-CITE-
26 USC CHAPTER 14 - SPECIAL VALUATION RULES 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 14 - SPECIAL VALUATION RULES
-HEAD-
CHAPTER 14 - SPECIAL VALUATION RULES
-MISC1-
Sec.
2701. Special valuation rules in case of transfers of
certain interests in corporations or partnerships.
2702. Special valuation rules in case of transfers of
interests in trusts.
2703. Certain rights and restrictions disregarded.
2704. Treatment of certain lapsing rights and restrictions.
-End-
-CITE-
26 USC Sec. 2701 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 14 - SPECIAL VALUATION RULES
-HEAD-
Sec. 2701. Special valuation rules in case of transfers of certain
interests in corporations or partnerships
-STATUTE-
(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.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11602(a), Nov. 5, 1990, 104
Stat. 1388-491; amended Pub. L. 104-188, title I, Sec.
1702(f)(1)-(3)(B), (4)-(5)(B), (6)-(10), Aug. 20, 1996, 110 Stat.
1870-1872.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(3)(B). Pub. L. 104-188, Sec. 1702(f)(1)(B),
inserted "certain" before "qualified" in heading.
Subsec. (a)(3)(C). Pub. L. 104-188, Sec. 1702(f)(1)(A), added
subpar. (C).
Subsec. (a)(4)(B)(i). Pub. L. 104-188, Sec. 1702(f)(2), inserted
"(or, to the extent provided in regulations, the rights as to
either income or capital)" after "income and capital".
Subsec. (b)(2)(C). Pub. L. 104-188, Sec. 1702(f)(3)(A), added
subpar. (C).
Subsec. (c)(1)(B)(i). Pub. L. 104-188, Sec. 1702(f)(4), amended
cl. (i) generally. Prior to amendment, cl. (i) read as follows: "a
right to distributions with respect to any junior equity interest
(as defined in subsection (a)(4)(B)(i)),".
Subsec. (c)(3)(C)(i). Pub. L. 104-188, Sec. 1702(f)(5)(A),
amended cl. (i) generally. Prior to amendment, cl. (i) read as
follows:
"(i) Waiver of qualified payment treatment. - A transferor or
applicable family member may elect with respect to payments under
any interest specified in such election to treat such payments as
payments which are not qualified payments."
Subsec. (c)(3)(C)(ii). Pub. L. 104-188, Sec. 1702(f)(5)(B),
amended first sentence generally. Prior to amendment, first
sentence read as follows: "A transferor or any applicable family
member may elect to treat any distribution right as a qualified
payment, to be paid in the amounts and at the times specified in
such election."
Subsec. (d)(1). Pub. L. 104-188, Sec. 1702(f)(1)(C), substituted
"subsection (a)(3)(B) or (C)" for "subsection (a)(3)(B)".
Subsec. (d)(3)(A)(iii). Pub. L. 104-188, Sec. 1702(f)(6), struck
out "the period ending on the date of" after "with respect to".
Subsec. (d)(3)(B)(ii)(I). Pub. L. 104-188, Sec. 1702(f)(7),
inserted "or the exclusion under section 2503(b)," after "section
2523,".
Subsec. (d)(4)(A). Pub. L. 104-188, Sec. 1702(f)(1)(C),
substituted "subsection (a)(3)(B) or (C)" for "subsection
(a)(3)(B)".
Subsec. (d)(4)(C). Pub. L. 104-188, Sec. 1702(f)(9), added
subpar. (C).
Subsec. (e)(3). Pub. L. 104-188, Sec. 1702(f)(3)(B), substituted
"Attribution of indirect holdings and transfers" for "Attribution
rules" in par. heading, struck out subpar. (A) designation and
heading which read "Indirect holdings and transfers", and struck
out subpar. (B) which read as follows:
"(B) Control. - For purposes of subsections (b)(1), an individual
shall be treated as holding any interest held by the individual's
brothers, sisters, or lineal descendants."
Subsec. (e)(5)(A). Pub. L. 104-188, Sec. 1702(f)(8)(A),
substituted "such transaction" for "such contribution to capital or
such redemption, recapitalization, or other change".
Subsec. (e)(5)(B). Pub. L. 104-188, Sec. 1702(f)(8)(B),
substituted "such transaction" for "the transfer".
Subsec. (e)(6). Pub. L. 104-188, Sec. 1702(f)(10), inserted "or
to reflect the application of subsection (d)" before period at end.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE
Section 11602(e)(1) of Pub. L. 101-508 provided that:
"(A) In general. - The amendments made by subsection (a)
[enacting this chapter] -
"(i) to the extent such amendments relate to sections 2701 and
2702 of the Internal Revenue Code of 1986 (as added by such
amendments), shall apply to transfers after October 8, 1990,
"(ii) to the extent such amendments relate to section 2703 of
such Code (as so added), shall apply to -
"(I) agreements, options, rights, or restrictions entered
into or granted after October 8, 1990, and
"(II) agreements, options, rights, or restrictions which are
substantially modified after October 8, 1990, and
"(iii) to the extent such amendments relate to section 2704 of
such Code (as so added), shall apply to restrictions or rights
(or limitations on rights) created after October 8, 1990.
"(B) Exception. - For purposes of subparagraph (A)(i), with
respect to property transferred before October 9, 1990 -
"(i) any failure to exercise a right of conversion,
"(ii) any failure to pay dividends, and
"(iii) any failure to exercise other rights specified in
regulations,
shall not be treated as a subsequent transfer."
TIME FOR ELECTION UNDER SUBSECTION (C)(3)(C)(I)
Section 1702(f)(5)(C) of Pub. L. 104-188 provided that: "The time
for making an election under the second sentence of section
2701(c)(3)(C)(i) of the Internal Revenue Code of 1986 (as amended
by subparagraph (A)) shall not expire before the due date
(including extensions) for filing the transferor's return of the
tax imposed by section 2501 of such Code for the first calendar
year ending after the date of enactment [probably means the date of
enactment of Pub. L. 104-188, Oct. 20, 1996]."
STUDY OF METHODS USED TO DISTORT VALUATION OF PROPERTY FOR PURPOSES
OF ESTATE AND GIFT TAX
Section 11602(d) of Pub. L. 101-508 provided that: "The Secretary
of the Treasury shall conduct a study of -
"(1) the prevalence and types of options and agreements used to
distort the valuation of property for purposes of subtitle B of
the Internal Revenue Code of 1986, and
"(2) other methods using discretionary rights to distort the
value of property for such purposes.
The Secretary shall, not later than December 31, 1992, report the
results of such study, together with such legislative
recommendations as the Secretary considers necessary, to the
Committee on Finance of the Senate and the Committee on Ways and
Means of the House of Representatives."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 2001, 2504, 2702, 2704,
6501 of this title.
-End-
-CITE-
26 USC Sec. 2702 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 14 - SPECIAL VALUATION RULES
-HEAD-
Sec. 2702. Special valuation rules in case of transfers of
interests in trusts
-STATUTE-
(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).
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11602(a), Nov. 5, 1990, 104
Stat. 1388-497; amended Pub. L. 104-188, title I, Sec. 1702(f)(11),
Aug. 20, 1996, 110 Stat. 1872.)
-MISC1-
AMENDMENTS
1996 - Subsec. (a)(3)(A)(i). Pub. L. 104-188, Sec.
1702(f)(11)(A)(i), (ii), (B)(i), substituted "if" for "to the
extent" and "incomplete gift" for "incomplete transfer", and struck
out "or" at end.
Subsec. (a)(3)(A)(ii). Pub. L. 104-188, Sec. 1702(f)(11)(A)(iii),
substituted ", or" for period at end.
Subsec. (a)(3)(A)(iii). Pub. L. 104-188, Sec. 1702(f)(11)(A)(iv),
added cl. (iii).
Subsec. (a)(3)(B). Pub. L. 104-188, Sec. 1702(f)(11)(B),
substituted "incomplete gift" for "incomplete transfer" in heading
and text.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
-End-
-CITE-
26 USC Sec. 2703 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 14 - SPECIAL VALUATION RULES
-HEAD-
Sec. 2703. Certain rights and restrictions disregarded
-STATUTE-
(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.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11602(a), Nov. 5, 1990, 104
Stat. 1388-498.)
-End-
-CITE-
26 USC Sec. 2704 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle B - Estate and Gift Taxes
CHAPTER 14 - SPECIAL VALUATION RULES
-HEAD-
Sec. 2704. Treatment of certain lapsing rights and restrictions
-STATUTE-
(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.
-SOURCE-
(Added Pub. L. 101-508, title XI, Sec. 11602(a), Nov. 5, 1990, 104
Stat. 1388-498; amended Pub. L. 104-188, title I, Sec.
1702(f)(3)(C), Aug. 20, 1996, 110 Stat. 1871.)
-MISC1-
AMENDMENTS
1996 - Subsec. (c)(3). Pub. L. 104-188 substituted "section
2701(e)(3)" for "section 2701(e)(3)(A)".
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in section 2702 of this title.
-End-
-CITE-
26 USC Subtitle C - Employment Taxes 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle C - Employment Taxes
-HEAD-
Subtitle C - Employment Taxes
-MISC1-
Chapter Sec.(!1)
21. Federal insurance contributions act 3101
22. Railroad retirement tax act 3201
23. Federal unemployment tax act 3301
23A. Railroad Unemployment Repayment Tax 3321
24. Collection of income tax at source on wages 3401
25. General provisions relating to employment taxes 3501
AMENDMENTS
1983 - Pub. L. 98-76, title II, Sec. 231(c), Aug. 12, 1983, 97
Stat. 429, added item for chapter 23A.
Pub. L. 98-67 repealed amendments made by Pub. L. 97-248. See
1982 Amendment note below.
1982 - Pub. L. 97-248, title III, Secs. 307(b)(1), (6), 308(a),
Sept. 3, 1982, 96 Stat. 590, 591, provided that, applicable to
payments of interest, dividends, and patronage dividends paid or
credited after June 30, 1983, the heading of subtitle C is amended
to read "Employment Taxes and Collection of Income Tax at Source",
the caption of chapter 24 is amended by striking out "On Wages",
and the caption of chapter 25 is amended by inserting "And
Collection Of Income Taxes At Source" after "Employment Taxes".
Section 102(a), (b) of Pub. L. 98-67, title I, Aug. 5, 1983, 97
Stat. 369, repealed subtitle A (Secs. 301-308) of title III of Pub.
L. 97-248 as of the close of June 30, 1983, and provided that the
Internal Revenue Code of 1954 [now 1986] [this title] shall be
applied and administered (subject to certain exceptions) as if such
subtitle A (and the amendments made by such subtitle A) had not
been enacted.
-SECREF-
SUBTITLE REFERRED TO IN OTHER SECTIONS
This subtitle is referred to in sections 139, 1314, 1398, 6242,
6305, 6331, 6656, 7436, 7508, 7512, 7519, 7873 of this title; title
33 section 902.
-FOOTNOTE-
(!1) Section numbers editorially supplied.
-End-
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