(c) Certain residents of possessions considered nonresidents not citizens of the United States. A donor who is a citizen of the United States and a resident of a possession thereof shall, for purposes of the tax imposed by this chapter, be considered a "nonresident not a citizen of the United States" within the meaning of that term wherever used in this title, but only if such donor acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States.

(d) Cross references. (1) For increase in basis of property acquired by gift for gift tax paid, see section 1015(d).

(2) For exclusion of transfers of property outside the United States by a nonresident who is not a citizen of the United States, see section 2511(a).

[Sec. 2501 as amended by secs. 43(b) and 102 (b), Technical Amendments Act 1958 (72 Stat. 1641, 1674); sec. 4(d), Act of Sept. 14, 1960 (Public Law 86-779, 74 Stat. 1000); sec. 109(a), Foreign Investors Tax Act 1966 (80 Stat. 1574); sec. 102(a)(1), Excise, Estate, and Gift Tax Adjustment Act 1970 (84 Stat. 1838)]

[T.D. 6542, 26 F.R. 549, Jan. 20, 1961, as amended by T.D. 7238, 37 F.R. 28725, Dec. 29, 1972]

§ 25.2501-1 Imposition of tax.

(a) In general. The tax applies to all transfers by gift of property, wherever situated, by an individual who is a citizen or resident of the United States, to the extent the value of the transfers exceeds the amount of the exclusions authorized by section 2503 and the deductions authorized by sections 2521, 2522, and 2523. With respect to calendar years after 1954 and prior to 1971, the tax is imposed on the transfer of property by gift during such calendar year. With respect to the first calendar quarter of calendar year 1971 and each calendar quarter thereafter, the tax is imposed on the transfer of property by gift during such calendar quarter. The tax does not apply to a transfer of intangible property by a nonresident who is not a citizen of the United States and who was not engaged in business in the United States during the calendar year in which the transfer was made. For additional rules relating to the application of the tax to transfers by nonresidents not citizens of the United States, see section 2511 and § 25.2511-3.

(b) Resident. A resident is an individual who has his domicile in the United States at the time of the gift. For this purpose the United States includes the States and the District of Columbia. The term also includes the Territories of Alaska and Hawaii prior to admission as a State. See section 7701(a)(9). All other individuals are nonresidents. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of moving therefrom. Residence without the requisite intention to remain indefinitely will not constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal.

(c) Certain residents of possessions considered citizens of the United States. As used in this part, the term “citizen of the United States" includes a person who makes a gift after September 2, 1958 and who, at the time of making the gift, was domiciled in a possession of the United States and was a United States citizen, and who did not acquire his United States citizenship solely by reason of his being a citizen of such possession or by reason of his birth or residence within such possession. The gift of such a person is, therefore, subject to the tax imposed by section 2501 in the same manner in which a gift made by a resident of the Untied States is subject to the tax. See paragraph (a) of § 25.01 and paragraph (d) of this section for further information relating to the application of the Federal gift tax to gifts made by persons who were residents of possessions of the United States. The application of this paragraph may be illustrated by the following example and the examples set forth in paragraph (d) of this section:

Example. A, a citizen of the United States by reason of his birth in the United States at San Francisco, established resi dence in Puerto Rico and acquired Puerto Rican citizenship. A makes a gift of stock of a Spanish corporation on September 4, 1958, while a citizen and domiciliary of Puerto Rico. A's gift is, by reason of the provisions of section 2501(b) subject to the tax imposed by section 2501 inasmuch as his United States citizenship is based on birth in the United States and is not based solely on being a citizen of a possession of solely on birth or residence in a possession.

(d) Certain residents of possessions considered nonresidents not citizens of the United States. As used in this part, the term "nonresident not a citizen of the United States" includes a person who makes a gift after September 14, 1960, and who at the time of making the gift, - was domiciled in a possession of the - United States and was a United States citizen, and who acquired his United States citizenship solely by reason of his being a citizen of such possession or by reason of his birth or residence within such possession. The gift of such a person, is, therefore, subject to the tax imposed by section 2501 in the same manner in which a gift is subject to the tax when made by a donor who is a “nonresident not a citizen of the United States." See paragraph (a) of § 25.01 and paragraph (c) of this section for further information relating to the application of the Federal gift tax to gifts made by persons who were residents of possessions of the United States. The application of this paragraph may be illustrated by the following examples and the example set forth in paragraph (c) of this section. In each of the following examples the person who makes the gift is deemed a "nonresident not a citizen of the United States" and his gift is subject to the tax imposed by section 2501 in the same manner in which a gift is subject to the tax when made by a donor who is a nonresident not a citizen of the United States, since he made the gift after September 14, 1960, but would not have been so deemed and subject to such tax if the person who made the gift had made it on or before September 14, 1960.

Example (1). C, who acquired his United States citizenship under section 5 of the Act of March 2, 1917 (39 Stat. 953), by reason of being a citizen of Puerto Rico, while domiciled in Puerto Rico makes a gift on October 1, 1960, of real estate located in New York. C is considered to have acquired his United States citizenship solely by reason of his being a citizen of Puerto Rico.

Example (2). E, whose parents were United States citizens by reason of their birth in Boston, was born in the Virgin Islands on March 1, 1927. On September 30, 1960, while domiciled in the Virgin >Islands, he made a gift of tangible personal property situated in Kansas. E is considered to have acquired his United States citizenship solely by reason of his birth in

the Virgin Islands (section 306 of the Immigration and Nationality Act (66 Stat. 237, 8 U.S.C. 1406)).

Example (3). N, who acquired United States citizenship by reason of being a native of the Virgin Islands and a resident thereof on June 28, 1932 (section 306 of the Immigration and Nationality Act (66 Stat. 237, 8 U.S.C. 1406)), made a gift on October 1, 1960, at which time he was domiciled in the Virgin Islands, of tangible personal property situated in Wisconsin. N is considered to have acquired his United States citizenship solely by reason of his birth or residence in the Virgin Islands.

Example (4). P, a former Danish citizen, who on January 17, 1917, resided in the Virgin Islands, made the declaration to preserve his Danish citizenship required by Article 6 of the treaty entered into on August 4, 1916, between the United States and Denmark. Subsequently P acquired United States citizenship when he renounced such declaration before a court of record (section 306 of the Immigration and Nationality Act (66 Stat. 237, 8 U.S.C. 1406)). P, while domiciled in the Virgin Islands, Imade a gift on October 1, 1960, of tangible personal property situated in California. P is considered to have acquired his United States citizenship solely by reason of his birth or residence in the Virgin Islands.

Example (5). R, a former French citizen, acquired his United States citizenship through naturalization proceedings in a court located in the Virgin Islands after having qualified for citizenship by residing in the Virgin Islands for 5 years. R, while domiciled in the Virgin Islands, made a gift of tangible personal property situated in Hawaii on October 1, 1960. R is considered to have acquired his United States citizenship solely by reason of his birth or residence within the Virgin Islands.

[T.D. 6334, 23 FR. 8904, Nov. 15, 1958, as amended by T.D. 6542, 26 F.R. 549, Jan. 20, 1961; T.D. 7238, 37 F.R. 28725, Dec. 29, 1972] § 25.2502 Statutory provisions; rate of

tax.

SEC. 2502. Rate of Tax-(a) Computation of tax. The tax imposed by section 2501 for each calendar quarter shall be an amount equal to the excess of

(1) A tax, computed in accordance with the rate schedule set forth in this subsection, on the aggregate sum of the taxable gifts for such calendar quarter and for each of the preceding calendar years and calendar quarters, over

(2) A tax, computed in accordance with such rate schedule, on the aggregate sum of the taxable gifts for each of the preceding calendar years and calendar quarters.

If the taxable gifts are:

Not over $5,000---

calendar years intervening between calendar year 1932 and calendar year 1970. The term "calendar year 1932" includes only the portion of such year after June 6, 1932.

(2) The term "preceding calendar quarters" means the first calendar quarter of calendar year 1971 and all calendar quarters intervening between such calendar quarter and the calendar quarter for which the tax is being computed.

(d) Tax to be paid by donor. The tax imposed by section 2501 shall be paid by the donor.

Over $5,000 but not over $10,000--Over $10,000 but not over $20,000__. Over $20,000 but not over $30,000---Over $30,000 but not over $40,000---Over $40,000 but not over $50,000--Over $50,000 but not over $60,000--Over $60,000 but not over $100,000‒‒‒‒ Over $100,000 but not over $250,000___ Over $250,000 but not over $500,000---. Over $500,000 but not over $750,000--Over $750,000 but not over $1,000,000-Over $1,000,000 but not over $1,250,000__ Over $1,250,000 but not over $1,500,000 Over $1,500,000 but not over $2,000,000 Over $2,000,000 but not over $2,500,000 Over $2,500,000 but not over $3,000,000 Over $3,000,000 but not over $3,500,000. Over $3,500,000 but not over $4,000,000 Over $4,000,000 but not over $5,000,000_ Over $5,000,000 but not over $6,000,000. Over $6,000,000 but not over $7,000,000_ Over $7,000,000 but not over $8,000,000_ Over $8,000,000 but not over $10,000,000. Over $10,000,000--.

The tax shall be:

24% of the taxable gifts.

$112.50, plus 5% of excess over $5,000. $375, plus 84% of excess over $10,000. $1,200, plus 10% % of excess over $20,000. $2,250, plus 13% % of excess over $30,000. $3,600, plus 16%% of excess over $40,000. $5,250, plus 1834% of excess over $50,000. $7,125, plus 21% of excess over $60,000. $15,525, plus 222 % of excess over 100,000. $49,275, plus 24% of excess over $250,000. $109,275, plus 26% of excess over $500,000. $174,900, plus 27% of excess over $750,000. $244,275, plus 294 % of excess over $1,000,000. $317,400, plus 31% % of excess over $1,250,000. $396,150, plus 33% of excess over $1,500,000. $564,900, plus 36% % of excess over $2,000,000. $748,650, plus 39% of excess over $2,500,000. $947,400, plus 42% of excess over $3,000,000. $1,157,400, plus 44 % of excess over $3,500,000. $1,378,650, plus 47% of excess over $4,000,000. $1,851,150, plus 50 % of excess over $5,000,000. $2,353,650, plus 52% % of excess over $6,000,000. 82,878,650, plus 54% of excess over $7,000,000. $3,426,150, plus 57% of excess over $8,000,000. $4,566,150, plus 57% of excess over $10,000,000.

(i) First step. Ascertain the amount of the "taxable gifts" for the calendar quarter for which the return is being prepared. For the meaning of this term see § 25.2503-1.

(ii) Second step. Ascertain “the aggregate sum of the taxable gifts for each of the preceding calendar years and calendar quarters," considering only those gifts made after June 6, 1932. For the meaning of this term see § 25.2504-1.

(iii) Third step. Ascertain the total amount of the taxable gifts, which is the sum of the amounts determined in the first and second steps.

(iv) Fourth step. Compute the tax on the total amount of taxable gifts (as de

termined in the third step) using the rate schedule set forth in paragraph (b) of this section.

(v) Fifth step. Compute the tax on "the aggregate sum of the taxable gifts for each of the preceding calendar years and calendar quarters" (as determined in the second step), using the rate schedule set forth in paragraph (b) of this section. (vi) Sixth step. Subtract the amount determined in the fifth step from the amount determined in the fourth step. The amount remaining is the gift tax for the calendar quarter for which the return is being prepared.

(2) Gifts made before January 1, 1971. In the case of gifts made prior to January 1. 1971, the gift tax is imposed on a calendar year basis, rather than on a quarterly basis. For such gifts, the rate of tax is determined by the total of all gifts made by the donor during the calendar year and in all preceding calendar years since June 6, 1932. See § 25.2502-1 (c) for the definition of "preceding calendar years". The following subdivisions set forth the six steps to be followed in computing the tax:

(i) First step. Ascertain the amount of the "taxable gifts" for the calendar year for which the return is being prepared. For the meaning of this term § 25.2503-1.

see

(ii) Second step. Ascertain "the aggregate sum of the taxable gifts for each of the preceding calendar years," considering only those gifts made after June 6, 1932. For the meaning of this term see § 25.2504-1.

(iii) Third step. Ascertain the total amount of the taxable gifts, which is the sum of the amounts determined in the first and second steps.

(iv) Fourth step. Compute the tax on the total amount of taxable gifts (as determined in the third step) using the rate schedule set forth in paragraph (b) of this section.

(v) Fifth step. Compute the tax on "the aggregate sum of the taxable gifts for each of the preceding calendar years” (as determined in the second step), using the rate schedule set forth in paragraph (b) of this section.

(vi) Sixth step. Subtract the amount determined in the fifth step from the Damount determined in the fourth step. The amount remaining is the gift tax for the calendar year for which the return is being prepared.

(c) Definitions-(1) The term "calendar quarter" includes only the first calendar quarter of the calendar year 1971 and each succeeding calendar quarter.

(2) The term "preceding calendar years" means calendar years 1932 (but only the portion of such year after June 6, 1932) through 1970.

(3) The term "preceding calendar quarters" means the first calendar quarter of calendar year 1971 and all calendar quarters intervening between such calendar quarter and the calendar quarter for which the tax is being computed.

(4) The term "preceding calendar years and calendar quarters" means a period that consists of the "preceding calendar years" and the "preceding calendar quarters.”

(d) Examples. The following examples illustrate the application of this section with respect to gifts made by citizens or residents of the United States:

Example (1). Assume that in 1955 the donor made taxable gifts, as ascertained under the first step (paragraph (a) (2) of this section), of $62,500 and that there were no taxable gifts for prior years, with the result that the amount ascertained under the third

step is $62,500. Under the fourth step a tax is computed on this amount. Reference to the table discloses that the specified amount in column (A) nearest to and less than $62,500 is $60,000. The tax on this amount, as shown in column (C), is $7,125. The amount by which the taxable gifts exceeds the specified amount is $2,500 and the tax on such excess amount, computed at the rate of 21 percent as shown in column (D), is $525. The tax on taxable gifts of $62,500 is the sum of $7,125 and $525, or $7,650.

Example (2). A donor makes gifts (other than gifts of future interests in property) during the calendar year 1955 of $30,000 to A and $33,000 to B. Two exclusions of $3,000 each are allowable, in accordance with the provisions of section 2503(b), which results in included gifts for 1955 of $57,000. Specific exemption was claimed and allowed in a total amount of $50,000 in the donor's gift tax returns for the calendar years 1934 and 1935 so there remains no specific exemption available for the donor to claim for 1955. The total amount of gifts made by the donor during preceding years, after excluding $5,000 for each donee for each calendar year in accordance with the provisions of section 1003 (b) (1) of the 1939 Code, is computed as follows: Calendar year 1934Calendar year 1935.

Total amount of included gifts for preceding calendar years

The gifts to W qualify for the marital deduction, and, pursuant to the provisions of section 2513 (see § 25.2513-1), H and W consent to treat the gifts to third parties as having been made one-half by each spouse. The amount of H's taxable gifts for preceding years is $50,000. Only $25,000 of H's specific exemption was claimed and allowed in preceding years. H's remaining specific exemption of $5,000 is claimed for the calendar year of 1955. See § 25.2521-1. W made no gifts during the calendar year 1955 nor during any preceding calendar year. W claims sufficient specific exemption on her return to eliminate tax liability.

(ii) Computation of H's tax for the calendar year 1955-(a) H's taxable gifts for year.

$120,000

25, 000

27,500

Less: Exclusions (three of $3,000 each for daughter, wife and charity and one of $2,500 for son)

11,500

The aggregate sum of the taxable gifts for preceding calendar years is $115,000, which is determined by deducting a specific exemption of $30,000 from $145,000, the total amount of included gifts for preceding calendar years. The deduction from the 1934 and 1935 gifts for the specific exemption cannot exceed $30,000 for purposes of computing the tax on the 1955 gifts even though a specific exemption in a total amount of $50,000 was allowed in computing the donor's gift tax liability for 1934 and 1935. (See paragraph (b) of § 25.2504-1.) The computation of the tax for the calendar year 1955 (following the steps set forth in paragraph (a) of this section) is shown below:

(1) Amount of taxable gifts for year

$57,000

(2) Total amount of taxable gifts for preceding years---

115, 000