Internal Revenue Code:Sec. 2036. Transfers with retained life estate

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Location in Internal Revenue Code

     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle B - Estate and Gift Taxes
       CHAPTER 11 - ESTATE TAX
        Subchapter A - Estates of Citizens or Residents
         PART III - GROSS ESTATE
       

Statute

    Sec. 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).
 

Sources

    (Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87-834, Sec.
    18(a)(2)(D), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94-455, title
    XX, Sec. 2009(a), Oct. 4, 1976, 90 Stat. 1893; Pub. L. 95-600,
    title VII, Sec. 702(i)(1), (2), Nov. 6, 1978, 92 Stat. 2931; Pub.
    L. 100-203, title X, Sec. 10402(a), Dec. 22, 1987, 101 Stat.
    1330-431; Pub. L. 100-647, title III, Sec. 3031(a)(1), (b)-(e),
    (g), Nov. 10, 1988, 102 Stat. 3634-3638; Pub. L. 101-508, title XI,
    Sec. 11601(a), Nov. 5, 1990, 104 Stat. 1388-490.)
 

Miscellaneous

                                 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.
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 2035, 2041, 2043, 2045,
    2104, 2107, 2207B, 2501, 6324 of this title.