(a) Allowance of deduction Where a
donor transfers during the calendar year by gift an interest in property to a donee who at the time of the gift is the donors spouse, there shall be allowed as a deduction in computing taxable gifts for the calendar year an amount with respect to such interest equal to its value.
(b) Life estate or other terminable interest Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, such interest transferred to the spouse will terminate or fail, no deduction shall be allowed with respect to such interest
(1) if the
donor retains in himself, or transfers or has transferred (for less than an adequate and full consideration in money or moneys worth) to any person other than such donee spouse (or the estate of such spouse), an interest in such property, and if by reason of such retention or transfer the
donor (or his heirs or assigns) or such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest transferred to the donee spouse; or
(2) if the
donor immediately after the transfer to the donee spouse has a power to appoint an interest in such property which he can exercise (either alone or in conjunction with any person) in such manner that the appointee may possess or enjoy any part of such property after such termination or failure of the interest transferred to the donee spouse. For purposes of this paragraph, the
donor shall be considered as having immediately after the transfer to the donee spouse such power to appoint even though such power cannot be exercised until after the lapse of time, upon the occurrence of an event or contingency, or on the failure of an event or contingency to occur.
An exercise or release at any time by the donor, either alone or in conjunction with any person, of a power to appoint an interest in property, even though not otherwise a transfer, shall, for purposes of paragraph (1), be considered as a transfer by him. Except as provided in subsection (e), where at the time of the transfer it is impossible to ascertain the particular person or persons who may receive from the donor an interest in property so transferred by him, such interest shall, for purposes of paragraph (1), be considered as transferred to a person other than the donee spouse.
(c) Interest in unidentified assets Where the assets out of which, or the proceeds of which, the interest transferred to the donee spouse may be satisfied include a particular asset or assets with respect to which no deduction would be allowed if such asset or assets were transferred from the
donor to such spouse, then the value of the interest transferred to such spouse shall, for purposes of subsection (a), be reduced by the aggregate value of such particular assets.
(d) Joint interests If the interest is transferred to the donee spouse as sole joint tenant with the
donor or as tenant by the entirety, the interest of the
donor in the property which exists solely by reason of the possibility that the
donor may survive the donee spouse, or that there may occur a severance of the tenancy, shall not be considered for purposes of subsection (b) as an interest retained by the
donor in himself.
(e) Life estate with power of appointment in donee spouse Where the
donor transfers an interest in property, if by such transfer his spouse is entitled for life to all of the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the donee spouse to appoint the entire interest, or such specific portion (exercisable in favor of such donee spouse, or of the estate of such donee spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of such interest, or such portion, to any person other than the donee spouse
(1) the interest, or such portion, so transferred shall, for purposes of subsection (a) be considered as transferred to the donee spouse, and
(2) no part of the interest, or such portion, so transferred shall, for purposes of subsection (b)(1), be considered as retained in the
donor or transferred to any person other than the donee spouse.
This subsection shall apply only if, by such transfer, such power in the donee spouse to appoint the interest, or such portion, whether exercisable by will or during life, is exercisable by such spouse alone and in all events. For purposes of this subsection, the term specific portion only includes a portion determined on a fractional or percentage basis.
(f) Election with respect to life estate for donee spouse
(1) In general In the case of qualified terminable interest property
(A) for purposes of subsection (a), such property shall be treated as transferred to the donee spouse, and
(B) for purposes of subsection (b)(1), no part of such property shall be considered as retained in the
donor or transferred to any person other than the donee spouse.
(2) Qualified terminable interest property For purposes of this subsection, the term qualified terminable interest property means any property
(A) which is transferred by the
donor spouse,
(B) in which the donee spouse has a qualifying income interest for life, and
(C) to which an election under this subsection applies.
(3) Certain rules made applicable For purposes of this subsection, rules similar to the rules of clauses (ii), (iii), and (iv) of section
2056 (b)(7)(B) shall apply and the rules of section
2056 (b)(10) shall apply.
(4) Election
(A) Time and manner An election under this subsection with respect to any property shall be made on or before the date prescribed by section
6075 (b) for filing a gift tax return with respect to the transfer (determined without regard to section
6019 (2)) and shall be made in such manner as the Secretary shall by regulations prescribe.
(B) Election irrevocable
An election under this subsection, once made, shall be irrevocable.
(5) Treatment of interest retained by donor spouse
(A) In general In the case of any qualified terminable interest property
(i) such property shall not be includible in the gross estate of the
donor spouse, and
(ii) any subsequent transfer by the
donor spouse of an interest in such property shall not be treated as a transfer for purposes of this chapter.
(B) Subparagraph (A) not to apply after transfer by donee spouse Subparagraph (A) shall not apply with respect to any property after the donee spouse is treated as having transferred such property under section
2519, or such property is includible in the donee spouses gross estate under section
2044.
(6) Treatment of joint and survivor annuities In the case of a joint and survivor annuity where only the
donor spouse and donee spouse have the right to receive payments before the death of the last spouse to die
(A) the donee spouses interest shall be treated as a qualifying income interest for life,
(B) the
donor spouse shall be treated as having made an election under this subsection with respect to such annuity unless the
donor spouse otherwise elects on or before the date specified in paragraph (4)(A),
(C) paragraph (5) and section
2519 shall not apply to the
donor spouses interest in the annuity, and
(D) if the donee spouse dies before the
donor spouse, no amount shall be includible in the gross estate of the donee spouse under section
2044 with respect to such annuity.
An election under subparagraph (B), once made, shall be irrevocable.
(g) Special rule for charitable remainder trusts
(1) In general If, after the transfer, the donee spouse is the only noncharitable beneficiary (other than the
donor) of a qualified charitable remainder trust, subsection (b) shall not apply to the interest in such trust which is transferred to the donee spouse.
(2) Definitions For purposes of paragraph (1), the term noncharitable beneficiary and qualified charitable remainder trust have the meanings given to such terms by section
2056 (b)(8)(B).
(h) Denial of double deduction Nothing in this section or any other provision of this chapter shall allow the value of any interest in property to be deducted under this chapter more than once with respect to the same
donor.
(i) Disallowance of marital deduction where spouse not citizen If the spouse of the
donor is not a citizen of the United States
(1) no deduction shall be allowed under this section,
(2) section
2503 (b) shall be applied with respect to gifts which are made by the
donor to such spouse and with respect to which a deduction would be allowable under this section but for paragraph (1) by substituting $100,000 for $10,000, and
(3) the principles of sections
2515 and
2515A (as such sections were in effect before their repeal by the Economic Recovery Tax Act of 1981) shall apply, except that the provisions of such section
2515 providing for an election shall not apply.
This subsection shall not apply to any transfer resulting from the acquisition of rights under a joint and survivor annuity described in subsection (f)(6).
