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Section 2035 requires the amount of a decedent's gross estate to be increased by the amount of any gift tax paid by the decedent or his or her estate on any gift made by the decedent or the decedent's spouse during the three-year period ending on the date of the decedent's death. Under the unified system of estate and gift tax adopted as part of the Tax Reform Act of 1976, the amount of gift tax paid on transfers made within three years of a decedent's death is includible in the gross estate. The legislative history, as set forth in H.R. Rep. No. 1380, 94th Cong., 2d Sess. 14 (1976), states:
[t]his "gross-up" rule for gift taxes eliminates any incentive to make deathbed transfers to remove an amount equal to the gift taxes from the transfer tax base. The amount of gift tax subject to this rule would include tax paid by the decedent or his estate on any gift made by the decedent or his spouse after December 31, 1976. It would not, however, include any gift...