[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2523(i)-1]

[Page 622-623]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 25_GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954--Table of Contents
 
Sec.  25.2523(i)-1  Disallowance of marital deduction when spouse is not a United States citizen.

    (a) In general. Subject to Sec.  20.2056A-1(c) of this chapter, 
section 2523(i)(1) disallows the marital deduction if the spouse of the 
donor is not a citizen of the United States at the time of the gift. If 
the spouse of the donor is a citizen of the United States at the time of 
the gift, the gift tax marital deduction under section 2523(a) is 
allowed regardless of whether the donor is a citizen or resident of the 
United States at the time of the gift, subject to the otherwise 
applicable rules of section 2523.
    (b) Exception for certain joint and survivor annuities. Paragraph 
(a) does not apply to disallow the marital deduction with respect to any 
transfer resulting in the acquisition of rights by a noncitizen spouse 
under a joint and survivor annuity described in section 2523(f)(6).
    (c) Increased annual exclusion--(1) In general. In the case of gifts 
made from a donor to the donor's spouse for which a marital deduction is 
not allowable under this section, if the gift otherwise qualifies for 
the gift tax annual exclusion under section 2503(b), the amount of the 
annual exclusion under section 2503(b) is $100,000 in lieu of $10,000. 
However, in the case of gifts made after June 29, 1989, in order for the 
increased annual exclusion to apply, the gift in excess of the otherwise 
applicable annual exclusion under section 2503(b) must be in a form that 
qualifies for the marital deduction but for the disallowance provision 
of section 2523(i)(1). See paragraph (d), Example 4, of this section.
    (2) Status of donor. The $100,000 annual exclusion for gifts to a 
noncitizen spouse is available regardless of the status of the donor. 
Accordingly, it is immaterial whether the donor is a citizen, resident 
or a nonresident not a citizen of the United States, as long as the 
spouse of the donor is not a citizen of the United States at the time of 
the gift and the conditions for allowance of the increased annual 
exclusion have been satisfied. See Sec.  25.2503-2(f).
    (d) Examples. The principles outlined in this section are 
illustrated in the following examples. Assume in each of the examples 
that the donee, S, is D's spouse and is not a United States citizen at 
the time of the gift.
    Example 1. Outright transfer of present interest. In 1995, D, a 
United States citizen, transfers to S, outright, 100 shares of X 
corporation stock valued for federal gift tax purposes at $130,000. The 
transfer is a gift of a present interest in property under section 
2503(b). Additionally, the gift qualifies for the gift tax marital 
deduction except for the disallowance provision of section 2523(i)(1).

[[Page 623]]

Accordingly, $100,000 of the $130,000 gift is excluded from the total 
amount of gifts made during the calendar year by D for gift tax 
purposes.
    Example 2. Transfer of survivor benefits. In 1995, D, a United 
States citizen, retires from employment in the United States and elects 
to receive a reduced retirement annuity in order to provide S with a 
survivor annuity upon D's death. The transfer of rights to S in the 
joint and survivor annuity is a gift by D for gift tax purposes. 
However, under paragraph (b) of this section, the gift qualifies for the 
gift tax marital deduction even though S is not a United States citizen.
    Example 3. Transfer of present interest in trust property. In 1995, 
D, a resident alien, transfers property valued at $500,000 in trust to 
S, who is also a resident alien. The trust instrument provides that the 
trust income is payable to S at least quarterly and S has a testamentary 
general power to appoint the trust corpus. The transfer to S qualifies 
for the marital deduction under section 2523 but for the provisions of 
section 2523(i)(1). Because S has a life income interest in the trust, S 
has a present interest in a portion of the trust. Accordingly, D may 
exclude the present value of S's income interest (up to $100,000) from 
D's total 1995 calendar year gifts.
    Example 4. Transfer of present interest in trust property. The facts 
are the same as in Example 3, except that S does not have a testamentary 
general power to appoint the trust corpus. Instead, D's child, C, has a 
remainder interest in the trust. If S were a United States citizen, the 
transfer would qualify for the gift tax marital deduction if a qualified 
terminable interest property election was made under section 2523(f)(4). 
However, because S is not a U.S. citizen, D may not make a qualified 
terminable interest property election. Accordingly, the gift does not 
qualify for the gift tax marital deduction but for the disallowance 
provision of section 2523(i)(1). The $100,000 annual exclusion under 
section 2523(i)(2) is not available with respect to D's transfer in 
trust and D may not exclude the present value of S's income interest in 
excess of $10,000 from D's total 1995 calendar year gifts.
    Example 5. Spouse becomes citizen after transfer. D, a United States 
citizen, transfers a residence valued at $350,000 on December 20, 1995, 
to D's spouse, S, a resident alien. On January 31, 1996, S becomes a 
naturalized United States citizen. On D's federal gift tax return for 
1995, D must include $250,000 as a gift ($350,000 transfer less $100,000 
exclusion). Although S becomes a citizen in January, 1996, S is not a 
citizen of the United States at the time the transfer is made. 
Therefore, no gift tax marital deduction is allowable. However, the 
transfer does qualify for the $100,000 annual exclusion.

[T.D. 8612, 60 FR 43552, Aug. 22, 1995]