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Notes

26 U.S.C. §§ 2035–2038

4 sections in range

§2035. Adjustments for certain gifts made within 3 years of decedent’s death

26 U.S.C. § 2035

(a)
Inclusion of certain property in gross estate— If—
(1)
the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent’s death, and
(2)
the value of such property (or an interest therein) would have been included in the decedent’s gross estate under section 2036, 2037, 2038, or 2042 if such transferred interest or relinquished power had been retained by the decedent on the date of his death,

the value of the gross estate shall include the value of any property (or interest therein) which would have been so included.

(b)
Inclusion of gift tax on gifts made during 3 years before decedent’s death— The amount of the gross estate (determined without regard to this subsection) shall be increased by the amount of any tax paid under chapter 12 by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of the decedent’s death.
(c)
Other rules relating to transfers within 3 years of death—
(1)
In general— For purposes of—
(A)
section 303(b) (relating to distributions in redemption of stock to pay death taxes),
(B)
section 2032A (relating to special valuation of certain farms, etc., real property), and
(C)
subchapter C of chapter 64 (relating to lien for taxes),

the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, during the 3-year period ending on the date of the decedent’s death.

(2)
Coordination with section 6166— An estate shall be treated as meeting the 35 percent of adjusted gross estate requirement of section 6166(a)(1) only if the estate meets such requirement both with and without the application of subsection (a).
(3)
Marital and small transfers— Paragraph (1) shall not apply to any transfer (other than a transfer with respect to a life insurance policy) made during a calendar year to any donee if the decedent was not required by section 6019 (other than by reason of section 6019(2)) to file any gift tax return for such year with respect to transfers to such donee.
(d)
Exception— Subsection (a) and paragraph (1) of subsection (c) shall not apply to any bona fide sale for an adequate and full consideration in money or money’s worth.
(e)
Treatment of certain transfers from revocable trusts— For purposes of this section and section 2038, any transfer from any portion of a trust during any period that such portion was treated under section 676 as owned by the decedent by reason of a power in the grantor (determined without regard to section 672(e)) shall be treated as a transfer made directly by the decedent.
Notes, amendments, and revision history

(Aug. 16, 1954, ch. 736, 68A Stat. 381; Pub. L. 87–834, § 18(a)(2)(C), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XX, § 2001(a)(5), Oct. 4, 1976, 90 Stat. 1848; Pub. L. 95–600, title VII, § 702(f)(1), Nov. 6, 1978, 92 Stat. 2930; Pub. L. 97–34, title IV, §§ 403(b)(3)(B), 424(a), Aug. 13, 1981, 95 Stat. 301, 317; Pub. L. 97–448, title I, § 104(a)(9), (d)(1)(A), (C), (2), Jan. 12, 1983, 96 Stat. 2381, 2383; Pub. L. 105–34, title XIII, § 1310(a), Aug. 5, 1997, 111 Stat. 1043; Pub. L. 106–554, § 1(a)(7) [title III, § 319(14)], Dec. 21, 2000, 114 Stat. 2763, 2763A–646.)

Editorial Notes

Amendments

2000—Subsec. (c)(2). Pub. L. 106–554, § 1(a)(7) [title III, § 319(14)(A)], substituted “subsection (a)” for “paragraph (1)”.

Subsec. (d). Pub. L. 106–554, § 1(a)(7) [title III, § 319(14)(B)], inserted “and paragraph (1) of subsection (c)” after “Subsection (a)”.

1997—Pub. L. 105–34 amended section catchline and text generally. Prior to amendment, section consisted of subsecs. (a) to (d) relating to adjustments for gifts made within 3 years of decedent’s death.

1983—Subsec. (b)(2). Pub. L. 97–448, § 104(a)(9), substituted “section 6019(2)” for “section 6019(a)(2)”.

Subsec. (d)(2). Pub. L. 97–448, § 104(d)(2), inserted “of this subsection and paragraph (2) of subsection (b)” after “Paragraph (1)”, and struck out “2041,” after “2038,”.

Subsec. (d)(3)(C), (D). Pub. L. 97–448, § 104(d)(1)(C), redesignated subpar. (D) as (C). Former subpar. (C), which referred to section 6166 (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business), was struck out.

Subsec. (d)(4). Pub. L. 97–448, § 104(d)(1)(A), added par. (4).

1981—Subsec. (b)(2). Pub. L. 97–34, § 403(b)(3)(B), inserted “(other than by reason of section 6019(a)(2))” after “section 6019”.

Subsec. (d). Pub. L. 97–34, § 424(a), added subsec. (d).

1978—Subsec. (b). Pub. L. 95–600 substituted in par. (2) provisions relating to gifts for which donee was not required by section 6019 to file gift tax returns for provisions relating to gifts excludable in computing taxable gifts by reason of section 2503(b) and inserted provisions following par. (2) relating to inapplicability of par. (2) to transfers respecting life insurance policies.

1976—Pub. L. 94–455 substituted provisions covering adjustments for gifts made within 3 years of decedent’s death for provisions under which transfers by the decedent within 3 years of the decedent’s death were deemed to have been made in contemplation of death and included in the value of the gross estate.

1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.

Statutory Notes and Related Subsidiaries

Effective Date of 1997 Amendment

Pub. L. 105–34, title XIII, § 1310(c), Aug. 5, 1997, 111 Stat. 1044, provided that: “The amendments made by this section [amending this section] shall apply to the estates of decedents dying after the date of the enactment of this Act [Aug. 5, 1997].”

Effective Date of 1983 Amendment

Amendment by Pub. L. 97–448 effective, except as otherwise provided, as if it had been included in the provision of the Economic Recovery Tax Act of 1981, Pub. L. 97–34, to which such amendment relates, see section 109 of Pub. L. 97–448, set out as a note under section 1 of this title.

Effective Date of 1981 Amendment

Amendment by section 403(b)(3)(B) of Pub. L. 97–34 applicable to estates of decedents dying after Dec. 31, 1981, see section 403(e) of Pub. L. 97–34, set out as a note under section 2056 of this title.

Pub. L. 97–34, title IV, § 424(b), Aug. 13, 1981, 95 Stat. 317, provided that: “The amendment made by subsection (a) [amending this section] shall apply to the estates of decedents dying after December 31, 1981.”

Effective Date of 1978 Amendment

Pub. L. 95–600, title VII, § 702(f)(2), Nov. 6, 1978, 92 Stat. 2930, provided that: “The amendment made by paragraph (1) [amending this section] shall apply to the estates of decedents dying after December 31, 1976, except that it shall not apply to transfers made before January 1, 1977.”

Effective Date of 1976 Amendment

Amendment by Pub. L. 94–455 applicable to estates of decedents dying after Dec. 31, 1976, but not to transfers made before Jan. 1, 1977, see section 2001(d)(1) of Pub. L. 94–455, set out as a note under section 2001 of this title.

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.

Transfers Made by Decedent During 1977; Election Available to Executor On or Before Due Date for Filing Estate Tax Return

Pub. L. 96–222, title I, § 107(a)(2)(F), Apr. 1, 1980, 94 Stat. 223, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: If the executor elects the benefits of this subparagraph with respect to any estate, section 2035(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (relating to adjustments for gifts made within 3 years of decedent’s death) shall be applied with respect to transfers made by the decedent during 1977 as if paragraph (2) of such section 2035(b) read as follows:

“ ‘(2) to any gift to a donee made during 1977 to the extent of the amount of such gift which was excludable in computing taxable gifts by reason of section 2503(b) (relating to $3,000 annual exclusion for purposes of the gift tax) determined without regard to section 2513(a).’

The election under clause (i) with respect to any estate shall be made on or before the later of— the due date for filing the estate tax return, or the day which is 120 days after the date of the enactment of this Act [Apr. 1, 1980].”

§2036. Transfers with retained life estate

26 U.S.C. § 2036

(a)
General rule— The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—
(1)
the possession or enjoyment of, or the right to the income from, the property, or
(2)
the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.
(b)
Voting rights—
(1)
In general— For purposes of subsection (a)(1), the retention of the right to vote (directly or indirectly) shares of stock of a controlled corporation shall be considered to be a retention of the enjoyment of transferred property.
(2)
Controlled corporation— For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent’s death, the decedent owned (with the application of section 318), or had the right (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock.
(3)
Coordination with section 2035— For purposes of applying section 2035 with respect to paragraph (1), the relinquishment or cessation of voting rights shall be treated as a transfer of property made by the decedent.
(c)
Limitation on application of general rule— This section shall not apply to a transfer made before March 4, 1931; nor to a transfer made after March 3, 1931, and before June 7, 1932, unless the property transferred would have been includible in the decedent’s gross estate by reason of the amendatory language of the joint resolution of March 3, 1931 (46 Stat. 1516).
Notes, amendments, and revision history

(Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87–834, § 18(a)(2)(D), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XX, § 2009(a), Oct. 4, 1976, 90 Stat. 1893; Pub. L. 95–600, title VII, § 702(i)(1), (2), Nov. 6, 1978, 92 Stat. 2931; Pub. L. 100–203, title X, § 10402(a), Dec. 22, 1987, 101 Stat. 1330–431; Pub. L. 100–647, title III, § 3031(a)(1), (b)–(e), (g), Nov. 10, 1988, 102 Stat. 3634–3638; Pub. L. 101–508, title XI, § 11601(a), Nov. 5, 1990, 104 Stat. 1388–490.)

Editorial Notes

Amendments

1990—Subsecs. (c), (d). Pub. L. 101–508 redesignated subsec. (d) as (c) and struck out former subsec. (c) which enunciated a rule that retention of retained interest would be considered to be a retention of enjoyment of transferred property if a person held a substantial interest in an enterprise, and such person in effect transferred after Dec. 17, 1987, property having a disproportionately large share of the potential appreciation in such person’s interest in the enterprise while retaining an interest in the income of, or rights in, the enterprise.

1988—Subsec. (c)(1)(B). Pub. L. 100–647, § 3031(e), substituted “an interest” for “a disproportionately large share” after “whole retaining”.

Subsec. (c)(2). Pub. L. 100–647, § 3031(g)(1), substituted “consideration furnished by” for “sales to” in heading, and amended text generally. Prior to amendment, text read as follows: “The exception contained in subsection (a) for a bona fide sale shall not apply to a transfer described in paragraph (1) if such transfer is to a member of the transferor’s family.”

Subsec. (c)(3)(C). Pub. L. 100–647, § 3031(d), substituted “Except as provided in regulations, an” for “An”.

Subsec. (c)(4). Pub. L. 100–647, § 3031(a)(1), amended par. (4) generally, substituting provisions relating to treatment of certain transfers for provisions relating to coordination with section 2035.

Subsec. (c)(5). Pub. L. 100–647, § 3031(g)(2), amended par. (5) generally, substituting provisions relating to the making of appropriate adjustments in amounts included in gross estate for provisions relating to coordination with section 2043.

Subsec. (c)(6). Pub. L. 100–647, § 3031(b), added par. (6).

Subsec. (c)(7), (8). Pub. L. 100–647, § 3031(b)[(c)], added pars. (7) and (8).

1987—Subsecs. (c), (d). Pub. L. 100–203 added subsec. (c) and redesignated former subsec. (c) as (d).

1978—Subsec. (a). Pub. L. 95–600, § 702(i)(2), struck out provision following par. (2) relating to the retention of voting rights in retained stock.

Subsecs. (b), (c). Pub. L. 95–600, § 702(i)(1), added subsec. (b) and redesignated former subsec. (b) as (c).

1976—Subsec. (a). Pub. L. 94–455 provided that, for purposes of par. (1), the retention of voting rights in retained stock be considered to be a retention of the enjoyment of that stock.

1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.

Statutory Notes and Related Subsidiaries

Effective Date of 1990 Amendment

Pub. L. 101–508, title XI, § 11601(c), Nov. 5, 1990, 104 Stat. 1388–491, provided that: “The amendments made by this section [amending this section and sections 2207B and 2501 of this title] shall apply in the case of property transferred after December 17, 1987.”

Effective Date of 1988 Amendment

Pub. L. 100–647, title III, § 3031(h), Nov. 10, 1988, 102 Stat. 3639, provided that: In general.—Except as provided in this subsection, any amendment made by this section [enacting section 2207B of this title and amending this section and section 2501 of this title] shall take effect as if included in the provisions of the Revenue Act of 1987 [Pub. L. 100–203, title X] to which such amendment relates. Subsection (a).—The amendments made by subsection (a) [amending this section and section 2501 of this title] shall apply in cases where the transfer referred to in section 2036(c)(1)(B) of the 1986 Code is on or after June 21, 1988. Subsection (f).—If an amount is included in the gross estate of a decedent under section 2036 of the 1986 Code other than solely by reason of section 2036(c) of the 1986 Code, the amendments made by subsection (f) [enacting section 2207B of this title] shall apply to such amount only with respect to property transferred after the date of the enactment of this Act [Nov. 10, 1988]. Correction period.—If section 2036(c)(1) of the 1986 Code would (but for this paragraph) apply to any interest arising from a transaction entered into during the period beginning after December 17, 1987, and ending before January 1, 1990, such section shall not apply to such interest if— during such period, such actions are taken as are necessary to have such section 2036(c)(1) not apply to such transaction (and any such interest), or the original transferor and his spouse on January 1, 1990 (or, if earlier, the date of the original transferor’s death), does not hold any interest in the enterprise involved. Clarification of effective date.—For purposes of section 10402(b) of the Revenue Act of 1987 [Pub. L. 100–203, set out as an Effective Date of 1987 Amendment note below], with respect to property transferred on or before December 17, 1987— any failure to exercise a right of conversion, any failure to pay dividends, and [sic] failures to exercise other rights specified in regulations,shall not be treated as a subsequent transfer.”

Effective Date of 1987 Amendment

Pub. L. 100–203, title X, § 10402(b), Dec. 22, 1987, 101 Stat. 1330–432, provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to estates of decedents dying after December 31, 1987, but only in the case of property transferred after December 17, 1987.” [For clarification of this note, see section 3031(h)(5) of Pub. L. 100–647, set out as an Effective Date of 1988 Amendment note above.]

Effective Date of 1978 Amendment

Pub. L. 95–600, title VII, § 702(i)(3), Nov. 6, 1978, 92 Stat. 2931, provided that: “The amendments made by this subsection [amending this section] shall apply to transfers made after June 22, 1976.”

Effective Date of 1976 Amendment

Pub. L. 94–455, title XX, § 2009(e)(1), Oct. 4, 1976, 90 Stat. 1896, provided that: “The amendment made by subsection (a) [amending this section] shall apply to transfers made after June 22, 1976.”

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.

§2037. Transfers taking effect at death

26 U.S.C. § 2037

(a)
General rule— The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time after September 7, 1916, made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, if—
(1)
possession or enjoyment of the property can, through ownership of such interest, be obtained only by surviving the decedent, and
(2)
the decedent has retained a reversionary interest in the property (but in the case of a transfer made before October 8, 1949, only if such reversionary interest arose by the express terms of the instrument of transfer), and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property.
(b)
Special rules— For purposes of this section, the term “reversionary interest” includes a possibility that property transferred by the decedent—
(1)
may return to him or his estate, or
(2)
may be subject to a power of disposition by him,

but such term does not include a possibility that the income alone from such property may return to him or become subject to a power of disposition by him. The value of a reversionary interest immediately before the death of the decedent shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, under regulations prescribed by the Secretary. In determining the value of a possibility that property may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such property may return to the decedent or his estate. Notwithstanding the foregoing, an interest so transferred shall not be included in the decedent’s gross estate under this section if possession or enjoyment of the property could have been obtained by any beneficiary during the decedent’s life through the exercise of a general power of appointment (as defined in section 2041) which in fact was exercisable immediately before the decedent’s death.

Notes, amendments, and revision history

(Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87–834, § 18(a)(2)(E), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)

Editorial Notes

Amendments

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.

Statutory Notes and Related Subsidiaries

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.

§2038. Revocable transfers

26 U.S.C. § 2038

(a)
In general— The value of the gross estate shall include the value of all property—
(1)
Transfers after June 22, 1936— To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is relinquished during the 3 year period ending on the date of the decedent’s death.
(2)
Transfers on or before June 22, 1936— To the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power during the 3 year period ending on the date of the decedent’s death. Except in the case of transfers made after June 22, 1936, no interest of the decedent of which he has made a transfer shall be included in the gross estate under paragraph (1) unless it is includible under this paragraph.
(b)
Date of existence of power— For purposes of this section, the power to alter, amend, revoke, or terminate shall be considered to exist on the date of the decedent’s death even though the exercise of the power is subject to a precedent giving of notice or even though the alteration, amendment, revocation, or termination takes effect only on the expiration of a stated period after the exercise of the power, whether or not on or before the date of the decedent’s death notice has been given or the power has been exercised. In such cases proper adjustment shall be made representing the interests which would have been excluded from the power if the decedent had lived, and for such purpose, if the notice has not been given or the power has not been exercised on or before the date of his death, such notice shall be considered to have been given, or the power exercised, on the date of his death.
Notes, amendments, and revision history

(Aug. 16, 1954, ch. 736, 68A Stat. 383; Pub. L. 86–141, § 1, Aug. 7, 1959, 73 Stat. 288; Pub. L. 87–834, § 18(a)(2)(F), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XIX, § 1902(a)(3), title XX, § 2001(c)(1)(K), Oct. 4, 1976, 90 Stat. 1804, 1852.)

Editorial Notes

Amendments

1976—Subsec. (a)(1). Pub. L. 94–455, § 2001(c)(1)(K)(i), substituted “during the 3-year period ending on the date of the decedent’s death” for “in contemplation of decedent’s death”.

Subsec. (a)(2). Pub. L. 94–455, § 2001(c)(1)(K)(ii), substituted “during the 3-year period ending on the date of the decedent’s death” for “in contemplation of his death”.

Subsec. (c). Pub. L. 94–455, § 1902(a)(3), struck out subsec. (c) which covered the effect of a disability in certain cases by relating a mental disability to relinquish a power to a power, the relinquishment of which would be deemed not to be a transfer for purposes of chapter 4 of the Internal Revenue Code of 1939.

1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.

1959—Subsec. (c). Pub. L. 86–141 added subsec. (c).

Statutory Notes and Related Subsidiaries

Effective Date of 1976 Amendment

Amendment by section 1902(a)(3) of Pub. L. 94–455 applicable to estates of decedents dying after Oct. 4, 1976, see section 1902(c)(1) of Pub. L. 94–455, set out as a note under section 2012 of this title.

Amendment by section 2001(c)(1)(K)(i), (ii) of Pub. L. 94–455 applicable to estates of decedents dying after Dec. 31, 1976 but not to transfers made before Jan. 1, 1977, see section 2001(d)(1) of Pub. L. 94–455, set out as a note under section 2001 of this title.

Effective Date of 1962 Amendment

Amendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.

Effective Date of 1959 Amendment

Pub. L. 86–141, § 2, Aug. 7, 1959, 73 Stat. 289, provided that: “The amendment made by the first section of this Act [amending this section] shall apply only with respect to estates of decedents dying after August 16, 1954. No interest shall be allowed or paid on any overpayment resulting from the application of the amendment made by the first section of this Act with respect to any payment made before the date of the enactment of this Act [Aug. 7, 1959].”