U.S Code last checked for updates: Nov 26, 2024
All TitlesTitle 26Subtitle BChapter 14
§ 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
(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
(c)
Definitions and special rules
For purposes of this section—
(1)
Control
(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
(Added Pub. L. 101–508, title XI, § 11602(a), Nov. 5, 1990, 104 Stat. 1388–498; amended Pub. L. 104–188, title I, § 1702(f)(3)(C), Aug. 20, 1996, 110 Stat. 1871.)
cite as: 26 USC 2704
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