7156 Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Rules and Regulations

26 CFR Part 20

[TD 8714]

RIN 1545–AU81

Estate and Gift Tax Marital Deduction

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Temporary regulations.

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

§ 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

§ 20.2056(b)–7T(d)(3)(ii), § 20.2056(b)–

7T(h) Example 6(ii) and § 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:

§ 20.2044–1T Certain property for which

marital deduction was previously allowed

(temporary).

(a) through (d). [Reserved]. For further

guidance, see § 20.2044–1 (a) through

(d).

(e) Examples. [Reserved]. For further

guidance, see § 20.2044–1(e).

Example 1 through Example 7. [Reserved].

For further guidance, see § 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:

§ 20.2056(b)–7T Election with respect to

life estate for surviving spouse (temporary).

(a) through (d)(2) [Reserved]. For

further guidance, see § 20.2056(b)–7(a)

through (d)(2).

(d)(3) Contingent income interests. (i)

[Reserved]. For further guidance, see

§ 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.
Federal Register / Vol. 62, No. 32 / Tuesday, February 18, 1997 / Rules and Regulations 7157

(d)(4) through (g) [Reserved]. For

further guidance see § 20.2056(b)–

7(d)(4) through (g).

(h) Examples. [Reserved]. See § 20.2056(b)–

7(h).

Example 1 through Example 5. [Reserved].

For further guidance, see § 20.2056(b)–7(h)

Example 1 through Example 5.

Example 6. (i) [Reserved]. For further

guidance, see § 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:

§ 20.2056(b)–10T Effective dates

(temporary).

In addition to the effective dates set

out in § 20.2056(b)–10, § 20.2056(b)–

7T(d)(3)(ii) is effective with respect to

estates of decedents dying after March 1,

1994. For further guidance, see

§ 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

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[IN68–1–7308a; FRL–5678–5]

Approval and Promulgation of

Implementation Plans; Indiana

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Direct final rule.

SUMMARY: On October 25, 1994, the

Indiana Department of Environmental

Management (IDEM) submitted

revisions to its State Implementation

Plan (SIP). EPA made a finding of

completeness in a letter dated

November 25, 1994. The revisions to the

SIP add or revise definitions in the

Indiana SIP’s general provisions (326

IAC 1–1, 326 IAC 1–2), the applicability

criteria of the rule for malfunctions (326

IAC 1–6), and the applicability criteria

for state construction and operating

permit requirements (326 IAC 2–1). The

revisions to the SIP also revise Indiana’s

construction permit program (326 IAC

2–1) and its ‘‘Permit no defense’’

regulation (326 IAC 2–1). With this rule,

EPA is approving these SIP revisions

because they are in compliance with the

Code of Federal Regulations (CFR) and

the Clean Air Act (Act). Elsewhere in

this Federal Register, EPA is proposing

approval and soliciting comment on this

direct final action; if adverse comments

are received, EPA will withdraw the

direct final rule and address the

comments received in a new final rule.

Unless this direct final rule is

withdrawn, no further rulemaking will

occur on this requested SIP revision.

DATES: This action will be effective

April 21, 1997 unless adverse or critical

comments are received by March 20,

1997. If the effective date is delayed,

timely notice will be published in the

Federal Register.

ADDRESSES: Written comments can be

mailed to: J. Elmer Bortzer, Chief,

Regulation Development Section,

Regulation Development Branch (AR–

18J), Air and Radiation Division, U.S.

Environmental Protection Agency, 77

West Jackson Boulevard, Chicago,

Illinois, 60604.

Copies of the SIP revision request are

available for inspection at the following

address: (It is recommended that you

telephone Mark J. Palermo at (312) 886–

6082, before visiting the Region 5

office.) U.S. Environmental Protection

Agency, Region 5, Air and Radiation

Division, 77 West Jackson Boulevard,

Chicago, Illinois, 60604.

FOR FURTHER INFORMATION CONTACT:

Alvin Choi, EPA (AR–18J), 77 West

Jackson Boulevard, Chicago, Illinois

60604, (312) 886–3507.

SUPPLEMENTARY INFORMATION:

I. Background

IDEM submitted revisions to the

Indiana SIP on October 25, 1994. The

revisions included rule changes to the

State’s permit review rules and adoption

of the federally enforceable state

operating permits program (326 IAC 2–

8), source specific operating agreements

(326 IAC 2–9), and enhanced new

source review (NSR) rules (326 IAC 2–

1–3.2). EPA has already promulgated its

approval of regulations governing

federally enforceable state operating

permits and enhanced new source

review rules (60 FR 43099) and the

source specific operating agreements (61

FR 14487). The EPA is now proposing

to approve the final portion of the

October 25, 1994 SIP submittal which

alters some prefatory language and

affects applicability of some rules. The

EPA is approving the following

revisions to Title 326 of the Indiana

Administrative Code (326 IAC)—Article

One: General Provisions, Rule One:

Sections 2 and 3; Rule Two: Sections 2,

4, 12, 33.1, 33.2, 33.5; Rule Six: Section

1. The EPA is also approving revisions

to 326 IAC—Article Two: Permit Review

Rules, Rule One: Sections 1, 3, and 10.

The purpose of this revision is to update

and revise the SIP to reflect statutorilymandated changes to the permit

programs. The rationale for EPA’s

approval is summarized in this rule. A

more detailed analysis is set forth in a

technical support document which is

available for inspection at the Region 5

Office listed above.

II. Summary of State Submittal

The following sections of Article One,

Rule One have been revised to include

recent amendments to the Act and the

CFR.

326 IAC 1–1–2 References to Federal

Act

This section was revised specifically

to reference the Clean Air Act

Amendments of 1990 because the SIP

incorporated changes required by the

1990 Amendments.

326 IAC 1–1–3 References to the Code

of Federal Regulations

This section updates the reference to

the CFR from the 1989 edition to the

1992 edition and specifically references

the July 21, 1992 Federal Register with

regard to 40 CFR Part 70.

The following sections of Article One

have been revised to include new

definitions and revisions to existing

regulations.

326 IAC 1–2–2 ‘‘Allowable emissions’’

Definition

The previous definition calculated an

allowable emission rate by combining

the most stringent of three listed criteria

with the maximum rated capacity of the

facility (unless the facility was subject

to a limit on the operating rate or hours

of operation, or both). This definition

has been expanded to include potential

emissions and daily emission rates for

noncontinuous batch manufacturing

operations.

326 IAC 1–2–4 ‘‘Applicable state and

federal regulations’’ Definition

This section has been revised to

clarify that this definition includes rules

adopted under 326 IAC by the air

pollution control board, all regulations

included in the CFR by EPA, and

specific requirements established by the

Act.