Td 8744

(ii) For each of the first 20 pay periods of 1997, A
is a qualified zone employee, all of A’s wages from
X are qualified zone wages, and X may claim the
empowerment zone employment credit with respect
to those wages. X cannot claim the credit with respect to any of A’s wages for the rest of 1997.
Example 2. (i) Employer Y has a weekly pay period for its factory workers and a bi-weekly pay period for its office workers. Employee B works for Y
in various factories and Employee C works for Y in
various offices. Employer Y uses the pay period
method.
(ii) Y must use B’s weekly pay periods to determine the periods (if any) in which B is a qualified
zone employee. Y may claim the empowerment
zone employment credit with respect to B’s wages
only for the weekly pay periods for which B is a
qualified zone employee, because those are B’s only
wages that are qualified zone wages. Y must use C’s
bi-weekly pay periods to determine the periods (if
any) in which C is a qualified zone employee. Y
may claim the credit with respect to C’s wages only
for the bi-weekly pay periods for which C is a qualified zone employee, because those are C’s only
wages that are qualified zone wages.
Example 3. (i) Employees D and E work for Employer Z throughout 1997. Although some of D’s
work for Z in 1997 is performed outside the empowerment zone in which D resides, substantially all of
it is performed within that empowerment zone. E’s
work for Z is performed within the empowerment
zone in which E resides for several weeks of 1997
but outside the zone for the rest of the year so that,
viewed on an annual basis, E’s work is not substantially all performed within the empowerment zone.
Employer Z uses the calendar year method.
(ii) D is a qualified zone employee for the entire
year, all of D’s 1997 wages from Z are qualified
zone wages, and Z may claim the empowerment
zone employment credit with respect to all of those
wages, including the portion attributable to work
outside the zone. Under the calendar year method, E
is not a qualified zone employee for any part of
1997, none of E’s 1997 wages are qualified zone
wages, and Z cannot claim any empowerment zone
employment credit with respect to E’s wages for
1997. Z cannot use the calendar year method for D
and the pay period method for E because Z must use
the same method for all employees. For 1998, however, Z can switch to the pay period method for E if
Z also switches to the pay period method for D and
all of Z’s other employees.

(c) Effective date. This section applies
with respect to wages paid or incurred on
or after December 21, 1994.
Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 29, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 30, 1997,
62 F.R. 67726)

February 17, 1998

Section 2044.—Certain
Property for Which Marital
Deduction was Previously
Allowed
26 CFR 20.2044–1: Certain property for which
marital deduction was previously allowed.
What are the gift tax consequences to the surviving spouse of the acquisition by the surviving spouse
of the remainder interest in a trust subject to a qualified terminable interest property (QTIP) election
under § 2056(b)(7) of the Internal Revenue Code?
See Rev. Rul. 98–8, page 24.

Section 2056.—Bequests, Etc.,
to Surviving Spouse
26 CFR 20.2056(b)(7): Election with respect to life
estate for surviving spouse.
What are the gift tax consequences to the surviving spouse of the acquisition by the surviving spouse
of the remainder interest in a trust subject to a qualified terminable interest property (QTIP) election
under § 2056(b)(7) of the Internal Revenue Code?
See Rev. Rul. 98–8, page 24.

Section 2511.—Transfers in
General
26 CFR 25.251–1: Transfers in general.
If a surviving spouse acquires the remainder interest in a trust subject to a QTIP election under
§ 2056(b)(7) in connection with the transfer by the
surviving spouse of property or cash to the holder of
the remainder interest, does the surviving spouse
make a gift under § 2511 of the Internal Revenue
Code? See Rev. Rul. 98–8, page 24.

Section 2512.—Valuation of
Gifts
Section 25.2512–8: Transfers for insufficient
consideration.
If a surviving spouse acquires the remainder interest in a trust subject to a QTIP election under
§ 2056(b)(7) in connection with the transfer by the
surviving spouse of property or cash to the holder of
the remainder interest, what is the value of the gift
under § 2512 of the Internal Revenue Code? See
Rev. Rul. 98–8, page 24.

Section 2518.—Disclaimers
26 CFR 25.2518–2: Requirements for a qualified
disclaimer.

T.D. 8744

20

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 20 and 25
Disclaimer of Interests and
Powers
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Final Regulations.
SUMMARY: This document contains
final regulations relating to the treatment
of disclaimers for estate and gift tax purposes. The regulations clarify certain provisions governing the disclaimer of property interests and powers and, in addition,
conform the regulations to court decisions
holding the current regulation invalid
with respect to the disclaimer of joint
property interests. The final regulations
will affect persons who disclaim property
interests, powers, or interests in jointly
owned property.
DATES: Effective date: The final regulations are effective December 31, 1997.
Applicability dates: The amendments
to §§25.2518–l(a) and 25.2518–2(c)(3)
(substituting the statutory language in
section 2518(b)(2)(A) “transfer creating
the interest,” for “taxable transfer”) and
conforming changes to §§20.2041–3(d)(6)(i), 20.2046–1, 20.2056(d)–2 (a) and
(b), 25.2511–l(c)(1), 25.2514–3(c)(5), are
applicable for transfers creating the interest or power to be disclaimed made on or
after December 31, 1997. The amendments to §25.2518–2(c)(4) (relating to the
disclaimer of joint property and bank accounts) are applicable for disclaimers
made on or after December 31, 1997.
FOR FURTHER INFORMATION CONTACT: James F. Hogan (202) 622-3090
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On August 21, 1996, the IRS published
in the Federal Register (61 F.R. 43197) a
notice of proposed rulemaking (REG–
208216–91) amending the regulations
under section 2518. The IRS received
comments on the proposed regulations;
however, no request for a public hearing
was received so no public hearing was

1998–7 I.R.B.

held. This document adopts final regulations with respect to this notice of proposed rulemaking.
The proposed regulations substituted the
statutory language of section 2518(b)(2)(A), “transfer creating the interest,” for
“taxable transfer” as the reference point for
determining when the 9-month time period
for making the disclaimer commences.
This change clarifies that the starting point
for the 9-month period is not dependent on
the actual imposition of a transfer tax at the
time that the interest to be disclaimed is
created. Comments with respect to the
clarification in the proposed regulation
supported the change.
Under the proposed regulations, the
one-half survivorship interest in jointlyheld property that was unilaterally severable could be disclaimed within 9 months
of the date of death of the first joint tenant
to die. The proposed regulations did not
extend the same treatment to joint interests
that are not unilaterally severable (e.g.,
tenancies by the entirety), but the preamble invited comments on this subject.
The comments received unanimously
suggested that a surviving joint tenant
should be allowed to disclaim, within 9
months of the date of death of the first
joint tenant to die, his or her survivorship
interest in a tenancy, whether or not that
tenancy is unilaterally severable. The
comments noted that parties purchasing a
residence often do not make an informed
decision regarding whether the residence
should be held as joint tenants or tenants
by the entirety, and generally are not
aware that the decision to take title to the
property as either joint tenants with right
of survivorship or tenants by the entirety
will affect the ability to disclaim their interest in the property after the death of the
first joint tenant to die.
Accordingly, the final regulations
allow the disclaimer of jointly-held property that is not unilaterally severable on
the same basis as joint property that is
unilaterally severable. Thus, a surviving
joint tenant may disclaim the one-half
survivorship interest in property that the
joint tenant held either in joint tenancy
with right of survivorship or in tenancy by
the entirety, within 9 months of the death
of the first joint tenant to die. The rule
also significantly simplifies the disclaimer of jointly-held property, eliminating certain special rules that were depen-

1998–7 I.R.B

dent on the application of section 2515 to
the creation of the tenancy.
The proposed regulations provided rules
regarding the disclaimer of interests in
Joint bank accounts and brokerage accounts, generally recognizing that the creation of such accounts are not completed
gifts under certain circumstances. Comments noted that other kinds of investment
accounts, such as accounts held at mutual
funds, accord the parties rights that are
similar to the rights of parties with respect
to joint bank accounts and brokerage accounts. Accordingly, the final regulations
have expanded the special rule with respect to the disclaimer of jointly-held bank
and brokerage accounts to include jointlyheld investment accounts such as accounts
held at mutual funds.
Special Analyses
It has been determined that this Treasury
decision is not a significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because these regulations do not impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, the Notice of
Proposed Rulemaking preceding these regulations was submitted to the Small Business Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regulations is Dale Carlton, Office of the Chief
Counsel, IRS. Other personnel from the
IRS and Treasury Department participated in their development.
*

*

*

*

*

Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 20 and 25
are amended as follows:
PART 20—ESTATE TAX; ESTATES OF
DECEDENTS DYING AFTER
AUGUST 16, 1954
Paragraph 1. The authority citation for
part 20 continues to read in part as follows:

21

Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 20.2041–3 is amended
as follows:
1. Paragraph (d)(6)(i) is amended by
revising the first sentence and by adding a
new sentence after the first sentence.
2. Paragraph (d) (6) (iii) is added.
The additions and revisions read as follows:
§20.2041–3 Powers of appointment
created after October 21. 1942.
*

*

*

*

*

(d) * * *
(6)(i) A disclaimer or renunciation of a
general power of appointment created in a
transfer made after December 31, 1976, is
not considered to be the release of the
power if the disclaimer or renunciation i”
a qualified disclaimer as described in section 2518 and the corresponding regulations. For rules relating to when the transfer creating the power occurs, see
25.2518–2(c) (3) of this chapter. * * *
*

*

*

*

*

(iii) The first and second sentences of
paragraph (d)(6)(i) of this section are applicable for transfers creating the power
to be disclaimed made on or after December 31, 1997.
*

*

*

*

*

Par. 3. Section 20.2046–1 is revised to
read as follows:
520.2046–1 Disclaimed property.
(a) This section shall apply to the disclaimer or renunciation of an interest in
the person disclaiming by a transfer made
after December 31, 1976. For rules relating to when the transfer creating the interest occurs, see §25.2518–2(C) (3) and (c)
(4) of this chapter. If a qualified disclaimer is made with respect to such a
transfer, the Federal estate tax provisions
are to apply with respect to the property
interest disclaimed as if the interest had
never been transferred to the person making the disclaimer. See section 2518 and
the corresponding regulations for rules relating to a qualified disclaimer.
(b) The first and second sentences of
this section are applicable for transfers
creating the interest to be disclaimed
made on or after December 31, 1997.
Par. 4. Section 20.2056 (d)–2 is
amended as follows:

February 17, 1998

1. Paragraph (a) is amended by revising
the first sentence and adding a new sentence after the first sentence.
2. Paragraph (b) is revised.
3. A new paragraph (c) is added.
The additions and revisions read as follow:
120.2056(d)–2 Marital deduction: effect
of disclaimers of postDecember 31. 1976
transfers.
(a) * * * If a surviving spouse disclaims
an interest in property passing to such
spouse from the decedent, which interest
was created in a transfer made after December 31, 1976, the effectiveness of the
disclaimer will be determined by section
2518 and the corresponding regulations.
For rules relating to when the transfer
creating the interest occurs, see
§25.25182(c)(3) and (c)(4) of this chapter.
***
(b) Disclaimer by a person other than a
surviving spouse. If an interest in property
passes from a decedent to a person other
than the surviving spouse, and the interest
is created in a transfer made after December 31, 1976, and—
(1) The person other than the surviving
spouse makes a qualified disclaimer with
respect to such interest; and
(2) The surviving spouse is entitled to
such interest in property as a result of
such disclaimer, the disclaimed interest is
treated as passing directly from the decedent to the surviving spouse. For rules relating to when the transfer creating the interest occurs, see §25.2518–2(c)(3) and
(c)(4) of this chapter.
(c) Effective date. The first and second
sentences of paragraphs (a) and (b) of this
section are applicable for transfers creating the interest to be disclaimed made on
or after December 31, 1997.
PART 25—GIFT TAX; GIFTS MADE
AFTER DECEMBER 31, 1954
Par. 5. The authority citation for part 25
is amended by adding an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 25.2518–2 is also issued under
26 U. S. C. 2518 (b). * * *
Par. 6. Section 25.2511–1 is amended
as follows:
1. In paragraph (c)(l), the fourth sentence is revised.
2. A new paragraph (c)(3) is added.

February 17, 1998

The additions and revisions read as follows: 25. 2511–1 Transfers in asneral.
*

*

*

*

*

(c)(l) * * * However, in the case of a
transfer creating an interest in property
(within the meaning of 25.2518–2(c) (3)
and (c) (4) ) made after December 31,
1976, this paragraph (c)(l) shall not apply
to the donee if, as a result of a qualified
disclaimer by the donee, the interest
passes to a different donee. * * *
*

*

*

*

*

(3) The fourth sentence of paragraph
(c)(l) of this section is applicable for
transfers creating an interest to be disclaimed made on or after December 31,
1997.
*

*

*

*

*

Par. 7. Section 25.2514–3 is amended
as follows:
1. Paragraph (c) (5) is amended by revising the first sentence and adding a new
sentence after the first sentence.
2. A new paragraph (c)(7) is added.
The additions and revisions read as follows:
§425.2514–3 Powers of appointment
created after October 21. 1942.
*

*

*

*

*

(c) * * *
(5) * * * A disclaimer or renunciation of
a general power of appointment created in
a transfer made after December 31, 1976,
is not considered a release of the power for
gift tax purposes if the disclaimer or renunciation is a qualified disclaimer as described in section 2518 and the corresponding regulations. For rules relating to
when a transfer creating the power occurs,
see §25.2518–2(c) (3) . * * *
*

*

*

*

*

(7) The first and second sentences of
paragraph (c)(5) of this section are applicable for transfers creating the power to be
disclaimed made on or after December
31, 1997.
*

*

*

*

*

Par. 8. Section 25.2518–1 is amended
as follows:
1. Paragraph (a)(l) is revi ;ed.
2. In paragraph (a)(2), the last three
sentences of the example are removed and

22

four new sentences are added in their
place.
3. A new paragraph (a)(3) is added.
The additions and revisions read as follows:
§425.2518–1 Oualified disclaimers of
property: In general.
(a) * * * (1) In aeneral. The rules described in this section, §25. 2518–2, and
§25. 2518– 3 apply to the qualified disclaimer of an interest in property which is
created in the person disclaiming by a
transfer made after December 31, 1976.
In general, a qualified disclaimer is an
irrevocable and unqualified refusal to accept the ownership of an interest in property. For rules relating to the determination of when a transfer creating an interest
occurs, see §25.2518–2(c)(3) and (4)
(2) * * *
Example. * * * The transfer creating the remainder interest in the trust occurred in 1968. See
§25.2511–l(c)(2). Therefore, section 2518 does not
apply to the disclaimer of the remainder interest because the transfer creating the interest was made
prior to January 1, 1977. If, however, W had caused
the gift to be incomplete by also retaining the power
to designate the person or persons to receive the
trust principal at death, and, as a result, no transfer
(within the meaning of 2§5.2511–l(c)(2)) of the remainder interest was made at the time of the creation
of the trust, section 2518 would apply to any disclaimer made after W’s death with respect to an interest in the trust property.

(3) Paragraph (a)(l) of this section is
applicable for transfers creating the interest to be disclaimed made on or after December 31, 1997.
*

*

*

*

*

Par. 9. Section 25.2518–2 is amended
as follows:
1. The text of paragraph (c)(3) following the heading is redesignated as paragraph (c)(3)(i) and amended as follows:
a. In the first, eighth, and eleventh sentences, the word “taxable” is removed in
each place it appears.
b. In the second and ninth sentences,
the language “taxable transfer” is removed and “transfer creating an interest”
is added in each place it appears.
c. In the third sentence the language
“taxable transfers” is removed and “transfers creating an interest” is added.
d. The fourth, fifth, sixth, and seventh
sentences are removed and five new sentences are added in their place.

1998–7 I.R.B.

2–3. A new paragraph (c) (3 (ii) is
added.
4. Paragraph (c)(4) is revised.
5. In paragraph (c)(5), Example (7) is
revised.
6. In paragraph (c)(5), Example (8) is
removed.
7. In paragraph (c)(5), Example (9) is
redesignated as Example (12) and is revised.
8. In paragraph (c)(5), Example (10) is
redesignated as Example (11) and the first
sentence is revised.
9. In paragraph (c)(5), new Examples
(8), (9), (10), (13), and (14), are added.
The additions and revisions read as follows:
625.2518–2 Requirements for a qualified
disclaimer.
*

*

*

*

*

(c) * * * (3) Transfer. (i) * * * With respect to transfers made by a decedent at
death or transfers that become irrevocable
at death, the transfer creating the interest
occurs on the date of the decedent’s death,
even if an estate tax is not imposed on the
transfer. For example, a bequest of foreign-situs property by a nonresident alien
decedent is regarded as transfer creating
an interest in property even if the transfer
would not be subject to estate tax. If there
is a transfer creating an interest in property
during the transferor’s lifetime and such
interest is later included in the transferor’s
gross estate for estate tax purposes (or
would have been included if such interest
were subject to estate tax), the 9-month
period for making the qualified disclaimer
is determined with reference to the earlier
transfer creating the interest. In the case of
a general power of appointment, the
holder of the power has a 9-month period
after the transfer creating the power in
which to disclaim. If a person to whom
any interest in property passes by reason
of the exercise, release, or lapse of a general power desires to make a qualified disclaimer, the disclaimer must be made
within a 9-month period after the exercise,
release, or lapse regardless of whether the
exercise, release, or lapse is subject to estate or gift tax. * * *
(ii) Sentences 1 through 10 and 12 of
paragraph (c)(3)(i) of this section are applicable for transfers creating the interest
to be disclaimed made on or after December 31, 1997.

1998–7 I.R.B

(4) Joint property—(i) Interests in joint
tenancy with right of survivorship or tenancies by the entirety. Except as provided
in paragraph (c)(4)(iii) of this section
(with respect to joint bank, brokerage, and
other investment accounts), in the case of
an interest in a joint tenancy with right of
survivorship or a tenancy by the entirety,
a qualified disclaimer of the interest to
which the disclaimant succeeds upon creation of the tenancy must be made no later
than 9 months after the creation of the
tenancy regardless of whether such interest can be unilaterally severed under local
law. A qualified disclaimer of the survivorship interest to which the survivor
succeeds by operation of law upon the
death of the first joint tenant to die must
be made no later than 9 months after the
death of the first joint tenant to die regardless of whether such interest can be unilaterally severed under local law and, except as provided in paragraph (c)(4)(ii) of
this section (with respect to certain tenancies created on or after July 14, 1988),
such interest is deemed to be a one-half
interest in the property. (See, however,
section 2518(b)(2)(B) for a special rule in
the case of disclaimers by persons under
age 21.) This is the case regardless of the
portion of the property attributable to consideration furnished by the disclaimant
and regardless of the portion of the property that is included in the decedent’s
gross estate under section 2040 and regardless of whether the interest can be
unilaterally severed under local law. See
paragraph (c)(5), Examples (7) and (8), of
this section.
(ii) Certain tenancies in real property
between spouses created on or after July
14. 1988. In the case of a joint tenancy between spouses or a tenancy by the entirety
in real property created on or after July
14, 1988, to which section 2523(i)(3) applies (relating to the creation of a tenancy
where the spouse of the donor is not a
United States citizen), the surviving
spouse may disclaim any portion of the
joint interest that is includible in the decedent’s gross estate under section 2040.
See paragraph (c)(5), Example (9), of this
section.
(iii) Special rule for joint bank, brokerege, and other investment accounts
(e.g., accounts held at mutual funds) established between spouses or between
persons other than husband and wife. In

23

the case of a transfer to a joint bank, brokerage, or other investment account (e.g.,
an account held at a mutual fund), if a
transferor may unilaterally regain the
transferor’s own contributions to the account without the consent of the other cotenant, such that the transfer is not a completed gift under §25.2511–l(h)(4), the
transfer creating the survivor’s interest in
the decedent’s share of the account occurs
on the death of the deceased cotenant. Accordingly, if a surviving joint tenant desires to make a qualified disclaimer with
respect to funds contributed by a deceased
cotenant, the disclaimer must be made
within 9 months of the cotenant’s death.
The surviving joint tenant may not disclaim any portion of the joint account attributable to consideration furnished by
that surviving joint tenant. See paragraph
(c)(5), Examples (12), (13), and (14), of
this section, regarding the treatment of
disclaimed interests under sections 2518,
2033 and 2040.
(iv) Effective date. This paragraph
(c)(4) is applicable for disclaimers made
on or after December 31, 1997.
(5) Examples. * * *
*

*

*

*

*

Example (7). On February 1, 1990, A purchased
real property with A’s funds. Title to the property
was conveyed to “A and B, as joint tenants with
right b’ survivorship.” Under applicable state law,
the joint interest is unilaterally severable by either
tenant. B dies on May 1, 1998, and is survived by A.
On January 1, 1999, A disclaims the one-half survivorship interest in the property to which A succeeds as a result of B’s death. Assuming that the
other requirements of section 2518(b) are satisfied,
A has made a qualified disclaimer of the one-half
survivorship interest (but not the interest retained by
A upon the creation of the tenancy, which may not
be disclaimed by A). The result is the same whether
or not A and B are married and regardless of the proportion of consideration furnished by A and B in
purchasing the property.
Example (8). Assume the iame facts as in Example (7) except that A and B are married and title to
the property was conveyed to “A and B, as tenants
by the entirety.” Under applicable state law, the tenancy cannot be unilaterally severed by either tenant.
Assuming that the other requirements of section
2518(b) are satisfied, A has made a qualified disclaimer of the one-half survivorship interest (but not
the interest retained by A upon the creation of the
tenancy, which may not be disclaimed by A). The result is the same regardless of the proportion of consideration furnished by A and B in purchasing the
property.
Example (9). On March 1, 1989, H and W purchase a tract of vacant land which is conveyed to
them as tenants by the entirety. The entire consideration is paid by H. W is not a United States citizen. H

February 17, 1998

d es on June 1, 1998. W can disclaim the entire joint
interest because this is the interest includible in H’s
gross estate under section 2040(a). Assuming that
W’s disclaimer is received by the executor of H’s estate no later than 9 months after June 1, 1998, and
the other requirements of section 2518(b) are satisfied, W’s disclaimer of the property would be a qualified disclaimer. The result would be the same if the
property was held in joint tenancy with right of survivorship that was unilaterally severable under local
law.
Example (10). In 1986, pouses A and B purchased a personal residence taking title as tenants
by the entirety. B dies on July 10, 1998. A wishes to
disclaim the one-half undivided interest to which A
would succeed by right of survivorship. If A makes
the disclaimer, the propery interest would pass under
B’s will to their child C. C, an adult, and A resided in
the residence at B’s death and will continue to reside
there in the future. A continues to own a one-half undivided interest in the property. Assuming that the
other requirements of section 2518(b) are satisfied,
A may make a qualified disclaimer with respect to
the one-half undivided survivorship interest in the
residence if A delivers the written disclaimer to the
personal representative of B’s estate by April 10,
1999, since A is not deemed to have accepted the interest or any of its benefits prior to that time and A’s
occupancy of the residence after B’s death is consistent with A’s retained undivided ownership interest.
The result would be the same if property was held in
joint tenancy with right of survivorship that was unilaterally severable under local law.
Example (11). H and W, husband and wife, reside
in state X, a community property state. * * *
Example (12). On July 1, 1990, A opens a bank
account that is held jointly with B, A’s spouse, and
transfers $50,000 of A’s money to the account. A and
B are United States citizens. A can regain the entire
account without B’s consent, such that the transfer is
not a completed gift under §25.2511–l(h)(4). A dies
on August 15, 1998, and B disclaims the entire
amount in the bank account on October 15, 1998.
Assuming that the remaining requirements of section 2518(b) are satisfied, B made a qualified disclaimer under section 2518 (a) because the disclaimer was made within 9 months after A’s death at
which time B had succeeded to full dominion and
control over the account. Under state law, B is
treated as predeceasing A with respect to the disclaimed interest. The disclaimed account balance
passes through A’s probate estate and is no longer
joint property includible in A’s gross estate under
section 2040.The entire account is, instead, includible in A’s gross estate und~er section 2033. The result would be the same if A and B were not married.
Example (13). The facts ire the same as Example
(12), except that B, rather than A, dies on August 15,
1998. A may not make a qualified disclaimer with
respect to any of the funds in the bank account, because A furnished the funds for the entire account
and A did not relinq ish dominion and control over
the funds. .
Example (14). The fact s are the same as Example
(12), except that B disclaims 40 F ercent of the funds
in the account. Since, under state law, B is treated as
predeceasing A with respect to the disclaimed in interest, the 40 percent portion of the account balance
that was disclaln~d passes as part of A’s probate estate, and is no longer characterized as joint property.

February 17, 1998

This 40 percent portion of the account balance is,
therefore, includible in A’s gross estate under section
2033. The remaining 60 percent of the account balance that was not disclaimed retains its character as
joint property and, therefore, is includible in A’s
gross estate as provide in section 2040(b). Therefore, 30 percent (1/2 ⫻ 60 percent) of the account
balance is includible in A’s gross estate under section 2040(b), and a total of 70 percent of the aggregate account balance is includible in A’s gross estate.
If A and B were not married, then the 40 percent portion of the account subject to the disclaimer would
be includible in A’s gross estate as provided in section 2033 and the 60 percent portion of the account
not subject to the disclaimer would be includible in
A’s gross estate as provided in section 2040(a), because A furnished all of the funds with respect to the
account.

*

*

*

*

*

Michael P. Dolan,
Deputy Commissioner of
Internal Revenue.
Approved December 10, 1997.
Donald C. Lubick,
Acting Assistant Secretary of
the Treasury.
(Filed by the Office of the Federal Register on
December 30, 1997, 8:45 a.m., and published in the
issue of the Federal Register for December 31, 1997,
62 F.R. 68183)

Section 2519.—Dispositions of
Certain Life Estates
26 CFR 25.2519–1: Dispositions of certain life
estates.
(Also sections 2044; 2056; 2511; 2512; 20.2044–1;
20.2056(b)–7; 25.2511–1; 25.2512–8)

Disposition of qualifying income interest. If a surviving spouse acquires the
remainder interest in a trust subject to a
QTIP election under section 2056(b)(7) of
the Code in connection with the transfer
by the surviving spouse of property or
cash to the holder of the remainder interest, the surviving spouse makes a gift
under sections 2511, 2512, and 2519 of
the Code.

Rev. Rul. 98–8
ISSUE
What are the gift tax consequences to
the surviving spouse of the acquisition by
the surviving spouse of the remainder interest in a trust subject to a qualified terminable interest property (QTIP) election

24

under § 2056(b)(7) of the Internal Revenue Code?
FACTS
The decedent, D, died in 1993 survived
by S, D’s spouse. Under the terms of D’s
will, a trust (the QTIP Trust) was established under which S was to receive all of
the trust income, payable at least annually, for S’s life. On S’s death, the remainder was to be distributed outright to C,
D’s adult child. S was not given a general
power of appointment over the trust
property.
On the federal estate tax return filed for
D’s estate, the executor made an election
under § 2056(b)(7) to treat the trust property as QTIP, and a marital deduction was
allowed to D’s estate for the value of the
property passing from D to the QTIP Trust.
Subsequently, S, C, and the trustee of
the QTIP Trust entered into the following
transaction: (1) S acquired C’s remainder
interest in the QTIP Trust; (2) S gave C a
promissory note in the face amount of x
dollars (the value of the remainder interest) for the remainder interest; (3) the
trustee distributed all of the QTIP Trust
assets (having a value of x + y dollars) to
S; and (4) S thereupon paid x dollars from
those assets to C in satisfaction of the
promissory note.
At the conclusion of the transaction,
the QTIP Trust was terminated; S held
QTIP Trust assets having a value of y dollars (which was equal to the value of S’s
life interest in the trust); and C held assets
having a value of x dollars (which was
equal to the value of the remainder interest in the trust). S contended that the
transaction was not subject to gift tax because S received full and adequate consideration (the x dollar remainder interest in
the QTIP Trust) in exchange for the x dollar promissory note given by S TO C.
LAW AND ANALYSIS
Section 2044(a) provides that the value
of the gross estate includes the value of
any property described in § 2044(b) in
which the decedent had a qualifying income interest for life. Section 2044(b)
provides that § 2044 applies to any property if a deduction was allowed with respect to the transfer of the property to the
decedent under § 2056(b)(7).
Section 2056(a) provides that the value
of the taxable estate is, except as limited

1998–7 I.R.B.