Section 2704: Treatment of certain lapsing rights and restrictions
Internal Revenue Code
§2704. Treatment of certain lapsing rights and restrictions
(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
(3) Similar rights
The Secretary may by regulations apply this subsection to rights similar to voting and liquidation rights.
(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—
(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.
(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
(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.
The rule of section 2701(e)(3) shall apply for purposes of determining the interests held by any individual.
Statutory Notes and Related Subsidiaries
Effective Date of 1996 Amendment