Rethinking Section 2702

This article examines the structure and operation of section 2702 in the context of the existing gift and estate tax system. Part II explains the abuses under prior law that led to the enactment of section 2702. Part III analyzes the impact of section 2702 in valuing the transferred and retained interests in the initial transfer, and critically examines the operation of the corrective adjustment under the regulations. Part IV argues that the approach of section 2702 is fundamentally misguided because it adds unnecessary complexity and exacerbates existing structural problems in the gift and estate tax system.

Those problems, as well as the abuses targeted by section 2702, could be addressed more effectively by a uniform transfer tax base coupled with uniform rules for the completion and valuation of all lifetime and deathtime transfers.