26 U.S.C. § 2702

Special valuation rules in case of transfers of interests in trusts

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(a) Valuation rules(1) In general

Solely for purposes of determining whether a transfer of an interest in trust to (or for the benefit of) a member of the transferor’s family is a gift (and the value of such transfer), the value of any interest in such trust retained by the transferor or any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in paragraph (2).

(2) Valuation of retained interests(A) In general

The value of any retained interest which is not a qualified interest shall be treated as being zero.

(B) Valuation of qualified interest

The value of any retained interest which is a qualified interest shall be determined under section 7520.

(3) Exceptions(A) In generalThis subsection shall not apply to any transfer—(i) if such transfer is an incomplete gift,(ii) if such transfer involves the transfer of an interest in trust all the property in which consists of a residence to be used as a personal residence by persons holding term interests in such trust, or(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.(B) Incomplete gift

For purposes of subparagraph (A), the term “incomplete gift” means any transfer which would not be treated as a gift whether or not consideration was received for such transfer.

(b) Qualified interestFor purposes of this section, the term “qualified interest” means—(1) any interest which consists of the right to receive fixed amounts payable not less frequently than annually,(2) any interest which consists of the right to receive amounts which are payable not less frequently than annually and are a fixed percentage of the fair market value of the property in the trust (determined annually), and(3) any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2).(c) Certain property treated as held in trustFor purposes of this section—(1) In general

The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.

(2) Joint purchases

If 2 or more members of the same family acquire interests in any property described in paragraph (1) in the same transaction (or a series of related transactions), the person (or persons) acquiring the term interests in such property shall be treated as having acquired the entire property and then transferred to the other persons the interests acquired by such other persons in the transaction (or series of transactions). Such transfer shall be treated as made in exchange for the consideration (if any) provided by such other persons for the acquisition of their interests in such property.

(3) Term interestThe term “term interest” means—(A) a life interest in property, or(B) an interest in property for a term of years.(4) Valuation rule for certain term interestsIf the nonexercise of rights under a term interest in tangible property would not have a substantial effect on the valuation of the remainder interest in such property—(A) subparagraph (A) of subsection (a)(2) shall not apply to such term interest, and(B) the value of such term interest for purposes of applying subsection (a)(1) shall be the amount which the holder of the term interest establishes as the amount for which such interest could be sold to an unrelated third party.(d) Treatment of transfers of interests in portion of trust

In the case of a transfer of an income or remainder interest with respect to a specified portion of the property in a trust, only such portion shall be taken into account in applying this section to such transfer.

(e) Member of the family

For purposes of this section, the term “member of the family” shall have the meaning given such term by section 2704(c)(2).

(Added Pub. L. 101–508, title XI, § 11602(a), Nov. 5, 1990, 104 Stat. 1388–497; amended Pub. L. 104–188, title I, § 1702(f)(11), Aug. 20, 1996, 110 Stat. 1872.)Editorial NotesAmendments

1996—Subsec. (a)(3)(A)(i). Pub. L. 104–188, § 1702(f)(11)(A)(i), (ii), (B)(i), substituted “if” for “to the extent” and “incomplete gift” for “incomplete transfer”, and struck out “or” at end.

Subsec. (a)(3)(A)(ii). Pub. L. 104–188, § 1702(f)(11)(A)(iii), substituted “, or” for period at end.

Subsec. (a)(3)(A)(iii). Pub. L. 104–188, § 1702(f)(11)(A)(iv), added cl. (iii).

Subsec. (a)(3)(B). Pub. L. 104–188, § 1702(f)(11)(B), substituted “incomplete gift” for “incomplete transfer” in heading and text.

Statutory Notes and Related SubsidiariesEffective Date of 1996 Amendment

Amendment by Pub. L. 104–188 effective, except as otherwise expressly provided, as if included in the provision of the Revenue Reconciliation Act of 1990, Pub. L. 101–508, title XI, to which such amendment relates, see section 1702(i) of Pub. L. 104–188, set out as a note under section 38 of this title.

Notes of Decisions

Cited in 10 cases (1 in the last 5 years), 1934–2022 · leading case: William A. Cook & Gayle T. Cook v. Comm'r of the Internal Revenue Serv., 269 F.3d 854 (7th Cir. 2001).

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William A. Cook & Gayle T. Cook v. Comm'r of the Internal Revenue Serv., 269 F.3d 854 (7th Cir. 2001). · cites it 3× “Cook challenge a determination by the Tax Court that the spousal interests created in their respective Grantor Retained Annuity Trusts are not “qualified interests” within the meaning of 26 U.S.C. § 2702 , and are therefore not entitled to exemptions from gift tax liability.”

Autrey v. Autrey, 516 P.3d 207 (N.M. Ct. App. 2022). “See 26 U.S.C. § 2702 (a)(3)(A)(ii); 26 C.F.R.”

United States v. McLain, 646 F.3d 599 (8th Cir. 2011). · cites it 2× “Minnesota law, however, requires nurse staffing agencies like Kirpal Nurses to certify that they are treating nurses as employees, not independent contractors.”

Judith Badgley v. United States, 957 F.3d 969 (9th Cir. 2020). “” 26 U.S.C. § 2702 . For a GRAT, this means that the value of the transferred property subject to the gift tax is lessened by the amount of the retained annuity.”

Patricia A. Schott, Stephen C. Schott v. Comm'r of Internal Revenue, 319 F.3d 1203 (9th Cir. 2003). · cites it 2× “The question presented is whether the two-life annuity retained by the Schotts in their grantor-retained annuity trusts (GRATs) is an interest qualified under 26 U.S.C. § 2702 and so to be subtracted from the value of the gift.”

Reams v. Vrooman-Fehn Printing Co., 140 F.2d 237 (6th Cir. 1944). “The Internal Revenue Code, 26 U.S.C.A. § 2702 (a), applicable to the Social Security Act, provides that taxes shall, without assessment by the Commissioner or notice from the Collector, be due and payable at the time fixed for filing the return.”

Hartley v. Comm'r of Internal Revenue, 72 F.2d 352 (8th Cir. 1934). · cites it 3× “879 , 26 USCA § 2702), which applied to earlier tax years.”

In re Doman, 110 A.D.3d 1073 (N.Y. App. Div. 2013). “” Although the trust provided that it would terminate upon Judith’s death, it also provided that it would cease being a QPRT for purposes of the Internal Revenue Code if the real property funding it ceased to be a “personal residence” within the meaning of the Internal Revenue…”

Harold Rosbottom, Jr. v. Gerald Schiff, 701 F. App'x 330 (5th Cir. 2017). “See 26 U.S.C. § 2702 ; 26 C.F.R. § 25.2702-5 .”

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