[Federal Register Volume 77, Number 117 (Monday, June 18, 2012)]
[Rules and Regulations]
[Pages 36150-36163]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14781]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 20, 25, and 602
[TD 9593]
RIN 1545-BK34
Portability of a Deceased Spousal Unused Exclusion Amount
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that provide
guidance on the estate and gift tax applicable exclusion amount, in
general, as well as on the applicable requirements for electing
portability of a deceased spousal unused exclusion (DSUE) amount to the
surviving spouse and on the applicable rules for the surviving spouse's
use of this DSUE amount. The statutory provisions underlying the
portability rules were enacted as part of the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010. The
portability rules affect married spouses where the death of the first
spouse to die occurs on or after January 1, 2011. The text of the
temporary regulations also serves as the text of proposed regulations
set forth in the notice of proposed rulemaking on this subject
appearing elsewhere in this issue of the Federal Register.
DATES: Effective Date. These regulations are effective on June 15,
2012.
Applicability Dates: Sections of the temporary regulation relating
to portability of a deceased spousal unused exclusion amount apply to
estates of decedents dying on or after January 1, 2011. For specific
dates of applicability, see Sec. Sec. 20.2001-2T(b), 20.2010-1T(e),
20.2010-2T(e), 20.2010-3T(f), 25.2505-1T(e), and 25.2505-2T(g).
FOR FURTHER INFORMATION CONTACT: Karlene Lesho (202) 622-3090 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these regulations has
been reviewed and, pending receipt and evaluation of public comments,
approved by the Office of Management and Budget under control number
1545-0015. Responses to this collection of information are voluntary to
obtain the benefit of being able to elect portability or to take
advantage of the special reporting requirements applicable to certain
assets, and, for certain estates, to opt out of a deemed portability
election.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number. For further information
concerning this collection of information, and the address for the
submission of comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble of the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books and records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On December 17, 2010, in section 303 of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010,
Public Law 111-312 (124 Stat. 3296, 3302) (TRUIRJCA), Congress amended
section 2010(c) of the Internal Revenue Code (Code) to allow
portability of the applicable exclusion amount between spouses, and it
made conforming amendments to sections 2505(a), 2631(c), and 6018(a)(1)
of the Code. Section 303 of TRUIRJCA directs the Secretary to issue
such regulations as may be necessary or appropriate to carry out
section 303(a) of TRUIRJCA.
[[Page 36151]]
This document contains amendments to the Estate Tax Regulations (26
CFR part 20) under sections 2001 and 2010 of the Code and to the Gift
Tax Regulations (26 CFR part 25) under section 2505 of the Code. The
temporary regulations address not only the amendments made to section
2010(c) by TRUIRJCA and the conforming amendment to section 2505(a),
but also the entirety of sections 2010 and 2505 of the Code for which
there are no existing regulations. Finally, the amendment to the Estate
Tax Regulations under section 2001 of the Code clarifies the
application of the rule in section 2010(c)(5)(B) to section 2001 of the
Code.
Section 303(a) of TRUIRJCA
Section 303(a) of TRUIRJCA amends section 2010(c) of the Code by
striking paragraph (2) of section 2010(c) and adding new paragraphs (2)
through (6) of section 2010(c). Section 2010(c)(2) now defines the
applicable exclusion amount, used to determine the applicable credit
amount, as the sum of the basic exclusion amount and, in the case of a
surviving spouse, the DSUE amount. Section 2010(c)(3) provides that the
basic exclusion amount is $5,000,000, to be adjusted for inflation in
each year after calendar year 2011. Section 2010(c)(4) defines the DSUE
amount to mean the lesser of (A) the basic exclusion amount or (B) the
basic exclusion amount of the last deceased spouse of the surviving
spouse, less the amount with respect to which the tentative tax is
determined under section 2001(b)(1) on the estate of such deceased
spouse.
Section 2010(c)(5) describes special rules relating to the
portability of a DSUE amount. Section 2010(c)(5)(A) provides certain
requirements that must be met to allow a surviving spouse to take into
account a DSUE amount of a deceased spouse. In particular, the executor
of the estate of the deceased spouse must file an estate tax return,
compute the DSUE amount on such return, elect portability of the DSUE
amount on such return, and ensure that such return is filed within the
time prescribed by law (including extensions) for filing such return.
Section 2010(c)(5)(B) allows the Secretary to examine a return of the
deceased spouse to determine the DSUE amount, even after the expiration
of the time provided under section 6501 for assessing a tax under
chapter 11 or 12.
Section 2010(c)(6) directs the Secretary to prescribe regulations
as may be necessary or appropriate to carry out section 2010(c).
Notice 2011-82
On October 17, 2011, the Department of the Treasury (Treasury) and
the IRS issued Notice 2011-82 (2011-42 IRB 516) which can be found on
www.IRS.gov. Notice 2011-82 alerts taxpayers to the requirements for
the estate of a deceased spouse to elect portability of a DSUE amount.
In addition, Notice 2011-82 announces that the estate of a deceased
spouse will be deemed to elect portability of the DSUE amount by timely
filing a complete and properly-prepared estate tax return, and that
such return will be deemed to include a computation of the DSUE amount
until such time as the IRS revises the estate tax return to expressly
contain the DSUE amount computation. Notice 2011-82 also provides
guidance to the estates of deceased spouses who choose not to make the
portability election. Notice 2011-82 announces that Treasury and the
IRS intend to issue regulations to implement section 303 of TRUIRJCA.
Accordingly, Treasury and the IRS invited comments on a number of
specific issues. Treasury and the IRS received comments on these
issues, as well as additional issues identified by commenters. The
comments are discussed in more detail in the ``Explanation of
Provisions'' section of this preamble.
Notice 2012-21
On March 3, 2012, Treasury and the IRS issued Notice 2012-21 (2012-
10 IRB 450) (which can be found on www.IRS.gov). Notice 2012-21 grants
to qualifying estates a six-month extension of time for filing an
estate tax return to elect portability of an unused exclusion amount
provided that the qualifying estate files Form 4768, ``Application for
Extension of Time to File a Return and/or Pay U.S. Estate (and
Generation-Skipping Transfer) Taxes,'' within 15 months of the
decedent's death. A qualifying estate is the estate of a person who
died, survived by a spouse, during the first half of calendar year
2011, and whose gross estate has a fair market value that does not
exceed $5 million. With the extension granted by this notice, the
estate tax return must be filed within 15 months of the decedent's
death.
Explanation of Provisions
1. Rules in Section 2010(a), (b), and (d) of the Code
The temporary regulations in Sec. 20.2010-1T(a) state the general
rule of section 2010(a) that an applicable credit amount will be
allowed to the estate of every decedent against the estate tax imposed
by section 2001. The temporary regulations in Sec. 20.2010-1T(b)
incorporate the rule in section 2010(b) relating to an adjustment to
the applicable credit amount for certain gifts made before 1977.
Finally, as provided in section 2010(d), the temporary regulations in
Sec. 20.2010-1T(c) limit the amount of the allowable credit so that it
does not exceed the amount of the estate tax imposed by section 2001.
2. Explanation of Applicable Terms
The temporary regulations in Sec. 20.2010-1T(d) define terms
relevant to computing the credit amount allowable under section 2010.
The relevant terms include applicable credit amount, applicable
exclusion amount, basic exclusion amount, DSUE amount, and last
deceased spouse.
3. Making the Portability Election
a. Election Required on Estate Tax Return
The temporary regulations in Sec. 20.2010-2T(a) require an
executor electing portability to make that election on a timely-filed
estate tax return. The last return filed by the due date of the return,
including extensions actually granted, will supersede any previously-
filed return. Thus, an executor may supersede a previously-filed
portability election on a subsequent timely-filed estate tax return if
the executor satisfies the requirement in Sec. 20.2010-2T(a)(3)(i).
But see Sec. 20.2010-2T(a)(6) when contrary elections are made by more
than one person permitted to make the election. The temporary
regulations in Sec. 20.2010-2T(a)(4) provide that a portability
election is irrevocable once the due date (as extended) of the return
has passed.
b. Timely Filing Required
For a valid portability election, section 2010(c)(5) requires the
executor to make the election on an estate tax return filed within the
``time prescribed by law'' (including extensions) for filing that
return. Section 6075(a) requires the filing of an estate tax return
made under section 6018(a) within 9 months of the date of the
decedent's death. Section 6018(a) requires an estate tax return to be
filed when the gross estate of a citizen or resident exceeds the excess
(if any) of the basic exclusion amount in effect under section 2010(c)
in the calendar year of the decedent's death over the sum of the
decedent's adjusted taxable gifts as defined in section 2001(b) and the
amount allowed to the decedent as a specific exemption under section
2521 as in effect prior to its repeal by the Tax Reform Act of 1976.
[[Page 36152]]
A commenter on Notice 2011-82 noted that neither section
2010(c)(5)(A) nor any other section of the Code provides a ``time
prescribed by law'' for filing an estate tax return on behalf of a
decedent's estate when the basic exclusion amount exceeds the value of
the decedent's gross estate. Accordingly, the commenter requested that
the regulations clarify the meaning of ``time prescribed by law'' as it
applies in section 2010(c)(5)(A).
For executors who are required to file an estate tax return under
section 6018(a), section 6075(a) requires the executor to file the
estate tax return within nine months after the decedent's date of
death. When an executor is not required to file an estate tax return
under section 6018(a), the Code does not specify a due date for a
return filed for the purpose of making the portability election. The
temporary regulations in Sec. 20.2010-2T(a)(1) require every estate
electing portability of a decedent's DSUE amount to file an estate tax
return within 9 months of the decedent's date of death, unless an
extension of time for filing has been granted. (See Notice 2012-21
providing for an extension of time to file an estate tax return for the
estates of certain decedents who died in the first half of calendar
year 2011.) This timing requirement for filing a return applies to all
estates electing portability regardless of the size of the gross
estate. The temporary regulations provide in Sec. 20.2010-2T(a)(1)
that an estate choosing to elect portability will be considered for
purposes of Subtitle B and Subtitle F of the Code to be required to
file a return under section 6018(a).
This rule will benefit the IRS as well as taxpayers choosing the
benefit of portability because the records required to compute and
verify the DSUE amount are more likely to be available at the time of
the death of the first deceased spouse than at the time of a subsequent
transfer by the surviving spouse by gift or at death, which could occur
many years later. This rule also is consistent with the ``Technical
Explanation of the Revenue Provisions Contained in the `Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010'
Scheduled for Consideration by the United States Senate,'' J. Comm. On
Taxation, 111th Cong., JCX-55-10 (Dec. 10, 2010) (Technical
Explanation), which suggests that estates deciding to elect portability
that are not otherwise required to file an estate tax return under
section 6018(a) are intended to be subject to the same timely-filing
requirements applicable to estates required to file an estate tax
return under section 6018(a). The Technical Explanation states that the
DSUE amount is available to a surviving spouse ``only if an election is
made on a timely filed estate tax return (including extensions) of the
predeceased spouse * * * regardless of whether the predeceased spouse
otherwise is required to file an estate tax return.'' JCX-55-10, page
52; see also ``General Explanation of Tax Legislation Enacted in the
111th Congress,'' J. Comm. On Taxation, 111th Cong., JCS-2-11, pages
554-555 (March 2011) (General Explanation) (incorporating the same
language from the Technical Explanation).
c. Portability Election Upon Filing of ``Complete and Properly-
Prepared'' Estate Tax Return
Notice 2011-82 provides that the estate of a decedent dying after
December 31, 2010, will be deemed to make the portability election upon
the timely filing of a ``complete and properly-prepared'' estate tax
return. The temporary regulations in Sec. 20.2010-2T(a)(2) provide
that the estate of a decedent (survived by a spouse) makes the
portability election by timely filing a complete and properly-prepared
estate tax return for the decedent's estate.
Several commenters responding to Notice 2011-82 requested that
Treasury and the IRS define what is meant by a ``complete and properly-
prepared'' estate tax return. Commenters further requested that
Treasury and the IRS consider the cost and burden associated with
filing an estate tax return and establishing and substantiating the
values reported on such return for those estates that are not required
to file a return under section 6018(a) but are filing such a return
solely to elect portability of the decedent's DSUE amount.
The temporary regulations in Sec. 20.2010-2T(a)(7)(i) provide that
an estate tax return prepared in accordance with all applicable
requirements is considered a ``complete and properly-prepared'' estate
tax return. The temporary regulations in Sec. 20.2010-2T(a)(7)(ii),
however, provide that executors of estates that are not otherwise
required to file an estate tax return under section 6018(a) do not have
to report the value of certain property that qualifies for the marital
or charitable deduction. If an executor chooses to make use of this
special rule in filing an estate tax return, the executor must estimate
the total value of the gross estate (including the values of the
property that do not have to be reported on the estate tax return under
this provision), based on a determination made in good faith and with
due diligence regarding the value of all of the assets includible in
the gross estate. The instructions issued with respect to the estate
tax return (``Instructions for Form 706'') will provide ranges of
dollar values, and the executor must identify on the estate tax return
the particular range within which falls the executor's best estimate of
the total gross estate. An amount corresponding to this range will be
included on line 1, part 2, of the estate tax return, along with an
indication of whether the line 1 total includes an estimate under this
special rule. By signing the return, the executor is certifying, under
penalties of perjury, that the estimate falls within the identified
range of values to the best of the executor's knowledge and belief. The
inquiry required to determine the executor's best estimate is the same
an executor of any estate must make under current law to determine
whether the estate has a filing obligation pursuant to section 6018(a);
that is, to determine whether the fair market value of the gross estate
exceeds the excess of the basic exclusion amount over the sum of the
decedent's adjusted taxable gifts and the amount allowed to the
decedent as a specific exemption under section 2521.
d. Opting Out of Portability Election
If the executor of the estate of a decedent with a surviving spouse
does not wish to make the portability election, the temporary
regulations in Sec. 20.2010-2T(a)(3) require the executor to make an
affirmative statement on the estate tax return signifying the decision
to have the portability election not apply. If no estate tax return is
required for that decedent's estate under section 6018(a), not filing a
timely return will be considered to be an affirmative statement
signifying the decision not to make a portability election.
e. Executor Responsible for Making Portability Election
A commenter responding to Notice 2011-82 suggested that the
temporary regulations allow a surviving spouse to file an estate tax
return on behalf of a decedent independently of a duly-appointed
executor if the surviving spouse notifies the executor of the intention
to file and the executor does not, in fact, file a return. Section
2010(c)(5), however, permits only the executor of the decedent's estate
to file the estate tax return and make the portability election.
Section 2203 defines the term ``executor'' for purposes of the estate
tax to mean ``the executor or administrator of the decedent, or, if
there is no executor or administrator appointed, qualified, and
[[Page 36153]]
acting within the United States, then any person in actual or
constructive possession of any property of the decedent.''
The temporary regulations in Sec. 20.2010-2T(a)(6)(i) provide that
an executor or administrator that is appointed, qualified, and acting
within the United States for the decedent's estate (an appointed
executor), may file an estate tax return to elect portability or to opt
to have the portability election not apply. The temporary regulations
in Sec. 20.2010-2T(a)(6)(ii) provide that, if there is no appointed
executor, any person in actual or constructive possession of any
property of the decedent may file the estate tax return to elect
portability or to opt to have the portability election not apply. The
temporary regulations in Sec. 20.2010-2T(a)(6)(ii) refer to such a
person as a ``non-appointed executor'' and provide that a portability
election made by a non-appointed executor cannot be superseded by a
contrary election made by another non-appointed executor of that same
decedent's estate.
4. Computing the DSUE Amount
a. Computation Required on Estate Tax Return To Elect Portability
The temporary regulations in Sec. 20.2010-2T(b)(1) require that an
executor include a computation of the DSUE amount on the estate tax
return of the decedent to allow portability of that decedent's DSUE
amount. A complete and properly-prepared return contains the
information required to compute a decedent's DSUE amount. Accordingly,
in a transitional rule consistent with Notice 2011-82, the temporary
regulations in Sec. 20.2010-2T(b)(2) provide that the IRS will deem
the required computation of the decedent's DSUE amount to have been
made on an estate tax return that is considered complete and properly-
prepared. The temporary regulations further clarify that, once the IRS
revises the prescribed form for the estate tax return expressly to
include the computation of the DSUE amount, executors that previously
filed an estate tax return pursuant to the transitional rule will not
be required to file a supplemental estate tax return using the revised
form.
b. Method of Computing the DSUE Amount
Section 2010(c)(4) defines the DSUE amount as the lesser of (A) the
basic exclusion amount, or (B) the excess of (i) the basic exclusion
amount of the last deceased spouse of the surviving spouse, over (ii)
the amount with respect to which the tentative tax is determined under
section 2001(b)(1) on the estate of such deceased spouse.
The temporary regulations in Sec. 20.2010-2T(c)(1)(i) confirm that
the term ``basic exclusion amount'' referred to in section
2010(c)(4)(A) means the basic exclusion amount in effect in the year of
the death of the decedent whose DSUE amount is being computed.
Generally, only the basic exclusion amount of the decedent, as in
effect in the year of the decedent's death, will be known at the time
the DSUE amount must be computed and reported on the decedent's estate
tax return. Because section 2010(c)(5)(A) requires the executor of an
estate electing portability to compute and report the DSUE amount on a
timely-filed estate tax return, and because the basic exclusion amount
is integral to this computation, the term ``basic exclusion amount'' in
section 2010(c)(4)(A) necessarily refers to such decedent's basic
exclusion amount.
In responding to Notice 2011-82, several commenters also argued
that the reference to ``basic exclusion amount'' in section
2010(c)(4)(B)(i) should be interpreted to mean ``applicable exclusion
amount,'' citing to the computation of the DSUE amount in Example 3 on
page 53 of the Technical Explanation and to footnote 1582A that was
added to the General Explanation by the ``ERRATA--`General Explanation
of Tax Legislation Enacted in the 111th Congress''' (ERRATA). JCX-20-
11, at page 1. Example 3 computes the DSUE amount of a deceased spouse
who was preceded in death by one spouse and was survived by another
spouse. The deceased spouse's DSUE amount is computed using the
applicable exclusion amount rather than the basic exclusion amount of
the deceased spouse (as reduced by the amount of the deceased spouse's
taxable estate). Example 3 is reproduced verbatim in the General
Explanation. See JCS-2-11 at page 555. The ERRATA acknowledges that
section 2010(c)(4)(B)(i) uses the term basic exclusion amount, but
notes that ``[a] technical correction may be necessary to replace the
reference to the basic exclusion amount of the last deceased spouse of
the surviving spouse with a reference to the applicable exclusion
amount of such last deceased spouse, so that the statute reflects
intent.'' JCX-20-11, at page 1, n. 1582A.
Treasury and the IRS have carefully considered this issue.
Construing the language of section 2010(c)(4)(B)(i) as referring to the
same number described in section 2010(c)(4)(A) would lead to an
illogical result because it would effectively render the use of ``basic
exclusion amount'' in section 2010(c)(4)(A) meaningless. Specifically,
the basic exclusion amount (the amount referenced in section
2010(c)(4)(A)) cannot be less than that same number reduced by another
number (the amount referenced in section 2010(c)(4)(B)). Under such an
interpretation, the basic exclusion amount referenced in section
2010(c)(4)(A) could not limit or impact the DSUE amount, and thus it
would serve no purpose as written. Based on the principle that a
statute should not be construed in a manner that renders a provision of
that statute superfluous and consistent with the indicia of legislative
intent reflected in the Technical Explanation and the General
Explanation, and in the exercise of the express authority granted by
Congress in sections 2010(c)(6) and 7805, Treasury and the IRS have
determined that the reference in section 2010(c)(4)(B)(i) to the basic
exclusion amount is properly interpreted to mean the applicable
exclusion amount. Thus, the temporary regulations adopt this
interpretation.
c. Effect of Gift Taxes Paid and Payable on Computing the DSUE Amount
Several commenters on Notice 2011-82 suggested that, for purposes
of computing the DSUE amount under section 2010(c)(4), the amount
referred to in section 2010(c)(4)(B)(ii), which is the amount on which
the decedent's tentative tax is determined under section 2001(b)(1), be
construed to take into account gift tax paid by such decedent. The
commenters noted that, to avoid using exclusion for amounts on which
gift tax was paid, this construction should apply in computing the DSUE
amount of such a decedent if (1) gift tax was paid by a decedent on
transfers that caused the total of his or her taxable transfers to
exceed the applicable exclusion amount at the time of the transfer, and
(2) the total adjusted taxable gifts of the decedent is less than the
applicable exclusion amount on the date of his or her death. The
temporary regulations in Sec. 20.2010-2T(c)(2) provide that amounts on
which gift taxes were paid by a decedent are excluded from adjusted
taxable gifts for the purpose of computing that decedent's DSUE amount.
d. Potential Impact of Credits in Sections 2013-2015 on the DSUE Amount
Commenters on Notice 2011-82 asked for clarification as to whether
the DSUE amount is determined before or after the application of other
available credits, such as the credit for tax on prior transfers
(section 2013), the credit for foreign death taxes (section 2014), and
the credit for death taxes on remainders
[[Page 36154]]
(section 2015). The issue of the impact of the credits in sections 2013
to 2015 on computing the DSUE amount merits further consideration. The
temporary regulations reserve Sec. 20.2010-2T(c)(3) to provide future
guidance on this issue. Treasury and the IRS request comments regarding
appropriate rules to coordinate these credits with portability of the
exclusion. For the manner of submitting these comments, see the notice
of proposed rulemaking on this subject appearing elsewhere in this
issue of the Federal Register.
5. Use of the DSUE Amount by the Surviving Spouse
a. Date DSUE Amount May Be Taken Into Consideration by Surviving Spouse
Commenters on Notice 2011-82 asked for clarification on when the
DSUE amount of a decedent is available to the surviving spouse or to
the surviving spouse's estate for use in determining the surviving
spouse's applicable exclusion amount. The temporary regulations in
Sec. Sec. 20.2010-3T(a) and 25.2505-2T(a) provide that, if the
decedent is the last deceased spouse of the surviving spouse on the
date of a transfer by the surviving spouse that is subject to gift or
estate tax, the surviving spouse, or the estate of the surviving
spouse, of that decedent may take into account that decedent's DSUE
amount in determining the applicable exclusion amount of the surviving
spouse when computing the surviving spouse's gift or estate tax
liability on that transfer. This rule applies only if the decedent's
executor elected portability. In addition, the temporary regulations in
Sec. Sec. 20.2010-3T(c)(1) and 25.2505-2T(d)(1) provide that a
portability election made by the executor of a decedent's estate is
effective as of the date of the decedent's death. Thus, the DSUE amount
of a decedent survived by a spouse may be included in determining the
applicable exclusion amount of the surviving spouse under section
2010(c)(2), subject to any applicable limitations, with respect to all
transfers occurring after the death of the decedent, if the executor of
the decedent's estate makes a portability election and the election is
not superseded by the executor of the decedent's estate before the due
date of the return, including extensions.
b. Last Deceased Spouse Limitation on DSUE Amount Available to
Surviving Spouse
Some commenters responding to Notice 2011-82 suggested that the
regulations clarify the scope of the last deceased spouse limitation in
section 2010(c)(4)(B)(i). The temporary regulations in Sec. 20.2010-
1T(d)(5) explain that the term ``last deceased spouse'' referred to in
section 2010(c)(4)(B)(i) means the most recently deceased individual
who was married to the surviving spouse at that individual's death,
except that an individual dying before calendar year 2011 cannot be
considered the last deceased spouse of such surviving spouse. The
temporary regulations in Sec. Sec. 20.2010-3T(a)(3) and 25.2505-
2T(a)(3) clarify that remarriage alone does not affect who will be
considered the last deceased spouse and does not prevent the surviving
spouse from including in the surviving spouse's applicable exclusion
amount the DSUE amount of the deceased spouse who most recently
preceded the surviving spouse in death. The temporary regulations
further clarify that the identity of the last deceased spouse of the
surviving spouse for purposes of portability is not affected by whether
the estate of the last deceased spouse elects portability of the
deceased spouse's DSUE amount or whether the last deceased spouse has
any DSUE amount available. This is consistent with the statutory
language, which refers to the ``last deceased spouse of such surviving
spouse'' without further qualification, as well as with the Technical
Explanation, which states that ``[t]he last deceased spouse limitation
applies whether or not the last deceased spouse has any unused
exclusion or the last deceased spouse's estate makes a timely
election.'' JCX-55-10, at page 52, n. 57; see also General Explanation,
JCS-2-11, at page 554, n. 1582.
For purposes of determining the applicable credit amount under
section 2505(a)(1), a commenter asked Treasury and the IRS to clarify
when one determines the identity of the last deceased spouse. Although
section 2505(a)(1) refers to the applicable credit amount in effect
under section 2010(c) as would apply if the donor died as of the end of
the calendar year, this does not mean that the identity of the last
deceased spouse is subject to change for purposes of computing the
surviving spouse's applicable exclusion amount if the surviving spouse
is preceded in death by a subsequent spouse after the gift transfer but
before the end of the calendar year. Therefore, the temporary
regulations provide in Sec. 25.2505-2T(a) that for purposes of
determining a surviving spouse's applicable exclusion amount when the
surviving spouse makes a taxable gift, the surviving spouse's last
deceased spouse is identified as of the date of the taxable gift. See
Sec. 20.2010-3T(a) for a comparable rule for estate tax purposes.
c. DSUE Amount Available in Case of Multiple Spouses and Previously-
Applied DSUE Amount
Some commenters responding to Notice 2011-82 requested that the
regulations clarify the outcome when a surviving spouse is preceded in
death by more than one spouse. In particular, commenters asked how the
DSUE amount to be included in the applicable exclusion amount of a
surviving spouse is affected when a decedent who is currently
considered the last deceased spouse of such surviving spouse either has
no DSUE amount or has a smaller amount of DSUE in comparison to a
decedent who previously was considered the last deceased spouse of such
surviving spouse. The temporary regulations clarify that, in either
situation, the surviving spouse may not apply any remaining DSUE amount
from a prior deceased spouse.
In addition, the temporary regulations address how to compute the
DSUE amount included in the applicable exclusion amount of a surviving
spouse who made gifts between the deaths of two decedents, each of whom
were at separate times the last deceased spouse of such surviving
spouse. First, the temporary regulations in Sec. 25.2505-2T(b) create
an ordering rule by providing that, when a surviving spouse makes a
taxable gift, the DSUE amount of the decedent who is the last deceased
spouse of such surviving spouse will be considered to apply against the
amount of the surviving spouse's taxable gifts for that calendar year
before the surviving spouse's own basic exclusion amount will apply.
Second, the temporary regulations, in Sec. Sec. 25.2505-2T(c) and
20.2010-3T(b), compute the DSUE amount available to such a surviving
spouse or to his or her estate, respectively, as including both: (i)
The DSUE amount of the surviving spouse's last deceased spouse, and
(ii) any DSUE amount actually applied to taxable gifts pursuant to the
rule in Sec. 25.2505-2T(b) to the extent the DSUE amount so applied
was from a decedent who no longer is the last deceased spouse for
purposes of section 2010(c)(4)(B)(i). Under the rules in Sec. 25.2505-
2T, a surviving spouse may use the DSUE amount of a predeceased spouse
as long as, for each transfer, such DSUE amount is from the surviving
spouse's last deceased spouse at the time of that transfer. Thus, a
spouse who has survived multiple spouses may use each last deceased
spouse's DSUE amount before the death of that spouse's next spouse, and
thereby may apply the
[[Page 36155]]
DSUE amount of multiple deceased spouses in succession. However, this
does not permit the surviving spouse to use the sum of the DSUE amounts
of those deceased spouses at one time, and a surviving spouse may not
use the remaining DSUE amount of a prior deceased spouse following the
death of a subsequent spouse.
6. Authority To Examine Returns of Deceased Spouses
Section 2010(c)(5)(B) confirms the IRS's authority to examine
returns of each deceased spouse of the surviving spouse to determine
the allowable DSUE amount even if the period of limitations on
assessment under section 6501 has expired for the tax under chapters 11
or 12 with respect to such returns.
Section 7602(a) provides that the IRS may examine any books,
papers, records, or other data which may be relevant or material to an
inquiry for the purpose of ascertaining the accuracy of any return or
determining the liability of any person for any internal revenue tax or
liability. The returns of each deceased spouse whose executor elected
portability are relevant or material to the determination of the
allowable DSUE amount to be applied by the surviving spouse to a
taxable transfer.
Accordingly, the temporary regulations confirm in Sec. Sec.
20.2001-2T(a), 20.2010-2T(d), 20.2010-3T(d), and 25.2505-2T(e) that, in
determining the allowable DSUE amount, the IRS may examine any one or
more returns of each deceased spouse of the surviving spouse whose
executor elected portability. Upon examination, the IRS may adjust or
eliminate the DSUE amount reported on a return; however, the IRS may
make an assessment of additional tax with respect to the deceased
spouse's return only within the period of limitations under section
6501. The ability of the IRS to examine returns of a deceased spouse
applies to each transfer by the surviving spouse to which a DSUE amount
is or has been applied. The returns and return information of a
deceased spouse may be disclosed to the surviving spouse or the
surviving spouse's estate as appropriate under section 6103.
A commenter to Notice 2011-82 suggested that the regulations
clarify whether the IRS's authority to examine returns even after the
period of limitations on assessment has expired, as confirmed in
section 2010(c)(5)(B), would suspend the substantive review and
examination of the estate tax return of a decedent with a surviving
spouse. Except to the extent provided in section 2010(c)(5)(B) with
regard to the computation of the DSUE amount, the limitation in section
6501 continues to apply to the estate tax return so examination of the
estate tax return will not be suspended solely because of the
possibility of future reviews to determine the decedent's DSUE amount.
7. Applicability of Portability Rules to Nonresidents Who Are Not
Citizens
Several commenters requested that the regulations clarify the
applicability of the rules in section 2010(c) to estates of
nonresidents who are not citizens. In response to these comments, the
temporary regulations provide in Sec. 20.2010-2T(a)(5) that an
executor of the estate of a nonresident decedent who was not a citizen
of the United States at the time of death may not make a portability
election on behalf of that decedent. The temporary regulations in
Sec. Sec. 20.2010-3T(e) and 25.2505-2T(f) provide that a nonresident
surviving spouse who was not a citizen of the United States at the time
of such surviving spouse's death may not take into account the DSUE
amount of any deceased spouse of such surviving spouse, except to the
extent allowed under a treaty obligation of the United States.
8. Applicability of Portability in Case of Qualified Domestic Trusts
A commenter suggested that the regulations clarify how the
portability rules apply when a qualified domestic trust (QDOT) (defined
in section 2056A(a)) is created for the benefit of a surviving spouse
who is a not a citizen of the United States. When property of a
decedent passes to a QDOT, the decedent's estate is allowed a marital
deduction under section 2056(d)(2) for the value of such property.
Ultimately, however, estate tax is imposed on such property under
section 2056A as distributions constituting taxable events are made
from the QDOT. The estate tax imposed by section 2056A is the
decedent's estate tax liability, and that tax generally equals the
amount of additional estate tax that would have been imposed under
section 2001 if the amount involved in the taxable event had been
included in the decedent's taxable estate and had not been deductible
under section 2056. See Sec. 20.2056A-5(a). The estate tax that would
have been imposed under section 2001 is computed by determining the net
tax under section 2001 after the allowance of any credits, including
the applicable credit amount determined under section 2010(c).
Consequently, when a QDOT has been created for the benefit of a
decedent's surviving spouse, the executor of the decedent's estate will
compute a DSUE amount, on a preliminary basis, that may decrease as
distributions constituting taxable events under section 2056A are made.
Commenters made several suggestions for applying portability to
this situation. One proposal is to allow a decedent's DSUE amount to be
computed and available to the surviving spouse as of the date of death
of the decedent, without regard to the estate tax to be imposed by
section 2056A. A second suggestion is to allow an executor of such an
estate to elect portability with respect to only a portion of the DSUE
amount so that an executor could reserve a portion of the decedent's
DSUE amount for the estate tax to be imposed by section 2056A. A third
proposal is to allow the decedent's applicable exclusion amount and the
initially-determined DSUE amount to be applied on a chronological, or
first come, first served, basis; that is, by applying the decedent's
applicable exclusion amount on the occurrence of a taxable event
subject to the estate tax imposed by section 2056A and at the time of a
transfer by the surviving spouse subject to the gift tax imposed by
section 2501, in each case, to the extent applicable exclusion amount
or DSUE amount, respectively, is available at such times.
Each of the proposals raises issues of fairness, complexity, and
administrability. The applicable exclusion amount first and foremost
belongs to the decedent. Portability of a DSUE amount allows a
surviving spouse to use a decedent's exclusion amount only to the
extent it is not used by that decedent. Accordingly, the temporary
regulations allow the decedent's estate full availability of the
decedent's applicable exclusion amount until such time as the final
estate tax liability of the decedent is computed. The temporary
regulations in Sec. 20.2010-2T(c)(4) provide that the executor of a
decedent's estate claiming a marital deduction for property passing to
a QDOT shall compute the decedent's DSUE amount on a preliminary basis
on the decedent's estate tax return for the purpose of electing
portability, although such amount subsequently will be reduced by the
estate tax imposed by section 2056A. The temporary regulations further
provide that the DSUE amount of such a decedent shall be redetermined
upon the final distribution or other taxable event on which estate tax
under section 2056A is imposed, which is generally upon the death of
the surviving spouse or the earlier termination of all QDOTs created
for that surviving spouse. The temporary regulations provide in
[[Page 36156]]
Sec. 20.2010-3T(c)(2) that the earliest date such a decedent's DSUE
amount may be included in determining the applicable exclusion amount
available to the surviving spouse or the surviving spouse's estate is
the date of the event that triggers the final estate tax liability of
the decedent under section 2056A. Generally, this means that such a
decedent's DSUE amount will be available for transfers occurring by
reason of the surviving spouse's death, but generally will not be
available to the surviving spouse during life. However, the decedent's
DSUE amount will be available to apply to the surviving spouse's
taxable gifts made in the year of the surviving spouse's death, or, if
the event terminating the QDOT occurs prior to the surviving spouse's
death, then in the year of that terminating event and/or any subsequent
year during the surviving spouse's life. Treasury and the IRS request
further comments on this issue. For the manner of submitting these
comments, see the notice of proposed rulemaking on this subject
appearing elsewhere in this issue of the Federal Register.
Special Analyses
It has been determined that this Treasury decision is not
considered a significant regulatory action as defined in Executive
Order 12866, as supplemented by Executive Order 13563. Therefore, a
regulatory assessment is not required. In addition, section 553(b) of
the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations because they are excepted from the notice and comment
requirements of section 553(b) and (c) of the Administrative Procedure
Act under the interpretive rule and good cause exceptions provided by
section 553(b)(3)(A) and (B) of that Act. These regulations are
necessary to provide immediate guidance to estates of a decedent with a
surviving spouse and to spouses surviving such a decedent on the
application of the portability rules of section 2010(c), which applies
to estates of decedents dying and gifts made after December 31, 2010.
These regulations provide necessary guidance to address fundamental
issues concerning the portability election, the computation of the DSUE
amount, the identity of the last deceased spouse, and the application
of the DSUE amount by the surviving spouse. In addition, the issues
addressed by the regulations have been publicly noticed and subject to
comment through the publication of Notice 2011-82. For these reasons,
good cause exists for dispensing with notice and public comment
pursuant to section 553(b) and (c) of the Administrative Procedure Act.
For the applicability of the Regulatory Flexibility Act (5 U.S.C.
chapter 6), please refer to the Special Analyses section of the
preamble to the cross-referenced notice of proposed rulemaking
published in the Proposed Rules section in this issue of the Federal
Register. Pursuant to section 7805(f) of the Code, these regulations
have been submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
Drafting Information
The principal author of these temporary regulations is Karlene
Lesho, Office of the Associate Chief Counsel (Passthroughs and Special
Industries). Other personnel from the IRS and the Treasury Department
participated in their development.
List of Subjects
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 25
Gift taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR parts 20, 25, and 602 are amended as follows:
PART 20--ESTATE TAX; ESTATE OF DECEDENTS DYING AFTER AUGUST 16,
1954
0
Paragraph 1. The authority citation for part 20 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 20.2010-0T also issued under 26 U.S.C. 2010(c)(6).
Section 20.2010-1T also issued under 26 U.S.C. 2010(c)(6).
Section 20.2010-2T also issued under 26 U.S.C. 2010(c)(6).
Section 20.2010-3T also issued under 26 U.S.C. 2010(c)(6). * * *
0
Par. 2. Section 20.2001-2T is added to read as follows:
Sec. 20.2001-2T Valuation of adjusted taxable gifts for purposes of
determining the deceased spousal unused exclusion amount of last
deceased spouse (temporary).
(a) General rule. Notwithstanding Sec. 20.2001-1(b), see
Sec. Sec. 20.2010-2T(d) and 20.2010-3T(d) for additional rules
regarding the authority of the Internal Revenue Service to examine any
gift or other tax return(s), even if the time within which a tax may be
assessed under section 6501 has expired, for the purpose of determining
the deceased spousal unused exclusion (DSUE) amount available under
section 2010(c) of the Internal Revenue Code (Code).
(b) Effective/applicability date. Paragraph (a) of this section
applies to the estates of decedents dying in calendar year 2011 or a
subsequent year in which the applicable exclusion amount is determined
under section 2010(c) of the Code by adding the basic exclusion amount
and, in the case of a surviving spouse, the DSUE amount.
(c) Expiration date. The applicability of this section expires on
or before June 15, 2015.
0
Par. 3. Section 20.2010-0T is added to read as follows:
Sec. 20.2010-0T Table of contents (temporary).
This section lists the table of contents for Sec. Sec. 20.2010-1T
through 20.2010-3T.
Sec. 20.2010-1T Unified credit against estate tax; in general
(temporary).
(a) General rule.
(b) Special rule in case of certain gifts made before 1977.
(c) Credit limitation.
(d) Explanation of terms.
(1) Applicable credit amount.
(2) Applicable exclusion amount.
(3) Basic exclusion amount.
(4) Deceased spousal unused exclusion (DSUE) amount.
(5) Last deceased spouse.
(e) Effective/applicability date.
(f) Expiration date.
Sec. 20.2010-2T Portability provisions applicable to estate of a
decedent survived by a spouse (temporary).
(a) Election required for portability.
(1) Timely filing required.
(2) Portability election upon filing of estate tax return.
(3) Portability election not made; requirements for election not
to apply.
(4) Election irrevocable.
(5) Estates eligible to make the election.
(6) Persons permitted to make the election.
(7) Requirements of return.
(b) Computation required for portability election.
(1) General rule.
(2) Transitional rule.
(c) Computation of the DSUE amount.
(1) General rule.
(2) Special rule to consider gift taxes paid by decedent.
(3) [Reserved]
(4) Special rule in case of property passing to qualified
domestic trust.
(5) Examples.
(d) Authority to examine returns of decedent.
(e) Effective/applicability date.
(f) Expiration date.
Sec. 20.2010-3T Portability provisions applicable to the surviving
spouse's estate (temporary).
[[Page 36157]]
(a) Surviving spouse's estate limited to DSUE amount of last
deceased spouse.
(1) In general.
(2) No DSUE amount available from last deceased spouse.
(3) Identity of last deceased spouse unchanged by subsequent
marriage or divorce.
(b) Special rule in case of multiple deceased spouses and a
previously-applied DSUE amount.
(1) In general.
(2) Example.
(c) Date DSUE amount taken into consideration by surviving
spouse's estate.
(1) General rule.
(2) Special rule when property passes to surviving spouse in a
qualified domestic trust.
(d) Authority to examine returns of deceased spouses.
(e) Availability of DSUE amount for estates of nonresidents who
are not citizens.
(f) Effective/applicability date.
(g) Expiration date.
0
Par. 4. Section 20.2010-1T is added to read as follows:
Sec. 20.2010-1T Unified credit against estate tax; in general
(temporary).
(a) General rule. Section 2010(a) allows the estate of every
decedent a credit against the estate tax imposed by section 2001. The
allowable credit is the applicable credit amount. See paragraph (d)(1)
of this section for an explanation of the term applicable credit
amount.
(b) Special rule in case of certain gifts made before 1977. The
applicable credit amount allowable under paragraph (a) of this section
must be reduced by an amount equal to 20 percent of the aggregate
amount allowed as a specific exemption under section 2521 (as in effect
before its repeal by the Tax Reform Act of 1976) for gifts made by the
decedent after September 8, 1976, and before January 1, 1977.
(c) Credit limitation. The applicable credit amount allowed under
paragraph (a) of this section cannot exceed the amount of the estate
tax imposed by section 2001.
(d) Explanation of terms. The explanation of terms in this section
applies to this section and to Sec. Sec. 20.2010-2T and 20.2010-3T.
(1) Applicable credit amount. The term applicable credit amount
refers to the allowable credit against estate tax imposed by section
2001 and gift tax imposed by section 2501. The applicable credit amount
equals the amount of the tentative tax that would be determined under
section 2001(c) if the amount on which such tentative tax is to be
computed were equal to the applicable exclusion amount. The applicable
credit amount is determined by applying the unified rate schedule in
section 2001(c) to the applicable exclusion amount.
(2) Applicable exclusion amount. The applicable exclusion amount
equals the sum of the basic exclusion amount and, in the case of a
surviving spouse, the deceased spousal unused exclusion (DSUE) amount.
(3) Basic exclusion amount. The basic exclusion amount is the sum
of--
(i) For any decedent dying in calendar year 2011, $5,000,000; and
(ii) For any decedent dying after calendar year 2011, $5,000,000
multiplied by the cost-of-living adjustment determined under section
1(f)(3) for that calendar year by substituting ``calendar year 2010''
for ``calendar year 1992'' in section 1(f)(3)(B) and by rounding to the
nearest multiple of $10,000.
(4) Deceased spousal unused exclusion (DSUE) amount. The term DSUE
amount refers, generally, to the unused portion of a decedent's
applicable exclusion amount to the extent this amount does not exceed
the basic exclusion amount in effect in the year of the decedent's
death. For rules on computing the DSUE amount, see Sec. Sec. 20.2010-
2T(c) and 20.2010-3T(b).
(5) Last deceased spouse. The term last deceased spouse means the
most recently deceased individual who, at that individual's death after
December 31, 2010, was married to the surviving spouse. See Sec. Sec.
20.2010-3T(a) and 25.2505-2T(a) of this chapter for additional rules
pertaining to the identity of the last deceased spouse for purposes of
determining the applicable exclusion amount of the surviving spouse.
(e) Effective/applicability date. Paragraphs (d)(2), (d)(3),
(d)(4), and (d)(5) of this section apply to the estates of decedents
dying in calendar year 2011 or a subsequent year in which the
applicable exclusion amount is determined under section 2010(c) of the
Internal Revenue Code by adding the basic exclusion amount and, in the
case of a surviving spouse, the DSUE amount. Paragraphs (a), (b), (c),
and (d)(1) of this section apply to the estates of decedents dying on
or after June 15, 2012.
(f) Expiration date. The applicability of this section expires on
or before June 15, 2015.
0
Par. 5. Section 20.2010-2T is added to read as follows:
Sec. 20.2010-2T Portability provisions applicable to estate of a
decedent survived by a spouse (temporary).
(a) Election required for portability. To allow a decedent's
surviving spouse to take into account that decedent's deceased spousal
unused exclusion (DSUE) amount, the executor of the decedent's estate
must elect portability of the DSUE amount on a timely-filed Form 706,
``United States Estate (and Generation-Skipping Transfer) Tax Return''
(estate tax return). This election is referred to in this section and
in Sec. 20.2010-3T as the portability election.
(1) Timely filing required. An estate that elects portability will
be considered, for purposes of Subtitle B and Subtitle F of the
Internal Revenue Code (Code), to be required to file a return under
section 6018(a). Accordingly, the due date of an estate tax return
required to elect portability is 9 months after the decedent's date of
death or the last day of the period covered by an extension (if an
extension of time for filing has been obtained). See Sec. Sec.
20.6075-1 and 20.6081-1 for additional rules relating to the time for
filing estate tax returns.
(2) Portability election upon filing of estate tax return. Upon the
timely filing of a complete and properly-prepared estate tax return, an
executor of an estate of a decedent (survived by a spouse) will have
elected portability of the decedent's DSUE amount unless the executor
chooses not to elect portability and satisfies the requirement in
paragraph (a)(3)(i) of this section. See paragraph (a)(7) of this
section for the return requirements related to the portability
election.
(3) Portability election not made; requirements for election not to
apply. The executor of the estate of a decedent (survived by a spouse)
will not make or be considered to make the portability election if
either of the following applies:
(i) The executor states affirmatively on a timely-filed estate tax
return, or in an attachment to that estate tax return, that the estate
is not electing portability under section 2010(c)(5). The manner in
which the executor may make this affirmative statement on the estate
tax return will be as set forth in the instructions issued with respect
to such form (``Instructions for Form 706'').
(ii) The executor does not timely file an estate tax return in
accordance with paragraph (a)(1) of this section.
(4) Election irrevocable. An executor of the estate of a decedent
(survived by a spouse) who timely files an estate tax return may make
and may supersede a portability election previously made, provided that
the estate tax return reporting the decision not to make a portability
election is filed on or before the due date of the return, including
extensions actually granted. However, see paragraph (a)(6) of this
section when contrary elections are made by more
[[Page 36158]]
than one person permitted to make the election. The portability
election, once made, becomes irrevocable once the due date of the
estate tax return, including extensions actually granted, has passed.
(5) Estates eligible to make the election. An executor may elect
portability on behalf of the estate of a decedent (survived by a
spouse) if the decedent dies in calendar year 2011 or during a
subsequent period in which portability of a DSUE amount is in effect.
However, an executor of the estate of a nonresident decedent who was
not a citizen of the United States at the time of death may not elect
portability on behalf of that decedent, and the timely filing of such a
decedent's estate tax return will not constitute the making of a
portability election.
(6) Persons permitted to make the election--(i) Appointed executor.
An executor or administrator of the estate of a decedent (survived by a
spouse) that is appointed, qualified, and acting within the United
States, within the meaning of section 2203 (an appointed executor), may
file the estate tax return on behalf of the estate of the decedent and,
in so doing, elect portability of the decedent's DSUE amount. An
appointed executor also may elect not to have portability apply
pursuant to paragraph (a)(3) of this section.
(ii) Non-appointed executor. If there is no appointed executor, any
person in actual or constructive possession of any property of the
decedent (a non-appointed executor) may file the estate tax return on
behalf of the estate of the decedent and, in so doing, elect
portability of the decedent's DSUE amount, or, by complying with
paragraph (a)(3) of this section, may elect not to have portability
apply. A portability election made by a non-appointed executor cannot
be superseded by a contrary election made by another non-appointed
executor of that same decedent's estate (unless such other non-
appointed executor is the successor of the non-appointed executor who
made the election). See Sec. 20.6018-2 for additional rules relating
to persons permitted to file the estate tax return.
(7) Requirements of return--(i) General rule. An estate tax return
will be considered complete and properly-prepared for purposes of this
section if it is prepared in accordance with the instructions issued
for the estate tax return (Instructions for Form 706) and if the
requirements of Sec. Sec. 20.6018-2, 20.6018-3, and 20.6018-4 are
satisfied. However, see paragraph (a)(7)(ii) of this section for
reduced requirements applicable to certain property of certain estates.
(ii) Reporting of value not required for certain property--(A) In
general. A special rule applies with respect to certain property of
estates in which the executor is not required to file an estate tax
return under section 6018(a), as determined without regard to paragraph
(a)(1) of this section. With respect to such an estate, for bequests,
devises, or transfers of property included in the gross estate, the
value of which is deductible under section 2056 or 2056A (marital
deduction property) or under section 2055(a) (charitable deduction
property), an executor is not required to report a value for such
property on the estate tax return (except to the extent provided in
this paragraph (a)(7)(ii)(A)) and will be required to report only the
description, ownership, and/or beneficiary of such property, along with
all other information necessary to establish the right of the estate to
the deduction in accordance with Sec. Sec. 20.2056(a)-1(b)(i) through
(iii) and 20.2055-1(c), as applicable. However, this rule does not
apply to marital deduction property or charitable deduction property
if--
(1) The value of such property relates to, affects, or is needed to
determine, the value passing from the decedent to another recipient;
(2) The value of such property is needed to determine the estate's
eligibility for the provisions of sections 2032, 2032A, 6166, or
another provision of the Code;
(3) Less than the entire value of an interest in property
includible in the decedent's gross estate is marital deduction property
or charitable deduction property; or
(4) A partial disclaimer or partial qualified terminable interest
property (QTIP) election is made with respect to a bequest, devise, or
transfer of property includible in the gross estate, part of which is
marital deduction property or charitable deduction property.
(B) Statement required on the return. Paragraph (a)(7)(ii)(A) of
this section applies only if the executor exercises due diligence to
estimate the fair market value of the gross estate, including the
property described in paragraph (a)(7)(ii)(A) of this section. The
Instructions for Form 706 will provide ranges of dollar values, and the
executor must identify on the estate tax return an amount corresponding
to the particular range within which falls the executor's best estimate
of the total gross estate. Until such time as the prescribed form for
the estate tax return expressly includes this estimate in the manner
described in the preceding sentence, the executor must include the
executor's best estimate, rounded to the nearest $250,000, on or
attached to the estate tax return, signed under penalties of perjury.
(C) Examples. The following examples illustrate the application of
paragraph (a)(7)(ii) of this section. In each example, assume that
Husband (H) dies in 2011, survived by his wife (W), that both H and W
are US citizens, that H's gross estate does not exceed the excess of
the applicable exclusion amount for the year of his death over the
total amount of H's adjusted taxable gifts and any specific exemption
under section 2521, and that H's executor (E) timely files Form 706
solely to make the portability election.
Example 1. (i) Facts. The assets includible in H's gross estate
consist of a parcel of real property and bank accounts held jointly
with W with rights of survivorship, a life insurance policy payable
to W, and a survivor annuity payable to W for her life. H made no
taxable gifts during his lifetime.
(ii) Application. E files an estate tax return on which these
assets are identified on the proper schedule, but E provides no
information on the return with regard to the date of death value of
these assets in accordance with paragraph (a)(7)(ii)(A) of this
section. To establish the estate's entitlement to the marital
deduction in accordance with Sec. 20.2056(a)-1(b) (except with
regard to establishing the value of the property) and the
instructions for the estate tax return, E includes with the estate
tax return evidence to verify the title of each jointly held asset,
to confirm that W is the sole beneficiary of both the life insurance
policy and the survivor annuity, and to verify that the annuity is
exclusively for W's life. Finally, E certifies on the estate return
E's best estimate, determined by exercising due diligence, of the
fair market value of the gross estate in accordance with paragraph
(a)(7)(ii)(B) of this section. The estate tax return is considered
complete and properly prepared and E has elected portability.
Example 2. (i) Facts. H's will, duly admitted to probate and not
subject to any proceeding to challenge its validity, provides that
H's entire estate is to be distributed to a QTIP trust for W. The
non-probate assets includible in H's gross estate consist of a life
insurance policy payable to H's children from a prior marriage, and
H's individual retirement account (IRA) payable to W. H made no
taxable gifts during his lifetime.
(ii) Application. E files an estate tax return on which all of
the assets includible in the gross estate are identified on the
proper schedule. In the case of the probate assets and the IRA, no
information is provided with regard to date of death value in
accordance with paragraph (a)(7)(ii)(A) of this section. However, E
makes a QTIP election and attaches a copy of H's will creating the
QTIP, and describes each such asset and its ownership to establish
the estate's entitlement to the marital deduction in accordance with
the instructions for the estate tax return and Sec. 20.2056(a)-1(b)
(except with regard to establishing the value of the property). In
the case of the life
[[Page 36159]]
insurance policy payable to H's children, all of the regular return
requirements, including reporting and establishing the fair market
value of such asset, apply. Finally, E certifies on the estate
return E's best estimate, determined by exercising due diligence, of
the fair market value of the gross estate in accordance with
paragraph (a)(7)(ii)(B) of this section. The estate tax return is
considered complete and properly prepared and E has elected
portability.
(iii) Variation. The facts are the same except that there are no
non-probate assets, and E elects to make only a partial QTIP
election. In this case, the regular return requirements apply to all
of the property includible in the gross estate and the provisions of
paragraph (a)(7)(ii) of this section do not apply.
Example 3. (i) Facts. H's will, duly admitted to probate and not
subject to any proceeding to challenge its validity, provides that
50 percent of the property passing under the terms of H's will is to
be paid to a marital trust for W and 50 percent is to be paid to a
trust for W and their descendants.
(ii) Application. The amount passing to the non-marital trust
cannot be verified without knowledge of the full value of the
property passing under the will. Therefore, the value of the
property of the marital trust relates to or affects the value
passing to the trust for W and the descendants of H and W.
Accordingly, the general return requirements apply to all of the
property includible in the gross estate and the provisions of
paragraph (a)(7)(ii) of this section do not apply.
(b) Computation required for portability election--(1) General
rule. In addition to the requirements described in paragraph (a) of
this section, an executor of a decedent's estate must include a
computation of the DSUE amount on the estate tax return to elect
portability and thereby allow the decedent's surviving spouse to take
into account that decedent's DSUE amount. See paragraph (b)(2) of this
section for a transitional rule when the estate tax return form
prescribed by the Internal Revenue Service (IRS) does not show
expressly the computation of the DSUE amount. See paragraph (c) of this
section for rules on computing the DSUE amount.
(2) Transitional rule. Until such time as the prescribed form for
the estate tax return expressly includes a computation of the DSUE
amount, a complete and properly-prepared estate tax return will be
deemed to include the computation of the DSUE amount. See paragraph
(a)(7) of this section for the requirements for a return to be
considered complete and properly-prepared. Once the IRS revises the
prescribed form for the estate tax return to include expressly the
computation of the DSUE amount, executors that previously filed an
estate tax return pursuant to this transitional rule will not be
required to file a supplemental estate tax return using the revised
form.
(c) Computation of the DSUE amount--(1) General rule. Subject to
paragraphs (c)(2) through (c)(4) of this section, the DSUE amount of a
decedent with a surviving spouse is the lesser of the following
amounts--
(i) The basic exclusion amount in effect in the year of the death
of the decedent; or
(ii) The excess of--
(A) The decedent's applicable exclusion amount; over
(B) The sum of the amount of the taxable estate and the amount of
the adjusted taxable gifts of the decedent, which together is the
amount on which the tentative tax on the decedent's estate is
determined under section 2001(b)(1).
(2) Special rule to consider gift taxes paid by decedent. Solely
for purposes of computing the decedent's DSUE amount, the amount of the
adjusted taxable gifts of the decedent referred to in paragraph
(c)(1)(ii)(B) of this section is reduced by the amount, if any, on
which gift taxes were paid for the calendar year of the gift(s).
(3) [Reserved]
(4) Special rule in case of property passing to qualified domestic
trust. When property passes for the benefit of a surviving spouse in a
qualified domestic trust (QDOT) as defined in section 2056A(a), the
DSUE amount of the decedent is computed on the decedent's estate tax
return for the purpose of electing portability in the same manner as
this amount is computed under paragraph (c)(1) of this section, but
this DSUE amount is subject to subsequent adjustments. The DSUE amount
of the decedent must be redetermined upon the occurrence of the final
distribution or other event (generally the death of the surviving
spouse or the earlier termination of all QDOTs for that surviving
spouse) on which estate tax is imposed under section 2056A. See Sec.
20.2056A-6 for rules on determining the estate tax under section 2056A.
See Sec. 20.2010-3T(c)(2) regarding the timing of the availability of
the decedent's DSUE amount to the surviving spouse.
(5) Examples. The following examples illustrate the application of
this paragraph (c):
Example 1. Computation of DSUE amount. (i) Facts. In 2002,
having made no prior taxable gift, Husband (H) makes a taxable gift
valued at $1,000,000 and reports the gift on a timely-filed gift tax
return. Because the amount of the gift is equal to the applicable
exclusion amount for that year ($1,000,000), $345,800 is allowed as
a credit against the tax, reducing the gift tax liability to zero. H
dies on September 29, 2011, survived by Wife (W). H and W are US
citizens and neither has any prior marriage. H's taxable estate is
$1,000,000. The executor of H's estate timely files H's estate tax
return and elects portability, thereby allowing W to benefit from
H's DSUE amount.
(ii) Application. The executor of H's estate computes H's DSUE
amount to be $3,000,000 (the lesser of the $5,000,000 basic
exclusion amount in 2011, or the excess of H's $5,000,000 applicable
exclusion amount over the sum of the $1,000,000 taxable estate and
the $1,000,000 amount of adjusted taxable gifts).
Example 2. Computation of DSUE amount when gift tax paid. (i)
Facts. The facts are the same as in Example 1 except that the value
of H's taxable gift in 2002 is $2,000,000. After application of the
applicable credit amount, H owes gift tax on $1,000,000, the amount
of the gift in excess of the applicable exclusion amount for that
year. H pays the gift tax owed on the transfer in 2002.
(ii) Application. On H's death, the executor of H's estate
computes the DSUE amount to be $3,000,000 (the lesser of the
$5,000,000 basic exclusion amount in 2011, or the excess of H's
$5,000,000 applicable exclusion amount over the sum of the
$1,000,000 taxable estate and $1,000,000 adjusted taxable gifts).
H's adjusted taxable gifts of $2,000,000 were reduced for purposes
of this computation by $1,000,000, the amount of taxable gifts on
which gift taxes were paid.
Example 3. Computation of DSUE amount when QDOT created. (i)
Facts. Husband (H), a US citizen, makes his first taxable gift in
2002, valued at $1,000,000, and reports the gift on a timely-filed
gift tax return. No gift tax is due because the applicable exclusion
amount for that year ($1,000,000) equals the fair market value of
the gift. H dies in 2011 with a gross estate of $2,000,000. H's wife
(W) is a US resident but not a citizen of the United States and,
under H's will, a pecuniary bequest of $1,500,000 passes to a QDOT
for the benefit of W. H's executor timely files an estate tax return
and makes the QDOT election for the property passing to the QDOT,
and H's estate is allowed a marital deduction of $1,500,000 under
section 2056(d) for the value of that property. H's taxable estate
is $500,000. On H's estate tax return, H's executor computes H's
preliminary DSUE amount to be $3,500,000 (the lesser of the
$5,000,000 basic exclusion amount in 2011, or the excess of H's
$5,000,000 applicable exclusion amount over the sum of the $500,000
taxable estate and the $1,000,000 adjusted taxable gifts). No
taxable events within the meaning of section 2056A occur during W's
lifetime with respect to the QDOT, and W makes no taxable gifts. In
2012, W dies and the value of the assets of the QDOT is $1,800,000.
(ii) Application. H's DSUE amount is redetermined to be
$1,700,000 (the lesser of the $5,000,000 basic exclusion amount in
2011, or the excess of H's $5,000,000 applicable exclusion amount
over $3,300,000 (the sum of the $500,000 taxable estate augmented by
the $1,800,000 of QDOT assets and the $1,000,000 adjusted taxable
gifts)).
(d) Authority to examine returns of decedent. The IRS may examine
returns of a decedent in determining the
[[Page 36160]]
decedent's DSUE amount, regardless of whether the period of limitations
on assessment has expired for that return. See Sec. 20.2010-3T(d) for
additional rules relating to the IRS's authority to examine returns.
See also section 7602 for the IRS's authority, when ascertaining the
correctness of any return, to examine any returns that may be relevant
or material to such inquiry.
(e) Effective/applicability date. This section applies to the
estates of decedents dying in calendar year 2011 or a subsequent year
in which the applicable exclusion amount is determined under section
2010(c) of the Code by adding the basic exclusion amount and, in the
case of a surviving spouse, the DSUE amount.
(f) Expiration date. The applicability of this section expires on
or before June 15, 2015.
0
Par. 6. Section 20.2010-3T is added to read as follows:
Sec. 20.2010-3T Portability provisions applicable to the surviving
spouse's estate (temporary).
(a) Surviving spouse's estate limited to DSUE amount of last
deceased spouse--(1) In general. A deceased spousal unused exclusion
(DSUE) amount of a decedent, computed under Sec. 20.2010-2T(c), is
included in determining a surviving spouse's applicable exclusion
amount under section 2010(c)(2), provided--
(i) Such decedent is the last deceased spouse of such surviving
spouse within the meaning of Sec. 20.2010-1T(d)(5) on the date of the
death of the surviving spouse; and
(ii) The executor of the decedent's estate elected portability (see
Sec. 20.2010-2T(a) and (b) for applicable requirements).
(2) No DSUE amount available from last deceased spouse. If the last
deceased spouse of such surviving spouse had no DSUE amount, or if the
executor of such a decedent's estate did not make a portability
election, the surviving spouse's estate has no DSUE amount (except as
provided in paragraph (b)(1)(ii) of this section) to be included in
determining the applicable exclusion amount, even if the surviving
spouse previously had a DSUE amount available from another decedent
who, prior to the death of the last deceased spouse, was the last
deceased spouse of such surviving spouse. See paragraph (b) of this
section for a special rule in the case of multiple deceased spouses and
a previously-applied DSUE amount.
(3) Identity of last deceased spouse unchanged by subsequent
marriage or divorce. A decedent is the last deceased spouse (as defined
in Sec. 20.2010-1T(d)(5)) of a surviving spouse even if, on the date
of the death of the surviving spouse, the surviving spouse is married
to another (then-living) individual. If a surviving spouse marries
again and that marriage ends in divorce or an annulment, the subsequent
death of the divorced spouse does not end the status of the prior
deceased spouse as the last deceased spouse of the surviving spouse.
The divorced spouse, not being married to the surviving spouse at
death, is not the last deceased spouse as that term is defined in Sec.
20.2010-1T(d)(5).
(b) Special rule in case of multiple deceased spouses and
previously-applied DSUE amount--(1) In general. A special rule applies
to compute the DSUE amount included in the applicable exclusion amount
of a surviving spouse who previously has applied the DSUE amount of one
or more deceased spouses to taxable gifts in accordance with Sec.
25.2505-2T(b) and (c) of this chapter. If a surviving spouse has
applied the DSUE amount of one or more last deceased spouses to the
surviving spouse's transfers during life, and if any of those last
deceased spouses is different from the surviving spouse's last deceased
spouse as defined in Sec. 20.2010-1T(d)(5) at the time of the
surviving spouse's death, then the DSUE amount to be included in
determining the applicable exclusion amount of the surviving spouse at
the time of the surviving spouse's death is the sum of--
(i) The DSUE amount of the surviving spouse's last deceased spouse
as described in paragraph (a)(1) of this section; and
(ii) The DSUE amount of each other deceased spouse of the surviving
spouse, to the extent that such amount was applied to one or more
taxable gifts of the surviving spouse.
(2) Example. The following example, in which all described
individuals are US citizens, illustrates the application of this
paragraph (b):
Example. (i) Facts. Husband 1 (H1) dies on January 15, 2011,
survived by Wife (W). Neither has made any taxable gifts during H1's
lifetime. H1's executor elects portability of H1's DSUE amount. The
DSUE amount of H1 as computed on the estate tax return filed on
behalf of H1's estate is $5,000,000. On December 31, 2011, W makes
taxable gifts to her children valued at $2,000,000. W reports the
gifts on a timely-filed gift tax return. W is considered to have
applied $2,000,000 of H1's DSUE amount to the amount of taxable
gifts, in accordance with Sec. 25.2505-2T(c), and, therefore, W
owes no gift tax. W has an applicable exclusion amount remaining in
the amount of $8,000,000 ($3,000,000 of H1's remaining DSUE amount
plus W's own $5,000,000 basic exclusion amount). After the death of
H1, W marries Husband 2 (H2). H2 dies in June 2012. H2's executor
elects portability of H2's DSUE amount, which is properly computed
on H2's estate tax return to be $2,000,000. W dies in October 2012.
(ii) Application. The DSUE amount to be included in determining
the applicable exclusion amount available to W's estate is
$4,000,000, determined by adding the $2,000,000 DSUE amount of H2
and the $2,000,000 DSUE amount of H1 that was applied by W to W's
2011 taxable gifts. Thus, W's applicable exclusion amount is
$9,000,000.
(c) Date DSUE amount taken into consideration by surviving spouse's
estate--(1) General rule. A portability election made by an executor of
a decedent's estate (see Sec. 20.2010-2T(a) and (b) for applicable
requirements) applies as of the date of the decedent's death. Thus, the
decedent's DSUE amount is included in the applicable exclusion amount
of the decedent's surviving spouse under section 2010(c)(2) and will be
applicable to transfers made by the surviving spouse after the
decedent's death. However, such decedent's DSUE amount will not be
included in the applicable exclusion amount of the surviving spouse,
even if the surviving spouse had made a transfer in reliance on the
availability or computation of the decedent's DSUE amount:
(i) If the executor of the decedent's estate supersedes the
portability election by filing a subsequent estate tax return in
accordance with Sec. 20.2010-2T(a)(4);
(ii) To the extent that the DSUE amount subsequently is reduced by
a valuation adjustment or the correction of an error in calculation; or
(iii) To the extent that the surviving spouse cannot substantiate
the DSUE amount claimed on the surviving spouse's return.
(2) Special rule when property passes to surviving spouse in a
qualified domestic trust. When property passes from a decedent for the
benefit of a surviving spouse in one or more qualified domestic trusts
(QDOT) as defined in section 2056A(a) and the decedent's executor
elects portability, the DSUE amount available to be included in the
applicable exclusion amount of the surviving spouse under section
2010(c)(2) is the DSUE amount of the decedent as redetermined in
accordance with Sec. 20.2010-2T(c)(4). The earliest date on which the
decedent's DSUE amount may be included in the applicable exclusion
amount of the surviving spouse under section 2010(c)(2) is the date of
the occurrence of the final QDOT distribution or final other event
(generally, the death of the surviving spouse or the earlier
[[Page 36161]]
termination of all QDOTs for that surviving spouse) on which tax under
section 2056A is imposed. However, the decedent's DSUE amount as
redetermined in accordance with Sec. 20.2010-2T(c)(4) may be applied
to certain taxable gifts of the surviving spouse. See Sec. 25.2505-
2T(d)(2)(i) of this chapter.
(d) Authority to examine returns of deceased spouses. For the
purpose of determining the DSUE amount to be included in the applicable
exclusion amount of the surviving spouse, the Internal Revenue Service
(IRS) may examine returns of each of the surviving spouse's deceased
spouses whose DSUE amount is claimed to be included in the surviving
spouse's applicable exclusion amount, regardless of whether the period
of limitations on assessment has expired for any such return. The IRS's
authority to examine returns of a deceased spouse applies with respect
to each transfer by the surviving spouse to which a DSUE amount is or
has been applied. Upon examination, the IRS may adjust or eliminate the
DSUE amount reported on such a return; however, the IRS may assess
additional tax on that return only if that tax is assessed within the
period of limitations on assessment under section 6501 applicable to
the tax shown on that return. See also section 7602 for the IRS's
authority, when ascertaining the correctness of any return, to examine
any returns that may be relevant or material to such inquiry. For
purposes of these examinations to determine the DSUE amount, the
surviving spouse is considered to have a material interest that is
affected by the return information of the deceased spouse within the
meaning of section 6103(e)(3).
(e) Availability of DSUE amount for estates of nonresidents who are
not citizens. The estate of a nonresident surviving spouse who is not a
citizen of the United States at the time of such surviving spouse's
death shall not take into account the DSUE amount of any deceased
spouse of such surviving spouse within the meaning of Sec. 20.2010-
1T(d)(5) except to the extent allowed under any applicable treaty
obligation of the United States. See section 2102(b)(3).
(f) Effective/applicability date. This section applies to the
estates of decedents dying in calendar year 2011 or a subsequent year
in which the applicable exclusion amount is determined under section
2010(c) of the Code by adding the basic exclusion amount and, in the
case of a surviving spouse, the DSUE amount.
(g) Expiration date. The applicability of this section expires on
or before June 15, 2015.
PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954
0
Par. 7. The authority citation for part 25 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805. * * *
Section 25.2505-2T also issued under 26 U.S.C. 2010(c)(6). * * *
0
Par. 8. Section 25.2505-0T is added to read as follows:
Sec. 25.2505-0T Table of contents (temporary).
This section lists the table of contents for Sec. Sec. 25.2505-1T
and 25.2505-2T.
Sec. 25.2505-1T Unified credit against gift tax; in general
(temporary).
(a) General rule.
(b) Applicable rate of tax.
(c) Special rule in case of certain gifts made before 1977.
(d) Credit limitation.
(e) Effective/applicability date.
(f) Expiration date.
Sec. 25.2505-2T Gifts made by a surviving spouse having a DSUE
amount available (temporary).
(a) Donor who is surviving spouse is limited to DSUE amount of
last deceased spouse.
(1) In general.
(2) No DSUE amount available from last deceased spouse.
(3) Identity of last deceased spouse unchanged by subsequent
marriage or divorce.
(b) Manner in which DSUE amount is applied.
(c) Special rule in case of multiple deceased spouses and
previously-applied DSUE amount.
(1) In general.
(2) Example.
(d) Date DSUE amount taken into consideration by donor who is a
surviving spouse.
(1) General rule.
(2) Special rule when property passes to surviving spouse in a
qualified domestic trust.
(e) Authority to examine returns of deceased spouses.
(f) Availability of DSUE amount for nonresidents who are not
citizens.
(g) Effective/applicability date.
(h) Expiration date.
0
Par. 9. Section 25.2505-1T is added to read as follows:
Sec. 25.2505-1T Unified credit against gift tax; in general
(temporary).
(a) General rule. Section 2505(a) allows a citizen or resident of
the United States a credit against the tax imposed by section 2501 for
each calendar year. The allowable credit is the applicable credit
amount in effect under section 2010(c) that would apply if the donor
died as of the end of the calendar year, reduced by the sum of the
amounts allowable as a credit against the gift tax due for all
preceding calendar periods. See Sec. Sec. 25.2505-2T, 20.2010-1T, and
20.2010-2T of this chapter for additional rules and definitions related
to determining the applicable credit amount in effect under section
2010(c).
(b) Applicable rate of tax. In determining the amounts allowable as
a credit against the gift tax due for all preceding calendar periods,
the unified rate schedule under section 2001(c) in effect for such
calendar year applies instead of the rates of tax actually in effect
for preceding calendar periods. See sections 2505(a) and 2502(a)(2).
(c) Special rule in case of certain gifts made before 1977. The
applicable credit amount allowable under paragraph (a) of this section
must be reduced by an amount equal to 20 percent of the aggregate
amount allowed as a specific exemption under section 2521 (as in effect
before its repeal by the Tax Reform Act of 1976) for gifts made by the
decedent after September 8, 1976, and before January 1, 1977.
(d) Credit limitation. The applicable credit amount allowed under
paragraph (a) of this section for any calendar year shall not exceed
the amount of the tax imposed by section 2501 for such calendar year.
(e) Effective/applicability date. Paragraph (a) of this section
applies to gifts made on or after January 1, 2011. Paragraphs (b), (c),
and (d) of this section apply to gifts made on or after June 15, 2012.
(f) Expiration date. The applicability of this section expires on
or before June 15, 2015.
0
Par. 10. Section 25.2505-2T is added to read as follows:
Sec. 25.2505-2T Gifts made by a surviving spouse having a DSUE amount
available (temporary).
(a) Donor who is surviving spouse is limited to DSUE amount of last
deceased spouse--(1) In general. In computing a surviving spouse's gift
tax liability with regard to a transfer subject to the tax imposed by
section 2501 (taxable gift), a deceased spousal unused exclusion (DSUE)
amount of a decedent, computed under Sec. 20.2010-2T(c) of this
chapter, is included in determining the surviving spouse's applicable
exclusion amount under section 2010(c)(2), provided:
(i) Such decedent is the last deceased spouse of such surviving
spouse within the meaning of Sec. 20.2010-1T(d)(5) of
[[Page 36162]]
this chapter at the time of the surviving spouse's taxable gift; and
(ii) The executor of the decedent's estate elected portability (see
Sec. 20.2010-2T(a) and (b) of this chapter for applicable
requirements).
(2) No DSUE amount available from last deceased spouse. If on the
date of the surviving spouse's taxable gift the last deceased spouse of
such surviving spouse had no DSUE amount or if the executor of the
estate of such last deceased spouse did not elect portability, the
surviving spouse has no DSUE amount (except as and to the extent
provided in paragraph (c)(1)(ii) of this section) to be included in
determining his or her applicable exclusion amount, even if the
surviving spouse previously had a DSUE amount available from another
decedent who, prior to the death of the last deceased spouse, was the
last deceased spouse of such surviving spouse. See paragraph (c) of
this section for a special rule in the case of multiple deceased
spouses.
(3) Identity of last deceased spouse unchanged by subsequent
marriage or divorce. A decedent is the last deceased spouse (as defined
in Sec. 20.2010-1T(d)(5) of this chapter) of a surviving spouse even
if, on the date of the surviving spouse's taxable gift, the surviving
spouse is married to another (then-living) individual. If a surviving
spouse marries again and that marriage ends in divorce or an annulment,
the subsequent death of the divorced spouse does not end the status of
the prior deceased spouse as the last deceased spouse of the surviving
spouse. The divorced spouse, not being married to the surviving spouse
at death, is not the last deceased spouse as that term is defined in
Sec. 20.2010-1T(d)(5) of this chapter.
(b) Manner in which DSUE amount is applied. If a donor who is a
surviving spouse makes a taxable gift and a DSUE amount is included in
determining the surviving spouse's applicable exclusion amount under
section 2010(c)(2), such surviving spouse will be considered to apply
such DSUE amount to the taxable gift before the surviving spouse's own
basic exclusion amount.
(c) Special rule in case of multiple deceased spouses and
previously-applied DSUE amount--(1) In general. A special rule applies
to compute the DSUE amount included in the applicable exclusion amount
of a surviving spouse who previously has applied the DSUE amount of one
or more deceased spouses. If a surviving spouse applied the DSUE amount
of one or more last deceased spouses to the surviving spouse's previous
lifetime transfers, and if any of those last deceased spouses is
different from the surviving spouse's last deceased spouse as defined
in Sec. 20.2010-1T(d)(5) of this chapter at the time of the current
taxable gift by the surviving spouse, then the DSUE amount to be
included in determining the applicable exclusion amount of the
surviving spouse that will be applicable at the time of the current
taxable gift is the sum of--
(i) The DSUE amount of the surviving spouse's last deceased spouse
as described in paragraph (a)(1) of this section; and
(ii) The DSUE amount of each other deceased spouse of the surviving
spouse to the extent that such amount was applied to one or more
previous taxable gifts of the surviving spouse.
(2) Example. The following example, in which all described
individuals are US citizens, illustrates the application of this
paragraph (c):
Example. (i) Facts.
Husband 1 (H1) dies on January 15, 2011, survived by Wife (W).
Neither has made any taxable gifts during H1's lifetime. H1's
executor elects portability of H1's deceased spousal unused
exclusion (DSUE) amount. The DSUE amount of H1 as computed on the
estate tax return filed on behalf of H1's estate is $5,000,000. On
December 31, 2011, W makes taxable gifts to her children valued at
$2,000,000. W reports the gifts on a timely-filed gift tax return. W
is considered to have applied $2,000,000 of H1's DSUE amount to the
2011 taxable gifts, in accordance with paragraph (b) of this
section, and, therefore, W owes no gift tax. W is considered to have
an applicable exclusion amount remaining in the amount of $8,000,000
($3,000,000 of H1's remaining DSUE amount plus W's own $5,000,000
basic exclusion amount). After the death of H1, W marries Husband 2
(H2). H2 dies on June 30, 2012. H2's executor elects portability of
H2's DSUE amount, which is properly computed on H2's estate tax
return to be $2,000,000.
(ii) Application. The DSUE amount to be included in determining
the applicable exclusion amount available to W for gifts during the
second half of 2012 is $4,000,000, determined by adding the
$2,000,000 DSUE amount of H2 and the $2,000,000 DSUE amount of H1
that was applied by W to W's 2011 taxable gifts. Thus, W's
applicable exclusion amount during the balance of 2012 is
$9,000,000.
(d) Date DSUE amount taken into consideration by donor who is a
surviving spouse--(1) General rule. A portability election made by an
executor of a decedent's estate (see Sec. 20.2010-2T(a) and (b) of
this chapter for applicable requirements) applies as of the date of the
decedent's death. Thus, the decedent's DSUE amount is included in the
applicable exclusion amount of the decedent's surviving spouse under
section 2010(c)(2) and will be applicable to transfers made by the
surviving spouse after the decedent's death. However, such decedent's
DSUE amount will not be included in the applicable exclusion amount of
the surviving spouse, even if the surviving spouse had made a taxable
gift in reliance on the availability or computation of the decedent's
DSUE amount:
(i) If the executor of the decedent's estate supersedes the
portability election by filing a subsequent estate tax return in
accordance with Sec. 20.2010-2T(a)(4) of this chapter;
(ii) To the extent that the DSUE amount subsequently is reduced by
a valuation adjustment or the correction of an error in calculation; or
(iii) To the extent that the DSUE amount claimed on the decedent's
return cannot be determined.
(2) Special rule when property passes to surviving spouse in a
qualified domestic trust--(i) In general. When property passes from a
decedent for the benefit of a surviving spouse in one or more qualified
domestic trusts (QDOT) as defined in section 2056A(a) and the
decedent's executor elects portability, the DSUE amount available to be
included in the applicable exclusion amount of the surviving spouse
under section 2010(c)(2) is the DSUE amount of the decedent as
redetermined in accordance with Sec. 20.2010-2T(c)(4) of this chapter.
The earliest date on which the decedent's DSUE amount may be included
in the applicable exclusion amount of the surviving spouse under
section 2010(c)(2) is the date of the occurrence of the final QDOT
distribution or final other event (generally, the death of the
surviving spouse or the earlier termination of all QDOTs for that
surviving spouse) on which tax under section 2056A is imposed. However,
the decedent's DSUE amount as redetermined in accordance with Sec.
20.2010-2T(c)(4) of this chapter may be applied to the surviving
spouse's taxable gifts made in the year of the surviving spouse's
death, or if the terminating event occurs prior to the surviving
spouse's death, then in the year of that terminating event and/or any
subsequent year during the surviving spouse's life.
(ii) Example. The following example illustrates the application of
this paragraph (d)(2):
Example. (i) Facts. Husband (H), a US citizen, dies in January
2011 having made no taxable gifts during his lifetime. H's gross
estate is $3,000,000. H's wife (W) is a US resident but not a
citizen of the United States and, under H's will, a pecuniary
bequest of $2,000,000 passes to a QDOT for the benefit of W. H's
executor timely files an estate tax return and makes the QDOT
election for the
[[Page 36163]]
property passing to the QDOT, and H's estate is allowed a marital
deduction of $2,000,000 under section 2056(d) for the value of that
property. H's taxable estate is $1,000,000. On H's estate tax
return, H's executor computes H's preliminary DSUE amount to be
$4,000,000. No taxable events within the meaning of section 2056A
occur during W's lifetime with respect to the QDOT. W makes a
taxable gift of $1,000,000 to X in December 2011 and a taxable gift
of $1,000,000 to Y in January 2012. W dies in September 2012, not
having married again, when the value of the assets of the QDOT is
$2,200,000.
(ii) Application. H's DSUE amount is redetermined to be
$1,800,000 (the lesser of the $5,000,000 basic exclusion amount in
2011, or the excess of H's $5,000,000 applicable exclusion amount
over $3,200,000 (the sum of the $1,000,000 taxable estate augmented
by the $2,200,000 of QDOT assets)). On W's gift tax return filed for
2011, W cannot apply any DSUE amount to the gift made to X. However,
because W's gift to Y was made in the year that W died, W's executor
will apply $1,000,000 of H's redetermined DSUE amount to the gift on
W's gift tax return filed for 2012. The remaining $800,000 of H's
redetermined DSUE amount is included in W's applicable exclusion
amount to be used in computing W's estate tax liability.
(e) Authority to examine returns of deceased spouses. For the
purpose of determining the DSUE amount to be included in the applicable
exclusion amount of the surviving spouse, the Internal Revenue Service
(IRS) may examine returns of each of the surviving spouse's deceased
spouses whose DSUE amount is claimed to be included in the surviving
spouse's applicable exclusion amount, regardless of whether the period
of limitations on assessment has expired for any such return. The IRS's
authority to examine returns of a deceased spouse applies with respect
to each transfer by the surviving spouse to which a DSUE amount is or
has been applied. Upon examination, the IRS may adjust or eliminate the
DSUE amount reported on such a return; however, the IRS may assess
additional tax on that return only if that tax is assessed within the
period of limitations on assessment under section 6501 applicable to
the tax shown on that return. See also section 7602 for the IRS's
authority, when ascertaining the correctness of any return, to examine
any returns that may be relevant or material to such inquiry.
(f) Availability of DSUE amount for nonresidents who are not
citizens. A nonresident surviving spouse who was not a citizen of the
United States at the time of making a transfer subject to tax under
chapter 12 of the Internal Revenue Code shall not take into account the
DSUE amount of any deceased spouse except to the extent allowed under
any applicable treaty obligation of the United States. See section
2102(b)(3).
(g) Effective/applicability date. This section applies to gifts
made in calendar year 2011 or in a subsequent year in which the
applicable exclusion amount is determined under section 2010(c) of the
Code by adding the basic exclusion amount and, in the case of a
surviving spouse, the DSUE amount.
(h) Expiration date. The applicability of this section expires on
or before June 15, 2015.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 11. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 12. In Sec. 602.101, paragraph (b) is amended by adding the
following entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR Part or section where identified and described Control No.
------------------------------------------------------------------------
* * * * *
20.2010-2T.............................................. 1545-0015
* * * * *
------------------------------------------------------------------------
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: June 12, 2012.
Emily S. McMahon,
Acting Assistant Secretary of Treasury (Tax Policy).
[FR Doc. 2012-14781 Filed 6-15-12; 8:45 am]
BILLING CODE 4830-01-P