(a) General rule
The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—
(1) the possession or enjoyment of, or the right to the income from, the property, or
(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom.
(b) Voting rights
(1) In general
For purposes of subsection (a)(1), the retention of the right to vote (directly or indirectly) shares of stock of a controlled corporation shall be considered to be a retention of the enjoyment of transferred property.
(2) Controlled corporation
For purposes of paragraph (1), a corporation shall be treated as a controlled corporation if, at any time after the transfer of the property and during the 3-year period ending on the date of the decedent’s death, the decedent owned (with the application of section 318), or had the right (either alone or in conjunction with any person) to vote, stock possessing at least 20 percent of the total combined voting power of all classes of stock.
(3) Coordination with section 2035
For purposes of applying section 2035 with respect to paragraph (1), the relinquishment or cessation of voting rights shall be treated as a transfer of property made by the decedent.
(c) Limitation on application of general rule
This section shall not apply to a transfer made before March 4, 1931; nor to a transfer made after March 3, 1931, and before June 7, 1932, unless the property transferred would have been includible in the decedent’s gross estate by reason of the amendatory language of the joint resolution of March 3, 1931 (46 Stat. 1 6).
(Aug. 16, 1954, ch. 736, 68A Stat. 382; Pub. L. 87–834, §18(a)(2)(D), Oct. 16, 1962, 76 Stat. 1052; Pub. L. 94–455, title XX, §2009(a), Oct. 4, 1976, 90 Stat. 1893; Pub. L. 95–600, title VII, §702(i)(1), (2), Nov. 6, 1978, 92 Stat. 2931; Pub. L. 100–203, title X, §10402(a), Dec. 22, 1987, 101 Stat. 1330–431; Pub. L. 100–647, title III, §3031(a)(1), (b)–(e), (g), Nov. 10, 1988, 102 Stat. 3634–3638; Pub. L. 101–508, title XI, §11601(a), Nov. 5, 1990, 104 Stat. 1388–490.)
1990—Subsecs. (c), (d). Pub. L. 101–508 redesignated subsec. (d) as (c) and struck out former subsec. (c) which enunciated a rule that retention of retained interest would be considered to be a retention of enjoyment of transferred property if a person held a substantial interest in an enterprise, and such person in effect transferred after Dec. 17, 1987, property having a disproportionately large share of the potential appreciation in such person’s interest in the enterprise while retaining an interest in the income of, or rights in, the enterprise.
1988—Subsec. (c)(1)(B). Pub. L. 100–647, §3031(e), substituted “an interest” for “a disproportionately large share” after “whole retaining”.
Subsec. (c)(2). Pub. L. 100–647, §3031(g)(1), substituted “consideration furnished by” for “sales to” in heading, and amended text generally. Prior to amendment, text read as follows: “The exception contained in subsection (a) for a bona fide sale shall not apply to a transfer described in paragraph (1) if such transfer is to a member of the transferor’s family.”
Subsec. (c)(3)(C). Pub. L. 100–647, §3031(d), substituted “Except as provided in regulations, an” for “An”.
Subsec. (c)(4). Pub. L. 100–647, §3031(a)(1), amended par. (4) generally, substituting provisions relating to treatment of certain transfers for provisions relating to coordination with section 2035.
Subsec. (c)(5). Pub. L. 100–647, §3031(g)(2), amended par. (5) generally, substituting provisions relating to the making of appropriate adjustments in amounts included in gross estate for provisions relating to coordination with section 2043.
Subsec. (c)(6). Pub. L. 100–647, §3031(b), added par. (6).
Subsec. (c)(7), (8). Pub. L. 100–647, §3031(b)[(c)], added pars. (7) and (8).
1987—Subsecs. (c), (d). Pub. L. 100–203 added subsec. (c) and redesignated former subsec. (c) as (d).
1978—Subsec. (a). Pub. L. 95–600, §702(i)(2), struck out provision following par. (2) relating to the retention of voting rights in retained stock.
Subsecs. (b), (c). Pub. L. 95–600, §702(i)(1), added subsec. (b) and redesignated former subsec. (b) as (c).
1976—Subsec. (a). Pub. L. 94–455 provided that, for purposes of par. (1), the retention of voting rights in retained stock be considered to be a retention of the enjoyment of that stock.
1962—Subsec. (a). Pub. L. 87–834 struck out provisions which excepted real property situated outside of the United States.
Effective Date of 1990 Amendment
Section 11601(c) of Pub. L. 101–508 provided that: “The amendments made by this section [amending this section and sections 2207B and 2501 of this title] shall apply in the case of property transferred after December 17, 1987.”
Effective Date of 1988 Amendment
Section 3031(h) of Pub. L. 100–647 provided that:
“(A) during such period, such actions are taken as are necessary to have such section 2036(c)(1) not apply to such transaction (and any such interest), or
“(B) the original transferor and his spouse on January 1, 1990 (or, if earlier, the date of the original transferor’s death), does not hold any interest in the enterprise involved.
“(A) any failure to exercise a right of conversion,
“(B) any failure to pay dividends, and
“(c) [sic] failures to exercise other rights specified in regulations,
shall not be treated as a subsequent transfer.”
Effective Date of 1987 Amendment
Section 10402(b) of Pub. L. 100–203 provided that: “The amendment made by subsection (a) [amending this section] shall apply with respect to estates of decedents dying after December 31, 1987, but only in the case of property transferred after December 17, 1987.” [For clarification of this note, see section 3031(h)(5) of Pub. L. 100–647, set out as an Effective Date of 1988 Amendment note above.]
Effective Date of 1978 Amendment
Section 702(i)(3) of Pub. L. 95–600 provided that: “The amendments made by this subsection [amending this section] shall apply to transfers made after June 22, 1976.”
Effective Date of 1976 Amendment
Section 2009(e)(1) of Pub. L. 94–455 provided that: “The amendment made by subsection (a) [amending this section] shall apply to transfers made after June 22, 1976.”
Effective Date of 1962 Amendment
Amendment by Pub. L. 87–834 applicable to estates of decedents dying after Oct. 16, 1962, except as otherwise provided, see section 18(b) of Pub. L. 87–834, set out as a note under section 2031 of this title.