NY Tax L § 999-A (2021)
2021 New York Laws TAX - Tax Article 26 - Estate Tax Part 4 - Procedure and Administration 999-A - Appendix to Article Twenty-Six.

§  999-a.  Appendix to article twenty-six. The following provisions of the United States Internal Revenue Code of  1986,  with  all  amendments enacted  on  or before January first, two thousand fourteen, shall apply to the tax imposed by this article, to  the  extent  specified  in  this article.   § 2031. Definition of Gross Estate.  (a)  General.--The  value of the gross estate of the decedent shall be determined by including to the extent provided for  in  this  part,  the value  at  the  time  of  his  death  of all property, real or personal, tangible or intangible, wherever situated.  (b) Valuation of unlisted stock and securities.--In the case of  stock and  securities  of a corporation the value of which, by reason of their not being listed on an exchange and by reason of the  absence  of  sales thereof,  cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined by taking into consideration, in addition to all other factors,  the  value of  stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange.  (c)  Estate  tax  with  respect  to  land  subject  to   a   qualified conservation easement.--  (1)  In  general.--If  the  executor  makes  the election described in paragraph (6), then, except as otherwise provided  in  this  subsection, there shall be excluded from the gross estate the lesser of--  (A)  the  applicable  percentage  of  the  value  of land subject to a qualified conservation easement, reduced by the amount of any  deduction under section 2055(f) with respect to such land, or  (B) the exclusion limitation.  (2)  Applicable  percentage.--For  purposes of paragraph (1), the term "applicable percentage" means 40 percent reduced (but not below zero) by 2 percentage points for each percentage point (or fraction  thereof)  by which  the  value of the qualified conservation easement is less than 30 percent of the value of the land (determined without regard to the value of such easement and reduced by the value of  any  retained  development right (as defined in paragraph (5)). The values taken into account under the  preceding  sentence  shall  be  such  values  as of the date of the contribution referred to in paragraph (8)(B).  (3)  Exclusion  limitation.--For  purposes  of  paragraph   (1),   the exclusion limitation is the limitation determined in accordance with the following table: In the case of estates of decedents dying The exclusion limitation during:                                   is: 1998..................................... 100,000 1999..................................... 200,000 2000..................................... 300,000 2001..................................... 400,000 2002 or thereafter....................... 500,000  (4) Treatment of certain indebtedness.--  (A)  In  general.--The  exclusion  provided in paragraph (1) shall not apply to the extent that the land is debt-financed property.  (B) Definitions.--For purposes of this paragraph--  (i) Debt-financed property.--The term "debt-financed  property"  means any  property with respect to which there is an acquisition indebtedness (as defined in clause (ii)) on the date of the decedent's death.  (ii) Acquisition indebtedness.--The  term  "acquisition  indebtedness" means, with respect to debt-financed property, the unpaid amount of--  (I) the indebtedness incurred by the donor in acquiring such property,  (II) the indebtedness incurred before the acquisition of such property if  such  indebtedness  would  not  have  been  incurred  but  for  such acquisition,  (III) the indebtedness incurred after the acquisition of such property if  such  indebtedness  would  not  have  been  incurred  but  for  such acquisition and the  incurrence  of  such  indebtedness  was  reasonably foreseeable at the time of such acquisition, and  (IV)   the  extension,  renewal,  or  refinancing  of  an  acquisition indebtedness.  (5) Treatment of retained development right.--  (A) In general.--Paragraph (1) shall not apply to  the  value  of  any development right retained by the donor in the conveyance of a qualified conservation easement.  (B)  Termination  of  retained  development right.--If every person in being who has an interest (whether or not in  possession)  in  the  land executes  an  agreement  to  extinguish  permanently  some or all of any development rights (as defined in  subparagraph  (D))  retained  by  the donor  on or before the date for filing the return of the tax imposed by section 2001, then any tax imposed by  section  2001  shall  be  reduced accordingly.    Such agreement shall be filed with the return of the tax imposed by section 2001. The agreement shall be  in  such  form  as  the Secretary shall prescribe.  (C)  Additional tax.--Any failure to implement the agreement described in subparagraph (B) not later than the earlier of--  (i) the date which is 2 years after the date of the decedent's  death, or  (ii)  the  date  of  the  sale  of  such land subject to the qualified conservation easement,   shall result in the imposition of an additional tax in the  amount  of the  tax  which  would  have been due on the retained development rights subject to such agreement. Such additional tax shall be due and  payable on the last day of the 6th month following such date.  (D)  Development  right  defined.--For purposes of this paragraph, the term "development right" means any right to use the land subject to  the qualified  conservation easement in which such right is retained for any commercial purpose which is not subordinate to and  directly  supportive of  the  use  of  such  land  as a farm for farming purposes (within the meaning of section 2032A(e)(5)).  (6) Election.--The election under this subsection shall be made on  or before  the due date (including extensions) for filing the return of tax imposed by section 2001 and shall  be  made  on  such  return.  Such  an election, once made, shall be irrevocable.  (7)  Calculation  of  estate tax due.--An executor making the election described in paragraph (6) shall, for purposes of calculating the amount of tax imposed by section 2001, include the  value  of  any  development right  (as  defined  in  paragraph  (5))  retained  by  the donor in the conveyance of such qualified conservation easement. The  computation  of tax on any retained development right prescribed in this paragraph shall be  done  in  such  manner  and  on  such  forms  as the Secretary shall prescribe.  (8) Definitions.--For purposes of this subsection--  (A) Land subject to a qualified conservation easement.--The term "land subject to a qualified conservation easement" means land--  (i) which is located in the United States or  any  possession  of  the United States,  (ii)  which  was  owned  by the decedent or a member of the decedent's family at all times during the 3-year period ending on the date  of  the decedent's death, and  (iii) with respect to which a qualified conservation easement has been made  by  an individual described in subparagraph (C), as of the date of the election described in paragraph (6).  (B) Qualified conservation easement.--The term "qualified conservation easement"  means  a  qualified  conservation contribution (as defined in section 170(h)(1)) of a qualified real property interest (as defined  in section  170(h)(2)(C)),  except that clause (iv) of section 170(h)(4)(A) shall not apply, and  the  restriction  on  the  use  of  such  interest described  in  section  170(h)(2)(C) shall include a prohibition on more than a de minimis use for a commercial recreational activity.  (C)  Individual  described.--An  individual  is  described   in   this subparagraph if such individual is--  (i) the decedent,  (ii) a member of the decedent's family,  (iii) the executor of the decedent's estate, or  (iv)  the  trustee of a trust the corpus of which includes the land to be subject to the qualified conservation easement.  (D) Member of family.--The term  "member  of  the  decedent's  family" means  any  member  of the family (as defined in section 2032A(e)(2)) of the decedent.  (9) Treatment of easements granted after death.--In any case in  which the  qualified  conservation  easement  is granted after the date of the decedent's death and on or before the due  date  (including  extensions) for  filing  the  return  of  tax imposed by section 2001, the deduction under section 2055(f) with respect to such easement shall be allowed  to the  estate but only if no charitable deduction is allowed under chapter 1 to any person with respect to the grant of such easement.  (10)  Application  of  this  section  to  interests  in  partnerships, corporations,  and trusts.--This section shall apply to an interest in a partnership, corporation, or trust if at least 30 percent of the  entity is  owned  (directly or indirectly) by the decedent, as determined under the rules described in section 2057(e)(3).  (d) Cross reference.--   For executor's right to be furnished on request a statement  regarding any valuation made by the Secretary within the gross estate, see section 7517.   § 2032. Alternate Valuation.  (a)  General.--The value of the gross estate may be determined, if the executor so elects, by valuing all the property included  in  the  gross estate as follows:  (1) In the case of property distributed, sold, exchanged, or otherwise disposed  of,  within  6 months after the decedent's death such property shall be valued as of the date of distribution, sale, exchange, or other disposition.  (2) In the case of  property  not  distributed,  sold,  exchanged,  or otherwise  disposed  of, within 6 months after the decedent's death such property shall be valued as of the date 6 months  after  the  decedent's death.  (3)  Any  interest  or  estate which is affected by mere lapse of time shall be included at its value as of the time of death (instead  of  the later  date)  with  adjustment for any difference in its value as of the later date not due to mere lapse of time.  (b) Special rules.--No deduction under this chapter of any item  shall be  allowed  if  allowance  for  such  items  is  in effect given by the alternate valuation provided by this  section.  Wherever  in  any  other subsection  or section of this chapter reference is made to the value of property at the time of the decedent's death, such  reference  shall  be deemed  to  refer  to the value of such property used in determining the  value of the gross estate. In case of an election made by  the  executor under this section, then--  (1)  for  purposes  of  the charitable deduction under section 2055 or 2106(a)(2), any bequest, legacy, devise, or transfer enumerated therein, and  (2) for the purpose of the marital deduction under section  2056,  any interest in property passing to the surviving spouse,   shall be valued as of the date of the decedent's death with adjustment for  any  difference  in  value  (not  due  to mere lapse of time or the occurrence or nonoccurrence of a contingency) of the property as of  the date  6  months after the decedent's death (substituting, in the case of property distributed by the executor or trustee, or sold, exchanged,  or otherwise disposed of, during such 6-month period, the date thereof).  (c)  Election  must decrease gross estate and estate tax.--No election may be made under this section with respect to  an  estate  unless  such election will decrease--  (1) the value of the gross estate, and  (2)  the sum of the tax imposed by this chapter and the tax imposed by chapter 13 with respect to property includible in the  decedent's  gross estate (reduced by credits allowable against such taxes).  (d) Election.--  (1)  In  general.--The  election provided for in this section shall be made by the executor on the return of the tax imposed by  this  chapter. Such election, once made, shall be irrevocable.  (2)  Exception.--No  election  may  be made under this section if such return is filed more than 1  year  after  the  time  prescribed  by  law (including extensions) for filing such return.   § 2032A. Valuation of Certain Farm, Etc., Real Property.  (a) Value based on use under which property qualifies.--  (1) General rule.--If--  (A)  the decedent was (at the time of his death) a citizen or resident of the United States, and  (B) the executor elects the application of this section and files  the agreement referred to in subsection (d)(2),   then,  for  purposes  of  this  chapter,  the  value of qualified real property shall be its value for the use under which it qualifies,  under subsection (b), as qualified real property.  (2)  Limitation  on  aggregate  reduction  in  fair market value.--The aggregate decrease in the value of qualified real  property  taken  into account  for purposes of this chapter which results from the application of paragraph (1) with respect to any decedent shall not exceed $750,000.  (3) Inflation adjustment.--In the case of estates of  decedents  dying in  a  calendar  year  after  1998,  the  $750,000  amount  contained in paragraph (2) shall be increased by an amount equal to--  (A) $750,000, multiplied by  (B) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting "calendar year  1997"  for  "calendar year 1992" in subparagraph (B) thereof.   If  any  amount  as  adjusted  under  the  preceding sentence is not a multiple of $10,000, such amount shall be rounded  to  the  next  lowest multiple of $10,000.  (b) Qualified real property.--  (1)  In  general.--For  purposes  of this section, the term "qualified real property" means real property located in the  United  States  which was acquired from or passed from the decedent to a qualified heir of the decedent  and which, on the date of the decedent's death, was being used for a qualified use by the  decedent  or  a  member  of  the  decedent's family, but only if--  (A)  50  percent  or  more  of  the adjusted value of the gross estate consists of the adjusted value of real or personal property which--  (i)  on  the  date  of  the  decedent's  death,  was  being used for a qualified use by the decedent or a member of the decedent's family, and  (ii) was acquired from or passed from the decedent to a qualified heir of the decedent.  (B) 25 percent or more of the  adjusted  value  of  the  gross  estate consists  of  the  adjusted  value  of  real  property  which  meets the requirements of subparagraphs (A)(ii) and (C),  (C) during the 8-year period ending on  the  date  of  the  decedent's death there have been periods aggregating 5 years or more during which--  (i)  such  real  property was owned by the decedent or a member of the decedent's family and used for a qualified use  by  the  decedent  or  a member of the decedent's family, and  (ii)  there  was material participation by the decedent or a member of the decedent's family in the operation of the farm  or  other  business, and  (D)  such  real property is designated in the agreement referred to in subsection (d)(2).  (2) Qualified use.--For purposes of this section, the term  "qualified use" means the devotion of the property to any of the following:  (A) use as a farm for farming purposes, or  (B)  use  in  a  trade or business other than the trade or business of farming.  (3) Adjusted value.--For purposes of paragraph (1), the term "adjusted value" means--  (A) in the case of the gross estate, the value of the gross estate for purposes of this chapter (determined without regard  to  this  section), reduced  by  any amounts allowable as a deduction under paragraph (4) of section 2053(a), or  (B) in the case of any real or personal property, the  value  of  such property for purposes of this chapter (determined without regard to this section),  reduced by any amounts allowable as a deduction in respect of such property under paragraph (4) of section 2053(a).  (4) Decedents who are retired or disabled.--  (A) In  general.--If,  on  the  date  of  the  decedent's  death,  the requirements  of  paragraph  (1)(C)(ii) with respect to the decedent for any property are not met, and the decedent--  (i) was receiving old-age  benefits  under  title  II  of  the  Social Security Act for a continuous period ending on such date, or  (ii) was disabled for a continuous period ending on such date,   then  paragraph  (1)(C)(ii)  shall  be  applied  with  respect to such property  by  substituting  "the  date  on  which  the  longer  of  such continuous  periods  began"  for  "the  date of the decedent's death" in paragraph (1)(C).  (B) Disabled defined.--For purposes of subparagraph (A), an individual shall be disabled if such individual has a mental or physical impairment which renders him unable to materially participate in the  operation  of the farm or other business.  (C)   Coordination   with   recapture.--For   purposes  of  subsection (c)(6)(B)(i), if the requirements of paragraph (1)(C)(ii) are  met  with respect to any decedent by reason of subparagraph (A), the period ending on  the  date  on  which  the continuous period taken into account under subparagraph (A) began shall be treated as the period immediately before the decedent's death.  (5) Special rules for surviving spouses.--  (A) In general.--If property is qualified real property  with  respect to  a  decedent (hereinafter in this paragraph referred to as the "first  decedent") and such property was acquired from or passed from the  first decedent  to the surviving spouse of the first decedent, for purposes of applying this subsection and subsection (c) in the case of the estate of such  surviving  spouse, active management of the farm or other business by the surviving spouse shall be treated as  material  participation  by such surviving spouse in the operation of such farm or business.  (B)   Special   rule.--For  the  purposes  of  subparagraph  (A),  the determination of  whether  property  is  qualified  real  property  with respect   to  the  first  decedent  shall  be  made  without  regard  to subparagraph (D) of paragraph (1)  and  without  regard  to  whether  an election under this section was made.  (C)  Coordination  with  paragraph (4).--In any case in which to do so will enable the requirements of paragraph  (1)(C)(ii)  to  be  met  with respect  to  the  surviving  spouse,  this subsection and subsection (c) shall be applied by taking into account  any  application  of  paragraph (4).  (c)  Tax  treatment  of dispositions and failures to use for qualified use.--  (1) Imposition of additional estate tax.--If, within  10  years  after the decedent's death and before the death of the qualified heir--  (A)  the  qualified  heir  disposes  of any interest in qualified real property (other than by a disposition to a member of his family), or  (B) the qualified heir  ceases  to  use  for  the  qualified  use  the qualified  real  property  which  was  acquired  (or  passed)  from  the decedent,   then, there is hereby imposed an additional estate tax.  (2) Amount of additional tax.--  (A) In general.--The amount of the additional tax imposed by paragraph (1) with respect to any interest shall be the amount equal to the lesser of--  (i) the adjusted tax difference attributable to such interest, or  (ii) the excess of the amount realized with respect  to  the  interest (or, in any case other than a sale or exchange at arm's length, the fair market  value of the interest) over the value of the interest determined under subsection (a).  (B) Adjusted tax difference attributable to interest.--For purposes of subparagraph  (A),  the  adjusted  tax  difference  attributable  to  an interest  is  the  amount which bears the same ratio to the adjusted tax difference with respect to the  estate  (determined  under  subparagraph (C)) as--  (i)  the  excess  of  the  value of such interest for purposes of this chapter (determined without regard to subsection (a)) over the value  of such interest determined under subsection (a), bears to  (ii) a similar excess determined for all qualified real property.  (C)  Adjusted tax difference with respect to the estate.--For purposes of subparagraph (B), the term "adjusted tax difference with  respect  to the  estate"  means  the  excess  of what would have been the estate tax liability but for subsection (a) over  the  estate  tax  liability.  For purposes of this subparagraph, the term "estate tax liability" means the tax  imposed  by  section  2001 reduced by the credits allowable against such tax.  (D) Partial dispositions.--For purposes of this paragraph,  where  the qualified  heir  disposes  of  a portion of the interest acquired by (or passing to) such heir (or a predecessor qualified heir) or  there  is  a cessation of use of such a portion--  (i) the value determined under subsection (a) taken into account under subparagraph  (A)(ii) with respect to such portion shall be its pro rata share of such value of such interest, and  (ii) the adjusted tax difference attributable to  the  interest  taken into account with respect to the transaction involving the second or any succeeding  portion shall be reduced by the amount of the tax imposed by this  subsection  with  respect  to  all  prior  transactions  involving portions of such interest.  (E)  Special rule for disposition of timber.--In the case of qualified woodland to which an election under subsection  (e)(13)(A)  applies,  if the  qualified  heir disposes of (or severs) any standing timber on such qualified woodland--  (i) such disposition (or severance) shall be treated as a  disposition of a portion of the interest of the qualified heir in such property, and  (ii)  the  amount  of the additional tax imposed by paragraph (1) with respect to such disposition shall be an amount equal to the lesser of--  (I) the amount realized on such disposition (or,  in  any  case  other than  a  sale  or exchange at arm's length, the fair market value of the portion of the interest disposed or severed), or  (II) the amount of additional  tax  determined  under  this  paragraph (without  regard  to  this  subparagraph)  if the entire interest of the qualified heir in the qualified woodland had been disposed of, less  the sum  of  the  amount  of  the additional tax imposed with respect to all prior transactions involving such woodland to  which  this  subparagraph applied.   For  purposes of the preceding sentence, the disposition of a right to sever shall be treated as the disposition of the  standing  timber.  The amount  of  additional  tax  imposed  under paragraph (1) in any case in which a qualified heir disposes of his entire interest in the  qualified woodland   shall   be  reduced  by  any  amount  determined  under  this subparagraph with respect to such woodland.  (3) Only 1 additional tax imposed with respect to any  1  portion.--In the case of an interest acquired from (or passing from) any decedent, if subparagraph  (A)  or  (B) of paragraph (1) applies to any portion of an interest, subparagraph (B) or (A), as the case may be, of paragraph  (1) shall not apply with respect to the same portion of such interest.  (4)  Due  date.--The  additional  tax imposed by this subsection shall become due and payable on the day which is 6 months after  the  date  of the disposition or cessation referred to in paragraph (1).  (5)  Liability  for tax; furnishing of bond.--The qualified heir shall be personally liable for the additional tax imposed by  this  subsection with  respect  to  his interest unless the heir has furnished bond which meets the requirements of subsection (e)(11).  (6) Cessation of qualified use.--For  purposes  of  paragraph  (1)(B), real property shall cease to be used for the qualified use if--  (A) such property ceases to be used for the qualified use set forth in subparagraph  (A)  or  (B) of subsection (b)(2) under which the property qualified under subsection (b), or  (B) during any period  of  8  years  ending  after  the  date  of  the decedent's death and before the date of the death of the qualified heir, there had been periods aggregating more than 3 years during which--  (i)  in  the case of periods during which the property was held by the decedent, there was no material participation by  the  decedent  or  any member of his family in the operation of the farm or other business, and  (ii)  in the case of periods during which the property was held by any qualified heir, there was no material participation  by  such  qualified heir  or  any member of his family in the operation of the farm or other business.  (7) Special rules.--  (A) No tax if use begins within 2 years.--If the  date  on  which  the qualified heir begins to use the qualified real property (hereinafter in  this  subparagraph  referred  to as the commencement date) is before the date 2 years after the decedent's death--  (i)  no  tax  shall  be  imposed  under paragraph (1) by reason of the failure by the qualified  heir  to  so  use  such  property  before  the commencement date, and  (ii)  the  10-year period under paragraph (1) shall be extended by the period after the decedent's death and before the commencement date.  (B) Active management by eligible qualified heir treated  as  material participation.--For   purposes   of  paragraph  (6)(B)(ii),  the  active management of a farm or other business by--  (i) an eligible qualified heir, or  (ii) a fiduciary of an eligible qualified  heir  described  in  clause (ii) or (iii) of subparagraph (C),   shall  be treated as material participation by such eligible qualified heir in the operation of such farm  or  business.  In  the  case  of  an eligible  qualified  heir  described  in  clause (ii), (iii), or (iv) of subparagraph (C), the preceding sentence shall apply only during periods during which such heir meets the requirements of such clause.  (C) Eligible qualified heir.--For purposes of this paragraph, the term "eligible qualified heir" means a qualified heir who--  (i) is the surviving spouse of the decedent,  (ii) has not attained the age of 21,  (iii) is disabled (within the meaning of subsection (b)(4)(B)), or  (iv) is a student.  (D) Student.--For purposes of subparagraph (C), an individual shall be treated as a student with respect to periods during any calendar year if (and only if) such individual  is  a  student  (within  the  meaning  of section 152(f)(2)) for such calendar year.  (E)  Certain  rents  treated  as  qualified use.--For purposes of this subsection, a surviving spouse or  lineal  descendant  of  the  decedent shall  not  be  treated  as  failing to use qualified real property in a qualified use solely  because  such  spouse  or  descendant  rents  such property to a member of the family of such spouse or descendant on a net cash  basis.  For  purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such  individual by blood.  (8)  Qualified  conservation  contribution  is  not  a disposition.--A qualified conservation contribution (as defined in  section  170(h))  by gift  or  otherwise  shall  not be deemed a disposition under subsection (c)(1)(A).  (d) Election; agreement.--  (1) Election.--The election under this section shall be  made  on  the return  of  the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such  an election, once made, shall be irrevocable.  (2)  Agreement.--The  agreement  referred  to  in  this paragraph is a written agreement signed by each person in being  who  has  an  interest (whether  or  not  in  possession)  in  any  property designated in such agreement consenting to the application of subsection (c)  with  respect to such property.  (3)  Modification  of  election  and  agreement  to be permitted.--The Secretary shall prescribe procedures which provide that in any  case  in which  the  executor  makes an election under paragraph (1) (and submits the agreement referred to in paragraph (2)) within the  time  prescribed therefor, but--  (A)  the  notice  of election, as filed, does not contain all required information, or  (B) signatures of 1  or  more  persons  required  to  enter  into  the agreement  described  in paragraph (2) are not included on the agreement as filed, or the agreement does not contain all required information,   the  executor  will have a reasonable period of time (not exceeding 90 days) after notification of such failures to provide such information or signatures.  (e) Definitions; special rules.--For purposes of this section--  (1) Qualified heir.--The term "qualified heir" means, with respect  to any  property,  a  member  of  the  decedent's  family who acquired such property (or to whom such property  passed)  from  the  decedent.  If  a qualified  heir  disposes  of any interest in qualified real property to any member of his family, such member shall thereafter be treated as the qualified heir with respect to such interest.  (2) Member of family.--The term "member of  the  family"  means,  with respect to any individual, only--  (A) an ancestor of such individual,  (B) the spouse of such individual,  (C)  a  lineal  descendant  of  such  individual, of such individual's spouse, or of a parent of such individual, or  (D) the spouse of any lineal descendant described in subparagraph (C).   For purposes of the preceding sentence, a legally adopted child of  an individual shall be treated as the child of such individual by blood.  (3)  Certain  real  property  included.--In  the case of real property which meets the requirements of subparagraph (C) of  subsection  (b)(1), residential  buildings  and  related  improvements on such real property occupied on a regular basis by the owner or lessee of such real property or by persons employed by such  owner  or  lessee  for  the  purpose  of operating  or  maintaining such real property, and roads, buildings, and other structures and improvements functionally related to the  qualified use shall be treated as real property devoted to the qualified use.  (4)  Farm.--The  term  "farm"  includes  stock, dairy, poultry, fruit, furbearing animal, and truck  farms,  plantations,  ranches,  nurseries, ranges,  greenhouses  or other similar structures used primarily for the raising of agricultural or horticultural commodities, and  orchards  and woodlands.  (5) Farming purposes.--The term "farming purposes" means-  (A)  cultivating the soil or raising or harvesting any agricultural or horticultural  commodity  (including  the  raising,  shearing,  feeding, caring for, training, and management of animals) on a farm;  (B)  handling,  drying,  packing,  grading,  or  storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the  farm  regularly  produces more than one-half of the commodity so treated; and  (C)(i) the planting, cultivating, caring for, or cutting of trees, or  (ii) the preparation (other than milling) of trees for market.  (6)   Material   participation.--Material   participation   shall   be determined in a manner similar  to  the  manner  used  for  purposes  of paragraph  (1)  of  section  1402(a)  (relating  to  net  earnings  from self-employment).  (7) Method of valuing farms.--  (A) In general.--Except as provided in subparagraph (B), the value  of a farm for farming purposes shall be determined by dividing--  (i)  the excess of the average annual gross cash rental for comparable land used for farming purposes and located in the locality of such  farm over  the  average  annual  State  and  local real estate taxes for such comparable land, by  (ii) the average annual effective interest rate for  all  new  Federal Land Bank loans.    For   purposes   of   the  preceding  sentence,  each  average  annual computation shall be made on the basis of the  5  most  recent  calendar years ending before the date of the decedent's death.  (B) Value based on net share rental in certain cases.--  (i) In general.--If there is no comparable land from which the average annual  gross cash rental may be determined but there is comparable land from which the average net share rental may be determined,  subparagraph (A)(i)  shall  be  applied  by  substituting  "average  annual net share rental" for "average annual gross cash rental".  (ii) Net share rental.--For purposes of this paragraph, the term  "net share rental" means the excess of--  (I)  the  value  of  the produce received by the lessor of the land on which such produce is grown, over  (II) the cash operating expenses of growing such produce which,  under the lease, are paid by the lessor.  (C)  Exception.--The formula provided by subparagraph (A) shall not be used--  (i) where it is established that there  is  no  comparable  land  from which the average annual gross cash rental may be determined, or  (ii)  where  the  executor  elects  to  have the value of the farm for farming purposes determined and that there is no  comparable  land  from which  the  average  net  share rental may be determined under paragraph (8).  (8) Method of valuing closely held business  interests,  etc.--In  any case  to  which  paragraph  (7)(A) does not apply, the following factors shall apply in determining the value of any qualified real property:  (A) The capitalization of income which the property can be expected to yield for farming or closely held business purposes  over  a  reasonable period  of  time  under  prudent  management  using traditional cropping patterns for the  area,  taking  into  account  soil  capacity,  terrain configuration, and similar factors,  (B)  The  capitalization  of  the  fair  rental  value of the land for farmland or closely held business purposes,  (C) Assessed land values in a State which provides a  differential  or use value assessment law for farmland or closely held business,  (D)  Comparable  sales  of other farm or closely held business land in the same geographical area far enough removed  from  a  metropolitan  or resort  area  so that nonagricultural use is not a significant factor in the sales price, and  (E) Any other factor which fairly values  the  farm  or  closely  held business value of the property.  (9)  Property acquired from decedent.--Property shall be considered to have been acquired from or to have passed from the decedent if--  (A) such property is so considered under section 1014(b) (relating  to basis of property acquired from a decedent),  (B) such property is acquired by any person from the estate, or  (C)  such  property  is  acquired  by  any person from a trust (to the extent such property is includible in the gross estate of the decedent).  (10) Community property.--If the decedent and his surviving spouse  at any  time  held  qualified  real  property  as  community  property, the interest of the surviving spouse in such property shall  be  taken  into account  under  this section to the extent necessary to provide a result under this section with respect to such  property  which  is  consistent with  the  result  which  would have obtained under this section if such property had not been community property.  (11) Bond in lieu of personal liability.--If the qualified heir  makes written  application  to  the Secretary for determination of the maximum amount of the additional tax which may be imposed by subsection (c) with  respect to the qualified heir's interest,  the  Secretary  (as  soon  as possible,  and  in  any  event  within  1  year after the making of such application) shall notify the heir of such maximum amount. The qualified heir,  on furnishing a bond in such amount and for such period as may be required, shall be discharged from personal liability for any additional tax imposed by subsection (c) and shall be  entitled  to  a  receipt  or writing showing such discharge.  (12) Active management.--The term "active management" means the making of  the  management  decisions  of  a  business  (other  than  the daily operating decisions).  (13) Special rules for woodlands.--  (A) In general.--In the case of any qualified woodland with respect to which the executor elects to have this subparagraph apply, trees growing on such woodland shall not be treated as a crop.  (B) Qualified woodland.--The term "qualified woodland" means any  real property which--  (i) is used in timber operations, and  (ii) is an identifiable area of land such as an acre or other area for which records are normally maintained in conducting timber operations.  (C) Timber operations.--The term "timber operations" means--  (i) the planting, cultivating, caring for, or cutting of trees, or  (ii) the preparation (other than milling) of trees for market.  (D) Election.--An election under subparagraph (A) shall be made on the return  of  the tax imposed by section 2001. Such election shall be made in such manner as the Secretary shall by regulations prescribe. Such  an election, once made, shall be irrevocable.  (14)  Treatment  of  replacement  property acquired in section 1031 or 1033 transactions.--  (A) In general.--In the case of any  qualified  replacement  property, any  period during which there was ownership, qualified use, or material participation with respect to the replaced property by the  decedent  or any member of his family shall be treated as a period during which there was  such ownership, use, or material participation (as the case may be) with respect to the qualified replacement property.  (B) Limitation.--Subparagraph (A) shall not apply to the  extent  that the  fair  market value of the qualified replacement property (as of the date of its acquisition) exceeds the fair market value of  the  replaced property (as of the date of its disposition).  (C) Definitions.--For purposes of this paragraph--  (i)  Qualified  replacement property.--The term "qualified replacement property" means any real property which is--  (I) acquired in an exchange which qualifies under section 1031, or  (II) the acquisition of which results in the  nonrecognition  of  gain under section 1033.   Such  term  shall  only  include  property  which is used for the same qualified use as  the  replaced  property  was  being  used  before  the exchange.  (ii) Replaced property.--The term "replaced property" means--  (I)  the  property  transferred  in the exchange which qualifies under section 1031, or  (II) the property compulsorily or involuntarily converted (within  the meaning of section 1033).  (f) Statute of limitations.--If qualified real property is disposed of or ceases to be used for a qualified use, then--  (1)  the  statutory  period  for  the assessment of any additional tax under subsection (c) attributable to such disposition or cessation shall not expire before the expiration of 3 years from the date the  Secretary is  notified  (in  such  manner  as  the  Secretary  may  by regulations  prescribe) of such disposition or cessation (or if later in the case  of an  involuntary  conversion  or  exchange to which subsection (h) or (i) applies, 3 years  from  the  date  the  Secretary  is  notified  of  the replacement  of the converted property or of an intention not to replace or of the exchange of property), and  (2) such additional tax may be assessed before the expiration of  such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.  (g)  Application  of  this  section  and section 6324B to interests in partnerships, corporations, and trusts.--The Secretary  shall  prescribe regulations  setting  forth  the application of this section and section 6324B in the case of an interest in a partnership, corporation, or trust which, with respect to the decedent, is an interest in  a  closely  held business  (within  the meaning of paragraph (1) of section 6166(b)). For purposes of the preceding sentence, an interest in a discretionary trust all the beneficiaries of which are qualified heirs shall be treated as a present interest.  (h) Special  rules  for  involuntary  conversions  of  qualified  real property.--  (1) Treatment of converted property.--  (A)  In general.--If there is an involuntary conversion of an interest in qualified real property--  (i) no tax shall be imposed by subsection (c) on  such  conversion  if the  cost  of  the  qualified replacement property equals or exceeds the amount realized on such conversion, or  (ii) if clause (i) does not apply, the amount of the  tax  imposed  by subsection  (c)  on such conversion shall be the amount determined under subparagraph (B).  (B) Amount of tax  where  there  is  not  complete  reinvestment.--The amount   determined   under   this  subparagraph  with  respect  to  any involuntary conversion is the amount of the  tax  which  (but  for  this subsection)  would  have  been  imposed on such conversion reduced by an amount which--  (i) bears the same ratio to such tax, as  (ii) the cost of the  qualified  replacement  property  bears  to  the amount realized on the conversion.  (2)  Treatment  of  replacement  property.--For purposes of subsection (c)--  (A) any qualified replacement property shall be treated  in  the  same manner  as  if  it  were  a  portion  of  the interest in qualified real property which was involuntarily converted; except that with respect  to such  qualified  replacement property the 10-year period under paragraph (1) of subsection (c) shall be extended by any period, beyond the 2-year period  referred  to  in  section  1033(a)(2)(B)(i),  during  which  the qualified heir was allowed to replace the qualified real property,  (B)  any  tax  imposed by subsection (c) on the involuntary conversion shall be treated as a tax imposed on a partial disposition, and  (C) paragraph (6) of subsection (c) shall be applied--  (i)  by  not  taking  into  account  periods  after  the   involuntary conversion  and  before  the  acquisition  of  the qualified replacement property, and  (ii) by treating material participation with respect to the  converted property  as  material  participation  with  respect  to  the  qualified replacement property.  (3) Definitions and special rules.--For purposes of this subsection--  (A) Involuntary conversion.--The term "involuntary conversion" means a compulsory or involuntary conversion within the meaning of section 1033.  (B) Qualified replacement property.--The term  "qualified  replacement property" means--  (i)  in  the  case  of  an involuntary conversion described in section 1033(a)(1), any real property into which the qualified real property  is converted, or  (ii)  in  the  case  of an involuntary conversion described in section 1033(a)(2), any real property purchased by the qualified heir during the period specified in section 1033(a)(2)(B) for purposes of replacing  the qualified real property.   Such term only includes property which is to be used for the qualified use  set  forth  in  subparagraph  (A) or (B) of subsection (b)(2) under which the qualified real property qualified under subsection (a).  (4) Certain rules made applicable.--The rules of the last sentence  of section 1033(a)(2)(A) shall apply for purposes of paragraph (3)(B)(ii).  (i) Exchanges of qualified real property.--  (1) Treatment of property exchanged.--  (A)  Exchanges solely for qualified exchange property.--If an interest in qualified real property  is  exchanged  solely  for  an  interest  in qualified  exchange  property  in  a  transaction  which qualifies under section 1031, no tax shall be imposed by subsection  (c)  by  reason  of such exchange.  (B)  Exchanges  where  other  property  received.--If  an  interest in qualified real property  is  exchanged  for  an  interest  in  qualified exchange  property  and  other property in a transaction which qualifies under section 1031, the amount of the tax imposed by subsection  (c)  by reason  of  such exchange shall be the amount of tax which (but for this subparagraph) would have been imposed on such exchange under  subsection (c)(1), reduced by an amount which--  (i) bears the same ratio to such tax, as  (ii) the fair market value of the qualified exchange property bears to the fair market value of the qualified real property exchanged.   For  purposes  of  clause  (ii) of the preceding sentence, fair market value shall be determined as of the time of the exchange.  (2)  Treatment  of  qualified  exchange  property.--For  purposes   of subsection (c)--  (A)  any  interest  in qualified exchange property shall be treated in the same manner as if it were a portion of  the  interest  in  qualified real property which was exchanged,  (B)  any tax imposed by subsection (c) by reason of the exchange shall be treated as a tax imposed on a partial disposition, and  (C) paragraph (6) of subsection  (c)  shall  be  applied  by  treating material  participation  with  respect  to  the  exchanged  property  as material participation with respect to the qualified exchange property.  (3) Qualified exchange property.--For purposes of this subsection, the term "qualified exchange property" means real property which  is  to  be used  for  the  qualified  use  set  forth in subparagraph (A) or (B) of subsection (b)(2) under  which  the  real  property  exchanged  therefor originally qualified under subsection (a).   §  2033.  Property in Which the Decedent had an Interest. The value of the gross estate shall include the value of all property to  the  extent of the interest therein of the decedent at the time of his death.   §  2034.  Dower  or  Curtesy  Interests. The value of the gross estate shall include the value of all property to the extent  of  any  interest therein  of the surviving spouse, existing at the time of the decedent's death as dower or curtesy, or by virtue of a statute creating an  estate in lieu of dower or curtesy.    §  2035.  Adjustments  for  Certain  Gifts  Made Within Three Years of Decedent's  Death.  (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.   § 2036. Transfers with Retained Life Estate.  (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).   § 2037. Transfers Taking Effect at Death. (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.   §  2038.  Revocable Transfers. (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.   §  2039.  Annuities.  (a) General.--The gross estate shall include the value of an annuity or other payment receivable by  any  beneficiary  by reason of surviving the decedent under any form of contract or agreement entered into after March 3, 1931 (other than as insurance under policies on  the  life of the decedent), if, under such contract or agreement, an annuity or other payment was payable to the decedent,  or  the  decedent possessed  the right to receive such annuity or payment, either alone or in conjunction  with  another  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.  (b) Amount includible.--Subsection (a) shall apply to only  such  part of  the  value  of  the  annuity  or other payment receivable under such contract or agreement as is proportionate to that part of  the  purchase price  therefor  contributed  by  the  decedent.  For  purposes  of this section, any contribution by the decedent's employer or former  employer to  the  purchase price of such contract or agreement (whether or not to  an employee's  trust  or  fund  forming  part  of  a  pension,  annuity, retirement,  bonus  or  profit  sharing  plan) shall be considered to be contributed by the decedent if made by reason of his employment.   §  2040.  Joint  Interests.  (a) General rule.--The value of the gross estate shall include the value of all property  to  the  extent  of  the interest therein held as joint tenants with right of survivorship by the decedent  and  any  other  person,  or as tenants by the entirety by the decedent and spouse, or deposited,  with  any  person  carrying  on  the banking  business,  in  their  joint  names and payable to either or the survivor, except such part thereof as may be shown  to  have  originally belonged  to  such  other  person  and  never  to  have been received or acquired by the latter from the decedent for less than an  adequate  and full  consideration in money or money's worth: Provided, That where such property or any part thereof, or part of the  consideration  with  which such  property  was acquired, is shown to have been at any time acquired by such other person from the decedent for less  than  an  adequate  and full  consideration  in  money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to  the consideration  furnished  by  such  other person: Provided further, That where any property has  been  acquired  by  gift,  bequest,  devise,  or inheritance,  as  a  tenancy by the entirety by the decedent and spouse, then to the extent of one-half  of  the  value  thereof,  or,  where  so acquired  by  the  decedent  and  any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of  joint tenants with right of survivorship.  (b) Certain joint interests of husband and wife.--  (1)  Interests  of spouse excluded from gross estate.--Notwithstanding subsection (a), in the case of any qualified joint interest,  the  value included  in the gross estate with respect to such interest by reason of this section is one-half of the value of such qualified joint interest.  (2) Qualified joint interest defined.--For purposes of paragraph  (1), the  term "qualified joint interest" means any interest in property held by the decedent and the decedent's spouse as--  (A) tenants by the entirety, or  (B) joint tenants with right of survivorship, but only if the decedent and the spouse of the decedent are the only joint tenants.   § 2041. Powers of Appointment. (a) In general.--The value of the gross estate shall include the value of all property--  (1) Powers of appointment created on or before October  21,  1942.--To the  extent  of  any  property  with respect to which a general power of appointment created on or before October 21, 1942, is exercised  by  the decedent--  (A) by will, or  (B)  by  a  disposition  which  is  of  such  nature that if it were a transfer of property owned by  the  decedent,  such  property  would  be includible  in  the decedent's gross estate under sections 2035 to 2038, inclusive;   but the failure to exercise such a power or the  complete  release  of such a power shall not be deemed an exercise thereof. If a general power of appointment created on or before October 21, 1942, has been partially released  so  that  it  is no longer a general power of appointment, the exercise of such power shall not be deemed  to  be  the  exercise  of  a general power of appointment if--  (i) such partial release occurred before November 1, 1951, or  (ii)  the  donee of such power was under a legal disability to release such power on October 21, 1942, and such partial  release  occurred  not later than 6 months after the termination of such legal disability.  (2)  Powers  created  after  October  21,  1942.--To the extent of any property with respect to which the decedent has at the time of his death a general power of appointment created after October 21, 1942,  or  with respect to which the decedent has at any time exercised or released such a  power of appointment by a disposition which is of such nature that if it were a transfer of property owned  by  the  decedent,  such  property would  be  includible in the decedent's gross estate under sections 2035 to 2038, inclusive. For purposes of this paragraph  (2),  the  power  of appointment  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 exercise of the power takes effect only on the expiration of a stated period after its exercise, whether or not on or before the date of the decedent's death notice has been  given or the power has been exercised.  (3)  Creation of another power in certain cases.--To the extent of any property with respect to which the decedent--  (A) by will, or  (B) by a disposition which is  of  such  nature  that  if  it  were  a transfer  of  property  owned  by  the  decedent  such property would be includible in the decedent's gross estate under section 2035,  2036,  or 2037,   exercises  a  power  of appointment created after October 21, 1942, by creating another power of appointment which under the  applicable  local law can be validly exercised so as to postpone the vesting of any estate or interest in such property, or suspend the absolute ownership or power of  alienation  of  such  property,  for  a period ascertainable without regard to the date of the creation of the first power.  (b) Definitions.--For purposes of subsection (a)--  (1)  General  power  of  appointment.--The  term  "general  power   of appointment"  means  a  power  which  is  exercisable  in  favor  of the decedent, his estate, his creditors, or the  creditors  of  his  estate; except that--  (A)  A  power  to  consume,  invade,  or  appropriate property for the benefit of the decedent which is limited by  an  ascertainable  standard relating  to  the  health,  education,  support,  or  maintenance of the decedent shall not be deemed a general power of appointment.  (B) A power of appointment created on  or  before  October  21,  1942, which  is  exercisable  by the decedent only in conjunction with another person shall not be deemed a general power of appointment.  (C) In the case of a power of appointment created  after  October  21, 1942,  which  is  exercisable  by  the decedent only in conjunction with another person--  (i) If the  power  is  not  exercisable  by  the  decedent  except  in conjunction  with  the  creator  of  the  power--such power shall not be deemed a general power of appointment.  (ii) If the power  is  not  exercisable  by  the  decedent  except  in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of  the  decedent--such  power  shall  not  be deemed a general power of appointment. For the purposes of this clause a  person  who,  after  the death  of the decedent, may be possessed of a power of appointment (with respect to the property subject to the decedent's power)  which  he  may exercise  in  his own favor shall be deemed as having an interest in the property and such interest shall be deemed adverse to such  exercise  of the decedent's power.  (iii)  If (after the application of clauses (i) and (ii)) the power is a general power of appointment and is exercisable in favor of such other person--such power shall be deemed a general power of  appointment  only in  respect  of a fractional part of the property subject to such power, such part to be determined by dividing the value of such property by the number  of  such  persons (including the decedent) in favor of whom such power is exercisable.   For purposes of clauses (ii) and (iii), a power shall be deemed to  be exercisable  in  favor of a person if it is exercisable in favor of such person, his estate, his creditors, or the creditors of his estate.  (2) Lapse of power.--The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of  such  power.  The  preceding  sentence shall apply with respect to the lapse of powers during any calendar year only to the extent that the property, which could have been appointed by exercise  of  such lapsed powers, exceeded in value, at the time of such lapse, the greater of the following amounts:  (A) $5,000, or  (B) 5 percent of the aggregate value, at the time of  such  lapse,  of the  assets  out of which, or the proceeds of which, the exercise of the lapsed powers could have been satisfied.  (3) Date of creation of power.--For purposes of this section, a  power of appointment created by a will executed on or before October 21, 1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942.   §  2042.  Proceeds  of  Life  Insurance. The value of the gross estate shall include the value of all property--  (1)  Receivable  by  the  executor.--To  the  extent  of  the   amount receivable  by  the  executor as insurance under policies on the life of the decedent.  (2) Receivable by other beneficiaries.--To the extent  of  the  amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death  any of the incidents of ownership, exercisable either alone or in conjunction with  any  other  person.  For  purposes  of  the  preceding sentence,  the  term  "incident  of  ownership"  includes a reversionary interest (whether arising by the express terms of the  policy  or  other instrument   or  by  operation  of  law)  only  if  the  value  of  such reversionary interest exceeded 5 percent of  the  value  of  the  policy immediately before the death of the decedent. As used in this paragraph, the term "reversionary interest" includes a possibility that the policy, or the proceeds of the policy, may return to the decedent or his estate, or  may  be  subject  to  a  power of disposition by him. The value of a reversionary interest at any time 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, pursuant to regulations prescribed by the Secretary. In determining  the value  of  a  possibility  that  the  policy  or proceeds thereof may be subject to a power of disposition  by  the  decedent,  such  possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his estate.   §  2043. Transfers for Insufficient Consideration. (a) In general.--If any  one  of  the  transfers,  trusts,  interests,  rights,  or   powers enumerated  and  described  in  sections  2035  to  2038, inclusive, and section  2041  is  made,  created,  exercised,  or  relinquished  for  a consideration in money or money's worth, but is not a bona fide sale for an  adequate  and  full  consideration  in money or money's worth, there  shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be  included  on account  of  such  transaction,  over  the  value  of  the consideration received therefor by the decedent.  (b) Marital rights not treated as consideration.--  (1)  In  general.--For  purposes  of this chapter, a relinquishment or promised relinquishment of dower or curtesy, or of  a  statutory  estate created  in  lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any  extent  a consideration "in money or money's worth".  (2)  Exception.--For  purposes  of section 2053 (relating to expenses, indebtedness, and taxes), a transfer of  property  which  satisfies  the requirements  of  paragraph  (1)  of  section  2516 (relating to certain property settlements) shall be considered to be made for an adequate and full consideration in money or money's worth.   § 2044. Certain Property for Which Marital  Deduction  Was  Previously Allowed.  (a) General rule.--The value of the gross estate shall include the value of any property to which this section  applies  in  which  the decedent had a qualifying income interest for life.  (b)  Property  to which this section applies.--This section applies to any property if--  (1) a deduction was allowed with  respect  to  the  transfer  of  such property to the decedent--  (A) under section 2056 by reason of subsection (b)(7) thereof, or  (B) under section 2523 by reason of subsection (f) thereof, and  (2)  section  2519  (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of  part  or all of such property.  (c)  Property treated as having passed from decedent.--For purposes of this chapter and chapter 13, property includible in the gross estate  of the  decedent  under subsection (a) shall be treated as property passing from the decedent.   § 2045. Prior Interests. Except as otherwise specifically provided  by law,  sections  2034  to  2042, inclusive, shall apply to the transfers, trusts,  estates,  interests,  rights,  powers,  and  relinquishment  of powers,  as  severally  enumerated and described therein, whenever made, created, arising, existing, exercised, or relinquished.   § 2046. Disclaimers. For  provisions  relating  to  the  effect  of  a qualified disclaimer for purposes of this chapter, see section 2518.   §  2053.  Expenses,  indebtedness,  and  taxes. (a) General rule.--For purposes of the tax imposed by section 2001, the value  of  the  taxable estate  shall  be  determined  by  deducting from the value of the gross estate such amounts--  (1) for funeral expenses,  (2) for administration expenses,  (3) for claims against the estate, and  (4) for unpaid mortgages  on,  or  any  indebtedness  in  respect  of, property   where   the   value   of  the  decedent's  interest  therein, undiminished by such mortgage or indebtedness, is included in the  value of the gross estate,   as  are  allowable  by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.  (b) Other administration  expenses.--Subject  to  the  limitations  in paragraph  (1) of subsection (c), there shall be deducted in determining the  taxable  estate   amounts   representing   expenses   incurred   in administering  property  not  subject to claims which is included in the gross estate to the same extent such amounts would  be  allowable  as  a deduction  under subsection (a) if such property were subject to claims,  and such amounts are  paid  before  the  expiration  of  the  period  of limitation for assessment provided in section 6501.  (c) Limitations.--  (1) Limitations applicable to subsections (a) and (b).--  (A)  Consideration  for claims.--The deduction allowed by this section in the case of claims against  the  estate,  unpaid  mortgages,  or  any indebtedness  shall,  when founded on a promise or agreement, be limited to the extent that they were contracted bona fide and  for  an  adequate and  full  consideration  in  money or money's worth; except that in any case in which any such claim is founded on a promise or agreement of the decedent to make a contribution or gift to or for the use of  any  donee described  in  section  2055  for  the  purposes  specified therein, the deduction for such claims shall not be so limited, but shall be  limited to  the  extent  that it would be allowable as a deduction under section 2055 if such promise or agreement constituted a bequest.  (B) Certain taxes.--Any income taxes  on  income  received  after  the death  of  the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes,  shall  not  be deductible under this section.  (C)  Certain  claims  by  remaindermen.--No deduction shall be allowed under this section for a claim against  the  estate  by  a  remainderman relating to any property described in section 2044.  (D)  Section  6166 interest.--No deduction shall be allowed under this section for any interest  payable  under  section  6601  on  any  unpaid portion  of  the tax imposed by section 2001 for the period during which an extension of time for payment of such tax is in effect under  section 6166.  (2) Limitations applicable only to subsection (a).--In the case of the amounts  described  in  subsection  (a),  there  shall be disallowed the amount by which the deductions specified therein exceed  the  value,  at the  time of the decedent's death, of property subject to claims, except to the extent that such deductions represent  amounts  paid  before  the date prescribed for the filing of the estate tax return. For purposes of this  section,  the  term  "property  subject  to claims" means property includible in the gross estate of the decedent which, or the  avails  of which, would under the applicable law, bear the burden of the payment of such  deductions  in  the final adjustment and settlement of the estate, except that the value of the property shall be reduced by the amount  of the deduction under section 2054 attributable to such property.  (d) Certain foreign death taxes.--  (1)   In   general.--Notwithstanding   the  provisions  of  subsection (c)(1)(B), for purposes of the tax imposed by section 2001, the value of the taxable estate may be determined, if the executor so  elects  before the  expiration  of  the period of limitation for assessment provided in section 6501, by deducting from the value of the gross estate the amount (as  determined  in  accordance  with  regulations  prescribed  by   the Secretary) of any estate, succession, legacy, or inheritance tax imposed by  and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United  States,  upon  a  transfer  by  the decedent  for public, charitable, or religious uses described in section 2055. The determination under this paragraph of the country within which property is  situated  shall  be  made  in  accordance  with  the  rules applicable  under  subchapter B (sec. 2101 and following) in determining whether property is situated within or without the  United  States.  Any election  under  this  paragraph  shall  be exercised in accordance with regulations prescribed by the Secretary.  (2) Condition for  allowance  of  deduction.--No  deduction  shall  be allowed  under  paragraph  (1) for a foreign death tax specified therein unless the decrease in the tax imposed by  section  2001  which  results from  the  deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2). In any case where the tax imposed by section  2001  is  equitably  apportioned  among  all the transferees of property included in the gross  estate,  including  those  described  in sections  2055  and  2106(a)(2)  (taking  into  account  any exemptions, credits, or deductions allowed by this  chapter),  in  determining  such decrease,  there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described  in  sections  2055 and 2106(a)(2) are required to pay.  (3)  Effect  on credit for foreign death taxes of deduction under this subsection.--  (A) Election.--An election under this subsection  shall  be  deemed  a waiver  of  the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country  for  any  tax  or portion  thereof  in  respect  of  which a deduction is taken under this subsection.  (B) Cross reference.--   See section 2011(d) for the effect of a  deduction  taken  under  this paragraph on the credit for foreign death taxes.  (e) Marital rights.--   For  provisions  treating certain relinquishments of marital rights as consideration in money or money's worth, see section 2043(b)(2).   § 2054. Losses. For purposes of the tax imposed by section  2001,  the value  of  the  taxable estate shall be determined by deducting from the value of the gross estate  losses  incurred  during  the  settlement  of estates  arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated  for  by  insurance  or otherwise.   § 2055. Transfers for public, charitable, and religious uses.  (a)  In general.--For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by  deducting  from  the value of the gross estate the amount of all bequests, legacies, devises, or transfers--  (1)  to  or for the use of the United States, any State, any political subdivision thereof, or the District of Columbia, for exclusively public purposes;  (2) to or for the  use  of  any  corporation  organized  and  operated exclusively   for   religious,   charitable,  scientific,  literary,  or educational purposes, including the encouragement of art, or  to  foster national  or  international  amateur  sports competition (but only if no part of its activities involve the provision of athletic  facilities  or equipment),  and  the  prevention  of cruelty to children or animals, no part of the net earnings of which inures to the benefit of  any  private stockholder  or  individual, which is not disqualified for tax exemption under  section  501(c)(3)  by  reason   of   attempting   to   influence legislation,  and  which  does  not  participate  in,  or  intervene  in (including the publishing or distributing of statements), any  political campaign  on  behalf  of  (or in opposition to) any candidate for public office;  (3) to a trustee or  trustees,  or  a  fraternal  society,  order,  or association   operating  under  the  lodge  system,  but  only  if  such contributions or gifts are to be used by such trustee or trustees, or by such  fraternal  society,  order,  or   association,   exclusively   for religious, charitable, scientific, literary, or educational purposes, or  for  the  prevention  of  cruelty  to  children  or animals, such trust, fraternal society, order, or association would not be  disqualified  for tax  exemption  under  section  501(c)(3)  by  reason  of  attempting to influence  legislation,  and such trustee or trustees, or such fraternal society, order, or association, does not participate in, or intervene in (including the publishing or distributing of statements), any  political campaign  on  behalf  of  (or in opposition to) any candidate for public office;  (4) to or for the use of any veterans'  organization  incorporated  by Act  of  Congress,  or of its departments or local chapters or posts, no part of the net earnings of which inures to the benefit of  any  private shareholder or individual; or  (5)  to an employee stock ownership plan if such transfer qualifies as a qualified gratuitous transfer of qualified employer securities  within the meaning of section 664(g).   For  purposes  of this subsection, the complete termination before the date prescribed for the filing of the estate tax return of  a  power  to consume,   invade,  or  appropriate  property  for  the  benefit  of  an individual before such power has been exercised by reason of  the  death of  such  individual  or  for  any  other reason shall be considered and deemed to be a qualified disclaimer with the same full force and  effect as  though  he had filed such qualified disclaimer. Rules similar to the rules of section 501(j) shall apply for purposes of paragraph (2).  (b) Powers of  appointment.--Property  includible  in  the  decedent's gross  estate  under  section  2041  (relating to powers of appointment) received by a donee described in this section  shall,  for  purposes  of this section, be considered a bequest of such decedent.  (c)  Death  taxes  payable  out  of  bequests.--If  the tax imposed by section 2001, or any estate, succession, legacy, or  inheritance  taxes, are,  either  by  the  terms of the will, by the law of the jurisdiction under  which  the  estate  is  administered,  or  by  the  law  of   the jurisdiction  imposing  the  particular tax, payable in whole or in part out of the bequests, legacies, or  devises  otherwise  deductible  under this section, then the amount deductible under this section shall be the amount  of  such bequests, legacies, or devises reduced by the amount of such taxes.  (d) Limitation on deduction.--The amount of the deduction  under  this section  for  any transfer shall not exceed the value of the transferred property required to be included in the gross estate.  (e) Disallowance of deductions in certain cases.--  (1) No deduction shall be allowed under this section for a transfer to or for the use of an organization or trust described in  section  508(d) or 4948(c)(4) subject to the conditions specified in such sections.  (2) Where an interest in property (other than an interest described in section  170(f)(3)(B))  passes  or  has  passed  from  the decedent to a person, or for a use, described  in  subsection  (a),  and  an  interest (other than an interest which is extinguished upon the decedent's death) in the same property passes or has passed (for less than an adequate and full  consideration  in  money  or money's worth) from the decedent to a person, or for a use, not described  in  subsection  (a),  no  deduction shall be allowed under this section for the interest which passes or has passed  to  the  person,  or  for  the  use, described in subsection (a) unless--  (A) in the case of a remainder interest, such interest is in  a  trust which  is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income  fund  (described in section 642(c)(5)), or  (B) in the case of any other interest, such interest is in the form of a  guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).  (3) Reformations to comply with paragraph (2).--  (A)  In general.--A deduction shall be allowed under subsection (a) in respect of any qualified reformation.  (B) Qualified reformation.--For purposes of this paragraph,  the  term "qualified  reformation"  means  a  change  of a governing instrument by reformation, amendment,  construction,  or  otherwise  which  changes  a reformable interest into a qualified interest but only if--  (i) any difference between--  (I)  the  actuarial value (determined as of the date of the decedent's death) of the qualified interest, and  (II)  the  actuarial  value  (as  so  determined)  of  the  reformable interest,   does not exceed 5 percent of the actuarial value (as so determined) of the reformable interest,  (ii) in the case of--  (I) a charitable remainder interest, the nonremainder interest (before and after the qualified reformation) terminated at the same time, or  (II)  any  other  interest,  the reformable interest and the qualified interest are for the same period, and  (iii) such change is effective as of the date of the decedent's death.   A nonremainder interest (before reformation) for a term  of  years  in excess  of  20  years  shall  be  treated as satisfying subclause (I) of clause (ii) if such interest (after reformation) is for  a  term  of  20 years.  (C) Reformable interest.--For purposes of this paragraph--  (i) In general.--The term "reformable interest" means any interest for which a deduction would be allowable under subsection (a) at the time of the decedent's death but for paragraph (2).  (ii)  Beneficiary's  interest  must  be  fixed.--The  term "reformable interest" does not include any interest  unless,  before  the  remainder vests  in possession, all payments to persons other than an organization described in subsection (a) are expressed  either  in  specified  dollar amounts  or a fixed percentage of the fair market value of the property. For purposes of determining whether all such payments are expressed as a fixed percentage of the fair  market  value  of  the  property,  section 664(d)(3) shall be taken into account.  (iii)  Special  rule where timely commencement of reformation.--Clause (ii) shall not apply  to  any  interest  if  a  judicial  proceeding  is commenced  to  change  such interest into a qualified interest not later than the 90th day after--  (I) if an estate tax return is required to be filed, the last date (including extensions) for filing such return, or  (II) if no estate tax return is required to be filed,  the  last  date (including  extensions)  for  filing  the  income tax return for the 1st taxable year for which such a return is required  to  be  filed  by  the trust.  (iv)  Special  rule for will executed before January 1, 1979, etc.--In the case of any interest passing under a will executed before January 1, 1979, or under a trust created before such date, clause (ii)  shall  not apply.  (D)  Qualified  interest.--For  purposes  of  this paragraph, the term "qualified  interest"  means  an  interest  for  which  a  deduction  is allowable under subsection (a).  (E)  Limitation.--The  deduction referred to in subparagraph (A) shall not exceed the amount of the deduction which would have  been  allowable for the reformable interest but for paragraph (2).  (F)  Special rule where income beneficiary dies.--If (by reason of the death of any individual, or by termination or distribution of a trust in accordance with the terms of the trust instrument) by the due  date  for filing  the  estate  tax  return  (including  any  extension  thereof) a reformable interest is in a wholly charitable trust or  passes  directly to  a person or for a use described in subsection (a), a deduction shall be  allowed  for  such  reformable  interest  as  if  it  had  met   the requirements  of  paragraph (2) on the date of the decedent's death. For purposes of the preceding sentence, the term "wholly  charitable  trust" means a charitable trust which, upon the allowance of a deduction, would be described in section 4947(a)(1).  (G)  Statute  of limitations.--The period for assessing any deficiency of any tax attributable to the application of this paragraph  shall  not expire  before  the date 1 year after the date on which the Secretary is notified  that  such  reformation  (or  other  proceeding  pursuant   to subparagraph (J)1 has occurred.  (H)  Regulations.--The  Secretary  shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph,  including regulations  providing  such  adjustments  in  the  application  of  the provisions of section 508 (relating to special rules relating to section 501(c)(3) organizations), subchapter J  (relating  to  estates,  trusts, beneficiaries,  and  decedents),  and  chapter  42  (relating to private foundations) as may be necessary by reason of the qualified reformation.  (I) Reformations permitted in case of remainder interests in residence or farm,  pooled  income  funds,  etc.--The  Secretary  shall  prescribe regulations   (consistent   with   the  provisions  of  this  paragraph) permitting reformations in the case of any failure--  (i) to meet the requirements  of  section  170(f)(3)(B)  (relating  to remainder interests in personal residence or farm, etc.), or  (ii) to meet the requirements of section 642(c)(5).  (J)  Void  or  reformed  trust  in  cases  of  insufficient  remainder interests.--In the case of a trust  that  would  qualify  (or  could  be reformed  to  qualify  pursuant  to subparagraph (B)) but for failure to satisfy the requirement of paragraph (1)(D) or (2)(D) of section 664(d), such trust may be--  (i) declared null and void ab initio, or  (ii) changed by reformation, amendment,  or  otherwise  to  meet  such requirement by reducing the payout rate or the duration (or both) of any noncharitable  beneficiary's interest to the extent necessary to satisfy such requirement,   pursuant to a proceeding that is commenced within the period  required in  subparagraph  (C)(iii).  In  a  case  described  in  clause  (i), no deduction shall be allowed under this title  for  any  transfer  to  the trust  and  any  transactions  entered  into by the trust prior to being declared void shall be treated as entered into by the transferor.  (4) Works of art and their copyrights treated as  separate  properties in certain cases.--  (A)  In general.--In the case of a qualified contribution of a work of art, the work of art and the copyright on such  work  of  art  shall  be treated as separate properties for purposes of paragraph (2).  (B)  Work  of  art  defined.--For purposes of this paragraph, the term "work of art" means any tangible personal property with respect to which there is a copyright under Federal law.  (C) Qualified contribution defined.--For purposes of  this  paragraph, the  term  "qualified  contribution" means any transfer of property to a  qualified organization if the use of the property by the organization is related to the purpose  or  function  constituting  the  basis  for  its exemption under section 501.  (D)  Qualified  organization defined.--For purposes of this paragraph, the term "qualified organization" means any  organization  described  in section 501(c)(3) other than a private foundation (as defined in section 509).  For  purposes  of  the  preceding  sentence,  a private operating foundation (as defined in section 4942(j)(3)) shall not be treated as  a private foundation.  (5)  Contributions  to  donor  advised  funds.--A  deduction otherwise allowed under subsection (a) for any contribution  to  a  donor  advised fund (as defined in section 4966(d)(2)) shall only be allowed if--  (A)  the  sponsoring  organization  (as defined in section 4966(d)(1)) with respect to such donor advised fund is not--  (i) described in paragraph (3) or (4) of subsection (a), or  (ii) a  type  III  supporting  organization  (as  defined  in  section 4943(f)(5)(A))   which   is  not  a  functionally  integrated  type  III supporting organization (as defined in section 4943(f)(5)(B)), and  (B) the taxpayer  obtains  a  contemporaneous  written  acknowledgment (determined  under  rules  similar to the rules of section 170(f)(8)(C)) from the sponsoring organization (as so defined) of such  donor  advised fund  that such organization has exclusive legal control over the assets contributed.  (f) Special rule  for  irrevocable  transfers  of  easements  in  real property.--A  deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property  interest  (as  defined  in section  170(h)(2)(C))  which  meets  the requirements of section 170(h) (without regard to paragraph (4)(A) thereof).  (g) Cross references.--  (1) For option as to time for valuation for purpose of deduction under this section, see section 2032.  (2) For treatment of certain organizations providing child  care,  see section 501(k).  (3)  For  exemption  of  gifts  and  bequests to or for the benefit of Library of Congress, see section 5 of the  Act  of  March  3,  1925,  as amended (2 U.S.C. 161).  (4)  For  treatment of gifts and bequests for the benefit of the Naval Historical Center as gifts or bequests to or for the use of  the  United States, see section 7222 of Title 10, United States Code.  (5)  For  treatment  of  gifts  and  bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use  of  the United  States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191).  (6) For treatment of gifts,  devises,  or  bequests  accepted  by  the Secretary  of  State,  the  Director  of the International Communication Agency, or the Director of the United States  International  Development Cooperation  Agency  as gifts, devises, or bequests to or for the use of the United  States,  see  section  25  of  the  State  Department  Basic Authorities Act of 1956.  (7)  For  treatment  of  gifts  or  bequests  of money accepted by the Attorney General for credit to "Commissary Funds,  Federal  Prisons"  as gifts  or  bequests  to or for the use of the United States, see section 4043 of Title 18, United States Code.  (8) For payment  of  tax  on  gifts  and  bequests  of  United  States obligations  to  the  United  States,  see  section 3113(e) of Title 31, United States Code.  (9) For treatment of gifts and  bequests  for  benefit  of  the  Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of Title 10, United States Code.  (10)  For  treatment  of  gifts  and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for  the  use  of  the  United States, see section 6974 of Title 10, United States Code.  (11) For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of Title 44, United States Code.  (12)  For  treatment of gifts and bequests to or for the use of Indian tribal governments (or their subdivisions), see section 7871.   § 2056. Bequests, etc., to surviving spouse. (a) Allowance of  marital deduction.--For  purposes  of the tax imposed by section 2001, the value of the taxable estate shall, except as limited  by  subsection  (b),  be determined  by  deducting  from  the value of the gross estate an amount equal to the value of any interest  in  property  which  passes  or  has passed from the decedent to his surviving spouse, but only to the extent that  such  interest  is  included in determining the value of the gross estate.  (b) Limitation  in  the  case  of  life  estate  or  other  terminable interest.--  (1)  General  rule.--Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving  spouse  will  terminate  or fail,  no  deduction shall be allowed under this section with respect to such interest--  (A) if an interest in such property passes or  has  passed  (for  less than  an adequate and full consideration in money or money's worth) from the decedent to any person other than  such  surviving  spouse  (or  the estate of such spouse); and  (B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse;   and  no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under subparagraphs (A) and (B))--  (C) if such interest is to  be  acquired  for  the  surviving  spouse, pursuant  to  directions  of  the  decedent,  by  his executor or by the trustee of a trust.   For purposes of this paragraph, an interest shall not be considered as an interest which will terminate  or  fail  merely  because  it  is  the ownership  of  a  bond,  note,  or  similar  contractual obligation, the discharge of which would not have the effect of an annuity for  life  or for a term.  (2)  Interest  in  unidentified assets.--Where the assets (included in the decedent's gross estate) out of which, or the proceeds of which,  an interest  passing  to  the  surviving  spouse may be satisfied include a particular asset or assets with respect to which no deduction  would  be allowed if such asset or assets passed from the decedent to such spouse, then  the  value  of  such  interest  passing  to such spouse shall, for purposes of subsection (a), be reduced by the aggregate  value  of  such particular assets.  (3)   Interest   of   spouse   conditional  on  survival  for  limited period.--For purposes of this subsection, an  interest  passing  to  the surviving  spouse  shall  not  be  considered  as an interest which will terminate or fail on the death of such spouse if--  (A) such death will cause a termination or failure  of  such  interest only  if  it  occurs  within  a  period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common  disaster  resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event; and  (B) such termination or failure does not in fact occur.  (4) Valuation of interest passing to surviving spouse.--In determining for  purposes  of  subsection  (a) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this section--  (A) there shall be taken into account the effect which the tax imposed by section 2001, or any estate, succession, legacy, or inheritance  tax, has on the net value to the surviving spouse of such interest; and  (B)  where  such  interest or property is encumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the  passing  of  such  interest,  such  encumbrance  or obligation  shall  be  taken  into  account in the same manner as if the amount of a gift to such spouse of such interest were being determined.  (5) Life estate with power of appointment in surviving spouse.--In the case of an interest in  property  passing  from  the  decedent,  if  his surviving  spouse is entitled for life to all the income from the entire interest, or all the income from a  specific  portion  thereof,  payable annually  or  at  more  frequent  intervals, with power in the surviving spouse  to  appoint  the  entire  interest,  or  such  specific  portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse--  (A)  the  interest  or  such  portion  thereof  so  passing shall, for purposes of subsection (a), be considered as passing  to  the  surviving spouse, and  (B)  no  part  of  the  interest  so  passing  shall,  for purposes of paragraph (1)(A), be considered as passing to any person other than  the surviving spouse.   This  paragraph shall apply only if such power in the surviving spouse to appoint the  entire  interest,  or  such  specific  portion  thereof, whether  exercisable  by  will  or  during  life, is exercisable by such spouse alone and in all events.  (6) Life insurance or annuity payments with power  of  appointment  in surviving  spouse.--In  the case of an interest in property passing from the decedent consisting of proceeds under a life  insurance,  endowment, or  annuity  contract,  if under the terms of the contract such proceeds are payable in installments or are held by the  insurer  subject  to  an agreement  to  pay  interest  thereon  (whether  the  proceeds,  on  the termination of any interest payments, are payable in a lump  sum  or  in annual  or more frequent installments), and such installment or interest payments are payable annually or at more frequent intervals,  commencing not later than 13 months after the decedent's death, and all amounts, or a  specific  portion of all such amounts, payable during the life of the surviving spouse are payable only to such spouse, and  such  spouse  has the  power  to  appoint  all  amounts, or such specific portion, payable under such contract (exercisable in favor of such surviving  spouse,  or of  the  estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of  others),  with no power in any other person to appoint such amounts to any person other than the surviving spouse--  (A)  such amounts shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and  (B) no part of such amounts shall, for purposes of  paragraph  (1)(A), be considered as passing to any person other than the surviving spouse.    This  paragraph  shall apply only if, under the terms of the contract, such power in the surviving spouse  to  appoint  such  amounts,  whether exercisable  by will or during life, is exercisable by such spouse alone and in all events.  (7) Election with respect to life estate for surviving spouse.--  (A)   In  general.--In  the  case  of  qualified  terminable  interest property--  (i) for purposes of subsection (a), such property shall be treated  as passing to the surviving spouse, and  (ii)  for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.  (B) Qualified terminable interest property defined.--For  purposes  of this paragraph--  (i)  In  general.--The  term  "qualified terminable interest property" means property--  (I) which passes from the decedent,  (II) in which the surviving spouse has a  qualifying  income  interest for life, and  (III) to which an election under this paragraph applies.  (ii)  Qualifying income interest for life.--The surviving spouse has a qualifying income interest for life if--  (I) the surviving spouse is  entitled  to  all  the  income  from  the property,  payable  annually  or  at  more  frequent intervals, or has a usufruct interest for life in the property, and  (II) no person has a power to appoint any part of the property to  any person other than the surviving spouse.   Subclause (II) shall not apply to a power exercisable only at or after the   death   of  the  surviving  spouse.  To  the  extent  provided  in regulations, an annuity shall be treated  in  a  manner  similar  to  an income  interest  in  property  (regardless of whether the property from which the annuity is payable can be separately identified).  (iii)  Property  includes  interest  therein.--The   term   "property" includes an interest in property.  (iv)  Specific  portion  treated  as  separate  property.--A  specific portion of property shall be treated as separate property.  (v) Election.--An election under this paragraph with  respect  to  any property  shall  be made by the executor on the return of tax imposed by section 2001. Such an election, once made, shall be irrevocable.  (C) Treatment of  survivor  annuities.--In  the  case  of  an  annuity included  in the gross estate of the decedent under section 2039 (or, in the case of an interest  in  an  annuity  arising  under  the  community property  laws  of a State, included in the gross estate of the decedent under section 2033) where only the surviving spouse  has  the  right  to receive payments before the death of such surviving spouse--  (i)  the  interest  of  such  surviving  spouse  shall be treated as a qualifying income interest for life, and  (ii) the executor shall be treated as having made  an  election  under this  subsection  with  respect  to  such  annuity  unless  the executor otherwise elects on the return of tax imposed by section 2001.   An election under clause (ii), once made, shall be irrevocable.  (8) Special rule for charitable remainder trusts.--  (A) In general.--If the surviving spouse of the decedent is  the  only beneficiary  of  a  qualified  charitable  remainder  trust who is not a charitable beneficiary nor an ESOP beneficiary, paragraph (1) shall  not apply  to any interest in such trust which passes or has passed from the decedent to such surviving spouse.  (B) Definitions.--For purposes of subparagraph (A)--  (i) Charitable beneficiary.--The term "charitable  beneficiary"  means any beneficiary which is an organization described in section 170(c).  (ii)   ESOP   beneficiary.--The  term  "ESOP  beneficiary"  means  any beneficiary which is an employee stock ownership  plan  (as  defined  in section  4975(e)(7))  that  holds  a  remainder  interest  in  qualified employer securities (as defined in section 664(g)(4)) to be  transferred to  such  plan in a qualified gratuitous transfer (as defined in section 664(g)(1)).  (iii)  Qualified  charitable  remainder  trust.--The  term  "qualified charitable  remainder  trust" means a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664).  (9) Denial of double deduction.--Nothing in this section or any  other provision  of  this  chapter  shall  allow  the value of any interest in property to be deducted under this chapter more than once  with  respect to the same decedent.  (10)  Specific  portion.--For  purposes  of  paragraphs  (5), (6), and (7)(B)(iv),  the  term  "specific  portion"  only  includes  a   portion determined on a fractional or percentage basis.  (c) Definition.--For purposes of this section, an interest in property shall  be  considered  as passing from the decedent to any person if and only if--  (1) such interest is bequeathed or  devised  to  such  person  by  the decedent;  (2) such interest is inherited by such person from the decedent;  (3)  such  interest  is  the  dower  or curtesy interest (or statutory interest in lieu thereof) of such person  as  surviving  spouse  of  the decedent;  (4)  such interest has been transferred to such person by the decedent at any time;  (5) such interest was, at the time of the decedent's  death,  held  by such  person and the decedent (or by them and any other person) in joint ownership with right of survivorship;  (6) the decedent had a power (either alone or in conjunction with  any person)  to  appoint  such  interest and if he appoints or has appointed such interest to such person, or if such person takes such  interest  in default on the release or nonexercise of such power; or  (7) such interest consists of proceeds of insurance on the life of the decedent receivable by such person.   Except as provided in paragraph (5) or (6) of subsection (b), where at the  time  of  the  decedent's death it is not possible to ascertain the particular person or persons to whom an interest in  property  may  pass from  the  decedent,  such interest shall, for purposes of subparagraphs (A) and (B) of subsection (b)(1), be  considered  as  passing  from  the decedent to a person other than the surviving spouse.   § 2103. Definition of Gross Estate. For the purpose of the tax imposed by  section  2101,  the  value  of  the  gross  estate of every decedent nonresident not a citizen of the United States shall be that part of his gross estate (determined as provided in section 2031) which at the  time of his death is situated in the United States.   §   2104.   Property   Within   the   United   States.  (a)  Stock  in corporation.--For purposes of this subchapter shares of stock owned  and held by a nonresident not a citizen of the United States shall be deemed property  within  the  United  States  only  if  issued  by  a  domestic corporation.  (b) Revocable transfers and transfers within 3  years  of  death.--For purposes of this subchapter, any property of which the decedent has made a  transfer,  by trust or otherwise, within the meaning of sections 2035 to 2038, inclusive, shall be deemed to be situated in the United States,  if so situated either at the time of the transfer or at the time of  the decedent's death.  (c)   Debt   obligations.--For   purposes  of  this  subchapter,  debt obligations of-  (1) a United States person, or  (2) the United States, a State or any political  subdivision  thereof, or the District of Columbia,   owned  and  held  by  a nonresident not a citizen of the United States shall be deemed property within  the  United  States.  With  respect  to estates  of  decedents  dying  after  December 31, 1969, deposits with a domestic branch of a foreign corporation, if such branch is  engaged  in the commercial banking business, shall, for purposes of this subchapter, be  deemed  property within the United States. This subsection shall not apply to a debt obligation to which section 2105(b) applies.   § 2105. Property Without the  United  States.  (a)  Proceeds  of  life insurance.--For  purposes  of  this subchapter, the amount receivable as insurance on the life of a nonresident  not  a  citizen  of  the  United States shall not be deemed property within the United States.  (b) Bank deposits and certain other debt obligations.--For purposes of this  subchapter,  the following shall not be deemed property within the United States--  (1) amounts described in section 871(i)(3), if  any  interest  thereon would  not  be  subject  to tax by reason of section 871(i)(1) were such interest received by the decedent at the time of his death,  (2) deposits with a  foreign  branch  of  a  domestic  corporation  or domestic  partnership,  if  such  branch  is  engaged  in the commercial banking business,  (3) debt obligations,  if,  without  regard  to  whether  a  statement meeting  the  requirements  of  section 871(h)(5) has been received, any interest thereon would be eligible for  the  exemption  from  tax  under section  871(h)(1)  were  such  interest received by the decedent at the time of his death, and  (4) obligations which would be original issue discount obligations  as defined in section 871(g)(1) but for subparagraph (B)(i) thereof, if any interest  thereon  (were  such  interest received by the decedent at the time of his death) would not be effectively connected with  the  conduct of a trade or business within the United States.   Notwithstanding the preceding sentence, if any portion of the interest on  an obligation referred to in paragraph (3) would not be eligible for the exemption  referred  to  in  paragraph  (3)  by  reason  of  section 871(h)(4)  if  the interest were received by the decedent at the time of his death, then an  appropriate  portion  (as  determined  in  a  manner prescribed by the Secretary) of the value (as determined for purposes of this  chapter)  of  such debt obligation shall be deemed property within the United States.  (c) Works of  art  on  loan  for  exhibition.--For  purposes  of  this subchapter,  works  of  art  owned by a nonresident not a citizen of the United States shall not be deemed property within the United  States  if such works of art are--  (1) imported into the United States solely for exhibition purposes,  (2)  loaned  for such purposes, to a public gallery or museum, no part of the net earnings of which  inures  to  the  benefit  of  any  private stockholder or individual, and  (3)  at  the time of the death of the owner, on exhibition, or enroute to or from exhibition, in such a public gallery or museum.   § 2503. (a) General Definition - The term "taxable  gifts"  means  the total  amount  of  gifts  made during the calendar year, less deductions provided in subchapter C (section 2522 and following).  (b) Exclusions from gifts. (1)  In  general.--In  the  case  of  gifts (other than gifts of future interests in property) made to any person by the  donor  during the calendar year, the first $10,000 of such gifts to such person shall not, for purposes of subsection (a),  be  included  in the  total amount of gifts made during such year. Where there has been a transfer  to  any  person  of  a  present  interest  in  property,   the possibility  that  such  interest may be diminished by the exercise of a power shall be disregarded in applying this subsection, if  no  part  of such interest will at any time pass to any other person.  (2)  Inflation  adjustment.--In  the  case of gifts made in a calendar year after 1998, the $10,000 amount contained in paragraph (1) shall  be increased by an amount equal to--  (A) $10,000, multiplied by  (B) the cost-of-living adjustment determined under section 1(f)(3) for such  calendar  year  by substituting "calendar year 1997" for "calendar year 1992" in subparagraph (B) thereof.   If any amount as adjusted  under  the  preceding  sentence  is  not  a multiple  of  $1,000,  such  amount  shall be rounded to the next lowest multiple of $1,000.  (c) Transfer for the benefit of minor. -- No part  of  a  gift  to  an individual  who has not attained the age of 21 years on the date of such transfer shall be considered a gift of a future interest in property for purposes of subsection (b) if the property and the income therefrom-  (1) may be expended by, or for the benefit of, the  donee  before  his attaining the age of 21 years, and  (2) will to the extent not so expended-  (A) pass to the donee on his attaining the age of 21 years, and  (B)  in the event the donee dies before attaining the age of 21 years, be payable to the estate of the donee or  as  he  may  appoint  under  a general power of appointment as defined in section 2514(c).   {(d)  Repealed.  Pub. L. 97-34, title III, § 311(h)(5), Aug. 13, 1981, 95 Stat. 282}  (e) Exclusion  for  certain  transfers  for  educational  expenses  or medical  expenses.  (1)  In general. Any qualified transfer shall not be treated as a transfer of property by gift for purposes of this chapter.  (2) Qualified transfer. For purposes  of  this  subsection,  the  term "qualified transfer" means any amount paid on behalf of an individual-  (A)  as  tuition  to  an educational organization described in section 170(b)(1)(A)(ii) for the education or training of such individual, or  (B) to any person who provides medical care  (as  defined  in  section 213(d))  with  respect  to  such  individual as payment for such medical care.  (f) Waiver of certain pension rights. If any individual waives, before the death of a participant, any  survivor  benefit,  or  right  to  such benefit,  under  section  401(a)(11)  or  417,  such waiver shall not be treated as a transfer of property by gift for purposes of this chapter.  (g) Treatment of certain  loans  of  artworks.  (1)  In  general.  For purposes of this subtitle, any loan of a qualified work of art shall not be  treated  as  a transfer (and the value of such qualified work of art shall be determined as if such loan had not been made) if-  (A) such loan is to an organization described in section 501(c)(3) and exempt from tax under section 501(c) (other than a private  foundation), and  (B)  the  use  of  such  work  by  such organization is related to the purpose or function constituting  the  basis  for  its  exemption  under section 501.  (2) Definitions. For purposes of this section-  (A)  Qualified work of art. The term "qualified work of art" means any archaeological, historic, or creative tangible personal property.  (B)  Private foundation. The term "private foundation" has the meaning given such term by section 509, except that such term shall not  include any private operating foundation (as defined in section 4942(j)(3)).   §  2511.  Transfers  in general. (a) Scope. Subject to the limitations contained in this chapter, the tax imposed by section 2501  shall  apply whether  the  transfer  is  in  trust  or otherwise, whether the gift is direct or indirect, and  whether  the  property  is  real  or  personal, tangible  or  intangible; but in the case of a nonresident not a citizen of the United States, shall apply to a transfer only if the property  is situated within the United States.  (b)  Intangible property. For purposes of this chapter, in the case of a nonresident not a citizen of the United States who  is  excepted  from the application of section 2501(a)(2)-  (1) shares of stock issued by a domestic corporation, and  (2) debt obligations of- --(A) a United States person, or --(B)  the  United States, a State or any political subdivision thereof, or the District of Columbia, --which are owned and held by such nonresident shall  be  deemed  to  be property situated within the United States.   §  2512.  Valuation of gifts. (a) If the gift is made in property, the value thereof at the date of the gift shall be considered the amount  of the gift.  (b)  Where  property is transferred for less than an adequate and full consideration in money or money's worth, then the amount  by  which  the value  of  the property exceeded the value of the consideration shall be deemed a gift, and shall be included in computing the  amount  of  gifts made during the calendar year.   § 2513. Gift by husband or wife to third party. (a) Considered as made one-half  by  each.  (1)  In  general.  A gift made by one spouse to any person other than his spouse shall, for the purposes of this chapter, be considered as made one-half by him and one-half by his spouse, but  only if  at  the time of the gift each spouse is a citizen or resident of the United States. This paragraph shall not apply with respect to a gift  by a  spouse  of  an  interest  in  property  if he creates in his spouse a general power of appointment, as defined in section 2514(c),  over  such interest.   For  purposes  of  this  section,  an  individual  shall  be considered as the spouse of another individual only if he is married  to such  individual at the time of the gift and does not remarry during the remainder of the calendar year.  (2) Consent of both spouses. Paragraph (1) shall apply  only  if  both spouses have signified (under the regulations provided for in subsection (b))  their  consent  to the application of paragraph (1) in the case of all such gifts made during the calendar year by either while married  to the other.  (b) Manner and time of signifying consent. (1) Manner. A consent under this  section  shall  be  signified  in such manner as is provided under regulations prescribed by the Secretary.  (2) Time. Such consent may be so signified at any time after the close of the calendar year  in  which  the  gift  was  made,  subject  to  the following limitations- --(A)  The  consent  may  not  be  signified after the 15th day of April following the close of such year, unless before such 15th day no  return has been filed for such year by either spouse, in which case the consent may  not  be  signified  after a return for such year is filed by either spouse.  --(B) The consent may not be signified after a notice of deficiency with respect to the tax for such year has  been  sent  to  either  spouse  in accordance with section 6212(a).  (c)   Revocation  of  consent.  Revocation  of  a  consent  previously signified shall be made in such manner as in provided under  regulations prescribed  by  the  Secretary,  but  the  right  to  revoke  a  consent previously signified with respect to a calendar year-  (1) shall not exist after the 15th day of April following the close of such year if the consent was signified on or before such 15th day; and  (2) shall not exist if the consent was not signified until after  such 15th day.  (d)  Joint  and  several liability for tax. If the consent required by subsection (a)(2) is signified with  respect  to  a  gift  made  in  any calendar  year,  the liability with respect to the entire tax imposed by this chapter of each spouse for such year shall be joint and several.   § 2514. Powers of appointment. (a) Powers created on or before October 21, 1942. An exercise of a general power of appointment  created  on  or before  October  21, 1942, shall be deemed a transfer of property by the individual possessing such power; but the failure  to  exercise  such  a power  or  the  complete  release of such a power shall not be deemed an exercise thereof. If a general power of appointment created on or before October 21, 1942, has been partially released so that it is no longer  a general  power  of  appointment,  the  subsequent exercise of such power shall not be deemed to be the exercise of a general power of appointment if-  (1) such partial release occurred before November 1, 1951, or  (2) the donee of such power was under a legal  disability  to  release such  power  on  October 21, 1942, and such partial release occurred not later than six months after the termination of such legal disability.  (b) Powers created after October 21, 1942. The exercise or release  of a  general power of appointment created after October 21, 1942, shall be deemed a transfer of property by the individual possessing such power.  (c) Definition of general power of appointment. For purposes  of  this section,  the term "general power of appointment" means a power which is exercisable in favor of the individual possessing the  power  (hereafter in  this  subsection  referred  to  as the "possessor"), his estate, his creditors, or the creditors of his estate; except that-  (1) A power to  consume,  invade,  or  appropriate  property  for  the benefit  of  the possessor which is limited by an ascertainable standard relating to the  health,  education,  support,  or  maintenance  of  the possessor shall not be deemed a general power of appointment.  (2)  A  power  of  appointment  created on or before October 21, 1942, which is exercisable by the possessor only in conjunction  with  another person shall not be deemed a general power of appointment.  (3)  In  the  case of a power of appointment created after October 21, 1942, which is exercisable by the possessor  only  in  conjunction  with another person- --(A)  if  the  power  is  not  exercisable  by  the possessor except in conjunction with the creator of the power-such power shall not be deemed a general power of appointment; --(B) if the power  is  not  exercisable  by  the  possessor  except  in conjunction with a person having a substantial interest, in the property subject to the power, which is adverse to exercise of the power in favor of  the  possessor-such  power  shall  not  be deemed a general power of appointment. For the purposes of this subparagraph a person  who,  after the  death  of the possessor, may be possessed of a power of appointment (with respect to the property subject to the possessor's power) which he may exercise in his own favor shall be deemed as having an  interest  in  the  property and such interest shall be deemed adverse to such exercise of the possessor's power; --(C)  if (after the application of subparagraphs (A) and (B)) the power is a general power of appointment and is exercisable in  favor  of  such other  person-such  power shall be deemed a general power of appointment only in respect of a fractional part of the  property  subject  to  such power, such part to be determined by dividing the value of such property by the number of such persons (including the possessor) in favor of whom such power is exercisable. --For  purposes of subparagraphs (B) and (C), a power shall be deemed to be exercisable in favor of a person if it is  exercisable  in  favor  of such person, his estate, his creditors, or the creditors of his estate.  (d)  Creation  of  another  power  in  certain  cases.  If  a power of appointment created after October 21, 1942,  is  exercised  by  creating another  power of appointment which, under the applicable local law, can be validly exercised so as to postpone the  vesting  of  any  estate  or interest  in  the  property  which  was  subject  to the first power, or suspend the absolute ownership or power of alienation of such  property, for a period ascertainable without regard to the date of the creation of the  first  power, such exercise of the first power shall, to the extent of the property subject to the second power, be  deemed  a  transfer  of property by the individual possessing such power.  (e)  Lapse of power. The lapse of a power of appointment created after October 21, 1942, during the life of the individual possessing the power shall be considered a release of such power. The rule of  the  preceding sentence  shall  apply  with  respect  to the lapse of powers during any calendar year only to the extent that the property which could have been appointed by exercise of such lapsed powers exceeds in value the greater of the following amounts:  (1) $5,000, or  (2) 5 percent of the aggregate value of the assets out  of  which,  or the  proceeds  of  which,  the  exercise  of  the lapsed powers could be satisfied.  (f) Date of creation of power. For purposes of this section a power of appointment created by a will executed on or before  October  21,  1942, shall be considered a power created on or before such date if the person executing such will dies before July 1, 1949, without having republished such will, by codicil or otherwise, after October 21, 1942.   §  2516.  Certain property settlements. Where a husband and wife enter into a written agreement relative to their marital and  property  rights and divorce occurs within the 3-year period beginning on the date 1 year before  such agreement is entered into (whether or not such agreement is approved by the divorce decree), any transfers of property or  interests in property made pursuant to such agreement-  (1)  to  either spouse in settlement of his or her marital or property rights, or  (2) to provide a reasonable allowance for the support of issue of  the marriage during minority,   --shall  be  deemed  to  be  transfers  made  for  a full and adequate consideration in money or money's worth.   § 2518.  Disclaimers.  (a)  General  Rule.  -  For  purposes  of  this subtitle,  if  a person makes a qualified disclaimer with respect to any interest in property, this subtitle shall apply  with  respect  to  such interest as if the interest had never been transferred to such person.  (b)  Qualified  Disclaimer  Defined. - For purposes of subsection (a), the term "qualified disclaimer" means  an  irrevocable  and  unqualified refusal by a person to accept an interest in property but only if -  (1) such refusal is in writing,  (2)  such  writing  is received by the transferor of the interest, his legal representative, or the holder of the legal title to  the  property to  which the interest relates not later than the date which is 9 months after the later of -  (A)  the  date  on  which  the  transfer creating the interest in such person is made, or  (B) the day on which such person attains age 21,  (3) such person has not accepted the interest or any of its  benefits, and  (4)  as  a  result  of  such  refusal, the interest passes without any direction on the part of the person making  the  disclaimer  and  passes either -  (A) to the spouse of the decedent, or  (B) to a person other than the person making the disclaimer.  (c) Other rules. For purposes of subsection (a)-  (1)  Disclaimer  of  undivided  portion of interest. A disclaimer with respect  to  an  undivided  portion  of  an  interest  which  meets  the requirements  of  the preceding sentence shall be treated as a qualified disclaimer of such portion of the interest.  (2) Powers. A power with respect to property shall be  treated  as  an interest in such property.  (3)  Certain  transfers  treated as disclaimers. A written transfer of the transferor's entire interest in the property-  (A) which meets requirements similar to the requirements of paragraphs (2) and (3) of subsection (b), and  (B) which is to a person  or  persons  who  would  have  received  the property  had  the  transferor  made  a qualified disclaimer (within the meaning of subsection (b)),   --shall be treated as a qualified disclaimer.   § 2519. Dispositions of certain life estates. (a) General rule   --For purposes of this chapter and chapter 11, any disposition of  all or  part  of  a  qualifying  income interest for life in any property to which this section applies  shall  be  treated  as  a  transfer  of  all interests in such property other than the qualifying income interest.  (b) Property to which this subsection applies. This section applies to any  property if a deduction was allowed with respect to the transfer of such property to the donor-  (1) under section 2056 by reason of subsection (b)(7) thereof, or  (2) under section 2523 by reason of subsection (f) thereof.  (c) Cross reference --For right of recovery for gift tax in the case of property treated  as transferred under this section, see section 2207A(b).   §  2522.  Charitable  and similar gifts. (a) Citizens or residents. In computing taxable gifts for the calendar year, there shall be allowed as a deduction in the case of a citizen or resident the amount of all gifts made during such year to or for the use of-  (1) the  United  States,  any  State,  or  any  political  subdivision thereof, or the District of Columbia, for exclusively public purposes;  (2)  a corporation, or trust, or community chest, fund, or foundation, organized  and   operated   exclusively   for   religious,   charitable, scientific,  literary, or educational purposes, or to foster national or international amateur sports competition (but only if  no  part  of  its activities  involve  the provision of athletic facilities or equipment), including the encouragement of art and  the  prevention  of  cruelty  to children  or animals, no part of the net earnings of which inures to the benefit  of  any  private  shareholder  or  individual,  which  is   not disqualified  for  tax  exemption  under  section 501(c)(3) by reason of attempting to influence legislation, and which does not participate  in,  or   intervene   in   (including   the  publishing  or  distributing  of statements), any political campaign on behalf of (or in  opposition  to) any candidate for public office;  (3)  a  fraternal  society, order, or association, operating under the lodge system, but only if such gifts are  to  be  used  exclusively  for religious,  charitable,  scientific,  literary, or educational purposes, including the encouragement of art and  the  prevention  of  cruelty  to children or animals;  (4)  posts  or  organizations  of  war veterans, or auxiliary units or societies  of  any  such  posts  or  organizations,   if   such   posts, organizations, units, or societies are organized in the United States or any  of its possessions, and if no part of their net earnings insures to the benefit of any private shareholder or individual.   Rules similar to the rules of section 501(j) shall apply for  purposes of paragraph (2).  (b)  Nonresidents.  In  the case of a nonresident not a citizen of the United States, there shall be allowed as a deduction the amount  of  all gifts made during such year to or for the use of-  (1)  the  United  States,  any  State,  or  any  political subdivision thereof, or the District of Columbia, for exclusively public purposes;  (2) a domestic corporation  organized  and  operated  exclusively  for religious,  charitable,  scientific,  literary, or educational purposes, including the encouragement of art and  the  prevention  of  cruelty  to children  or animals, no part of the net earnings of which inures to the benefit  of  any  private  shareholder  or  individual,  which  is   not disqualified  for  tax  exemption  under  section 501(c)(3) by reason of attempting to influence legislation, and which does not participate  in, or   intervene   in   (including   the  publishing  or  distributing  of statements), any political campaign on behalf of (or in  opposition  to) any candidate for public office;  (3)  a  trust,  or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational  purposes,  including  the  encouragement  of  art  and  the prevention of cruelty to children or animals, no substantial part of the activities  of which is carrying on propaganda, or otherwise attempting, to  influence  legislation,  and  which  does  not  participate  in,  or intervene  in  (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any  candidate for  public  office;  but  only  if such gifts are to be used within the United States exclusively for such purposes;  (4) a fraternal society, order, or association,  operating  under  the lodge  system,  but  only if such gifts are to be used within the United States exclusively for religious, charitable, scientific,  literary,  or educational  purposes,  including  the  encouragement  of  art  and  the prevention of cruelty to children or animals;  (5) posts or organizations of war  veterans,  or  auxiliary  units  or societies   of   any   such  posts  or  organizations,  if  such  posts, organizations, units, or societies are organized in the United States or any of its possessions, and if no part of their net earnings  inures  to the benefit of any private shareholder or individual.  (c)  Disallowance  of  deductions  in  certain cases. (1) No deduction shall be allowed under this section for a gift to of 1 for the use of an organization or trust described in section 508(d) or 4948(c)(4)  subject to the conditions specified in such sections.  (2)  Where  a  donor  transfers an interest in property (other than an interest described in section 170(f)(3)(B)) to a person, or for  a  use, described  in subsection (a) or (b) and an interest in the same property is retained by the donor, or is transferred or has been transferred (for  less than an adequate and full consideration in money or money's  worth) from  the  donor  to a person, or for a use, not described in subsection (a) or (b), no deduction shall be allowed under  this  section  for  the interest  which  is,  or  has been transferred to the person, or for the use, described in subsection (a) or (b), unless-  (A) in the case of a remainder interest, such interest is in  a  trust which  is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664) or a pooled income  fund  (described in section 642(c)(5)), or  (B) in the case of any other interest, such interest is in the form of a  guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).  (3) Rules similar to the rules of section 2055(e)(4) shall  apply  for purposes of paragraph (2).  (4)  Reformations  to  comply  with paragraph (2). (A) In general -- A deduction shall be allowed  under  subsection  (a)  in  respect  of  any qualified reformation (within the meaning of section 2055(e)(3)(B)).  (B)  Rules  similar  to section 2055(e)(3) to apply -- For purposes of this paragraph, rules similar to the rules of section  2055(e)(3)  shall apply.  (5)  Contributions  to  donor  advised  funds.  A  deduction otherwise allowed under subsection (a) for any contribution  to  a  donor  advised fund (as defined in section 4966(d)(2)) shall only be allowed if- --(A)  the  sponsoring  organization  (as defined in section 4966(d)(1)) with respect to such donor advised fund is not- --(i) described in paragraph (3) or (4) of subsection (a), or --(ii) a  type  III  supporting  organization  (as  defined  in  section 4943(f)(5)(A))   which   is  not  a  functionally  integrated  type  III supporting organization (as defined in section 4943(f)(5)(B)), and --(B) the taxpayer  obtains  a  contemporaneous  written  acknowledgment (determined  under  rules  similar to the rules of section 170(f)(8)(C)) from the sponsoring organization (as so defined) of such  donor  advised fund  that such organization has exclusive legal control over the assets contributed.  (d) Special rule  for  irrevocable  transfers  of  easements  in  real property.  A  deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property  interest  (as  defined  in section  170(h)(2)(C))  which  meets  the requirements of section 170(h) (without regard to paragraph (4)(A) thereof).  (e) Special rules for fractional gifts  (1) Denial of deduction in certain cases  (A) In general --No deduction shall be allowed  for  a  contribution  of  an  undivided portion  of  a  taxpayer's entire interest in tangible personal property unless all interests in the property are held  immediately  before  such contribution by- --(i) the taxpayer, or --(ii) the taxpayer and the donee.  (B) Exceptions --The   Secretary   may,   by  regulation,  provide  for  exceptions  to subparagraph (A) in cases where all persons who hold an interest in  the property  make proportional contributions of an undivided portion of the entire interest held by such persons.  (2) Recapture of deduction in certain cases; addition to tax  (A) In general. The Secretary shall provide for the  recapture  of  an amount equal to any deduction allowed under this section (plus interest) with respect to any contribution of an undivided portion of a taxpayer's entire interest in tangible personal property-  --(i)  in  any  case  in  which the donor does not contribute all of the remaining interests in such property to the donee (or, if such donee  is no longer in existence, to any person described in section 170(c)) on or before the earlier of- --(I) the date that is 10 years after the date of the initial fractional contribution, or --(II) the date of the death of the donor, and --(ii)  in  any  case  in  which  the  donee  has not, during the period beginning on the date of the initial fractional contribution and  ending on the date described in clause (i)- --(I) had substantial physical possession of the property, and --(II)  used  the  property  in  a  use which is related to a purpose or function constituting the basis for the organizations'  exemption  under section 501.  (B)  Addition  to  tax.  The  tax  imposed  under this chapter for any taxable year for which there is a recapture under subparagraph (A) shall be increased by 10 percent of the amount so recaptured.  (C) Initial fractional contribution. For purposes of  this  paragraph, the  term  "initial  fractional contribution" means, with respect to any donor, the first gift of an undivided  portion  of  the  donor's  entire interest  in  any  tangible  personal  property for which a deduction is allowed under subsection (a) or (b).  (f) Cross references --(1) For treatment of certain organizations providing child  care,  see section 501(k). --(2) For exemption of certain gifts to or for the benefit of the United States  and  for rules of construction with respect to certain bequests, see section 2055(f). --(3) For treatment of  gifts  to  or  for  the  use  of  Indian  tribal governments (or their subdivisions), see section 7871.   §  2523.  Gift  to  spouse  (a)  Allowance of deduction. Where a donor transfers during the calendar year by gift an interest in property to  a donee  who at the time of the gift is the donor's spouse, there shall be allowed as a deduction in computing taxable gifts for the calendar  year an amount with respect to such interest equal to its value.  (b)  Life  estate or other terminable interest. Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to  occur,  such  interest  transferred  to  the spouse  will  terminate  or  fail,  no  deduction  shall be allowed with respect to such interest-  (1) if the donor retains in himself, or transfers or  has  transferred (for  less  than  an adequate and full consideration in money or money's worth) to any person other than such donee spouse (or the estate of such spouse), an interest  in  such  property,  and  if  by  reason  of  such retention or transfer the donor (or his heirs or assigns) or such person (or his heirs or assigns) may possess or enjoy any part of such property after  such  termination  or  failure of the interest transferred to the donee spouse; or  (2) if the donor immediately after the transfer to  the  donee  spouse has  a  power  to  appoint  an  interest  in  such property which he can exercise (either alone or in conjunction with any person) in such manner that the appointee may possess or enjoy any part of such property  after such  termination  or  failure  of the interest transferred to the donee spouse.  For purposes of this paragraph, the donor shall  be  considered as  having immediately after the transfer to the donee spouse such power to appoint even though such power cannot be exercised  until  after  the lapse of time, upon the occurrence of an event or contingency, or on the failure of an event or contingency to occur.    An  exercise  or  release at any time by the donor, either alone or in conjunction with any person, of  a  power  to  appoint  an  interest  in property,  even  though not otherwise a transfer, shall, for purposes of paragraph (1), be considered as a transfer by him. Except as provided in subsection  (e),  where  at the time of the transfer it is impossible to ascertain the particular person or persons  who  may  receive  from  the donor  an  interest  in  property  so  transferred by him, such interest shall, for purposes of paragraph (1), be considered as transferred to  a person other than the donee spouse.  (c) Interest in unidentified assets. Where the assets out of which, or the  proceeds of which, the interest transferred to the donee spouse may be satisfied include a particular asset or assets with respect to  which no  deduction  would be allowed if such asset or assets were transferred from  the  donor  to  such  spouse,  then  the  value  of  the  interest transferred  to  such  spouse  shall, for purposes of subsection (a), be reduced by the aggregate value of such particular assets.  (d) Joint interests. If the  interest  is  transferred  to  the  donee spouse as sole joint tenant with the donor or as tenant by the entirety, the  interest of the donor in the property which exists solely by reason of the possibility that the donor may survive the donee spouse, or  that there  may occur a severance of the tenancy, shall not be considered for purposes of subsection (b) as an  interest  retained  by  the  donor  in himself.  (e)  Life  estate with power of appointment in donee spouse. Where the donor transfers an interest in property, if by such transfer his  spouse is  entitled  for life to all of the income from the entire interest, or all the income from a specific portion thereof, payable annually  or  at more  frequent  intervals, with power in the donee spouse to appoint the entire interest, or such specific portion (exercisable in favor of  such donee  spouse,  or  of  the  estate of such donee spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint  any  part  of such  interest,  or  such  portion,  to  any person other than the donee spouse-  (1) the interest, or such portion, so transferred shall, for  purposes of subsection (a) be considered as transferred to the donee spouse, and  (2)  no  part  of the interest, or such portion, so transferred shall, for purposes of subsection (b)(1), be  considered  as  retained  in  the donor or transferred to any person other than the donee spouse.   This  subsection  shall apply only if, by such transfer, such power in the donee spouse to appoint  the  interest,  or  such  portion,  whether exercisable  by will or during life, is exercisable by such spouse alone and in all events. For purposes of this subsection, the  term  "specific portion"   only  includes  a  portion  determined  on  a  fractional  or percentage basis.  (f) Election with respect to life estate  for  donee  spouse.  (1)  In general   In the case of qualified terminable interest property-  (A)  for purposes of subsection (a), such property shall be treated as transferred to the donee spouse, and  (B) for purposes of subsection (b)(1), no part of such property  shall be  considered  as  retained  in  the donor or transferred to any person other than the donee spouse.  (2) Qualified terminable  interest  property.  For  purposes  of  this subsection,  the term "qualified terminable interest property" means any property-  (A) which is transferred by the donor spouse,  (B) in which the donee spouse has a  qualifying  income  interest  for life, and  (C) to which an election under this subsection applies.  (3)  Certain  rules  made applicable. For purposes of this subsection, rules similar to the rules of clauses (ii), (iii), and (iv)  of  section 2056(b)(7)(B)  shall  apply  and  the rules of section 2056(b)(10) shall apply.  (4) Election. (A) Time and manner. An election under  this  subsection with  respect  to  any  property  shall  be  made  on or before the date prescribed by section 6075(b) for filing a gift tax return with  respect to the transfer (determined without regard to section 6019(2)) and shall be made in such manner as the Secretary shall by regulations prescribe.  (B)  Election  irrevocable.  An  election  under this subsection, once made, shall be irrevocable.  (5) Treatment of interest retained by donor spouse. (A) In general. In the case of any qualified terminable interest property-  (i) such property shall not be includible in the gross estate  of  the donor spouse, and  (ii)  any  subsequent  transfer  by the donor spouse of an interest in such property shall not be treated as a transfer for  purposes  of  this chapter.  (B)  Subparagraph  (A)  not  to  apply after transfer by donee spouse. Subparagraph (A) shall not apply with respect to any property after  the donee  spouse  is  treated  as  having  transferred  such property under section 2519, or such property is includible in the donee spouse's gross estate under section 2044.  (6) Treatment of joint and survivor annuities. In the case of a  joint and  survivor  annuity where only the donor spouse and donee spouse have the right to receive payments before the death of  the  last  spouse  to die- --(A)  the  donee  spouse's  interest  shall  be treated as a qualifying income interest for life, --(B) the donor spouse shall be treated as having made an election under this subsection with respect to such annuity  unless  the  donor  spouse otherwise elects on or before the date specified in paragraph (4)(A), --(C)  paragraph  (5)  and  section  2519  shall  not apply to the donor spouse's interest in the annuity, and --(D) if the donee spouse dies before the donor spouse, no amount  shall be includible in the gross estate of the donee spouse under section 2044 with respect to such annuity.   An election under subparagraph (B), once made, shall be irrevocable.  (g)  Special rule for charitable remainder trusts. (1) In general. If, after  the  transfer,  the  donee  spouse  is  the  only   noncharitable beneficiary  (other  than the donor) of a qualified charitable remainder trust, subsection (b) shall not apply to  the  interest  in  such  trust which is transferred to the donee spouse.  (2)   Definitions.   For   purposes   of   paragraph   (1),  the  term "noncharitable beneficiary" and "qualified charitable  remainder  trust" have the meanings given to such terms by section 2056(b)(8)(B).  (h)  Denial  of double deduction. Nothing in this section or any other provision of this chapter shall allow  the  value  of  any  interest  in property  to  be deducted under this chapter more than once with respect to the same donor.   § 2524. Extent of deductions. The deductions provided in sections 2522 and 2523 shall be allowed only to the  extent  that  the  gifts  therein specified  are  included  in  the  amount  of  gifts  against which such deductions are applied.    § 2701. Special valuation  rules  in  case  of  transfers  of  certain interests  in  corporations or partnerships. (a) Valuation rules. (1) In general. Solely for purposes of determining whether  a  transfer  of  an interest  in  a  corporation or partnership to (or for the benefit of) a member  of  the  transferor's  family  is  a gift (and the value of such transfer), the value of any right- --(A) which is described  in  subparagraph  (A)  or  (B)  of  subsection (b)(1), and --(B)  which is with respect to any applicable retained interest that is held by the transferor or an applicable family member immediately  after the transfer,   --shall  be  determined  under paragraph (3). This paragraph shall not apply to the transfer of any interest for which  market  quotations  are readily  available  (as  of  the  date  of  transfer)  on an established securities market.  (2) Exceptions for marketable retained interests, etc.  Paragraph  (1) shall  not  apply  to  any  right with respect to an applicable retained interest if- --(A) market quotations are readily available (as of  the  date  of  the transfer) for such interest on an established securities market, --(B) such interest is of the same class as the transferred interest, or --(C)  such  interest  is  proportionally  the  same  as the transferred interest, without regard to nonlapsing differences in voting power  (or, for a partnership, nonlapsing differences with respect to management and limitations on liability). --Subparagraph  (C)  shall not apply to any interest in a partnership if the transferor or an applicable family member has the right to alter the liability of the transferee  of  the  transferred  property.  Except  as provided  by the Secretary, any difference described in subparagraph (C) which lapses by reason of any Federal or State law shall be treated as a nonlapsing difference for purposes of such subparagraph.  (3) Valuation of  rights  to  which  paragraph  (1)  applies.  (A)  In general.   The value of any right described in paragraph (1), other than a distribution right which consists of a right to  receive  a  qualified payment, shall be treated as being zero.  (B) Valuation of certain qualified payments. If- --(i)  any  applicable  retained  interest  confers a distribution right which consists of the right to a qualified payment, and --(ii) there are 1 or more liquidation, put, call, or conversion  rights with  respect  to  such  interest, the value of all such rights shall be determined as if each liquidation, put, call, or conversion  right  were exercised  in  the manner resulting in the lowest value being determined for all such rights.  (C) Valuation of qualified payments where no liquidation, etc. rights. In the case of an applicable retained interest  which  is  described  in subparagraph  (B)(i)  but  not  subparagraph  (B)(ii),  the value of the distribution right shall be determined without regard to this section.  (4) Minimum valuation of junior equity. (A) In general. In the case of a transfer described in paragraph (1) of a junior equity interest  in  a corporation or partnership, such interest shall in no event be valued at an  amount  less  than  the value which would be determined if the total value of all of the junior equity interests in the entity were equal  to 10 percent of the sum of- --(i)  the  total  value  of all of the equity interests in such entity, plus --(ii) the total amount of indebtedness of such entity to the transferor (or an applicable family member).  (B) Definitions. For purposes of this paragraph-  (i) Junior equity interest. The term "junior  equity  interest"  means common  stock or, in the case of a partnership, any partnership interest under which the rights as to income  and  capital  (or,  to  the  extent provided  in regulations, the rights as to either income or capital) are junior to the rights of all other classes of equity interests.  (ii)  Equity  interest.  The term "equity interest" means stock or any interest as a partner, as the case may be.  (b) Applicable retained interests. For purposes of this section-  (1) In general. The term  "applicable  retained  interest"  means  any interest in an entity with respect to which there is- --(A) a distribution right, but only if, immediately before the transfer described  in  subsection  (a)(1),  the transferor and applicable family members hold (after application of subsection  (e)(3))  control  of  the entity, or --(B) a liquidation, put, call, or conversion right.  (2) Control. For purposes of paragraph (1)-  (A)  Corporations.  In  the  case of a corporation, the term "control" means the holding of at least 50 percent (by vote or value) of the stock of the corporation.  (B) Partnerships. In the case of a  partnership,  the  term  "control" means- --(i)  the  holding  of  at  least  50 percent of the capital or profits interests in the partnership, or --(ii) in the case of a limited partnership, the holding of any interest as a general partner.  (C) Applicable family member. For purposes  of  this  subsection,  the term  "applicable  family  member" includes any lineal descendant of any parent of the transferor or the transferor's spouse.  (c) Distribution and other rights; qualified payments. For purposes of this section-  (1) Distribution right. (A) In general. The term "distribution  right" means- --(i)  a  right  to distributions from a corporation with respect to its stock, and --(ii) a right to distributions from a partnership  with  respect  to  a partner's interest in the partnership.  (B) Exceptions. The term "distribution right" does not include- --(i)  a  right  to  distributions with respect to any interest which is junior to the rights of the transferred interest, --(ii) any liquidation, put, call, or conversion right, or --(iii) any right to receive any guaranteed payment described in section 707(c) of a fixed amount.  (2) Liquidation, etc. rights. (A) In general. The  term  "liquidation, put,  call,  or  conversion  right" means any liquidation, put, call, or conversion right, or any similar right, the exercise or  nonexercise  of which affects the value of the transferred interest.  (B) Exception for fixed rights. (i) In general. The term "liquidation, put, call, or conversion right" does not include any right which must be exercised at a specific time and at a specific amount.  (ii)  Treatment  of  certain  rights.  If  a  right  is  assumed to be exercised in a particular manner under subsection (a)(3)(B), such  right shall be treated as so exercised for purposes of clause (i).  (C)  Exception  for  certain rights to convert. The term "liquidation, put, call, or conversion right" does not include any right which- --(i) is a right to convert into a fixed number (or a fixed  percentage) of shares of the same class of stock in a corporation as the transferred stock  in such corporation under subsection (a)(1) (or stock which would be of the same class but for nonlapsing differences in voting power),  --(ii) is nonlapsing, --(iii)   is   subject   to   proportionate   adjustments   for  splits, combinations, reclassifications, and  similar  changes  in  the  capital stock, and --(iv)  is  subject  to  adjustments  similar  to  the adjustments under subsection (d) for accumulated but unpaid distributions. --A rule similar to the rule of the preceding sentence shall  apply  for partnerships.  (3) Qualified payment. (A) In general. Except as otherwise provided in this  paragraph, the term "qualified payment" means any dividend payable on  a  periodic  basis  under  any  cumulative  preferred  stock  (or  a comparable  payment  under  any partnership interest) to the extent that such dividend (or comparable payment) is determined at a fixed rate.  (B) Treatment of variable rate payments. For purposes of  subparagraph (A),  a  payment shall be treated as fixed as to rate if such payment is determined at a rate which bears a fixed  relationship  to  a  specified market interest rate.  (C)  Elections.  (i) In general. Payments under any interest held by a transferor which (without regard to  this  subparagraph)  are  qualified payments  shall  be  treated as qualified payments unless the transferor elects not to  treat  such  payments  as  qualified  payments.  Payments described  in  the  preceding  sentence  which are held by an applicable family member shall be treated as qualified payments only if such member elects to treat such payments as qualified payments.  (ii) Election  to  have  interest  treated  as  qualified  payment.  A transferor  or  applicable  family member holding any distribution right which (without regard to this subparagraph) is not a  qualified  payment may  elect to treat such right as a qualified payment, to be paid in the amounts and at the times  specified  in  such  election.  The  preceding sentence  shall  apply  only to the extent that the amounts and times so specified are not inconsistent  with  the  underlying  legal  instrument giving rise to such right.  (iii) Elections irrevocable. Any election under this subparagraph with respect to an interest shall, once made, be irrevocable.  (d) Transfer tax treatment of cumulative but unpaid distributions. (1) In  general.  If a taxable event occurs with respect to any distribution right to which subsection (a)(3)(B) or (C) applied, the following  shall be increased by the amount determined under paragraph (2): --(A)  The  taxable  estate  of  the transferor in the case of a taxable event described in paragraph (3)(A)(i). --(B) The taxable gifts of the transferor for the calendar year in which the taxable event occurs in the case of a  taxable  event  described  in paragraph (3)(A)(ii) or (iii).  (2)  Amount  of  increase.  (A) In general. The amount of the increase determined under this paragraph shall be the excess (if any) of- --(i) the value of the qualified  payments  payable  during  the  period beginning on the date of the transfer under subsection (a)(1) and ending on the date of the taxable event determined as if- --(I) all such payments were paid on the date payment was due, and --(II)  all  such  payments  were reinvested by the transferor as of the date of  payment  at  a  yield  equal  to  the  discount  rate  used  in determining  the  value of the applicable retained interest described in subsection (a)(1), over  (ii) the value of such payments paid during such period computed under clause (i) on the basis of the time when  such  payments  were  actually paid.  (B)  Limitation  on  amount of increase. (i) In general. The amount of the increase under subparagraph (A)  shall  not  exceed  the  applicable percentage of the excess (if any) of- --(I)  the value (determined as of the date of the taxable event) of all equity interests in the  entity  which  are  junior  to  the  applicable retained interest, over --(II)  the  value  of  such interests (determined as of the date of the transfer to which subsection (a)(1) applied).  (ii) Applicable percentage. For purposes of clause (i), the applicable percentage is the percentage determined by dividing- --(I) the number of shares in the corporation held (as of  the  date  of the  taxable  event)  by  the  transferor  which are applicable retained interests of the same class, by --(II) the total number of shares in such corporation (as of such  date) which are of the same class as the class described in subclause (I). --A similar percentage shall be determined in the case of interests in a partnership.  (iii)  Definition. For purposes of this subparagraph, the term "equity interest" has the meaning given such term by subsection (a)(4)(B).  (C) Grace period. For purposes of subparagraph (A), any payment of any distribution during the 4-year period beginning on its due date shall be treated as having been made on such due date.  (3) Taxable events. For purposes of this subsection-  (A) In general. The term "taxable event" means any of the following: --(i) The death of the transferor if the  applicable  retained  interest conferring  the  distribution  right  is includible in the estate of the transferor. --(ii) The transfer of such applicable retained interest. --(iii) At the election of the taxpayer, the payment  of  any  qualified payment  after  the  period described in paragraph (2)(C), but only with respect to such payment.  (B) Exception where spouse is transferee. (i) Deathtime transfers --Subparagraph (A)(i) shall not apply to any interest includible in  the gross  estate  of  the  transferor  if  a deduction with respect to such interest is allowable under section 2056 or 2106(a)(3).  (ii) Lifetime transfers. A transfer to the spouse  of  the  transferor shall  not  be  treated as a taxable event under subparagraph (A)(ii) if such transfer does not result in a taxable gift by reason of- --(I) any deduction allowed under section 2523, or the  exclusion  under section 2503(b), or --(II) consideration for the transfer provided by the spouse.  (iii)  Spouse  succeeds to treatment of transferor. If an event is not treated  as  a  taxable  event  by  reason  of  this  subparagraph,  the transferee  spouse  or  surviving  spouse  (as the case may be) shall be treated in the same manner as the transferor in applying this subsection with respect to the interest involved.  (4) Special rules for applicable family  members.  (A)  Family  member treated  in  same manner as transferor. For purposes of this subsection, an applicable family member shall be treated in the same manner  as  the transferor  with  respect  to  any  distribution  right retained by such family member to which subsection (a)(3)(B) or (C) applied.  (B) Transfer to applicable family member. In the  case  of  a  taxable event  described  in  paragraph  (3)(A)(ii) involving the transfer of an applicable retained interest to an applicable family member (other  than the  spouse  of  the  transferor), the applicable family member shall be treated in the same manner as the transferor in applying this subsection to distributions accumulating with respect to such interest  after  such taxable event.  (C)  Transfer to transferors. In the case of a taxable event described in paragraph (3)(A)(ii) involving a transfer of an  applicable  retained interest  from  an  applicable  family  member  to  a  transferor,  this subsection shall continue to apply to the transferor during  any  period the transferor holds such interest.  (5)  Transfer to include termination. For purposes of this subsection, any termination of an interest shall be treated as a transfer.  (e) Other definitions and rules. For purposes of this section-  (1) Member of the family. The term "member of the family" means,  with respect to any transferor- --(A) the transferor's spouse, --(B)  a lineal descendant of the transferor or the transferor's spouse, and --(C) the spouse of any such descendant.  (2) Applicable family member.  The  term  "applicable  family  member" means, with respect to any transferor- --(A) the transferor's spouse, --(B) an ancestor of the transferor or the transferor's spouse, and --(C) the spouse of any such ancestor.  (3)  Attribution  of  indirect  holdings  and transfers. An individual shall be treated as holding any interest to the extent such interest  is held  indirectly  by such individual through a corporation, partnership, trust, or other entity. If any individual  is  treated  as  holding  any interest by reason of the preceding sentence, any transfer which results in  such  interest  being  treated  as no longer held by such individual shall be treated as a transfer of such interest.  (4) Effect of adoption. A relationship  by  legal  adoption  shall  be treated as a relationship by blood.  (5)  Certain  changes  treated  as  transfers.  Except  as provided in regulations,   a   contribution   to   capital    or    a    redemption, recapitalization,  or  other  change  in  the  capital  structure  of  a corporation or partnership shall be treated as a transfer of an interest in such entity to which this section  applies  if  the  taxpayer  or  an applicable family member- --(A)  receives  an applicable retained interest in such entity pursuant to such transaction, or --(B)  under  regulations,  otherwise  holds,  immediately  after   such transaction, an applicable retained interest in such entity. --This  paragraph  shall  not  apply  to  any  transaction (other than a contribution to capital) if the interests in  the  entity  held  by  the transferor,  applicable  family members, and members of the transferor's family before and after the transaction are substantially identical.  (6) Adjustments. Under regulations prescribed  by  the  Secretary,  if there  is  any subsequent transfer, or inclusion in the gross estate, of any applicable retained interest which was valued  under  the  rules  of subsection  (a),  appropriate  adjustments shall be made for purposes of chapter 11, 12, or 13 to reflect the increase in the amount of any prior taxable gift made by the  transferor  or  decedent  by  reason  of  such valuation or to reflect the application of subsection (d).  (7)  Treatment  as separate interests. The Secretary may by regulation provide that any applicable retained interest shall be treated as  2  or more separate interests for purposes of this section.   §  2702.  Special valuation rules in case of transfers of interests in trusts. (a) Valuation rules. (1) In  general.  Solely  for  purposes  of determining  whether  a  transfer of an interest in trust to (or for the benefit of) a member of the transferor's family is a gift (and the value of such transfer), the value of any interest in such trust  retained  by  the  transferor  or  any applicable family member (as defined in section 2701(e)(2)) shall be determined as provided in paragraph (2).  (2)  Valuation of retained interests. (A) In general. The value of any retained interest which is not a qualified interest shall be treated  as being zero.  (B)  Valuation  of  qualified  interest.  The  value  of  any retained interest which is a qualified interest shall be determined under section 7520.  (3) Exceptions. (A) In general. This subsection shall not apply to any transfer- --(i) if such transfer is an incomplete gift, --(ii) if such transfer involves the transfer of an  interest  in  trust all  the  property  in  which  consists  of  a residence to be used as a personal residence by persons holding term interests in such trust, or --(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.  (B) Incomplete gift.  For  purposes  of  subparagraph  (A),  the  term "incomplete  gift"  means  any  transfer which would not be treated as a gift whether or not consideration was received for such transfer.  (b) Qualified  interest.  For  purposes  of  this  section,  the  term "qualified interest" means-  (1)  any interest which consists of the right to receive fixed amounts payable not less frequently than annually,  (2) any interest which consists of the right to receive amounts  which are payable not less frequently than annually and are a fixed percentage of  the  fair  market  value  of  the  property in the trust (determined annually), and  (3) any noncontingent remainder interest if all of the other interests in the trust consist of interests described in paragraph (1) or (2).  (c) Certain property treated as held in trust. For  purposes  of  this section-  (1)  In  general. The transfer of an interest in property with respect to which there is 1 or more term interests shall be treated as a transfer of an interest in a trust.  (2) Joint purchases. If 2 or more members of the same  family  acquire interests  in  any  property  described  in  paragraph  (1)  in the same transaction (or a  series  of  related  transactions),  the  person  (or persons)  acquiring the term interests in such property shall be treated as having acquired the entire property and then transferred to the other persons the interests acquired by such other persons in the  transaction (or  series  of transactions). Such transfer shall be treated as made in exchange for the consideration (if any) provided by such  other  persons for the acquisition of their interests in such property.  (3) Term interest. The term "term interest" means-  (A) a life interest in property, or  (B) an interest in property for a term of years.  (4)  Valuation  rule for certain term interests. If the nonexercise of rights under a term interest in  tangible  property  would  not  have  a substantial  effect  on  the valuation of the remainder interest in such property-  (A) subparagraph (A) of subsection (a)(2) shall not apply to such term interest, and  (B)  the  value  of  such  term  interest  for  purposes  of  applying subsection  (a)(1)  shall  be  the  amount  which the holder of the term interest establishes as the amount for which such interest could be sold to an unrelated third party.  (d) Treatment of transfers of interests in portion of  trust.  In  the case  of a transfer of an income or remainder interest with respect to a  specified portion of the property in a trust, only such portion shall be taken into account in applying this section to such transfer.  (e)  Member  of  the  family.  For  purposes of this section, the term "member of the family" shall have the meaning given such term by section 2704(c)(2).   § 2703. Certain rights and restrictions disregarded  (a) General rule. For purposes of this  subtitle,  the  value  of  any property shall be determined without regard to-  (1)  any  option,  agreement,  or  other  right  to acquire or use the property at a price less than the fair  market  value  of  the  property (without regard to such option, agreement, or right), or  (2) any restriction on the right to sell or use such property.  (b)  Exceptions.  Subsection  (a)  shall  not  apply  to  any  option, agreement, right, or restriction  which  meets  each  of  the  following requirements:  (1) It is a bona fide business arrangement.  (2)  It  is  not  a device to transfer such property to members of the decedent's family for less than full and adequate consideration in money or money's worth.  (3) Its terms are comparable to similar arrangements entered  into  by persons in an arms' length transaction   §  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.   § 7872. Treatment of loans with below-market interest rates  (a) Treatment of gift loans and demand  loans.  (1)  In  general.  For purposes  of  this  title, in the case of any below-market loan to which this section applies and which is a gift loan  or  a  demand  loan,  the forgone interest shall be treated as- --(A) transferred from the lender to the borrower, and --(B) retransferred by the borrower to the lender as interest.  (2)  Time  when  transfers  made.  Except  as  otherwise  provided  in regulations  prescribed  by  the   Secretary,   any   forgone   interest attributable  to  periods  during  any calendar year shall be treated as transferred (and retransferred) under paragraph (1) on the last  day  of such calendar year.  (b)  Treatment  of  other  below-market  loans.  (1)  In  general. For purposes of this title, in the case of any below-market  loan  to  which this  section applies and to which subsection (a)(1) does not apply, the lender shall be treated as having transferred on the date the  loan  was made  (or,  if  later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of- --(A) the amount loaned, over --(B) the present value of all payments which are required  to  be  made under the terms of the loan.  (2) Obligation treated as having original issue discount. For purposes of this title-  (A)  In  general. Any below-market loan to which paragraph (1) applies shall be treated as having original issue discount in an amount equal to the excess described in paragraph (1).  (B) Amount in addition to other original issue discount. Any  original issue  discount  which  a  loan  is  treated  as  having  by  reason  of subparagraph (A) shall be  in  addition  to  any  other  original  issue discount on such loan (determined without regard to subparagraph (A)).  (c)  Below-market  loans  to  which  section  applies. (1) In general. Except as otherwise provided in this subsection and subsection (g), this section shall apply to-  (A) Gifts. Any below-market loan which is a gift loan.  (B)  Compensation-related  loans.  Any  below-market  loan directly or indirectly between- --(i) an employer and an employee, or --(ii) an independent contractor and a person for whom such  independent contractor provides services.  (C)  Corporation-shareholder  loans. Any below-market loan directly or indirectly  between  a  corporation  and   any   shareholder   of   such corporation.  (D)  Tax  avoidance  loans.  Any  below-market loan 1 of the principal purposes of the interest arrangements of which is the avoidance  of  any Federal tax.  (E)  Other  below-market loans. To the extent provided in regulations, any below-market loan which is not described in subparagraph  (A),  (B), (C), or (F) if the interest arrangements of such loan have a significant effect on any Federal tax liability of the lender or the borrower.  (F)  Loans  to  qualified  continuing care facilities. Any loan to any qualified  continuing  care  facility  pursuant  to  a  continuing  care contract.  (2)  $10,000  de minimis exception for gift loans between individuals. (A)  In  general.  In  the  case  of  any  gift  loan  directly  between individuals,  this  section  shall  not  apply  to  any day on which the aggregate outstanding amount of loans between such individuals does  not exceed $10,000.  (B)  De  minimis  exception  not  to  apply  to  loans attributable to acquisition of income-producing assets. --Subparagraph  (A)  shall  not  apply  to  any   gift   loan   directly attributable to the purchase or carrying of income-producing assets.  (C)  Cross  reference.  For  limitation  on amount treated as interest where loans do not exceed $100,000, see subsection (d)(1).  (3)  $10,000  de  minimis  exception  for   compensation-related   and corporate-shareholder  loans.  (A)  In  general. In the case of any loan described in subparagraph (B) or (C)  of  paragraph  (1),  this  section shall  not apply to any day on which the aggregate outstanding amount of loans between the borrower and lender does not exceed $10,000.  (B) Exception not to apply  where  1  of  principal  purposes  is  tax avoidance.  Subparagraph  (A)  shall  not apply to any loan the interest arrangements of  which  have  as  1  of  their  principal  purposes  the avoidance of any Federal tax.  (d)  Special  rules for gift loans. (1) Limitation on interest accrual for purposes of income taxes where loans do not exceed $100,000. (A)  In general. For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to  the  lender  as  of  the  close  of  any  year  shall not exceed the borrower's net investment income for such year.  (B) Limitation not to apply where  1  of  principal  purposes  is  tax avoidance.  Subparagraph  (A)  shall  not apply to any loan the interest arrangements of  which  have  as  1  of  their  principal  purposes  the avoidance of any Federal tax.  (C) Special rule where more than 1 gift loan outstanding. For purposes of  subparagraph  (A),  in  any case in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower  shall be  allocated  among  such loans in proportion to the respective amounts which would be treated as retransferred by the borrower  without  regard to this paragraph.  (D)  Limitation  not  to  apply where aggregate amount of loans exceed $100,000. This paragraph shall not apply to any loan made by a lender to a borrower for any day on which  the  aggregate  outstanding  amount  of loans between the borrower and lender exceeds $100,000.  (E) Net investment income. For purposes of this paragraph-  (i) In general. The term "net investment income" has the meaning given such term by section 163(d)(4).  (ii) De minimis rule. If the net investment income of any borrower for any  year  does  not  exceed  $1,000,  the net investment income of such borrower for such year shall be treated as zero.  (iii) Additional amounts treated as interest. In determining  the  net investment  income  of  a person for any year, any amount which would be included in the gross income of such person for such year by  reason  of section 1272 if such section applied to all deferred payment obligations shall be treated as interest received by such person for such year.  (iv)   Deferred   payment  obligations.  The  term  "deferred  payment obligation" includes any market discount  bond,  short-term  obligation, United States savings bond, annuity, or similar obligation.  (2) Special rule for gift tax. In the case of any gift loan which is a term  loan,  subsection  (b)(1) (and not subsection (a)) shall apply for purposes of chapter 12.  (e)  Definitions  of  below-market  loan  and  forgone  interest.  For purposes of this section-  (1) Below-market loan. The term "below-market loan" means any loan if- --(A) in the case of a demand loan, interest is payable on the loan at a rate less than the applicable Federal rate, or --(B)  in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan.  (2) Forgone interest. The term "forgone interest" means, with  respect to any period during which the loan is outstanding, the excess of- --(A)  the  amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable Federal rate and were payable annually on the  day  referred  to  in  subsection (a)(2), over --(B)  any  interest  payable  on  the  loan  properly allocable to such period.  (f) Other definitions and special rules. For purposes of this section-  (1)  Present  value.  The  present  value  of  any  payment  shall  be determined  in  the  manner  provided  by  regulations prescribed by the Secretary- --(A) as of the date of the loan, and --(B) by using a discount rate equal to the applicable Federal rate.  (2) Applicable Federal rate. (A) Term loans. In the case of  any  term loan,  the  applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on  which  the  loan  was made), compounded semiannually.  (B) Demand loans. In the case of a demand loan, the applicable Federal rate  shall  be  the  Federal  short-term  rate  in effect under section 1274(d) for the period for which the amount of forgone interest is being determined, compounded semiannually.  (3) Gift loan. The term "gift loan" means any below-market loan  where the forgoing of interest is in the nature of a gift.  (4)  Amount loaned. The term "amount loaned" means the amount received by the borrower.  (5) Demand loan. The term  "demand  loan"  means  any  loan  which  is payable  in full at any time on the demand of the lender. Such term also includes (for purposes other than  determining  the  applicable  Federal rate  under  paragraph  (2))  any  loan  if the benefits of the interest  arrangements of such loan are not transferable and  are  conditioned  on the  future performance of substantial services by an individual. To the extent provided in regulations, such term also includes any loan with an indefinite maturity.  (6)  Term  loan.  The  term  "term loan" means any loan which is not a demand loan.  (7) Husband and wife treated as 1 person. A husband and wife shall  be treated as 1 person.  (8)  Loans to which section 483, 643(i), or 1274 applies. This section shall not apply to any loan  to  which  section  483,  643(i),  or  1274 applies.  (9)  No withholding. No amount shall be withheld under chapter 24 with respect to- --(A)  any  amount  treated  as  transferred  or   retransferred   under subsection (a), and --(B) any amount treated as received under subsection (b).  (10)  Special rule for term loans. If this section applies to any term loan on any day, this section shall  continue  to  apply  to  such  loan notwithstanding paragraphs (2) and (3) of subsection (c). In the case of a  gift  loan,  the  preceding sentence shall only apply for purposes of chapter 12.  (11) Time for  determining  rate  applicable  to  employee  relocation loans.  (A) In general. In the case of any term loan made by an employer to  an  employee  the  proceeds  of  which  are  used by the employee to purchase a principal residence (within the meaning of section 121),  the determination  of  the  applicable  Federal rate shall be made as of the date the written contract to purchase such residence was entered into.  (B) Paragraph only to apply to cases to  which  section  217  applies. Subparagraph  (A)  shall  only  apply  to  the  purchase  of a principal residence in connection with the commencement of work by an employee  or a  change in the principal place of work of an employee to which section 217 applies.  (g)  Exception  for  certain  loans  to  qualified   continuing   care facilities.  (1)  In  general.  This  section  shall not apply for any calendar year to any below-market loan made by a lender to  a  qualified continuing  care  facility pursuant to a continuing care contract if the lender (or the lender's spouse) attains age 65 before the close of  such year.  (2)  $90,000  limit. Paragraph (1) shall apply only to the extent that the aggregate outstanding amount of any loan  to  which  such  paragraph applies (determined without regard to this paragraph), when added to the aggregate  outstanding  amount  of  all other previous loans between the lender (or the  lender's  spouse)  and  any  qualified  continuing  care facility to which paragraph (1) applies, does not exceed $90,000.  (3)  Continuing  care contract. For purposes of this section, the term "continuing  care  contract"  means  a  written  contract   between   an individual and a qualified continuing care facility under which- --(A)  the  individual  or  individual's  spouse  may  use  a  qualified continuing care facility for their life or lives, --(B) the individual or individual's spouse- --(i) will first- --(I) reside in a separate,  independent  living  unit  with  additional facilities  outside  such  unit  for  the  providing  of meals and other personal care, and --(II) not require long-term nursing care, and --(ii) then will be provided long-term and skilled nursing care  as  the health of such individual or individual's spouse requires, and  --(C)  no  additional substantial payment is required if such individual or individual's spouse requires  increased  personal  care  services  or long-term and skilled nursing care.  (4)  Qualified  continuing care facility. (A) In general. For purposes of this section, the term "qualified continuing care facility"  means  1 or more facilities- --(i)  which  are  designed  to  provide  services under continuing care contracts, and --(ii) substantially all of  the  residents  of  which  are  covered  by continuing care contracts.  (B)  Substantially  all  facilities  must  be  owned  or  operated  by borrower.  A facility shall not be treated  as  a  qualified  continuing care  facility  unless  substantially  all  facilities which are used to provide services which are required to be provided  under  a  continuing care contract are owned or operated by the borrower.  (C)  Nursing  homes  excluded.  The  term  "qualified  continuing care facility" shall not include any facility which is of  a  type  which  is traditionally considered a nursing home.  (5)  Adjustment of limit for inflation. (A) In general. In the case of any loan made during any calendar year after 1986 to which paragraph (1) applies, the dollar amount in paragraph (2) shall be  increased  by  the inflation  adjustment  for  such  calendar  year. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be  increased to the nearest multiple of $100).  (B)  Inflation  adjustment.  For  purposes  of  subparagraph  (A), the inflation adjustment for any calendar year is the percentage (if any) by which- --(i) the CPI for the preceding calendar year exceeds --(ii) the CPI for calendar year 1985.   1. For purposes of the preceding sentence, the CPI  for  any  calendar year  is  the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of such calendar year.  (6) Suspension of application. Paragraph (1) shall not apply  for  any calendar year to which subsection (h) applies.  (h)  Exception  for loans to qualified continuing care facilities. (1) In general. This section shall not apply for any calendar  year  to  any below-market  loan owed by a facility which on the last day of such year is a qualified continuing care facility, if such loan was made  pursuant to a continuing care contract and if the lender (or the lender's spouse) attains age 62 before the close of such year.  (2)  Continuing  care contract. For purposes of this section, the term "continuing  care  contract"  means  a  written  contract   between   an individual and a qualified continuing care facility under which- --(A)  the  individual  or  individual's  spouse  may  use  a  qualified continuing care facility for their life or lives, --(B) the individual  or  individual's  spouse  will  be  provided  with housing,   as   appropriate   for  the  health  of  such  individual  or individual's spouse- --(i) in an independent living  unit  (which  has  additional  available facilities  outside  such  unit  for  the  provision  of meals and other personal care), and --(ii) in an assisted living facility  or  a  nursing  facility,  as  is available in the continuing care facility, and --(C)  the  individual  or individual's spouse will be provided assisted living or nursing care as the health of such individual or  individual's spouse requires, and as is available in the continuing care facility.  --The Secretary shall issue guidance which limits such term to contracts which  provide  only  facilities,  care,  and services described in this paragraph.  (3)  Qualified  continuing care facility. (A) In general. For purposes of this section, the term "qualified continuing care facility"  means  1 or more facilities- --(i)  which  are  designed  to  provide  services under continuing care contracts, --(ii) which include an independent living unit, plus an assisted living or nursing facility, or both, and --(iii) substantially all of the independent living  unit  residents  of which are covered by continuing care contracts.  (B)  Nursing  homes  excluded.  The  term  "qualified  continuing care facility" shall not include any facility which is of  a  type  which  is traditionally considered a nursing home.  (i)  Regulations.  (1)  In general. The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including- --(A) regulations providing that where, by reason of  varying  rates  of interest,   conditional   interest   payments,   waivers   of  interest, disposition of the lender's or borrower's interest in the loan, or other circumstances, the provisions of this  section  do  not  carry  out  the purposes  of this section, adjustments to the provisions of this section will be made to the extent necessary to carry out the purposes  of  this section, --(B)  regulations for the purpose of assuring that the positions of the borrower  and  lender  are  consistent  as  to   the   application   (or nonapplication) of this section, and --(C)  regulations  exempting  from  the application of this section any class of  transactions  the  interest  arrangements  of  which  have  no significant  effect  on  any  Federal tax liability of the lender or the borrower.  (2) Estate tax  coordination.  Under  regulations  prescribed  by  the Secretary,  any  loan  which is made with donative intent and which is a term loan shall be taken into account for purposes of chapter  11  in  a manner consistent with the provisions of subsection (b).   §  6166.  Extension  of  Time  for  Payment of Estate Tax Where Estate Consists Largely of  Interest  in  Closely  Held  Business.  (a)  5-year deferral; 10-year installment payment.--  (1)  In  general.--If  the  value  of  an  interest  in a closely held business which is included in determining the gross estate of a decedent who was (at the date of his death) a citizen or resident of  the  United States exceeds 35 percent of the adjusted gross estate, the executor may elect to pay part or all of the tax imposed by section 2001 in 2 or more (but not exceeding 10) equal installments.  (2)  Limitation.--The  maximum  amount  of  tax  which  may be paid in installments under this subsection shall be an amount  which  bears  the same  ratio  to  the tax imposed by section 2001 (reduced by the credits against such tax) as--  (A) the closely held business amount, bears to  (B) the amount of the adjusted gross estate.  (3) Date for payment of installments.--If an election  is  made  under paragraph (1), the first installment shall be paid on or before the date selected  by  the executor which is not more than 5 years after the date prescribed  by  section  6151(a)  for  payment  of  the  tax,  and  each succeeding  installment  shall  be paid on or before the date which is 1 year after the date prescribed by this  paragraph  for  payment  of  the preceding installment.  (b) Definitions and special rules.--  (1)  Interest in closely held business.--For purposes of this section, the term "interest in a closely held business" means--  (A) an interest as a proprietor in a trade or business carried on as a proprietorship;  (B) an interest as a partner in a partnership carrying on a  trade  or business, if--  (i)  20  percent  or  more  of  the  total  capital  interest  in such partnership is included in determining the gross estate of the decedent, or  (ii) such partnership had 45 or fewer partners; or  (C) stock in a corporation carrying on a trade or business if--  (i) 20  percent  or  more  in  value  of  the  voting  stock  of  such corporation is included in determining the gross estate of the decedent, or  (ii) such corporation had 45 or fewer shareholders.  (2) Rules for applying paragraph (1).--For purposes of paragraph (1)--  (A)  Time  for  testing.--Determinations  shall be made as of the time immediately before the decedent's death.  (B)  Certain  interests  held  by  husband  and  wife.--Stock   or   a partnership interest which--  (i)  is  community  property of a husband and wife (or the income from which is community income) under the applicable community  property  law of a State, or  (ii)  is  held  by a husband and wife as joint tenants, tenants by the entirety, or tenants in  common,  shall  be  treated  as  owned  by  one shareholder or one partner, as the case may be.  (C) Indirect ownership.--Property owned, directly or indirectly, by or for  a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for  its  shareholders,  partners,  or beneficiaries. For purposes of the preceding sentence, a person shall be treated  as a beneficiary of any trust only if such person has a present interest in the trust.  (D) Certain interests held by members of decedent's family.--All stock and all partnership interests held by the decedent or by any  member  of his family (within the meaning of section 267(c)(4)) shall be treated as owned by the decedent.  (3)  Farmhouses  and certain other structures taken into account.--For purposes of the 35-percent requirement of subsection (a)(1), an interest in a closely held business which is the business of farming includes  an interest  in  residential buildings and related improvements on the farm which are occupied on a regular basis by the owner or lessee of the farm or by persons employed by such owner or lessee for purposes of operating or maintaining the farm.  (4) Value.--For  purposes  of  this  section,  value  shall  be  value determined for purposes of chapter 11 (relating to estate tax).  (5)  Closely  held business amount.--For purposes of this section, the term "closely held business amount" means the value of the interest in a closely held business which qualifies under subsection (a)(1).  (6) Adjusted gross estate.--For purposes of this  section,  the  term, "adjusted  gross  estate" means the value of the gross estate reduced by the sum of the amounts allowable as a deduction under  section  2053  or 2054.  Such  sum  shall  be  determined  on  the  basis of the facts and circumstances in existence on the date (including extensions) for filing the return of tax imposed by section 2001 (or, if earlier, the  date  on which such return is filed).  (7) Partnership interests and stock which is not readily tradable.--  (A) In general.--If the executor elects the benefits of this paragraph (at  such  time and in such manner as the Secretary shall by regulations prescribe), then--  (i)  for  purposes  of  paragraph (1)(B)(i) or (1)(C)(i) (whichever is appropriate) and for purposes of subsection (c), any capital interest in a partnership  and  any  non-readily-tradable  stock  which  (after  the application  of paragraph (2)) is treated as owned by the decedent shall be treated as included in determining the value of the decedent's  gross estate,  (ii) the executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a), and  (iii)  for purposes of applying section 6601(j), the 2-percent portion (as defined in such section) shall be treated as being zero.  (B)  Non-readily-tradable  stock  defined.--For   purposes   of   this paragraph,  the term "non-readily-tradable stock" means stock for which, at the time of the decedent's death, there was  no  market  on  a  stock exchange or in an over-the-counter market.  (8)  Stock  in  holding  company  treated as business company stock in certain cases.--  (A)  In  general.--If  the  executor  elects  the  benefits  of   this paragraph, then--  (i)  Holding  company  stock  treated  as business company stock.--For purposes of this section, the  portion  of  the  stock  of  any  holding company which represents direct ownership (or indirect ownership through 1 or more other holding companies) by such company in a business company shall be deemed to be stock in such business company.  (ii)  5-year  deferral for principal not to apply.--The executor shall be  treated  as  having  selected  under  subsection  (a)(3)  the   date prescribed by section 6151(a).  (iii)  2-percent interest rate not to apply.--For purposes of applying section 6601(j), the 2-percent portion  (as  defined  in  such  section) shall be treated as being zero.  (B) All stock must be non-readily-tradable stock.--  (i)  In general.--No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stockwithin the meaning of paragraph (7)(B)).  (ii)  Special  application  where  only  holding  company   stock   is non-readily-tradable  stock.--If  the requirements of clause (i) are not met, but all of the stock of each holding company taken into account  is non-readily-tradable,  then  this  paragraph shall apply, but subsection (a)(1) shall be applied by substituting "5" for "10".  (C)   Application   of   voting   stock   requirement   of   paragraph (1)(C)(i).--For  purposes  of clause (i) of paragraph (1)(C), the deemed stock resulting from  the  application  of  subparagraph  (A)  shall  be treated  as  voting stock to the extent that voting stock in the holding company owns directly (or through the voting stock of 1  or  more  other holding companies) voting stock in the business company.  (D) Definitions.--For purposes of this paragraph--  (i) Holding company.--The term "holding company" means any corporation holding stock in another corporation.  (ii)   Business   company.--The  term  "business  company"  means  any corporation carrying on a trade or business.  (9) Deferral not available for passive assets.--  (A) In general.--For purposes of subsection (a)(1) and determining the closely held business amount (but not for purposes of  subsection  (g)), the  value  of any interest in a closely held business shall not include the value of that portion of such  interest  which  is  attributable  to passive assets held by the business.  (B) Passive asset defined.--For purposes of this paragraph--  (i)  In  general.--The term "passive asset" means any asset other than an asset used in carrying on a trade or business.  (ii)  Stock  treated  as  passive  asset.--The  term  "passive  asset" includes any stock in another corporation unless--  (I)  such  stock  is  treated  as held by the decedent by reason of an election under paragraph (8), and  (II) such stock qualified under subsection (a)(1).  (iii) Exception for active corporations.--If--  (I) a corporation owns 20 percent or more in value of the voting stock of another corporation, or  such  other  corporation  has  45  or  fewer shareholders, and  (II)  80  percent  or  more  of  the  value of the assets of each such corporation is attributable to assets used in carrying  on  a  trade  or business,  then  such corporations shall be treated as 1 corporation for purposes of clause (ii). For purposes of applying subclause (II) to  the corporation holding the stock of the other corporation, such stock shall not be taken into account.  (10) Stock in qualifying lending and finance business treated as stock in an active trade or business company.--  (A)   In  general.--If  the  executor  elects  the  benefits  of  this paragraph, then--  (i) Stock in qualifying lending and finance business treated as  stock in  an  active trade or business company.--For purposes of this section, any asset used in a qualifying lending and  finance  business  shall  be treated as an asset which is used in carrying on a trade or business.  (ii)  5-year  deferral for principal not to apply.--The executor shall be  treated  as  having  selected  under  subsection  (a)(3)  the   date prescribed by section 6151(a).  (iii)   5   equal  installments  allowed.--For  purposes  of  applying subsection  (a)(1), "5" shall be substituted for "10".  (B) Definitions.--For purposes of this paragraph--  (i) Qualifying lending and  finance  business.--The  term  "qualifying lending and finance business" means a lending and finance business, if--  (I)  based  on  all the facts and circumstances immediately before the date of the  decedent's  death,  there  was  substantial  activity  with respect to the lending and finance business, or  (II)  during  at least 3 of the 5 taxable years ending before the date of the decedent's death, such business had at least 1 full-time employee substantially all of whose services were the active management  of  such business,  10  full-time,  nonowner employees substantially all of whose services were directly related to such business, and $5,000,000 in gross receipts from activities described in clause (ii).  (ii) Lending and finance  business.--The  term  "lending  and  finance business" means a trade or business of--  (I) making loans,  (II)   purchasing   or  discounting  accounts  receivable,  notes,  or installment obligations,  (III) engaging in rental and leasing of  real  and  tangible  personal property,  including entering into leases and purchasing, servicing, and disposing of leases and leased assets,  (IV) rendering services or making facilities available in the ordinary course of a lending or finance business, and  (V) rendering services or making facilities  available  in  connection with  activities  described in subclauses (I) through (IV) carried on by the corporation rendering services or making  facilities  available,  or  another  corporation  which is a member of the same affiliated group (as defined in section 1504 without regard to section 1504(b)(3)).  (iii)  Limitation.--The term "qualifying lending and finance business" shall not include any interest in an entity, if the  stock  or  debt  of such  entity  or a controlled group (as defined in section 267(f)(1)) of which such entity was a member was readily tradable  on  an  established securities  market  or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent's death.  (c)  Special  rule  for  interest  in   2   or   more   closely   held businesses.--For purposes of this section, interest in 2 or more closely held  businesses,  with  respect  to  each of which there is included in determining the value of the decedent's gross estate 20 percent or  more of  the  total  value  of  each  such  business,  shall be treated as an interest in  a  single  closely  held  business.  For  purposes  of  the 20-percent  requirement  of  the  preceding  sentence,  an interest in a closely held business which represents the surviving  spouse's  interest in  property  held by the decedent and the surviving spouse as community property or as joint tenants, tenants by the  entirety,  or  tenants  in common shall be treated as having been included in determining the value of the decedent's gross estate.  (d)  Election.--Any  election  under  subsection (a) shall be made not later than the time prescribed by section 6075(a) for filing the  return of tax imposed by section 2001 (including extensions thereof), and shall be  made in such manner as the Secretary shall by regulations prescribe. If an election under subsection (a) is  made,  the  provisions  of  this subtitle shall apply as though the Secretary were extending the time for payment of the tax.  (e)  Proration  of deficiency to installments.--If an election is made under subsection (a) to pay any part of the tax imposed by section  2001 in installments and a deficiency has been assessed, the deficiency shall (subject to the limitation provided by subsection (a)(2)) be prorated to the   installments  payable  under  subsection  (a).  The  part  of  the deficiency so prorated to any installment the date for payment of  which has  not  arrived  shall be collected at the same time as, and as a part of, such installment. The part of the  deficiency  so  prorated  to  any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the  deficiency  is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.  (f) Time for payment of interest.--If the  time  for  payment  of  any amount of tax has been extended under this section--  (1)  Interest  for first 5 years.--Interest payable under section 6601 of any unpaid portion of such amount attributable to the first  5  years after  the  date  prescribed  by  section 6151(a) for payment of the tax shall be paid annually.  (2) Interest for periods after first 5 years.--Interest payable  under section  6601  on  any unpaid portion of such amount attributable to any period after the 5-year period referred to in  paragraph  (1)  shall  be paid  annually  at  the same time as, and as a part of, each installment payment of the tax.  (3) Interest in the case of certain deficiencies.--In the  case  of  a deficiency  to  which subsection (e) applies which is assessed after the close of the 5-year  period  referred  to  in  paragraph  (1),  interest attributable   to  such  5-year  period,  and  interest  assigned  under paragraph (2) to any installment the  date  for  payment  of  which  has arrived on or before the date of the assessment of the deficiency, shall be paid upon notice and demand from the Secretary.  (4)  Selection  of  shorter  period.--If  the  executor has selected a period shorter than 5 years under subsection (a)(3), such shorter period shall be substituted for 5 years in paragraphs (1), (2), and (3) of this subsection.  (g) Acceleration of payment.--  (1) Disposition of interest; withdrawal of funds from business.--  (A) If--  (i)(I)  any  portion  of  an interest in a closely held business which qualifies under subsection (a)(1) is distributed,  sold,  exchanged,  or otherwise disposed of, or  (II)  money  and  other  property  attributable to such an interest is withdrawn from such trade or business, and  (ii) the aggregate of such distributions, sales, exchanges,  or  other dispositions  and  withdrawals equals or exceeds 50 percent of the value of such interest, then the extension of time for payment of tax provided in subsection (a) shall cease to apply, and the unpaid  portion  of  the tax  payable  in  installments shall be paid upon notice and demand from the Secretary.  (B) In the case of a distribution in  redemption  of  stock  to  which section  303  (or  so  much  of  section  304 as relates to section 303) applies--  (i) the redemption of such stock, and  the  withdrawal  of  money  and other property distributed in such redemption, shall not be treated as a distribution or withdrawal for purposes of subparagraph (A), and  (ii)  for  purposes  of subparagraph (A), the value of the interest in the closely held business shall be considered to be such  value  reduced by the value of the stock redeemed.   This  subparagraph  shall  apply  only  if,  on  or  before  the  date prescribed by subsection (a)(3) for the payment of the first installment which becomes due after the date of the distribution (or, if earlier, on or before the day which is 1 year after the date of  the  distribution), there is paid an amount of the tax imposed by section 2001 not less than the amount of money and other property distributed.  (C)  Subparagraph  (A)(i)  does  not  apply  to  an  exchange of stock pursuant to a plan of reorganization described in subparagraph (D), (E), or (F) of section 368(a)(1) nor to an exchange to which section 355  (or so much of section 356 as relates to section 355) applies; but any stock received   in  such  an  exchange  shall  be  treated  for  purposes  of subparagraph (A)(i) as an interest qualifying under subsection (a)(1).  (D) Subparagraph (A)(i) does not apply to a transfer  of  property  of the  decedent  to a person entitled by reason of the decedent's death to receive such property under the decedent's will, the applicable  law  of descent  and distribution, or a trust created by the decedent. A similar rule shall apply in the case of a series of subsequent transfers of  the property  by  reason of death so long as each transfer is to a member of the family (within the meaning of section 267(c)(4)) of  the  transferor in such transfer.  (E) Changes in interest in holding company.--If any stock in a holding company  is  treated  as  stock  in  a  business  company  by  reason of subsection (b)(8)(A)--  (i) any disposition of any interest in  such  stock  in  such  holding company  which  was  included  in  determining  the  gross estate of the decedent, or  (ii) any withdrawal of any money or other property from  such  holding company  attributable  to any interest included in determining the gross estate of the decedent,    shall be treated for purposes of subparagraph (A) as a disposition  of (or  a withdrawal with respect to) the stock qualifying under subsection (a)(1).  (F)  Changes  in  interest  in  business  company.--If  any stock in a holding company is treated as stock in a business company by  reason  of subsection (b)(8)(A)--  (i)  any  disposition  of  any  interest in such stock in the business company by such holding company, or  (ii) any withdrawal of any money or other property from such  business company  attributable  to such stock by such holding company owning such stock,   shall be treated for purposes of subparagraph (A) as a disposition  of (or  a withdrawal with respect to) the stock qualifying under subsection (a)(1).  (2) Undistributed income of estate.--  (A) If an election is made under  this  section  and  the  estate  has undistributed net income for any taxable year ending on or after the due date  for  the  first  installment, the executor shall, on or before the date prescribed by law for filing the income tax return for such taxable year (including  extensions  thereof),  pay  an  amount  equal  to  such undistributed net income in liquidation of the unpaid portion of the tax payable in installments.  (B)  For purposes of subparagraph (A), the undistributed net income of the estate for any taxable year is the amount by which the distributable net income of the estate for such taxable year (as  defined  in  section 643) exceeds the sum of--  (i)  the amounts for such taxable year specified in paragraphs (1) and (2) of section 661(a) (relating to deductions for distributions, etc.);  (ii) the amount of tax imposed for the  taxable  year  on  the  estate under chapter 1; and  (iii)  the  amount  of  the  tax  imposed  by  section 2001 (including interest) paid by the executor during the taxable year (other  than  any amount paid pursuant to this paragraph).  (C)  For  purposes of this paragraph, if any stock in a corporation is treated  as  stock  in  another  corporation  by  reason  of  subsection (b)(8)(A),   any  dividends  paid  by  such  other  corporation  to  the corporation shall be treated as paid to the estate of  the  decedent  to the extent attributable to the stock qualifying under subsection (a)(1).  (3) Failure to make payment of principal or interest.--  (A)  In  general.--Except  as  provided  in  subparagraph  (B), if any payment of principal or interest under this section is not  paid  on  or before  the  date  fixed  for its payment by this section (including any extension  of  time),  the  unpaid  portion  of  the  tax   payable   in installments shall be paid upon notice and demand from the Secretary.  (B)  Payment within 6 months.--If any payment of principal or interest under this section is not paid on or before the  date  determined  under subparagraph (A) but is paid within 6 months of such date--  (i) the provisions of subparagraph (A) shall not apply with respect to such payment,  (ii) the provisions of section 6601(j) shall not apply with respect to the determination of interest on such payment, and  (iii)  there  is  imposed  a penalty in an amount equal to the product of--  (I) 5 percent of the amount of such payment, multiplied by  (II) the number of months (or fractions thereof) after such  date  and before  payment is made. The penalty imposed under clause (iii) shall be treated in the same manner as a penalty imposed under  subchapter  B  of chapter 68.  (h) Election in case of certain deficiencies.--  (1) In general.--If--  (A) a deficiency in the tax imposed by section 2001 is assessed,  (B) the estate qualifies under subsection (a)(1), and  (C)  the  executor  has not made an election under subsection (a), the executor  may  elect  to  pay  the  deficiency  in  installments.   This subsection  shall  not  apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with  intent to evade tax.  (2) Time of election.--An election under this subsection shall be made not  later  than  60  days  after  issuance  of notice and demand by the Secretary for the payment of the deficiency, and shall be made  in  such manner as the Secretary shall by regulations prescribe.  (3)  Effect of election on payment.--If an election is made under this subsection, the deficiency shall (subject to the limitation provided  by subsection (a)(2)) be prorated to the installments which would have been due if an election had been timely made under subsection (a) at the time the  estate tax return was filed. The part of the deficiency so prorated to any installment the date for payment  of  which  would  have  arrived shall  be  paid  at  the  time  of the making of the election under this subsection. The portion of the deficiency so  prorated  to  installments the date for payment of which would not have so arrived shall be paid at the  time  such installments would have been due if such an election had been made.  (i) Special rule for certain direct  skips.--To  the  extent  that  an interest  in  a  closely  held  business is the subject of a direct skip (within the meaning of section 2612(c)) occurring at the  same  time  as and  as  a  result  of  the  decedent's death, then for purposes of this section any tax imposed by section 2601 on the transfer of such interest shall be treated as if it were additional tax imposed by section 2001.  (j) Regulations.--The Secretary shall prescribe  such  regulations  as may be necessary to the application of this section.  (k) Cross references.--  (1)  Security.-- For authority of the Secretary to require security in the case of an extension under this section, see section 6165.  (2) Lien.--For special lien (in lieu  of  bond)  in  the  case  of  an extension under this section, see section 6324A.  (3)  Period  of limitation.--For extension of the period of limitation in the case of an extension under this section, see section 6503(d).  (4) Interest.--For provisions relating to interest on tax  payable  in installments under this section, see subsection (j) of section 6601.  (5)   Transfers  within  3  years  of  death.--For  special  rule  for qualifying  an  estate  under  this  section  where  property  has  been transferred within 3 years of decedent's death, see section 2035(c)(2).