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Sec. 2632. Special Rules For Allocation Of GST Exemption

I.R.C. § 2632(a) Time And Manner Of Allocation
I.R.C. § 2632(a)(1) Time
Any allocation by an individual of his GST exemption under section 2631(a) may be made at any time on or before the date prescribed for filing the estate tax return for such individual's estate (determined with regard to extensions), regardless of whether such a return is required to be filed.
I.R.C. § 2632(a)(2) Manner
The Secretary shall prescribe by forms or regulations the manner in which any allocation referred to in paragraph (1) is to be made.
I.R.C. § 2632(b) Deemed Allocation To Certain Lifetime Direct Skips
I.R.C. § 2632(b)(1) In General
If any individual makes a direct skip during his lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the direct skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred.
I.R.C. § 2632(b)(2) Unused Portion
For purposes of paragraph (1), the unused portion of an individual's GST exemption is that portion of such exemption which has not previously been allocated by such individual (or treated as allocated under paragraph (1) or subsection (c)(1)).
I.R.C. § 2632(b)(3) Subsection Not To Apply In Certain Cases
An individual may elect to have this subsection not apply to a transfer.
I.R.C. § 2632(c) Deemed Allocation To Certain Lifetime Transfers To GST Trusts
I.R.C. § 2632(c)(1) In General
If any individual makes an indirect skip during such individual's lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the indirect skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred.
I.R.C. § 2632(c)(2) Unused Portion
For purposes of paragraph (1), the unused portion of an individual's GST exemption is that portion of such exemption which has not previously been—
I.R.C. § 2632(c)(2)(A)
allocated by such individual,
I.R.C. § 2632(c)(2)(B)
treated as allocated under subsection (b) with respect to a direct skip occurring during or before the calendar year in which the indirect skip is made, or
I.R.C. § 2632(c)(2)(C)
treated as allocated under paragraph (1) with respect to a prior indirect skip.
I.R.C. § 2632(c)(3) Definitions
I.R.C. § 2632(c)(3)(A) Indirect Skip
For purposes of this subsection, the term “indirect skip” means any transfer of property (other than a direct skip) subject to the tax imposed by chapter 12 made to a GST trust.
I.R.C. § 2632(c)(3)(B) GST Trust
The term “GST trust” means a trust that could have a generation-skipping transfer with respect to the transferor unless—
I.R.C. § 2632(c)(3)(B)(i)
the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons—
I.R.C. § 2632(c)(3)(B)(i)(I)
before the date that the individual attains age 46,
I.R.C. § 2632(c)(3)(B)(i)(II)
on or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age 46, or
I.R.C. § 2632(c)(3)(B)(i)(III)
upon the occurrence of an event that, in accordance with regulations prescribed by the Secretary, may reasonably be expected to occur before the date that such individual attains age 46,
I.R.C. § 2632(c)(3)(B)(ii)
the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by class) who is more than 10 years older than such individuals,
I.R.C. § 2632(c)(3)(B)(iii)
the trust instrument provides that, if one or more individuals who are non-skip persons die on or before a date or event described in clause (i) or (ii), more than 25 percent of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject to a general power of appointment exercisable by one or more of such individuals,
I.R.C. § 2632(c)(3)(B)(iv)
the trust is a trust any portion of which would be included in the gross estate of a non-skip person (other than the transferor) if such person died immediately after the transfer,
I.R.C. § 2632(c)(3)(B)(v)
the trust is a charitable lead annuity trust (within the meaning of section 2642(e)(3)(A)) or a charitable remainder annuity trust or a charitable remainder unitrust (within the meaning of section 664(d)), or
I.R.C. § 2632(c)(3)(B)(vi)
the trust is a trust with respect to which a deduction was allowed under section 2522 for the amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair market value of the trust property (determined yearly) and which is required to pay principal to a non-skip person if such person is alive when the yearly payments for which the deduction was allowed terminate.
For purposes of this subparagraph, the value of transferred property shall not be considered to be includible in the gross estate of a non-skip person or subject to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the amount referred to in section 2503(b) with respect to any transferor, and it shall be assumed that powers of appointment held by non-skip persons will not be exercised.
I.R.C. § 2632(c)(4) Automatic Allocations To Certain GST Trusts
For purposes of this subsection, an indirect skip to which section 2642(f) applies shall be deemed to have been made only at the close of the estate tax inclusion period. The fair market value of such transfer shall be the fair market value of the trust property at the close of the estate tax inclusion period.
I.R.C. § 2632(c)(5) Applicability And Effect
I.R.C. § 2632(c)(5)(A) In General
An individual—
I.R.C. § 2632(c)(5)(A)(i)
may elect to have this subsection not apply to—
I.R.C. § 2632(c)(5)(A)(i)(I)
an indirect skip, or
I.R.C. § 2632(c)(5)(A)(i)(II)
any or all transfers made by such individual to a particular trust, and
I.R.C. § 2632(c)(5)(A)(ii)
may elect to treat any trust as a GST trust for purposes of this subsection with respect to any or all transfers made by such individual to such trust.
I.R.C. § 2632(c)(5)(B) Elections
I.R.C. § 2632(c)(5)(B)(i) Elections With Respect To Indirect Skips
An election under subparagraph (A)(i)(I) shall be deemed to be timely if filed on a timely filed gift tax return for the calendar year in which the transfer was made or deemed to have been made pursuant to paragraph (4) or on such later date or dates as may be prescribed by the Secretary.
I.R.C. § 2632(c)(5)(B)(ii) Other Elections
An election under clause (i)(II) or (ii) of subparagraph (A) may be made on a timely filed gift tax return for the calendar year for which the election is to become effective.
I.R.C. § 2632(d) Retroactive Allocations
I.R.C. § 2632(d)(1) In General
If—
I.R.C. § 2632(d)(1)(A)
a non-skip person has an interest or a future interest in a trust to which any transfer has been made,
I.R.C. § 2632(d)(1)(B)
such person—
I.R.C. § 2632(d)(1)(B)(i)
is a lineal descendant of a grandparent of the transferor or of a grandparent of the transferor's spouse or former spouse, and
I.R.C. § 2632(d)(1)(B)(ii)
is assigned to a generation below the generation assignment of the transferor, and
I.R.C. § 2632(d)(1)(C)
such person predeceases the transferor,
then the transferor may make an allocation of any of such transferor's unused GST exemption to any previous transfer or transfers to the trust on a chronological basis.
I.R.C. § 2632(d)(2) Special Rules
If the allocation under paragraph (1) by the transferor is made on a gift tax return filed on or before the date prescribed by section 6075(b) for gifts made within the calendar year within which the non-skip person's death occurred—
I.R.C. § 2632(d)(2)(A)
the value of such transfer or transfers for purposes of section 2642(a) shall be determined as if such allocation had been made on a timely filed gift tax return for each calendar year within which each transfer was made,
I.R.C. § 2632(d)(2)(B)
such allocation shall be effective immediately before such death, and
I.R.C. § 2632(d)(2)(C)
the amount of the transferor's unused GST exemption available to be allocated shall be determined immediately before such death.
I.R.C. § 2632(d)(3) Future Interest
For purposes of this subsection, a person has a future interest in a trust if the trust may permit income or corpus to be paid to such person on a date or dates in the future.
I.R.C. § 2632(e) Allocation Of Unused GST Exemption
I.R.C. § 2632(e)(1) In General
Any portion of an individual's GST exemption which has not been allocated within the time prescribed by subsection (a) shall be deemed to be allocated as follows—
I.R.C. § 2632(e)(1)(A)
first, to property which is the subject of a direct skip occurring at such individual's death, and
I.R.C. § 2632(e)(1)(B)
second, to trusts with respect to which such individual is the transferor and from which a taxable distribution or a taxable termination might occur at or after such individual's death.
I.R.C. § 2632(e)(2) Allocation Within Categories
I.R.C. § 2632(e)(2)(A) In General
The allocation under paragraph (1) shall be made among the properties described in subparagraph (A) thereof and the trusts described in subparagraph (B) thereof, as the case may be, in proportion to the respective amounts (at the time of allocation) of the nonexempt portions of such properties or trusts.
I.R.C. § 2632(e)(2)(B) Nonexempt Portion
For purposes of subparagraph (A), the term “nonexempt portion” means the value (at the time of allocation) of the property or trust, multiplied by the inclusion ratio with respect to such property or trust.
(Added by Pub. L. 99-514, title XIV, 1431(a), Oct. 22, 1986, 100 Stat. 2721, and amended by Pub. L. 100-647, title I, 1014(g)(16), Nov. 10, 1988, 102 Stat. 3566.)
BACKGROUND NOTES
AMENDMENTS
2001—Subsec. (b)(2). Pub. L. 107-16, Sec. 561(b), amended par. (2) by substituting “or subsection (c)(1)” for “with respect to a prior direct skip”.
Subsec. (c)-(e). Pub. L. 107-16, Sec. 561(a), redesignated subsec. (c) as subsec. (e) and added new subsec. (c) and (d).
1988--Subsec. (b)(2). Pub. L. 100-647 substituted “paragraph (1) with respect to a prior direct skip)” for “paragraph (1)) with respect to a prior direct skip”.
EFFECTIVE DATE OF 2001 AMENDMENTS
Section 561(c) of Pub. L. 107-16 provided that:
“(1) DEEMED ALLOCATION.--Section 2632(c) of the Internal Revenue Code of 1986 (as added by subsection (a)), and the amendment made by subsection (b), shall apply to transfers subject to chapter 11 or 12 made after December 31, 2000, and to estate tax inclusion periods ending after December 31, 2000.
“(2) RETROACTIVE ALLOCATIONS.--Section 2632(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to deaths of non-skip persons occurring after December 31, 2000.”
Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358 and Pub. L. 111-312, Sec. 101(a), 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).”
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE
Section applicable to generation-skipping transfers (within the meaning of section 2611 of this title) made after Oct. 22, 1986, except as otherwise provided, see section 1433 of Pub. L. 99-514, set out as a note under section 2601 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 Codeof 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(b) (Generation-Skipping Transfer Tax Repeal) of Pub. L. 107-16 added Code Sec. 2664, which states that chapter 13 of subtitle B shall not apply to generation-skipping transfers 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).”