§2654 Special Rules

Summary

When property is passed in a generation-skipping transfer, the property's tax basis must be raised (but not above its market value) by the part of the generation-skipping tax that applies to the gain (market value minus the old basis). Do that after any earlier basis changes required by other rules. If the transfer happens because someone died at the same time and causes a taxable termination, the basis is adjusted like a normal death-related step-up or step-down, except if the inclusion ratio (the fraction of the property subject to the GST tax) is less than 1, the change in basis is reduced by multiplying it by that ratio. Portions of a trust that come from different people, or clearly separate shares for different beneficiaries, are treated as separate trusts. Rules about refusing an inheritance (qualified disclaimers) are handled elsewhere. A trustee is not personally responsible for extra GST tax that happens because a required gift tax return wasn't filed for a lifetime transfer or because the trust's inclusion ratio turned out larger than shown on the return allocating GST exemption. But the trustee can be liable if they knew facts that would reasonably show a return was required or the ratio was wrong.