment under any partnership interest) to the extent that such dividend (or comparable payment) is determined at a fixed rate. (B) Treatment of variable rate payments. For purposes of subparagraph (A), a payment shall be treated as fixed as to rate if such payment is determined at a rate which bears a fixed relationship to a specified market interest rate. (C) Elections.(i)
In general. Payments under any interest held by a transferor which (without regard to this subparagraph) are qualified payments shall be treated as qualified payments unless the transferor elects not to treat such payments as qualified payments. Payments described in the preceding sentence which are held by an applicable family member shall be treated as qualified payments only if such member elects to treat such payments as qualified payments.(ii)
Election to have interest treated as qualified payment. A transferor or applicable family member holding any distribution right which (without regard to this subparagraph) is not a qualified payment may elect to treat such right as a qualified payment, to be paid in the amounts and at the times specified in such election. The preceding sentence shall apply only to the extent that the amounts and times so specified are not inconsistent with the underlying legal instrument giving rise to such right.(iii)
Elections irrevocable. Any election under this subparagraph with respect to an interest shall, once made, be irrevocable.(d)
Transfer tax treatment of cumulative but unpaid distributions.(1)
In general. If a taxable event occurs with respect to any distribution right to which subsection (a)(3)(B) or (C) applied, the following shall be increased by the amount determined under paragraph (2): --(A) The taxable estate of the transferor in the case of a taxable event described in paragraph (3)(A)(i). --(B) The taxable gifts of the transferor for the calendar year in which the taxable event occurs in the case of a taxable event described in paragraph (3)(A)(ii) or (iii).(2)
Amount of increase. (A) In general. The amount of the increase determined under this paragraph shall be the excess (if any) of- --(i) the value of the qualified payments payable during the period beginning on the date of the transfer under subsection (a)(1) and ending on the date of the taxable event determined as if- --(I) all such payments were paid on the date payment was due, and --(II) all such payments were reinvested by the transferor as of the date of payment at a yield equal to the discount rate used in determining the value of the applicable retained interest described in subsection (a)(1), over (ii) the value of such payments paid during such period computed under clause (i) on the basis of the time when such payments were actually paid. (B) Limitation on amount of increase.(i)
In general. The amount of the increase under subparagraph (A) shall not exceed the applicable percentage of the excess (if any) of- --(I) the value (determined as of the date of the taxable event) of all equity interests in the entity which are junior to the applicable retained interest, over --(II) the value of such interests (determined as of the date of the transfer to which subsection (a)(1) applied).(ii)
Applicable percentage. For purposes of clause (i), the applicable percentage is the percentage determined by dividing- --(I) the number of shares in the corporation held (as of the date of the taxable event) by the transferor which are applicable retained interests of the same class, by --(II) the total number of shares in such corporation (as of such date) which are of the same class as the class described in subclause (I). --A similar percentage shall be determined in the case of interests in a partnership.(iii)
Definition. For purposes of this subparagraph, the term “equity interest” has the meaning given such term by subsection (a)(4)(B). (C) Grace period. For purposes of subparagraph (A), any payment of any distribution during the 4-year period beginning on its due date shall be treated as having been made on such due date.(3)
Taxable events. For purposes of this subsection- (A) In general. The term “taxable event” means any of the following: --(i) The death of the transferor if the applicable retained interest conferring the distribution right is includible in the estate of the transferor. --(ii) The transfer of such applicable retained interest. --(iii) At the election of the taxpayer, the payment of any qualified payment after the period described in paragraph (2)(C), but only with respect to such payment. (B) Exception where spouse is transferee.(i)
Deathtime transfers --Subparagraph (A)(i) shall not apply to any interest includible in the gross estate of the transferor if a deduction with respect to such interest is allowable under section 2056 or 2106(a)(3).(ii)
Lifetime transfers. A transfer to the spouse of the transferor shall not be treated as a taxable event under subparagraph (A)(ii) if such transfer does not result in a taxable gift by reason of- --(I) any deduction allowed under section 2523, or the exclusion under section 2503(b), or --(II) consideration for the transfer provided by the spouse.(iii)
Spouse succeeds to treatment of transferor. If an event is not treated as a taxable event by reason of this subparagraph, the transferee spouse or surviving spouse (as the case may be) shall be treated in the same manner as the transferor in applying this subsection with respect to the interest involved.(4)
Special rules for applicable family members. (A) Family member treated in same manner as transferor. For purposes of this subsection, an applicable family member shall be treated in the same manner as the transferor with respect to any distribution right retained by such family member to which subsection (a)(3)(B) or (C) applied. (B) Transfer to applicable family member. In the case of a taxable event described in paragraph (3)(A)(ii) involving the transfer of an applicable retained interest to an applicable family member (other than the spouse of the transferor), the applicable family member shall be treated in the same manner as the transferor in applying this subsection to distributions accumulating with respect to such interest after such taxable event. (C) Transfer to transferors. In the case of a taxable event described in paragraph (3)(A)(ii) involving a transfer of an applicable retained interest from an applicable family member to a transferor, this subsection shall continue to apply to the transferor during any period the transferor holds such interest.(5)
Transfer to include termination. For purposes of this subsection, any termination of an interest shall be treated as a transfer.(e)
Other definitions and rules. For purposes of this section- (1) Member of the family. The term “member of the family” means, with respect to any transferor- --(A) the transferor’s spouse, --(B) a lineal descendant of the transferor or the transferor’s spouse, and --(C) the spouse of any such descendant.(2)
Applicable family member. The term “applicable family member” means, with respect to any transferor- --(A) the transferor’s spouse, --(B) an ancestor of the transferor or the transferor’s spouse, and --(C) the spouse of any such ancestor.(3)
Attribution of indirect holdings and transfers. An individual shall be treated as holding any interest to the extent such interest is held indirectly by such individual through a corporation, partnership, trust, or other entity. If any individual is treated as holding any interest by reason of the preceding sentence, any transfer which results in such interest being treated as no longer held by such individual shall be treated as a transfer of such interest.(4)
Effect of adoption. A relationship by legal adoption shall be treated as a relationship by blood.(5)
Certain changes treated as transfers. Except as provided in regulations, a contribution to capital or a redemption, recapitalization, or other change in the capital structure of a corporation or partnership shall be treated as a transfer of an interest in such entity to which this section applies if the taxpayer or an applicable family member- --(A) receives an applicable retained interest in such entity pursuant to such transaction, or --(B) under regulations, otherwise holds, immediately after such transaction, an applicable retained interest in such entity. --This paragraph shall not apply to any transaction (other than a contribution to capital) if the interests in the entity held by the transferor, applicable family members, and members of the transferor’s family before and after the transaction are substantially identical.(6)
Adjustments. Under regulations prescribed by the Secretary, if there is any subsequent transfer, or inclusion in the gross estate, of any applicable retained interest which was valued under the rules of subsection (a), appropriate adjustments shall be made for purposes of chapter 11, 12, or 13 to reflect the increase in the amount of any prior taxable gift made by the transferor or decedent by reason of such valuation or to reflect the application of subsection (d).(7)
Treatment as separate interests. The Secretary may by regulation provide that any applicable retained interest shall be treated as 2 or more separate interests for purposes of this section. § 2702. Special valuation rules in case of transfers of interests in trusts.(a)
Valuation rules.(1)
In general. Solely for purposes of determining whether a transfer of an interest in trust to (or for the benefit of) a member of the transferor’s family is a gift (and the value of such transfer), the value of any interest in such trust retained by the transferor or any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in paragraph (2).(2)
Valuation of retained interests. (A) In general. The value of any retained interest which is not a qualified interest shall be treated as being zero. (B) Valuation of qualified interest. The value of any retained interest which is a qualified interest shall be determined under section 7520.(3)
Exceptions. (A) In general. This subsection shall not apply to any transfer- --(i) if such transfer is an incomplete gift, --(ii) if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust, or --(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section. (B) Incomplete gift. For purposes of subparagraph (A), the term “incomplete gift” means any transfer which would not be treated as a gift whether or not consideration was received for such transfer.(b)
Qualified interest. For purposes of this section, the term “qualified interest” means- (1) any interest which consists of the right to receive fixed amounts payable not less frequently than annually, (2) any interest which consists of the right to receive amounts which are payable not less frequently than annually and are a fixed percentage of the fair market value of the property in the trust (determined annually), and(3)
any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2).(c)
Certain property treated as held in trust. For purposes of this section- (1) In general. The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.(2)
Joint purchases. If 2 or more members of the same family acquire interests in any property described in paragraph (1) in the same transaction (or a series of related transactions), the person (or persons) acquiring the term interests in such property shall be treated as having acquired the entire property and then transferred to the other persons the interests acquired by such other persons in the transaction (or series of transactions). Such transfer shall be treated as made in exchange for the consideration (if any) provided by such other persons for the acquisition of their interests in such property.(3)
Term interest. The term “term interest” means- (A) a life interest in property, or (B) an interest in property for a term of years.(4)
Valuation rule for certain term interests. If the nonexercise of rights under a term interest in tangible property would not have a substantial effect on the valuation of the remainder interest in such property- (A) subparagraph (A) of subsection (a)(2) shall not apply to such term interest, and (B) the value of such term interest for purposes of applying subsection (a)(1) shall be the amount which the holder of the term interest establishes as the amount for which such interest could be sold to an unrelated third party.(d)
Treatment of transfers of interests in portion of trust. In the case of a transfer of an income or remainder interest with respect to a specified portion of the property in a trust, only such portion shall be taken into account in applying this section to such transfer.(e)
Member of the family. For purposes of this section, the term “member of the family” shall have the meaning given such term by section 2704(c)(2). § 2703. Certain rights and restrictions disregarded (a) General rule. For purposes of this subtitle, the value of any property shall be determined without regard to- (1) any option, agreement, or other right to acquire or use the property at a price less than the fair market value of the property (without regard to such option, agreement, or right), or(2)
any restriction on the right to sell or use such property.(b)
Exceptions. Subsection (a) shall not apply to any option, agreement, right, or restriction which meets each of the following requirements:(1)
It is a bona fide business arrangement.(2)
It is not a device to transfer such property to members of the decedent’s family for less than full and adequate consideration in money or money’s worth.(3)
Its terms are comparable to similar arrangements entered into by persons in an arms’ length transaction § 2704. Treatment of certain lapsing rights and restrictions.(a)
Treatment of lapsed voting or liquidation rights.(1)
In general. For purposes of this subtitle, if- --(A) there is a lapse of any voting or liquidation right in a corporation or partnership, and --(B) the individual holding such right immediately before the lapse and members of such individual’s family hold, both before and after the lapse, control of the entity, such lapse shall be treated as a transfer by such individual by gift, or a transfer which is includible in the gross estate of the decedent, whichever is applicable, in the amount determined under paragraph (2).(2)
Amount of transfer. For purposes of paragraph (1), the amount determined under this paragraph is the excess (if any) of- --(A) the value of all interests in the entity held by the individual described in paragraph (1) immediately before the lapse (determined as if the voting and liquidation rights were nonlapsing), over --(B) the value of such interests immediately after the lapse.(3)
Similar rights. The Secretary may by regulations apply this subsection to rights similar to voting and liquidation rights.(b)
Certain restrictions on liquidation disregarded.(1)
In general. For purposes of this subtitle, if- --(A) there is a transfer of an interest in a corporation or partnership to (or for the benefit of) a member of the transferor’s family, and --(B) the transferor and members of the transferor’s family hold, immediately before the transfer, control of the entity, --any applicable restriction shall be disregarded in determining the value of the transferred interest.(2)
Applicable restriction. For purposes of this subsection, the term “applicable restriction” means any restriction- (A) which effectively limits the ability of the corporation or partnership to liquidate, and (B) with respect to which either of the following applies: --(i) The restriction lapses, in whole or in part, after the transfer referred to in paragraph (1). --(ii) The transferor or any member of the transferor’s family, either alone or collectively, has the right after such transfer to remove, in whole or in part, the restriction.(3)
Exceptions. The term “applicable restriction” shall not include- --(A) any commercially reasonable restriction which arises as part of any financing by the corporation or partnership with a person who is not related to the transferor or transferee, or a member of the family of either, or --(B) any restriction imposed, or required to be imposed, by any Federal or State law.(4)
Other restrictions. The Secretary may by regulations provide that other restrictions shall be disregarded in determining the value of the transfer of any interest in a corporation or partnership to a member of the transferor’s family if such restriction has the effect of reducing the value of the transferred interest for purposes of this subtitle but does not ultimately reduce the value of such interest to the transferee.(c)
Definitions and special rules. For purposes of this section- (1) Control. The term “control” has the meaning given such term by section 2701(b)(2).(2)
Member of the family. The term “member of the family” means, with respect to any individual- (A) such individual’s spouse, (B) any ancestor or lineal descendant of such individual or such individual’s spouse, (C) any brother or sister of the individual, and (D) any spouse of any individual described in subparagraph (B) or (C).(3)
Attribution. The rule of section 2701(e)(3) shall apply for purposes of determining the interests held by any individual. § 7872. Treatment of loans with below-market interest rates (a) Treatment of gift loans and demand loans.(1)
In general. For purposes of this title, in the case of any below-market loan to which this section applies and which is a gift loan or a demand loan, the forgone interest shall be treated as- --(A) transferred from the lender to the borrower, and --(B) retransferred by the borrower to the lender as interest.(2)
Time when transfers made. Except as otherwise provided in regulations prescribed by the Secretary, any forgone interest attributable to periods during any calendar year shall be treated as transferred (and retransferred) under paragraph (1) on the last day of such calendar year.(b)
Treatment of other below-market loans.(1)
In general. For purposes of this title, in the case of any below-market loan to which this section applies and to which subsection (a)(1) does not apply, the lender shall be treated as having transferred on the date the loan was made (or, if later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of- --(A) the amount loaned, over --(B) the present value of all payments which are required to be made under the terms of the loan.(2)
Obligation treated as having original issue discount. For purposes of this title- (A) In general. Any below-market loan to which paragraph (1) applies shall be treated as having original issue discount in an amount equal to the excess described in paragraph (1). (B) Amount in addition to other original issue discount. Any original issue discount which a loan is treated as having by reason of subparagraph (A) shall be in addition to any other original issue discount on such loan (determined without regard to subparagraph (A)).(c)
Below-market loans to which section applies.(1)
In general. Except as otherwise provided in this subsection and subsection (g), this section shall apply to- (A) Gifts. Any below-market loan which is a gift loan. (B) Compensation-related loans. Any below-market loan directly or indirectly between- --(i) an employer and an employee, or --(ii) an independent contractor and a person for whom such independent contractor provides services. (C) Corporation-shareholder loans. Any below-market loan directly or indirectly between a corporation and any shareholder of such corporation. (D) Tax avoidance loans. Any below-market loan 1 of the principal purposes of the interest arrangements of which is the avoidance of any Federal tax. (E) Other below-market loans. To the extent provided in regulations, any below-market loan which is not described in subparagraph (A), (B), (C), or (F) if the interest arrangements of such loan have a significant effect on any Federal tax liability of the lender or the borrower. (F) Loans to qualified continuing care facilities. Any loan to any qualified continuing care facility pursuant to a continuing care contract.(2)
$10,000 de minimis exception for gift loans between individuals. (A) In general. In the case of any gift loan directly between individuals, this section shall not apply to any day on which the aggregate outstanding amount of loans between such individuals does not exceed $10,000. (B) De minimis exception not to apply to loans attributable to acquisition of income-producing assets. --Subparagraph (A) shall not apply to any gift loan directly attributable to the purchase or carrying of income-producing assets. (C) Cross reference. For limitation on amount treated as interest where loans do not exceed $100,000, see subsection (d)(1).(3)
$10,000 de minimis exception for compensation-related and corporate-shareholder loans. (A) In general. In the case of any loan described in subparagraph (B) or (C) of paragraph (1), this section shall not apply to any day on which the aggregate outstanding amount of loans between the borrower and lender does not exceed $10,000. (B) Exception not to apply where 1 of principal purposes is tax avoidance. Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax.(d)
Special rules for gift loans.(1)
Limitation on interest accrual for purposes of income taxes where loans do not exceed $100,000. (A) In general. For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to the lender as of the close of any year shall not exceed the borrower’s net investment income for such year. (B) Limitation not to apply where 1 of principal purposes is tax avoidance. Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax. (C) Special rule where more than 1 gift loan outstanding. For purposes of subparagraph (A), in any case in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower shall be allocated among such loans in proportion to the respective amounts which would be treated as retransferred by the borrower without regard to this paragraph. (D) Limitation not to apply where aggregate amount of loans exceed $100,000. This paragraph shall not apply to any loan made by a lender to a borrower for any day on which the aggregate outstanding amount of loans between the borrower and lender exceeds $100,000. (E) Net investment income. For purposes of this paragraph- (i) In general. The term “net investment income” has the meaning given such term by section 163(d)(4).(ii)
De minimis rule. If the net investment income of any borrower for any year does not exceed $1,000, the net investment income of such borrower for such year shall be treated as zero.(iii)
Additional amounts treated as interest. In determining the net investment income of a person for any year, any amount which would be included in the gross income of such person for such year by reason of section 1272 if such section applied to all deferred payment obligations shall be treated as interest received by such person for such year.(iv)
Deferred payment obligations. The term “deferred payment obligation” includes any market discount bond, short-term obligation, United States savings bond, annuity, or similar obligation.(2)
Special rule for gift tax. In the case of any gift loan which is a term loan, subsection (b)(1) (and not subsection (a)) shall apply for purposes of chapter 12.(e)
Definitions of below-market loan and forgone interest. For purposes of this section- (1) Below-market loan. The term “below-market loan” means any loan if- --(A) in the case of a demand loan, interest is payable on the loan at a rate less than the applicable Federal rate, or --(B) in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan.(2)
Forgone interest. The term “forgone interest” means, with respect to any period during which the loan is outstanding, the excess of- --(A) the amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable Federal rate and were payable annually on the day referred to in subsection (a)(2), over --(B) any interest payable on the loan properly allocable to such period.(f)
Other definitions and special rules. For purposes of this section- (1) Present value. The present value of any payment shall be determined in the manner provided by regulations prescribed by the Secretary- --(A) as of the date of the loan, and --(B) by using a discount rate equal to the applicable Federal rate.(2)
Applicable Federal rate. (A) Term loans. In the case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually. (B) Demand loans. In the case of a demand loan, the applicable Federal rate shall be the Federal short-term rate in effect under section 1274(d) for the period for which the amount of forgone interest is being determined, compounded semiannually.(3)
Gift loan. The term “gift loan” means any below-market loan where the forgoing of interest is in the nature of a gift.(4)
Amount loaned. The term “amount loaned” means the amount received by the borrower.(5)
Demand loan. The term “demand loan” means any loan which is payable in full at any time on the demand of the lender. Such term also includes (for purposes other than determining the applicable Federal rate under paragraph (2)) any loan if the benefits of the interest arrangements of such loan are not transferable and are conditioned on the future performance of substantial services by an individual. To the extent provided in regulations, such term also includes any loan with an indefinite maturity.(6)
Term loan. The term “term loan” means any loan which is not a demand loan.(7)
Husband and wife treated as 1 person. A husband and wife shall be treated as 1 person.(8)
Loans to which section 483, 643(i), or 1274 applies. This section shall not apply to any loan to which section 483, 643(i), or 1274 applies.(9)
No withholding. No amount shall be withheld under chapter 24 with respect to- --(A) any amount treated as transferred or retransferred under subsection (a), and --(B) any amount treated as received under subsection (b).(10)
Special rule for term loans. If this section applies to any term loan on any day, this section shall continue to apply to such loan notwithstanding paragraphs (2) and (3) of subsection (c). In the case of a gift loan, the preceding sentence shall only apply for purposes of chapter 12.(11)
Time for determining rate applicable to employee relocation loans. (A) In general. In the case of any term loan made by an employer to an employee the proceeds of which are used by the employee to purchase a principal residence (within the meaning of section 121), the determination of the applicable Federal rate shall be made as of the date the written contract to purchase such residence was entered into. (B) Paragraph only to apply to cases to which section 217 applies. Subparagraph (A) shall only apply to the purchase of a principal residence in connection with the commencement of work by an employee or a change in the principal place of work of an employee to which section 217 applies.(g)
Exception for certain loans to qualified continuing care facilities.(1)
In general. This section shall not apply for any calendar year to any below-market loan made by a lender to a qualified continuing care facility pursuant to a continuing care contract if the lender (or the lender’s spouse) attains age 65 before the close of such year.(2)
$90,000 limit. Paragraph (1) shall apply only to the extent that the aggregate outstanding amount of any loan to which such paragraph applies (determined without regard to this paragraph), when added to the aggregate outstanding amount of all other previous loans between the lender (or the lender’s spouse) and any qualified continuing care facility to which paragraph (1) applies, does not exceed $90,000.(3)
Continuing care contract. For purposes of this section, the term “continuing care contract” means a written contract between an individual and a qualified continuing care facility under which- --(A) the individual or individual’s spouse may use a qualified continuing care facility for their life or lives, --(B) the individual or individual’s spouse- --(i) will first- --(I) reside in a separate, independent living unit with additional facilities outside such unit for the providing of meals and other personal care, and --(II) not require long-term nursing care, and --(ii) then will be provided long-term and skilled nursing care as the health of such individual or individual’s spouse requires, and --(C) no additional substantial payment is required if such individual or individual’s spouse requires increased personal care services or long-term and skilled nursing care.(4)
Qualified continuing care facility. (A) In general. For purposes of this section, the term “qualified continuing care facility” means 1 or more facilities- --(i) which are designed to provide services under continuing care contracts, and --(ii) substantially all of the residents of which are covered by continuing care contracts. (B) Substantially all facilities must be owned or operated by borrower. A facility shall not be treated as a qualified continuing care facility unless substantially all facilities which are used to provide services which are required to be provided under a continuing care contract are owned or operated by the borrower. (C) Nursing homes excluded. The term “qualified continuing care facility” shall not include any facility which is of a type which is traditionally considered a nursing home.(5)
Adjustment of limit for inflation. (A) In general. In the case of any loan made during any calendar year after 1986 to which paragraph (1) applies, the dollar amount in paragraph (2) shall be increased by the inflation adjustment for such calendar year. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100). (B) Inflation adjustment. For purposes of subparagraph (A), the inflation adjustment for any calendar year is the percentage (if any) by which- --(i) the CPI for the preceding calendar year exceeds --(ii) the CPI for calendar year 1985. 1. For purposes of the preceding sentence, the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of such calendar year.(6)
Suspension of application. Paragraph (1) shall not apply for any calendar year to which subsection (h) applies.(h)
Exception for loans to qualified continuing care facilities.(1)
In general. This section shall not apply for any calendar year to any below-market loan owed by a facility which on the last day of such year is a qualified continuing care facility, if such loan was made pursuant to a continuing care contract and if the lender (or the lender’s spouse) attains age 62 before the close of such year.(2)
Continuing care contract. For purposes of this section, the term “continuing care contract” means a written contract between an individual and a qualified continuing care facility under which- --(A) the individual or individual’s spouse may use a qualified continuing care facility for their life or lives, --(B) the individual or individual’s spouse will be provided with housing, as appropriate for the health of such individual or individual’s spouse- --(i) in an independent living unit (which has additional available facilities outside such unit for the provision of meals and other personal care), and --(ii) in an assisted living facility or a nursing facility, as is available in the continuing care facility, and --(C) the individual or individual’s spouse will be provided assisted living or nursing care as the health of such individual or individual’s spouse requires, and as is available in the continuing care facility. --The Secretary shall issue guidance which limits such term to contracts which provide only facilities, care, and services described in this paragraph.(3)
Qualified continuing care facility. (A) In general. For purposes of this section, the term “qualified continuing care facility” means 1 or more facilities- --(i) which are designed to provide services under continuing care contracts, --(ii) which include an independent living unit, plus an assisted living or nursing facility, or both, and --(iii) substantially all of the independent living unit residents of which are covered by continuing care contracts. (B) Nursing homes excluded. The term “qualified continuing care facility” shall not include any facility which is of a type which is traditionally considered a nursing home.(i)
Regulations.(1)
In general. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including- --(A) regulations providing that where, by reason of varying rates of interest, conditional interest payments, waivers of interest, disposition of the lender’s or borrower’s interest in the loan, or other circumstances, the provisions of this section do not carry out the purposes of this section, adjustments to the provisions of this section will be made to the extent necessary to carry out the purposes of this section, --(B) regulations for the purpose of assuring that the positions of the borrower and lender are consistent as to the application (or nonapplication) of this section, and --(C) regulations exempting from the application of this section any class of transactions the interest arrangements of which have no significant effect on any Federal tax liability of the lender or the borrower.(2)
Estate tax coordination. Under regulations prescribed by the Secretary, any loan which is made with donative intent and which is a term loan shall be taken into account for purposes of chapter 11 in a manner consistent with the provisions of subsection (b). § 6166. Extension of Time for Payment of Estate Tax Where Estate Consists Largely of Interest in Closely Held Business.(a)
5-year deferral; 10-year installment payment.-- (1) In general.--If the value of an interest in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of the United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments.(2)
Limitation.--The maximum amount of tax which may be paid in installments under this subsection shall be an amount which bears the same ratio to the tax imposed by section 2001 (reduced by the credits against such tax) as-- (A) the closely held business amount, bears to (B) the amount of the adjusted gross estate.(3)
Date for payment of installments.--If an election is made under paragraph (1), the first installment shall be paid on or before the date selected by the executor which is not more than 5 years after the date prescribed by section 6151(a) for payment of the tax, and each succeeding installment shall be paid on or before the date which is 1 year after the date prescribed by this paragraph for payment of the preceding installment.(b)
Definitions and special rules.-- (1) Interest in closely held business.--For purposes of this section, the term “interest in a closely held business” means-- (A) an interest as a proprietor in a trade or business carried on as a proprietorship; (B) an interest as a partner in a partnership carrying on a trade or business, if-- (i) 20 percent or more of the total capital interest in such partnership is included in determining the gross estate of the decedent, or(ii)
such partnership had 45 or fewer partners; or (C) stock in a corporation carrying on a trade or business if-- (i) 20 percent or more in value of the voting stock of such corporation is included in determining the gross estate of the decedent, or(ii)
such corporation had 45 or fewer shareholders.(2)
Rules for applying paragraph (1).--For purposes of paragraph (1)-- (A) Time for testing.--Determinations shall be made as of the time immediately before the decedent’s death. (B) Certain interests held by husband and wife.--Stock or a partnership interest which-- (i) is community property of a husband and wife (or the income from which is community income) under the applicable community property law of a State, or(ii)
is held by a husband and wife as joint tenants, tenants by the entirety, or tenants in common, shall be treated as owned by one shareholder or one partner, as the case may be. (C) Indirect ownership.--Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest in the trust. (D) Certain interests held by members of decedent’s family.--All stock and all partnership interests held by the decedent or by any member of his family (within the meaning of section 267(c)(4)) shall be treated as owned by the decedent.(3)
Farmhouses and certain other structures taken into account.--For purposes of the 35-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes an interest in residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm.(4)
Value.--For purposes of this section, value shall be value determined for purposes of chapter 11 (relating to estate tax).(5)
Closely held business amount.--For purposes of this section, the term “closely held business amount” means the value of the interest in a closely held business which qualifies under subsection (a)(1).(6)
Adjusted gross estate.--For purposes of this section, the term, “adjusted gross estate” means the value of the gross estate reduced by the sum of the amounts allowable as a deduction under section 2053 or 2054. Such sum shall be determined on the basis of the facts and circumstances in existence on the date (including extensions) for filing the return of tax imposed by section 2001 (or, if earlier, the date on which such return is filed).(7)
Partnership interests and stock which is not readily tradable.-- (A) In general.--If the executor elects the benefits of this paragraph (at such time and in such manner as the Secretary shall by regulations prescribe), then-- (i) for purposes of paragraph (1)(B)(i) or (1)(C)(i) (whichever is appropriate) and for purposes of subsection (c), any capital interest in a partnership and any non-readily-tradable stock which (after the application of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent’s gross estate, (ii) the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and(iii)
for purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero. (B) Non-readily-tradable stock defined.--For purposes of this paragraph, the term “non-readily-tradable stock” means stock for which, at the time of the decedent’s death, there was no market on a stock exchange or in an over-the-counter market.(8)
Stock in holding company treated as business company stock in certain cases.-- (A) In general.--If the executor elects the benefits of this paragraph, then-- (i) Holding company stock treated as business company stock.--For purposes of this section, the portion of the stock of any holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company.(ii)
5-year deferral for principal not to apply.--The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).(iii)
2-percent interest rate not to apply.--For purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero. (B) All stock must be non-readily-tradable stock.-- (i) In general.--No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)).(ii)
Special application where only holding company stock is non-readily-tradable stock.--If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting “5” for “10”. (C) Application of voting stock requirement of paragraph (1)(C)(i).--For purposes of clause (i) of paragraph (1)(C), the deemed stock resulting from the application of subparagraph (A) shall be treated as voting stock to the extent that voting stock in the holding company owns directly (or through the voting stock of 1 or more other holding companies) voting stock in the business company. (D) Definitions.--For purposes of this paragraph-- (i) Holding company.--The term “holding company” means any corporation holding stock in another corporation.(ii)
Business company.--The term “business company” means any corporation carrying on a trade or business.(9)
Deferral not available for passive assets.-- (A) In general.--For purposes of subsection (a)(1) and determining the closely held business amount (but not for purposes of subsection (g)), the value of any interest in a closely held business shall not include the value of that portion of such interest which is attributable to passive assets held by the business. (B) Passive asset defined.--For purposes of this paragraph-- (i) In general.--The term “passive asset” means any asset other than an asset used in carrying on a trade or business.(ii)
Stock treated as passive asset.--The term “passive asset” includes any stock in another corporation unless-- (I) such stock is treated as held by the decedent by reason of an election under paragraph (8), and (II) such stock qualified under subsection (a)(1).(iii)
Exception for active corporations.--If-- (I) a corporation owns 20 percent or more in value of the voting stock of another corporation, or such other corporation has 45 or fewer shareholders, and (II) 80 percent or more of the value of the assets of each such corporation is attributable to assets used in carrying on a trade or business, then such corporations shall be treated as 1 corporation for purposes of clause (ii). For purposes of applying subclause (II) to the corporation holding the stock of the other corporation, such stock shall not be taken into account.(10)
Stock in qualifying lending and finance business treated as stock in an active trade or business company.-- (A) In general.--If the executor elects the benefits of this paragraph, then-- (i) Stock in qualifying lending and finance business treated as stock in an active trade or business company.--For purposes of this section, any asset used in a qualifying lending and finance business shall be treated as an asset which is used in carrying on a trade or business.(ii)
5-year deferral for principal not to apply.--The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).(iii)
5 equal installments allowed.--For purposes of applying subsection (a)(1), “5” shall be substituted for “10”. (B) Definitions.--For purposes of this paragraph-- (i) Qualifying lending and finance business.--The term “qualifying lending and finance business” means a lending and finance business, if-- (I) based on all the facts and circumstances immediately before the date of the decedent’s death, there was substantial activity with respect to the lending and finance business, or (II) during at least 3 of the 5 taxable years ending before the date of the decedent’s death, such business had at least 1 full-time employee substantially all of whose services were the active management of such business, 10 full-time, nonowner employees substantially all of whose services were directly related to such business, and $5,000,000 in gross receipts from activities described in clause (ii).(ii)
Lending and finance business.--The term “lending and finance business” means a trade or business of-- (I) making loans, (II) purchasing or discounting accounts receivable, notes, or installment obligations, (III) engaging in rental and leasing of real and tangible personal property, including entering into leases and purchasing, servicing, and disposing of leases and leased assets, (IV) rendering services or making facilities available in the ordinary course of a lending or finance business, and (V) rendering services or making facilities available in connection with activities described in subclauses (I) through (IV) carried on by the corporation rendering services or making facilities available, or another corporation which is a member of the same affiliated group (as defined in section 1504 without regard to section 1504(b)(3)).(iii)
Limitation.--The term “qualifying lending and finance business” shall not include any interest in an entity, if the stock or debt of such entity or a controlled group (as defined in section 267(f)(1)) of which such entity was a member was readily tradable on an established securities market or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent’s death.(c)
Special rule for interest in 2 or more closely held businesses.--For purposes of this section, interest in 2 or more closely held businesses, with respect to each of which there is included in determining the value of the decedent’s gross estate 20 percent or more of the total value of each such business, shall be treated as an interest in a single closely held business. For purposes of the 20-percent requirement of the preceding sentence, an interest in a closely held business which represents the surviving spouse’s interest in property held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the entirety, or tenants in common shall be treated as having been included in determining the value of the decedent’s gross estate.(d)
Election.--Any election under subsection (a) shall be made not later than the time prescribed by section 6075(a) for filing the return of tax imposed by section 2001 (including extensions thereof), and shall be made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is made, the provisions of this subtitle shall apply as though the Secretary were extending the time for payment of the tax.(e)
Proration of deficiency to installments.--If an election is made under subsection (a) to pay any part of the tax imposed by section 2001 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments payable under subsection (a). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.(f)
Time for payment of interest.--If the time for payment of any amount of tax has been extended under this section-- (1) Interest for first 5 years.--Interest payable under section 6601 of any unpaid portion of such amount attributable to the first 5 years after the date prescribed by section 6151(a) for payment of the tax shall be paid annually.(2)
Interest for periods after first 5 years.--Interest payable under section 6601 on any unpaid portion of such amount attributable to any period after the 5-year period referred to in paragraph (1) shall be paid annually at the same time as, and as a part of, each installment payment of the tax.(3)
Interest in the case of certain deficiencies.--In the case of a deficiency to which subsection (e) applies which is assessed after the close of the 5-year period referred to in paragraph (1), interest attributable to such 5-year period, and interest assigned under paragraph (2) to any installment the date for payment of which has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary.(4)
Selection of shorter period.--If the executor has selected a period shorter than 5 years under subsection (a)(3), such shorter period shall be substituted for 5 years in paragraphs (1), (2), and(3)
of this subsection.(g)
Acceleration of payment.-- (1) Disposition of interest; withdrawal of funds from business.-- (A) If-- (i)(I) any portion of an interest in a closely held business which qualifies under subsection (a)(1) is distributed, sold, exchanged, or otherwise disposed of, or (II) money and other property attributable to such an interest is withdrawn from such trade or business, and(ii)
the aggregate of such distributions, sales, exchanges, or other dispositions and withdrawals equals or exceeds 50 percent of the value of such interest, then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary. (B) In the case of a distribution in redemption of stock to which section 303 (or so much of section 304 as relates to section 303) applies-- (i) the redemption of such stock, and the withdrawal of money and other property distributed in such redemption, shall not be treated as a distribution or withdrawal for purposes of subparagraph (A), and(ii)
for purposes of subparagraph (A), the value of the interest in the closely held business shall be considered to be such value reduced by the value of the stock redeemed. This subparagraph shall apply only if, on or before the date prescribed by subsection (a)(3) for the payment of the first installment which becomes due after the date of the distribution (or, if earlier, on or before the day which is 1 year after the date of the distribution), there is paid an amount of the tax imposed by section 2001 not less than the amount of money and other property distributed. (C) Subparagraph (A)(i) does not apply to an exchange of stock pursuant to a plan of reorganization described in subparagraph (D), (E), or (F) of section 368(a)(1) nor to an exchange to which section 355 (or so much of section 356 as relates to section 355) applies; but any stock received in such an exchange shall be treated for purposes of subparagraph (A)(i) as an interest qualifying under subsection (a)(1). (D) Subparagraph (A)(i) does not apply to a transfer of property of the decedent to a person entitled by reason of the decedent’s death to receive such property under the decedent’s will, the applicable law of descent and distribution, or a trust created by the decedent. A similar rule shall apply in the case of a series of subsequent transfers of the property by reason of death so long as each transfer is to a member of the family (within the meaning of section 267(c)(4)) of the transferor in such transfer. (E) Changes in interest in holding company.--If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)-- (i) any disposition of any interest in such stock in such holding company which was included in determining the gross estate of the decedent, or(ii)
any withdrawal of any money or other property from such holding company attributable to any interest included in determining the gross estate of the decedent, shall be treated for purposes of subparagraph (A) as a disposition of (or a withdrawal with respect to) the stock qualifying under subsection (a)(1). (F) Changes in interest in business company.--If any stock in a holding company is treated as stock in a business company by reason of subsection (b)(8)(A)-- (i) any disposition of any interest in such stock in the business company by such holding company, or(ii)
any withdrawal of any money or other property from such business company attributable to such stock by such holding company owning such stock, shall be treated for purposes of subparagraph (A) as a disposition of (or a withdrawal with respect to) the stock qualifying under subsection (a)(1).(2)
Undistributed income of estate.-- (A) If an election is made under this section and the estate has undistributed net income for any taxable year ending on or after the due date for the first installment, the executor shall, on or before the date prescribed by law for filing the income tax return for such taxable year (including extensions thereof), pay an amount equal to such undistributed net income in liquidation of the unpaid portion of the tax payable in installments. (B) For purposes of subparagraph (A), the undistributed net income of the estate for any taxable year is the amount by which the distributable net income of the estate for such taxable year (as defined in section 643) exceeds the sum of-- (i) the amounts for such taxable year specified in paragraphs (1) and (2) of section 661(a) (relating to deductions for distributions, etc.);(ii)
the amount of tax imposed for the taxable year on the estate under chapter 1; and(iii)
the amount of the tax imposed by section 2001 (including interest) paid by the executor during the taxable year (other than any amount paid pursuant to this paragraph). (C) For purposes of this paragraph, if any stock in a corporation is treated as stock in another corporation by reason of subsection (b)(8)(A), any dividends paid by such other corporation to the corporation shall be treated as paid to the estate of the decedent to the extent attributable to the stock qualifying under subsection (a)(1).(3)
Failure to make payment of principal or interest.-- (A) In general.--Except as provided in subparagraph (B), if any payment of principal or interest under this section is not paid on or before the date fixed for its payment by this section (including any extension of time), the unpaid portion of the tax payable in installments shall be paid upon notice and demand from the Secretary. (B) Payment within 6 months.--If any payment of principal or interest under this section is not paid on or before the date determined under subparagraph (A) but is paid within 6 months of such date-- (i) the provisions of subparagraph (A) shall not apply with respect to such payment, (ii) the provisions of section 6601(j) shall not apply with respect to the determination of interest on such payment, and(iii)
there is imposed a penalty in an amount equal to the product of-- (I) 5 percent of the amount of such payment, multiplied by (II) the number of months (or fractions thereof) after such date and before payment is made. The penalty imposed under clause (iii) shall be treated in the same manner as a penalty imposed under subchapter B of chapter 68.(h)
Election in case of certain deficiencies.-- (1) In general.--If-- (A) a deficiency in the tax imposed by section 2001 is assessed, (B) the estate qualifies under subsection (a)(1), and (C) the executor has not made an election under subsection (a), the executor may elect to pay the deficiency in installments. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.(2)
Time of election.--An election under this subsection shall be made not later than 60 days after issuance of notice and demand by the Secretary for the payment of the deficiency, and shall be made in such manner as the Secretary shall by regulations prescribe.(3)
Effect of election on payment.--If an election is made under this subsection, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the installments which would have been due if an election had been timely made under subsection (a) at the time the estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment of which would have arrived shall be paid at the time of the making of the election under this subsection. The portion of the deficiency so prorated to installments the date for payment of which would not have so arrived shall be paid at the time such installments would have been due if such an election had been made.(i)
Special rule for certain direct skips.--To the extent that an interest in a closely held business is the subject of a direct skip (within the meaning of section 2612(c)) occurring at the same time as and as a result of the decedent’s death, then for purposes of this section any tax imposed by section 2601 on the transfer of such interest shall be treated as if it were additional tax imposed by section 2001.(j)
Regulations.--The Secretary shall prescribe such regulations as may be necessary to the application of this section.(k)
Cross references.-- (1) Security.-- For authority of the Secretary to require security in the case of an extension under this section, see section 6165.(2)
Lien.--For special lien (in lieu of bond) in the case of an extension under this section, see section 6324A.(3)
Period of limitation.--For extension of the period of limitation in the case of an extension under this section, see section 6503(d).(4)
Interest.--For provisions relating to interest on tax payable in installments under this section, see subsection (j) of section 6601.(5)
Transfers within 3 years of death.--For special rule for qualifying an estate under this section where property has been transferred within 3 years of decedent’s death, see section 2035(c)(2).
Source:
Section 999-A — Appendix to article twenty-six, https://www.nysenate.gov/legislation/laws/TAX/999-A (updated Sep. 22, 2014; accessed Oct. 26, 2024).
