[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Rules and Regulations]
[Pages 7156-7157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3398]



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DEPARTMENT OF THE TREASURY
26 CFR Part 20

[TD 8714]
RIN 1545-AU81


Estate and Gift Tax Marital Deduction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations amending the 
final estate tax marital deduction regulations. The amendments are made 
to conform the estate tax regulations to recent court decisions. The 
amendments affect estates of decedents electing the marital deduction 
for qualified terminable interest property (QTIP) and the estates of 
the surviving spouses of such decedents. The text of these temporary 
regulations also serves as the text of the proposed regulations set 
forth in the notice of proposed rulemaking on this subject in the 
Proposed Rules section of this issue of the Federal Register.

DATES: These regulations are effective February 18, 1997.
    For dates of applicability of these regulations, see Effective Date 
under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Susan B. Hurwitz at (202) 622-3090 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On March 1, 1994, the IRS published final Estate and Gift Tax 
Regulations (26 CFR part 20 and part 25) under sections 2044, 2056, 
2207A, 2519, 2523, and 6019 of the Internal Revenue Code (Code) in the 
Federal Register (59 FR 9642). At the time the regulations were 
published, the position contained in Sec. 20.2056(b)-7(d)(3) was the 
subject of litigation in a number of cases and had been rejected by two 
circuit courts in Estate of Clayton v. Commissioner, 976 F.2d 1486 (5th 
Cir. 1992), rev'g 97 T.C. 327 (1991), and Estate of Robertson v. 
Commissioner, 15 F.3d 779 (8th Cir. 1994), rev'g 98 T.C. 678 (1992). 
Since that time, Estate of Spencer v. Commissioner, 43 F.3d 226 (6th 
Cir. 1995), rev'g T.C. Memo.l 1992-579, also rejecting the IRS 
position, has been decided. Additionally, in Estate of Clack v. 
Commissioner, 106 T.C. 131 (1996), the Tax Court reversed the position 
it had taken previously in Estate of Clayton, Estate of Robertson, and 
Estate of Spencer. This temporary regulation amends the final 
regulations in accordance with the circuit courts' decisions in Estate 
of Clayton, Estate of Robertson, and Estate of Spencer, and the Tax 
Court's decision in Estate of Clack.

Explanation of Provisions

    Section 20.2056(b)-7T(d)(3)(ii) has been added. As a result of the 
addition, an income interest (or life estate) that is contingent upon 
the executor's election under section 2056(b)(7)(B)(v) will not be 
precluded, on that basis, from qualification as a ``qualifying income 
interest for life'' within the meaning of section 2056(b)(7)(B)(ii).
    In accordance with the addition of Sec. 20.2056(b)-7T(d)(3)(ii), 
Sec. 20.2056(b)-7T(h) Example 6(ii) and Sec. 20.2044-1T Example 8 are 
added.

Effective Date

    These regulations are effective in the case of qualified terminable 
interest property elections made after February 18, 1997.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations and, because these regulations do 
not impose on small entities a collection of information requirement, 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Therefore, a Regulatory Flexibility Analysis is not required. Pursuant 
to section 7805(f) of the Internal Revenue Code, these temporary 
regulations will be 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 regulations is Susan B. Hurwitz, 
Office of Assistant Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 20

    Estate taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 20 is amended as follows:

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

    Paragraph 1. The authority citation for part 20 continues to read 
in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 20.2044-1T is added to read as follows:


Sec. 20.2044-1T  Certain property for which marital deduction was 
previously allowed (temporary).

    (a) through (d). [Reserved]. For further guidance, see 
Sec. 20.2044-1 (a) through (d).
    (e) Examples. [Reserved]. For further guidance, see Sec. 20.2044-
1(e).

    Example 1 through Example 7. [Reserved]. For further guidance, 
see Sec. 20.2044-1(e) Example 1 through Example 7.
    Example 8. Inclusion of trust property when surviving spouse 
dies before first decedent's estate tax return is filed. D dies on 
July 1, 1997. D's estate tax return is due after February 18, 1997. 
Under the terms of D's will, a trust is established for the benefit 
of D's spouse, S. The will provides that S is entitled to receive 
the income from that portion of the trust that the executor elects 
to treat as qualified terminable interest property. The trust terms 
otherwise provide S with a qualifying income interest for life under 
section 2056(b)(7)(B)(ii). S dies on February 10, 1998. On April 1, 
1998, D's executor files D's estate tax return on which an election 
is made to treat a portion of the trust as qualified terminable 
interest property under section 2056(b)(7). S's estate tax return is 
filed on November 10, 1998. The value on the date of S's death of 
the portion of the trust for which D's executor made a QTIP election 
is includible in S's gross estate under section 2044.

    Par. 3. Section 20.2056(b)-7T is added to read as follows:


Sec. 20.2056(b)-7T  Election with respect to life estate for surviving 
spouse (temporary).

    (a) through (d)(2) [Reserved]. For further guidance, see 
Sec. 20.2056(b)-7(a) through (d)(2).
    (d)(3) Contingent income interests. (i) [Reserved]. For further 
guidance, see Sec. 20.2056(b)-7(d)(3).
    (ii) An income interest for a term of years, or a life estate 
subject to termination upon the occurrence of a specified event (e.g., 
remarriage), is not a qualifying income interest for life. However, an 
income interest for life (or life estate) that is contingent upon the 
executor's election under section 2056(b)(7)(B)(v) will not, on that 
basis, fail to be a qualifying income interest for life. This paragraph 
(d)(3)(ii) applies with respect to estates of decedents whose estate 
tax returns are due after February 18, 1997.

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    (d)(4) through (g) [Reserved]. For further guidance see 
Sec. 20.2056(b)-7(d)(4) through (g).

    (h) Examples. [Reserved]. See Sec. 20.2056(b)-7(h).
    Example 1 through Example 5. [Reserved]. For further guidance, 
see Sec. 20.2056(b)-7(h) Example 1 through Example 5.
    Example 6. (i) [Reserved]. For further guidance, see 
Sec. 20.2056(b)-7(h) Example 6.
    (ii) D's estate tax return is due after February 18, 1997. D's 
will established a trust providing that S is entitled to receive the 
income from that portion of the trust that the executor elects to 
treat as qualified terminable interest property. S's interest in the 
trust otherwise meets the requirements of a qualifying income 
interest for life under section 2056(b)(7)(B)(ii). Accordingly, the 
executor may elect qualified terminable interest treatment for any 
portion of the trust.

    Par. 4. Section 20.2056(b)-10T is added to read as follows:


Sec. 20.2056(b)-10T  Effective dates (temporary).

    In addition to the effective dates set out in Sec. 20.2056(b)-10, 
Sec. 20.2056(b)-7T(d)(3)(ii) is effective with respect to estates of 
decedents dying after March 1, 1994. For further guidance, see 
Sec. 20.2056(b)-10.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved: January 8, 1997.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 97-3398 Filed 2-14-97; 8:45 am]
BILLING CODE 4830-01-U