PS-92-90_Final

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Federal Register 1 Val. 5;. PO. 23 / Tuesday, F e b r ~ a r4.~ 7992

DEPARTMENT OF THE TREASURY

8. E r c k p m d

Rcies and Regulations

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indindual m c e i v e ~a n ~ p p l i c r h l r

- w e d , i n t e r e c t in c ~ ~ c c t i with
on a
A p r i l 9 . f ~ ~ o s e d R e g u I o t i ~. redcmpt~on,recapitabzation. 01 orher
Internal R m v t n w S.rvlco.
On Apni 9.1991.a Notice e l h p d chmgekZhc capilal rmctum 01 an
26 CFR Pa* 20,25 rnd 301
Rulemeking {P!&Q2-90 (1W1-I C:k998))
the banaaction h subject to
re1a:ing to the lpeciel valuation rukr of
wcllon Z f M if !he other conditior-q ofr cr:ion~ ?701 hwugh 2703 cl the
that ~ecSonare me^ In addition. if an
Lnrernal Revenue Code was p u b W d in Ldvidual h o l m an applicable
the F d a d 8 w g i ~ t t IS8
r FR :432ll. .
. m ~ n t interest
d
a u m n d e n a atniot
These jtetionr. along with section 27W . eqdy ir,ttrtst in A corporation or
wcrt enacted 4 3 drapier I r of h Cbdr
p e h i p ond he fair market value of
AcEner: lntemel Revenue Senice.
in !he Omibu Budget Reconciliatiart
M npplioble ntaintd intertst alremdy
Trcasup.
Act st 1990. P4bIic l e w 1OI-W ( l O O I 4 held by thal individual increases, the
1.R-B. 7). The Internal Revenue Scrvfea
w s a c i i o n i~ pottntiaUy subject to
A ~ O Fhal
K
regdationr.
~ c e i v e dwritten comrncnts an h . .. medon 271% Similuly. il an rndiildual
SuMMMX This document contain1 final
pmpeaed r o p l a t i o n r mnd on Scphmba -.rmrtndtn a junior equity interest
regul~tionrrelating lo chapler I4 OF rh. 2R 1%. held 4 publichearing o n h a
amember of the individual'r fam~ly
Iniernal Revenue Code rr enacted in the regdationr. After conridemtioa d t b t .
W a junior equity intcrt3t and the
(3maibut 13udgtt Rtcunciliaiion Ac: at
c o m a n u rcccivtd and the r t n l e w
in&vidual o r m applicable family
~m
Public
. Law IM-SOB. 'ID9 StrL 1 3 8 b made at the public herring, h e pmposed member 6imultancouslyholds rn
These rcgulahans provide spscial
?&ation3 are rtviscd andrdupttd 8 9
applitabte retained inierert t ! ~
valuarion ruler lo: purposes of k c
5nal regulationb by h r Trrnsury .
m a c t r o n is porentiauy ~ u b j t c tlo
Federal estate and gilt taxes imposed
decision
section 27M.
mder chapters 1 and !2 of the Code. Ln
S
~
g
t
e
m
b
l
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I
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RVU&
.,
:
.
.
'I?lc fmal r e p h t i o n a 8 h 0 clarify the
addition thest regulations provide m l e ~
appiication ofstction 2701 to the
. - -. ,.- .- ' Rcgulorj~ns
involving Iapging righu and other
tmauratiol ofan intern{ held indirectly
On Septtmbct 11.1991. a Noticeof . h u g h a lrurl. h proposed. h e rule
ttsmactions h a t art treated ar
complttcd transfen under chapter 14.
b ~ o s c Rulemuking
d
IPS-30-92('991t d d d a i r i y rub jcct an individual to
rmcnvr O ~ n 8 R: e g r regularionr a n 4 2 I.R.B. 36)] relating lo addi tiond 1 . ; d o n DM. nrfinal
hgu~ntionr
8pecid vmluation ~ E U S~ d ch4-34
k
. mw
herpplimtion of he
efIectivc a8 of January 28.199t
lo
was published in ht Fdtrd El+ttr
. dtarrnrbnces
(1) heindirectlyMRI-R
I M M W A W -ACT:
(= *ZHh T M noticr p r o p o d d r t
pmpcm would have been
Fred E Cmndemefi [202) 5354511 [no!
under ~ c I 1 - m and 2702 reg-,-'
Wu&blr in
lparj tststc of ths
a toll he numbtr).
rdjur~nerrtsto mitigate doubie WW--' m v i d u a l
indvidurl had
S V W Y E K T A R Y ~cICOUMATW&
Rules # d t t lectioa X W of !he mtmd
of th+ tcrmLnatjon or 12) the
the
Revertur C ~ d wert
t
8 k 0 prwosed. T h t
A. Papemork R w d h o n Act
in&ecdy.held pmpeny 1, in a mt
Internal Rtwaus Service received
to which !he individual is considtred the
T h e coLlectionof idorma tim .
'
the ~ u b l k m '-'?&ePaidr
the pantor mrt tulcs. Src
conuiwd ia t k e
rgdatitiom&ws'
''m r d r e ~ l h n and
s on N
eF
en b u s h a7k
been renewed end approved b y the
I.1gpf-held PUS h e w conefmaI n g u l a u o n ~proddm&a[ in
Offleeof bfanagcmcnt and Buwt in
7
Ihs'rrgrrhtiorn. After c o n ~ i d e r a d o ~ o E ~ ~ 2 ~ ? & ~daar
~ ~ o~intrlerl
accordance with the requirements of tht the romenta received md the
-?
~
p
m
p
a
to
~
a
n
al
P~powarkPl-hcrofIgBa(44
m:attmentr made at the public h d g . - - : dlflerrncr,beween darlt, Bfmbutrblt
U.S.C 35M(h]) unde: contra1 numbus
.: - maon-lapling pmvisionr necessary to
tw%::rt and lwCrz;3.Rrt t ~ m a t p d Ikem& Mhtjon*
-ply
w i t h pamtmhip allocation
- - -. .
average a w l b u r h per recordbeper p;opo~ed # Z.27M-3 [relalmg ta - *-rdjulmcntl to mitigate doable
mpiremenb of the Lnlernal Revenue
ir two minute#. Tht rrrjmatedrveragt * t r ~ ~ u ~ - m and
Codt [cg.. ~ e t t i o n7ori[b]] art meted as
annual burden per r e ~ o r ~ d e ina t!m
,,+b mrpccl to
. _ .mlmtL5.
. .
. , . f-1 ?w@ati~n#by ki* f r ~ a ~ u r l r1.=:-, .- d a p s i a g airercncrJ
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A

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These t~timmlt?~
approxirnalc Lhe ,-'
nwt:aae time expected to be ntcessar). '
for ~ ! collec~ion
s
of idormelion.They
are hued upon the inlorma tion

available to the h:eical Revenue
Senice and d o no! ladude the tstirnale
of b c d e n that i g induded in t h e burdtn
ap;licable t o Foms 706 and 7Q.
Individual respondents end record
Letpen may r e q c i ~mote or less ![me.
depending on Ihei: partjcdat
cl:bungtanccn.

Gauncntc concerning the eeturacy of
thja burden tst~mateand rugsartionn for
reducing this burden should be lent to
the Internal Re.itr,ue Service. f:FP. .
tl'aahing!on. DC U ) W , and to ht Oflice
of Managenenr and B u 4 t t Paperwork
Rtdvctlon Roject. M ' a s h i ~ p DC
!~~
20x3.

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drcklon. hn mnendment to pro+
B m A i * m o a c d by 1 Nod**f

Ropastd Rulemaking published

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F*yl

e''ewhem
Regiottr.

- The following &rrusscJ

the mmc'

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:

mignificrnt comments recclvtd mfht
F

~

~

re@a'jonr
P ~ '

ti^^ on liability,
,-g-cnt,
tegardjw
tbz txccption tor proportionate transfen
i, ~5.E&-l(c)(4),
the finel regule;ions
pnxida that the exception is available
b t h e exlent the ttanrter ress~lrsIn tht
m p t o p o r t i o n e t r reduction in the
bdmof
menaftror md a p p I i a b l e

1 .,:.= RspoEsc lo

~and~ I h t

8 c c e p w o? rejecting those
rornnenls in he final rtgu!st~onr
for

h l y =mben. The Furl rrgulationr
d a n l y that this excepbon applier only
vlrith mrpect t o r bensfer by r r:ngle

c. k i i o u 27UI

ind~ndual.

Scope u{ Section 2703

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Severel c o m e n t r t o n urged
definition of "banaier" should b

Yu~uatianof Rppl~cobleRera~ntd
hRrld

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-reymcred. In -5ponre to this c m n t .. . T h e fiaal reguletlosm d a d y &at, for
-- . - prtporer of rec~jonZ T ~ a. paymect that
the 6nrl rtpiationn clarifv h e
bltueltona In which a "capital 4 - m . .
n c o m n t ar to Lime or emount u not
Tar.saction*' will be m a t e d sr e-s
- rb-ed
payment of e hxed
sublec~to bectlor. 2701. Ceneralb. ff mr
~~lrart-

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. ~ d r r r wl

r ( VoL S7.

The fl$l q d l t i o n l d o p l th . 'mommcadntbnof~ncmmiinhtm-:;
h a t 4 r(ght to d * r r r p e u h c amount
payable at deahrbauld p l d y *I r .
mlndmkary w
t right
.
,
Rrnp40 s r r m i -nu.
tbe
r dm p l r t k
hat v o w
.
ryhb b a t d t r ur rbllily 40 compel . ,
1 i q t r i d . U ~ua ad mlutd at zero but -.h w dm
m rdud rilbart ngvd to he
ability ra mmpl iiquidhliun or.Lf h e
holder's @U u+ vslucd under Ibe
"iower of' valuetion ruir i o a manner
mnsirtaat with t
h euumptionr of b a t

de.

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~ t v a rua-entl
l
tom r&rkd that
p a d slectionr hd o w e d uudtr
.
# -01+c)(2L
T h e h a l repla tioar
.
n d o p ~this ruggutioa . ... . .
+

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ThtSubtmF(ianMcthoda~VolrrotiOn

.

C o m b wariousfy auggerltd t b m l
the propored subtraction method 01
vuluation ia b reslrictivc acceplrblt
a~ written or l a d i n g in necrsrary
apefitit)..
..
n r valuution of a closely-held burintha intertst la one ofh e most

Na a / Tutsdmp. febmary

4 1992

1 Ruler and Rrgdstionl

~25f

-

tbtd a p t&
~ pmvidtr ur i~d-t
under chapter 12 wirb
10 tfic
r e t o ~ r d u l a l d s d l o ~ ~eansler i f u c t h 2701 had mi been
nccurau gjh tu v d w H o ~
apphble
Present $ 1 ~ r t p d r t l o m
pmnck n
mehodfwdthc
&mount of cbs gifl l.f r donor nuin*an
inlertstinihe w f m d pmpem. b
aueh n u& i
.a m m t unt PIt fl L the
value d the tab p t b p c ~ yl c u h e
value olBe dmor'. rruinrdi ~ t e r e a ;:
S e t 8 2 5 2 5 u 4 a ) l l ) ( i l . n t propo*ed
rtgulatiow pataUeltd that rule.

lubhrc-

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,

Allho+
heTrrasury &partmtnt
and the M i c e beticvt h t the
~ & ~ a mebod
i o ~ met fd the Ape1
9.1981 p r o w d
tiann ir the
appmpnrta mebod lor deluminlng the
nrnount d tht gdt undewaedon 270t
c h a w have ha made. in *upatme lo
cammrnb. to tbe spcdfrc methodology

m
m

Minimum Vu!ve'.Wc
Tbt hnal teylalioru d a r i f y that. in
applvh
hc
~t
*n
junior
,
M,
lcr,
pro rats
ID percrnl

of ibF.,w

lbt

of eU quin

includjw iodcbtedncE, lo ,he '
transferor and npplicoble tmmily
mcmben determind without wgard to
BuarantHs and quolifitd d e f e m
cornpcnrotion

~

~~ ~ ~ l ipoymcnts
~~ i c d

~

The final rcgulationm permit m
qualified prymcnt 10 be made in Lhe
,ttforlhhtbrpmpomcdrrgulatiolu.
f~rmaInd&tinslnune~CLLiumo~
7ha ~ t t c m
p c t b d of v d u r tion- . .
which d m no1 c&
four y e u c . &.I
o n d m d m 4 2 5 9 0 1 5 of the ~ P O i e d beam compound in~ermtal A tr k p p
regulmbanl b m&td
XI l o l l o w ~ l n
lell than be .ppmpriote d i m rate
~
S ~ t ~ L ~ ~ ~ t ~ - l ~ h r l dp b
a y~a bQl c h
+m b r d u e d a l t d h c
individub wbmt holdings u c taken
qualifi+d
intr! account in d e t e m ~ n i q-antrol"

Adjusmenr lo Mitigate Da;rblefaxo!ion
under 4 n m - 2 ( b ) ( 5 ) r'lamily-beld
d U T ~ drdmtrjsmtivc
t
pmblemr .
in~eresll")are vniued T h e h i l y - h e l d
In responnr numcKlvr Eoremcntc
intertrtr art valuedaa if htld by
prcrented by rhc bander tax syrtem .
proposed 4 25.271114 is being
and courtr have varied widely on the - ' single iadiriduat Thu.%t h i ,
app]iabi&tgd$cmhctionmtthod
replations substantially simplify !be
a
in lh,tproECIk-i.--i
l
.. ...
P r o p w d Rulemaking pubLd14
valuation p d w by elinina~ing
. elsewhcrt in thin blue of h e Fsdarrl
some
commenb&
&-=-*at.
-.- unnecr,w vsluaticnr wjb rrrpcct
section
d o n not nquimust of.
the c n t i ~~ t i and
y
plfiim
R W h . f l ~ ~ c provide
r ~ a a ~mdii
against the Fedeml estate tax as
rubmctiun mtthod.They ague;
By providing for R rhgimharrholdet
mnhined in h e s ~ l c r e h 11
r ~mpoad
c o n ~ ~ the
t omnftnn~~reprt
- ,.
mrd~nptionfn valuing thr fmmilyhtld
r e p l a litbt rewed pmposed
rderrnct t o 'prtsmt law prindplm,-+" , intcrertl in S t ~ tp. ' t h e fin.! -t.tionr
..
tc#'uhtiortsprovide fur Id u d o n 10a
thr t &err a m mmch p-tnt f aw'.'' "" adopt &t poritim J a t ~ m ,l
prinripicr O h m t n t e t w r s tugeest
commentatom &at theminority d i m u n t dectdtat'm adj~mtcdtaxable gifts. In
that ~ c ~ t i o n v h ~ u l dm p d y d g if -- nith n r p e a to the banmftmd intenst i n general, the m m m t oJ the reduciion i s
(and to ht txtrnt) I rtlbhaion mthd appropriately applied at the end of the
the ltsstr of: {I] The m n r by whi&
would be & p p m purtde
~ ~ pfi~ml
~
law- =tion 270l valurBon p r o a r l rather
the mn,fcmr'r taxable p i f r y wtm
These and aimilar comments .re
than st the kgnninp. S t e p 2 and 3
inucasrd as n rtsul! of the n ~ p l i r a t i o n
vmmisc that section 2m
bastd oa
(includrng the rpccial adjument inSler of ledion
2701. and 12; heir.arrrc in
opemter within the general framework
21 hmaiJl b a r i a l l y unchanged
the dcceden!'~gross eshtc lor sdjusttd
of seaion 2512 d
Internal Revenue
Howtvct. Sttv 2 pmvides a rule the t bas
attribulablt to
porb;oo
Code. i.c.. that the special valuation
the effect d allocating any "control
01 h e value d the applacablc r c r ~ ~ e d
d e s art to bt used to delemine Iht
p;emiumd rcnccred m h e value
iniercst that war sxbjec~lu &if1 tax a l
vr!ue of the t r n n s f e ~ dpmpertpwbick
delemined i7 Step 1 among the
ht time of b e initial transier. T n t
ia tun m e a s w ~ sthe amount of thr @ft.
co~tspondlngfamily-heidiqremts on a
lidation
in the regv'mlrvnass*rr ha'
Tney igno- t h e o p e r a b e i w a g e of
p r rair
~
bawis. Thc fmal regllatinng add
Bb7ega'c valueincludib'e
Lhr
sect~cn270: h a t the smount of the gilt
Step I t o Lhc valuatton methodolom. In
deceden:'r ~ - m l e Lax
r bare I S the s u n
i s to k delemined by vduing certain
Srtp I . adjustments c r made to the
ol:11) The value ton he c&ke of Lbc
rr:aintd rights rndtt the mpecial rules In ioral a m 0 of the gih t o renect
necbon 2701. Uuae of*eaubtmclim
considentioh m.tcewtd lor t h e ~ a n s f e t . ~ e ~ l o mn s f~e r1 ) of
famil~Atid
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mefiodisno1requindbydionn01.
vaiualion of retained nphtr w o d d h a v e
no bearing on the amoun: of the gift.
That interprttatior.would =use section
2701 10 be a n d l i y in that the valuation

o f rrlaincd rig'nu can701 ariect the
amount of the gin other than by
mbtme\ion k o m a premnsfer sggrgnte

VBIUC.
l%e T m e l u q Deparhritnt and the
Swviw do not b t l i t v r Ulat emtion ZOI
rver wended l o h 8 nullity or-~eyely
an appendix to mtdrion25l2 but m%ct

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r p p m p r i a \ e d i ~ o u n ~ , m d t h c v a l ~w~licab~ereb~tdiateres:calloublc
~~
lo I b t ~
~ subordinale
f equiV~
d
ccrlain tttaintd i n t t m t a ifthe pmpefly
value (as o! the
i n t r x s t r and (2)
i s t r a n 5 i d in trcst. Conrislrnt r*ib
dale Iht inreresf i s subsquenziy
h e position of h e q u l a r j o n r that
eansfcrred try the trsns!trw) 01 Lhc
secs'on 2701 doel not affect rhc n i u c of
trannfcmin @ton of lemily-held
the tra~sfcrrcdp m p w tnd the
appljcablc r ~ t n i n t dinterests not
I~gislativehistory indicating t h ~ t
chapter 4 d m nut affcct mincily
previouly subject to tax.
d ~ s c c ~ ot tsh e m + ~orailable
t
under Ihe
Under cetlaln clrcums~ances,
lew in e 8 ~ Sefom
!
~nachnentol
uanslemt'a 8w treated as the
chapter 14, any minonty discaunt taken
transferor,
reduLion oi,Crr.,Lr
in Step 4 generally i s limited to the
no1 a r n l ~ b i o
er &ansfe:able.
ernout that w o u l d hove k n svai!ablt

252

Fedc:al Regiiter 1 Vs!. 57. KO. 23 / Tuesday. FeLruary 4, IS92

I n d ~ e cO
i n:?c~njp
Several c o m r n : were
~
received
mparding the inl:rect ownerghip rulrs in
4 25.ZiM4. Most al k t s e commentr
&e defiru!iPn
smsefrom concern

Roles and Regulations

nectssary to quaLIy lor vnlaalion under
rprdntiong pmhibited i n c n ~ , ~ ~
(he specisl de for certam tangible
---pmvtst transferon fmm "zeroing ou:-' e
Property- This chawrI r
made.
Without a srandard such ss ha! let
forth in the proposed regulations (e.g.,

61ft~bkstillrUectively transferring
the appreciation on all the property
during the lerm l o tbe remainder
of hanqftrths includedhetermination
actUa1
~fren!a!ajf l g a h g l
brnchciary, [c.g, by pm-viding for a
which protferrd app:aisals can be
ballaon payment in h e h a 1 year oftbc
O! any indirectiy-held interest The
ttgtcd. the likelihood of significant overterm]. The Tnaaury Department end the
r&,ion ID the definition of transfer
i,
h., On
Servicr believe Ihrl such r reault wodd
discussed above generally makes
hand the recommendation that the .
be jnconairtrnt wilh the principles of
chanaes m the indirect ornetship n J e s
bdvd.n pmof be pllstd on
aection UOL The f na1 regulrtionr. wilh vnnect9aaym Other' u ~ e r t e d
barufere: r a l h ~ $an
r
the irm hh1d.r i m
minimal comd&ty, *hi;. b.!a,-ce
,rere rtjccted because of de ~ d d i t i o n i t adoptEdin
wgdrtian,.
between the government's policy
compltcty that would be introduced
One c o ~ c n t a t o rsuggested that
concerns and iaupayem' desire for
.
into these mles.
deprtciablt property rbodd qualify for . plaL-g
flrubilib.
E,fecto~O~cr!fitemu/Rever;ueCode- : b e ~ a ~ i b l e p f o p c ~ e x c e p t i o n . T b i ~ In rtsposlc to a comment;the final recumendation WPI no! adopted.
Sections
rtgulztionr p e d t the payment of the
Ceneral'y.
use Or n"n-useof much
gteat~ct(but not the ltsser] ol an enr.r;ity
Ssmt c o m e c i a t o n e w e d that
p*pc*y dwt.18
lemwodd 'lfcct
0, t t n i P ~ fimount
~t
In that ca,~. the
de!ermining the aifibunt of a gift under
section 2731 necessarily aifecll Lhc
the value he prop'!- palsin# to the
rslained
i
n
t
t
~
s
t
valued
at
higher
rzrnai?der be~eficiary.and bus 1he
oi h e values of the two inttregts.
reauIb under orher provisions of tfit
propem would
come wilhin
C o m e n t a ~ o rauggcpted
~
rllowina
In!cmaI Revenue Code (such as h a
statutory txception. Congress intended
a d d i ~ c n a lcanlributionr la tru,t hnm
dctenninarlon of basis under ~ e c t i o n
in enacting h i s exception. to provide
which a quahfie,
''alt ~ f Ihat
vn'ue af the
liniied relief to 8 clans olpropeny the
payabir
ir
Wilhoul
c mare
pdr o p e q . Asthe
discussed
value 01 n.hich wodd not be affected by
prohjbigon,
contribtti.ow
above, the final requlationr reiect the
Of non-use.
wodd a r p a b l y paam to the remainder
nrgumcnl t!a t seclron 27M de t eminel
As
s"ggc~ted
b y cammen!ato~*
beneficiary under certah c * m s l a n c e j
h e valut of the tranderred ropef fly.
rr8ardng
of
.
~ t h o u lappmptiale Vankfrr (axrr being
unexpired portion oi n tirm interest at , paid. D. 5ection 2 X Z
h e t h e of a convtnioil ir expanded .
Commmtmlon
luogEst ed
,
Ex ccptions
-.
and dari5ed. .' . .. . . ..
::..:
.. - commutation
of qualified
intercats be.'
The h a 1 replations provide b a t , .
One commentator r q u e s l e b t h a ~the , ptmieed. m,
i,
.
reguiationl permit r ! e m intemrt in-.
section 2702 dot3 not apply !o the
pr'p4ymenL or
pmprfiy h a t terser to qualify for fie- . C'mutatim[ie++
. p a n ~ f e rof In interest in t ~ if the
t only
the term holder'8 inrerest) shifts Ihc risk'
tangible propem exception to be inttrent in the h r t . otbtr than the
raleJ
from the
remainder interut or r qualified annuity convcrtcd to r qualified unimst interest
rather than. quaistd annuity inlertlt* -.remainder benrficiafiel lo
t€im
or unitrust internst i¶ an inlertst
holdcr.ntmfare~ a 'Ommuted
T h r ir not done. primarilj. because o f .
qualifying fur the charitable deduction .
under gection 2522 (a charilablc lcsd h e complexity involved in deicmining
htern3t
ullimattk~f i e l d fie
-hcappmprirltamount afbe&trust .. same value 10 the tern holder 4 s the
trust),
. .
O h t r comm~ntatonrecommended
payment.
a ~ u i t or
y unilnrrt interest originally
rc!ai"td by b e banderor. C o n ~ e s s
In rcrponse to one comment. the final
exceptiona for laprta 01 "Cnrmmey"
intended in enacting aection 27Of h a t a
r t d a t i o n t clariFy h a t the date on
powers md for cenain tranafen of
term i l l k ~ s would
t
b t valued ht an
t w h l c propem isdeemtd lo be
arumit). or mitius! interests. no¶e
an~o*'
flealei
than
zero,
if
coevefled as the wsdt o i an addition o r .
chanpcs are made.
f ~ n fof
i h e lerm i n l e ~ i~nts ~ r n
that the
~ ~ p m ~ ~ m
iy e
h en date
t
on which
,
Retained Righu
or impravement $ 3 comrnenctd
holder actually rtctive8 the value
Several commeniaton requcgted h a t
quoljfi.dIIIIP~Srs
a t k b u t t d lo the interell Allowing
the appjication of section 2702 10
. .
cornmulation w d d be inconsistent with
thirinttnt
,
rerained powers be clarified. In -. .
T ~final
L regulmlionr elady ha1
cumulrtivt Power of w i h * a w a l doe*
regponse. the fmal regulation4 ptavide
hhoscs
not mec! *c rrquirernents a t a quahfied
that an -Intertsr" includem n power it
intertat. Congrew clearly inlerrded that
response 10 another comment. Lht
re!rntion o l h e pawer p r r v ~ n l athe
retained intere9ts that are given value a t Limit on tht rmount he lerm holder 13
transfer ofan interest in pmpcrty fmln
cot,ridered to tranrler in a joint
transfer must reflect
the t h e of
bein8 a completed g ~ f under
r
chap~er12.
amountr h a t will actually be paid to the purchase is c l a d t d
this rule. lcction 2702 could
t e r m holder. Section 2702 could be
avoided merely by retaining a power
Personal Residence Trusts
avoided if p o w e n of wilhdrnwal am
over a irrm income intcrcl~rather than
!he income inlerest illelf.
considered qualified mleresis.
The finafofregulations
h e an
suggtslion
c o m e n l aadopt
t o n &at
h tespon3e lo cornmcnlg r e q u e r h g
Ln response IDone t o m e n t . the final
. individurl be ptmned in certain
hat.incrense~in he annuity and
rcplations pruvide h a t recuon 2f02
does no1 apply if the ody retained
.
unitm~tamounts be p e m i t ~ e d.
.
circumstancen to hold term interests in
mom than two per~oarjresidence trusts
throughout
term. the fifii31
interest is a 3 B p t t m j ~ ~ j b lrecip~cnt
e
of
mcomt.
,
.
.replatioru provide flexibility l o .
[or qualified per~onal,msidenctm s ~ s ) .
The finel ngulationr make no changes
taxpaycm by p e d t t i n g the annuity or
Ta.?grble Pmperiy h c e p r ~ o n
in the derrnition of pemona1 residence.
unilru31amount t o be 120percent o f b e
Smce h e wander KIh s t of a personal
smuity nr u n i t r u s r amount paid for the
Several tornmcnta~anr u a e ~ t t d
retrdcncc a r p e b l y presents !he same
pmcediq year. T h e proposed
e i m c a t ~ n grhe ewidentiary requirement

-

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'

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4

F d d hg&ar

Vd.37. NO.23 /

Turnday. February 4. 1 Q E j Ruler aad R c p d a m r

~ c l e c :b t ~ w c t nhate two m m L l d x
the Lnel r e p l e t ~ o n thc
~ . dirtribution or
convcnion must occur ~ M 50nd p s or
I h c dale on which ht h a ! w
m to bc
n qualified permnrl midcncr trurt 7 b c
Congmrirdudedthtptmrd-~- - .
residtnev t x c e p t i w lo i
x 8m w . .
imsl regulation^ also permit crceml icrh
txcepbon lo t ~ b l tcr a d e r o n to par#
proceed3 not reinvested in r hew
the family borne, A O t r h e principal
perannal residena to b wnvcrttd to a
m i d u r or
~ a v a u b e a homr LO , ..:-i , qualified annnityInterr#t : -.- <.:-,,;.+ -,=*
yougar membtn 01 BEIarnily. . ..
Finally, one cornmentatorrequwted ..
nereforc. the mos! recenl
[hat, upon ctrsation nl use ss personal
Conprriond statutory exprension of
residence. the inttm3t of the t e r n holder
what matituk# n pcmnal residence.
be permitted ID
conven to s qurlified
a * Iound in action I l o f i h b ir mart
u n i ~ inlereiL
~ a ~ This i a no! done
pertinen! In thi6 ~ i t u t i o n n
. at
becaust of the cornpleldty in
provision definer personal residence 0s
dettrrnining the appmpriate unttnst
o p p o n w t y fur d u d o n .bunt Lbat
C o n g n rarght
~
prevtnt by
I .. . . .
t ~ u m md*mt&
l
1E70t tht T n ~ v y
Deparimmt md tbe'Srnioa klim h a t

'

h &w p m v U e d by rn
oubide p d u o c r . 7 k Tnarury

only by m

D e p w n t 8 d he *ice
do nat
.
bellwe that e v q u c b wtricwn
n c c e s w i l y meell Iht kslr of wction

..
.-2703.
Subsfon~iol#di,fiwtion

+

U

-

~ h rma~';witio~;
d
darib <;hiin a
transfer loa Tamily mtmber or an' :
interts! in pmpefiy lhal ia subjm ro a

riphi or restriction I n a substantial
modification ol th* right or nctriction.
Tbt final regulation&provide the! he
oddition of a family member in m
~enrrotionno l o w than the lowtst
genemtion occupied b y pwronl almsdy
the p f i p o l m i d t o e d one o h
a mount.
paw to the fight or mntrjction i s nor 4
rrridenct.
The final mguletionr n d d r t s a the
rubstsnti&lr n d i f i tion.
~
- concern of mr corrrmtnlator by
Commmtr were rrctivtd~ruggtmnp
Orher
lss&
permit- n dingle mat be w d 40.that rdjustmenl~be permittedin: . .
- D n t cor&takat rsqurrted theirhe
hold Lbc h l e r e r t ~01 b t h rpousca in A , . , siturtion~not coveredby the p m p o ~ d
pcnmnl rerideacl lrnder certain . -, .
final rtgulehom d t f u he terra
regulations. None o r there propostd
,
circums1rnr;er.
"ne!uf~lobjefb d Lhe bowty." The ,
c h a w 9 arc includrd in Qe ha\ ,- .
Tbc M n q d a t ' o n r permit p e m d . regulafions. Section 2302 docm not .
final regulatimu do not provide m
residencz
tD hold (for ~o yenrc) , requirt r o sdjurbnent ;ohtigate double dehitioa of 1bL krm T h i n concep! bs
long been part 01 lhc kansier tax syslem
proctedspayahlc ar a rerult of d4mag~ ;axason>
End reSlJalio~intend
d e s w a or involrrntnry crmvemion of relie1 oaly II the relained interest 31ld-fir and cannot be reduced 10 s simple
formula or a p e c i k clasfcr aI
the p t r w d iesidtner However..
taxed in a transfer mubsequeni l o Ihe
c~nristtntwith tbt uplicil h t t u t o $ .
reielionship.3-te clars of pemonc m+o
original h m i t r t o which aettion 2702
..
...
Ianguge tetuiring that thtody . -.. . applied. .
may be the objcctr of an indivibual'a
property in b c h r l bt a nsidenct. bt
The hal rrgdrtioosprovidr that a +,' borvlly Is not ntmssatily limited t o
-persons relaltd by b?md or mamiape.
fnal mgdaciom cdininue lo prohibit be reduction in adjurted taxable gifts u
halding4lany otber assetr by ibc h s L ".'surilablc if 4 term interest is included in
in msponse to comment. ht final
including w e d s h m the jalt 01 the
regulatians darity that if propcfly i g
the hansfrmr'np s s tstnte solely by
p e m d rrrldenct._
subject to multiple right! or resu-ictionr.
reamn o f - d o n -2033.
L:mponre to one c o m m r n t ~t final . each aeparalc right or rcstrlcboa i s
tested independently. Whelhcr Bcpzrare
rqdalionm clanfy the internction of
. .
B e e a w ol&c rtsbictiue rktutory.:-. : 4 25.2702-6 and rection 2M)L
-. , provi~onrwnrtlhrk uparatf rights Or
, .
limitations o a r geamal r e r i d e m &L 1
rer:ricliona w am blegmi clernenh of 8 .
the aafr harbor Tor r puaTified personal
r hgle nghier m u d i o n dcpen& on tbe
residence tmrt41 mtaiotd 4tbrI1gbt
lacta and circumrtancc~in B+w d a r
mndificationc.
-:- ,
C1SC.
The
h
a
1
&
d
a
b
o
n
r
provSdc
tho1
The t n a l regulations clarify that s
An example ir rddtd to Lht h a 1
p c v w a l rrstriaiom on the urr of real
qurlifitd personal residencc trust m u 1
repialionr t o d d y thal lease i n i
t d either the gdt
distiburc any income to the tcrm holder propony th.1 q ~ a ~ f i for
kghl or rtstriclioa w i t h r e p e c l l o rhr
or esirtc tax charitable deduction am
nut ltrs k u e n 1 J y than aunrully. .
of property t h . 1 i 8 disregarded in
C o m m e n ~ t o ageneraliy p m p ~ s t d
. not subjtclto ~?cLioo2?03.T n t specific use
certain cirurmslnnces.
re:erencc to section 17ah)ir deleled.
h a t the tepulatinns eqlicilly permit
F. Section 2704
Aa suggealed b y aevtral
certain actiom during t h e term o! the
wsl. These cornmenu were not adopted commen tab-. rht finJ m g U l s l i 0 ~
Lcpsihg Righrs
expand he cxmplion m h e p m p o ~ e d
became the r e p lar1on3 are in~ended
One net oi mumenu war received
regulations for rights and r e s P i c h o ~
only to set out governing hrlrument
regardrsrg rccti~n
27W. The
smong unrelated parties. The hnal
requirer~ents.The suggestion of one
cornmenulor argud Lhat applying
r e & ~ i o n r provbde b t r right or
wmentr!ot that upon ttrmiDat~onoT
- seclinn 27W(a) t o r transfer of.
voting
the tern bterert any - t h i n thr Lnrst . reskctian is ns: dirrtgarded if mom
kterest rbat mnJu in the L t d a S c n of
than
JI)
p
e
r
~
a
c
by
!
value-of
Lbt
gmperty
be pemirvd lo bt ured to pay unpaid
a liquidation ngbt wirh nrpcct ao an
nubjec! LD h e rQhtor r t i t r i c t i m ir
e q x m and lemmation t x p u u u . inieresl other lhan thr transiemd
owned by penons who arc nol family
was e d o p t d
interest was inappropriate in some
mernben of the b n s f t r o t . -Member of
T h e L d r e g u l a t i o ~rrviat the
the fanily" i s d c h o t d by croas-reiermct cares. h response !o that c o m m t the
provisima w n c w ctsr ntion GI KM
fmel t.egulaSonr limit the acope of bt
and also includes
o l the relidma rP I personal res~drnce to # t~.~701-ZIbj(j)
r d e LD S I ~ U ~ ~ wbere
~ D M the hnsferred
any other indvtdual whv 4 0 the natural
in eeveraI mapeek Fimt the goveming
inleresl ir senior la Lhe i?lerer~as t o
incmrnent m u t requirr! either that Lhe
object of b e tmnsfemr'r bounty.
which the liquidation right le=inates.
Oac comment w k d b a t rhe bnal
twt bt termins ted [and eU trwl a w b
The fin41 regulations clarib thc
regdatioor rpenficdy a h t t b t r
d~slributedlo tbe term boldtrj or h a t
exception ior rhe lapbe o l liquidat~on
of Eimt refusal amorq family mtrnkr,
rhc terra inltrer: be c o n v d to A
ngh15 valued under mection in01 i j
- owners o l a burinenr ia ner-cr
quelified smuitj 4n-t
T h e bustee
,
provided to rnit~paledouble rnxntion
.
d~srt;orded i f tht wht can be exercised
may &given the ~ l & t- l i m y

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/ Val.

d e .R+(lct
d

57;:No.

1 rheaday.

23

Rules and , ~ e ~ u l a t i o i s

February 4, 1W2

4255

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(c) Minthmurlhc d
m.:-:.- =.. ----- --.
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01 lndebltdntrr : ,. - . , . . .- . ,.... :.
Thil
ltctiok lirtr t h e major. . - .:.,.
- h . 7 . &clion.25.a2-l i a ' u i t n d t d '- " W ~ P
Id) k*mplw., .:
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.a n~b h e d Z 1 25ZOl-1
dy ~ d & aqn e w , m t a c e t ~ d c - ~ d P
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paragraph {a](s] to read aa ioUowc .*
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h p t t r I4 ~ .MIt forth in 84 =01-1,,

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"5p.dd r.kurlm ruin Ln fhr
-. b&L?,.z-'L<:*.
-.:
a s a o ( t u u h n o t o ~ h * m ~ h (;I~ In'
~ tener?k-:
~
,....',Jr;LL;,.;.
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lr+.
3 N Y . 4 . ~ ~ $ ~ I P ' * C Z ~ #L ?JJ~ ' ~- ! . ~
~
~
p
r
r
i
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l
~
~
..' : fi)Tlxablr tvtnb.",
(
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]
In
genctsL'
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- W > : : - l ~ e e t ~ ~ f o r . n . : - , . h : ,ralln
dA--.
-.:
- :- , .
'ndjultmcut to the t o l d amount of an 121 h c e p i ~ o n .
.
swp
of aterimn m
13) lndi4dual Muted am In!rnr! hoidcr.
hdividunl'r taxable gifta where the !
[2) EfT& ol'rtction ~ U L .
:
[c) Amwnt of Lnertaat. +
indiddurl'm eumnt -able giltl i n t l u d ~
is] b m p I r
. [bl7tmnrf*m-md other bisgtw wkta. + ' -(I)ln gtntnL .. - ' -.:: ;.. ' ::. :
rha trmwfer of certain inkrertl in mat
( 2 ) Dut dmlr of qrulfitd poymmntr. - . .
(1) Complttrd m e n .
.... .
that were pr~viourlyvelued u d t r the. :.
(3) Appmpriatr dhcount m e . - : (21 Tmnunim k a t d 44 mruftm *.- ,.
proviribnr of lsction PO+;.:;:,,.- . : ,,
(4) AppliuLjm of prymrata. .- . 13) E x d d d t r a r u s c ~.-~
-.-.- -a :.- .. . - * --. ,' '
•
.-* c+-,-,.,y.- -, , , ,
(e) C h r l r n m m in w h i h fircrlnn 2701 151 Pmymtnt
. .I.
~ u . ~ ~ c c t i o n 2 5 ~ 1 ~ - 1 i ; . ~ m c ndg=raolmppty.,;
~ed
.,.-,.... .&...r .-,.,,
h i t m t i i ~:':v.:?I-:-:,-,
., . -. .
-by, l d d i N twqnew Sen tenet 10 the end : - [I] Kmbtablr hnrlrmd hlcnmtm::. :
(dl T ~ p ~ y c t . t i + o;~' - . . '. ., , .
12) Marketable rtuintd Intererr).
,., r .
' Ill In senera1 :., ,:'
- .'
to mrd 41,fohwl: *?
.::
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. - .::-:;ih:
, , ..'-..
. - t , . , ! :.-:.-.
13) l a l e r r l u 01 h a r u t dark. , '
'-.' ' .(2) Umitmtion no1 mppllubla. ' . ,,I r i m s - r . ; v a a o n d wpm
. . h . '.-. . . (41&p~NmmI. -re?
;-,,
- ; ;
(3) Tima'and manner o f tlcction , ' - ,
( 4 ) b a m p l e : v : - . . '. .:- *
,
.- 2 , . . .-+-.,. .
+ Id] Fnmily dthnitlona,
,
.
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. ' See reetiDn2;a b d ihi':.' . , -.- ..1 251701-5' ~ d j u r t m a n t to
. rnltigatm
.
1 2527m for rpecid d c r . .;(2) A p p U ~ b l th m O y mcmberr- ,- ' - . I
rt&jpM
aarble t u a t l o n
.-.,. (3)
Rdatiombip
by
rdoptian
a
.
,
for valuing kamftn.ofsn intertat
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it]LL'mp't'*
. ,
coporrthn or a parhership m d for Lhe
. - . . . . -- . . , . trcammt of unpaid,quaU6idpaypent+;
1
- -dutl&,
&& +W : f 2537014 indlrrelhddhp olkrtmmrti. ,
at the rubsequent ~ a n r f e rof^ .;. ,. .:,. . wpunuw- htorcatr- - -.* . ,-:... : [a].h~genei.~*A:~~~.,-.-:'~
,-_ ..,
.,k
appljcable mtained i n t e n s t by the :I : - , .4;1 g i=it&
,,
, -:,
-::;:, -,
(I] Atbibution i a i a d i v i d u l r . ' , ' : ~ , : ~ ~
trmfemr o r by ~PplicaMeiamil~j&.< ,. . [qV i I m rxtmmrdmar). ps,=++! ngh~.?
.
(21 c o ~ ~ t i o n ~ .
*:. . ...
..
member. Ste recbon 2704@) ind .the,--:-.- 12) Vmluing dirvibution :&: . . . . , .. . (3) Plrtntnhipr.',; '-. . . . .
rtgdationl at # 252-2
f0r:spccial -2:- (3) Special rule for V ~ U @ IpuUed
- :;! (41 B t t t r . bulb,and
ettititL-;
vduatlon mlcr where an krlcrert-in ;.. payment &t hcid in ermjunQoywith, m i . "' 15) Multiple a t b i b u b o ~ . --- ' . '
property is rubjeet - to
an applicable - . t x(41
t r r ~ r b a r r yP ~ m c n ngbt
t
.
[bl ermpir* ,- ;'- :' .--''.. .'.
.
Valuing 0th- righlr..
. -'' .' -,
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.
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mstriclion.
. -. . .
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1
25P701-7! h p-m.i a lntmmt*' 1' - ,
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P Y . ~S. t c t i o n . t ~ ~ ~iml aamended
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8 2 5 2 7 0 1 4 ERCCI)V@data^ : . ' -'. ,'h ' -- :. . ,' .
.
.
. .
(a)[l)[i) immediately dter'+e s k t h . . .
12) Extraordrnry payment m&L
. ..
1 251701-1 Sp.cl.1 vmlrcltton r u l u In th.
rtntanct to read rr iollowl;
.
.
,
131 Dirkibution righL
.
,.
,.:: . :. . . .
w u of P.nrtm of a
m Intwmmta h
.
t not extraordinmry
f zS95t2-5 .va!wtlm at annutun. We ' ' , (41 Righlr &a! u
C W p ~ t i 0 h 8~d plnm-~.
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.. S e e a l a o o e ~ t i o ~ ~ M . 2 7 0 2 . 2 7 0 3 - - (
- , ) ~ ~ ~ .e. ~
- ~ . . and U M m d the r e g d a t i o ~at - ,
, . .
(I) In pcncmL
g g 2 5 . W O l 4 thmugh z f 2 7 W tor
[2) Drfinitionr.
[b) Vmluation methdology.
rptcial m l e for
~ valtransfern of
business internmu. ewierrr in -trurL and .- [I)S ~ t pI - V d w t ~ u n 01 familyhtld
inierrrlr.
~ m s f e purruant
x
i n optiona and ,
(2) Step ~-Subtrac~he vduc 01 aenior
purthase agreement&.. - -- . , - .
. tquir). intensU
Par. IL A new undesipnated
13) Step %dlocntc tht rrnainin# v a ~ i t
centerheadW
and new O P 25.Zm4
amgng t h e v r n r f e m d lntcrestr and orher
though 2 5 3 7 0 1 - 6 . Z S . Z 1 D M rhmu;h
hmlly-held mubordmale t q u t t~t e~r e r t ~ .
25.2702-7.25272703-1 and 25.z7m'. and 14), ~ - ,t C--Dtttrmlne
t
~
the amount o l the
25.ZiaC-1 h o u g b 2523M-3 are a d to gii!.
read ar IoUowr:
,
.
,
. >s)
hdjurtmtn1 m Step t
w r .

-

-

-

.

.

.

.

.15)
COub'l'd entiv
(6) &b.ficd paymcn! ripht
(c) QualLiied paymtrrt elcchom. ,
(a) I n gcneml. Il)(i).'"-'-See S C C ~ ~. O ~ [I) Election to mat I pual&td pi)pltn!
2702md tbt rt~dationaat 6 25.2702 for"' right am other tbrn I qualifie'd pqment nghl.
111 Uecuon to bra1 o&rt dirtribubon nghu
special rules fo: vetuing traaden of
IS qualiSed payment nphu.
interelu in t m s t h e r Oaober 8,
(31 Uecriona ~ m v o c r b l t .
1990. '
pun 10. Sections.251- is
14) T ' e a M t 0 ' of
P n P e n l l 14
b y ada mzntencc to h e end l o rend
A
p
~ ~ ~ ~ ~~ ~~ ~ : b ~ ~ > e c y
8 3 follows:
(dl E x w p ! t & .

4 2515124

_ . .-

.-

-

,-a.v

._.

#wuidmtbon

.

+.

"

mrtrteh tbnnr tot ymrm mmt)ndm a d
mvmt.lHmrrnkr 3 0 ,
1983. :
. . .. . . . . .

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+

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.

Ia ) In g e n e d - 4 1 ) Scope oj section - ,
2701. Section 2
m provides special
valuation d t s to determine the mrnaunt
of the gift whcn an individual rransItrr
an equity intertrt in a corporation or partnership to r member of the
individual'# farniiy. Fur wccllon 2701 to
apply. the bsnsfemr or mn applicable
f m d y mtmber [ar defined In paragraph
O[ d )n! ~lof
) thin ~ection)musL immediate!y
after the transfer. hold an applicable
retained intererr I n type ol tquity
interest defmed in 8 25.2701-2(b)[f 1). tf
certain subsequtnl psymcnia with - - - respect to the applicable retained
interecl do not conform IDI h c ,
assump!lona u ~ e din valuing iht mtercst
e l the hmt of the initial ~ a n s f e r .

-'.

E 25.2701-4 providea a apecia1 rule l o
increase tbc indindual'r later taxable
g i f h or taxable tktale.
'.
(2) Eflec! of section Z7Ul. I1 section
27m applied t o a transfer, the amount of
the trensfcror'a gift,ifany, i s determined
using a subtraction method o f valua!~on
(described in 1 25.2701-3):L'nder &IS

.

Fadem1 Regirtcr

4256

1 Val.

57,

Na

13

1 Tuesday.

Febmary 4, 1992 1 Rules end Redation,

( 1 )The traruferur or an r p p k b t c
~twkwith a o n - l a p b voting dghb rnd
family member m i v c s an applicable, +onvoting
common #to& am M e - t g
rclaintd intmft in the capital
mhchur
t h a t ~ r ~ l u b s t a n t i athe
t l ~m e ;
,
-.
,
.
.
.
.
tranraction:
lii)A rhrft ~ E r i g b t .
upoa tbc
(2)The tmdtror ot
nppbbre
e q r j i y inttrtrlr from tht &&gate
value
e x m a n ot Iqaalified didrimer
l a d y member holding an applicabte
of Iamily-htld i n l a f i b in +r
d e s d e d in #dm
ZSJ~
m y ~ r a t i ~~rnparmcmhip (the " e r i h t y ~ r c t u e d intmr t befort the -pita1 .
(iii] A rluh of righh OW
upon
CentraIly. in dcitrmining the V ~ U Cof
Imcrw @anlacdon surrcndm I n ' ., the mlcaae. exercirc, et 1ap.t 01 power
.
equity iniercrLh1 i4 juaioc to the
m y lpplicrblt mtai~rd
h ! e U held by
of appointment otbcr than gtnerd
epplicabIt rclrintd intereri (8
&c trmfcmt or sn applicable family
power of appinbnrnt des&bed in
mtmbrr"*ubotdin.tt interest"] and rrceivtr
aecfion
a c t p t the exterrt the
(i] h a pit,
~ d
l
.or mclvcnion r i g h ~ Property other
an a ~ ~ l i c a b l .t
release, txmise. orIapse wcdd
rtlrined internat; or
my right to mmpJ *&tion
orbay
othtnri3e be a m f e r wdacbapter 1%
(3)Tb* t r d e m r or an apph'uHt
t*lar ripht F* rdued a t zero if tht right
k]C i h u n ~ f m c eh
s whi& section
" c x i m o r d i p y pm-t
fight" (sr
family membef bolan a ~ ~ l i ~ b. l c2701
~ d m mr app3.. To
emt
ntrintd i n t m More the eapitJ ,
d t h t d In j ZS=Z(b][2J):
'
piovided ~ c c t i mBfndots not r p p b h
m ~ c t u r tranraction
t
nrrrrrrdm m~
(ii)h a y dinaibution right in 8
the following cases:
controUcdtntiry[rg,arighttomti~
tquiryhfcrrsthtbeenti@~otberthena
[ ~ ) M ~ & & ~ - ~ f e ~ j ~ ~ ~ ~ ~ r
dividends) i. valued at zero unless the
buborchrtt
fair
Section na dm#not mppk thright ir r *quab[ied payment wt"(&m
of
n ~ ~ E m b l e rrtaincd hrmrt- ~ a d i l yavailable m w k a quotationr on
rt mcteascd: or
defined in P 25Pm-qbJIB)]: and
an estabii~heds e F u r i t i u market for tbe
(C] The reminationof aa indirect
value of the bansfcmd interrstr.
[iii]Any otber r+&t (including a
q a e d payment right] is
u if
holding
enti@ (a4 dhed
in
(21 Marketable retained in t e ~ s r r .
s n y ~ t v a l d r t x e r o d i d n o t t x i s t b u t 425*27014)*ifSection ZS.WO1-2 doe. no1 apply to a~ y
('1
pmperty heid
rpplicablr =tabcd hfcrrrl
a henuc ,
Q ~ M =
-d to s
e
e
o
n
: . : whj* hein&
boldo
P01.
readiry available m d e r quataa'onm w
(31 f i m p k . n
h
fcfollowing t ~ a p l t 1Ibe
mbcbapttrJ of 'hapa
nn ntabljjhed aecufitjer m u k c t forthe
ofOrmer
the Internal Revcnuc Code: or
uucmtcs hs paraseph (aL
v a h t of b e mppliuble retained
(2)Jfhe termin~tiorrh not batedur
bttm8tl.
fimpta
= b & k d u 4 ~ bldl dtht
6 b & d r vndv p a n ~ w canzlrarnrrl
b
.
ouuunding r t d of S Grporncioa A .
&
*,
,c,an
of tkir section to the extent the rmhtd
Z7M duer not a&
U the rtt.intd
e x c h q t r A'r r b v u fnSfor lm ahd
d d have
the b k * h d d
lltpcreent mrzladm p d t d #to& d
roo
dvoting eoarmoD
A
:
been included in the value of the '
Latutst ia of the ad r u o f equity u
Andirect
hotdcfr
gmrs
crwtt
for
Fedem1
.
Imuftrnd
Intercat
b u u f t r r h ~ ~ l o toA'4chJb""
c k
tax purpore, ifthe in&ect
boldrr. interest la of dsra that u p m p o d o d
&&on
p01 opplicr to the tmda beuuw'
to the dasa o f the truufemd LntutsL A
died
h
e
d
i
a
t
e
l
y
prim
to
the
A hH b.~~liemdm
cquib i n r t n s t (Lhc'
- d r a ir pmpottiod to the clam aZrh.
w m o n #lock) to s m r d u 01A'* f b , : -, - termination.
intererr if rbc Qh~rul.
and h t d i n l c l y tbctcafter hol& an
F~ purpares -- itransf~e~md
(ii) hlriplc
dmad ~ m ~ o * n d
rigbb or
appkobl. mtaincd b
m (the d c m d .I- of pmrlpaph (bXZXi)(Q of ~9 wt-n*
~ t d AL'#p n W stock i m valued, undw *+,
the ter-lhnof an i n h t h d a . - Ihe b-frmd interest except for nonthtnfmdmmA'I$Rir
-.- - - in propem b a t e das d C re b 1 9 ~ 3 dhi f i c ~ n c tin
l
righa (or.

w t h o d tbt . n o u ~ t o i b pt f t i*
dt!ermlnrd by ~ u b u o c h g ' t b d
t u e of
m y fudy-held o p p b t t l c nteined
h r t r c r t ~md other pmn-tmmfemd .

'

'

-'

'

-

.,

-'

+

,. .

,,,

'

_

,,,,,

*

'

-

d
*
~ubm-

t

~

~

~

~

-

n~ l p c- c t f~ o m o~ m ~ abn o a~r ~ d-~ c t' h o flo~r ,a p m e n h i p . n o d ~ v r i n g

,

. the trarufcr a f ~ b u t t d
mw* diffrrcnct. with m p c d to nrrplgcment
tPdU&n~imh4bih'ty). For order:
t m m t ~ ~ 3 ~ p ~ - t . m ~ ~(A)urirst
~ to
indireciboldrdr) . ,. ... ~d
pupores of ~ h i Rl ~ L ~ O I nL o n - h p r k
th.+rbdAb~~md
hmth~vhtdA'rbtrrrrtkS. .

@I M f c r * o d e r k k e . ~
c v m L t ( 1 ) CompirLed rr~rnkm.
Sedoa
4-r
to dctmnine rhc .
existence a d -1
of
whrtber ot b d Lbr d e r d d
..

,

- ~transferredthe interest to hemtily

pmYi.ionr P K n l a r y to mmPb
panaurhip ~ h t i o rrqpirementn
n
of
h e hkmml Rtrcnrrt Code (c.q,
7Tw[bJJarr non-lapzing bffemncta witb
possessing a presently axercirrblm
power lodcsipate
pmofi wholbPll
nsPtct 10 limitmtiona on liability. A ri&l
thsl kprrr by maon of F c d c d or Shte
0th-• bra ~ e b l gst
t d e r
poslesm or enjoy the pmpcrty:
law ir b t 4 t ~ d
an n DM-lapn&t
*tar
IZ of h e k-al
Rrvcnuc G d e to h e indirect bojderlr)
(q
-ample. ~
en
6
T happbt4 10
pre9endy endded 10 rnceive &r inmoc
d t s s
s u + tdettmintr
~
by
ttplntion or by published rtvenut
bacller Lbat would n ~othcr*rise
t
bt I
from the interest
p)Fourth.
bdircaboldef19] .
d m g . that it i 8 necurary to *tat ruth e
gifl under h p h r 12 b e a w e it we8 4
. right a 1 I b p a k Mht to etcomplisb Lhe
w a d e r for MI and a d t q u a k .
- npecitically enlilled to r e c e ~ v erhr
purpc9ts d mution 2 f M . h h t u * a t in
comiduatioa
interelt at a f u b date; and
(2) T h v l s o c f i ~hsa l e d as
E] last to any o&cr indirect h o l d d s ) a p a m e r s h p t o not n.nhttmrt in thc
game clasr a9 the trnnrlerrcd in!crert if
tmrafe~+i) I n g m e d Ercepl u
pmportinnaIly.
the trsnsfcm or applicable family provided in p m p p h [b]131 of this
(3) Excluded tmnsaciions For
mtmbem h a w Ibt right lo a l t v h
sedon. for purpcrsea o i meclion 2701.
purposes ofrcction no?.
a trsnzferdoes
liebiticy d the kmderee. .
not indude the lollowing ewrctimg
-Let
b c k h Lhe fdcwdiona:
. .
(i]A capitd
' m j a c t i o n If
(4) Proporlonure
Sccdon
27Ul does not apply to r banaim by an
the ~ a n s f e m r each
.
appbcable f
w
[A] A w n d u u o n to fie capid of b
new or
UU~.
- -mcmber,mdtschmemb~~fthe
individual of c g u i ~ y*errst. l o the
extent the transfer by b a t mdjviduaf
~ a n l i e m fr m
y holds & t a n t i d y
@j A & p t i m
n u p i t a h ti- w
remull. in pm-te
rrductjoc of
the name in&&
a h the b u t i o n
other chin rbe a p ~ t d~ t r u c o l r e01
e e c l r d a u o i e t y i n t c m l h e M by the
so Lhnt individual held before the
an u l i t y Lo "apild 6tTYctue
- a h ? &
. .
tranmc~on.For thir p
m eammon -- inhvidual and aU applicable famlIy
( w i t h u t regard to uection 25'13b
p j sc-d lo the bet h d d e , )
'

,

-

'Fbderd R e s t e r

VoL 57,-No. 23

membcn in
aggreeak immedr tdy 6
before
mnsfer. mu#,
for rxamplc;
rtction 2701 dota rrwt apply iI P o ~ n 50
a
percent of each class of tquity in~tmst
in a corporation and tranrttn n portion
of tach class l o PI child in a manner
h a t reducer tach hikemot held by P and
any appticable family member&.in Ole I.
-aggregsie.by 10percent even if the han3fct doer not proportionately reduce
pa interesl in each c l a w See f 25.27010 regarding hdimct holding of inltreetr.
(dl Fmx~ifydefinitions-41)Member 4
~helomily.A member ol the family ia,
with nsptct to any ~ranricror(i]The bmn~femr'~
rpoulr:
(lil ~ n lineal
y
deacendan! of the
'

/ Tuesday. February

4, 1932

'

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A

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relam

and 1.000 &hamsof vtluns common #I& p
aanalcn t h e common n10ck 10 P'I child
~ e c t m nz71n 4 p p I i t 1 t o - h e wander because P
has ~ m r f e m d
an equity i?lemrt Ithe .
family and
common rtockl f a I member of
~mrdmtel!-thrmaflc: holds an e p ~ l l c a b l e ,
retaintd itlttert (tire prejemd .tack). PI
rigfi! lo mccivt annual c m u l a t i v r d.%~dendr
ig qua:ificd pr>mcni npht and 11 v a i u t d for
.
purpDrtJ ofatchon 2701 ju fair me*rl
,.slue o! ~.m,m.
The amounl P I p d ~
c e ~ r m n c d"ling ht aubmmron m e h a d of
2 ? 2 f m 4 ,ir ~ . o o [szm.W
p
mnur
~.oo~.oo~~.

.,

i ample^ Tbt facts arc lhe w - t
0s in
Example I. crcept that ~t p m f e m d dividend
ephr II soneuncln!lvt. Under 1 25.Zm-2 PI
prritrrcd dhr-~drndnghr ia veiutd 41 zem
because i t Ir B d~~lnoul~on
nght in r
contrulltd tnl;ly. bu: 11 nor r qualified
pa)menr right. AU 01 P I cthct nehh in b e
pmlrmd ctotk err valued ar if P's'dlndcnd
raht docn no1 t u b 1 bui oth~nvwewr!hou~
regard 10 stttron Z7PI. T h e anuru.! 01 P r gtlr
d t t e m r n r d using h e rubrreclion method. ir
r.5.XOW (S1.500.D00mmur $O;. P ma! c l c c ~
trezt t h e dlr~dendnpht sr s
qval~fitdpayment rrghl as p r o n d e d v - zJ.f7Ol-Z[c)~Z).
~ O W C V C I . 10

-

-

W *.kutkn n h )w
~
X i* nm.m.bod the faLrmmrkt1 V B ~ of
U ~
-'
Pa annual tumdrhuc dividend riph! 11
W:bM m m ' w hlmaa -- .. , ' 1 ...
- ,
n.~~.&cmw
the tWIcrnd st&
( a ) Inxeneml. In delemining the
confcn bolh M rxmordinuy payment righ~
amount of a girt under 1 25.27013. the
put @i) and r quat$htd plymcnr right
value or any spplicablc retained b t e r e ~ t (be
(Le. Lhe *hl rn receive E Y L D U I ~ ~ ~ Y ~
(a* defined in paragraph @)[I]
of thir .- dlvidtnds), h e lowtr of n J c a p p t l a and the

I ZLZtD1-f

mecUon) held by h e kansfemr or by nn
applimblc family member ir determined
using the mlew of chapter 12.with tht
modifications pwacribcd by this ~tction.
S e t !25.27016 regarding the indirect
holding ot interest@.
,
11) Valuing an c ~ t m u r d i n pa)menl
o~
righL h y txbitordin~rypayment right
Ier defined in p a i a p p h (b][2) of lhir
6ectlon) i 8 valued at zero.
(21 Valuing Q dislribulion righ; rvl y
distribulion right (sl defined in
transferor or Lhe trenmltmr'~npount:
,
.
paragraph fi)[3) of t b i ~aection) in r , .
, . .
rnd
. .. (iii] n c r p k t of any rucb lineal .
controlled entity ifi valued at zem.
d t ~ t t n d m t ., -- :., : -. .
- u l e a r i t Ir n quslified palmen! right
(2) App Iicoble family mrmber.lln
defined in paragraph fb](B] al this
applicable family member 18. with , rection). Controlled entity in defined in ,
parsgreph [b)(S]of b r mection.
respect to any t r a n d e m r ~
- (3)S p t c i ~mlc
l fur valuing a qualified
-[i)Tht traarleror'r #pause:
.
[ii) Any ancestor of the trans!ernr or -. . poyment nght held in conjunciian with
the transfemr'r ~pouse:and ,..
.- . on eximordinory payment r i g X II an
(iii)The rpoule. of any ruch ancesloi.
eppiicable retained interest confen a"
, .
(3)Belolionship by o d o ~ f i a For
n
. qualified pa)ncnt righi and one ar mom
purpoaeb of rection 2701. nny , . . , , . , - extraordinary payment rights. the value
... . relstiovbip by legal-adoption i~ the_- .: of dl hc,c r&htr ia dettr&td by
- -- iamt ar r+reletionship by blood,--- .. : . ~~s~~
fiat iach extrrodmlry
,.. ' .
".
,
*..
[el ~xamples.Tbe f o l l ~ w l qe x m p l t ~-. payment right is r x t r c i ~ e din a manner .-:
il]uclrrtt provioionl of the icction: , -.
hatrcldtsin &tht
lowcsl lotal
~ r a m ~ l P,
c :m
~ indkdual
.
holds all h e . . being dtitrmined for all the rights,.using
outclanding m!od ol XCorperooo~Assume . a conaislcnl re! cf assumptiunl and- , .:, . :
Lht fair market valut of P'r m!trrll in X , .'. giving due rngPrd to hc
net
'immrdiafely prior 10 the auufer ir S z S . ,,
pmjptthYt
power, and .
million X i n mupitalizld ro
P hold# ,
Otk2r
teclprs
a:lowcr
,
of n.obO prr
pnfcmd
valuation rule)..Set 8 202031-2(f) and
at& ber+a m a ~ u . 1 t u m u l a h ~ cdividend
per
(hemgpgrtr lair markti . 20.2031-3 lorrules
to
,.
vatur of
1' llsumd
to bc $1 millionl
v a l u a ~ of~business in!ertr ts
'

f ~ u l e s - M- '. a ' R ~ i ~ & h h
~ z, n

.

genenlly141 Vd~tiG
othtr righu;Any ocher
right [includLng a qualified payment -

nghi not subject to the prior perapraph)
is valued as 8 any right valued ai zero
doer not
end
ifeny
valued
uRdcr hclor*.trdlltLxercilcdin
mamer cons'rten' w'' lhe 4ss*ption*
OI that nhe but o t h e w ~ s ewithou~regard
to sectioa 2701. Thus. IT an eppllcablc
rerained interest carrltr no nghb that
are valued at t t r o or under the lower of
rule, the value of the intens! l o r
p.qoce8
recbon 2;Ol'ir i t s fair
( 5 ) Exomple. The iollowing examplt
illusuaies d e s of t h ~ sparagraph (a).
L o m p h . P. ~n indiridual. hold6 411 1.000

ahnrer D! X brporrhon'a n.OM p a t value
p r r I e n t d r t o d be.m omusl cumulstive
d i v ~ d e n dof S1W per rhlre and bolan r l . 1.000
~ h r r c a01 X ' r vo'Yig cornnon r ~ o c k P
. ha4 the
right to put all the prtfr-td arod: la X st l a y
l m e for S
9
1
M
m
. P u n n r f e x L5c common
s ~ o c k10 P'I child a n d 1m?t2:a1tly m c r e a f ~ c ?
holds ht pmftmed b : ~ c L Alsurnc t h s ~0 1 the
,umc o l \nr L-ansler. t h e [ n u market v a l u e cl

wdut of h t h r d h b ir dtrtmuntd r b rl tbt
put right wiU be exercirtd In Imanner &a\
mrultr In thi'lowent tom1 b l u e b e i i
dtttrmined lor thi righb Itn hi#cam. by
a m ~ m m qthat the pul wiIl be txcrcintd Immedia~tly).The value of Pa prricmd
rlod: i m )e(4.m(tha lower of S1.000m or
58W.000). Tht .mount or the gift i m W . M O
(S1.XIO.MID m u 1 =m).

-

.

-

-

M DefinitionHl) Applicable

retained inteesL h npplicablc re1 aintd
inlerest i s any equity inlcrert in
corporation or pamernhip wilh respect
to which them i s either- .
(1) h txtrrordinary paymcnt rlght fas
defined In paragraph [b)[z] of this
aectionj.or,"

.

.

,

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'

h tht c a s e o l controlled entity'
[aa defined in paragraph lb)(51 ot h s
(ii)

rtction), a diskbution right ( a 1 defined

in prrapaph &](3) nt this meetion).
1 2 ; E x ~ o r d i n n r y p o j m e nrtghL
t
Exctpt
pmvidtd in paragraph ( t ) [ ~ )

of t b atctior~m extraodinary .
payment right fa any puf a
lL Dr.
canvcmiaa righf any e h t to compel -:,
liquidafo~orutyrinilarrighth e . .
c x c h s or
~ nonexcrcirt of which adect*
the value of tht trrnsfcmd interest A
caU right indudelany warrant oplion. or olher qght i o acquin.ont or mom .
equity inttrr9ts.-k.:
.- . - - . .
. [3) Dislribu~ionr i g h l . diahbution
~
.
right i s the right t o n m i v c distributions
with reaptct to m equity inttttst A .
distribution right dvtm not include-ti] Any hghl to r r c t k t disbjbuti~ns
, ,

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with respect to an interest thar is of the
lame clam 48. or 4 dabs ha! i~
subordinate to. the barrsferred interest:
[ii) Any exmaordinary paymen! right:
Of

(iii) Any riehl described in pa:aprzph
[b)(4)ei this ntct~on.
(4) R I ~ h l sthot are not extmordinory
puvmenr nghu or d~srriburionriphrs.
Mandatory p a ~ e n nghts,
l
liquidation
participation rights. r ~ g h tto~guaranteed
payment3 or a fixed amounr under
aeclion 7 E [ c ) . and non-lapsing
conversion rights are neithtr
exrtaordinery paymenl rights nor

hstribution tights.
(ij M n n d a r o ~
payment righ!. A
manda~orypayment righ! is a ' r i g h ~to
receive I p a p e n t mquired ro be made
a t a spttific time tor a specific a n o u n i .
For example. a mandatory redemgrion
npht in preferred &to& requ~ringt k a ~Lhe
atodr be redeemed ar its f i x e d par value
on a date certain i s s mandarory
payment nght a n d hereiore r,ol sn

57. No. 23
extraordinary paymellr right or h
distribubw, &LA nghi t o ~ c t i v ae
g p e c i k amount pa the & a h d tbr
holder in r m n d a t o y payrntnt right
(ii)Liguidnkn ~m'cipeLion
righh. A
liquidation p d + a h ' o n A@t ir 4 right .
10participate in a h q & W
-

dis~bution,If rht aansfemr, membm
of the ttans2emrm~
fm.or epplicablc
family mtmbcm h u e the ability tn
eompcI liquidation
huidation

particip&i~on
&t
is vdued
ability ta campel liqui&~(A) Did not ex& ar -

r8 if

1 Tuesddy,

February 4, 1992

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(B]Ifthelowerordaapptits.ircxercirqd in a m n u that ir c o a t i r t t ~ t
wilth tha! d e .
'
[iii) EJ$irl& o g u o ~ t e e d w y m e n tof
o frited gmount under section 70?[c). l k t
righl to Igi~aranieedpaymtnt or I tmed
amount under section 707IcJi~
t5e right
to rn guaranteed paymtnt (within the
meaning of section 7m(c)]
the ambunt of
whicb ir determined at a fixed rate
[including a a t e that bean 8 fixed
rcladosship to r mptcified market
imeresl rule). A paymmt tbar is
contingeut as to rime or r m u n t ir not
gvaranreed payrnent of I Rxcd amount
( i v ] N o d a p i n g comcmim right--(A)
Corpcmfionr. A nurklapsingmnvenkn
right. in the c a ~ t o f amrpomtio~is 6
non-lapsing right to o
o
w #?I. rpvilpl'.
interest ifi a e~poratiosinto. Pbrtd - . n u m b or a f i x d p m x n t a v td ~ h a r e.s
of the ramp c l a r ~r r thetronrfimd
intertat [or Into mn m t t ~ s t
th
!wodd
be OF h e lame da9m bat for non-hpsing
differences in votiw right@].h a t i s
.
mubjed to proportianale a4wtmenla Ibr
chutgcl tn thr tq* m n h i p of Ilrc. *
corporatian s n d to diustmrnb rimihr
to those pmvidtd in stctim m ( d ] fbt .
A

Rules and Reguletio~s

in the c a n oi a parmtnhip. the t p t y
parmer.Sec i. W O 1 - Z ( b ] ( ~ l [ i i i )lor
the
interest ii proltcted horn
, A c f m i ~ ~ o01n R rt&l lo a parent-d
resulting horn chvlges h the
paymumf fi rued smountundu

parhembig mtruaure.

(DlM - n u

for ~ o i d p p y
Farpurporer of h i s paragraph Ib)[4X rn
rquiv inkrefit in jubjecl la ~ d j u s l m n u
sirnilat to thost provided b rectiaa
2 m ( d ) if i l p o v i d c r f*
(I)Cumulative p a y m t a
(2) Compoundmg of any unpaid
payments at the raft specified in
j Z L 3 0 1 4 ( c ] ( 2 ] : and

Lht

1

14 Adjustment o l the number or
p t ~ t ~ U m gofr sharer DE the s i z t of the '
interest into w h d it b convertibh to
take -1
ofauubted
unNd
payments.

secrion TOltc),
~ ~[8). Quul~ficd
p u p e n [ right+} In
general. A qualified prymtnl right i s 4
a
t ro rrctivt q w l i h d paymeah. A

q u r L T d p a y m a h a dislribution that
is,(A) Adivic'errd payable on a periodic
bsia (at
amu81!y) under any
crrmulativt pmfemd a ~ o d rlo the exten1
such diw'dend is dtlvmintd at a rued
ta:r
( 8 )Any othm d

s dh~bution
a p ~ D d i c b aiat
s ~leaat
mmuaUy) with n-a
to an equity
intererL tm the e x t a t determined at a
(5)con*fIebmrit~[~1~~8~ncml,
r~edrare~~~~~fixedam
or o u n t ;
For purpo~esof section 2701. r
(C]Any diruibutiun right l o r which a n
controUed entity i~ corporation or
election h a s been made pursuant lo
pannenhp c o n ~ o n e di-m e d i a t e b
p,ragraph t,-!,q of*is lect,on,
before a bsmsfer. by the hansferor,
[ii] Fiired mre. For purposes of this
8ppiicabIe f a d l y m ~ m b e r l and
.
any
,cction.
a
lintel dtrcendaqta of h e pertnu D f h
fixed
rtlabon,hip
transferor orthe bansfemr'n spouse. S e t
c,t
paymmt determid

4 2517Ul4 regarding indirect hddirq of

,

fixEd

interests
[c] Q u u t i f i d p u y m e c . ' F i o a s k l ]
[ii]Corpomhbns---(A] I n gcnem L In
~ t c a , e o ~ a c r r r p D r s ~ o n , c m ~ ~ m eE
a nIr e c ~ ~ l o m o t o ~ u ~ h ~
. o ~ ~ e n f
~ r h o i d ~ g o f s ~ l e r l t ~ p e K e n t o fr~j 8r h t 0 5 o ~ e r r h ~ ~ q u c ~ i f i ~ d ~ o y m e n t
rlghk Any eanafnm holding qualified
,
totel voringpawcr or toml hk market
paymentright m a y c l e to.treet
~
a11
value of the eqtityin~ettasi
n the
rights
herd
by
tbe
mngferor
of
Lhe
Jame
corpor~tion*
ciasr I S Qhh that arc nut qualified
I ~ ) ~ ~ w * ~ = E q u i v ~ f r r ~ f p',wmlri8hkbd
ir~at,
nma v b e n
arry no right to m t e other than om liquidatron
or a ,,dm
mmt . paRia) election in which c a m Ihe
,re not conliderrd to have rohgrigbtr
eltttion must be cxctdsth with m p e a
for-osc*
of
p
a
r
a
~
p
h
[bHS](iG
cmiffent P ~ ~ G Q
oZeacb
D
Pavent
,
~~~~u~ a votingright ir -*dmtd
. right in the clasl us ta which the tIection
has been -dc - ::I
held by sn inMdtlm1 to the cxtmt that
P)61&n
b tmit oLhu dirlributron
the individuul. ci the? d o n e or in
righa
o
s
W
f
i
i
P
d p a y m e n 1 a b u . Any
conjunction m'th any o h m p r m n
individmal m a y e
t
a b ktmt
entilled to exercise [or direcr the
unpaid paymmtr . - . , *
exerci,c
he
~
~
~
ifan
c
v
diskbv'ion
~
,
right
hthl by h a t individual
(81Pu-rhushrm A n n n & p s b
inttmt
mung
is
in corrtrolltd entity a s # qualified
canversion right in Lbc w e of r
in rdutiary capaciv, the wmting , - p a y m t n t m ~ An ele~+onmay be a
pairnuship, it a arm-laping right to
P'amaIeltca'wr* in whidc a w fie
rights
arcnot m n s i d c d h-eld by the
convtrl rn equityhlmrrt in &
ele~thnmurtk ~ c i s t d w i l hrespect fiduciary. brh instcad am cornid=&
p m t r r h i p rnto a specified interell
to a ~ 0 n J n ' ~wand
nt
each WYmmk
held by tach beneficis! o m e r o t t h e '
{ctber t b p ~ ~ w e rnptrsentcd
n)
by a
i n t m l t and by 4 fndivj&~lwho i j e ' right k ht C ~ W to whith Iht h c l i o n
fixed dollar smount] d h e SRmt clsr*
as h e hanalemd in{& tot ~ n t o
an .
pcrmigaibfcmipitnt of t h t i n c o m h a m ~ h a r k n m a d t . h n t k c l i o n m d t r h
p o r a p p h (cK2)will azlt -me t% tahe
tht I n r e n a l A wting @ t
do- not
icfeiest thst would bt oi Ihe s a m clesa
of the applicable rtlrined interesl
include n'ght rm v o l t h a t i s lubj& to
but lor non-la piing dirfcrencer in
canfemrg the dism'butiorr right to
r contingency that has r d occrrmd.
management nghtn w lirailatio~on
exceed the fair market va!ue of the
other than a contingency that ia within
I~hbi)ityJ
the t ib rubjeer lo prnpo&alt
applicablt retained k t e t c s t [determined
bt canml of rhr indimdual hol&m h e
adjxstrncnrr lot changes in tbr tqujjp
right.
w
i h u t maud to sectjon
The
ownership of Ib+ pamenhip and to
[ i i i j P o ~ n m h i p . I n t h c ~ a s r o f b n y clcciinni~cUedvtodytoChe~~entsdju~LmenrssimPar to thore provided in
(i)Specified in hd t c t i o h a d
partncnhip. control mesns Ihe holding
section 2701[dJlor unpaidpaymenb.
(ii]
That be p r p e n t a elected %rr
O{
dr
Gear;
5Q
percent
d
c
l
h
r
the
(C)P r o p o r u o ~ ~a e~ ~ u s m c nilns
tbc Irgrl i n r ~ t n t
c r p ~ t s inrcmfit
l
or tht mSt8 i a t e m t b . permutiblt
equity,ownerdup Fag p u ~ w e of
8 lhir
: giring riw ra the right w n d are conlkrtnt
paragraph (b][4L an eqaity inleres t is . t b e m & i p A n y n g h e h t l o w . , :
with the I a a l n'ght of be rnlrty to make
mubwt to -ate
ad+tment~ for guaranteed plyment lmder scction
- 7u?[c)of a h i x c d amount I s chvcgardcd the payment.
c h q e s io equity o u n e r h p d. m the.
131 Eleco'hs irrcvacciLte. Any Action
in m a h g his determinatiaa b
ca+r of a cmporarion p r o p d m le
mder paragraph [c)(l]w (c)[:) or his
a d d u n . h tIw c a g e of a limited
a d j u r ~ arr t t~qwtdto k made fur
9echon b r e w u b l e rmly unth h
control m a a r h e hd&ng
rplits. c o m b i n a h w . r e c h d h ; i c u
consent n i &c Commis61aner.
of m y tgLLily inter-\ M a p i e r a 1
and limilar changea in upbl s:o& ar.
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