An empirical analysis of the qualified terminable interest property election and related provisions

The United States government imposes a tax on transfers of property between individuals. Intervivos transfers are subjected to the federal gift tax, testamentary transfers are subjected to the federal estate tax. When the individuals are members of a marital unit this tax is mitigated by the application of the marital deduction found in the Internal Revenue Code of 1986 at sections 2056 and 2523. The marital deduction was enacted in 1948 and remained virtually unchanged for over 30 years. In 1981, all dollar limitations on the use of the marital deduction were removed. In addition, a new provision was drafted which allows the marital deduction for property which did not previously qualify. This new provision permits an election to deduct the value of "qualified terminable interest property" which passes to the surviving spouse. This election, often referred to by its acronym "QTIP", is the subject of this dissertation. The QTIP election is available for post-December 31, 1981 transfers. This study is an exploratory analysis of the operating provisions of the new law. Although the law is too new to have resulted in litigation , there have been a substantial number of administrative responses. The Treasury Department has published proposed and temporary regulations and has issued over 120 letter rulings. This paper analyzes these rulings in view of the statutory language, the proposed regulations, and Congressional Committee Reports which have been published. The results of this analysis indicates that the I.R.S. has tended to be lenient in the administration of the QTIP election requirements. A notable exception is a dogmatic adherence to filing deadlines for purposes of making or amending the election. The study concludes with an identification of areas of potential risk as well as both practical and policy recommendations.