26 U.S.C. § 2601: Tax imposed

A tax is hereby imposed on every generation-skipping transfer (within the meaning of subchapter B). Except as provided in subsection (b), the amendments made by this subtitle [subtitle D (§§ 1431–1433) of title XIV of Pub. L. 99–514 , amending chapter 13 of this title, enacting section 2515 of this title , and amending sections 164, 303, 691, 2013, 2032, and 6166 of this title] shall apply to any generation-skipping transfer (within the meaning of section 2611 of the Internal Revenue Code of 1986) made after the date of the enactment of this Act [ Oct. 22, 1986 ]. For purposes of subsection (a) (and chapter 13 of the Internal Revenue Code of 1986 as amended by this part), any inter vivos transfer after September 25, 1985 , and on or before the date of the enactment of this Act [ Oct. 22, 1986 ] shall be treated as if it were made on the 1st day after the date of enactment of this Act. any generation-skipping transfer under a trust which was irrevocable on September 25, 1985 , but only to the extent that such transfer is not made out of corpus added to the trust after September 25, 1985 (or out of income attributable to corpus so added), any generation-skipping transfer under a will or revocable trust executed before the date of the enactment of this Act [ Oct. 22, 1986 ] if the decedent dies before January 1, 1987 , and under a trust to the extent such trust consists of property included in the gross estate of a decedent (other than property transferred by the decedent during his life after the date of the enactment of this Act [ Oct. 22, 1986 ]), or reinvestments thereof, or which is a direct skip which occurs by reason of the death of any decedent; For purposes of chapter 13 of the Internal Revenue Code of 1986, the term ‘direct skip’ shall not include any transfer before January 1, 1990 , from a transferor to a grandchild of the transferor to the extent the aggregate transfers from such transferor to such grandchild do not exceed $2,000,000. during the life of the grandchild, no portion of the corpus or income of the trust may be distributed to (or for the benefit of) any person other than such grandchild, the assets of the trust will be includible in the gross estate of the grandchild if the grandchild dies before the trust is terminated, and all of the income of the trust for periods after the grandchild has attained age 21 will be distributed to (or for the benefit of) such grandchild not less frequently than annually. In the case of any transfer which would be a generation-skipping transfer but for subparagraph (A), the rules of section 2653(a) of the Internal Revenue Code of 1986 shall apply as if such transfer were a generation-skipping transfer. For purposes of chapter 13 of the Internal Revenue Code of 1986, the terms ‘taxable termination’ and ‘taxable distribution’ shall not include any transfer which would be a direct skip but for subparagraph (A). Terms used in this section shall have the same respective meanings as when used in chapter 13 of the Internal Revenue Code of 1986; except that section 2612(c)(2) of such Code shall not apply in determining whether an individual is a grandchild of the transferor. In the case of any tax imposed by chapter 13 of the Internal Revenue Code of 1954 [now 1986] (as in effect on the day before the date of the enactment of this Act [ Oct. 22, 1986 ]), such tax (including interest, additions to tax, and additional amounts) shall not be assessed and if assessed, the assessment shall be abated, and if collected, shall be credited or refunded (with interest) as an overpayment. If on the date of the enactment of this Act [ Oct. 22, 1986 ] (or at any time within 1 year after such date of enactment) refund or credit of any overpayment of tax resulting from the application of paragraph (1) is barred by any law or rule of law, refund or credit of such overpayment shall, nevertheless, be made or allowed if claim therefore [sic] is filed before the date 1 year after the date of the enactment of this Act. the transfer occurs before the date of enactment of this Act [ Oct. 22, 1986 ], the transfer would be a direct skip to a grandchild except for the fact that the trust instrument provides that, if the grandchild dies before vesting of the interest transferred, the interest is transferred to the grandchild’s heir (rather than the grandchild’s estate), and an election under this subsection applies to such transfer. An election under paragraph (1) shall be made at such time and in such manner as the Secretary of the Treasury or his delegate may prescribe. Except as provided in paragraph (2), the amendments made by this section [enacting this chapter and amending sections 303, 691, and 2013 of this title] shall apply to any generation-skipping transfer (within the meaning of section 2611(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) made after June 11, 1976 . under a trust which was irrevocable on June 11, 1976 , but only to the extent that the transfer is not made out of corpus added to the trust after June 11, 1976 , or in the case of a decedent dying before January 1, 1983 , pursuant to a will (or revocable trust) which was in existence on June 11, 1976 , and was not amended at any time after that date in any respect which will result in the creation of, or increasing the amount of, any generation-skipping transfer. For purposes of paragraph (2), in the case of a trust equivalent within the meaning of subsection (d) of section 2611 of the Internal Revenue Code of 1986, the provisions of such subsection (d) shall apply.”