Page:United States Statutes at Large Volume 102 Part 4.djvu/665

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PUBLIC LAW 100-647—NOV. 10, 1988

102 STAT. 3635

eludes any member of the original transferor's family to whom the property is subsequently transferred. "(iii) PARAGRAPH (i) INCLUSION.—The term 'paragraph (1) inclusion' means the amount which would have been included in the gross estate of the original transferor under subsection (a) by reason of paragraph (1) (determined without regard to sections 2032 and 2032A) if the original transferor died immediately before the transfer referred to in subparagraph (A). The amount determined under the preceding sentence shall be reduced by the amount (if any) of the taxable gift resulting from the transfer referred to in paragraph (I)(B). "(iv) TRANSFERS TO INCLUDE TERMINATIONS, ETC.—

Terminations, lapses, and other changes in any interest in property of the original transferor or original transferee shall be treated as transfers. "(E) CONTINUING INTEREST IN TRANSFERRED PROPERTY MAY

NOT BE RETAINED.—A transfer (to which subparagraph (A) would otherwise apply) shall not be taken into account under subparagraph (A) if the original transferor or the original transferee (as the case may be) retains a direct or indirect continuing interest in the property transferred in such transfer." (2) CROSS REFERENCE.—Subsection (d) of section 2501 of the

1986 Code is amended by adding at the end thereof the following: (3) For treatment of certain transfers related to estate tax valuation freezes as gifts to which this chapter applies, see section 2036(c)(4)." (b) TREATMENT OF CERTAIN GRANTOR RETAINED INCOME TRUSTS.—

Subsection (c) of section 2036 of the 1986 (Dode is amended by adding at the end thereof the following new paragraph: "(6) TREATMENT OF CERTAIN GRANTOR RETAINED INTEREST TRUSTS.—

"(A) IN GENERAL.—For purposes of this subsection, any retention of a qualified trust income interest shall be disregarded and the property with respect to which such interest exists shall be treated as held by the transferor while such income interest continues. "(B) QUALIFIED TRUST INCOME INTEREST.—For purposes of subpsu-agraph (A), the term 'qualified trust income interest' means any right to receive amounts determined solely by reference to the income from property held in trust if— "(i) such right is for a period not exceeding 10 years, "(ii) the person holding such right transferred the property to the trust, and "(iii) such person is not a trustee of such trust." (b) EXCEPTIONS.—Subsection (c) of section 2036 of the 1986 Code is amended by adding at the end thereof the following new paragraphs: "(7) EXCEPTIONS.—

"(A) IN GENERAL.—Paragraph (1) shall not apply to a transaction solely by reason of 1 or more of the following: "(i) The receipt (or retention) of qualified debt. "(ii) Except as provided in regulations, the existence of an agreement for the sale or lease of goods or other

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