Generation-Skipping Transfer Tax

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 26

[PS-22-96]

RIN 1545-AU26

Generation-Skipping Transfer Tax

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to the

final generation-skipping transfer (GST) tax regulations under chapter

13 of the Internal Revenue Code (Code). This document proposes a change

to the final regulations and is necessary to provide guidance to

taxpayers so that they may comply with chapter 13 of the Code.

DATES: Written comments and requests for a public hearing must be

received by September 10, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (PS-22-96), room 5228,

Internal Revenue Service, POB 7604, Ben Franklin Station, Washington,

DC 20044. In the alternative, submissions may be hand delivered between

the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (PS-22-96), Courier's

Desk, Internal Revenue Service, 1111 Constitution NW., Washington, DC

20224.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation,

James F. Hogan, (202) 622-3090 (not a toll-free number); concerning

submissions, Christina Vasquez, (202) 622-7180, (not a toll-free

number).

SUPPLEMENTARY INFORMATION:

Background

On December 24, 1992, the IRS published a notice of proposed

rulemaking in the Federal Register (57 FR 61356) containing proposed

regulations under sections 2611, 2612, 2613, 2632, 2641, 2642, 2652,

2653, 2654, and 2663. On December 27, 1995, the IRS published final

regulations in the Federal Register (60 FR 66898) under sections 2611,

2612, 2613, 2632, 2641, 2642, 2652, 2653, 2654, and 2663. This proposed

regulation will delete Sec. 26.2652-1(a)(4) and two related examples.

Explanation of Provision

Section 2652(a)(1) provides generally, that the term transferor

means--(A) in the case of any property subject to the tax imposed by

chapter 11, the decedent, and (B) in the case of any property subject

to the tax imposed by chapter 12, the donor. An individual is treated

as transferring any property with respect to which the individual is

the transferor. Under Sec. 26.2652-1(a)(2), a transfer is subject to

Federal gift tax if a gift tax is imposed under section 2501(a) and is

subject to Federal estate tax if the value of the property is

includable in the decedent's gross estate determined under section 2031

or section 2103. Under Sec. 26.2652-1(a)(4), the exercise of a power of

appointment that is not a general power of appointment is also treated

as a transfer subject to Federal estate or gift tax by the holder of

the power if the power is exercised in a manner that may postpone or

suspend the vesting, absolute ownership, or power of alienation of an

interest in property for a period, measured from the date of the

creation of the trust, extending beyond any specified life in being at

the date of creation of the trust plus a period of 21 years plus, if

necessary, a reasonable period of gestation.

The purpose of the rule in Sec. 26.2652-1(a)(4) was to apply the

GST tax when

[[Page 29715]]

it may not otherwise have applied. It was never intended to (nor could

it) prevent the application of the tax pursuant to the statutory

provisions that apply based on the original taxable transfer. To

eliminate any uncertainty concerning the proper application of the GST

tax, the regulations under section 2652(a) will be clarified by

eliminating Sec. 26.2652-1(a)(4) and Example 9 and Example 10 in

Sec. 26.2652-1(a)(6) from the final regulations.

Proposed Effective Date

These amendments apply to transfers to trusts on or after June 12,

1996.

Special Analysis

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 12866. Therefore,

a regulatory assessment is not required. It has also been determined

that section 553(b) of the Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and therefore, a Regulatory Flexibility

Analysis is not required. 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 its impact on small business.

Comments and Requests for a Public Hearing

Before this proposed regulation is adopted as a final regulation,

consideration will be given to any written comments (a signed original

and eight (8) copies) that are submitted timely to the IRS. All

comments will be available for public inspection and copying. A public

hearing may be scheduled if requested in writing by a person that

timely submits written comments. If a public hearing is scheduled,

notice of the date, time, and place for the hearing will be published

in the Federal Register.

Drafting Information

The principal author of this proposed regulation is James F. Hogan,

Office of the Chief Counsel, IRS. Other personnel from the IRS and

Treasury Department participated in its development.

List of Subjects in 26 CFR Part 26

Estate taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 26 is proposed to be amended as follows:

PART 26--GENERATION-SKIPPING TRANSFER TAX REGULATIONS UNDER THE TAX

REFORM ACT OF 1986

Paragraph 1. The authority citation for part 26 continues to read,

in part, as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 26.2652-1 is amended as follows:

Sec. 26.2652-1 [Amended]

1. Paragraph (a)(4) is removed and paragraphs (a)(5) and (a)(6) are

redesignated as paragraphs (a)(4) and (a)(5), respectively.

2. In newly designated paragraph (a)(5), Examples 9 and 10 are

removed and Example 11 is redesignated as Example 9.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 96-13858 Filed 6-11-96; 8:45 am]

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