1 2 3 4 5 5 "(B) all of the property in such trust consists of a personal residence to be used by persons holding term interests (as defined in section 2703(d)(3)) in such trust. "(b) DEFINITION OF QUALIFIED FIXED PAYMENTS. 6 For purposes of this section "(1) QUALIFIED FIXED PAYMENT. "(A) IN GENERAL.-Except as otherwise provided in this subsection, the term 'qualified fixed payment' means "(i) any payment or distribution (other than a dividend) with respect to any interest in the entity to the extent such payment or distribution is fixed as to both amount and time for payment, and “(ii) any dividend payable on a periodic basis under any cumulative preferred stock to the extent such dividend is determined at a fixed rate. "(B) TREATMENT OF VARIABLE RATE PAYMENTS. For purposes of subparagraph (A), a payment shall be treated as fixed as to amount or rate if such payment is determined at a rate which bears a fixed relationship to a specified market interest rate. 6 "(C) CERTAIN PAYMENTS NOT QUALI FIED.—An amount which is payable under any instrument issued by a corporation or partnership and which is subject to a life contingency shall not be treated as a qualified fixed payment. "(2) SPECIAL RULE FOR TRUSTS.-In the case of a trust, the term 'qualified fixed payment' means— "(A) any fixed amount which is payable not less frequently than annually, "(B) any amount which is payable not less frequently than annually and is a fixed percentage of the fair market value of the property in the trust (determined annually), "(C) any payment described in paragraph (1)(A)(i) under a debt instrument or a lease, and "(D) any amount payable under a noncontingent remainder interest if all of the other interests in the trust consist of interests described in sub paragraph (A), (B), or (C). "(3) WAIVER OF SPECIAL TREATMENT. "(A) IN GENERAL.-A transferor may elect with respect to payments under any instrument specified in such election to treat such payments as payments which are not qualified fixed pay ments. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 7 "(B) CONSENT REQUIRED WHERE HOLDER NOT TRANSFEROR.-Payments under any instru ment held by a member of the transferor's family shall not be treated as qualified fixed payments unless such member consents to be treated in the same manner as the transferor for purposes of ap plying subsections (c) and (d) with respect to such instrument. "(C) REVOCATION ONLY WITH CONSENT.Any election under subparagraph (A) (or consent under subparagraph (B)) may be revoked only with the consent of the Secretary. "(4) ELECTION TO HAVE INTEREST TREATED AS QUALIFIED FIXED PAYMENT. "(A) IN GENERAL.-A transferor may elect to treat any right described in subparagraph (B) as a right to receive qualified fixed payments, to be paid in the amounts and at the times specified in such election, to the extent the amounts and times so specified are consistent with the underly ing legal instrument giving rise to such right. "(B) RIGHTS TO WHICH ELECTION APPLICABLE.—The election described in subparagraph (A) shall apply only to 8 "(i) the right to receive a dividend on preferred stock, if the sole reason such right was not otherwise treated as a right to re ceive a qualified fixed payment was that such dividend was noncumulative, or "(ii) the right to receive any partnership payment, if the sole reason such right was not otherwise treated as a right to receive a qualified fixed payment was that any such payment was contingent on and limited by the income or cash flow of the partnership. "(C) TIME AND MANNER OF ELECTION.The election described in subparagraph (A) shall be made "(i) on or before the due date (determined with regard to extensions) for filing a gift tax return for the calendar year in which the transfer is made, and “(ii) in the manner prescribed by the Secretary. "(c) DEEMED GIFTS WHERE QUALIFIED FIXED PAY 22 MENTS ARE NOT MADE. 23 24 25 "(1) IN GENERAL.-A qualified fixed payment under any specially valued retained interest, to the extent not made before the close of the 3rd calendar 9 year following the calendar year in which such pay ment was due, shall be treated as a gift made by the transferor on the last day of such 3rd calendar year. “(2) EXCEPTIONS.-Paragraph (1) shall not apply to any payment under any instrument if "(A) the transferor does not hold such instrument as of the close of the 3rd calendar year re ferred to in paragraph (1), or "(B) such instrument is issued by a corpora tion or partnership and provides that any qualified fixed payment not timely paid shall bear interest compounded annually from the date such payment was due at a rate not less than the discount rate used in valuing such qualified fixed payment under subsection (a)(2). Subparagraph (B) shall not apply to any payment treated as a qualified fixed payment under subsection (b)(4). "(3) REFUND OR CREDIT IF PAYMENT SUBSEQUENTLY MADE.-If any portion of a qualified fixed payment is treated as a gift made by the transferor under this subsection and such portion is subsequently paid to the transferor— "(A) any tax paid by the transferor under chapter 12 by reason of such gift shall be treated |