24918 Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 

§ 83.4 Who cannot be acknowledged 

under this part? 

* * * * * 

(d) An entity that previously 

petitioned and was denied Federal 

acknowledgment under these 

regulations or under previous 

regulations in part 83 of this title 

(including reconstituted, splinter, spinoff, or component groups who were 

once part of previously denied 

petitioners). 

Bryan Newland, 

Assistant Secretary—Indian Affairs. 

[FR Doc. 2022–08488 Filed 4–26–22; 8:45 am] 

BILLING CODE 4337–15–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 20 

[REG–118913–21] 

RIN 1545–BQ22 

Estate and Gift Taxes; Limitation on 

the Special Rule Regarding a 

Difference in the Basic Exclusion 

Amount 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed amendments to the Estate Tax 

Regulations relating to the basic 

exclusion amount (BEA) applicable to 

the computation of Federal estate and 

gift taxes. The proposed regulations 

affect the estates of decedents dying 

after a reduction in the BEA who made 

certain types of gifts after 2017 and 

before a reduction in the BEA. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by July 26, 2022. Requests 

for a public hearing must be submitted 

as prescribed in the ‘‘Comments and 

Requests for a Public Hearing’’ section. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–118913–21) by following the 

online instructions for submitting 

comments. Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The IRS 

expects to have limited personnel 

available to process public comments 

that are submitted on paper through the 

mail. Until further notice, any 

comments submitted on paper will be 

considered to the extent practicable. 

The Department of the Treasury 

(Treasury Department) and the IRS will 

publish for public availability any 

comment submitted electronically, and 

to the extent practicable on paper, to its 

public docket. Send paper submissions 

to: CC:PA:LPD:PR (REG–118913–21), 

Room 5203, Internal Revenue Service, 

P.O. Box 7604, Ben Franklin Station, 

Washington, DC 20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations, 

John D. MacEachen at (202) 317–6859; 

concerning submissions of comments, 

the public hearing, and the access code 

to attend the hearing by telephone, 

Regina Johnson at (202) 317–5177 (not 

toll-free numbers) or by sending an 

email to Publichearings@irs.gov. 

SUPPLEMENTARY INFORMATION: 

Background 

Section 11061 of the Tax Cuts and 

Jobs Act, Public Law 115–97, 131 Stat. 

2054, 2091 (2017) (TCJA), amended 

section 2010(c)(3) of the Internal 

Revenue Code (Code) to provide that, 

for decedents dying and gifts made after 

December 31, 2017, and before January 

1, 2026, the BEA is increased by $5 

million to $10 million as adjusted for 

inflation (increased BEA). Under the 

TCJA, on January 1, 2026, the BEA will 

revert to $5 million as adjusted for 

inflation. 

Section 11061 of the TCJA also added 

new section 2001(g)(2) to the general 

statute of the Code that imposes the 

Federal estate tax. Section 2001(g)(2) 

grants the Secretary of the Treasury or 

her delegate (Secretary) authority to 

prescribe such regulations as may be 

necessary or appropriate to carry out 

section 2001 with respect to any 

difference between the BEA applicable 

at the time of a decedent’s death and the 

BEA applicable with respect to any gifts 

made by the decedent. This specific 

authority is in addition to the 

Secretary’s preexisting authority under 

section 2010(c)(6) to prescribe such 

regulations as may be necessary or 

appropriate to carry out section 2010(c). 

On November 26, 2019, the Treasury 

Department and the IRS published final 

regulations under section 2010 (TD 

9884) in the Federal Register (84 FR 

64995) to address situations described 

in section 2001(g)(2) (final regulations). 

The final regulations adopted 

§ 20.2010–1(c), a special rule (special 

rule) applicable in cases where the 

credit against the estate tax that is 

attributable to the BEA is less at the date 

of death than the sum of the credits 

attributable to the BEA allowable in 

computing gift tax payable within the 

meaning of section 2001(b)(2) with 

regard to the decedent’s lifetime gifts. In 

such cases, the portion of the credit 

against the net tentative estate tax that 

is attributable to the BEA is based on the 

sum of the credits attributable to the 

BEA allowable in computing gift tax 

payable regarding the decedent’s 

lifetime gifts. The rule ensures that the 

estate of a donor is not taxed on 

completed gifts that, as a result of the 

increased BEA, were free of gift tax 

when made. The preamble to the final 

regulations stated that further 

consideration would be given to the 

issue of whether gifts that are not true 

inter vivos transfers, but rather are 

includible in the gross estate, should be 

excepted from the special rule, and that 

any proposal addressing this issue 

would benefit from notice and 

comment. 

This document contains proposed 

amendments to the Estate Tax 

Regulations (26 CFR part 20) relating to 

the BEA described in section 2010(c)(3) 

of the Code (proposed regulations), for 

which purpose the final regulations 

reserved § 20.2010–1(c)(3). The special 

rule currently does not distinguish 

between: (i) Completed gifts that are 

treated as adjusted taxable gifts for 

estate tax purposes and that, by 

definition, are not included in the 

donor’s gross estate; and (ii) completed 

gifts that are treated as testamentary 

transfers for estate tax purposes and are 

included in the donor’s gross estate 

(includible gift). The Code and the 

regulations, however, do distinguish 

between these two types of transfers. 

Section 2001(b) (flush language) 

excludes from the term ‘‘adjusted 

taxable gifts’’ gifts that are includible in 

the gross estate. Section 2701(e)(6) and 

§ 25.2701–5 similarly remove from 

adjusted taxable gifts transfers 

includible in the gross estate that 

previously were subject to the special 

valuation rules of section 2701. See also 

§ 25.2702–6 (excluding from adjusted 

taxable gifts certain transfers includible 

in the gross estate that previously were 

subject to the special valuation rules of 

section 2702) and Rev. Rul. 84–25, 

1984–1 C.B. 191 (excluding from 

adjusted taxable gifts completed 

transfers that will be satisfied with 

assets includible in the gross estate). In 

keeping with the statutory distinction 

between completed gifts that are treated 

as adjusted taxable gifts and completed 

gifts that are treated as testamentary 

transfers, these proposed regulations 

generally would deny the benefit of the 

special rule to includible gifts. 

Regardless of whether a gift is treated 

as an adjusted taxable gift or as an 

includible gift for estate tax purposes, 


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Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 24919 

the Code ensures that the gift is treated 

consistently with respect to the credits 

allowable in the year in which the gift 

was made. See discussion of the five 

statutory steps of the estate tax 

computation in part III, Federal Estate 

Tax Computation Generally, in the 

Background section of the preamble to 

the notice of proposed rulemaking 

under section 2010 (REG–106706–18) 

published in the Federal Register (83 

FR 59343) on November 23, 2018. The 

exclusion from adjusted taxable gifts of 

transfers includible in the gross estate 

does not affect the second step of the 

estate tax computation, the 

determination of a hypothetical gift tax 

referred to as the gift tax payable. Gift 

tax payable is based upon all post-1976 

taxable gifts, whether or not included in 

the gross estate. See sections 2001(b)(2) 

and (g)(1), requiring the determination 

of a hypothetical gift tax on all post1976 taxable gifts, which is a gift tax 

reduced, but not to below zero, by the 

credit amounts allowable in the years of 

the gifts. Both the hypothetical gift tax 

and the credit amounts are computed 

using the gift tax rates in effect at the 

date of death. Thus, for purposes of 

computing the estate tax, an includible 

gift receives credit for all credit 

amounts, including those attributable to 

the increased BEA, allowable in the 

years in which the gift was made. 

A commenter recommended 

consideration of whether the special 

rule should apply to taxable gifts made 

during an increased BEA period that are 

essentially testamentary and thus are 

included in the gross estate rather than 

in adjusted taxable gifts. See discussion 

in part 6, Anti-Abuse Rule, of the 

Summary of Comments and Explanation 

of Revisions in the final regulations. If 

such transfers are subject to the special 

rule, they can be made in a manner 

designed to make the increased BEA 

available against the donor’s estate tax 

despite the fact that the donor has 

retained the beneficial use of or the 

control of the transferred property. 

Examples of such transfers include gifts 

subject to a retained life estate or subject 

to other powers or interests as described 

in sections 2035 through 2038 and 2042 

of the Code, gifts made by enforceable 

promise as described in Rev. Rul. 84–25, 

supra, and gifts subject to the special 

valuation rules of sections 2701 and 

2702. In recommending an exception to 

the special rule, the commenter 

cautioned that attention should also be 

given to the potential to work around an 

exception that relies solely on whether 

gifts are includible in the gross estate. 

For example, a donor may attempt to 

make the increased BEA available 

against the estate tax under the special 

rule by the removal shortly before the 

donor’s death of the donor’s beneficial 

use of or the control of the transferred 

property. Examples of these types of 

transfers include the elimination by a 

third party, shortly before the donor’s 

death, of the interests or powers that 

otherwise would have resulted in the 

inclusion of the transferred interest or 

property in the donor’s gross estate; the 

payment shortly before death of a gift 

made by enforceable promise as 

described in Rev. Rul. 84–25, supra; and 

the transfer shortly before death of a 

section 2701 interest within the 

meaning of § 25.2701–5(a)(4) or a 

section 2702 interest within the 

meaning of § 25.2702–6(a)(1). 

The purpose of the special rule is to 

ensure that bona fide inter vivos 

transfers of property are consistently 

treated as a transfer of property by gift 

for both gift and estate tax purposes. 

Bona fide inter vivos gifts are subject to 

the gift tax based on the values, gift tax 

rates, and exclusions applicable as of 

the date of the gift. While such a gift is 

treated as an adjusted taxable gift for 

purposes of determining the estate tax 

rate to be applied to the value of the 

taxable estate, the gift is not includible 

in the donor’s gross estate at death and 

is not subject to the estate tax. The 

special rule avoids the imposition of the 

estate tax on the gift by ensuring that the 

gifted property is treated solely as an 

adjusted taxable gift and not also as 

property includible in the gross estate. 

Unlike an adjusted taxable gift, 

however, a gift of property that is 

includible in the donor’s gross estate is 

subject to estate tax based on the values, 

estate tax rates, and exclusions 

applicable as of the date of death. The 

Code itself ensures that an includible 

gift is not treated as both an adjusted 

taxable gift and an inclusion in the gross 

estate. See section 2001(b) (flush 

language), excluding from ‘‘adjusted 

taxable gifts’’ gifts that are includible in 

the gross estate. The Code also ensures 

that an includible gift receives credit for 

any credit amounts allowable in the 

years in which the gift was made. See 

sections 2001(b)(2) and (g)(1). The 

treatment of an includible gift for estate 

tax purposes results in the correct 

outcome without any application of the 

special rule: The property is included in 

the gross estate and subject to the BEA 

in effect at the donor’s death. 

There is a subset of includible gifts 

that the Code treats in a different 

fashion, but still in a way that results in 

the correct outcome without the 

application of the special rule. That 

subset consists of gifts made during an 

increased BEA period that are 

essentially testamentary, but the entire 

value of which is deductible for gift tax 

purposes by reason of the charitable or 

marital deduction (or both). Such 

transfers are excluded from adjusted 

taxable gifts because they never were 

taxable gifts in the first place. See 

section 2503(a), defining taxable gifts as 

the total amount of gifts made during 

the calendar year less the deductions 

provided in sections 2522 and 2523 for 

charitable and marital gifts, 

respectively. As a result of the exclusion 

of charitable and marital gifts from 

taxable gifts, and thus from adjusted 

taxable gifts, there would be no credits 

allocable to these gifts attributable to the 

BEA in computing gift tax payable 

within the meaning of section 

2001(b)(2). Because no BEA is 

applicable to the deductible gifts, there 

will be no difference between the BEA 

applicable to these gifts attributable to 

the increased BEA and the BEA 

applicable to the decedent’s estate. As a 

result, there is no possibility of 

inconsistent gift and estate taxation of 

such an includible gift, and thus no 

need for the application of the special 

rule. 

Without additional rules, however, 

the application of the special rule to 

includible gifts results in securing the 

benefit of the increased BEA in 

circumstances where the donor 

continues to have the title, possession, 

use, benefit, control, or enjoyment of the 

transferred property during life. In those 

circumstances, there is no possibility of 

the inclusion of the gift in adjusted 

taxable gifts at the death of the donor, 

and therefore no need for the 

application of the special rule to 

transfers of such property. In those 

circumstances, it is appropriate that the 

amount includible or treated as 

includible as part of the gross estate 

(rather than as an adjusted taxable gift) 

is subject to estate tax with the benefit 

of only the BEA available at the date of 

death. Section 2001(g)(2) directs the 

Secretary to prescribe such regulations 

as may be necessary or appropriate to 

carry out section 2001 with respect to 

any difference between the BEA 

applicable at the time of the decedent’s 

death and the BEA applicable with 

respect to any gifts made by the 

decedent. Given the plain language of 

the Code describing the computation of 

the estate tax and directing that certain 

transfers, including transfers made 

within three years of death that 

otherwise would have been includible 

in the gross estate, are treated as 

testamentary transfers and not as 

adjusted taxable gifts, it would be 

inappropriate to apply the special rule 


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24920 Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 

to includible gifts. This is particularly 

true where the inter vivos transfers are 

not true bona fide transfers in which the 

decedent ‘‘absolutely, unequivocally, 

irrevocably, and without possible 

reservations, parts with all of his title 

and all of his possession and all of his 

enjoyment of the transferred property.’’ 

Commissioner v. Church’s Estate, 335 

U.S. 632, 645 (1949). To prevent this 

inappropriate result, these proposed 

regulations would create an exception to 

the special rule applicable to includible 

gifts. 

The same commenter suggested that 

any exception to the special rule 

relating to transfers within the scope of 

section 2701 be specifically addressed 

in § 25.2701–5. This suggestion is not 

adopted. Section 25.2701–5(a)(3) 

provides rules under which the estate of 

a decedent who made a transfer subject 

to section 2701 may reduce the 

decedent’s adjusted taxable gifts in a 

manner similar to that of section 2001(b) 

so as to eliminate the amount 

duplicated in the transfer tax base. The 

amount of the reduction in adjusted 

taxable gifts is determined under 

§ 25.2701–5(b). See also § 25.2702–6(b), 

providing a similar rule for certain 

interests previously subject to section 

2702. Both §§ 25.2701–5 and 25.2702–6 

address only the amount of adjusted 

taxable gifts but, with the exception of 

§ 25.2701–5(e)(3), do not address the 

amount of the credits allowable in the 

multiple steps necessary to determine 

the estate tax. As previously discussed, 

the effect of the estate tax computation 

is to provide the decedent the benefit of 

any credit amounts allowable in the 

years of the gifts, determined at date of 

death gift tax rates, including the credit 

amount attributable to a section 2701 or 

2702 transfer that was free of gift tax 

when made as a result of the increased 

BEA, regardless of whether the amount 

of adjusted taxable gifts is later reduced 

for estate tax purposes. Thus, while a 

reduction in the amount of adjusted 

taxable gifts eliminates amounts 

duplicated in the transfer tax base, it 

neither changes the existence of the 

transfer nor frees up the credit allocable 

to that transfer. See, e.g., the 

Background section of the preamble to 

Adjustments Under Special Valuation 

Rules (TD 8536), published in the 

Federal Register (59 FR 23152) on May 

5, 1994, explaining that the § 25.2701– 

5 regulations do not ‘‘purge’’ a section 

2701 transfer as if it had not occurred, 

but rather mitigate the effect of double 

taxation through a reduction in a 

decedent’s adjusted taxable gifts. 

As noted earlier, § 25.2701–5(e)(3) 

permits an adjustment to both the 

adjusted taxable gifts and gift tax 

payable of a consenting spouse. In the 

case of an election under section 2513 

to split a section 2701 transfer with the 

donor’s spouse, a later testamentary 

transfer of the section 2701 interest is 

treated as made solely by the donor 

spouse. The consenting spouse’s 

adjusted taxable gifts and gift tax 

payable are each reduced to eliminate 

any remaining effect of the section 2701 

interest on the consenting spouse in a 

manner that is generally consistent with 

the principles of sections 2001(d) and 

(e) (pertaining to the treatment of split 

gifts in the computation of the estate 

tax). This exception has no application 

to the donor spouse, who remains 

subject to the general rule of § 25.2701– 

5(a)(3). Thus, it is not necessary to 

address differences in the BEA in either 

§ 25.2701–5 or § 25.2702–6(b). 

Explanation of Provisions 

Pursuant to sections 2010(c)(6) and 

2001(g)(2) of the Code, the proposed 

regulations would add proposed 

§ 20.2010–1(c)(3) to provide an 

exception to the special rule for 

transfers that are includible in the gross 

estate or are treated as includible in the 

gross estate for purposes of section 

2001(b), including for example gifts 

subject to a retained life estate or subject 

to other powers or interests as described 

in sections 2035 through 2038 and 2042 

of the Code regardless of whether the 

transfer was deductible pursuant to 

section 2522 or 2523, gifts made by 

enforceable promise, and other amounts 

that are duplicated in the transfer tax 

base, including a section 2701 interest 

within the meaning of § 25.2701–5(a)(4) 

and a section 2702 interest within the 

meaning of § 25.2702–6(a)(1). The 

exception to the special rule also would 

apply to transfers that would be 

described in the preceding sentence but 

for the transfer, elimination, or 

relinquishment within 18 months of the 

donor’s date of death of the interest or 

power that would have caused inclusion 

in the gross estate, effectively allowing 

the donor to retain the enjoyment of the 

property for life. In addition to transfers, 

eliminations, or relinquishments by the 

donor, examples include the 

elimination, by a third party having the 

power to eliminate or extinguish the 

interest or power, of the interests or 

powers that otherwise would have 

resulted in inclusion of transferred 

property in the donor’s gross estate; the 

payment of a gift made by enforceable 

promise as described in Rev. Rul. 84–25, 

supra; and the transfer of a section 2701 

interest within the meaning of 

§ 25.2701–5(a)(4) or a section 2702 

interest within the meaning of 

§ 25.2702–6(a)(1). For purposes of the 

preceding sentence, such transfers, 

eliminations, and relinquishments 

include those effectuated by the donor, 

the donor in conjunction with any other 

person, or by any other person, but do 

not include those effectuated by the 

expiration of the period described in the 

original instrument of transfer, whether 

by a death or the lapse of time. 

The special rule, however, would 

continue to apply to transfers includible 

in the gross estate when the taxable 

amount of the gift is not material, that 

is, the taxable amount is 5 percent or 

less of the total amount of the transfer, 

valued as of the date of the transfer. 

Compare section 2037(a)(2), excluding 

from the gross estate property subject to 

a reversionary interest where the value 

of such interest immediately before 

death is 5 percent or less of the value 

of the transferred property; and section 

2042(2), excluding from the term 

‘‘incidents of ownership’’ reversionary 

interests where the value of such 

interest immediately before death is 5 

percent or less of the value of the life 

insurance policy. See also section 

673(a), treating the grantor as the owner 

for income tax purposes of any portion 

of a trust in which the grantor’s 

reversionary interest exceeds 5 percent 

of the value of such portion as of the 

date of inception of that portion of the 

trust. This bright-line exception to the 

special rule is proposed in lieu of a facts 

and circumstances determination of 

whether a particular transfer was 

intended to take advantage of the 

increased BEA without depriving the 

donor of the use and enjoyment of the 

property. 

The proposed exception to the special 

rule may be illustrated by the following 

example. Assume that when the BEA 

was $11.4 million, a donor gratuitously 

transferred the donor’s enforceable $9 

million promissory note to the donor’s 

child. The transfer constituted a 

completed gift of $9 million. On the 

donor’s death, the assets that are to be 

used to satisfy the note are part of the 

donor’s gross estate, with the result that 

the note is treated as includible in the 

gross estate for purposes of section 

2001(b). Thus, the $9 million gift is 

excluded from adjusted taxable gifts in 

computing the tentative estate tax under 

section 2001(b)(1). Nonetheless, if the 

donor dies after a statutory reduction in 

the BEA to $6.8 million, the credit to be 

applied in computing the estate tax is 

the credit based upon the $6.8 million 

of the BEA allowable as of the date of 

death. 

Applicability Date 

Once these regulations have been 

published as final regulations, it is 


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Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 24921 

proposed that these regulations be 

applicable to the estates of decedents 

dying on or after April 27, 2022. The 

special rule will not be needed until the 

basic exclusion amount has been 

decreased by statute; under current law, 

that is scheduled to occur for the estates 

of decedents dying after 2025. However, 

if such a decrease is enacted on or after 

April 27, 2022 but before the issuance 

of final regulations, the best way to 

ensure that all estates will be subject to 

the same rules is to make this proposed 

exception to the special rule applicable 

to the estates of decedents dying on or 

after April 27, 2022. 

Special Analyses 

These proposed regulations are not 

subject to review under section 6(b) of 

Executive Order 12866 pursuant to the 

Memorandum of Agreement (April 11, 

2018) between the Treasury Department 

and the Office of Management and 

Budget regarding review of tax 

regulations. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that these proposed regulations 

will not have a significant economic 

impact on a substantial number of small 

entities. These proposed regulations 

apply to donors of gifts made after 2017 

and to the estates of donors dying after 

a reduction in the BEA, and implement 

a change in the amount that is excluded 

from estate tax. Neither an individual 

nor the estate of a deceased individual 

is a small entity within the meaning of 

5 U.S.C. 601(6). Accordingly, a 

regulatory flexibility analysis is not 

required. 

Pursuant to section 7805(f) of the 

Code, this regulation has been 

submitted to the Chief Counsel for the 

Office of Advocacy of the Small 

Business Administration for comment 

on its impact on small business. 

Comments and Request for a Public 

Hearing 

Before these proposed regulations are 

adopted as final regulations, 

consideration will be given to any 

written or electronic comments that are 

submitted timely (in the manner 

described under the ADDRESSES

heading) to the IRS. The Treasury 

Department and the IRS request 

comments on all aspects of the proposed 

regulations. Any electronic comments 

submitted, and to the extent practicable 

any paper comments submitted, will be 

made available at https://

www.regulations.gov or upon request. 

A public hearing will be scheduled if 

requested in writing by any person who 

timely submits electronic or written 

comments. Requests for a hearing are 

strongly encouraged to be submitted 

electronically. If a public hearing is 

scheduled, notice of the date and time 

for the public hearing will be published 

in the Federal Register. Announcement 

2020–4, 2020–17 IRB 1, provides that 

until further notice, public hearings 

conducted by the IRS will be held 

telephonically. Any telephonic hearing 

will be made accessible to people with 

disabilities. 

Statement of Availability of IRS 

Documents 

Rev. Rul. 84–25, 1984–1 C.B. 191, and 

Announcement 2020–4, 2020–17 IRB 1, 

are published in the Internal Revenue 

Bulletin (or Cumulative Bulletin) and 

are available from the Superintendent of 

Documents, U.S. Government 

Publishing Office, Washington, DC 

20402, or by visiting the IRS website at 

https://www.irs.gov. 

Drafting Information 

The principal author of these 

proposed regulations is John D. 

MacEachen, Office of the Associate 

Chief Counsel (Passthroughs and 

Special Industries). Other personnel 

from the Treasury Department and the 

IRS participated in their development. 

List of Subjects in 26 CFR Part 20 

Estate taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, 26 CFR part 20 is 

proposed to be amended as follows: 

PART 20—ESTATE TAX; ESTATES OF 

DECEDENTS DYING AFTER AUGUST 

16, 1954 

■ Par. 1. The authority citation for part 

20 continues to read in part as follows: 

Authority: 26 U.S.C. 7805. 

* * * * * 

Section 20.2010–1 also issued under 26 

U.S.C. 2001(g)(2) and 26 U.S.C. 2010(c)(6). 

* * * * * 

■ Par. 2. Section 20.2010–1 is amended 

by: 

■ 1. Adding paragraph (c)(3); and 

■ 2. Revising the first sentence of 

paragraph (f)(2) and adding a sentence 

after the second sentence. 

The revision and additions read as 

follows: 

§ 20.2010–1 Unified credit against estate 

tax; in general. 

* * * * * 

(c) * * * 

(3) Exception to the special rule—(i) 

Transfers to which the special rule does 

not apply. Except as provided in 

paragraph (c)(3)(ii) of this section, the 

special rule of paragraph (c) of this 

section does not apply to transfers 

includible in the gross estate, or treated 

as includible in the gross estate for 

purposes of section 2001(b), including 

without limitation the following 

transfers: 

(A) Transfers includible in the gross 

estate pursuant to section 2035, 2036, 

2037, 2038, or 2042, regardless of 

whether all or any part of the transfer 

was deductible pursuant to section 2522 

or 2523; 

(B) Transfers made by enforceable 

promise to the extent they remain 

unsatisfied as of the date of death; 

(C) Transfers described in § 25.2701– 

5(a)(4) or § 25.2702–6(a)(1) of this 

chapter; and 

(D) Transfers that would have been 

described in paragraph (c)(3)(i)(A), (B), 

or (C) of this section but for the transfer, 

relinquishment, or elimination of an 

interest, power, or property, effectuated 

within 18 months of the date of the 

decedent’s death by the decedent alone, 

by the decedent in conjunction with any 

other person, or by any other person. 

(ii) Transfers to which the special rule 

continues to apply. Notwithstanding 

paragraph (c)(3)(i) of this section, the 

special rule of paragraph (c) of this 

section applies to the following 

transfers: 

(A) Transfers includible in the gross 

estate in which the value of the taxable 

portion of the transfer, determined as of 

the date of the transfer, was 5 percent 

or less of the total value of the transfer; 

and 

(B) Transfers, relinquishments, or 

eliminations described in paragraph 

(c)(3)(i)(D) of this section effectuated by 

the termination of the durational period 

described in the original instrument of 

transfer by either the mere passage of 

time or the death of any person. 

(iii) Examples. In each example, the 

basic exclusion amount on the date of 

the gift was $11.4 million, the basic 

exclusion amount on the date of death 

is $6.8 million, and both amounts 

include hypothetical inflation 

adjustments. The donor’s executor does 

not elect to use the alternate valuation 

date and, unless otherwise stated, the 

donor never married and made no other 

gifts during life. 

(A) Example 1. Individual A made a 

completed gift of A’s promissory note in 

the amount of $9 million. The note 

remained unpaid as of the date of A’s 

death. The assets that are to be used to 

satisfy the note are part of A’s gross 

estate, with the result that the note is 

treated as includible in the gross estate 

for purposes of section 2001(b) and is 

not included in A’s adjusted taxable 


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24922 Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 

gifts. Because the note is treated as 

includible in the gross estate and does 

not qualify for the 5 percent de minimis 

rule in paragraph (c)(3)(ii)(A) of this 

section, the exception to the special rule 

found in paragraph (c)(3) of this section 

applies to the gift of the note. The credit 

to be applied for purposes of computing 

A’s estate tax is based on the $6.8 

million basic exclusion amount as of A’s 

date of death, subject to the limitation 

of section 2010(d). The result would be 

the same if A or a person empowered to 

act on A’s behalf had paid the note 

within the 18 months prior to the date 

of A’s death. 

(B) Example 2. Assume that the facts 

are the same as in paragraph 

(c)(3)(iii)(A) of this section (Example 1) 

except that A’s promissory note had a 

value of $2 million and, on the same 

date that A made the gift of the 

promissory note, A also made a gift of 

$9 million in cash. The cash gift was 

paid immediately, whereas the $2 

million note remained unpaid as of the 

date of A’s death. The assets that are to 

be used to satisfy the note are part of A’s 

gross estate, with the result that the note 

is treated as includible in the gross 

estate for purposes of section 2001(b) 

and is not included in A’s adjusted 

taxable gifts. Because the $2 million 

note is treated as includible in the gross 

estate and does not qualify for the 5 

percent de minimis rule in paragraph 

(c)(3)(ii)(A) of this section, the exception 

to the special rule found in paragraph 

(c)(3) of this section applies to the gift 

of the note. On the other hand, the $9 

million cash gift was paid immediately, 

and no portion of that gift is includible 

or treated as includible in the gross 

estate. Because the amount allowable as 

a credit in computing the gift tax 

payable on A’s $9 million cash gift 

exceeds the credit based on the $6.8 

million basic exclusion amount 

allowable on A’s date of death, the 

special rule of paragraph (c) of this 

section applies to that gift. The credit to 

be applied for purposes of computing 

A’s estate tax is based on a basic 

exclusion amount of $9 million, the 

amount used to determine the credit 

allowable in computing the gift tax 

payable on A’s $9 million cash gift. 

(C) Example 3. Assume that the facts 

are the same as in paragraph 

(c)(3)(iii)(A) of this section (Example 1) 

except that, prior to A’s gift of the note, 

the executor of the estate of A’s 

predeceased spouse elected, pursuant to 

§ 20.2010–2, to allow A to take into 

account the predeceased spouse’s $2 

million DSUE amount. Assume further 

that A’s promissory note had a value of 

$2 million on the date of the gift, and 

that A made a gift of $9 million in cash 

a few days later. The cash gift was paid 

immediately, whereas the $2 million 

note remained unpaid as of the date of 

A’s death. The assets that are to be used 

to satisfy the note are part of A’s gross 

estate, with the result that the note is 

treated as includible in the gross estate 

for purposes of section 2001(b) and is 

not included in A’s adjusted taxable 

gifts. Because A’s DSUE amount was 

sufficient to shield the gift of the note 

from gift tax, no basic exclusion amount 

was applicable to the $2 million gift 

pursuant to paragraph (c)(1)(ii)(A) of 

this section and the special rule of 

paragraph (c) of this section does not 

apply to that gift. On the other hand, the 

$9 million cash gift was paid 

immediately, and no portion of that gift 

is includible or treated as includible in 

the gross estate. Because the amount 

allowable as a credit in computing the 

gift tax payable on A’s $9 million cash 

gift exceeds the credit based on the $6.8 

million basic exclusion amount 

allowable on A’s date of death, the 

special rule of paragraph (c) of this 

section applies to that gift. The credit to 

be applied for purposes of computing 

A’s estate tax is based on A’s $11 

million applicable exclusion amount, 

consisting of the $2 million DSUE 

amount plus the $9 million amount 

used to determine the credit allowable 

in computing the gift tax payable on A’s 

$9 million cash gift. 

(D) Example 4. Individual B 

transferred $9 million to a grantor 

retained annuity trust (GRAT), retaining 

a qualified annuity interest within the 

meaning of § 25.2702–3(b) of this 

chapter valued at $8,550,000. The 

taxable portion of the transfer valued as 

of the date of the transfer was $450,000. 

B died during the term of the GRAT. 

The entire GRAT corpus is includible in 

the gross estate pursuant to § 20.2036– 

1(c)(2). Because the value of the taxable 

portion of the transfer was 5 percent or 

less of the total value of the transfer 

determined as of the date of the gift, the 

5 percent de minimis rule in paragraph 

(c)(3)(ii)(A) of this section is met and the 

exception to the special rule found in 

paragraph (c)(3) of this section does not 

apply to the gift. However, because the 

total of the amounts allowable as a 

credit in computing the gift tax payable 

on B’s post-1976 gift of $450,000 is less 

than the credit based on the $6.8 million 

basic exclusion amount allowable on B’s 

date of death, the special rule of 

paragraph (c) of this section does not 

apply to the gift. The credit to be 

applied for purposes of computing B’s 

estate tax is based on the $6.8 million 

basic exclusion amount as of B’s date of 

death, subject to the limitation of 

section 2010(d). 

(E) Example 5. Assume that the facts 

are the same as in paragraph 

(c)(3)(iii)(D) of this section (Example 4) 

except that B’s qualified annuity interest 

is valued at $8 million. The taxable 

portion of the transfer valued as of the 

date of the transfer was $1 million. 

Because the value of the taxable portion 

of the transfer was more than 5 percent 

of the total value of the transfer 

determined as of the date of the gift, the 

5 percent de minimis rule in paragraph 

(c)(3)(ii)(A) of this section is not met 

and the exception to the special rule 

found in paragraph (c)(3) of this section 

applies to the gift. The credit to be 

applied for purposes of computing B’s 

estate tax is based on the $6.8 million 

basic exclusion amount as of B’s date of 

death, subject to the limitation of 

section 2010(d). 

(F) Example 6. Assume that the facts 

are the same as in paragraph 

(c)(3)(iii)(D) of this section (Example 4) 

except that B’s qualified annuity interest 

is valued at $2 million. The taxable 

portion of the transfer valued as of the 

date of the transfer was $7 million. B 

survived the term of the GRAT. Because 

B survived the original unaltered term 

of the GRAT, no part of the value of the 

assets transferred to the GRAT is 

includible in B’s gross estate, and the 

exception to the special rule found in 

paragraph (c)(3) of this section does not 

apply to the gift. Moreover, because the 

amount allowable as a credit in 

computing the gift tax payable on B’s $7 

million gift exceeds the credit based on 

the $6.8 million basic exclusion amount 

allowable on B’s date of death, the 

special rule of paragraph (c) of this 

section applies to the gift. The credit to 

be applied for purposes of computing 

B’s estate tax is based on a basic 

exclusion amount of $7 million, the 

amount used to determine the credit 

allowable in computing the gift tax 

payable on B’s transfer to the GRAT. 

(G) Example 7. Individual C 

transferred $9 million to a grantor 

retained income trust (GRIT), retaining 

an income interest valued at $0 

pursuant to section 2702(a)(2)(A). The 

taxable portion of the transfer valued as 

of the date of the transfer was $9 

million. C died during the term of the 

GRIT. The entire GRIT corpus is 

includible in C’s gross estate pursuant to 

section 2036(a)(1) because C retained 

the right to receive all of the income of 

the GRIT. Because the transferred assets 

are includible in the gross estate and do 

not qualify for the 5 percent de minimis 

rule in paragraph (c)(3)(ii)(A) of this 

section, the exception to the special rule 

found in paragraph (c)(3) of this section 


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Federal Register / Vol. 87, No. 81 / Wednesday, April 27, 2022 / Proposed Rules 24923 

applies to the gift. The credit to be 

applied for purposes of computing C’s 

estate tax is based on the $6.8 million 

basic exclusion amount as of C’s date of 

death, subject to the limitation of 

section 2010(d). 

* * * * * 

(f) * * * 

(2) Exceptions. Except as specifically 

provided in this paragraph (f)(2), 

paragraphs (c) and (e)(3) of this section 

apply to estates of decedents dying on 

or after November 26, 2019. * * * 

Paragraph (c)(3) of this section is 

applicable to the estates of decedents 

dying on or after April 27, 2022. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2022–08865 Filed 4–26–22; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2022–0122] 

RIN 1625–AA08 

Special Local Regulation; Nanticoke 

River, Sharptown, MD 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking; 

withdrawal. 

SUMMARY: The Coast Guard is 

withdrawing its proposed rule to 

establish temporary special local 

regulations for certain waters of the 

Nanticoke River. The rulemaking was 

initiated to establish a special local 

regulation during the ‘‘Sharptown 

Regatta,’’ a marine event to be held on 

certain waters of the Nanticoke River at 

Sharptown, MD. The proposed rule is 

being withdrawn because it is no longer 

necessary. The event sponsor will no 

longer be conducting the power boat 

racing event. 

DATES: The Coast Guard is withdrawing 

the proposed rule for the event 

scheduled from noon to 5 p.m. on May 

13, 2022, from 10 a.m. to 5 p.m. on May 

14, 2022, and from 10 a.m. to 5 p.m. on 

May 15, 2022, and published on March 

14, 2022, (87 FR 14193) as of April 27, 

2022. 

ADDRESSES: To view the docket for this 

withdrawn rulemaking, go to https://

www.regulations.gov, type USCG–2022– 

0122 in the ‘‘SEARCH’’ box and click 

‘‘SEARCH.’’ Click on Open Docket 

Folder on the line associated with this 

rule. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions about this notice, 

call or email Mr. Ron Houck, Waterways 

Management Division, U.S. Coast Guard 

Sector Maryland-National Capital 

Region; telephone 410–576– 2674, email 

Ronald.L.Houck@uscg.mil. 

SUPPLEMENTARY INFORMATION: 

Background Information and 

Regulatory History 

On March 14, 2022, we published an 

NPRM entitled ‘‘Special Local 

Regulation; Nanticoke River, 

Sharptown, MD’’ in the Federal Register 

(87 FR 14193). The Coast Guard 

proposed to establish a temporary 

special local regulation for certain 

navigable waters of the Nanticoke River 

from 11 a.m. on May 13, 2022, through 

6 p.m. on May 15, 2022. This action was 

necessary to provide for the safety of life 

on these waters during a power boat 

racing event on May 14, 2022, and May 

15, 2022, as well as pre-race practice on 

May 13, 2022. This rulemaking would 

have prohibited persons and vessels 

from entering the regulated area unless 

authorized by the Captain of the Port 

Maryland-National Capital Region or the 

Coast Guard Event Patrol Commander. 

Withdrawal 

The proposed rule is being withdrawn 

due to the regulated area no longer 

being necessary because the event 

sponsor will no longer be conducting 

the power boat racing event. 

Authority 

We issue this notice of withdrawal 

under the authority of 46 U.S.C. 70041. 

Dated: April 21, 2022. 

James R. Bendle, 

Commander, U.S. Coast Guard, Acting 

Captain of the Port Maryland-National 

Capital Region. 

[FR Doc. 2022–08905 Filed 4–26–22; 8:45 am] 

BILLING CODE 9110–04–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 100 

[Docket No. USCG–2022–0186] 

RIN 1625–AA08 

Special Local Regulation; East River 

4th of July Fireworks, New York, NY 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Coast Guard is proposing 

to establish a special local regulation on 

the navigable waters of the East River 

and New York Harbor, New York, NY, 

for vessel management for the annual 

4th of July fireworks displays. This 

special local regulation allows the Coast 

Guard to control vessel movement and 

prohibit all vessel traffic from entering 

the fireworks barge buffer zone, 

establish four separate viewing areas, 

and a moving protection zone around 

the barges while they are loaded with 

pyrotechnics. This rule is necessary to 

provide for the safety of life on the 

navigable waters immediately before, 

during, and after a fireworks display 

that involves multiple barge launch sites 

on a highly congested waterway. We 

invite your comments on this proposed 

rulemaking. 

DATES: Comments and related material 

must be received by the Coast Guard on 

or before May 27, 2022. 

ADDRESSES: You may submit comments 

identified by docket number USCG– 

2022–0186 using the Federal Decision 

Making Portal at https://

www.regulations.gov. See the ‘‘Public 

Participation and Request for 

Comments’’ portion of the 

SUPPLEMENTARY INFORMATION section for 

further instructions on submitting 

comments. 

FOR FURTHER INFORMATION CONTACT: For 

information about this document call or 

email MST1 Stacy Stevenson, 

Waterways Management Division, U.S. 

Coast Guard; telephone 718–354–4197, 

email D01-SMB-SecNY-Waterways@

uscg.mil. 

SUPPLEMENTARY INFORMATION: 

I. Table of Abbreviations 

CFR Code of Federal Regulations 

COTP Captain of the Port New York 

DHS Department of Homeland Security 

FR Federal Register 

LLNR Light List Number 

NPRM Notice of proposed rulemaking 

OMB Office of Management and Budget 

§ Section 

U.S.C. United States Code 

II. Background, Purpose, and Legal 

Basis 

On March 7, 2022, the Coast Guard 

received an Application for Marine 

Event for the annual 4th of July 

fireworks display. The Captain of the 

Port New York (COTP) has determined 

that this event in close proximity to 

marine traffic poses a significant risk to 

public safety and property. The special 

local regulation proposed mimics those 

limited access areas established for 4th 

of July in previous years, with the 

addition of a moving protection zone 


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