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Internal Revenue Code, § 2036. Transfers With Retained Life Estate

I.R.C. § 2036(a) General Rule
The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—
I.R.C. § 2036(a)(1)
the possession or enjoyment of, or the right to the income from, the property, or
I.R.C. § 2036(a)(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.
I.R.C. § 2036(b) Voting Rights
I.R.C. § 2036(b)(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.
I.R.C. § 2036(b)(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.
I.R.C. § 2036(b)(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.
I.R.C. § 2036(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).
(Aug. 16, 1954, ch. 736, 68A Stat. 382; Oct. 16, 1962, Pub. L. 87-834, Sec. 18(a)(2)(D), 76 Stat. 1052; Oct. 4, 1976, Pub. L. 94-455, title XX, Sec. 2009(a), 90 Stat. 1893; Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 702(i)(1), (2), 92 Stat. 2931; Dec. 22, 1987, Pub. L. 100-203, title X, Sec. 10402(a), 101 Stat. 1330-431; Nov. 10, 1988, Pub. L. 100-647, title III, Sec. 3031(a)(1), (b)-(e), (g), 102 Stat. 3634-3638; Nov. 5, 1990, Pub. L. 101-508, title XI, Sec. 11601(a), 104 Stat. 1388-490.)
BACKGROUND NOTES
AMENDMENTS
1990 - Subsecs. (c), (d). Pub. L. 101-508 redesignated subsec. (d) as (c) and struck out former subsec. (c) which enunciated a rule that retention of retained interest would be considered to be a retention of enjoyment of transferred property if a person held a substantial interest in an enterprise, and such person in effect transferred after Dec. 17, 1987, property having a disproportionately large share of the potential appreciation in such person's interest in the enterprise while retaining an interest in the income of, or rights in, the enterprise.
1988 - Subsec. (c)(1)(B). Pub. L. 100-647, Sec. 3031(e), substituted ‘an interest’ for ‘a disproportionately large share’ after ‘whole retaining’.
Subsec. (c)(2). Pub. L. 100-647, Sec. 3031(g)(1), substituted ‘consideration furnished by’ for ‘sales to’ in heading, and amended text generally. Prior to amendment, text read as follows: ‘The exception contained in subsection (a) for a bona fide sale shall not apply to a transfer described in paragraph (1) if such transfer is to a member of the transferor's family.'
Subsec. (c)(3)(C). Pub. L. 100-647, Sec. 3031(d), substituted ‘Except as provided in regulations, an’ for ‘An’.
Subsec. (c)(4). Pub. L. 100-647, Sec. 3031(a)(1), amended par. (4) generally, substituting provisions relating to treatment of certain transfers for provisions relating to coordination with section 2035.
Subsec. (c)(5). Pub. L. 100-647, Sec. 3031(g)(2), amended par. (5) generally, substituting provisions relating to the making of appropriate adjustments in amounts included in gross estate for provisions relating to coordination with section 2043.
Subsec. (c)(6). Pub. L. 100-647, Sec. 3031(b), added par. (6).
Subsec. (c)(7), (8). Pub. L. 100-647, Sec. 3031(b)((c)), added pars. (7) and (8).
1987 - Subsecs. (c), (d). Pub. L. 100-203 added subsec. (c) and redesignated former subsec. (c) as (d).
1978 - Subsec. (a). Pub. L. 95-600, Sec. 702(i)(2), struck out provision following par. (2) relating to the retention of voting rights in retained stock.
Subsecs. (b), (c). Pub. L. 95-600, Sec. 702(i)(1), added subsec. (b) and redesignated former subsec. (b) as (c).
1976 - Subsec. (a). Pub. L. 94-455 provided that, for purposes of par. (1), the retention of voting rights in retained stock be considered to be a retention of the enjoyment of that stock.
1962 - Subsec. (a). Pub. L. 87-834 struck out provisions which excepted real property situated outside of the United States.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11601(c) of Pub. L. 101-508 provided that: ‘The amendments made by this section (amending this section and sections 2207B and 2501 of this title) shall apply in the case of property transferred after December 17, 1987.’
EFFECTIVE DATE OF 1988 AMENDMENT
Section 3031(h) of Pub. L. 100-647 provided that:
‘(1) In general. - Except as provided in this subsection, any amendment made by this section (enacting section 2207B of this title and amending this section and section 2501 of this title) shall take effect as if included in the provisions of the Revenue Act of 1987 (Pub. L. 100-203, title X) to which such amendment relates.
‘(2) Subsection (a). - The amendments made by subsection (a) (amending this section and section 2501 of this title) shall apply in cases where the transfer referred to in section 2036(c)(1)(B) of the 1986 Code is on or after June 21, 1988.
‘(3) Subsection (f). - If an amount is included in the gross estate of a decedent under section 2036 of the 1986 Code other than solely by reason of section 2036(c) of the 1986 Code, the amendments made by subsection (f) (enacting section 2207B of this title) shall apply to such amount only with respect to property transferred after the date of the enactment of this Act (Nov. 10, 1988).
‘(4) Correction period. - If section 2036(c)(1) of the 1986 Code would (but for this paragraph) apply to any interest arising from a transaction entered into during the period beginning after December 17, 1987, and ending before January 1, 1990, such section shall not apply to such interest if -
‘(A) during such period, such actions are taken as are necessary to have such section 2036(c)(1) not apply to such transaction (and any such interest), or
‘(B) the original transferor and his spouse on January 1, 1990 (or, if earlier, the date of the original transferor's death), does not hold any interest in the enterprise involved.
‘(5) Clarification of effective date. - For purposes of section 10402(b) of the Revenue Act of 1987 (Pub. L. 100-203, set out as an Effective Date of 1987 Amendment note below), with respect to property transferred on or before December 17, 1987 -
‘(A) any failure to exercise a right of conversion,
‘(B) any failure to pay dividends, and
‘(c) (sic) failures to exercise other rights specified in regulations, shall not be treated as a subsequent transfer.’
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10402(b) of Pub. L. 100-203 provided that: ‘The amendment made by subsection (a) (amending this section) shall apply with respect to estates of decedents dying after December 31, 1987, but only in the case of property transferred after December 17, 1987.’
(For clarification of this note, see section 3031(h)(5) of Pub. L. 100-647, set out as an Effective Date of 1988 Amendment note above.)
EFFECTIVE DATE OF 1978 AMENDMENT
Section 702(i)(3) of Pub. L. 95-600 provided that: ‘The amendments made by this subsection (amending this section) shall apply to transfers made after June 22, 1976.’
EFFECTIVE DATE OF 1976 AMENDMENT
Section 2009(e)(1) of Pub. L. 94-455 provided that: ‘The amendment made by subsection (a) (amending this section) shall apply to transfers made after June 22, 1976.’
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87-834, set out as a note under section 2031 of this title.
REINSTATEMENT OF ESTATE TAX; REPEAL OF CARRYOVER BASIS
Section 301 of Pub. L. 111-312 provided:
“(a) IN GENERAL.—Each provision of law amended by subtitle A or E of title V of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended to read as such provision would read if such subtitle had never been enacted.
“(b) CONFORMING AMENDMENT.—On and after January 1, 2011, paragraph (1) of section 2505(a) of the Internal Revenue Code of 1986 is amended to read as such paragraph would read if section 521(b)(2) of the Economic Growth and Tax Relief Reconciliation Act of 2001 had never been enacted.
“(c) SPECIAL ELECTION WITH RESPECT TO ESTATES OF DECEDENTS DYING IN 2010.—Notwithstanding subsection (a), in the case of an estate of a decedent dying after December 31, 2009, and before January 1, 2011, the executor (within the meaning of section 2203 of the Internal Revenue Code of 1986) may elect to apply such Code as though the amendments made by subsection (a) do not apply with respect to chapter 11 of such Code and with respect to property acquired or passing from such decedent (within the meaning of section 1014(b) of such Code). Such election shall be made at such time and in such manner as the Secretary of the Treasury or the Secretary's delegate shall provide. Such an election once made shall be revocable only with the consent of the Secretary of the Treasury or the Secretary's delegate. For purposes of section 2652(a)(1) of such Code, the determination of whether any property is subject to the tax imposed by such chapter 11 shall be made without regard to any election made under this subsection.
“(d) EXTENSION OF TIME FOR PERFORMING CERTAIN ACTS.—
“ (1) ESTATE TAX.—In the case of the estate of a decedent dying after December 31, 2009, and before the date of the enactment of this Act, the due date for—
“(A) filing any return under section 6018 of the Internal Revenue Code of 1986 (including any election required to be made on such a return) as such section is in effect after the date of the enactment of this Act without regard to any election under subsection (c),
“(B) making any payment of tax under chapter 11 of such Code, and
“(C) making any disclaimer described in section 2518(b) of such Code of an interest in property passing by reason of the death of such decedent, shall not be earlier than the date which is 9 months after the date of the enactment of this Act.
“(2) GENERATION-SKIPPING TAX.—In the case of any generation-skipping transfer made after December 31, 2009, and before the date of the enactment of this Act, the due date for filing any return under section 2662 of the Internal Revenue Code of 1986 (including any election required to be made on such a return) shall not be earlier than the date which is 9 months after the date of the enactment of this Act.
“(e) EFFECTIVE DATE.—Except as otherwise provided in this section, the amendments made by this section shall apply to estates of decedents dying, and transfers made, after December 31, 2009.”
TERMINATION
Section 501(a) (Estate Tax Repeal) of Pub. L. 107-16 added Code Sec. 2210, which states that chapter 11 of subtitle B shall not apply to the estates of decedents dying after December 31, 2009.
Note, however, that Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358 and Pub. L. 111-312, and struck by Pub. L. 112-240, Sec. 101(a)(1) (effective for taxable, plan, or limitation years beginning after Dec. 31, 2012, and estates of decedents dying, gifts made, or generation skipping transfers after Dec. 31, 2012), provided that:
“(a) IN GENERAL.--All provisions of, and amendments made by, this Act shall not apply--
“(1) to taxable, plan, or limitation years beginning after December 31, 2012, or
“(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2012.
“(b) APPLICATION OF CERTAIN LAWS.--The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
“(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).”