§ 999-A — Appendix to article twenty-six

§ 999-a. Appendix to article twenty-six. The following provisions of\nthe United States Internal Revenue Code of 1986, with all amendments\nenacted on or before January first, two thousand fourteen, shall apply\nto the tax imposed by this article, to the extent specified in this\narticle.\n § 2031. Definition of Gross Estate.\n (a) General.--The value of the gross estate of the decedent shall be\ndetermined by including to the extent provided for in this part, the\nvalue at the time of his death of all property, real or personal,\ntangible or intangible, wherever situated.\n (b) Valuation of unlisted stock and securities.--In the case of stock\nand securities of a corporation the value of which, by reason of their\nnot being listed on an exchange and by reason of the absence of sales\nthereof, cannot be determined with reference to bid and asked prices or\nwith reference to sales prices, the value thereof shall be determined by\ntaking into consideration, in addition to all other factors, the value\nof stock or securities of corporations engaged in the same or a similar\nline of business which are listed on an exchange.\n (c) Estate tax with respect to land subject to a qualified\nconservation easement.--\n (1) In general.--If the executor makes the election described in\nparagraph (6), then, except as otherwise provided in this subsection,\nthere shall be excluded from the gross estate the lesser of--\n (A) the applicable percentage of the value of land subject to a\nqualified conservation easement, reduced by the amount of any deduction\nunder section 2055(f) with respect to such land, or\n (B) the exclusion limitation.\n (2) Applicable percentage.--For purposes of paragraph (1), the term\n"applicable percentage" means 40 percent reduced (but not below zero) by\n2 percentage points for each percentage point (or fraction thereof) by\nwhich the value of the qualified conservation easement is less than 30\npercent of the value of the land (determined without regard to the value\nof such easement and reduced by the value of any retained development\nright (as defined in paragraph (5)). The values taken into account under\nthe preceding sentence shall be such values as of the date of the\ncontribution referred to in paragraph (8)(B).\n (3) Exclusion limitation.--For purposes of paragraph (1), the\nexclusion limitation is the limitation determined in accordance with the\nfollowing table:\nIn the case of estates of decedents dying The exclusion limitation\nduring: is:\n1998..................................... 100,000\n1999..................................... 200,000\n2000..................................... 300,000\n2001..................................... 400,000\n2002 or thereafter....................... 500,000\n (4) Treatment of certain indebtedness.--\n (A) In general.--The exclusion provided in paragraph (1) shall not\napply to the extent that the land is debt-financed property.\n (B) Definitions.--For purposes of this paragraph--\n (i) Debt-financed property.--The term "debt-financed property" means\nany property with respect to which there is an acquisition indebtedness\n(as defined in clause (ii)) on the date of the decedent's death.\n (ii) Acquisition indebtedness.--The term "acquisition indebtedness"\nmeans, with respect to debt-financed property, the unpaid amount of--\n (I) the indebtedness incurred by the donor in acquiring such property,\n (II) the indebtedness incurred before the acquisition of such property\nif such indebtedness would not have been incurred but for such\nacquisition,\n (III) the indebtedness incurred after the acquisition of such property\nif such indebtedness would not have been incurred but for such\nacquisition and the incurrence of such indebtedness was reasonably\nforeseeable at the time of such acquisition, and\n (IV) the extension, renewal, or refinancing of an acquisition\nindebtedness.\n (5) Treatment of retained development right.--\n (A) In general.--Paragraph (1) shall not apply to the value of any\ndevelopment right retained by the donor in the conveyance of a qualified\nconservation easement.\n (B) Termination of retained development right.--If every person in\nbeing who has an interest (whether or not in possession) in the land\nexecutes an agreement to extinguish permanently some or all of any\ndevelopment rights (as defined in subparagraph (D)) retained by the\ndonor on or before the date for filing the return of the tax imposed by\nsection 2001, then any tax imposed by section 2001 shall be reduced\naccordingly. Such agreement shall be filed with the return of the tax\nimposed by section 2001. The agreement shall be in such form as the\nSecretary shall prescribe.\n (C) Additional tax.--Any failure to implement the agreement described\nin subparagraph (B) not later than the earlier of--\n (i) the date which is 2 years after the date of the decedent's death,\nor\n (ii) the date of the sale of such land subject to the qualified\nconservation easement,\n shall result in the imposition of an additional tax in the amount of\nthe tax which would have been due on the retained development rights\nsubject to such agreement. Such additional tax shall be due and payable\non the last day of the 6th month following such date.\n (D) Development right defined.--For purposes of this paragraph, the\nterm "development right" means any right to use the land subject to the\nqualified conservation easement in which such right is retained for any\ncommercial purpose which is not subordinate to and directly supportive\nof the use of such land as a farm for farming purposes (within the\nmeaning of section 2032A(e)(5)).\n (6) Election.--The election under this subsection shall be made on or\nbefore the due date (including extensions) for filing the return of tax\nimposed by section 2001 and shall be made on such return. Such an\nelection, once made, shall be irrevocable.\n (7) Calculation of estate tax due.--An executor making the election\ndescribed in paragraph (6) shall, for purposes of calculating the amount\nof tax imposed by section 2001, include the value of any development\nright (as defined in paragraph (5)) retained by the donor in the\nconveyance of such qualified conservation easement. The computation of\ntax on any retained development right prescribed in this paragraph shall\nbe done in such manner and on such forms as the Secretary shall\nprescribe.\n (8) Definitions.--For purposes of this subsection--\n (A) Land subject to a qualified conservation easement.--The term "land\nsubject to a qualified conservation easement" means land--\n (i) which is located in the United States or any possession of the\nUnited States,\n (ii) which was owned by the decedent or a member of the decedent's\nfamily at all times during the 3-year period ending on the date of the\ndecedent's death, and\n (iii) with respect to which a qualified conservation easement has been\nmade by an individual described in subparagraph (C), as of the date of\nthe election described in paragraph (6).\n (B) Qualified conservation easement.--The term "qualified conservation\neasement" means a qualified conservation contribution (as defined in\nsection 170(h)(1)) of a qualified real property interest (as defined in\nsection 170(h)(2)(C)), except that clause (iv) of section 170(h)(4)(A)\nshall not apply, and the restriction on the use of such interest\ndescribed in section 170(h)(2)(C) shall include a prohibition on more\nthan a de minimis use for a commercial recreational activity.\n (C) Individual described.--An individual is described in this\nsubparagraph if such individual is--\n (i) the decedent,\n (ii) a member of the decedent's family,\n (iii) the executor of the decedent's estate, or\n (iv) the trustee of a trust the corpus of which includes the land to\nbe subject to the qualified conservation easement.\n (D) Member of family.--The term "member of the decedent's family"\nmeans any member of the family (as defined in section 2032A(e)(2)) of\nthe decedent.\n (9) Treatment of easements granted after death.--In any case in which\nthe qualified conservation easement is granted after the date of the\ndecedent's death and on or before the due date (including extensions)\nfor filing the return of tax imposed by section 2001, the deduction\nunder section 2055(f) with respect to such easement shall be allowed to\nthe estate but only if no charitable deduction is allowed under chapter\n1 to any person with respect to the grant of such easement.\n (10) Application of this section to interests in partnerships,\ncorporations, and trusts.--This section shall apply to an interest in a\npartnership, corporation, or trust if at least 30 percent of the entity\nis owned (directly or indirectly) by the decedent, as determined under\nthe rules described in section 2057(e)(3).\n (d) Cross reference.--\n For executor's right to be furnished on request a statement regarding\nany valuation made by the Secretary within the gross estate, see section\n7517.\n § 2032. Alternate Valuation.\n (a) General.--The value of the gross estate may be determined, if the\nexecutor so elects, by valuing all the property included in the gross\nestate as follows:\n (1) In the case of property distributed, sold, exchanged, or otherwise\ndisposed of, within 6 months after the decedent's death such property\nshall be valued as of the date of distribution, sale, exchange, or other\ndisposition.\n (2) In the case of property not distributed, sold, exchanged, or\notherwise disposed of, within 6 months after the decedent's death such\nproperty shall be valued as of the date 6 months after the decedent's\ndeath.\n (3) Any interest or estate which is affected by mere lapse of time\nshall be included at its value as of the time of death (instead of the\nlater date) with adjustment for any difference in its value as of the\nlater date not due to mere lapse of time.\n (b) Special rules.--No deduction under this chapter of any item shall\nbe allowed if allowance for such items is in effect given by the\nalternate valuation provided by this section. Wherever in any other\nsubsection or section of this chapter reference is made to the value of\nproperty at the time of the decedent's death, such reference shall be\ndeemed to refer to the value of such property used in determining the\nvalue of the gross estate. In case of an election made by the executor\nunder this section, then--\n (1) for purposes of the charitable deduction under section 2055 or\n2106(a)(2), any bequest, legacy, devise, or transfer enumerated therein,\nand\n (2) for the purpose of the marital deduction under section 2056, any\ninterest in property passing to the surviving spouse,\n shall be valued as of the date of the decedent's death with adjustment\nfor any difference in value (not due to mere lapse of time or the\noccurrence or nonoccurrence of a contingency) of the property as of the\ndate 6 months after the decedent's death (substituting, in the case of\nproperty distributed by the executor or trustee, or sold, exchanged, or\notherwise disposed of, during such 6-month period, the date thereof).\n (c) Election must decrease gross estate and estate tax.--No election\nmay be made under this section with respect to an estate unless such\nelection will decrease--\n (1) the value of the gross estate, and\n (2) the sum of the tax imposed by this chapter and the tax imposed by\nchapter 13 with respect to property includible in the decedent's gross\nestate (reduced by credits allowable against such taxes).\n (d) Election.--\n (1) In general.--The election provided for in this section shall be\nmade by the executor on the return of the tax imposed by this chapter.\nSuch election, once made, shall be irrevocable.\n (2) Exception.--No election may be made under this section if such\nreturn is filed more than 1 year after the time prescribed by law\n(including extensions) for filing such return.\n § 2032A. Valuation of Certain Farm, Etc., Real Property.\n (a) Value based on use under which property qualifies.--\n (1) General rule.--If--\n (A) the decedent was (at the time of his death) a citizen or resident\nof the United States, and\n (B) the executor elects the application of this section and files the\nagreement referred to in subsection (d)(2),\n then, for purposes of this chapter, the value of qualified real\nproperty shall be its value for the use under which it qualifies, under\nsubsection (b), as qualified real property.\n (2) Limitation on aggregate reduction in fair market value.--The\naggregate decrease in the value of qualified real property taken into\naccount for purposes of this chapter which results from the application\nof paragraph (1) with respect to any decedent shall not exceed $750,000.\n (3) Inflation adjustment.--In the case of estates of decedents dying\nin a calendar year after 1998, the $750,000 amount contained in\nparagraph (2) shall be increased by an amount equal to--\n (A) $750,000, multiplied by\n (B) the cost-of-living adjustment determined under section 1(f)(3) for\nsuch calendar year by substituting "calendar year 1997" for "calendar\nyear 1992" in subparagraph (B) thereof.\n If any amount as adjusted under the preceding sentence is not a\nmultiple of $10,000, such amount shall be rounded to the next lowest\nmultiple of $10,000.\n (b) Qualified real property.--\n (1) In general.--For purposes of this section, the term "qualified\nreal property" means real property located in the United States which\nwas acquired from or passed from the decedent to a qualified heir of the\ndecedent and which, on the date of the decedent's death, was being used\nfor a qualified use by the decedent or a member of the decedent's\nfamily, but only if--\n (A) 50 percent or more of the adjusted value of the gross estate\nconsists of the adjusted value of real or personal property which--\n (i) on the date of the decedent's death, was being used for a\nqualified use by the decedent or a member of the decedent's family, and\n (ii) was acquired from or passed from the decedent to a qualified heir\nof the decedent.\n (B) 25 percent or more of the adjusted value of the gross estate\nconsists of the adjusted value of real property which meets the\nrequirements of subparagraphs (A)(ii) and (C),\n (C) during the 8-year period ending on the date of the decedent's\ndeath there have been periods aggregating 5 years or more during which--\n (i) such real property was owned by the decedent or a member of the\ndecedent's family and used for a qualified use by the decedent or a\nmember of the decedent's family, and\n (ii) there was material participation by the decedent or a member of\nthe decedent's family in the operation of the farm or other business,\nand\n (D) such real property is designated in the agreement referred to in\nsubsection (d)(2).\n (2) Qualified use.--For purposes of this section, the term "qualified\nuse" means the devotion of the property to any of the following:\n (A) use as a farm for farming purposes, or\n (B) use in a trade or business other than the trade or business of\nfarming.\n (3) Adjusted value.--For purposes of paragraph (1), the term "adjusted\nvalue" means--\n (A) in the case of the gross estate, the value of the gross estate for\npurposes of this chapter (determined without regard to this section),\nreduced by any amounts allowable as a deduction under paragraph (4) of\nsection 2053(a), or\n (B) in the case of any real or personal property, the value of such\nproperty for purposes of this chapter (determined without regard to this\nsection), reduced by any amounts allowable as a deduction in respect of\nsuch property under paragraph (4) of section 2053(a).\n (4) Decedents who are retired or disabled.--\n (A) In general.--If, on the date of the decedent's death, the\nrequirements of paragraph (1)(C)(ii) with respect to the decedent for\nany property are not met, and the decedent--\n (i) was receiving old-age benefits under title II of the Social\nSecurity Act for a continuous period ending on such date, or\n (ii) was disabled for a continuous period ending on such date,\n then paragraph (1)(C)(ii) shall be applied with respect to such\nproperty by substituting "the date on which the longer of such\ncontinuous periods began" for "the date of the decedent's death" in\nparagraph (1)(C).\n (B) Disabled defined.--For purposes of subparagraph (A), an individual\nshall be disabled if such individual has a mental or physical impairment\nwhich renders him unable to materially participate in the operation of\nthe farm or other business.\n (C) Coordination with recapture.--For purposes of subsection\n(c)(6)(B)(i), if the requirements of paragraph (1)(C)(ii) are met with\nrespect to any decedent by reason of subparagraph (A), the period ending\non the date on which the continuous period taken into account under\nsubparagraph (A) began shall be treated as the period immediately before\nthe decedent's death.\n (5) Special rules for surviving spouses.--\n (A) In general.--If property is qualified real property with respect\nto a decedent (hereinafter in this paragraph referred to as the "first\ndecedent") and such property was acquired from or passed from the first\ndecedent to the surviving spouse of the first decedent, for purposes of\napplying this subsection and subsection (c) in the case of the estate of\nsuch surviving spouse, active management of the farm or other business\nby the surviving spouse shall be treated as material participation by\nsuch surviving spouse in the operation of such farm or business.\n (B) Special rule.--For the purposes of subparagraph (A), the\ndetermination of whether property is qualified real property with\nrespect to the first decedent shall be made without regard to\nsubparagraph (D) of paragraph (1) and without regard to whether an\nelection under this section was made.\n (C) Coordination with paragraph (4).--In any case in which to do so\nwill enable the requirements of paragraph (1)(C)(ii) to be met with\nrespect to the surviving spouse, this subsection and subsection (c)\nshall be applied by taking into account any application of paragraph\n(4).\n (c) Tax treatment of dispositions and failures to use for qualified\nuse.--\n (1) Imposition of additional estate tax.--If, within 10 years after\nthe decedent's death and before the death of the qualified heir--\n (A) the qualified heir disposes of any interest in qualified real\nproperty (other than by a disposition to a member of his family), or\n (B) the qualified heir ceases to use for the qualified use the\nqualified real property which was acquired (or passed) from the\ndecedent,\n then, there is hereby imposed an additional estate tax.\n (2) Amount of additional tax.--\n (A) In general.--The amount of the additional tax imposed by paragraph\n(1) with respect to any interest shall be the amount equal to the lesser\nof--\n (i) the adjusted tax difference attributable to such interest, or\n (ii) the excess of the amount realized with respect to the interest\n(or, in any case other than a sale or exchange at arm's length, the fair\nmarket value of the interest) over the value of the interest determined\nunder subsection (a).\n (B) Adjusted tax difference attributable to interest.--For purposes of\nsubparagraph (A), the adjusted tax difference attributable to an\ninterest is the amount which bears the same ratio to the adjusted tax\ndifference with respect to the estate (determined under subparagraph\n(C)) as--\n (i) the excess of the value of such interest for purposes of this\nchapter (determined without regard to subsection (a)) over the value of\nsuch interest determined under subsection (a), bears to\n (ii) a similar excess determined for all qualified real property.\n (C) Adjusted tax difference with respect to the estate.--For purposes\nof subparagraph (B), the term "adjusted tax difference with respect to\nthe estate" means the excess of what would have been the estate tax\nliability but for subsection (a) over the estate tax liability. For\npurposes of this subparagraph, the term "estate tax liability" means the\ntax imposed by section 2001 reduced by the credits allowable against\nsuch tax.\n (D) Partial dispositions.--For purposes of this paragraph, where the\nqualified heir disposes of a portion of the interest acquired by (or\npassing to) such heir (or a predecessor qualified heir) or there is a\ncessation of use of such a portion--\n (i) the value determined under subsection (a) taken into account under\nsubparagraph (A)(ii) with respect to such portion shall be its pro rata\nshare of such value of such interest, and\n (ii) the adjusted tax difference attributable to the interest taken\ninto account with respect to the transaction involving the second or any\nsucceeding portion shall be reduced by the amount of the tax imposed by\nthis subsection with respect to all prior transactions involving\nportions of such interest.\n (E) Special rule for disposition of timber.--In the case of qualified\nwoodland to which an election under subsection (e)(13)(A) applies, if\nthe qualified heir disposes of (or severs) any standing timber on such\nqualified woodland--\n (i) such disposition (or severance) shall be treated as a disposition\nof a portion of the interest of the qualified heir in such property, and\n (ii) the amount of the additional tax imposed by paragraph (1) with\nrespect to such disposition shall be an amount equal to the lesser of--\n (I) the amount realized on such disposition (or, in any case other\nthan a sale or exchange at arm's length, the fair market value of the\nportion of the interest disposed or severed), or\n (II) the amount of additional tax determined under this paragraph\n(without regard to this subparagraph) if the entire interest of the\nqualified heir in the qualified woodland had been disposed of, less the\nsum of the amount of the additional tax imposed with respect to all\nprior transactions involving such woodland to which this subparagraph\napplied.\n For purposes of the preceding sentence, the disposition of a right to\nsever shall be treated as the disposition of the standing timber. The\namount of additional tax imposed under paragraph (1) in any case in\nwhich a qualified heir disposes of his entire interest in the qualified\nwoodland shall be reduced by any amount determined under this\nsubparagraph with respect to such woodland.\n (3) Only 1 additional tax imposed with respect to any 1 portion.--In\nthe case of an interest acquired from (or passing from) any decedent, if\nsubparagraph (A) or (B) of paragraph (1) applies to any portion of an\ninterest, subparagraph (B) or (A), as the case may be, of paragraph (1)\nshall not apply with respect to the same portion of such interest.\n (4) Due date.--The additional tax imposed by this subsection shall\nbecome due and payable on the day which is 6 months after the date of\nthe disposition or cessation referred to in paragraph (1).\n (5) Liability for tax; furnishing of bond.--The qualified heir shall\nbe personally liable for the additional tax imposed by this subsection\nwith respect to his interest unless the heir has furnished bond which\nmeets the requirements of subsection (e)(11).\n (6) Cessation of qualified use.--For purposes of paragraph (1)(B),\nreal property shall cease to be used for the qualified use if--\n (A) such property ceases to be used for the qualified use set forth in\nsubparagraph (A) or (B) of subsection (b)(2) under which the property\nqualified under subsection (b), or\n (B) during any period of 8 years ending after the date of the\ndecedent's death and before the date of the death of the qualified heir,\nthere had been periods aggregating more than 3 years during which--\n (i) in the case of periods during which the property was held by the\ndecedent, there was no material participation by the decedent or any\nmember of his family in the operation of the farm or other business, and\n (ii) in the case of periods during which the property was held by any\nqualified heir, there was no material participation by such qualified\nheir or any member of his family in the operation of the farm or other\nbusiness.\n (7) Special rules.--\n (A) No tax if use begins within 2 years.--If the date on which the\nqualified heir begins to use the qualified real property (hereinafter in\nthis subparagraph referred to as the commencement date) is before the\ndate 2 years after the decedent's death--\n (i) no tax shall be imposed under paragraph (1) by reason of the\nfailure by the qualified heir to so use such property before the\ncommencement date, and\n (ii) the 10-year period under paragraph (1) shall be extended by the\nperiod after the decedent's death and before the commencement date.\n (B) Active management by eligible qualified heir treated as material\nparticipation.--For purposes of paragraph (6)(B)(ii), the active\nmanagement of a farm or other business by--\n (i) an eligible qualified heir, or\n (ii) a fiduciary of an eligible qualified heir described in clause\n(ii) or (iii) of subparagraph (C),\n shall be treated as material participation by such eligible qualified\nheir in the operation of such farm or business. In the case of an\neligible qualified heir described in clause (ii), (iii), or (iv) of\nsubparagraph (C), the preceding sentence shall apply only during periods\nduring which such heir meets the requirements of such clause.\n (C) Eligible qualified heir.--For purposes of this paragraph, the term\n"eligible qualified heir" means a qualified heir who--\n (i) is the surviving spouse of the decedent,\n (ii) has not attained the age of 21,\n (iii) is disabled (within the meaning of subsection (b)(4)(B)), or\n (iv) is a student.\n (D) Student.--For purposes of subparagraph (C), an individual shall be\ntreated as a student with respect to periods during any calendar year if\n(and only if) such individual is a student (within the meaning of\nsection 152(f)(2)) for such calendar year.\n (E) Certain rents treated as qualified use.--For purposes of this\nsubsection, a surviving spouse or lineal descendant of the decedent\nshall not be treated as failing to use qualified real property in a\nqualified use solely because such spouse or descendant rents such\nproperty to a member of the family of such spouse or descendant on a net\ncash basis. For purposes of the preceding sentence, a legally adopted\nchild of an individual shall be treated as the child of such individual\nby blood.\n (8) Qualified conservation contribution is not a disposition.--A\nqualified conservation contribution (as defined in section 170(h)) by\ngift or otherwise shall not be deemed a disposition under subsection\n(c)(1)(A).\n (d) Election; agreement.--\n (1) Election.--The election under this section shall be made on the\nreturn of the tax imposed by section 2001. Such election shall be made\nin such manner as the Secretary shall by regulations prescribe. Such an\nelection, once made, shall be irrevocable.\n (2) Agreement.--The agreement referred to in this paragraph is a\nwritten agreement signed by each person in being who has an interest\n(whether or not in possession) in any property designated in such\nagreement consenting to the application of subsection (c) with respect\nto such property.\n (3) Modification of election and agreement to be permitted.--The\nSecretary shall prescribe procedures which provide that in any case in\nwhich the executor makes an election under paragraph (1) (and submits\nthe agreement referred to in paragraph (2)) within the time prescribed\ntherefor, but--\n (A) the notice of election, as filed, does not contain all required\ninformation, or\n (B) signatures of 1 or more persons required to enter into the\nagreement described in paragraph (2) are not included on the agreement\nas filed, or the agreement does not contain all required information,\n the executor will have a reasonable period of time (not exceeding 90\ndays) after notification of such failures to provide such information or\nsignatures.\n (e) Definitions; special rules.--For purposes of this section--\n (1) Qualified heir.--The term "qualified heir" means, with respect to\nany property, a member of the decedent's family who acquired such\nproperty (or to whom such property passed) from the decedent. If a\nqualified heir disposes of any interest in qualified real property to\nany member of his family, such member shall thereafter be treated as the\nqualified heir with respect to such interest.\n (2) Member of family.--The term "member of the family" means, with\nrespect to any individual, only--\n (A) an ancestor of such individual,\n (B) the spouse of such individual,\n (C) a lineal descendant of such individual, of such individual's\nspouse, or of a parent of such individual, or\n (D) the spouse of any lineal descendant described in subparagraph (C).\n For purposes of the preceding sentence, a legally adopted child of an\nindividual shall be treated as the child of such individual by blood.\n (3) Certain real property included.--In the case of real property\nwhich meets the requirements of subparagraph (C) of subsection (b)(1),\nresidential buildings and related improvements on such real property\noccupied on a regular basis by the owner or lessee of such real property\nor by persons employed by such owner or lessee for the purpose of\noperating or maintaining such real property, and roads, buildings, and\nother structures and improvements functionally related to the qualified\nuse shall be treated as real property devoted to the qualified use.\n (4) Farm.--The term "farm" includes stock, dairy, poultry, fruit,\nfurbearing animal, and truck farms, plantations, ranches, nurseries,\nranges, greenhouses or other similar structures used primarily for the\nraising of agricultural or horticultural commodities, and orchards and\nwoodlands.\n (5) Farming purposes.--The term "farming purposes" means-\n (A) cultivating the soil or raising or harvesting any agricultural or\nhorticultural commodity (including the raising, shearing, feeding,\ncaring for, training, and management of animals) on a farm;\n (B) handling, drying, packing, grading, or storing on a farm any\nagricultural or horticultural commodity in its unmanufactured state, but\nonly if the owner, tenant, or operator of the farm regularly produces\nmore than one-half of the commodity so treated; and\n (C)(i) the planting, cultivating, caring for, or cutting of trees, or\n (ii) the preparation (other than milling) of trees for market.\n (6) Material participation.--Material participation shall be\ndetermined in a manner similar to the manner used for purposes of\nparagraph (1) of section 1402(a) (relating to net earnings from\nself-employment).\n (7) Method of valuing farms.--\n (A) In general.--Except as provided in subparagraph (B), the value of\na farm for farming purposes shall be determined by dividing--\n (i) the excess of the average annual gross cash rental for comparable\nland used for farming purposes and located in the locality of such farm\nover the average annual State and local real estate taxes for such\ncomparable land, by\n (ii) the average annual effective interest rate for all new Federal\nLand Bank loans.\n For purposes of the preceding sentence, each average annual\ncomputation shall be made on the basis of the 5 most recent calendar\nyears ending before the date of the decedent's death.\n (B) Value based on net share rental in certain cases.--\n (i) In general.--If there is no comparable land from which the average\nannual gross cash rental may be determined but there is comparable land\nfrom which the average net share rental may be determined, subparagraph\n(A)(i) shall be applied by substituting "average annual net share\nrental" for "average annual gross cash rental".\n (ii) Net share rental.--For purposes of this paragraph, the term "net\nshare rental" means the excess of--\n (I) the value of the produce received by the lessor of the land on\nwhich such produce is grown, over\n (II) the cash operating expenses of growing such produce which, under\nthe lease, are paid by the lessor.\n (C) Exception.--The formula provided by subparagraph (A) shall not be\nused--\n (i) where it is established that there is no comparable land from\nwhich the average annual gross cash rental may be determined, or\n (ii) where the executor elects to have the value of the farm for\nfarming purposes determined and that there is no comparable land from\nwhich the average net share rental may be determined under paragraph\n(8).\n (8) Method of valuing closely held business interests, etc.--In any\ncase to which paragraph (7)(A) does not apply, the following factors\nshall apply in determining the value of any qualified real property:\n (A) The capitalization of income which the property can be expected to\nyield for farming or closely held business purposes over a reasonable\nperiod of time under prudent management using traditional cropping\npatterns for the area, taking into account soil capacity, terrain\nconfiguration, and similar factors,\n (B) The capitalization of the fair rental value of the land for\nfarmland or closely held business purposes,\n (C) Assessed land values in a State which provides a differential or\nuse value assessment law for farmland or closely held business,\n (D) Comparable sales of other farm or closely held business land in\nthe same geographical area far enough removed from a metropolitan or\nresort area so that nonagricultural use is not a significant factor in\nthe sales price, and\n (E) Any other factor which fairly values the farm or closely held\nbusiness value of the property.\n (9) Property acquired from decedent.--Property shall be considered to\nhave been acquired from or to have passed from the decedent if--\n (A) such property is so considered under section 1014(b) (relating to\nbasis of property acquired from a decedent),\n (B) such property is acquired by any person from the estate, or\n (C) such property is acquired by any person from a trust (to the\nextent such property is includible in the gross estate of the decedent).\n (10) Community property.--If the decedent and his surviving spouse at\nany time held qualified real property as community property, the\ninterest of the surviving spouse in such property shall be taken into\naccount under this section to the extent necessary to provide a result\nunder this section with respect to such property which is consistent\nwith the result which would have obtained under this section if such\nproperty had not been community property.\n (11) Bond in lieu of personal liability.--If the qualified heir makes\nwritten application to the Secretary for determination of the maximum\namount of the additional tax which may be imposed by subsection (c) with\nrespect to the qualified heir's interest, the Secretary (as soon as\npossible, and in any event within 1 year after the making of such\napplication) shall notify the heir of such maximum amount. The qualified\nheir, on furnishing a bond in such amount and for such period as may be\nrequired, shall be discharged from personal liability for any additional\ntax imposed by subsection (c) and shall be entitled to a receipt or\nwriting showing such discharge.\n (12) Active management.--The term "active management" means the making\nof the management decisions of a business (other than the daily\noperating decisions).\n (13) Special rules for woodlands.--\n (A) In general.--In the case of any qualified woodland with respect to\nwhich the executor elects to have this subparagraph apply, trees growing\non such woodland shall not be treated as a crop.\n (B) Qualified woodland.--The term "qualified woodland" means any real\nproperty which--\n (i) is used in timber operations, and\n (ii) is an identifiable area of land such as an acre or other area for\nwhich records are normally maintained in conducting timber operations.\n (C) Timber operations.--The term "timber operations" means--\n (i) the planting, cultivating, caring for, or cutting of trees, or\n (ii) the preparation (other than milling) of trees for market.\n (D) Election.--An election under subparagraph (A) shall be made on the\nreturn of the tax imposed by section 2001. Such election shall be made\nin such manner as the Secretary shall by regulations prescribe. Such an\nelection, once made, shall be irrevocable.\n (14) Treatment of replacement property acquired in section 1031 or\n1033 transactions.--\n (A) In general.--In the case of any qualified replacement property,\nany period during which there was ownership, qualified use, or material\nparticipation with respect to the replaced property by the decedent or\nany member of his family shall be treated as a period during which there\nwas such ownership, use, or material participation (as the case may be)\nwith respect to the qualified replacement property.\n (B) Limitation.--Subparagraph (A) shall not apply to the extent that\nthe fair market value of the qualified replacement property (as of the\ndate of its acquisition) exceeds the fair market value of the replaced\nproperty (as of the date of its disposition).\n (C) Definitions.--For purposes of this paragraph--\n (i) Qualified replacement property.--The term "qualified replacement\nproperty" means any real property which is--\n (I) acquired in an exchange which qualifies under section 1031, or\n (II) the acquisition of which results in the nonrecognition of gain\nunder section 1033.\n Such term shall only include property which is used for the same\nqualified use as the replaced property was being used before the\nexchange.\n (ii) Replaced property.--The term "replaced property" means--\n (I) the property transferred in the exchange which qualifies under\nsection 1031, or\n (II) the property compulsorily or involuntarily converted (within the\nmeaning of section 1033).\n (f) Statute of limitations.--If qualified real property is disposed of\nor ceases to be used for a qualified use, then--\n (1) the statutory period for the assessment of any additional tax\nunder subsection (c) attributable to such disposition or cessation shall\nnot expire before the expiration of 3 years from the date the Secretary\nis notified (in such manner as the Secretary may by regulations\nprescribe) of such disposition or cessation (or if later in the case of\nan involuntary conversion or exchange to which subsection (h) or (i)\napplies, 3 years from the date the Secretary is notified of the\nreplacement of the converted property or of an intention not to replace\nor of the exchange of property), and\n (2) such additional tax may be assessed before the expiration of such\n3-year period notwithstanding the provisions of any other law or rule of\nlaw which would otherwise prevent such assessment.\n (g) Application of this section and section 6324B to interests in\npartnerships, corporations, and trusts.--The Secretary shall prescribe\nregulations setting forth the application of this section and section\n6324B in the case of an interest in a partnership, corporation, or trust\nwhich, with respect to the decedent, is an interest in a closely held\nbusiness (within the meaning of paragraph (1) of section 6166(b)). For\npurposes of the preceding sentence, an interest in a discretionary trust\nall the beneficiaries of which are qualified heirs shall be treated as a\npresent interest.\n (h) Special rules for involuntary conversions of qualified real\nproperty.--\n (1) Treatment of converted property.--\n (A) In general.--If there is an involuntary conversion of an interest\nin qualified real property--\n (i) no tax shall be imposed by subsection (c) on such conversion if\nthe cost of the qualified replacement property equals or exceeds the\namount realized on such conversion, or\n (ii) if clause (i) does not apply, the amount of the tax imposed by\nsubsection (c) on such conversion shall be the amount determined under\nsubparagraph (B).\n (B) Amount of tax where there is not complete reinvestment.--The\namount determined under this subparagraph with respect to any\ninvoluntary conversion is the amount of the tax which (but for this\nsubsection) would have been imposed on such conversion reduced by an\namount which--\n (i) bears the same ratio to such tax, as\n (ii) the cost of the qualified replacement property bears to the\namount realized on the conversion.\n (2) Treatment of replacement property.--For purposes of subsection\n(c)--\n (A) any qualified replacement property shall be treated in the same\nmanner as if it were a portion of the interest in qualified real\nproperty which was involuntarily converted; except that with respect to\nsuch qualified replacement property the 10-year period under paragraph\n(1) of subsection (c) shall be extended by any period, beyond the 2-year\nperiod referred to in section 1033(a)(2)(B)(i), during which the\nqualified heir was allowed to replace the qualified real property,\n (B) any tax imposed by subsection (c) on the involuntary conversion\nshall be treated as a tax imposed on a partial disposition, and\n (C) paragraph (6) of subsection (c) shall be applied--\n (i) by not taking into account periods after the involuntary\nconversion and before the acquisition of the qualified replacement\nproperty, and\n (ii) by treating material participation with respect to the converted\nproperty as material participation with respect to the qualified\nreplacement property.\n (3) Definitions and special rules.--For purposes of this subsection--\n (A) Involuntary conversion.--The term "involuntary conversion" means a\ncompulsory or involuntary conversion within the meaning of section 1033.\n (B) Qualified replacement property.--The term "qualified replacement\nproperty" means--\n (i) in the case of an involuntary conversion described in section\n1033(a)(1), any real property into which the qualified real property is\nconverted, or\n (ii) in the case of an involuntary conversion described in section\n1033(a)(2), any real property purchased by the qualified heir during the\nperiod specified in section 1033(a)(2)(B) for purposes of replacing the\nqualified real property.\n Such term only includes property which is to be used for the qualified\nuse set forth in subparagraph (A) or (B) of subsection (b)(2) under\nwhich the qualified real property qualified under subsection (a).\n (4) Certain rules made applicable.--The rules of the last sentence of\nsection 1033(a)(2)(A) shall apply for purposes of paragraph (3)(B)(ii).\n (i) Exchanges of qualified real property.--\n (1) Treatment of property exchanged.--\n (A) Exchanges solely for qualified exchange property.--If an interest\nin qualified real property is exchanged solely for an interest in\nqualified exchange property in a transaction which qualifies under\nsection 1031, no tax shall be imposed by subsection (c) by reason of\nsuch exchange.\n (B) Exchanges where other property received.--If an interest in\nqualified real property is exchanged for an interest in qualified\nexchange property and other property in a transaction which qualifies\nunder section 1031, the amount of the tax imposed by subsection (c) by\nreason of such exchange shall be the amount of tax which (but for this\nsubparagraph) would have been imposed on such exchange under subsection\n(c)(1), reduced by an amount which--\n (i) bears the same ratio to such tax, as\n (ii) the fair market value of the qualified exchange property bears to\nthe fair market value of the qualified real property exchanged.\n For purposes of clause (ii) of the preceding sentence, fair market\nvalue shall be determined as of the time of the exchange.\n (2) Treatment of qualified exchange property.--For purposes of\nsubsection (c)--\n (A) any interest in qualified exchange property shall be treated in\nthe same manner as if it were a portion of the interest in qualified\nreal property which was exchanged,\n (B) any tax imposed by subsection (c) by reason of the exchange shall\nbe treated as a tax imposed on a partial disposition, and\n (C) paragraph (6) of subsection (c) shall be applied by treating\nmaterial participation with respect to the exchanged property as\nmaterial participation with respect to the qualified exchange property.\n (3) Qualified exchange property.--For purposes of this subsection, the\nterm "qualified exchange property" means real property which is to be\nused for the qualified use set forth in subparagraph (A) or (B) of\nsubsection (b)(2) under which the real property exchanged therefor\noriginally qualified under subsection (a).\n § 2033. Property in Which the Decedent had an Interest. The value of\nthe gross estate shall include the value of all property to the extent\nof the interest therein of the decedent at the time of his death.\n § 2034. Dower or Curtesy Interests. The value of the gross estate\nshall include the value of all property to the extent of any interest\ntherein of the surviving spouse, existing at the time of the decedent's\ndeath as dower or curtesy, or by virtue of a statute creating an estate\nin lieu of dower or curtesy.\n § 2035. Adjustments for Certain Gifts Made Within Three Years of\nDecedent's Death. (a) Inclusion of certain property in gross\nestate.--If--\n (1) the decedent made a transfer (by trust or otherwise) of an\ninterest in any property, or relinquished a power with respect to any\nproperty, during the 3-year period ending on the date of the decedent's\ndeath, and\n (2) the value of such property (or an interest therein) would have\nbeen included in the decedent's gross estate under section 2036, 2037,\n2038, or 2042 if such transferred interest or relinquished power had\nbeen retained by the decedent on the date of his death,\n the value of the gross estate shall include the value of any property\n(or interest therein) which would have been so included.\n (b) Inclusion of gift tax on gifts made during 3 years before\ndecedent's death.--The amount of the gross estate (determined without\nregard to this subsection) shall be increased by the amount of any tax\npaid under chapter 12 by the decedent or his estate on any gift made by\nthe decedent or his spouse during the 3-year period ending on the date\nof the decedent's death.\n (c) Other rules relating to transfers within 3 years of death.--\n (1) In general.--For purposes of--\n (A) section 303(b) (relating to distributions in redemption of stock\nto pay death taxes),\n (B) section 2032A (relating to special valuation of certain farms,\netc., real property), and\n (C) subchapter C of chapter 64 (relating to lien for taxes),\n the value of the gross estate shall include the value of all property\nto the extent of any interest therein of which the decedent has at any\ntime made a transfer, by trust or otherwise, during the 3-year period\nending on the date of the decedent's death.\n (2) Coordination with section 6166.--An estate shall be treated as\nmeeting the 35 percent of adjusted gross estate requirement of section\n6166(a)(1) only if the estate meets such requirement both with and\nwithout the application of subsection (a).\n (3) Marital and small transfers.--Paragraph (1) shall not apply to any\ntransfer (other than a transfer with respect to a life insurance policy)\nmade during a calendar year to any donee if the decedent was not\nrequired by section 6019 (other than by reason of section 6019(2)) to\nfile any gift tax return for such year with respect to transfers to such\ndonee.\n (d) Exception.--Subsection (a) and paragraph (1) of subsection (c)\nshall not apply to any bona fide sale for an adequate and full\nconsideration in money or money's worth.\n (e) Treatment of certain transfers from revocable trusts.--For\npurposes of this section and section 2038, any transfer from any portion\nof a trust during any period that such portion was treated under section\n676 as owned by the decedent by reason of a power in the grantor\n(determined without regard to section 672(e)) shall be treated as a\ntransfer made directly by the decedent.\n § 2036. Transfers with Retained Life Estate. (a) General rule.--The\nvalue of the gross estate shall include the value of all property to the\nextent of any interest therein of which the decedent has at any time\nmade a transfer (except in case of a bona fide sale for an adequate and\nfull consideration in money or money's worth), by trust or otherwise,\nunder which he has retained for his life or for any period not\nascertainable without reference to his death or for any period which\ndoes not in fact end before his death--\n (1) the possession or enjoyment of, or the right to the income from,\nthe property, or\n (2) the right, either alone or in conjunction with any person, to\ndesignate the persons who shall possess or enjoy the property or the\nincome therefrom.\n (b) Voting rights.--\n (1) In general.--For purposes of subsection (a)(1), the retention of\nthe right to vote (directly or indirectly) shares of stock of a\ncontrolled corporation shall be considered to be a retention of the\nenjoyment of transferred property.\n (2) Controlled corporation.--For purposes of paragraph (1), a\ncorporation shall be treated as a controlled corporation if, at any time\nafter the transfer of the property and during the 3-year period ending\non the date of the decedent's death, the decedent owned (with the\napplication of section 318), or had the right (either alone or in\nconjunction with any person) to vote, stock possessing at least 20\npercent of the total combined voting power of all classes of stock.\n (3) Coordination with section 2035.--For purposes of applying section\n2035 with respect to paragraph (1), the relinquishment or cessation of\nvoting rights shall be treated as a transfer of property made by the\ndecedent.\n (c) Limitation on application of general rule.--This section shall not\napply to a transfer made before March 4, 1931; nor to a transfer made\nafter March 3, 1931, and before June 7, 1932, unless the property\ntransferred would have been includible in the decedent's gross estate by\nreason of the amendatory language of the joint resolution of March 3,\n1931 (46 Stat. 1516).\n § 2037. Transfers Taking Effect at Death. (a) General rule.--The value\nof the gross estate shall include the value of all property to the\nextent of any interest therein of which the decedent has at any time\nafter September 7, 1916, made a transfer (except in case of a bona fide\nsale for an adequate and full consideration in money or money's worth),\nby trust or otherwise, if--\n (1) possession or enjoyment of the property can, through ownership of\nsuch interest, be obtained only by surviving the decedent, and\n (2) the decedent has retained a reversionary interest in the property\n(but in the case of a transfer made before October 8, 1949, only if such\nreversionary interest arose by the express terms of the instrument of\ntransfer), and the value of such reversionary interest immediately\nbefore the death of the decedent exceeds 5 percent of the value of such\nproperty.\n (b) Special rules.--For purposes of this section, the term\n"reversionary interest" includes a possibility that property transferred\nby the decedent--\n (1) may return to him or his estate, or\n (2) may be subject to a power of disposition by him,\n but such term does not include a possibility that the income alone\nfrom such property may return to him or become subject to a power of\ndisposition by him. The value of a reversionary interest immediately\nbefore the death of the decedent shall be determined (without regard to\nthe fact of the decedent's death) by usual methods of valuation,\nincluding the use of tables of mortality and actuarial principles, under\nregulations prescribed by the Secretary. In determining the value of a\npossibility that property may be subject to a power of disposition by\nthe decedent, such possibility shall be valued as if it were a\npossibility that such property may return to the decedent or his estate.\nNotwithstanding the foregoing, an interest so transferred shall not be\nincluded in the decedent's gross estate under this section if possession\nor enjoyment of the property could have been obtained by any beneficiary\nduring the decedent's life through the exercise of a general power of\nappointment (as defined in section 2041) which in fact was exercisable\nimmediately before the decedent's death.\n § 2038. Revocable Transfers. (a) In general.--The value of the gross\nestate shall include the value of all property--\n (1) Transfers after June 22, 1936.--To the extent of any interest\ntherein of which the decedent has at any time made a transfer (except in\ncase of a bona fide sale for an adequate and full consideration in money\nor money's worth), by trust or otherwise, where the enjoyment thereof\nwas subject at the date of his death to any change through the exercise\nof a power (in whatever capacity exercisable) by the decedent alone or\nby the decedent in conjunction with any other person (without regard to\nwhen or from what source the decedent acquired such power), to alter,\namend, revoke, or terminate, or where any such power is relinquished\nduring the 3-year period ending on the date of the decedent's death.\n (2) Transfers on or before June 22, 1936.--To the extent of any\ninterest therein of which the decedent has at any time made a transfer\n(except in case of a bona fide sale for an adequate and full\nconsideration in money or money's worth), by trust or otherwise, where\nthe enjoyment thereof was subject at the date of his death to any change\nthrough the exercise of a power, either by the decedent alone or in\nconjunction with any person, to alter, amend, or revoke, or where the\ndecedent relinquished any such power during the 3-year period ending on\nthe date of the decedent's death. Except in the case of transfers made\nafter June 22, 1936, no interest of the decedent of which he has made a\ntransfer shall be included in the gross estate under paragraph (1)\nunless it is includible under this paragraph.\n (b) Date of existence of power.--For purposes of this section, the\npower to alter, amend, revoke, or terminate shall be considered to exist\non the date of the decedent's death even though the exercise of the\npower is subject to a precedent giving of notice or even though the\nalteration, amendment, revocation, or termination takes effect only on\nthe expiration of a stated period after the exercise of the power,\nwhether or not on or before the date of the decedent's death notice has\nbeen given or the power has been exercised. In such cases proper\nadjustment shall be made representing the interests which would have\nbeen excluded from the power if the decedent had lived, and for such\npurpose, if the notice has not been given or the power has not been\nexercised on or before the date of his death, such notice shall be\nconsidered to have been given, or the power exercised, on the date of\nhis death.\n § 2039. Annuities. (a) General.--The gross estate shall include the\nvalue of an annuity or other payment receivable by any beneficiary by\nreason of surviving the decedent under any form of contract or agreement\nentered into after March 3, 1931 (other than as insurance under policies\non the life of the decedent), if, under such contract or agreement, an\nannuity or other payment was payable to the decedent, or the decedent\npossessed the right to receive such annuity or payment, either alone or\nin conjunction with another for his life or for any period not\nascertainable without reference to his death or for any period which\ndoes not in fact end before his death.\n (b) Amount includible.--Subsection (a) shall apply to only such part\nof the value of the annuity or other payment receivable under such\ncontract or agreement as is proportionate to that part of the purchase\nprice therefor contributed by the decedent. For purposes of this\nsection, any contribution by the decedent's employer or former employer\nto the purchase price of such contract or agreement (whether or not to\nan employee's trust or fund forming part of a pension, annuity,\nretirement, bonus or profit sharing plan) shall be considered to be\ncontributed by the decedent if made by reason of his employment.\n § 2040. Joint Interests. (a) General rule.--The value of the gross\nestate shall include the value of all property to the extent of the\ninterest therein held as joint tenants with right of survivorship by the\ndecedent and any other person, or as tenants by the entirety by the\ndecedent and spouse, or deposited, with any person carrying on the\nbanking business, in their joint names and payable to either or the\nsurvivor, except such part thereof as may be shown to have originally\nbelonged to such other person and never to have been received or\nacquired by the latter from the decedent for less than an adequate and\nfull consideration in money or money's worth: Provided, That where such\nproperty or any part thereof, or part of the consideration with which\nsuch property was acquired, is shown to have been at any time acquired\nby such other person from the decedent for less than an adequate and\nfull consideration in money or money's worth, there shall be excepted\nonly such part of the value of such property as is proportionate to the\nconsideration furnished by such other person: Provided further, That\nwhere any property has been acquired by gift, bequest, devise, or\ninheritance, as a tenancy by the entirety by the decedent and spouse,\nthen to the extent of one-half of the value thereof, or, where so\nacquired by the decedent and any other person as joint tenants with\nright of survivorship and their interests are not otherwise specified or\nfixed by law, then to the extent of the value of a fractional part to be\ndetermined by dividing the value of the property by the number of joint\ntenants with right of survivorship.\n (b) Certain joint interests of husband and wife.--\n (1) Interests of spouse excluded from gross estate.--Notwithstanding\nsubsection (a), in the case of any qualified joint interest, the value\nincluded in the gross estate with respect to such interest by reason of\nthis section is one-half of the value of such qualified joint interest.\n (2) Qualified joint interest defined.--For purposes of paragraph (1),\nthe term "qualified joint interest" means any interest in property held\nby the decedent and the decedent's spouse as--\n (A) tenants by the entirety, or\n (B) joint tenants with right of survivorship, but only if the decedent\nand the spouse of the decedent are the only joint tenants.\n § 2041. Powers of Appointment. (a) In general.--The value of the gross\nestate shall include the value of all property--\n (1) Powers of appointment created on or before October 21, 1942.--To\nthe extent of any property with respect to which a general power of\nappointment created on or before October 21, 1942, is exercised by the\ndecedent--\n (A) by will, or\n (B) by a disposition which is of such nature that if it were a\ntransfer of property owned by the decedent, such property would be\nincludible in the decedent's gross estate under sections 2035 to 2038,\ninclusive;\n but the failure to exercise such a power or the complete release of\nsuch a power shall not be deemed an exercise thereof. If a general power\nof appointment created on or before October 21, 1942, has been partially\nreleased so that it is no longer a general power of appointment, the\nexercise of such power shall not be deemed to be the exercise of a\ngeneral power of appointment if--\n (i) such partial release occurred before November 1, 1951, or\n (ii) the donee of such power was under a legal disability to release\nsuch power on October 21, 1942, and such partial release occurred not\nlater than 6 months after the termination of such legal disability.\n (2) Powers created after October 21, 1942.--To the extent of any\nproperty with respect to which the decedent has at the time of his death\na general power of appointment created after October 21, 1942, or with\nrespect to which the decedent has at any time exercised or released such\na power of appointment by a disposition which is of such nature that if\nit were a transfer of property owned by the decedent, such property\nwould be includible in the decedent's gross estate under sections 2035\nto 2038, inclusive. For purposes of this paragraph (2), the power of\nappointment shall be considered to exist on the date of the decedent's\ndeath even though the exercise of the power is subject to a precedent\ngiving of notice or even though the exercise of the power takes effect\nonly on the expiration of a stated period after its exercise, whether or\nnot on or before the date of the decedent's death notice has been given\nor the power has been exercised.\n (3) Creation of another power in certain cases.--To the extent of any\nproperty with respect to which the decedent--\n (A) by will, or\n (B) by a disposition which is of such nature that if it were a\ntransfer of property owned by the decedent such property would be\nincludible in the decedent's gross estate under section 2035, 2036, or\n2037,\n exercises a power of appointment created after October 21, 1942, by\ncreating another power of appointment which under the applicable local\nlaw can be validly exercised so as to postpone the vesting of any estate\nor interest in such property, or suspend the absolute ownership or power\nof alienation of such property, for a period ascertainable without\nregard to the date of the creation of the first power.\n (b) Definitions.--For purposes of subsection (a)--\n (1) General power of appointment.--The term "general power of\nappointment" means a power which is exercisable in favor of the\ndecedent, his estate, his creditors, or the creditors of his estate;\nexcept that--\n (A) A power to consume, invade, or appropriate property for the\nbenefit of the decedent which is limited by an ascertainable standard\nrelating to the health, education, support, or maintenance of the\ndecedent shall not be deemed a general power of appointment.\n (B) A power of appointment created on or before October 21, 1942,\nwhich is exercisable by the decedent only in conjunction with another\nperson shall not be deemed a general power of appointment.\n (C) In the case of a power of appointment created after October 21,\n1942, which is exercisable by the decedent only in conjunction with\nanother person--\n (i) If the power is not exercisable by the decedent except in\nconjunction with the creator of the power--such power shall not be\ndeemed a general power of appointment.\n (ii) If the power is not exercisable by the decedent except in\nconjunction with a person having a substantial interest in the property,\nsubject to the power, which is adverse to exercise of the power in favor\nof the decedent--such power shall not be deemed a general power of\nappointment. For the purposes of this clause a person who, after the\ndeath of the decedent, may be possessed of a power of appointment (with\nrespect to the property subject to the decedent's power) which he may\nexercise in his own favor shall be deemed as having an interest in the\nproperty and such interest shall be deemed adverse to such exercise of\nthe decedent's power.\n (iii) If (after the application of clauses (i) and (ii)) the power is\na general power of appointment and is exercisable in favor of such other\nperson--such power shall be deemed a general power of appointment only\nin respect of a fractional part of the property subject to such power,\nsuch part to be determined by dividing the value of such property by the\nnumber of such persons (including the decedent) in favor of whom such\npower is exercisable.\n For purposes of clauses (ii) and (iii), a power shall be deemed to be\nexercisable in favor of a person if it is exercisable in favor of such\nperson, his estate, his creditors, or the creditors of his estate.\n (2) Lapse of power.--The lapse of a power of appointment created after\nOctober 21, 1942, during the life of the individual possessing the power\nshall be considered a release of such power. The preceding sentence\nshall apply with respect to the lapse of powers during any calendar year\nonly to the extent that the property, which could have been appointed by\nexercise of such lapsed powers, exceeded in value, at the time of such\nlapse, the greater of the following amounts:\n (A) $5,000, or\n (B) 5 percent of the aggregate value, at the time of such lapse, of\nthe assets out of which, or the proceeds of which, the exercise of the\nlapsed powers could have been satisfied.\n (3) Date of creation of power.--For purposes of this section, a power\nof appointment created by a will executed on or before October 21, 1942,\nshall be considered a power created on or before such date if the person\nexecuting such will dies before July 1, 1949, without having republished\nsuch will, by codicil or otherwise, after October 21, 1942.\n § 2042. Proceeds of Life Insurance. The value of the gross estate\nshall include the value of all property--\n (1) Receivable by the executor.--To the extent of the amount\nreceivable by the executor as insurance under policies on the life of\nthe decedent.\n (2) Receivable by other beneficiaries.--To the extent of the amount\nreceivable by all other beneficiaries as insurance under policies on the\nlife of the decedent with respect to which the decedent possessed at his\ndeath any of the incidents of ownership, exercisable either alone or in\nconjunction with any other person. For purposes of the preceding\nsentence, the term "incident of ownership" includes a reversionary\ninterest (whether arising by the express terms of the policy or other\ninstrument or by operation of law) only if the value of such\nreversionary interest exceeded 5 percent of the value of the policy\nimmediately before the death of the decedent. As used in this paragraph,\nthe term "reversionary interest" includes a possibility that the policy,\nor the proceeds of the policy, may return to the decedent or his estate,\nor may be subject to a power of disposition by him. The value of a\nreversionary interest at any time shall be determined (without regard to\nthe fact of the decedent's death) by usual methods of valuation,\nincluding the use of tables of mortality and actuarial principles,\npursuant to regulations prescribed by the Secretary. In determining the\nvalue of a possibility that the policy or proceeds thereof may be\nsubject to a power of disposition by the decedent, such possibility\nshall be valued as if it were a possibility that such policy or proceeds\nmay return to the decedent or his estate.\n § 2043. Transfers for Insufficient Consideration. (a) In general.--If\nany one of the transfers, trusts, interests, rights, or powers\nenumerated and described in sections 2035 to 2038, inclusive, and\nsection 2041 is made, created, exercised, or relinquished for a\nconsideration in money or money's worth, but is not a bona fide sale for\nan adequate and full consideration in money or money's worth, there\nshall be included in the gross estate only the excess of the fair market\nvalue at the time of death of the property otherwise to be included on\naccount of such transaction, over the value of the consideration\nreceived therefor by the decedent.\n (b) Marital rights not treated as consideration.--\n (1) In general.--For purposes of this chapter, a relinquishment or\npromised relinquishment of dower or curtesy, or of a statutory estate\ncreated in lieu of dower or curtesy, or of other marital rights in the\ndecedent's property or estate, shall not be considered to any extent a\nconsideration "in money or money's worth".\n (2) Exception.--For purposes of section 2053 (relating to expenses,\nindebtedness, and taxes), a transfer of property which satisfies the\nrequirements of paragraph (1) of section 2516 (relating to certain\nproperty settlements) shall be considered to be made for an adequate and\nfull consideration in money or money's worth.\n § 2044. Certain Property for Which Marital Deduction Was Previously\nAllowed. (a) General rule.--The value of the gross estate shall include\nthe value of any property to which this section applies in which the\ndecedent had a qualifying income interest for life.\n (b) Property to which this section applies.--This section applies to\nany property if--\n (1) a deduction was allowed with respect to the transfer of such\nproperty to the decedent--\n (A) under section 2056 by reason of subsection (b)(7) thereof, or\n (B) under section 2523 by reason of subsection (f) thereof, and\n (2) section 2519 (relating to dispositions of certain life estates)\ndid not apply with respect to a disposition by the decedent of part or\nall of such property.\n (c) Property treated as having passed from decedent.--For purposes of\nthis chapter and chapter 13, property includible in the gross estate of\nthe decedent under subsection (a) shall be treated as property passing\nfrom the decedent.\n § 2045. Prior Interests. Except as otherwise specifically provided by\nlaw, sections 2034 to 2042, inclusive, shall apply to the transfers,\ntrusts, estates, interests, rights, powers, and relinquishment of\npowers, as severally enumerated and described therein, whenever made,\ncreated, arising, existing, exercised, or relinquished.\n § 2046. Disclaimers. For provisions relating to the effect of a\nqualified disclaimer for purposes of this chapter, see section 2518.\n § 2053. Expenses, indebtedness, and taxes. (a) General rule.--For\npurposes of the tax imposed by section 2001, the value of the taxable\nestate shall be determined by deducting from the value of the gross\nestate such amounts--\n (1) for funeral expenses,\n (2) for administration expenses,\n (3) for claims against the estate, and\n (4) for unpaid mortgages on, or any indebtedness in respect of,\nproperty where the value of the decedent's interest therein,\nundiminished by such mortgage or indebtedness, is included in the value\nof the gross estate,\n as are allowable by the laws of the jurisdiction, whether within or\nwithout the United States, under which the estate is being administered.\n (b) Other administration expenses.--Subject to the limitations in\nparagraph (1) of subsection (c), there shall be deducted in determining\nthe taxable estate amounts representing expenses incurred in\nadministering property not subject to claims which is included in the\ngross estate to the same extent such amounts would be allowable as a\ndeduction under subsection (a) if such property were subject to claims,\nand such amounts are paid before the expiration of the period of\nlimitation for assessment provided in section 6501.\n (c) Limitations.--\n (1) Limitations applicable to subsections (a) and (b).--\n (A) Consideration for claims.--The deduction allowed by this section\nin the case of claims against the estate, unpaid mortgages, or any\nindebtedness shall, when founded on a promise or agreement, be limited\nto the extent that they were contracted bona fide and for an adequate\nand full consideration in money or money's worth; except that in any\ncase in which any such claim is founded on a promise or agreement of the\ndecedent to make a contribution or gift to or for the use of any donee\ndescribed in section 2055 for the purposes specified therein, the\ndeduction for such claims shall not be so limited, but shall be limited\nto the extent that it would be allowable as a deduction under section\n2055 if such promise or agreement constituted a bequest.\n (B) Certain taxes.--Any income taxes on income received after the\ndeath of the decedent, or property taxes not accrued before his death,\nor any estate, succession, legacy, or inheritance taxes, shall not be\ndeductible under this section.\n (C) Certain claims by remaindermen.--No deduction shall be allowed\nunder this section for a claim against the estate by a remainderman\nrelating to any property described in section 2044.\n (D) Section 6166 interest.--No deduction shall be allowed under this\nsection for any interest payable under section 6601 on any unpaid\nportion of the tax imposed by section 2001 for the period during which\nan extension of time for payment of such tax is in effect under section\n6166.\n (2) Limitations applicable only to subsection (a).--In the case of the\namounts described in subsection (a), there shall be disallowed the\namount by which the deductions specified therein exceed the value, at\nthe time of the decedent's death, of property subject to claims, except\nto the extent that such deductions represent amounts paid before the\ndate prescribed for the filing of the estate tax return. For purposes of\nthis section, the term "property subject to claims" means property\nincludible in the gross estate of the decedent which, or the avails of\nwhich, would under the applicable law, bear the burden of the payment of\nsuch deductions in the final adjustment and settlement of the estate,\nexcept that the value of the property shall be reduced by the amount of\nthe deduction under section 2054 attributable to such property.\n (d) Certain foreign death taxes.--\n (1) In general.--Notwithstanding the provisions of subsection\n(c)(1)(B), for purposes of the tax imposed by section 2001, the value of\nthe taxable estate may be determined, if the executor so elects before\nthe expiration of the period of limitation for assessment provided in\nsection 6501, by deducting from the value of the gross estate the amount\n(as determined in accordance with regulations prescribed by the\nSecretary) of any estate, succession, legacy, or inheritance tax imposed\nby and actually paid to any foreign country, in respect of any property\nsituated within such foreign country and included in the gross estate of\na citizen or resident of the United States, upon a transfer by the\ndecedent for public, charitable, or religious uses described in section\n2055. The determination under this paragraph of the country within which\nproperty is situated shall be made in accordance with the rules\napplicable under subchapter B (sec. 2101 and following) in determining\nwhether property is situated within or without the United States. Any\nelection under this paragraph shall be exercised in accordance with\nregulations prescribed by the Secretary.\n (2) Condition for allowance of deduction.--No deduction shall be\nallowed under paragraph (1) for a foreign death tax specified therein\nunless the decrease in the tax imposed by section 2001 which results\nfrom the deduction provided in paragraph (1) will inure solely for the\nbenefit of the public, charitable, or religious transferees described in\nsection 2055 or section 2106(a)(2). In any case where the tax imposed by\nsection 2001 is equitably apportioned among all the transferees of\nproperty included in the gross estate, including those described in\nsections 2055 and 2106(a)(2) (taking into account any exemptions,\ncredits, or deductions allowed by this chapter), in determining such\ndecrease, there shall be disregarded any decrease in the Federal estate\ntax which any transferees other than those described in sections 2055\nand 2106(a)(2) are required to pay.\n (3) Effect on credit for foreign death taxes of deduction under this\nsubsection.--\n (A) Election.--An election under this subsection shall be deemed a\nwaiver of the right to claim a credit, against the Federal estate tax,\nunder a death tax convention with any foreign country for any tax or\nportion thereof in respect of which a deduction is taken under this\nsubsection.\n (B) Cross reference.--\n See section 2011(d) for the effect of a deduction taken under this\nparagraph on the credit for foreign death taxes.\n (e) Marital rights.--\n For provisions treating certain relinquishments of marital rights as\nconsideration in money or money's worth, see section 2043(b)(2).\n § 2054. Losses. For purposes of the tax imposed by section 2001, the\nvalue of the taxable estate shall be determined by deducting from the\nvalue of the gross estate losses incurred during the settlement of\nestates arising from fires, storms, shipwrecks, or other casualties, or\nfrom theft, when such losses are not compensated for by insurance or\notherwise.\n § 2055. Transfers for public, charitable, and religious uses.\n (a) In general.--For purposes of the tax imposed by section 2001, the\nvalue of the taxable estate shall be determined by deducting from the\nvalue of the gross estate the amount of all bequests, legacies, devises,\nor transfers--\n (1) to or for the use of the United States, any State, any political\nsubdivision thereof, or the District of Columbia, for exclusively public\npurposes;\n (2) to or for the use of any corporation organized and operated\nexclusively for religious, charitable, scientific, literary, or\neducational purposes, including the encouragement of art, or to foster\nnational or international amateur sports competition (but only if no\npart of its activities involve the provision of athletic facilities or\nequipment), and the prevention of cruelty to children or animals, no\npart of the net earnings of which inures to the benefit of any private\nstockholder or individual, which is not disqualified for tax exemption\nunder section 501(c)(3) by reason of attempting to influence\nlegislation, and which does not participate in, or intervene in\n(including the publishing or distributing of statements), any political\ncampaign on behalf of (or in opposition to) any candidate for public\noffice;\n (3) to a trustee or trustees, or a fraternal society, order, or\nassociation operating under the lodge system, but only if such\ncontributions or gifts are to be used by such trustee or trustees, or by\nsuch fraternal society, order, or association, exclusively for\nreligious, charitable, scientific, literary, or educational purposes, or\nfor the prevention of cruelty to children or animals, such trust,\nfraternal society, order, or association would not be disqualified for\ntax exemption under section 501(c)(3) by reason of attempting to\ninfluence legislation, and such trustee or trustees, or such fraternal\nsociety, order, or association, does not participate in, or intervene in\n(including the publishing or distributing of statements), any political\ncampaign on behalf of (or in opposition to) any candidate for public\noffice;\n (4) to or for the use of any veterans' organization incorporated by\nAct of Congress, or of its departments or local chapters or posts, no\npart of the net earnings of which inures to the benefit of any private\nshareholder or individual; or\n (5) to an employee stock ownership plan if such transfer qualifies as\na qualified gratuitous transfer of qualified employer securities within\nthe meaning of section 664(g).\n For purposes of this subsection, the complete termination before the\ndate prescribed for the filing of the estate tax return of a power to\nconsume, invade, or appropriate property for the benefit of an\nindividual before such power has been exercised by reason of the death\nof such individual or for any other reason shall be considered and\ndeemed to be a qualified disclaimer with the same full force and effect\nas though he had filed such qualified disclaimer. Rules similar to the\nrules of section 501(j) shall apply for purposes of paragraph (2).\n (b) Powers of appointment.--Property includible in the decedent's\ngross estate under section 2041 (relating to powers of appointment)\nreceived by a donee described in this section shall, for purposes of\nthis section, be considered a bequest of such decedent.\n (c) Death taxes payable out of bequests.--If the tax imposed by\nsection 2001, or any estate, succession, legacy, or inheritance taxes,\nare, either by the terms of the will, by the law of the jurisdiction\nunder which the estate is administered, or by the law of the\njurisdiction imposing the particular tax, payable in whole or in part\nout of the bequests, legacies, or devises otherwise deductible under\nthis section, then the amount deductible under this section shall be the\namount of such bequests, legacies, or devises reduced by the amount of\nsuch taxes.\n (d) Limitation on deduction.--The amount of the deduction under this\nsection for any transfer shall not exceed the value of the transferred\nproperty required to be included in the gross estate.\n (e) Disallowance of deductions in certain cases.--\n (1) No deduction shall be allowed under this section for a transfer to\nor for the use of an organization or trust described in section 508(d)\nor 4948(c)(4) subject to the conditions specified in such sections.\n (2) Where an interest in property (other than an interest described in\nsection 170(f)(3)(B)) passes or has passed from the decedent to a\nperson, or for a use, described in subsection (a), and an interest\n(other than an interest which is extinguished upon the decedent's death)\nin the same property passes or has passed (for less than an adequate and\nfull consideration in money or money's worth) from the decedent to a\nperson, or for a use, not described in subsection (a), no deduction\nshall be allowed under this section for the interest which passes or has\npassed to the person, or for the use, described in subsection (a)\nunless--\n (A) in the case of a remainder interest, such interest is in a trust\nwhich is a charitable remainder annuity trust or a charitable remainder\nunitrust (described in section 664) or a pooled income fund (described\nin section 642(c)(5)), or\n (B) in the case of any other interest, such interest is in the form of\na guaranteed annuity or is a fixed percentage distributed yearly of the\nfair market value of the property (to be determined yearly).\n (3) Reformations to comply with paragraph (2).--\n (A) In general.--A deduction shall be allowed under subsection (a) in\nrespect of any qualified reformation.\n (B) Qualified reformation.--For purposes of this paragraph, the term\n"qualified reformation" means a change of a governing instrument by\nreformation, amendment, construction, or otherwise which changes a\nreformable interest into a qualified interest but only if--\n (i) any difference between--\n (I) the actuarial value (determined as of the date of the decedent's\ndeath) of the qualified interest, and\n (II) the actuarial value (as so determined) of the reformable\ninterest,\n does not exceed 5 percent of the actuarial value (as so determined) of\nthe reformable interest,\n (ii) in the case of--\n (I) a charitable remainder interest, the nonremainder interest (before\nand after the qualified reformation) terminated at the same time, or\n (II) any other interest, the reformable interest and the qualified\ninterest are for the same period, and\n (iii) such change is effective as of the date of the decedent's death.\n A nonremainder interest (before reformation) for a term of years in\nexcess of 20 years shall be treated as satisfying subclause (I) of\nclause (ii) if such interest (after reformation) is for a term of 20\nyears.\n (C) Reformable interest.--For purposes of this paragraph--\n (i) In general.--The term "reformable interest" means any interest for\nwhich a deduction would be allowable under subsection (a) at the time of\nthe decedent's death but for paragraph (2).\n (ii) Beneficiary's interest must be fixed.--The term "reformable\ninterest" does not include any interest unless, before the remainder\nvests in possession, all payments to persons other than an organization\ndescribed in subsection (a) are expressed either in specified dollar\namounts or a fixed percentage of the fair market value of the property.\nFor purposes of determining whether all such payments are expressed as a\nfixed percentage of the fair market value of the property, section\n664(d)(3) shall be taken into account.\n (iii) Special rule where timely commencement of reformation.--Clause\n(ii) shall not apply to any interest if a judicial proceeding is\ncommenced to change such interest into a qualified interest not later\nthan the 90th day after--\n (I) if an estate tax return is required to be filed, the last date\n(including extensions) for filing such return, or\n (II) if no estate tax return is required to be filed, the last date\n(including extensions) for filing the income tax return for the 1st\ntaxable year for which such a return is required to be filed by the\ntrust.\n (iv) Special rule for will executed before January 1, 1979, etc.--In\nthe case of any interest passing under a will executed before January 1,\n1979, or under a trust created before such date, clause (ii) shall not\napply.\n (D) Qualified interest.--For purposes of this paragraph, the term\n"qualified interest" means an interest for which a deduction is\nallowable under subsection (a).\n (E) Limitation.--The deduction referred to in subparagraph (A) shall\nnot exceed the amount of the deduction which would have been allowable\nfor the reformable interest but for paragraph (2).\n (F) Special rule where income beneficiary dies.--If (by reason of the\ndeath of any individual, or by termination or distribution of a trust in\naccordance with the terms of the trust instrument) by the due date for\nfiling the estate tax return (including any extension thereof) a\nreformable interest is in a wholly charitable trust or passes directly\nto a person or for a use described in subsection (a), a deduction shall\nbe allowed for such reformable interest as if it had met the\nrequirements of paragraph (2) on the date of the decedent's death. For\npurposes of the preceding sentence, the term "wholly charitable trust"\nmeans a charitable trust which, upon the allowance of a deduction, would\nbe described in section 4947(a)(1).\n (G) Statute of limitations.--The period for assessing any deficiency\nof any tax attributable to the application of this paragraph shall not\nexpire before the date 1 year after the date on which the Secretary is\nnotified that such reformation (or other proceeding pursuant to\nsubparagraph (J)1 has occurred.\n (H) Regulations.--The Secretary shall prescribe such regulations as\nmay be necessary to carry out the purposes of this paragraph, including\nregulations providing such adjustments in the application of the\nprovisions of section 508 (relating to special rules relating to section\n501(c)(3) organizations), subchapter J (relating to estates, trusts,\nbeneficiaries, and decedents), and chapter 42 (relating to private\nfoundations) as may be necessary by reason of the qualified reformation.\n (I) Reformations permitted in case of remainder interests in residence\nor farm, pooled income funds, etc.--The Secretary shall prescribe\nregulations (consistent with the provisions of this paragraph)\npermitting reformations in the case of any failure--\n (i) to meet the requirements of section 170(f)(3)(B) (relating to\nremainder interests in personal residence or farm, etc.), or\n (ii) to meet the requirements of section 642(c)(5).\n (J) Void or reformed trust in cases of insufficient remainder\ninterests.--In the case of a trust that would qualify (or could be\nreformed to qualify pursuant to subparagraph (B)) but for failure to\nsatisfy the requirement of paragraph (1)(D) or (2)(D) of section 664(d),\nsuch trust may be--\n (i) declared null and void ab initio, or\n (ii) changed by reformation, amendment, or otherwise to meet such\nrequirement by reducing the payout rate or the duration (or both) of any\nnoncharitable beneficiary's interest to the extent necessary to satisfy\nsuch requirement,\n pursuant to a proceeding that is commenced within the period required\nin subparagraph (C)(iii). In a case described in clause (i), no\ndeduction shall be allowed under this title for any transfer to the\ntrust and any transactions entered into by the trust prior to being\ndeclared void shall be treated as entered into by the transferor.\n (4) Works of art and their copyrights treated as separate properties\nin certain cases.--\n (A) In general.--In the case of a qualified contribution of a work of\nart, the work of art and the copyright on such work of art shall be\ntreated as separate properties for purposes of paragraph (2).\n (B) Work of art defined.--For purposes of this paragraph, the term\n"work of art" means any tangible personal property with respect to which\nthere is a copyright under Federal law.\n (C) Qualified contribution defined.--For purposes of this paragraph,\nthe term "qualified contribution" means any transfer of property to a\nqualified organization if the use of the property by the organization is\nrelated to the purpose or function constituting the basis for its\nexemption under section 501.\n (D) Qualified organization defined.--For purposes of this paragraph,\nthe term "qualified organization" means any organization described in\nsection 501(c)(3) other than a private foundation (as defined in section\n509). For purposes of the preceding sentence, a private operating\nfoundation (as defined in section 4942(j)(3)) shall not be treated as a\nprivate foundation.\n (5) Contributions to donor advised funds.--A deduction otherwise\nallowed under subsection (a) for any contribution to a donor advised\nfund (as defined in section 4966(d)(2)) shall only be allowed if--\n (A) the sponsoring organization (as defined in section 4966(d)(1))\nwith respect to such donor advised fund is not--\n (i) described in paragraph (3) or (4) of subsection (a), or\n (ii) a type III supporting organization (as defined in section\n4943(f)(5)(A)) which is not a functionally integrated type III\nsupporting organization (as defined in section 4943(f)(5)(B)), and\n (B) the taxpayer obtains a contemporaneous written acknowledgment\n(determined under rules similar to the rules of section 170(f)(8)(C))\nfrom the sponsoring organization (as so defined) of such donor advised\nfund that such organization has exclusive legal control over the assets\ncontributed.\n (f) Special rule for irrevocable transfers of easements in real\nproperty.--A deduction shall be allowed under subsection (a) in respect\nof any transfer of a qualified real property interest (as defined in\nsection 170(h)(2)(C)) which meets the requirements of section 170(h)\n(without regard to paragraph (4)(A) thereof).\n (g) Cross references.--\n (1) For option as to time for valuation for purpose of deduction under\nthis section, see section 2032.\n (2) For treatment of certain organizations providing child care, see\nsection 501(k).\n (3) For exemption of gifts and bequests to or for the benefit of\nLibrary of Congress, see section 5 of the Act of March 3, 1925, as\namended (2 U.S.C. 161).\n (4) For treatment of gifts and bequests for the benefit of the Naval\nHistorical Center as gifts or bequests to or for the use of the United\nStates, see section 7222 of Title 10, United States Code.\n (5) For treatment of gifts and bequests to or for the benefit of\nNational Park Foundation as gifts or bequests to or for the use of the\nUnited States, see section 8 of the Act of December 18, 1967 (16 U.S.C.\n191).\n (6) For treatment of gifts, devises, or bequests accepted by the\nSecretary of State, the Director of the International Communication\nAgency, or the Director of the United States International Development\nCooperation Agency as gifts, devises, or bequests to or for the use of\nthe United States, see section 25 of the State Department Basic\nAuthorities Act of 1956.\n (7) For treatment of gifts or bequests of money accepted by the\nAttorney General for credit to "Commissary Funds, Federal Prisons" as\ngifts or bequests to or for the use of the United States, see section\n4043 of Title 18, United States Code.\n (8) For payment of tax on gifts and bequests of United States\nobligations to the United States, see section 3113(e) of Title 31,\nUnited States Code.\n (9) For treatment of gifts and bequests for benefit of the Naval\nAcademy as gifts or bequests to or for the use of the United States, see\nsection 6973 of Title 10, United States Code.\n (10) For treatment of gifts and bequests for benefit of the Naval\nAcademy Museum as gifts or bequests to or for the use of the United\nStates, see section 6974 of Title 10, United States Code.\n (11) For exemption of gifts and bequests received by National Archives\nTrust Fund Board, see section 2308 of Title 44, United States Code.\n (12) For treatment of gifts and bequests to or for the use of Indian\ntribal governments (or their subdivisions), see section 7871.\n § 2056. Bequests, etc., to surviving spouse. (a) Allowance of marital\ndeduction.--For purposes of the tax imposed by section 2001, the value\nof the taxable estate shall, except as limited by subsection (b), be\ndetermined by deducting from the value of the gross estate an amount\nequal to the value of any interest in property which passes or has\npassed from the decedent to his surviving spouse, but only to the extent\nthat such interest is included in determining the value of the gross\nestate.\n (b) Limitation in the case of life estate or other terminable\ninterest.--\n (1) General rule.--Where, on the lapse of time, on the occurrence of\nan event or contingency, or on the failure of an event or contingency to\noccur, an interest passing to the surviving spouse will terminate or\nfail, no deduction shall be allowed under this section with respect to\nsuch interest--\n (A) if an interest in such property passes or has passed (for less\nthan an adequate and full consideration in money or money's worth) from\nthe decedent to any person other than such surviving spouse (or the\nestate of such spouse); and\n (B) if by reason of such passing such person (or his heirs or assigns)\nmay possess or enjoy any part of such property after such termination or\nfailure of the interest so passing to the surviving spouse;\n and no deduction shall be allowed with respect to such interest (even\nif such deduction is not disallowed under subparagraphs (A) and (B))--\n (C) if such interest is to be acquired for the surviving spouse,\npursuant to directions of the decedent, by his executor or by the\ntrustee of a trust.\n For purposes of this paragraph, an interest shall not be considered as\nan interest which will terminate or fail merely because it is the\nownership of a bond, note, or similar contractual obligation, the\ndischarge of which would not have the effect of an annuity for life or\nfor a term.\n (2) Interest in unidentified assets.--Where the assets (included in\nthe decedent's gross estate) out of which, or the proceeds of which, an\ninterest passing to the surviving spouse may be satisfied include a\nparticular asset or assets with respect to which no deduction would be\nallowed if such asset or assets passed from the decedent to such spouse,\nthen the value of such interest passing to such spouse shall, for\npurposes of subsection (a), be reduced by the aggregate value of such\nparticular assets.\n (3) Interest of spouse conditional on survival for limited\nperiod.--For purposes of this subsection, an interest passing to the\nsurviving spouse shall not be considered as an interest which will\nterminate or fail on the death of such spouse if--\n (A) such death will cause a termination or failure of such interest\nonly if it occurs within a period not exceeding 6 months after the\ndecedent's death, or only if it occurs as a result of a common disaster\nresulting in the death of the decedent and the surviving spouse, or only\nif it occurs in the case of either such event; and\n (B) such termination or failure does not in fact occur.\n (4) Valuation of interest passing to surviving spouse.--In determining\nfor purposes of subsection (a) the value of any interest in property\npassing to the surviving spouse for which a deduction is allowed by this\nsection--\n (A) there shall be taken into account the effect which the tax imposed\nby section 2001, or any estate, succession, legacy, or inheritance tax,\nhas on the net value to the surviving spouse of such interest; and\n (B) where such interest or property is encumbered in any manner, or\nwhere the surviving spouse incurs any obligation imposed by the decedent\nwith respect to the passing of such interest, such encumbrance or\nobligation shall be taken into account in the same manner as if the\namount of a gift to such spouse of such interest were being determined.\n (5) Life estate with power of appointment in surviving spouse.--In the\ncase of an interest in property passing from the decedent, if his\nsurviving spouse is entitled for life to all the income from the entire\ninterest, or all the income from a specific portion thereof, payable\nannually or at more frequent intervals, with power in the surviving\nspouse to appoint the entire interest, or such specific portion\n(exercisable in favor of such surviving spouse, or of the estate of such\nsurviving spouse, or in favor of either, whether or not in each case the\npower is exercisable in favor of others), and with no power in any other\nperson to appoint any part of the interest, or such specific portion, to\nany person other than the surviving spouse--\n (A) the interest or such portion thereof so passing shall, for\npurposes of subsection (a), be considered as passing to the surviving\nspouse, and\n (B) no part of the interest so passing shall, for purposes of\nparagraph (1)(A), be considered as passing to any person other than the\nsurviving spouse.\n This paragraph shall apply only if such power in the surviving spouse\nto appoint the entire interest, or such specific portion thereof,\nwhether exercisable by will or during life, is exercisable by such\nspouse alone and in all events.\n (6) Life insurance or annuity payments with power of appointment in\nsurviving spouse.--In the case of an interest in property passing from\nthe decedent consisting of proceeds under a life insurance, endowment,\nor annuity contract, if under the terms of the contract such proceeds\nare payable in installments or are held by the insurer subject to an\nagreement to pay interest thereon (whether the proceeds, on the\ntermination of any interest payments, are payable in a lump sum or in\nannual or more frequent installments), and such installment or interest\npayments are payable annually or at more frequent intervals, commencing\nnot later than 13 months after the decedent's death, and all amounts, or\na specific portion of all such amounts, payable during the life of the\nsurviving spouse are payable only to such spouse, and such spouse has\nthe power to appoint all amounts, or such specific portion, payable\nunder such contract (exercisable in favor of such surviving spouse, or\nof the estate of such surviving spouse, or in favor of either, whether\nor not in each case the power is exercisable in favor of others), with\nno power in any other person to appoint such amounts to any person other\nthan the surviving spouse--\n (A) such amounts shall, for purposes of subsection (a), be considered\nas passing to the surviving spouse, and\n (B) no part of such amounts shall, for purposes of paragraph (1)(A),\nbe considered as passing to any person other than the surviving spouse.\n This paragraph shall apply only if, under the terms of the contract,\nsuch power in the surviving spouse to appoint such amounts, whether\nexercisable by will or during life, is exercisable by such spouse alone\nand in all events.\n (7) Election with respect to life estate for surviving spouse.--\n (A) In general.--In the case of qualified terminable interest\nproperty--\n (i) for purposes of subsection (a), such property shall be treated as\npassing to the surviving spouse, and\n (ii) for purposes of paragraph (1)(A), no part of such property shall\nbe treated as passing to any person other than the surviving spouse.\n (B) Qualified terminable interest property defined.--For purposes of\nthis paragraph--\n (i) In general.--The term "qualified terminable interest property"\nmeans property--\n (I) which passes from the decedent,\n (II) in which the surviving spouse has a qualifying income interest\nfor life, and\n (III) to which an election under this paragraph applies.\n (ii) Qualifying income interest for life.--The surviving spouse has a\nqualifying income interest for life if--\n (I) the surviving spouse is entitled to all the income from the\nproperty, payable annually or at more frequent intervals, or has a\nusufruct interest for life in the property, and\n (II) no person has a power to appoint any part of the property to any\nperson other than the surviving spouse.\n Subclause (II) shall not apply to a power exercisable only at or after\nthe death of the surviving spouse. To the extent provided in\nregulations, an annuity shall be treated in a manner similar to an\nincome interest in property (regardless of whether the property from\nwhich the annuity is payable can be separately identified).\n (iii) Property includes interest therein.--The term "property"\nincludes an interest in property.\n (iv) Specific portion treated as separate property.--A specific\nportion of property shall be treated as separate property.\n (v) Election.--An election under this paragraph with respect to any\nproperty shall be made by the executor on the return of tax imposed by\nsection 2001. Such an election, once made, shall be irrevocable.\n (C) Treatment of survivor annuities.--In the case of an annuity\nincluded in the gross estate of the decedent under section 2039 (or, in\nthe case of an interest in an annuity arising under the community\nproperty laws of a State, included in the gross estate of the decedent\nunder section 2033) where only the surviving spouse has the right to\nreceive payments before the death of such surviving spouse--\n (i) the interest of such surviving spouse shall be treated as a\nqualifying income interest for life, and\n (ii) the executor shall be treated as having made an election under\nthis subsection with respect to such annuity unless the executor\notherwise elects on the return of tax imposed by section 2001.\n An election under clause (ii), once made, shall be irrevocable.\n (8) Special rule for charitable remainder trusts.--\n (A) In general.--If the surviving spouse of the decedent is the only\nbeneficiary of a qualified charitable remainder trust who is not a\ncharitable beneficiary nor an ESOP beneficiary, paragraph (1) shall not\napply to any interest in such trust which passes or has passed from the\ndecedent to such surviving spouse.\n (B) Definitions.--For purposes of subparagraph (A)--\n (i) Charitable beneficiary.--The term "charitable beneficiary" means\nany beneficiary which is an organization described in section 170(c).\n (ii) ESOP beneficiary.--The term "ESOP beneficiary" means any\nbeneficiary which is an employee stock ownership plan (as defined in\nsection 4975(e)(7)) that holds a remainder interest in qualified\nemployer securities (as defined in section 664(g)(4)) to be transferred\nto such plan in a qualified gratuitous transfer (as defined in section\n664(g)(1)).\n (iii) Qualified charitable remainder trust.--The term "qualified\ncharitable remainder trust" means a charitable remainder annuity trust\nor a charitable remainder unitrust (described in section 664).\n (9) Denial of double deduction.--Nothing in this section or any other\nprovision of this chapter shall allow the value of any interest in\nproperty to be deducted under this chapter more than once with respect\nto the same decedent.\n (10) Specific portion.--For purposes of paragraphs (5), (6), and\n(7)(B)(iv), the term "specific portion" only includes a portion\ndetermined on a fractional or percentage basis.\n (c) Definition.--For purposes of this section, an interest in property\nshall be considered as passing from the decedent to any person if and\nonly if--\n (1) such interest is bequeathed or devised to such person by the\ndecedent;\n (2) such interest is inherited by such person from the decedent;\n (3) such interest is the dower or curtesy interest (or statutory\ninterest in lieu thereof) of such person as surviving spouse of the\ndecedent;\n (4) such interest has been transferred to such person by the decedent\nat any time;\n (5) such interest was, at the time of the decedent's death, held by\nsuch person and the decedent (or by them and any other person) in joint\nownership with right of survivorship;\n (6) the decedent had a power (either alone or in conjunction with any\nperson) to appoint such interest and if he appoints or has appointed\nsuch interest to such person, or if such person takes such interest in\ndefault on the release or nonexercise of such power; or\n (7) such interest consists of proceeds of insurance on the life of the\ndecedent receivable by such person.\n Except as provided in paragraph (5) or (6) of subsection (b), where at\nthe time of the decedent's death it is not possible to ascertain the\nparticular person or persons to whom an interest in property may pass\nfrom the decedent, such interest shall, for purposes of subparagraphs\n(A) and (B) of subsection (b)(1), be considered as passing from the\ndecedent to a person other than the surviving spouse.\n § 2103. Definition of Gross Estate. For the purpose of the tax imposed\nby section 2101, the value of the gross estate of every decedent\nnonresident not a citizen of the United States shall be that part of his\ngross estate (determined as provided in section 2031) which at the time\nof his death is situated in the United States.\n § 2104. Property Within the United States. (a) Stock in\ncorporation.--For purposes of this subchapter shares of stock owned and\nheld by a nonresident not a citizen of the United States shall be deemed\nproperty within the United States only if issued by a domestic\ncorporation.\n (b) Revocable transfers and transfers within 3 years of death.--For\npurposes of this subchapter, any property of which the decedent has made\na transfer, by trust or otherwise, within the meaning of sections 2035\nto 2038, inclusive, shall be deemed to be situated in the United States,\nif so situated either at the time of the transfer or at the time of the\ndecedent's death.\n (c) Debt obligations.--For purposes of this subchapter, debt\nobligations of-\n (1) a United States person, or\n (2) the United States, a State or any political subdivision thereof,\nor the District of Columbia,\n owned and held by a nonresident not a citizen of the United States\nshall be deemed property within the United States. With respect to\nestates of decedents dying after December 31, 1969, deposits with a\ndomestic branch of a foreign corporation, if such branch is engaged in\nthe commercial banking business, shall, for purposes of this subchapter,\nbe deemed property within the United States. This subsection shall not\napply to a debt obligation to which section 2105(b) applies.\n § 2105. Property Without the United States. (a) Proceeds of life\ninsurance.--For purposes of this subchapter, the amount receivable as\ninsurance on the life of a nonresident not a citizen of the United\nStates shall not be deemed property within the United States.\n (b) Bank deposits and certain other debt obligations.--For purposes of\nthis subchapter, the following shall not be deemed property within the\nUnited States--\n (1) amounts described in section 871(i)(3), if any interest thereon\nwould not be subject to tax by reason of section 871(i)(1) were such\ninterest received by the decedent at the time of his death,\n (2) deposits with a foreign branch of a domestic corporation or\ndomestic partnership, if such branch is engaged in the commercial\nbanking business,\n (3) debt obligations, if, without regard to whether a statement\nmeeting the requirements of section 871(h)(5) has been received, any\ninterest thereon would be eligible for the exemption from tax under\nsection 871(h)(1) were such interest received by the decedent at the\ntime of his death, and\n (4) obligations which would be original issue discount obligations as\ndefined in section 871(g)(1) but for subparagraph (B)(i) thereof, if any\ninterest thereon (were such interest received by the decedent at the\ntime of his death) would not be effectively connected with the conduct\nof a trade or business within the United States.\n Notwithstanding the preceding sentence, if any portion of the interest\non an obligation referred to in paragraph (3) would not be eligible for\nthe exemption referred to in paragraph (3) by reason of section\n871(h)(4) if the interest were received by the decedent at the time of\nhis death, then an appropriate portion (as determined in a manner\nprescribed by the Secretary) of the value (as determined for purposes of\nthis chapter) of such debt obligation shall be deemed property within\nthe United States.\n (c) Works of art on loan for exhibition.--For purposes of this\nsubchapter, works of art owned by a nonresident not a citizen of the\nUnited States shall not be deemed property within the United States if\nsuch works of art are--\n (1) imported into the United States solely for exhibition purposes,\n (2) loaned for such purposes, to a public gallery or museum, no part\nof the net earnings of which inures to the benefit of any private\nstockholder or individual, and\n (3) at the time of the death of the owner, on exhibition, or enroute\nto or from exhibition, in such a public gallery or museum.\n § 2503. (a) General Definition - The term "taxable gifts" means the\ntotal amount of gifts made during the calendar year, less deductions\nprovided in subchapter C (section 2522 and following).\n (b) Exclusions from gifts. (1) In general.--In the case of gifts\n(other than gifts of future interests in property) made to any person by\nthe donor during the calendar year, the first $10,000 of such gifts to\nsuch person shall not, for purposes of subsection (a), be included in\nthe total amount of gifts made during such year. Where there has been a\ntransfer to any person of a present interest in property, the\npossibility that such interest may be diminished by the exercise of a\npower shall be disregarded in applying this subsection, if no part of\nsuch interest will at any time pass to any other person.\n (2) Inflation adjustment.--In the case of gifts made in a calendar\nyear after 1998, the $10,000 amount contained in paragraph (1) shall be\nincreased by an amount equal to--\n (A) $10,000, multiplied by\n (B) the cost-of-living adjustment determined under section 1(f)(3) for\nsuch calendar year by substituting "calendar year 1997" for "calendar\nyear 1992" in subparagraph (B) thereof.\n If any amount as adjusted under the preceding sentence is not a\nmultiple of $1,000, such amount shall be rounded to the next lowest\nmultiple of $1,000.\n (c) Transfer for the benefit of minor. -- No part of a gift to an\nindividual who has not attained the age of 21 years on the date of such\ntransfer shall be considered a gift of a future interest in property for\npurposes of subsection (b) if the property and the income therefrom-\n (1) may be expended by, or for the benefit of, the donee before his\nattaining the age of 21 years, and\n (2) will to the extent not so expended-\n (A) pass to the donee on his attaining the age of 21 years, and\n (B) in the event the donee dies before attaining the age of 21 years,\nbe payable to the estate of the donee or as he may appoint under a\ngeneral power of appointment as defined in section 2514(c).\n {(d) Repealed. Pub. L. 97-34, title III, § 311(h)(5), Aug. 13, 1981,\n95 Stat. 282}\n (e) Exclusion for certain transfers for educational expenses or\nmedical expenses. (1) In general. Any qualified transfer shall not be\ntreated as a transfer of property by gift for purposes of this chapter.\n (2) Qualified transfer. For purposes of this subsection, the term\n"qualified transfer" means any amount paid on behalf of an individual-\n (A) as tuition to an educational organization described in section\n170(b)(1)(A)(ii) for the education or training of such individual, or\n (B) to any person who provides medical care (as defined in section\n213(d)) with respect to such individual as payment for such medical\ncare.\n (f) Waiver of certain pension rights. If any individual waives, before\nthe death of a participant, any survivor benefit, or right to such\nbenefit, under section 401(a)(11) or 417, such waiver shall not be\ntreated as a transfer of property by gift for purposes of this chapter.\n (g) Treatment of certain loans of artworks. (1) In general. For\npurposes of this subtitle, any loan of a qualified work of art shall not\nbe treated as a transfer (and the value of such qualified work of art\nshall be determined as if such loan had not been made) if-\n (A) such loan is to an organization described in section 501(c)(3) and\nexempt from tax under section 501(c) (other than a private foundation),\nand\n (B) the use of such work by such organization is related to the\npurpose or function constituting the basis for its exemption under\nsection 501.\n (2) Definitions. For purposes of this section-\n (A) Qualified work of art. The term "qualified work of art" means any\narchaeological, historic, or creative tangible personal property.\n (B) Private foundation. The term "private foundation" has the meaning\ngiven such term by section 509, except that such term shall not include\nany private operating foundation (as defined in section 4942(j)(3)).\n § 2511. Transfers in general. (a) Scope. Subject to the limitations\ncontained in this chapter, the tax imposed by section 2501 shall apply\nwhether the transfer is in trust or otherwise, whether the gift is\ndirect or indirect, and whether the property is real or personal,\ntangible or intangible; but in the case of a nonresident not a citizen\nof the United States, shall apply to a transfer only if the property is\nsituated within the United States.\n (b) Intangible property. For purposes of this chapter, in the case of\na nonresident not a citizen of the United States who is excepted from\nthe application of section 2501(a)(2)-\n (1) shares of stock issued by a domestic corporation, and\n (2) debt obligations of-\n--(A) a United States person, or\n--(B) the United States, a State or any political subdivision thereof,\nor the District of Columbia,\n--which are owned and held by such nonresident shall be deemed to be\nproperty situated within the United States.\n § 2512. Valuation of gifts. (a) If the gift is made in property, the\nvalue thereof at the date of the gift shall be considered the amount of\nthe gift.\n (b) Where property is transferred for less than an adequate and full\nconsideration in money or money's worth, then the amount by which the\nvalue of the property exceeded the value of the consideration shall be\ndeemed a gift, and shall be included in computing the amount of gifts\nmade during the calendar year.\n § 2513. Gift by husband or wife to third party. (a) Considered as made\none-half by each. (1) In general. A gift made by one spouse to any\nperson other than his spouse shall, for the purposes of this chapter, be\nconsidered as made one-half by him and one-half by his spouse, but only\nif at the time of the gift each spouse is a citizen or resident of the\nUnited States. This paragraph shall not apply with respect to a gift by\na spouse of an interest in property if he creates in his spouse a\ngeneral power of appointment, as defined in section 2514(c), over such\ninterest. For purposes of this section, an individual shall be\nconsidered as the spouse of another individual only if he is married to\nsuch individual at the time of the gift and does not remarry during the\nremainder of the calendar year.\n (2) Consent of both spouses. Paragraph (1) shall apply only if both\nspouses have signified (under the regulations provided for in subsection\n(b)) their consent to the application of paragraph (1) in the case of\nall such gifts made during the calendar year by either while married to\nthe other.\n (b) Manner and time of signifying consent. (1) Manner. A consent under\nthis section shall be signified in such manner as is provided under\nregulations prescribed by the Secretary.\n (2) Time. Such consent may be so signified at any time after the close\nof the calendar year in which the gift was made, subject to the\nfollowing limitations-\n--(A) The consent may not be signified after the 15th day of April\nfollowing the close of such year, unless before such 15th day no return\nhas been filed for such year by either spouse, in which case the consent\nmay not be signified after a return for such year is filed by either\nspouse.\n--(B) The consent may not be signified after a notice of deficiency with\nrespect to the tax for such year has been sent to either spouse in\naccordance with section 6212(a).\n (c) Revocation of consent. Revocation of a consent previously\nsignified shall be made in such manner as in provided under regulations\nprescribed by the Secretary, but the right to revoke a consent\npreviously signified with respect to a calendar year-\n (1) shall not exist after the 15th day of April following the close of\nsuch year if the consent was signified on or before such 15th day; and\n (2) shall not exist if the consent was not signified until after such\n15th day.\n (d) Joint and several liability for tax. If the consent required by\nsubsection (a)(2) is signified with respect to a gift made in any\ncalendar year, the liability with respect to the entire tax imposed by\nthis chapter of each spouse for such year shall be joint and several.\n § 2514. Powers of appointment. (a) Powers created on or before October\n21, 1942. An exercise of a general power of appointment created on or\nbefore October 21, 1942, shall be deemed a transfer of property by the\nindividual possessing such power; but the failure to exercise such a\npower or the complete release of such a power shall not be deemed an\nexercise thereof. If a general power of appointment created on or before\nOctober 21, 1942, has been partially released so that it is no longer a\ngeneral power of appointment, the subsequent exercise of such power\nshall not be deemed to be the exercise of a general power of appointment\nif-\n (1) such partial release occurred before November 1, 1951, or\n (2) the donee of such power was under a legal disability to release\nsuch power on October 21, 1942, and such partial release occurred not\nlater than six months after the termination of such legal disability.\n (b) Powers created after October 21, 1942. The exercise or release of\na general power of appointment created after October 21, 1942, shall be\ndeemed a transfer of property by the individual possessing such power.\n (c) Definition of general power of appointment. For purposes of this\nsection, the term "general power of appointment" means a power which is\nexercisable in favor of the individual possessing the power (hereafter\nin this subsection referred to as the "possessor"), his estate, his\ncreditors, or the creditors of his estate; except that-\n (1) A power to consume, invade, or appropriate property for the\nbenefit of the possessor which is limited by an ascertainable standard\nrelating to the health, education, support, or maintenance of the\npossessor shall not be deemed a general power of appointment.\n (2) A power of appointment created on or before October 21, 1942,\nwhich is exercisable by the possessor only in conjunction with another\nperson shall not be deemed a general power of appointment.\n (3) In the case of a power of appointment created after October 21,\n1942, which is exercisable by the possessor only in conjunction with\nanother person-\n--(A) if the power is not exercisable by the possessor except in\nconjunction with the creator of the power-such power shall not be deemed\na general power of appointment;\n--(B) if the power is not exercisable by the possessor except in\nconjunction with a person having a substantial interest, in the property\nsubject to the power, which is adverse to exercise of the power in favor\nof the possessor-such power shall not be deemed a general power of\nappointment. For the purposes of this subparagraph a person who, after\nthe death of the possessor, may be possessed of a power of appointment\n(with respect to the property subject to the possessor's power) which he\nmay exercise in his own favor shall be deemed as having an interest in\nthe property and such interest shall be deemed adverse to such exercise\nof the possessor's power;\n--(C) if (after the application of subparagraphs (A) and (B)) the power\nis a general power of appointment and is exercisable in favor of such\nother person-such power shall be deemed a general power of appointment\nonly in respect of a fractional part of the property subject to such\npower, such part to be determined by dividing the value of such property\nby the number of such persons (including the possessor) in favor of whom\nsuch power is exercisable.\n--For purposes of subparagraphs (B) and (C), a power shall be deemed to\nbe exercisable in favor of a person if it is exercisable in favor of\nsuch person, his estate, his creditors, or the creditors of his estate.\n (d) Creation of another power in certain cases. If a power of\nappointment created after October 21, 1942, is exercised by creating\nanother power of appointment which, under the applicable local law, can\nbe validly exercised so as to postpone the vesting of any estate or\ninterest in the property which was subject to the first power, or\nsuspend the absolute ownership or power of alienation of such property,\nfor a period ascertainable without regard to the date of the creation of\nthe first power, such exercise of the first power shall, to the extent\nof the property subject to the second power, be deemed a transfer of\nproperty by the individual possessing such power.\n (e) Lapse of power. The lapse of a power of appointment created after\nOctober 21, 1942, during the life of the individual possessing the power\nshall be considered a release of such power. The rule of the preceding\nsentence shall apply with respect to the lapse of powers during any\ncalendar year only to the extent that the property which could have been\nappointed by exercise of such lapsed powers exceeds in value the greater\nof the following amounts:\n (1) $5,000, or\n (2) 5 percent of the aggregate value of the assets out of which, or\nthe proceeds of which, the exercise of the lapsed powers could be\nsatisfied.\n (f) Date of creation of power. For purposes of this section a power of\nappointment created by a will executed on or before October 21, 1942,\nshall be considered a power created on or before such date if the person\nexecuting such will dies before July 1, 1949, without having republished\nsuch will, by codicil or otherwise, after October 21, 1942.\n § 2516. Certain property settlements. Where a husband and wife enter\ninto a written agreement relative to their marital and property rights\nand divorce occurs within the 3-year period beginning on the date 1 year\nbefore such agreement is entered into (whether or not such agreement is\napproved by the divorce decree), any transfers of property or interests\nin property made pursuant to such agreement-\n (1) to either spouse in settlement of his or her marital or property\nrights, or\n (2) to provide a reasonable allowance for the support of issue of the\nmarriage during minority,\n --shall be deemed to be transfers made for a full and adequate\nconsideration in money or money's worth.\n § 2518. Disclaimers. (a) General Rule. - For purposes of this\nsubtitle, if a person makes a qualified disclaimer with respect to any\ninterest in property, this subtitle shall apply with respect to such\ninterest as if the interest had never been transferred to such person.\n (b) Qualified Disclaimer Defined. - For purposes of subsection (a),\nthe term "qualified disclaimer" means an irrevocable and unqualified\nrefusal by a person to accept an interest in property but only if -\n (1) such refusal is in writing,\n (2) such writing is received by the transferor of the interest, his\nlegal representative, or the holder of the legal title to the property\nto which the interest relates not later than the date which is 9 months\nafter the later of -\n (A) the date on which the transfer creating the interest in such\nperson is made, or\n (B) the day on which such person attains age 21,\n (3) such person has not accepted the interest or any of its benefits,\nand\n (4) as a result of such refusal, the interest passes without any\ndirection on the part of the person making the disclaimer and passes\neither -\n (A) to the spouse of the decedent, or\n (B) to a person other than the person making the disclaimer.\n (c) Other rules. For purposes of subsection (a)-\n (1) Disclaimer of undivided portion of interest. A disclaimer with\nrespect to an undivided portion of an interest which meets the\nrequirements of the preceding sentence shall be treated as a qualified\ndisclaimer of such portion of the interest.\n (2) Powers. A power with respect to property shall be treated as an\ninterest in such property.\n (3) Certain transfers treated as disclaimers. A written transfer of\nthe transferor's entire interest in the property-\n (A) which meets requirements similar to the requirements of paragraphs\n(2) and (3) of subsection (b), and\n (B) which is to a person or persons who would have received the\nproperty had the transferor made a qualified disclaimer (within the\nmeaning of subsection (b)),\n --shall be treated as a qualified disclaimer.\n § 2519. Dispositions of certain life estates. (a) General rule\n --For purposes of this chapter and chapter 11, any disposition of all\nor part of a qualifying income interest for life in any property to\nwhich this section applies shall be treated as a transfer of all\ninterests in such property other than the qualifying income interest.\n (b) Property to which this subsection applies. This section applies to\nany property if a deduction was allowed with respect to the transfer of\nsuch property to the donor-\n (1) under section 2056 by reason of subsection (b)(7) thereof, or\n (2) under section 2523 by reason of subsection (f) thereof.\n (c) Cross reference\n--For right of recovery for gift tax in the case of property treated as\ntransferred under this section, see section 2207A(b).\n § 2522. Charitable and similar gifts. (a) Citizens or residents. In\ncomputing taxable gifts for the calendar year, there shall be allowed as\na deduction in the case of a citizen or resident the amount of all gifts\nmade during such year to or for the use of-\n (1) the United States, any State, or any political subdivision\nthereof, or the District of Columbia, for exclusively public purposes;\n (2) a corporation, or trust, or community chest, fund, or foundation,\norganized and operated exclusively for religious, charitable,\nscientific, literary, or educational purposes, or to foster national or\ninternational amateur sports competition (but only if no part of its\nactivities involve the provision of athletic facilities or equipment),\nincluding the encouragement of art and the prevention of cruelty to\nchildren or animals, no part of the net earnings of which inures to the\nbenefit of any private shareholder or individual, which is not\ndisqualified for tax exemption under section 501(c)(3) by reason of\nattempting to influence legislation, and which does not participate in,\nor intervene in (including the publishing or distributing of\nstatements), any political campaign on behalf of (or in opposition to)\nany candidate for public office;\n (3) a fraternal society, order, or association, operating under the\nlodge system, but only if such gifts are to be used exclusively for\nreligious, charitable, scientific, literary, or educational purposes,\nincluding the encouragement of art and the prevention of cruelty to\nchildren or animals;\n (4) posts or organizations of war veterans, or auxiliary units or\nsocieties of any such posts or organizations, if such posts,\norganizations, units, or societies are organized in the United States or\nany of its possessions, and if no part of their net earnings insures to\nthe benefit of any private shareholder or individual.\n Rules similar to the rules of section 501(j) shall apply for purposes\nof paragraph (2).\n (b) Nonresidents. In the case of a nonresident not a citizen of the\nUnited States, there shall be allowed as a deduction the amount of all\ngifts made during such year to or for the use of-\n (1) the United States, any State, or any political subdivision\nthereof, or the District of Columbia, for exclusively public purposes;\n (2) a domestic corporation organized and operated exclusively for\nreligious, charitable, scientific, literary, or educational purposes,\nincluding the encouragement of art and the prevention of cruelty to\nchildren or animals, no part of the net earnings of which inures to the\nbenefit of any private shareholder or individual, which is not\ndisqualified for tax exemption under section 501(c)(3) by reason of\nattempting to influence legislation, and which does not participate in,\nor intervene in (including the publishing or distributing of\nstatements), any political campaign on behalf of (or in opposition to)\nany candidate for public office;\n (3) a trust, or community chest, fund, or foundation, organized and\noperated exclusively for religious, charitable, scientific, literary, or\neducational purposes, including the encouragement of art and the\nprevention of cruelty to children or animals, no substantial part of the\nactivities of which is carrying on propaganda, or otherwise attempting,\nto influence legislation, and which does not participate in, or\nintervene in (including the publishing or distributing of statements),\nany political campaign on behalf of (or in opposition to) any candidate\nfor public office; but only if such gifts are to be used within the\nUnited States exclusively for such purposes;\n (4) a fraternal society, order, or association, operating under the\nlodge system, but only if such gifts are to be used within the United\nStates exclusively for religious, charitable, scientific, literary, or\neducational purposes, including the encouragement of art and the\nprevention of cruelty to children or animals;\n (5) posts or organizations of war veterans, or auxiliary units or\nsocieties of any such posts or organizations, if such posts,\norganizations, units, or societies are organized in the United States or\nany of its possessions, and if no part of their net earnings inures to\nthe benefit of any private shareholder or individual.\n (c) Disallowance of deductions in certain cases. (1) No deduction\nshall be allowed under this section for a gift to of 1 for the use of an\norganization or trust described in section 508(d) or 4948(c)(4) subject\nto the conditions specified in such sections.\n (2) Where a donor transfers an interest in property (other than an\ninterest described in section 170(f)(3)(B)) to a person, or for a use,\ndescribed in subsection (a) or (b) and an interest in the same property\nis retained by the donor, or is transferred or has been transferred (for\nless than an adequate and full consideration in money or money's worth)\nfrom the donor to a person, or for a use, not described in subsection\n(a) or (b), no deduction shall be allowed under this section for the\ninterest which is, or has been transferred to the person, or for the\nuse, described in subsection (a) or (b), unless-\n (A) in the case of a remainder interest, such interest is in a trust\nwhich is a charitable remainder annuity trust or a charitable remainder\nunitrust (described in section 664) or a pooled income fund (described\nin section 642(c)(5)), or\n (B) in the case of any other interest, such interest is in the form of\na guaranteed annuity or is a fixed percentage distributed yearly of the\nfair market value of the property (to be determined yearly).\n (3) Rules similar to the rules of section 2055(e)(4) shall apply for\npurposes of paragraph (2).\n (4) Reformations to comply with paragraph (2). (A) In general -- A\ndeduction shall be allowed under subsection (a) in respect of any\nqualified reformation (within the meaning of section 2055(e)(3)(B)).\n (B) Rules similar to section 2055(e)(3) to apply -- For purposes of\nthis paragraph, rules similar to the rules of section 2055(e)(3) shall\napply.\n (5) Contributions to donor advised funds. A deduction otherwise\nallowed under subsection (a) for any contribution to a donor advised\nfund (as defined in section 4966(d)(2)) shall only be allowed if-\n--(A) the sponsoring organization (as defined in section 4966(d)(1))\nwith respect to such donor advised fund is not-\n--(i) described in paragraph (3) or (4) of subsection (a), or\n--(ii) a type III supporting organization (as defined in section\n4943(f)(5)(A)) which is not a functionally integrated type III\nsupporting organization (as defined in section 4943(f)(5)(B)), and\n--(B) the taxpayer obtains a contemporaneous written acknowledgment\n(determined under rules similar to the rules of section 170(f)(8)(C))\nfrom the sponsoring organization (as so defined) of such donor advised\nfund that such organization has exclusive legal control over the assets\ncontributed.\n (d) Special rule for irrevocable transfers of easements in real\nproperty. A deduction shall be allowed under subsection (a) in respect\nof any transfer of a qualified real property interest (as defined in\nsection 170(h)(2)(C)) which meets the requirements of section 170(h)\n(without regard to paragraph (4)(A) thereof).\n (e) Special rules for fractional gifts\n (1) Denial of deduction in certain cases\n (A) In general\n--No deduction shall be allowed for a contribution of an undivided\nportion of a taxpayer's entire interest in tangible personal property\nunless all interests in the property are held immediately before such\ncontribution by-\n--(i) the taxpayer, or\n--(ii) the taxpayer and the donee.\n (B) Exceptions\n--The Secretary may, by regulation, provide for exceptions to\nsubparagraph (A) in cases where all persons who hold an interest in the\nproperty make proportional contributions of an undivided portion of the\nentire interest held by such persons.\n (2) Recapture of deduction in certain cases; addition to tax\n (A) In general. The Secretary shall provide for the recapture of an\namount equal to any deduction allowed under this section (plus interest)\nwith respect to any contribution of an undivided portion of a taxpayer's\nentire interest in tangible personal property-\n--(i) in any case in which the donor does not contribute all of the\nremaining interests in such property to the donee (or, if such donee is\nno longer in existence, to any person described in section 170(c)) on or\nbefore the earlier of-\n--(I) the date that is 10 years after the date of the initial fractional\ncontribution, or\n--(II) the date of the death of the donor, and\n--(ii) in any case in which the donee has not, during the period\nbeginning on the date of the initial fractional contribution and ending\non the date described in clause (i)-\n--(I) had substantial physical possession of the property, and\n--(II) used the property in a use which is related to a purpose or\nfunction constituting the basis for the organizations' exemption under\nsection 501.\n (B) Addition to tax. The tax imposed under this chapter for any\ntaxable year for which there is a recapture under subparagraph (A) shall\nbe increased by 10 percent of the amount so recaptured.\n (C) Initial fractional contribution. For purposes of this paragraph,\nthe term "initial fractional contribution" means, with respect to any\ndonor, the first gift of an undivided portion of the donor's entire\ninterest in any tangible personal property for which a deduction is\nallowed under subsection (a) or (b).\n (f) Cross references\n--(1) For treatment of certain organizations providing child care, see\nsection 501(k).\n--(2) For exemption of certain gifts to or for the benefit of the United\nStates and for rules of construction with respect to certain bequests,\nsee section 2055(f).\n--(3) For treatment of gifts to or for the use of Indian tribal\ngovernments (or their subdivisions), see section 7871.\n § 2523. Gift to spouse (a) Allowance of deduction. Where a donor\ntransfers during the calendar year by gift an interest in property to a\ndonee who at the time of the gift is the donor's spouse, there shall be\nallowed as a deduction in computing taxable gifts for the calendar year\nan amount with respect to such interest equal to its value.\n (b) Life estate or other terminable interest. Where, on the lapse of\ntime, on the occurrence of an event or contingency, or on the failure of\nan event or contingency to occur, such interest transferred to the\nspouse will terminate or fail, no deduction shall be allowed with\nrespect to such interest-\n (1) if the donor retains in himself, or transfers or has transferred\n(for less than an adequate and full consideration in money or money's\nworth) to any person other than such donee spouse (or the estate of such\nspouse), an interest in such property, and if by reason of such\nretention or transfer the donor (or his heirs or assigns) or such person\n(or his heirs or assigns) may possess or enjoy any part of such property\nafter such termination or failure of the interest transferred to the\ndonee spouse; or\n (2) if the donor immediately after the transfer to the donee spouse\nhas a power to appoint an interest in such property which he can\nexercise (either alone or in conjunction with any person) in such manner\nthat the appointee may possess or enjoy any part of such property after\nsuch termination or failure of the interest transferred to the donee\nspouse. For purposes of this paragraph, the donor shall be considered\nas having immediately after the transfer to the donee spouse such power\nto appoint even though such power cannot be exercised until after the\nlapse of time, upon the occurrence of an event or contingency, or on the\nfailure of an event or contingency to occur.\n An exercise or release at any time by the donor, either alone or in\nconjunction with any person, of a power to appoint an interest in\nproperty, even though not otherwise a transfer, shall, for purposes of\nparagraph (1), be considered as a transfer by him. Except as provided in\nsubsection (e), where at the time of the transfer it is impossible to\nascertain the particular person or persons who may receive from the\ndonor an interest in property so transferred by him, such interest\nshall, for purposes of paragraph (1), be considered as transferred to a\nperson other than the donee spouse.\n (c) Interest in unidentified assets. Where the assets out of which, or\nthe proceeds of which, the interest transferred to the donee spouse may\nbe satisfied include a particular asset or assets with respect to which\nno deduction would be allowed if such asset or assets were transferred\nfrom the donor to such spouse, then the value of the interest\ntransferred to such spouse shall, for purposes of subsection (a), be\nreduced by the aggregate value of such particular assets.\n (d) Joint interests. If the interest is transferred to the donee\nspouse as sole joint tenant with the donor or as tenant by the entirety,\nthe interest of the donor in the property which exists solely by reason\nof the possibility that the donor may survive the donee spouse, or that\nthere may occur a severance of the tenancy, shall not be considered for\npurposes of subsection (b) as an interest retained by the donor in\nhimself.\n (e) Life estate with power of appointment in donee spouse. Where the\ndonor transfers an interest in property, if by such transfer his spouse\nis entitled for life to all of the income from the entire interest, or\nall the income from a specific portion thereof, payable annually or at\nmore frequent intervals, with power in the donee spouse to appoint the\nentire interest, or such specific portion (exercisable in favor of such\ndonee spouse, or of the estate of such donee spouse, or in favor of\neither, whether or not in each case the power is exercisable in favor of\nothers), and with no power in any other person to appoint any part of\nsuch interest, or such portion, to any person other than the donee\nspouse-\n (1) the interest, or such portion, so transferred shall, for purposes\nof subsection (a) be considered as transferred to the donee spouse, and\n (2) no part of the interest, or such portion, so transferred shall,\nfor purposes of subsection (b)(1), be considered as retained in the\ndonor or transferred to any person other than the donee spouse.\n This subsection shall apply only if, by such transfer, such power in\nthe donee spouse to appoint the interest, or such portion, whether\nexercisable by will or during life, is exercisable by such spouse alone\nand in all events. For purposes of this subsection, the term "specific\nportion" only includes a portion determined on a fractional or\npercentage basis.\n (f) Election with respect to life estate for donee spouse. (1) In\ngeneral\n In the case of qualified terminable interest property-\n (A) for purposes of subsection (a), such property shall be treated as\ntransferred to the donee spouse, and\n (B) for purposes of subsection (b)(1), no part of such property shall\nbe considered as retained in the donor or transferred to any person\nother than the donee spouse.\n (2) Qualified terminable interest property. For purposes of this\nsubsection, the term "qualified terminable interest property" means any\nproperty-\n (A) which is transferred by the donor spouse,\n (B) in which the donee spouse has a qualifying income interest for\nlife, and\n (C) to which an election under this subsection applies.\n (3) Certain rules made applicable. For purposes of this subsection,\nrules similar to the rules of clauses (ii), (iii), and (iv) of section\n2056(b)(7)(B) shall apply and the rules of section 2056(b)(10) shall\napply.\n (4) Election. (A) Time and manner. An election under this subsection\nwith respect to any property shall be made on or before the date\nprescribed by section 6075(b) for filing a gift tax return with respect\nto the transfer (determined without regard to section 6019(2)) and shall\nbe made in such manner as the Secretary shall by regulations prescribe.\n (B) Election irrevocable. An election under this subsection, once\nmade, shall be irrevocable.\n (5) Treatment of interest retained by donor spouse. (A) In general. In\nthe case of any qualified terminable interest property-\n (i) such property shall not be includible in the gross estate of the\ndonor spouse, and\n (ii) any subsequent transfer by the donor spouse of an interest in\nsuch property shall not be treated as a transfer for purposes of this\nchapter.\n (B) Subparagraph (A) not to apply after transfer by donee spouse.\nSubparagraph (A) shall not apply with respect to any property after the\ndonee spouse is treated as having transferred such property under\nsection 2519, or such property is includible in the donee spouse's gross\nestate under section 2044.\n (6) Treatment of joint and survivor annuities. In the case of a joint\nand survivor annuity where only the donor spouse and donee spouse have\nthe right to receive payments before the death of the last spouse to\ndie-\n--(A) the donee spouse's interest shall be treated as a qualifying\nincome interest for life,\n--(B) the donor spouse shall be treated as having made an election under\nthis subsection with respect to such annuity unless the donor spouse\notherwise elects on or before the date specified in paragraph (4)(A),\n--(C) paragraph (5) and section 2519 shall not apply to the donor\nspouse's interest in the annuity, and\n--(D) if the donee spouse dies before the donor spouse, no amount shall\nbe includible in the gross estate of the donee spouse under section 2044\nwith respect to such annuity.\n An election under subparagraph (B), once made, shall be irrevocable.\n (g) Special rule for charitable remainder trusts. (1) In general. If,\nafter the transfer, the donee spouse is the only noncharitable\nbeneficiary (other than the donor) of a qualified charitable remainder\ntrust, subsection (b) shall not apply to the interest in such trust\nwhich is transferred to the donee spouse.\n (2) Definitions. For purposes of paragraph (1), the term\n"noncharitable beneficiary" and "qualified charitable remainder trust"\nhave the meanings given to such terms by section 2056(b)(8)(B).\n (h) Denial of double deduction. Nothing in this section or any other\nprovision of this chapter shall allow the value of any interest in\nproperty to be deducted under this chapter more than once with respect\nto the same donor.\n § 2524. Extent of deductions. The deductions provided in sections 2522\nand 2523 shall be allowed only to the extent that the gifts therein\nspecified are included in the amount of gifts against which such\ndeductions are applied.\n § 2701. Special valuation rules in case of transfers of certain\ninterests in corporations or partnerships. (a) Valuation rules. (1) In\ngeneral. Solely for purposes of determining whether a transfer of an\ninterest in a corporation or partnership to (or for the benefit of) a\nmember of the transferor's family is a gift (and the value of such\ntransfer), the value of any right-\n--(A) which is described in subparagraph (A) or (B) of subsection\n(b)(1), and\n--(B) which is with respect to any applicable retained interest that is\nheld by the transferor or an applicable family member immediately after\nthe transfer,\n --shall be determined under paragraph (3). This paragraph shall not\napply to the transfer of any interest for which market quotations are\nreadily available (as of the date of transfer) on an established\nsecurities market.\n (2) Exceptions for marketable retained interests, etc. Paragraph (1)\nshall not apply to any right with respect to an applicable retained\ninterest if-\n--(A) market quotations are readily available (as of the date of the\ntransfer) for such interest on an established securities market,\n--(B) such interest is of the same class as the transferred interest, or\n--(C) such interest is proportionally the same as the transferred\ninterest, without regard to nonlapsing differences in voting power (or,\nfor a partnership, nonlapsing differences with respect to management and\nlimitations on liability).\n--Subparagraph (C) shall not apply to any interest in a partnership if\nthe transferor or an applicable family member has the right to alter the\nliability of the transferee of the transferred property. Except as\nprovided by the Secretary, any difference described in subparagraph (C)\nwhich lapses by reason of any Federal or State law shall be treated as a\nnonlapsing difference for purposes of such subparagraph.\n (3) Valuation of rights to which paragraph (1) applies. (A) In\ngeneral. The value of any right described in paragraph (1), other than\na distribution right which consists of a right to receive a qualified\npayment, shall be treated as being zero.\n (B) Valuation of certain qualified payments. If-\n--(i) any applicable retained interest confers a distribution right\nwhich consists of the right to a qualified payment, and\n--(ii) there are 1 or more liquidation, put, call, or conversion rights\nwith respect to such interest, the value of all such rights shall be\ndetermined as if each liquidation, put, call, or conversion right were\nexercised in the manner resulting in the lowest value being determined\nfor all such rights.\n (C) Valuation of qualified payments where no liquidation, etc. rights.\nIn the case of an applicable retained interest which is described in\nsubparagraph (B)(i) but not subparagraph (B)(ii), the value of the\ndistribution right shall be determined without regard to this section.\n (4) Minimum valuation of junior equity. (A) In general. In the case of\na transfer described in paragraph (1) of a junior equity interest in a\ncorporation or partnership, such interest shall in no event be valued at\nan amount less than the value which would be determined if the total\nvalue of all of the junior equity interests in the entity were equal to\n10 percent of the sum of-\n--(i) the total value of all of the equity interests in such entity,\nplus\n--(ii) the total amount of indebtedness of such entity to the transferor\n(or an applicable family member).\n (B) Definitions. For purposes of this paragraph-\n (i) Junior equity interest. The term "junior equity interest" means\ncommon stock or, in the case of a partnership, any partnership interest\nunder which the rights as to income and capital (or, to the extent\nprovided in regulations, the rights as to either income or capital) are\njunior to the rights of all other classes of equity interests.\n (ii) Equity interest. The term "equity interest" means stock or any\ninterest as a partner, as the case may be.\n (b) Applicable retained interests. For purposes of this section-\n (1) In general. The term "applicable retained interest" means any\ninterest in an entity with respect to which there is-\n--(A) a distribution right, but only if, immediately before the transfer\ndescribed in subsection (a)(1), the transferor and applicable family\nmembers hold (after application of subsection (e)(3)) control of the\nentity, or\n--(B) a liquidation, put, call, or conversion right.\n (2) Control. For purposes of paragraph (1)-\n (A) Corporations. In the case of a corporation, the term "control"\nmeans the holding of at least 50 percent (by vote or value) of the stock\nof the corporation.\n (B) Partnerships. In the case of a partnership, the term "control"\nmeans-\n--(i) the holding of at least 50 percent of the capital or profits\ninterests in the partnership, or\n--(ii) in the case of a limited partnership, the holding of any interest\nas a general partner.\n (C) Applicable family member. For purposes of this subsection, the\nterm "applicable family member" includes any lineal descendant of any\nparent of the transferor or the transferor's spouse.\n (c) Distribution and other rights; qualified payments. For purposes of\nthis section-\n (1) Distribution right. (A) In general. The term "distribution right"\nmeans-\n--(i) a right to distributions from a corporation with respect to its\nstock, and\n--(ii) a right to distributions from a partnership with respect to a\npartner's interest in the partnership.\n (B) Exceptions. The term "distribution right" does not include-\n--(i) a right to distributions with respect to any interest which is\njunior to the rights of the transferred interest,\n--(ii) any liquidation, put, call, or conversion right, or\n--(iii) any right to receive any guaranteed payment described in section\n707(c) of a fixed amount.\n (2) Liquidation, etc. rights. (A) In general. The term "liquidation,\nput, call, or conversion right" means any liquidation, put, call, or\nconversion right, or any similar right, the exercise or nonexercise of\nwhich affects the value of the transferred interest.\n (B) Exception for fixed rights. (i) In general. The term "liquidation,\nput, call, or conversion right" does not include any right which must be\nexercised at a specific time and at a specific amount.\n (ii) Treatment of certain rights. If a right is assumed to be\nexercised in a particular manner under subsection (a)(3)(B), such right\nshall be treated as so exercised for purposes of clause (i).\n (C) Exception for certain rights to convert. The term "liquidation,\nput, call, or conversion right" does not include any right which-\n--(i) is a right to convert into a fixed number (or a fixed percentage)\nof shares of the same class of stock in a corporation as the transferred\nstock in such corporation under subsection (a)(1) (or stock which would\nbe of the same class but for nonlapsing differences in voting power),\n--(ii) is nonlapsing,\n--(iii) is subject to proportionate adjustments for splits,\ncombinations, reclassifications, and similar changes in the capital\nstock, and\n--(iv) is subject to adjustments similar to the adjustments under\nsubsection (d) for accumulated but unpaid distributions.\n--A rule similar to the rule of the preceding sentence shall apply for\npartnerships.\n (3) Qualified payment. (A) In general. Except as otherwise provided in\nthis paragraph, the term "qualified payment" means any dividend payable\non a periodic basis under any cumulative preferred stock (or a\ncomparable payment under any partnership interest) to the extent that\nsuch dividend (or comparable payment) is determined at a fixed rate.\n (B) Treatment of variable rate payments. For purposes of subparagraph\n(A), a payment shall be treated as fixed as to rate if such payment is\ndetermined at a rate which bears a fixed relationship to a specified\nmarket interest rate.\n (C) Elections. (i) In general. Payments under any interest held by a\ntransferor which (without regard to this subparagraph) are qualified\npayments shall be treated as qualified payments unless the transferor\nelects not to treat such payments as qualified payments. Payments\ndescribed in the preceding sentence which are held by an applicable\nfamily member shall be treated as qualified payments only if such member\nelects to treat such payments as qualified payments.\n (ii) Election to have interest treated as qualified payment. A\ntransferor or applicable family member holding any distribution right\nwhich (without regard to this subparagraph) is not a qualified payment\nmay elect to treat such right as a qualified payment, to be paid in the\namounts and at the times specified in such election. The preceding\nsentence shall apply only to the extent that the amounts and times so\nspecified are not inconsistent with the underlying legal instrument\ngiving rise to such right.\n (iii) Elections irrevocable. Any election under this subparagraph with\nrespect to an interest shall, once made, be irrevocable.\n (d) Transfer tax treatment of cumulative but unpaid distributions. (1)\nIn general. If a taxable event occurs with respect to any distribution\nright to which subsection (a)(3)(B) or (C) applied, the following shall\nbe increased by the amount determined under paragraph (2):\n--(A) The taxable estate of the transferor in the case of a taxable\nevent described in paragraph (3)(A)(i).\n--(B) The taxable gifts of the transferor for the calendar year in which\nthe taxable event occurs in the case of a taxable event described in\nparagraph (3)(A)(ii) or (iii).\n (2) Amount of increase. (A) In general. The amount of the increase\ndetermined under this paragraph shall be the excess (if any) of-\n--(i) the value of the qualified payments payable during the period\nbeginning on the date of the transfer under subsection (a)(1) and ending\non the date of the taxable event determined as if-\n--(I) all such payments were paid on the date payment was due, and\n--(II) all such payments were reinvested by the transferor as of the\ndate of payment at a yield equal to the discount rate used in\ndetermining the value of the applicable retained interest described in\nsubsection (a)(1), over\n (ii) the value of such payments paid during such period computed under\nclause (i) on the basis of the time when such payments were actually\npaid.\n (B) Limitation on amount of increase. (i) In general. The amount of\nthe increase under subparagraph (A) shall not exceed the applicable\npercentage of the excess (if any) of-\n--(I) the value (determined as of the date of the taxable event) of all\nequity interests in the entity which are junior to the applicable\nretained interest, over\n--(II) the value of such interests (determined as of the date of the\ntransfer to which subsection (a)(1) applied).\n (ii) Applicable percentage. For purposes of clause (i), the applicable\npercentage is the percentage determined by dividing-\n--(I) the number of shares in the corporation held (as of the date of\nthe taxable event) by the transferor which are applicable retained\ninterests of the same class, by\n--(II) the total number of shares in such corporation (as of such date)\nwhich are of the same class as the class described in subclause (I).\n--A similar percentage shall be determined in the case of interests in a\npartnership.\n (iii) Definition. For purposes of this subparagraph, the term "equity\ninterest" has the meaning given such term by subsection (a)(4)(B).\n (C) Grace period. For purposes of subparagraph (A), any payment of any\ndistribution during the 4-year period beginning on its due date shall be\ntreated as having been made on such due date.\n (3) Taxable events. For purposes of this subsection-\n (A) In general. The term "taxable event" means any of the following:\n--(i) The death of the transferor if the applicable retained interest\nconferring the distribution right is includible in the estate of the\ntransferor.\n--(ii) The transfer of such applicable retained interest.\n--(iii) At the election of the taxpayer, the payment of any qualified\npayment after the period described in paragraph (2)(C), but only with\nrespect to such payment.\n (B) Exception where spouse is transferee. (i) Deathtime transfers\n--Subparagraph (A)(i) shall not apply to any interest includible in the\ngross estate of the transferor if a deduction with respect to such\ninterest is allowable under section 2056 or 2106(a)(3).\n (ii) Lifetime transfers. A transfer to the spouse of the transferor\nshall not be treated as a taxable event under subparagraph (A)(ii) if\nsuch transfer does not result in a taxable gift by reason of-\n--(I) any deduction allowed under section 2523, or the exclusion under\nsection 2503(b), or\n--(II) consideration for the transfer provided by the spouse.\n (iii) Spouse succeeds to treatment of transferor. If an event is not\ntreated as a taxable event by reason of this subparagraph, the\ntransferee spouse or surviving spouse (as the case may be) shall be\ntreated in the same manner as the transferor in applying this subsection\nwith respect to the interest involved.\n (4) Special rules for applicable family members. (A) Family member\ntreated in same manner as transferor. For purposes of this subsection,\nan applicable family member shall be treated in the same manner as the\ntransferor with respect to any distribution right retained by such\nfamily member to which subsection (a)(3)(B) or (C) applied.\n (B) Transfer to applicable family member. In the case of a taxable\nevent described in paragraph (3)(A)(ii) involving the transfer of an\napplicable retained interest to an applicable family member (other than\nthe spouse of the transferor), the applicable family member shall be\ntreated in the same manner as the transferor in applying this subsection\nto distributions accumulating with respect to such interest after such\ntaxable event.\n (C) Transfer to transferors. In the case of a taxable event described\nin paragraph (3)(A)(ii) involving a transfer of an applicable retained\ninterest from an applicable family member to a transferor, this\nsubsection shall continue to apply to the transferor during any period\nthe transferor holds such interest.\n (5) Transfer to include termination. For purposes of this subsection,\nany termination of an interest shall be treated as a transfer.\n (e) Other definitions and rules. For purposes of this section-\n (1) Member of the family. The term "member of the family" means, with\nrespect to any transferor-\n--(A) the transferor's spouse,\n--(B) a lineal descendant of the transferor or the transferor's spouse,\nand\n--(C) the spouse of any such descendant.\n (2) Applicable family member. The term "applicable family member"\nmeans, with respect to any transferor-\n--(A) the transferor's spouse,\n--(B) an ancestor of the transferor or the transferor's spouse, and\n--(C) the spouse of any such ancestor.\n (3) Attribution of indirect holdings and transfers. An individual\nshall be treated as holding any interest to the extent such interest is\nheld indirectly by such individual through a corporation, partnership,\ntrust, or other entity. If any individual is treated as holding any\ninterest by reason of the preceding sentence, any transfer which results\nin such interest being treated as no longer held by such individual\nshall be treated as a transfer of such interest.\n (4) Effect of adoption. A relationship by legal adoption shall be\ntreated as a relationship by blood.\n (5) Certain changes treated as transfers. Except as provided in\nregulations, a contribution to capital or a redemption,\nrecapitalization, or other change in the capital structure of a\ncorporation or partnership shall be treated as a transfer of an interest\nin such entity to which this section applies if the taxpayer or an\napplicable family member-\n--(A) receives an applicable retained interest in such entity pursuant\nto such transaction, or\n--(B) under regulations, otherwise holds, immediately after such\ntransaction, an applicable retained interest in such entity.\n--This paragraph shall not apply to any transaction (other than a\ncontribution to capital) if the interests in the entity held by the\ntransferor, applicable family members, and members of the transferor's\nfamily before and after the transaction are substantially identical.\n (6) Adjustments. Under regulations prescribed by the Secretary, if\nthere is any subsequent transfer, or inclusion in the gross estate, of\nany applicable retained interest which was valued under the rules of\nsubsection (a), appropriate adjustments shall be made for purposes of\nchapter 11, 12, or 13 to reflect the increase in the amount of any prior\ntaxable gift made by the transferor or decedent by reason of such\nvaluation or to reflect the application of subsection (d).\n (7) Treatment as separate interests. The Secretary may by regulation\nprovide that any applicable retained interest shall be treated as 2 or\nmore separate interests for purposes of this section.\n § 2702. Special valuation rules in case of transfers of interests in\ntrusts. (a) Valuation rules. (1) In general. Solely for purposes of\ndetermining whether a transfer of an interest in trust to (or for the\nbenefit of) a member of the transferor's family is a gift (and the value\nof such transfer), the value of any interest in such trust retained by\nthe transferor or any applicable family member (as defined in section\n2701(e)(2)) shall be determined as provided in paragraph (2).\n (2) Valuation of retained interests. (A) In general. The value of any\nretained interest which is not a qualified interest shall be treated as\nbeing zero.\n (B) Valuation of qualified interest. The value of any retained\ninterest which is a qualified interest shall be determined under section\n7520.\n (3) Exceptions. (A) In general. This subsection shall not apply to any\ntransfer-\n--(i) if such transfer is an incomplete gift,\n--(ii) if such transfer involves the transfer of an interest in trust\nall the property in which consists of a residence to be used as a\npersonal residence by persons holding term interests in such trust, or\n--(iii) to the extent that regulations provide that such transfer is not\ninconsistent with the purposes of this section.\n (B) Incomplete gift. For purposes of subparagraph (A), the term\n"incomplete gift" means any transfer which would not be treated as a\ngift whether or not consideration was received for such transfer.\n (b) Qualified interest. For purposes of this section, the term\n"qualified interest" means-\n (1) any interest which consists of the right to receive fixed amounts\npayable not less frequently than annually,\n (2) any interest which consists of the right to receive amounts which\nare payable not less frequently than annually and are a fixed percentage\nof the fair market value of the property in the trust (determined\nannually), and\n (3) any noncontingent remainder interest if all of the other interests\nin the trust consist of interests described in paragraph (1) or (2).\n (c) Certain property treated as held in trust. For purposes of this\nsection- (1) In general. The transfer of an interest in property with\nrespect to which there is 1 or more term interests shall be treated as a\ntransfer of an interest in a trust.\n (2) Joint purchases. If 2 or more members of the same family acquire\ninterests in any property described in paragraph (1) in the same\ntransaction (or a series of related transactions), the person (or\npersons) acquiring the term interests in such property shall be treated\nas having acquired the entire property and then transferred to the other\npersons the interests acquired by such other persons in the transaction\n(or series of transactions). Such transfer shall be treated as made in\nexchange for the consideration (if any) provided by such other persons\nfor the acquisition of their interests in such property.\n (3) Term interest. The term "term interest" means-\n (A) a life interest in property, or\n (B) an interest in property for a term of years.\n (4) Valuation rule for certain term interests. If the nonexercise of\nrights under a term interest in tangible property would not have a\nsubstantial effect on the valuation of the remainder interest in such\nproperty-\n (A) subparagraph (A) of subsection (a)(2) shall not apply to such term\ninterest, and\n (B) the value of such term interest for purposes of applying\nsubsection (a)(1) shall be the amount which the holder of the term\ninterest establishes as the amount for which such interest could be sold\nto an unrelated third party.\n (d) Treatment of transfers of interests in portion of trust. In the\ncase of a transfer of an income or remainder interest with respect to a\nspecified portion of the property in a trust, only such portion shall be\ntaken into account in applying this section to such transfer.\n (e) Member of the family. For purposes of this section, the term\n"member of the family" shall have the meaning given such term by section\n2704(c)(2).\n § 2703. Certain rights and restrictions disregarded\n (a) General rule. For purposes of this subtitle, the value of any\nproperty shall be determined without regard to-\n (1) any option, agreement, or other right to acquire or use the\nproperty at a price less than the fair market value of the property\n(without regard to such option, agreement, or right), or\n (2) any restriction on the right to sell or use such property.\n (b) Exceptions. Subsection (a) shall not apply to any option,\nagreement, right, or restriction which meets each of the following\nrequirements:\n (1) It is a bona fide business arrangement.\n (2) It is not a device to transfer such property to members of the\ndecedent's family for less than full and adequate consideration in money\nor money's worth.\n (3) Its terms are comparable to similar arrangements entered into by\npersons in an arms' length transaction\n § 2704. Treatment of certain lapsing rights and restrictions. (a)\nTreatment of lapsed voting or liquidation rights. (1) In general. For\npurposes of this subtitle, if-\n--(A) there is a lapse of any voting or liquidation right in a\ncorporation or partnership, and\n--(B) the individual holding such right immediately before the lapse and\nmembers of such individual's family hold, both before and after the\nlapse, control of the entity,\n such lapse shall be treated as a transfer by such individual by gift,\nor a transfer which is includible in the gross estate of the decedent,\nwhichever is applicable, in the amount determined under paragraph (2).\n (2) Amount of transfer. For purposes of paragraph (1), the amount\ndetermined under this paragraph is the excess (if any) of-\n--(A) the value of all interests in the entity held by the individual\ndescribed in paragraph (1) immediately before the lapse (determined as\nif the voting and liquidation rights were nonlapsing), over\n--(B) the value of such interests immediately after the lapse.\n (3) Similar rights. The Secretary may by regulations apply this\nsubsection to rights similar to voting and liquidation rights.\n (b) Certain restrictions on liquidation disregarded. (1) In general.\nFor purposes of this subtitle, if-\n--(A) there is a transfer of an interest in a corporation or partnership\nto (or for the benefit of) a member of the transferor's family, and\n--(B) the transferor and members of the transferor's family hold,\nimmediately before the transfer, control of the entity,\n --any applicable restriction shall be disregarded in determining the\nvalue of the transferred interest.\n (2) Applicable restriction. For purposes of this subsection, the term\n"applicable restriction" means any restriction-\n (A) which effectively limits the ability of the corporation or\npartnership to liquidate, and\n (B) with respect to which either of the following applies:\n--(i) The restriction lapses, in whole or in part, after the transfer\nreferred to in paragraph (1).\n--(ii) The transferor or any member of the transferor's family, either\nalone or collectively, has the right after such transfer to remove, in\nwhole or in part, the restriction.\n (3) Exceptions. The term "applicable restriction" shall not include-\n--(A) any commercially reasonable restriction which arises as part of\nany financing by the corporation or partnership with a person who is not\nrelated to the transferor or transferee, or a member of the family of\neither, or\n--(B) any restriction imposed, or required to be imposed, by any Federal\nor State law.\n (4) Other restrictions. The Secretary may by regulations provide that\nother restrictions shall be disregarded in determining the value of the\ntransfer of any interest in a corporation or partnership to a member of\nthe transferor's family if such restriction has the effect of reducing\nthe value of the transferred interest for purposes of this subtitle but\ndoes not ultimately reduce the value of such interest to the transferee.\n (c) Definitions and special rules. For purposes of this section-\n (1) Control. The term "control" has the meaning given such term by\nsection 2701(b)(2).\n (2) Member of the family. The term "member of the family" means, with\nrespect to any individual-\n (A) such individual's spouse,\n (B) any ancestor or lineal descendant of such individual or such\nindividual's spouse,\n (C) any brother or sister of the individual, and\n (D) any spouse of any individual described in subparagraph (B) or\n(C).\n (3) Attribution. The rule of section 2701(e)(3) shall apply for\npurposes of determining the interests held by any individual.\n § 7872. Treatment of loans with below-market interest rates\n (a) Treatment of gift loans and demand loans. (1) In general. For\npurposes of this title, in the case of any below-market loan to which\nthis section applies and which is a gift loan or a demand loan, the\nforgone interest shall be treated as-\n--(A) transferred from the lender to the borrower, and\n--(B) retransferred by the borrower to the lender as interest.\n (2) Time when transfers made. Except as otherwise provided in\nregulations prescribed by the Secretary, any forgone interest\nattributable to periods during any calendar year shall be treated as\ntransferred (and retransferred) under paragraph (1) on the last day of\nsuch calendar year.\n (b) Treatment of other below-market loans. (1) In general. For\npurposes of this title, in the case of any below-market loan to which\nthis section applies and to which subsection (a)(1) does not apply, the\nlender shall be treated as having transferred on the date the loan was\nmade (or, if later, on the first day on which this section applies to\nsuch loan), and the borrower shall be treated as having received on such\ndate, cash in an amount equal to the excess of-\n--(A) the amount loaned, over\n--(B) the present value of all payments which are required to be made\nunder the terms of the loan.\n (2) Obligation treated as having original issue discount. For purposes\nof this title-\n (A) In general. Any below-market loan to which paragraph (1) applies\nshall be treated as having original issue discount in an amount equal to\nthe excess described in paragraph (1).\n (B) Amount in addition to other original issue discount. Any original\nissue discount which a loan is treated as having by reason of\nsubparagraph (A) shall be in addition to any other original issue\ndiscount on such loan (determined without regard to subparagraph (A)).\n (c) Below-market loans to which section applies. (1) In general.\nExcept as otherwise provided in this subsection and subsection (g), this\nsection shall apply to-\n (A) Gifts. Any below-market loan which is a gift loan.\n (B) Compensation-related loans. Any below-market loan directly or\nindirectly between-\n--(i) an employer and an employee, or\n--(ii) an independent contractor and a person for whom such independent\ncontractor provides services.\n (C) Corporation-shareholder loans. Any below-market loan directly or\nindirectly between a corporation and any shareholder of such\ncorporation.\n (D) Tax avoidance loans. Any below-market loan 1 of the principal\npurposes of the interest arrangements of which is the avoidance of any\nFederal tax.\n (E) Other below-market loans. To the extent provided in regulations,\nany below-market loan which is not described in subparagraph (A), (B),\n(C), or (F) if the interest arrangements of such loan have a significant\neffect on any Federal tax liability of the lender or the borrower.\n (F) Loans to qualified continuing care facilities. Any loan to any\nqualified continuing care facility pursuant to a continuing care\ncontract.\n (2) $10,000 de minimis exception for gift loans between individuals.\n(A) In general. In the case of any gift loan directly between\nindividuals, this section shall not apply to any day on which the\naggregate outstanding amount of loans between such individuals does not\nexceed $10,000.\n (B) De minimis exception not to apply to loans attributable to\nacquisition of income-producing assets.\n--Subparagraph (A) shall not apply to any gift loan directly\nattributable to the purchase or carrying of income-producing assets.\n (C) Cross reference. For limitation on amount treated as interest\nwhere loans do not exceed $100,000, see subsection (d)(1).\n (3) $10,000 de minimis exception for compensation-related and\ncorporate-shareholder loans. (A) In general. In the case of any loan\ndescribed in subparagraph (B) or (C) of paragraph (1), this section\nshall not apply to any day on which the aggregate outstanding amount of\nloans between the borrower and lender does not exceed $10,000.\n (B) Exception not to apply where 1 of principal purposes is tax\navoidance. Subparagraph (A) shall not apply to any loan the interest\narrangements of which have as 1 of their principal purposes the\navoidance of any Federal tax.\n (d) Special rules for gift loans. (1) Limitation on interest accrual\nfor purposes of income taxes where loans do not exceed $100,000. (A) In\ngeneral. For purposes of subtitle A, in the case of a gift loan directly\nbetween individuals, the amount treated as retransferred by the borrower\nto the lender as of the close of any year shall not exceed the\nborrower's net investment income for such year.\n (B) Limitation not to apply where 1 of principal purposes is tax\navoidance. Subparagraph (A) shall not apply to any loan the interest\narrangements of which have as 1 of their principal purposes the\navoidance of any Federal tax.\n (C) Special rule where more than 1 gift loan outstanding. For purposes\nof subparagraph (A), in any case in which a borrower has outstanding\nmore than 1 gift loan, the net investment income of such borrower shall\nbe allocated among such loans in proportion to the respective amounts\nwhich would be treated as retransferred by the borrower without regard\nto this paragraph.\n (D) Limitation not to apply where aggregate amount of loans exceed\n$100,000. This paragraph shall not apply to any loan made by a lender to\na borrower for any day on which the aggregate outstanding amount of\nloans between the borrower and lender exceeds $100,000.\n (E) Net investment income. For purposes of this paragraph-\n (i) In general. The term "net investment income" has the meaning given\nsuch term by section 163(d)(4).\n (ii) De minimis rule. If the net investment income of any borrower for\nany year does not exceed $1,000, the net investment income of such\nborrower for such year shall be treated as zero.\n (iii) Additional amounts treated as interest. In determining the net\ninvestment income of a person for any year, any amount which would be\nincluded in the gross income of such person for such year by reason of\nsection 1272 if such section applied to all deferred payment obligations\nshall be treated as interest received by such person for such year.\n (iv) Deferred payment obligations. The term "deferred payment\nobligation" includes any market discount bond, short-term obligation,\nUnited States savings bond, annuity, or similar obligation.\n (2) Special rule for gift tax. In the case of any gift loan which is a\nterm loan, subsection (b)(1) (and not subsection (a)) shall apply for\npurposes of chapter 12.\n (e) Definitions of below-market loan and forgone interest. For\npurposes of this section-\n (1) Below-market loan. The term "below-market loan" means any loan if-\n--(A) in the case of a demand loan, interest is payable on the loan at a\nrate less than the applicable Federal rate, or\n--(B) in the case of a term loan, the amount loaned exceeds the present\nvalue of all payments due under the loan.\n (2) Forgone interest. The term "forgone interest" means, with respect\nto any period during which the loan is outstanding, the excess of-\n--(A) the amount of interest which would have been payable on the loan\nfor the period if interest accrued on the loan at the applicable Federal\nrate and were payable annually on the day referred to in subsection\n(a)(2), over\n--(B) any interest payable on the loan properly allocable to such\nperiod.\n (f) Other definitions and special rules. For purposes of this section-\n (1) Present value. The present value of any payment shall be\ndetermined in the manner provided by regulations prescribed by the\nSecretary-\n--(A) as of the date of the loan, and\n--(B) by using a discount rate equal to the applicable Federal rate.\n (2) Applicable Federal rate. (A) Term loans. In the case of any term\nloan, the applicable Federal rate shall be the applicable Federal rate\nin effect under section 1274(d) (as of the day on which the loan was\nmade), compounded semiannually.\n (B) Demand loans. In the case of a demand loan, the applicable Federal\nrate shall be the Federal short-term rate in effect under section\n1274(d) for the period for which the amount of forgone interest is being\ndetermined, compounded semiannually.\n (3) Gift loan. The term "gift loan" means any below-market loan where\nthe forgoing of interest is in the nature of a gift.\n (4) Amount loaned. The term "amount loaned" means the amount received\nby the borrower.\n (5) Demand loan. The term "demand loan" means any loan which is\npayable in full at any time on the demand of the lender. Such term also\nincludes (for purposes other than determining the applicable Federal\nrate under paragraph (2)) any loan if the benefits of the interest\narrangements of such loan are not transferable and are conditioned on\nthe future performance of substantial services by an individual. To the\nextent provided in regulations, such term also includes any loan with an\nindefinite maturity.\n (6) Term loan. The term "term loan" means any loan which is not a\ndemand loan.\n (7) Husband and wife treated as 1 person. A husband and wife shall be\ntreated as 1 person.\n (8) Loans to which section 483, 643(i), or 1274 applies. This section\nshall not apply to any loan to which section 483, 643(i), or 1274\napplies.\n (9) No withholding. No amount shall be withheld under chapter 24 with\nrespect to-\n--(A) any amount treated as transferred or retransferred under\nsubsection (a), and\n--(B) any amount treated as received under subsection (b).\n (10) Special rule for term loans. If this section applies to any term\nloan on any day, this section shall continue to apply to such loan\nnotwithstanding paragraphs (2) and (3) of subsection (c). In the case of\na gift loan, the preceding sentence shall only apply for purposes of\nchapter 12.\n (11) Time for determining rate applicable to employee relocation\nloans. (A) In general. In the case of any term loan made by an employer\nto an employee the proceeds of which are used by the employee to\npurchase a principal residence (within the meaning of section 121), the\ndetermination of the applicable Federal rate shall be made as of the\ndate the written contract to purchase such residence was entered into.\n (B) Paragraph only to apply to cases to which section 217 applies.\nSubparagraph (A) shall only apply to the purchase of a principal\nresidence in connection with the commencement of work by an employee or\na change in the principal place of work of an employee to which section\n217 applies.\n (g) Exception for certain loans to qualified continuing care\nfacilities. (1) In general. This section shall not apply for any\ncalendar year to any below-market loan made by a lender to a qualified\ncontinuing care facility pursuant to a continuing care contract if the\nlender (or the lender's spouse) attains age 65 before the close of such\nyear.\n (2) $90,000 limit. Paragraph (1) shall apply only to the extent that\nthe aggregate outstanding amount of any loan to which such paragraph\napplies (determined without regard to this paragraph), when added to the\naggregate outstanding amount of all other previous loans between the\nlender (or the lender's spouse) and any qualified continuing care\nfacility to which paragraph (1) applies, does not exceed $90,000.\n (3) Continuing care contract. For purposes of this section, the term\n"continuing care contract" means a written contract between an\nindividual and a qualified continuing care facility under which-\n--(A) the individual or individual's spouse may use a qualified\ncontinuing care facility for their life or lives,\n--(B) the individual or individual's spouse-\n--(i) will first-\n--(I) reside in a separate, independent living unit with additional\nfacilities outside such unit for the providing of meals and other\npersonal care, and\n--(II) not require long-term nursing care, and\n--(ii) then will be provided long-term and skilled nursing care as the\nhealth of such individual or individual's spouse requires, and\n--(C) no additional substantial payment is required if such individual\nor individual's spouse requires increased personal care services or\nlong-term and skilled nursing care.\n (4) Qualified continuing care facility. (A) In general. For purposes\nof this section, the term "qualified continuing care facility" means 1\nor more facilities-\n--(i) which are designed to provide services under continuing care\ncontracts, and\n--(ii) substantially all of the residents of which are covered by\ncontinuing care contracts.\n (B) Substantially all facilities must be owned or operated by\nborrower. A facility shall not be treated as a qualified continuing\ncare facility unless substantially all facilities which are used to\nprovide services which are required to be provided under a continuing\ncare contract are owned or operated by the borrower.\n (C) Nursing homes excluded. The term "qualified continuing care\nfacility" shall not include any facility which is of a type which is\ntraditionally considered a nursing home.\n (5) Adjustment of limit for inflation. (A) In general. In the case of\nany loan made during any calendar year after 1986 to which paragraph (1)\napplies, the dollar amount in paragraph (2) shall be increased by the\ninflation adjustment for such calendar year. Any increase under the\npreceding sentence shall be rounded to the nearest multiple of $100 (or,\nif such increase is a multiple of $50, such increase shall be increased\nto the nearest multiple of $100).\n (B) Inflation adjustment. For purposes of subparagraph (A), the\ninflation adjustment for any calendar year is the percentage (if any) by\nwhich-\n--(i) the CPI for the preceding calendar year exceeds\n--(ii) the CPI for calendar year 1985.\n 1. For purposes of the preceding sentence, the CPI for any calendar\nyear is the average of the Consumer Price Index as of the close of the\n12-month period ending on September 30 of such calendar year.\n (6) Suspension of application. Paragraph (1) shall not apply for any\ncalendar year to which subsection (h) applies.\n (h) Exception for loans to qualified continuing care facilities. (1)\nIn general. This section shall not apply for any calendar year to any\nbelow-market loan owed by a facility which on the last day of such year\nis a qualified continuing care facility, if such loan was made pursuant\nto a continuing care contract and if the lender (or the lender's spouse)\nattains age 62 before the close of such year.\n (2) Continuing care contract. For purposes of this section, the term\n"continuing care contract" means a written contract between an\nindividual and a qualified continuing care facility under which-\n--(A) the individual or individual's spouse may use a qualified\ncontinuing care facility for their life or lives,\n--(B) the individual or individual's spouse will be provided with\nhousing, as appropriate for the health of such individual or\nindividual's spouse-\n--(i) in an independent living unit (which has additional available\nfacilities outside such unit for the provision of meals and other\npersonal care), and\n--(ii) in an assisted living facility or a nursing facility, as is\navailable in the continuing care facility, and\n--(C) the individual or individual's spouse will be provided assisted\nliving or nursing care as the health of such individual or individual's\nspouse requires, and as is available in the continuing care facility.\n--The Secretary shall issue guidance which limits such term to contracts\nwhich provide only facilities, care, and services described in this\nparagraph.\n (3) Qualified continuing care facility. (A) In general. For purposes\nof this section, the term "qualified continuing care facility" means 1\nor more facilities-\n--(i) which are designed to provide services under continuing care\ncontracts,\n--(ii) which include an independent living unit, plus an assisted living\nor nursing facility, or both, and\n--(iii) substantially all of the independent living unit residents of\nwhich are covered by continuing care contracts.\n (B) Nursing homes excluded. The term "qualified continuing care\nfacility" shall not include any facility which is of a type which is\ntraditionally considered a nursing home.\n (i) Regulations. (1) In general. The Secretary shall prescribe such\nregulations as may be necessary or appropriate to carry out the purposes\nof this section, including-\n--(A) regulations providing that where, by reason of varying rates of\ninterest, conditional interest payments, waivers of interest,\ndisposition of the lender's or borrower's interest in the loan, or other\ncircumstances, the provisions of this section do not carry out the\npurposes of this section, adjustments to the provisions of this section\nwill be made to the extent necessary to carry out the purposes of this\nsection,\n--(B) regulations for the purpose of assuring that the positions of the\nborrower and lender are consistent as to the application (or\nnonapplication) of this section, and\n--(C) regulations exempting from the application of this section any\nclass of transactions the interest arrangements of which have no\nsignificant effect on any Federal tax liability of the lender or the\nborrower.\n (2) Estate tax coordination. Under regulations prescribed by the\nSecretary, any loan which is made with donative intent and which is a\nterm loan shall be taken into account for purposes of chapter 11 in a\nmanner consistent with the provisions of subsection (b).\n § 6166. Extension of Time for Payment of Estate Tax Where Estate\nConsists Largely of Interest in Closely Held Business. (a) 5-year\ndeferral; 10-year installment payment.--\n (1) In general.--If the value of an interest in a closely held\nbusiness which is included in determining the gross estate of a decedent\nwho was (at the date of his death) a citizen or resident of the United\nStates exceeds 35 percent of the adjusted gross estate, the executor may\nelect to pay part or all of the tax imposed by section 2001 in 2 or more\n(but not exceeding 10) equal installments.\n (2) Limitation.--The maximum amount of tax which may be paid in\ninstallments under this subsection shall be an amount which bears the\nsame ratio to the tax imposed by section 2001 (reduced by the credits\nagainst such tax) as--\n (A) the closely held business amount, bears to\n (B) the amount of the adjusted gross estate.\n (3) Date for payment of installments.--If an election is made under\nparagraph (1), the first installment shall be paid on or before the date\nselected by the executor which is not more than 5 years after the date\nprescribed by section 6151(a) for payment of the tax, and each\nsucceeding installment shall be paid on or before the date which is 1\nyear after the date prescribed by this paragraph for payment of the\npreceding installment.\n (b) Definitions and special rules.--\n (1) Interest in closely held business.--For purposes of this section,\nthe term "interest in a closely held business" means--\n (A) an interest as a proprietor in a trade or business carried on as a\nproprietorship;\n (B) an interest as a partner in a partnership carrying on a trade or\nbusiness, if--\n (i) 20 percent or more of the total capital interest in such\npartnership is included in determining the gross estate of the decedent,\nor\n (ii) such partnership had 45 or fewer partners; or\n (C) stock in a corporation carrying on a trade or business if--\n (i) 20 percent or more in value of the voting stock of such\ncorporation is included in determining the gross estate of the decedent,\nor\n (ii) such corporation had 45 or fewer shareholders.\n (2) Rules for applying paragraph (1).--For purposes of paragraph (1)--\n (A) Time for testing.--Determinations shall be made as of the time\nimmediately before the decedent's death.\n (B) Certain interests held by husband and wife.--Stock or a\npartnership interest which--\n (i) is community property of a husband and wife (or the income from\nwhich is community income) under the applicable community property law\nof a State, or\n (ii) is held by a husband and wife as joint tenants, tenants by the\nentirety, or tenants in common, shall be treated as owned by one\nshareholder or one partner, as the case may be.\n (C) Indirect ownership.--Property owned, directly or indirectly, by or\nfor a corporation, partnership, estate, or trust shall be considered as\nbeing owned proportionately by or for its shareholders, partners, or\nbeneficiaries. For purposes of the preceding sentence, a person shall be\ntreated as a beneficiary of any trust only if such person has a present\ninterest in the trust.\n (D) Certain interests held by members of decedent's family.--All stock\nand all partnership interests held by the decedent or by any member of\nhis family (within the meaning of section 267(c)(4)) shall be treated as\nowned by the decedent.\n (3) Farmhouses and certain other structures taken into account.--For\npurposes of the 35-percent requirement of subsection (a)(1), an interest\nin a closely held business which is the business of farming includes an\ninterest in residential buildings and related improvements on the farm\nwhich are occupied on a regular basis by the owner or lessee of the farm\nor by persons employed by such owner or lessee for purposes of operating\nor maintaining the farm.\n (4) Value.--For purposes of this section, value shall be value\ndetermined for purposes of chapter 11 (relating to estate tax).\n (5) Closely held business amount.--For purposes of this section, the\nterm "closely held business amount" means the value of the interest in a\nclosely held business which qualifies under subsection (a)(1).\n (6) Adjusted gross estate.--For purposes of this section, the term,\n"adjusted gross estate" means the value of the gross estate reduced by\nthe sum of the amounts allowable as a deduction under section 2053 or\n2054. Such sum shall be determined on the basis of the facts and\ncircumstances in existence on the date (including extensions) for filing\nthe return of tax imposed by section 2001 (or, if earlier, the date on\nwhich such return is filed).\n (7) Partnership interests and stock which is not readily tradable.--\n (A) In general.--If the executor elects the benefits of this paragraph\n(at such time and in such manner as the Secretary shall by regulations\nprescribe), then--\n (i) for purposes of paragraph (1)(B)(i) or (1)(C)(i) (whichever is\nappropriate) and for purposes of subsection (c), any capital interest in\na partnership and any non-readily-tradable stock which (after the\napplication of paragraph (2)) is treated as owned by the decedent shall\nbe treated as included in determining the value of the decedent's gross\nestate,\n (ii) the executor shall be treated as having selected under subsection\n(a)(3) the date prescribed by section 6151(a), and\n (iii) for purposes of applying section 6601(j), the 2-percent portion\n(as defined in such section) shall be treated as being zero.\n (B) Non-readily-tradable stock defined.--For purposes of this\nparagraph, the term "non-readily-tradable stock" means stock for which,\nat the time of the decedent's death, there was no market on a stock\nexchange or in an over-the-counter market.\n (8) Stock in holding company treated as business company stock in\ncertain cases.--\n (A) In general.--If the executor elects the benefits of this\nparagraph, then--\n (i) Holding company stock treated as business company stock.--For\npurposes of this section, the portion of the stock of any holding\ncompany which represents direct ownership (or indirect ownership through\n1 or more other holding companies) by such company in a business company\nshall be deemed to be stock in such business company.\n (ii) 5-year deferral for principal not to apply.--The executor shall\nbe treated as having selected under subsection (a)(3) the date\nprescribed by section 6151(a).\n (iii) 2-percent interest rate not to apply.--For purposes of applying\nsection 6601(j), the 2-percent portion (as defined in such section)\nshall be treated as being zero.\n (B) All stock must be non-readily-tradable stock.--\n (i) In general.--No stock shall be taken into account for purposes of\napplying this paragraph unless it is non-readily-tradable stock\n (within the meaning of paragraph (7)(B)).\n (ii) Special application where only holding company stock is\nnon-readily-tradable stock.--If the requirements of clause (i) are not\nmet, but all of the stock of each holding company taken into account is\nnon-readily-tradable, then this paragraph shall apply, but subsection\n(a)(1) shall be applied by substituting "5" for "10".\n (C) Application of voting stock requirement of paragraph\n(1)(C)(i).--For purposes of clause (i) of paragraph (1)(C), the deemed\nstock resulting from the application of subparagraph (A) shall be\ntreated as voting stock to the extent that voting stock in the holding\ncompany owns directly (or through the voting stock of 1 or more other\nholding companies) voting stock in the business company.\n (D) Definitions.--For purposes of this paragraph--\n (i) Holding company.--The term "holding company" means any corporation\nholding stock in another corporation.\n (ii) Business company.--The term "business company" means any\ncorporation carrying on a trade or business.\n (9) Deferral not available for passive assets.--\n (A) In general.--For purposes of subsection (a)(1) and determining the\nclosely held business amount (but not for purposes of subsection (g)),\nthe value of any interest in a closely held business shall not include\nthe value of that portion of such interest which is attributable to\npassive assets held by the business.\n (B) Passive asset defined.--For purposes of this paragraph--\n (i) In general.--The term "passive asset" means any asset other than\nan asset used in carrying on a trade or business.\n (ii) Stock treated as passive asset.--The term "passive asset"\nincludes any stock in another corporation unless--\n (I) such stock is treated as held by the decedent by reason of an\nelection under paragraph (8), and\n (II) such stock qualified under subsection (a)(1).\n (iii) Exception for active corporations.--If--\n (I) a corporation owns 20 percent or more in value of the voting stock\nof another corporation, or such other corporation has 45 or fewer\nshareholders, and\n (II) 80 percent or more of the value of the assets of each such\ncorporation is attributable to assets used in carrying on a trade or\nbusiness, then such corporations shall be treated as 1 corporation for\npurposes of clause (ii). For purposes of applying subclause (II) to the\ncorporation holding the stock of the other corporation, such stock shall\nnot be taken into account.\n (10) Stock in qualifying lending and finance business treated as stock\nin an active trade or business company.--\n (A) In general.--If the executor elects the benefits of this\nparagraph, then--\n (i) Stock in qualifying lending and finance business treated as stock\nin an active trade or business company.--For purposes of this section,\nany asset used in a qualifying lending and finance business shall be\ntreated as an asset which is used in carrying on a trade or business.\n (ii) 5-year deferral for principal not to apply.--The executor shall\nbe treated as having selected under subsection (a)(3) the date\nprescribed by section 6151(a).\n (iii) 5 equal installments allowed.--For purposes of applying\nsubsection\n (a)(1), "5" shall be substituted for "10".\n (B) Definitions.--For purposes of this paragraph--\n (i) Qualifying lending and finance business.--The term "qualifying\nlending and finance business" means a lending and finance business, if--\n (I) based on all the facts and circumstances immediately before the\ndate of the decedent's death, there was substantial activity with\nrespect to the lending and finance business, or\n (II) during at least 3 of the 5 taxable years ending before the date\nof the decedent's death, such business had at least 1 full-time employee\nsubstantially all of whose services were the active management of such\nbusiness, 10 full-time, nonowner employees substantially all of whose\nservices were directly related to such business, and $5,000,000 in gross\nreceipts from activities described in clause (ii).\n (ii) Lending and finance business.--The term "lending and finance\nbusiness" means a trade or business of--\n (I) making loans,\n (II) purchasing or discounting accounts receivable, notes, or\ninstallment obligations,\n (III) engaging in rental and leasing of real and tangible personal\nproperty, including entering into leases and purchasing, servicing, and\ndisposing of leases and leased assets,\n (IV) rendering services or making facilities available in the ordinary\ncourse of a lending or finance business, and\n (V) rendering services or making facilities available in connection\nwith activities described in subclauses (I) through (IV) carried on by\nthe corporation rendering services or making facilities available, or\nanother corporation which is a member of the same affiliated group (as\ndefined in section 1504 without regard to section 1504(b)(3)).\n (iii) Limitation.--The term "qualifying lending and finance business"\nshall not include any interest in an entity, if the stock or debt of\nsuch entity or a controlled group (as defined in section 267(f)(1)) of\nwhich such entity was a member was readily tradable on an established\nsecurities market or secondary market (as defined by the Secretary) at\nany time within 3 years before the date of the decedent's death.\n (c) Special rule for interest in 2 or more closely held\nbusinesses.--For purposes of this section, interest in 2 or more closely\nheld businesses, with respect to each of which there is included in\ndetermining the value of the decedent's gross estate 20 percent or more\nof the total value of each such business, shall be treated as an\ninterest in a single closely held business. For purposes of the\n20-percent requirement of the preceding sentence, an interest in a\nclosely held business which represents the surviving spouse's interest\nin property held by the decedent and the surviving spouse as community\nproperty or as joint tenants, tenants by the entirety, or tenants in\ncommon shall be treated as having been included in determining the value\nof the decedent's gross estate.\n (d) Election.--Any election under subsection (a) shall be made not\nlater than the time prescribed by section 6075(a) for filing the return\nof tax imposed by section 2001 (including extensions thereof), and shall\nbe made in such manner as the Secretary shall by regulations prescribe.\nIf an election under subsection (a) is made, the provisions of this\nsubtitle shall apply as though the Secretary were extending the time for\npayment of the tax.\n (e) Proration of deficiency to installments.--If an election is made\nunder subsection (a) to pay any part of the tax imposed by section 2001\nin installments and a deficiency has been assessed, the deficiency shall\n(subject to the limitation provided by subsection (a)(2)) be prorated to\nthe installments payable under subsection (a). The part of the\ndeficiency so prorated to any installment the date for payment of which\nhas not arrived shall be collected at the same time as, and as a part\nof, such installment. The part of the deficiency so prorated to any\ninstallment the date for payment of which has arrived shall be paid upon\nnotice and demand from the Secretary. This subsection shall not apply if\nthe deficiency is due to negligence, to intentional disregard of rules\nand regulations, or to fraud with intent to evade tax.\n (f) Time for payment of interest.--If the time for payment of any\namount of tax has been extended under this section--\n (1) Interest for first 5 years.--Interest payable under section 6601\nof any unpaid portion of such amount attributable to the first 5 years\nafter the date prescribed by section 6151(a) for payment of the tax\nshall be paid annually.\n (2) Interest for periods after first 5 years.--Interest payable under\nsection 6601 on any unpaid portion of such amount attributable to any\nperiod after the 5-year period referred to in paragraph (1) shall be\npaid annually at the same time as, and as a part of, each installment\npayment of the tax.\n (3) Interest in the case of certain deficiencies.--In the case of a\ndeficiency to which subsection (e) applies which is assessed after the\nclose of the 5-year period referred to in paragraph (1), interest\nattributable to such 5-year period, and interest assigned under\nparagraph (2) to any installment the date for payment of which has\narrived on or before the date of the assessment of the deficiency, shall\nbe paid upon notice and demand from the Secretary.\n (4) Selection of shorter period.--If the executor has selected a\nperiod shorter than 5 years under subsection (a)(3), such shorter period\nshall be substituted for 5 years in paragraphs (1), (2), and (3) of this\nsubsection.\n (g) Acceleration of payment.--\n (1) Disposition of interest; withdrawal of funds from business.--\n (A) If--\n (i)(I) any portion of an interest in a closely held business which\nqualifies under subsection (a)(1) is distributed, sold, exchanged, or\notherwise disposed of, or\n (II) money and other property attributable to such an interest is\nwithdrawn from such trade or business, and\n (ii) the aggregate of such distributions, sales, exchanges, or other\ndispositions and withdrawals equals or exceeds 50 percent of the value\nof such interest, then the extension of time for payment of tax provided\nin subsection (a) shall cease to apply, and the unpaid portion of the\ntax payable in installments shall be paid upon notice and demand from\nthe Secretary.\n (B) In the case of a distribution in redemption of stock to which\nsection 303 (or so much of section 304 as relates to section 303)\napplies--\n (i) the redemption of such stock, and the withdrawal of money and\nother property distributed in such redemption, shall not be treated as a\ndistribution or withdrawal for purposes of subparagraph (A), and\n (ii) for purposes of subparagraph (A), the value of the interest in\nthe closely held business shall be considered to be such value reduced\nby the value of the stock redeemed.\n This subparagraph shall apply only if, on or before the date\nprescribed by subsection (a)(3) for the payment of the first installment\nwhich becomes due after the date of the distribution (or, if earlier, on\nor before the day which is 1 year after the date of the distribution),\nthere is paid an amount of the tax imposed by section 2001 not less than\nthe amount of money and other property distributed.\n (C) Subparagraph (A)(i) does not apply to an exchange of stock\npursuant to a plan of reorganization described in subparagraph (D), (E),\nor (F) of section 368(a)(1) nor to an exchange to which section 355 (or\nso much of section 356 as relates to section 355) applies; but any stock\nreceived in such an exchange shall be treated for purposes of\nsubparagraph (A)(i) as an interest qualifying under subsection (a)(1).\n (D) Subparagraph (A)(i) does not apply to a transfer of property of\nthe decedent to a person entitled by reason of the decedent's death to\nreceive such property under the decedent's will, the applicable law of\ndescent and distribution, or a trust created by the decedent. A similar\nrule shall apply in the case of a series of subsequent transfers of the\nproperty by reason of death so long as each transfer is to a member of\nthe family (within the meaning of section 267(c)(4)) of the transferor\nin such transfer.\n (E) Changes in interest in holding company.--If any stock in a holding\ncompany is treated as stock in a business company by reason of\nsubsection (b)(8)(A)--\n (i) any disposition of any interest in such stock in such holding\ncompany which was included in determining the gross estate of the\ndecedent, or\n (ii) any withdrawal of any money or other property from such holding\ncompany attributable to any interest included in determining the gross\nestate of the decedent,\n shall be treated for purposes of subparagraph (A) as a disposition of\n(or a withdrawal with respect to) the stock qualifying under subsection\n(a)(1).\n (F) Changes in interest in business company.--If any stock in a\nholding company is treated as stock in a business company by reason of\nsubsection (b)(8)(A)--\n (i) any disposition of any interest in such stock in the business\ncompany by such holding company, or\n (ii) any withdrawal of any money or other property from such business\ncompany attributable to such stock by such holding company owning such\nstock,\n shall be treated for purposes of subparagraph (A) as a disposition of\n(or a withdrawal with respect to) the stock qualifying under subsection\n(a)(1).\n (2) Undistributed income of estate.--\n (A) If an election is made under this section and the estate has\nundistributed net income for any taxable year ending on or after the due\ndate for the first installment, the executor shall, on or before the\ndate prescribed by law for filing the income tax return for such taxable\nyear (including extensions thereof), pay an amount equal to such\nundistributed net income in liquidation of the unpaid portion of the tax\npayable in installments.\n (B) For purposes of subparagraph (A), the undistributed net income of\nthe estate for any taxable year is the amount by which the distributable\nnet income of the estate for such taxable year (as defined in section\n643) exceeds the sum of--\n (i) the amounts for such taxable year specified in paragraphs (1) and\n(2) of section 661(a) (relating to deductions for distributions, etc.);\n (ii) the amount of tax imposed for the taxable year on the estate\nunder chapter 1; and\n (iii) the amount of the tax imposed by section 2001 (including\ninterest) paid by the executor during the taxable year (other than any\namount paid pursuant to this paragraph).\n (C) For purposes of this paragraph, if any stock in a corporation is\ntreated as stock in another corporation by reason of subsection\n(b)(8)(A), any dividends paid by such other corporation to the\ncorporation shall be treated as paid to the estate of the decedent to\nthe extent attributable to the stock qualifying under subsection (a)(1).\n (3) Failure to make payment of principal or interest.--\n (A) In general.--Except as provided in subparagraph (B), if any\npayment of principal or interest under this section is not paid on or\nbefore the date fixed for its payment by this section (including any\nextension of time), the unpaid portion of the tax payable in\ninstallments shall be paid upon notice and demand from the Secretary.\n (B) Payment within 6 months.--If any payment of principal or interest\nunder this section is not paid on or before the date determined under\nsubparagraph (A) but is paid within 6 months of such date--\n (i) the provisions of subparagraph (A) shall not apply with respect to\nsuch payment,\n (ii) the provisions of section 6601(j) shall not apply with respect to\nthe determination of interest on such payment, and\n (iii) there is imposed a penalty in an amount equal to the product\nof--\n (I) 5 percent of the amount of such payment, multiplied by\n (II) the number of months (or fractions thereof) after such date and\nbefore payment is made. The penalty imposed under clause (iii) shall be\ntreated in the same manner as a penalty imposed under subchapter B of\nchapter 68.\n (h) Election in case of certain deficiencies.--\n (1) In general.--If--\n (A) a deficiency in the tax imposed by section 2001 is assessed,\n (B) the estate qualifies under subsection (a)(1), and\n (C) the executor has not made an election under subsection (a), the\nexecutor may elect to pay the deficiency in installments. This\nsubsection shall not apply if the deficiency is due to negligence, to\nintentional disregard of rules and regulations, or to fraud with intent\nto evade tax.\n (2) Time of election.--An election under this subsection shall be made\nnot later than 60 days after issuance of notice and demand by the\nSecretary for the payment of the deficiency, and shall be made in such\nmanner as the Secretary shall by regulations prescribe.\n (3) Effect of election on payment.--If an election is made under this\nsubsection, the deficiency shall (subject to the limitation provided by\nsubsection (a)(2)) be prorated to the installments which would have been\ndue if an election had been timely made under subsection (a) at the time\nthe estate tax return was filed. The part of the deficiency so prorated\nto any installment the date for payment of which would have arrived\nshall be paid at the time of the making of the election under this\nsubsection. The portion of the deficiency so prorated to installments\nthe date for payment of which would not have so arrived shall be paid at\nthe time such installments would have been due if such an election had\nbeen made.\n (i) Special rule for certain direct skips.--To the extent that an\ninterest in a closely held business is the subject of a direct skip\n(within the meaning of section 2612(c)) occurring at the same time as\nand as a result of the decedent's death, then for purposes of this\nsection any tax imposed by section 2601 on the transfer of such interest\nshall be treated as if it were additional tax imposed by section 2001.\n (j) Regulations.--The Secretary shall prescribe such regulations as\nmay be necessary to the application of this section.\n (k) Cross references.--\n (1) Security.-- For authority of the Secretary to require security in\nthe case of an extension under this section, see section 6165.\n (2) Lien.--For special lien (in lieu of bond) in the case of an\nextension under this section, see section 6324A.\n (3) Period of limitation.--For extension of the period of limitation\nin the case of an extension under this section, see section 6503(d).\n (4) Interest.--For provisions relating to interest on tax payable in\ninstallments under this section, see subsection (j) of section 6601.\n (5) Transfers within 3 years of death.--For special rule for\nqualifying an estate under this section where property has been\ntransferred within 3 years of decedent's death, see section 2035(c)(2).\n