26 U.S.C. § 2704 : US Code - Section 2704: Treatment of certain lapsing rights and restrictions

Search 26 U.S.C. § 2704 : US Code - Section 2704: Treatment of certain lapsing rights and restrictions

(a) Treatment of lapsed voting or liquidation rights
(1) In general
For purposes of this subtitle, if -
(A) there is a lapse of any voting or liquidation right in a
corporation or partnership, and
(B) the individual holding such right immediately before the
lapse and members of such individual's family hold, both before
and after the lapse, control of the entity,
such lapse shall be treated as a transfer by such individual by
gift, or a transfer which is includible in the gross estate of
the decedent, whichever is applicable, in the amount determined
under paragraph (2).
(2) Amount of transfer
For purposes of paragraph (1), the amount determined under this
paragraph is the excess (if any) of -
(A) the value of all interests in the entity held by the
individual described in paragraph (1) immediately before the
lapse (determined as if the voting and liquidation rights were
nonlapsing), over
(B) the value of such interests immediately after the lapse.
(3) Similar rights
The Secretary may by regulations apply this subsection to
rights similar to voting and liquidation rights.
(b) Certain restrictions on liquidation disregarded
(1) In general
For purposes of this subtitle, if -
(A) there is a transfer of an interest in a corporation or
partnership to (or for the benefit of) a member of the
transferor's family, and
(B) the transferor and members of the transferor's family
hold, immediately before the transfer, control of the entity,
any applicable restriction shall be disregarded in determining
the value of the transferred interest.
(2) Applicable restriction
For purposes of this subsection, the term "applicable
restriction" means any restriction -
(A) which effectively limits the ability of the corporation
or partnership to liquidate, and
(B) with respect to which either of the following applies:
(i) The restriction lapses, in whole or in part, after the
transfer referred to in paragraph (1).
(ii) The transferor or any member of the transferor's
family, either alone or collectively, has the right after
such transfer to remove, in whole or in part, the
restriction.
(3) Exceptions
The term "applicable restriction" shall not include -
(A) any commercially reasonable restriction which arises as
part of any financing by the corporation or partnership with a
person who is not related to the transferor or transferee, or a
member of the family of either, or
(B) any restriction imposed, or required to be imposed, by
any Federal or State law.
(4) Other restrictions
The Secretary may by regulations provide that other
restrictions shall be disregarded in determining the value of the
transfer of any interest in a corporation or partnership to a
member of the transferor's family if such restriction has the
effect of reducing the value of the transferred interest for
purposes of this subtitle but does not ultimately reduce the
value of such interest to the transferee.
(c) Definitions and special rules
For purposes of this section -
(1) Control
The term "control" has the meaning given such term by section
2701(b)(2).
(2) Member of the family
The term "member of the family" means, with respect to any
individual -
(A) such individual's spouse,
(B) any ancestor or lineal descendant of such individual or
such individual's spouse,
(C) any brother or sister of the individual, and
(D) any spouse of any individual described in subparagraph
(B) or (C).
(3) Attribution
The rule of section 2701(e)(3) shall apply for purposes of
determining the interests held by any individual.