26 U.S.C. § 2701: Special valuation rules in case of transfers of certain interests in corporations or partnerships

which is described in subparagraph (A) or (B) of subsection (b)(1), and which is with respect to any applicable retained interest that is held by the transferor or an applicable family member immediately after the transfer, market quotations are readily available (as of the date of the transfer) for such interest on an established securities market, such interest is of the same class as the transferred interest, or such interest is proportionally the same as the transferred interest, without regard to nonlapsing differences in voting power (or, for a partnership, nonlapsing differences with respect to management and limitations on liability). The value of any right described in paragraph (1), other than a distribution right which consists of a right to receive a qualified payment, shall be treated as being zero. any applicable retained interest confers a distribution right which consists of the right to a qualified payment, and there are 1 or more liquidation, put, call, or conversion rights with respect to such interest, In the case of an applicable retained interest which is described in subparagraph (B)(i) but not subparagraph (B)(ii), the value of the distribution right shall be determined without regard to this section. the total value of all of the equity interests in such entity, plus the total amount of indebtedness of such entity to the transferor (or an applicable family member). The term “junior equity interest” means common stock or, in the case of a partnership, any partnership interest under which the rights as to income and capital (or, to the extent provided in regulations, the rights as to either income or capital) are junior to the rights of all other classes of equity interests. The term “equity interest” means stock or any interest as a partner, as the case may be. a distribution right, but only if, immediately before the transfer described in subsection (a)(1), the transferor and applicable family members hold (after application of subsection (e)(3)) control of the entity, or a liquidation, put, call, or conversion right. In the case of a corporation, the term “control” means the holding of at least 50 percent (by vote or value) of the stock of the corporation. the holding of at least 50 percent of the capital or profits interests in the partnership, or in the case of a limited partnership, the holding of any interest as a general partner. For purposes of this subsection, the term “applicable family member” includes any lineal descendant of any parent of the transferor or the transferor’s spouse. a right to distributions from a corporation with respect to its stock, and a right to distributions from a partnership with respect to a partner’s interest in the partnership. a right to distributions with respect to any interest which is junior to the rights of the transferred interest, any liquidation, put, call, or conversion right, or any right to receive any guaranteed payment described in section 707(c) of a fixed amount. The term “liquidation, put, call, or conversion right” means any liquidation, put, call, or conversion right, or any similar right, the exercise or nonexercise of which affects the value of the transferred interest. The term “liquidation, put, call, or conversion right” does not include any right which must be exercised at a specific time and at a specific amount. If a right is assumed to be exercised in a particular manner under subsection (a)(3)(B), such right shall be treated as so exercised for purposes of clause (i). is a right to convert into a fixed number (or a fixed percentage) of shares of the same class of stock in a corporation as the transferred stock in such corporation under subsection (a)(1) (or stock which would be of the same class but for nonlapsing differences in voting power), is nonlapsing, is subject to proportionate adjustments for splits, combinations, reclassifications, and similar changes in the capital stock, and is subject to adjustments similar to the adjustments under subsection (d) for accumulated but unpaid distributions. Except as otherwise provided in this paragraph, the term “qualified payment” means any dividend payable on a periodic basis under any cumulative preferred stock (or a comparable payment under any partnership interest) to the extent that such dividend (or comparable payment) is determined at a fixed rate. For purposes of subparagraph (A), a payment shall be treated as fixed as to rate if such payment is determined at a rate which bears a fixed relationship to a specified market interest rate. Payments under any interest held by a transferor which (without regard to this subparagraph) are qualified payments shall be treated as qualified payments unless the transferor elects not to treat such payments as qualified payments. Payments described in the preceding sentence which are held by an applicable family member shall be treated as qualified payments only if such member elects to treat such payments as qualified payments. A transferor or applicable family member holding any distribution right which (without regard to this subparagraph) is not a qualified payment may elect to treat such right as a qualified payment, to be paid in the amounts and at the times specified in such election. The preceding sentence shall apply only to the extent that the amounts and times so specified are not inconsistent with the underlying legal instrument giving rise to such right. Any election under this subparagraph with respect to an interest shall, once made, be irrevocable. The taxable estate of the transferor in the case of a taxable event described in paragraph (3)(A)(i). The taxable gifts of the transferor for the calendar year in which the taxable event occurs in the case of a taxable event described in paragraph (3)(A)(ii) or (iii). all such payments were paid on the date payment was due, and all such payments were reinvested by the transferor as of the date of payment at a yield equal to the discount rate used in determining the value of the applicable retained interest described in subsection (a)(1), over the value of such payments paid during such period computed under clause (i) on the basis of the time when such payments were actually paid. the value (determined as of the date of the taxable event) of all equity interests in the entity which are junior to the applicable retained interest, over the value of such interests (determined as of the date of the transfer to which subsection (a)(1) applied). the number of shares in the corporation held (as of the date of the taxable event) by the transferor which are applicable retained interests of the same class, by the total number of shares in such corporation (as of such date) which are of the same class as the class described in subclause (I). For purposes of this subparagraph, the term “equity interest” has the meaning given such term by subsection (a)(4)(B). For purposes of subparagraph (A), any payment of any distribution during the 4-year period beginning on its due date shall be treated as having been made on such due date. The death of the transferor if the applicable retained interest conferring the distribution right is includible in the estate of the transferor. The transfer of such applicable retained interest. At the election of the taxpayer, the payment of any qualified payment after the period described in paragraph (2)(C), but only with respect to such payment. Subparagraph (A)(i) shall not apply to any interest includible in the gross estate of the transferor if a deduction with respect to such interest is allowable under section 2056 or 2106(a)(3). any deduction allowed under section 2523, or the exclusion under section 2503(b), or consideration for the transfer provided by the spouse. If an event is not treated as a taxable event by reason of this subparagraph, the transferee spouse or surviving spouse (as the case may be) shall be treated in the same manner as the transferor in applying this subsection with respect to the interest involved. For purposes of this subsection, an applicable family member shall be treated in the same manner as the transferor with respect to any distribution right retained by such family member to which subsection (a)(3)(B) or (C) applied. In the case of a taxable event described in paragraph (3)(A)(ii) involving the transfer of an applicable retained interest to an applicable family member (other than the spouse of the transferor), the applicable family member shall be treated in the same manner as the transferor in applying this subsection to distributions accumulating with respect to such interest after such taxable event. In the case of a taxable event described in paragraph (3)(A)(ii) involving a transfer of an applicable retained interest from an applicable family member to a transferor, this subsection shall continue to apply to the transferor during any period the transferor holds such interest. For purposes of this subsection, any termination of an interest shall be treated as a transfer. the transferor’s spouse, a lineal descendant of the transferor or the transferor’s spouse, and the spouse of any such descendant. the transferor’s spouse, an ancestor of the transferor or the transferor’s spouse, and the spouse of any such ancestor. An individual shall be treated as holding any interest to the extent such interest is held indirectly by such individual through a corporation, partnership, trust, or other entity. If any individual is treated as holding any interest by reason of the preceding sentence, any transfer which results in such interest being treated as no longer held by such individual shall be treated as a transfer of such interest. A relationship by legal adoption shall be treated as a relationship by blood. receives an applicable retained interest in such entity pursuant to such transaction, or under regulations, otherwise holds, immediately after such transaction, an applicable retained interest in such entity. Under regulations prescribed by the Secretary, if there is any subsequent transfer, or inclusion in the gross estate, of any applicable retained interest which was valued under the rules of subsection (a), appropriate adjustments shall be made for purposes of chapter 11, 12, or 13 to reflect the increase in the amount of any prior taxable gift made by the transferor or decedent by reason of such valuation or to reflect the application of subsection (d). The Secretary may by regulation provide that any applicable retained interest shall be treated as 2 or more separate interests for purposes of this section. to the extent such amendments relate to sections 2701 and 2702 of the Internal Revenue Code of 1986 (as added by such amendments), shall apply to transfers after October 8, 1990 , agreements, options, rights, or restrictions entered into or granted after October 8, 1990 , and agreements, options, rights, or restrictions which are substantially modified after October 8, 1990 , and to the extent such amendments relate to section 2704 of such Code (as so added), shall apply to restrictions or rights (or limitations on rights) created after October 8, 1990 . any failure to exercise a right of conversion, any failure to pay dividends, and any failure to exercise other rights specified in regulations,