Category: Estate & Gift Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com Background Issue Answer Discussion For purposes of this chapter, the term "generation-skipping transfer" means-- 1) a taxable distribution, You have suggested that the use of the word and in the IRC Section 2611 definition of the term generation skipping transfer suggests that a transaction must be a taxable distribution and a taxable termination and a direct skip in order for the GST to be applicable. A transfer in trust is a prerequisite for a taxable distribution and a taxable termination. See IRC Sections 2611(a)(1) and 2611(a)(2). The definition of direct skip does not require a trust. IRC Section 2611(a)(3). You argue that because the decedent's transfer of property to her grand-nieces was not in trust, the transfer does not qualify as a taxable distribution or a taxable termination. Because the transfer does not meet all three prongs of the definition, it is your view that the transfer is not subject to the GST. I readily agree that the language of Section 2611 is odd and potentially confusing, even for the Internal Revenue Code; however, I disagree with the proposition that a transfer in trust is a prerequisite to imposition of the GST. Despite the very odd and rather annoying way the statute was drafted, I believe the meaning of Section 2611(a) is clear and unambiguous on its face. I do not agree that the statute means that a transaction must be a taxable termination and a taxable distribution and a direct skip in order for the GST to apply. I believe the statute is clear on its face that the three categories are each independent alternatives, and if a taxpayer meets any one of the three, the GST applies. As you pointed out, it is normally the case that if various parts of a definition are separated by the word and, all the parts must be satisfied for the definition to be functional. For example, the term acquisition indebtedness for purposes of qualified residence interest means indebtedness which (I) is incurred in acquiring...a qualified residence, and (II) is secured by such residence. I think you would readily agree that it would be impossible to interpret the two prongs of the above definition as alternative ways of meeting the definition. It is crystal clear that both requirements must be met. In contrast, I submit to you that it is quite possible (and quite necessary) to read the three categories set forth under Section 2611 as alternatives for qualification rather than components of parts an integrated definition. In order to clearly produce the interpretation you seek, the statute would have to read something like the following. For purposes of this Chapter, the term "generation-skipping transfer"
means a transfer which-- Notice the subtle but very crucial drafting difference: in my example above, the verb "is" is included within each of the series of phrases connected by and. In the actual statute, the only verb in the sentence "means" is not included in the series of phrases connected by and. The verb "means" occurs before the beginning of the series of phrases connected by and. Accordingly, the verb "means" applies equally (and independently) to all the phrases connected by and. ********** If you are still not convinced, I offer the following observations. 1. The GST as it exists today was enacted by The Tax Reform Act of 1986
(P.L. 99-514) The House Committee Report on P.L. 99-514 provides in pertinent
part as follows. 2. The General Explanation of the Tax Reform Act of 1986, prepared by the Staff of the Joint Committee on Taxation provides the following commentary. A generation-skipping transfer tax is imposed on the occurrence of any one of three events-- taxable distribution, a taxable termination, or a direct skip. [Emphasis supplied.] 3. Regulation Section 26.2611-1 provides as follows. |
