26 U.S.C. § 2704: Treatment of certain lapsing rights and restrictions

there is a lapse of any voting or liquidation right in a corporation or partnership, and the individual holding such right immediately before the lapse and members of such individual’s family hold, both before and after the lapse, control of the entity, the value of all interests in the entity held by the individual described in paragraph (1) immediately before the lapse (determined as if the voting and liquidation rights were nonlapsing), over the value of such interests immediately after the lapse. The Secretary may by regulations apply this subsection to rights similar to voting and liquidation rights. there is a transfer of an interest in a corporation or partnership to (or for the benefit of) a member of the transferor’s family, and the transferor and members of the transferor’s family hold, immediately before the transfer, control of the entity, which effectively limits the ability of the corporation or partnership to liquidate, and The restriction lapses, in whole or in part, after the transfer referred to in paragraph (1). The transferor or any member of the transferor’s family, either alone or collectively, has the right after such transfer to remove, in whole or in part, the restriction. any commercially reasonable restriction which arises as part of any financing by the corporation or partnership with a person who is not related to the transferor or transferee, or a member of the family of either, or any restriction imposed, or required to be imposed, by any Federal or State law. The Secretary may by regulations provide that other restrictions shall be disregarded in determining the value of the transfer of any interest in a corporation or partnership to a member of the transferor’s family if such restriction has the effect of reducing the value of the transferred interest for purposes of this subtitle but does not ultimately reduce the value of such interest to the transferee. The term “control” has the meaning given such term by section 2701(b)(2). such individual’s spouse, any ancestor or lineal descendant of such individual or such individual’s spouse, any brother or sister of the individual, and any spouse of any individual described in subparagraph (B) or (C). The rule of section 2701(e)(3) shall apply for purposes of determining the interests held by any individual.