Example (4)—(1) Facts. The facts are the ame as in example (3) except that W made utright gifts of $10,000 to her niece and $20,000 to H at various times during the year. The amount of taxable gifts made by W in receding calendar years is $75,000, and only $20,000 of her specific exemption was claimed ind allowed for preceding years. See 25.2521-1. The remaining specific exempion of $10,000 is claimed for the calendar 'ear 1955.

(11) Computation of H's tax for the calndar year 1955-(a) H's taxable gifts for

ear.

Total gifts of H..

Gifts of spouse to be included..

Total gifts for year--.

Less: exclusions (four of $3,000 each for daughter, husband, niece and charity, and one of $2,500 for son)

14, 500

16,000

ess: Portion of items to be reported by spouse--

(2) Total taxable gifts for preceding

75,000

Balance__

(3) Total taxable gifts..

91,000

32,500

for gift to niece) -

14,500

(6) Tax for year (item (4) minus

Example (5). A makes gifts (other than gifts of future interests in property) to B in the first quarter of 1971 of $43,000 and in the second quarter of 1971 of $60,000. A gave to C in the second quarter of 1971 land valued at $11,000. The full amount of A's specific exemption provided under section 2521 was claimed and allowed in 1956. In 1966, A made taxable gifts totaling $21,000 on which gift tax was timely paid and no other taxable gifts were made by A in any other year preceding 1971. The gift tax return due for the

item (5))------

3,360

first calendar quarter of 1971 was timely filed and the tax paid. With respect to the gifts made to B in 1971, the $3,000 annual gift tax exclusion provided by section 2503 (b) is applied in its entirety against the $43,000 gift made to B in the first quarter and therefore is not available to offset the $60,000 gift made to B in the second quarter. (See § 25.2503-2 (a).) A further $3,000 annual gift tax exclusion is available, however, to offset the $11,000 gift made to C in the second quarter of 1971. The computation of the gift tax for the second calendar quarter of 1971 due on August 15, 1971 (following the steps set forth in paragraph (a)(1) of this section) is shown below:

(1) Amount of taxable gifts for the second calendar quarter of 1971 (860,000+$11,000-$3,000).

(2) Total amount of taxable gifts for preceding calendar years and calendar quarters ($43,000-$3,000+$21,000) –

$68,000

61,000 129,000

22, 050

7,335

14,715

Section 2502(d) provides that the donor shall pay the tax. If the donor dies before the tax is paid the amount of the tax is a debt due the United States from the decedent's estate and his executor or administrator is responsible for its payment out of the estate. (See § 25.6151-1 for the time and place for paying the tax.) If there is no duly qualified executor or administrator, the heirs, legatees, devisees, and distributees are liable for and required to pay the tax to the extent of the value of their inheritances, bequests, devises, or distributive shares of the donor's estate. If a husband and wife effectively signify consent, under section 2513, to have gifts made to a third party during any calendar quarter (with respect to gifts made after December 31, 1970) or calendar year (with respect to gifts made before January 1, 1971) considered as made one-half by each, the liability with respect to the gift tax of each spouse for that calendar

quarter or calendar year is joint and several (see § 25.2513-4). As to the personal liability of the donee, see paragraph (b)| of § 301.6324-1 of this chapter (Regulations on Procedure and Administration) As to the personal liability of the executor or administrator, see section 3467 of the Revised Statutes (31 U.S.C. 192). which reads as follows:

Every executor, administrator, or assignee or other person, who pays, in whole or ir part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.

As used in such section 3467, the word "debt" includes a beneficiary's distributive share of an estate. Thus if an executor pays a debt due by the estate which is being administered by him or distributes any portion of the estate before there is paid all of the gift tax which he has a duty to pay, the executor is personally liable, to the extent of the payment or distribution, for so much of the gift tax as remains due and unpaid.

[T.D. 7238, 37 F.R. 28726, Dec. 29, 1972] § 25.2503

gifts.

Statutory provisions; taxable

SEC. 2503. Taxable gifts—(a) General definition. The term "taxable gifts" means, in the case of gifts made after December 31, 1970, the total amount of gifts made during the calendar quarter, less the deductions provided in subchapter C (sec. 2521 and following). In the case of gifts made before January 1, 1971, such term means the total amount of gifts made during the calendar year, less the deductions provided in subchapter C.

(b) Exclusions from gifts. In computing taxable gifts for the calendar quarter, in the case of gifts (other than gifts of future interests in property) made to any person by the donor during the calendar year 1971 and subsequent calendar years, $3,000 of such gifts to such person less the aggregate of the amounts of such gifts to such person during all preceding calendar quarters of the calendar year shall not, for purposes of subsection (a), be included in the total amount of gifts made during such quarter.

(c) Transfer for the benefit of minor No part of a gift to an individual who has not attained the age of 21 years on the date of such transfer shall be considered a gift of a future interest in property for purposes of subsection (b) if the property and the income therefrom

(1) May be expended by, or for the benent of, the donee before his attaining the age of 21 years, and

(2) Will to the extent not so expended(A) Pass to the donee on his attaining the age of 21 years, and

(B) In the event the donee dies before attaining the age of 21 years, be payable to the estate of the donee or as he may appoint under a general power of appointment as defined in section 2514(c).

[Sec. 2503 as amended by sec. 102(a) (3), Excise, Estate, and Gift Tax Adjustment Act 1970 (84 Stat. 1839)]

[T.D. 6334, 23 F.R. 8904, Nov. 15, 1958, as amended by T.D. 7238, 37 F.R. 28726, Dec. 29, 1972]

$25.2503-1 General definition of "tax

able gifts" and of “total amount of gifts.'

The term "taxable gifts" means the "total amount of gifts" made by the donor during the calendar quarter (with respect to gifts made after December 31, 1970) or calendar year (with respect to gifts made before January 1, 1971) less the deductions provided for in sections 2521, 2522, and 2523 (specific exemption, charitable, etc., gifts and the marital deduction, respectively). The "total amount of gifts" means the sum of the values of the gifts made during the calendar quarter (with respect to gifts made after December 31, 1970) or calendar year (with respect to gifts made before January 1, 1971) less the amounts excludable under section 2503(b). See 25.2503-2. The entire value of any gift of a future interest in property must be included in the "total amount of gifts" for the calendar quarter (calendar year in the case of gifts made before January 1, 1971) in which the gift is made. See 25.2503-3. For the definition of "calendar quarter", see § 25.2502–1 (c) (1). [T.D. 7238, 37 F.R. 28727, Dec. 29, 1972]

§ 25.2503-2 Exclusions from gifts.

(a) Gifts made after December 31, 1970. In computing taxable gifts for the calendar quarter, in the case of gifts (other than gifts of future interests in property) made to any person by the donor during any calendar quarter of the calendar year 1971 or any subsequent calendar year, $3,000 of such gifts to such person less the aggregate of the amounts of such gifts to such person during all preceding calendar quarters of any such calendar year shall not be included in the total amount of gifts made during such quarter. Thus, the first

$3,000 of gifts made to any one donee during the calendar year 1971 or any calendar year thereafter, except gifts of future interests in property as defined in §§ 25.2503-3 and 25.2503-4, is excluded in determining the total amount of gifts for a calendar quarter. In the case of a gift in trust the beneficiary of the trust is the donee. The application of this paragraph may be illustrated by the following examples:

Example (1). A made a gift of $3,000 to B on January 8, 1971, and on April 20, 1971, gave B an additional gift of $10,000. A made no other gifts in 1971. The total amount of gifts made by A during the second quarter of 1971 is $10,000 because the $3,000 exclusion provided by section 2503 (b) is first applied to the January 8th gift.

Example (2). A gave $2,000 to B on January 8, 1971, and on April 20, 1971, gave him $10,000. The total amount of gifts made by A during the second quarter of 1971 is $9,000 because only $2,000 of the $3,000 exclusion provided by section 2503 (b) was applied against the January 8th gift; $1,000 was available to offset other gifts (except gifts of a future interest) made to B during 1971.

(b) Gifts made before January 1, 1971. The first $3,000 of gifts made to any one donee during the calendar year 1955, or 1970, or any calendar year intervening between calendar year 1955 and calendar year 1970, except gifts of future interests in property as defined in §§ 25.2503-3 and 25.2503-4, is excluded in determining the total amount of gifts for the calendar year. In the case of a gift in trust the beneficiary of the trust is the donee. [T.D. 7238, 37 F.R. 28727, Dec. 29, 1972]

§ 25.2503-3 Future interests in property.

or

(a) No part of the value of a gift of a future interest may be excluded in determining the total amount of gifts made during the calendar quarter (calendar year in the case of gifts made before January 1, 1971). For the definition of "calendar quarter" see § 25.2502-1 (c) (1). "Future interest" is a legal term, and includes reversions, remainders, and other interests estates, whether vested or contingent, and whether or not supported by a particular interest or estate, which are limited to commence in use, possession, or enjoyment at some future date or time. The term has no reference to such contractual rights as exist in a bond, note (though bearing no interest until maturity), or in a policy of life insurance, the obligations of which

are to be discharged by payments in the future. But a future interest or interests in such contractual obligations may be created by the limitations contained in a trust or other instrument of transfer used in effecting a gift.

(b) An unrestricted right to the immediate use, possession, or enjoyment of property or the income from property (such as a life estate or term certain) is a present interest in property. An exclusion is allowable with respect to a gift of such an interest (but not in excess of the value of the interest). If a donee has received a present interest in property, the possibility that such interest may be diminished by the transfer of a greater interest in the same property to the donee through the exercise of a power is disregarded in computing the value of the present interest, to the extent that no part of such interest will at any time pass to any other person (see example (4) of paragraph (c) of this section). For an exception to the rule disallowing an exclusion for gifts of future interests in the case of certain gifts to minors, see § 25.2503-4.

(c) The operation of this section may be illustrated by the following examples:

Example (1). Under the terms of a trust created by A the trustee is directed to pay the net income to B, so long as B shall live. The trustee is authorized in his discretion to withhold payments of income during any period he deems advisable and add such income to the trust corpus. Since B's right to receive the income payments is subject to the trustee's discretion, it is not a present interest and no exclusion is allowable with respect to the transfer in trust.

Example (2). C transfers certain insurance policies on his own life to a trust created for the benefit of D. Upon C's death the proceeds of the policies are to be invested and the net income therefrom paid to D during his lifetime. Since the income payments to D will not begin until after C's death the transfer in trust represents a gift of a future interest in property against which no exclusion is allowable.

Example (3). Under the terms of a trust created by E the net income is to be distributed to E's three children in such shares as the trustee, in his uncontrolled discretion, deems advisable. While the terms of the trust provide that all of the net income is to be distributed, the amount of income any one of the three beneficiaries will receive rests entirely within the trustee's discretion and cannot be presently ascertained. Accordingly, no exclusions are allowable with respect to the transfers to the trust.

Example (4). Under the terms of a trust the net income is to be paid to F for life,

with the remainder payable to G on F's death. The trustee has the uncontrolled power to pay over the corpus to F at any time. Although F's present right to receive the income may be terminated, no other person has the right to such income interest. Accordingly, the power in the trustee is disregarded in determining the value of F's present interest. The power would not be disregarded to the extent that the trustee during F's life could distribute corpus to persons other than F.

Example (5). The corpus of a trust created by J consists of certain real property, subject to a mortgage. The terms of the trust provide that the net income from the property is to be used to pay the mortgage. After the mortgage is paid in full the net income is to be paid to K during his lifetime. Since K's right to receive the income payments will not begin until after the mortgage is paid in full the transfer in trust represents a gift of a future interest in property against which no exclusion is allowable.

Example (6). L pays premiums on a policy of insurance on his life, all the incidents of ownership in the policy (including the right to surrender the policy) are vested in M. The payment of premiums by L constitutes a gift of a present interest in property. [T.D. 6334, 23 F.R. 8904, Nov. 15, 1958, as amended by T.D. 7238, 37 F.R. 28727, Dec. 29, 1972]

§ 25.2503-4 Transfer for the benefit of a minor.

(a) Section 2503(c) provides that no part of a transfer for the benefit of a donee who has not attained the age of 21 years on the date of the gift will be considered a gift of a future interest in property if the terms of the transfer satisfy all of the following conditions:

(1) Both the property itself and its income may be expended by or for the benefit of the donee before he attains the age of 21 years;

(2) Any portion of the property and its income not disposed of under subparagraph (1) of this paragraph will pass to the donee when he attains the age of 21 years; and

(3) Any portion of the property and its income not disposed of under subparagraph (1) of this paragraph will be payable either to the estate of the donee or as he may appoint under a general power of appointment as defined in section 2514 (c) if he dies before attaining the age of 21 years.

(b) Either a power of appointment exercisable by the donee by will or a power of appointment exercisable by the donee during his lifetime will satisfy the conditions set forth in paragraph

(a)(3) of this section. However, if the transfer is to qualify for the exclusion under this section, there must be no restrictions of substance (as distinguished from formal restrictions of the type described in paragraph (g) (4) of § 25.2523 (e)-1 by the terms of the instrument of transfer on the exercise of the power by the donee. However, if the minor is given a power of appointment exercisable during lifetime or is given a power of appointment exercisable by will, the fact that under the local law a minor is under a disability to exercise an intervivos power or to execute a will does not cause the transfer to fail to satisfy the conditions of section 2503 (c). Further, transfer does not fail to satisfy the conditions of section 2503(c) by reason of the mere fact that

(1) There is left to the discretion of a trustee the determination of the

amounts, if any, of the income or property to be expended for the benefit of the minor and the purpose for which the expenditure is to be made, provided there are no substantial restrictions under the terms of the trust instrument on the exercise of such discretion;

(2) The donee, upon reaching age 21, has the right to extend the term of the trust; or

(3) The governing instrument contains a disposition of the property or Income not expended during the donee's minority to persons other than the donee's estate in the event of the default of appointment by the donee.

(c) A gift to a minor which does not satisfy the requirements of section 2503 (c) may be either a present or a Future interest under the general rules of § 25.2503-3. Thus, for example, a Eransfer of property in trust with income required to be paid annually to a minor beneficiary and corpus to be distributed to him upon his attaining the age of 25 is a gift of a present interest with respect Eo the right to income but is a gift of a Future interest with respect to the right Eo corpus.

$25.2504 Statutory provisions; taxable

gifts for preceding years and quar

ters.

SEC. 2504. Taxable gifts for preceding years and quarters—(a) In general. In computing taxable gifts for preceding calendar years or calendar quarters for the purpose of computing the tax for any calendar quarter, there shall be treated as gifts such transfers as were considered to be gifts under the gift tax

laws applicable to the years or calendar quarters in which the transfers were made and there shall be allowed such deductions as were provided for under such laws; except that the specific exemption in the amount, if any, allowable under section 2521 shall be applied in all computations in respect of previous calendar years or calendar quarters for the purpose of computing the tax for any calendar year or calendar quarter.

(b) Exclusions from gifts for preceding years and quarters. In the case of gifts made to any person by the donor during preceding calendar years and calendar quarters, the amount excluded, if any, by the provisions of gift tax laws applicable to the years and calendar quarters in which the gifts were made shall not, for purposes of subsection (a), be included in the total amount of the gifts made during such years and calendar quarters.

(c) Valuation of certain gifts for preceding calendar years and quarters. If the time has expired within which a tax may be assessed under this chapter or under corresponding provisions of prior laws on the transfer of property by gift made during a preceding calendar year or calendar quarter, as defined in section 2502(c), and if a tax under this chapter or under corresponding provisions of prior laws has been assessed or paid for such preceding calendar year or calendar quarter, the value of such gift made in such preceding calendar year or calendar quarter shall, for purposes of computing the tax under this chapter for any calendar quarter, be the value of such gift which was used in computing the tax for the last preceding calendar year or calendar quarter for which a tax under this chapter or under corresponding provisions of prior laws was assessed or paid.

(d) Net gifts. The term "net gifts" as used in corresponding provisions of prior laws shall be read as "taxable gifts" for purposes of this chapter.

[Sec. 2504 as amended by sec. 102(a) (4), Excise, Estate, and Gift Tax Adjustment Act 1970 (84 Stat. 1839)]

[T.D. 7238, 37 F.R. 28727, Dec. 29, 1972] § 20.2504-1 Taxable gifts for preceding years and quarters.

(a) (1) With respect to gifts made after December 31, 1970, in order to determine the correct gift tax liability for any calendar quarter, it is necessary to ascertain the correct amount, if any, of the aggregate sum of the taxable gifts for each of the preceding calendar years and calendar quarters. See paragraph (a) (1) (ii) of § 25.2502-1. For definitions of "calendar quarter" and "preceding calendar years and calendar quarters" see § 25.2502-1 (c). The term "aggregate sum of the taxable gifts for each of the preceding calendar years and calendar