§2663 — Regulations
9 citing cases
Statute Text — 26 U.S.C. §2663
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this chapter, including—
such regulations as may be necessary to coordinate the provisions of this chapter with the recapture tax imposed under section 2032A(c),
regulations (consistent with the principles of chapters 11 and 12) providing for the application of this chapter in the case of transferors who are nonresidents not citizens of the United States, and
regulations providing for such adjustments as may be necessary to the application of this chapter in the case of any arrangement which, although not a trust, is treated as a trust under section 2652(b).
Treasury Regulations
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Treas. Reg. §26.2663-1Recapture tax under section 2032A
See § 26.2642-4(a)(4) for rules relating to the recomputation of the applicable fraction and the imposition of additional GST tax, if additional estate tax is imposed under section 2032A.
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Treas. Reg. §26.2663-2Application of chapter 13 to transfers by nonresidents not citizens of the United States
(a) In general. This section provides rules for applying chapter 13 of the Internal Revenue Code to transfers by a transferor who is a nonresident not a citizen of the United States (NRA transferor). For purposes of this section, an individual is a resident or citizen of the United States if that individual is a resident or citizen of the United States under the rules of chapter 11 or 12 of the Internal Revenue Code, as the case may be. Every NRA transferor is allowed a GST exemption of $1,000,000. See § 26.2632-1 regarding the allocation of the exemption.
(b) Transfers subject to chapter 13—(1) Direct skips. A transfer by a NRA transferor is a direct skip subject to chapter 13 only to the extent that the transfer is subject to the Federal estate or gift tax within the meaning of § 26.2652-1(a)(2). See § 26.2612-1(a) for the definition of direct skip.
(2) Taxable distributions and taxable terminations. Chapter 13 applies to a taxable distribution or a taxable termination to the extent that the initial transfer of property to the trust by a NRA transferor, whether during life or at death, was subject to the Federal estate or gift tax within the meaning of § 26.2652-1(a)(2). See § 26.2612-1(b) for the definition of a taxable termination and § 26.2612-1(c) for the definition of a taxable distribution.
(c) Trusts funded in part with property subject to chapter 13 and in part with property not subject to chapter 13—(1) In general. If a single trust created by a NRA transferor is in part subject to chapter 13 under the rules of paragraph (b) of this section and in part not subject to chapter 13, the applicable fraction with respect to the trust is determined as of the date of the transfer, except as provided in paragraph (c)(3) of this section.
(i) Numerator of applicable fraction. The numerator of the applicable fraction is the sum of the amount of GST exemption allocated to the trust (if any) plus the value of the nontax portion of the trust.
(ii) Denominator of applicable fraction. The denominator of the applicable fraction is the value of the property transferred to the trust reduced as provided in § 26.2642-1(c).
(2) Nontax portion of the trust. The nontax portion of a trust is a fraction, the numerator of which is the value of property not subject to chapter 13 determined as of the date of the initial completed transfer to the trust, and the denominator of which is the value of the entire trust. For example, T, a NRA transferor, transfers property that has a value of $1,000 to a generation-skipping trust. Of the property transferred to the trust, property having a value of $200 is subject to chapter 13 and property having a value of $800 is not subject to chapter 13. The nontax portion is .8 ($800 (the value of the property not subject to chapter 13) over $1,000 (the total value of the property transferred to the trust)).
(3) Special rule with respect to the estate tax inclusion period. For purposes of this section, the provisions of § 26.2632-1(c), providing rules applicable in the case of an estate tax inclusion period (ETIP), apply only if the property transferred by the NRA transferor is subsequently included in the transferor's gross estate. If the property is not subsequently included in the gross estate, then the nontax portion of the trust and the applicable fraction are determined as of the date of the initial transfer. If the property is subsequently included in the gross estate, then the nontax portion and the applicable fraction are determined as of the date of death.
(d) Examples. The following examples illustrate the provisions of this section. In each example T, a NRA, is the transferor; C is T's child; and GC is C's child and a grandchild of T:
(e) Transitional rule for allocations for transfers made before December 27, 1995. If an NRA made a GST (inter vivos or testamentary) after December 23, 1992, and before December 27, 1995 that is subject to chapter 13 (within the meaning of § 26.2663-2), the NRA will be treated as having made a timely allocation of GST exemption to the transfer in a calendar year in the order prescribed in section 2632(c). Thus, a NRA's unused GST exemption will initially be treated as allocated to any direct skips made during the calendar year and then to any trusts with respect to which the NRA made transfers during the same calendar year and from which a taxable distribution or a taxable termination may occur. Allocations within the above categories are made in the order in which the transfers occur. Allocations among simultaneous transfers within the same category are made pursuant to the principles of section 2632(c)(2). This transitional allocation rule will not apply if the NRA transferor, or the executor of the NRA's estate, as the case may be, elected to have an automatic allocation of GST exemption not apply by describing on a timely-filed Form 709 for the year of the transfer, or a timely filed Form 706NA, the details of the transfer and the extent to which the allocation was not to apply.
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Treas. Reg. §26.2663-2(a)In general.
In general. This section provides rules for applying chapter 13 of the Internal Revenue Code to transfers by a transferor who is a nonresident not a citizen of the United States (NRA transferor). For purposes of this section, an individual is a resident or citizen of the United States if that individual is a resident or citizen of the United States under the rules of chapter 11 or 12 of the Internal Revenue Code, as the case may be. Every NRA transferor is allowed a GST exemption of $1,000,000. See § 26.2632-1 regarding the allocation of the exemption.
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Treas. Reg. §26.2663-2(b)Transfers subject to chapter 13—(1) Direct skips.
Transfers subject to chapter 13—(1) Direct skips. A transfer by a NRA transferor is a direct skip subject to chapter 13 only to the extent that the transfer is subject to the Federal estate or gift tax within the meaning of § 26.2652-1(a)(2). See § 26.2612-1(a) for the definition of direct skip.
(2) Taxable distributions and taxable terminations. Chapter 13 applies to a taxable distribution or a taxable termination to the extent that the initial transfer of property to the trust by a NRA transferor, whether during life or at death, was subject to the Federal estate or gift tax within the meaning of § 26.2652-1(a)(2). See § 26.2612-1(b) for the definition of a taxable termination and § 26.2612-1(c) for the definition of a taxable distribution.
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Treas. Reg. §26.2663-2(c)Trusts funded in part with property subject to chapter 13 and in part with property not subject to chapter 13—(1) In general.
Trusts funded in part with property subject to chapter 13 and in part with property not subject to chapter 13—(1) In general. If a single trust created by a NRA transferor is in part subject to chapter 13 under the rules of paragraph (b) of this section and in part not subject to chapter 13, the applicable fraction with respect to the trust is determined as of the date of the transfer, except as provided in paragraph (c)(3) of this section.
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Treas. Reg. §26.2663-2(d)Examples.
Examples. The following examples illustrate the provisions of this section. In each example T, a NRA, is the transferor; C is T's child; and GC is C's child and a grandchild of T:
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Treas. Reg. §26.2663-2(e)Transitional rule for allocations for transfers made before December 27, 1995.
Transitional rule for allocations for transfers made before December 27, 1995. If an NRA made a GST (inter vivos or testamentary) after December 23, 1992, and before December 27, 1995 that is subject to chapter 13 (within the meaning of § 26.2663-2), the NRA will be treated as having made a timely allocation of GST exemption to the transfer in a calendar year in the order prescribed in section 2632(c). Thus, a NRA's unused GST exemption will initially be treated as allocated to any direct skips made during the calendar year and then to any trusts with respect to which the NRA made transfers during the same calendar year and from which a taxable distribution or a taxable termination may occur. Allocations within the above categories are made in the order in which the transfers occur. Allocations among simultaneous transfers within the same category are made pursuant to the principles of section 2632(c)(2). This transitional allocation rule will not apply if the NRA transferor, or the executor of the NRA's estate, as the case may be, elected to have an automatic allocation of GST exemption not apply by describing on a timely-filed Form 709 for the year of the transfer, or a timely filed Form 706NA, the details of the transfer and the extent to which the allocation was not to apply.
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Treas. Reg. §26.2663-2(i)Numerator of applicable fraction.
Numerator of applicable fraction. The numerator of the applicable fraction is the sum of the amount of GST exemption allocated to the trust (if any) plus the value of the nontax portion of the trust.
(ii) Denominator of applicable fraction. The denominator of the applicable fraction is the value of the property transferred to the trust reduced as provided in § 26.2642-1(c).
(2) Nontax portion of the trust. The nontax portion of a trust is a fraction, the numerator of which is the value of property not subject to chapter 13 determined as of the date of the initial completed transfer to the trust, and the denominator of which is the value of the entire trust. For example, T, a NRA transferor, transfers property that has a value of $1,000 to a generation-skipping trust. Of the property transferred to the trust, property having a value of $200 is subject to chapter 13 and property having a value of $800 is not subject to chapter 13. The nontax portion is .8 ($800 (the value of the property not subject to chapter 13) over $1,000 (the total value of the property transferred to the trust)).
(3) Special rule with respect to the estate tax inclusion period. For purposes of this section, the provisions of § 26.2632-1(c), providing rules applicable in the case of an estate tax inclusion period (ETIP), apply only if the property transferred by the NRA transferor is subsequently included in the transferor's gross estate. If the property is not subsequently included in the gross estate, then the nontax portion of the trust and the applicable fraction are determined as of the date of the initial transfer. If the property is subsequently included in the gross estate, then the nontax portion and the applicable fraction are determined as of the date of death.
9 Citing Cases
931(d)(2), unlike the grant of authority in previous cases holding that the “how” prong of the test was applicable, explicitly provides that “whether income is described in paragraph (1) or (2) of subsection (a) shall be made under regulations prescribed by the Secretary.”(Emphasis added.) In addition, the grant of authority at issue in Estate of Neumann v.
ubsection (a) shall be made under regulations prescribed by the Secretary.” (Emphasis added.) In addition, the grant of authority at issue in Estate of Neumann v. Commissioner, supra at 218, directed the Secretary to draft regulations “consistent with the principles of chapters 11 and 12”, thus giving the Court a foundation for its conclusion. See sec. 2663(2).
We concluded that Congress had not given the Secretary the power to determine section 2663's application; i.e., whether the general rule of section 2663 applied to cases such as the taxpayer's.
We concluded that Congress had not given the Secretary the power to determine section 2663’s application; i.e., whether the general rule of section 2663 applied to cases such as the taxpayer’s.
In enacting section 2663(2), Congress simply recognized that there would be problems of allocation and calculations of tax in respect of nonresident aliens because, unlike citizens and residents, not all the property of nonresident aliens is subject to U.S. estate tax. We are unimpressed with petitioner's attempt to create a "whether" patina to section 2663(2) by pointing to alleged gaps and possible invalid provisions of the proposed regulations dealing with the definition of "direct skip" tran
Although section 2663, which was added by TRA 1986 section 1431(a), 100 Stat.
Because the effective date rules of TRA 1986 section 1433(b)(2)(A) are separate transitional provisions that are not incorporated into chapter 13 of the Code, the delegation authority of section 2663 is not applicable. See Western Natl. Mut. Ins. Co. v. Commissioner, 102 T.C. 338, 357 (1994). Accordingly, the authority for the challenged