53652 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

Section 4.14 also issued under 19 U.S.C. 

1466, 1498; 

* * * * * 

■ 2. In § 4.14: 

■ a. Paragraph (a) is revised; 

■ b. Paragraph (d) is amended by 

removing the word ‘‘Customs’’ each 

place it appears and adding, in its place, 

the term ‘‘CBP’’; 

■ d. Paragraph (e) is amended by 

removing the word ‘‘Customs’’ in the 

first sentence and adding, in its place, 

the term ‘‘CBP’’; 

■ e. Paragraph (f) is amended by 

removing the word ‘‘office’’ in the tenth 

sentence and adding, in its place, the 

word ‘‘agency’’; 

■ f. Paragraph (h) is amended by 

removing the word ‘‘Customs’’ in the 

first sentence of the introductory text 

and adding, in its place, the term 

‘‘CBP’’; and 

■ g. Paragraph (j)(1) is amended by 

removing the word ‘‘Customs’’ in the 

last sentence and adding, in its place, 

the term ‘‘CBP’’. 

Revised paragraph (a) reads as 

follows: 

§ 4.14 Foreign equipment purchases by, 

and repairs to, American vessels. 

(a) General provisions and 

applicability—(1) General. Under 

section 466, Tariff Act of 1930, as 

amended (19 U.S.C. 1466), purchases for 

or repairs made to certain vessels while 

they are outside the United States are 

subject to declaration, entry, and 

payment of ad valorem duty. These 

requirements are effective upon the first 

arrival of affected vessels in the United 

States or Puerto Rico. The vessels 

subject to these requirements include 

those documented under the U.S. law 

for the foreign or coastwise trades, as 

well as those which were previously 

documented under the laws of some 

foreign nation or are undocumented at 

the time that foreign shipyard repairs 

are performed, but which exhibit an 

intent to engage in those trades under 

CBP interpretations. Duty is based on 

actual foreign cost. This includes the 

original foreign purchase price of 

articles that have been imported into the 

United States and are later sent abroad 

for use. 

(2) Expenditures not subject to 

declaration, entry, or duty. The 

following vessel repair expenditures are 

not subject to declaration, entry, or 

duty: 

(i) Expenditures made in American 

Samoa, the Guantanamo Bay Naval 

Station, Guam, Puerto Rico, or the U.S. 

Virgin Islands because they are 

considered to have been made in the 

United States; 

(ii) Reimbursements paid to members 

of the regular crew of a vessel for labor 

expended in making repairs to vessels; 

and 

(iii) The cost of equipment, repair 

parts, and materials that are installed on 

a vessel documented under the laws of 

the United States and engaged in the 

foreign or coasting trade, if the 

installation is done by members of the 

regular crew of such vessel while the 

vessel is on the high seas, in foreign 

waters, or in a foreign port, and does not 

involve foreign shipyard repairs by 

foreign labor. 

(3) Expenditures subject to 

declaration and entry but not duty. 

Under separate provisions of law, the 

cost of labor performed, and of parts and 

materials produced and purchased in 

Israel are not subject to duty under the 

vessel repair statute. Additionally, 

expenditures made in Canada or in 

Mexico are not subject to any vessel 

repair duties. Furthermore, certain free 

trade agreements between the United 

States and other countries also may 

reduce the duties on vessel repair 

expenditures made in foreign countries 

that are parties to those agreements, 

although the final duty amount may 

depend on each agreement’s schedule 

for phasing in those reductions. In these 

situations and others where there is no 

liability for duty, it is still required, 

except as otherwise required by law, 

that all repairs and purchases be 

declared and entered. 

* * * * * 

Jayson P. Ahern, 

Acting Commissioner, Customs and Border 

Protection. 

Approved: October 15, 2009. 

Timothy E. Skud, 

Deputy Assistant Secretary of the Treasury. 

[FR Doc. E9–25220 Filed 10–19–09; 8:45 am] 

BILLING CODE 9111–14–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 20 

[TD 9468] 

RIN 1545–BC56 

Guidance Under Section 2053 

Regarding Post-Death Events 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations relating to the amount 

deductible from a decedent’s gross 

estate for claims against the estate under 

section 2053(a)(3) of the Internal 

Revenue Code (Code). In addition, the 

regulations update the provisions 

relating to the deduction for certain 

state death taxes to reflect the statutory 

amendments made in 2001 to sections 

2053(d) and 2058. The regulations 

primarily will affect estates of decedents 

against which there are claims 

outstanding at the time of the decedent’s 

death. 

DATES: Effective Date: The regulations 

are effective on October 20, 2009. 

Applicability Dates: For dates of 

applicability, see §§ 20.2051–1(c), 

20.2053–1(f), 20.2053–3(e), 20.2053– 

4(f), 20.2053–6(h), 20.2053–9(f), and 

20.2053–10(e). 

FOR FURTHER INFORMATION CONTACT: 

Karlene M. Lesho, (202) 622–3090 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

Section 2001 of the Code imposes a 

tax on the transfer of the taxable estate, 

determined as provided in section 2051, 

of every decedent, citizen, or resident of 

the United States. Section 2031(a) 

generally provides that the value of the 

decedent’s gross estate shall include the 

value at the time of decedent’s death of 

all property, real or personal, tangible or 

intangible, wherever situated. Section 

2051 provides that the value of the 

taxable estate is determined by 

deducting from the value of the gross 

estate the deductions provided for in 

sections 2051 through 2058. Pursuant to 

section 2053(a), ‘‘the value of the 

taxable estate shall be determined by 

deducting from the value of the gross 

estate such amounts: (1) For funeral 

expenses, (2) for administration 

expenses, (3) for claims against the 

estate, and (4) for unpaid mortgages on, 

or any indebtedness in respect of, 

property where the value of the 

decedent’s interest therein, 

undiminished by such mortgage or 

indebtedness, is included in the value of 

the gross estate, as are allowable by the 

laws of the jurisdiction, whether within 

or without the United States, under 

which the estate is being administered.’’ 

The amount an estate may deduct for 

claims against the estate has been a 

highly litigious issue. See the 

Background in the notice of proposed 

rulemaking published in the Federal 

Register on April 23, 2007 (REG– 

143316–03, 72 FR 20080). Unlike 

section 2031, section 2053(a) does not 

contain a specific directive to value a 

deductible claim at its value at the time 

of the decedent’s death. Section 2053 

specifically contemplates expenses such 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53653 

as funeral and administration expenses, 

which are only determinable after the 

decedent’s death. 

The lack of consistency in the case 

law has resulted in different estate tax 

treatment of estates that are similarly 

situated, depending only upon the 

jurisdiction in which the executor 

resides. The Treasury Department and 

the IRS believe that similarly-situated 

estates should be treated consistently by 

having section 2053(a)(3) construed and 

applied in the same way in all 

jurisdictions. 

Accordingly, in an effort to further the 

goal of effective and fair administration 

of the tax laws, the Treasury Department 

and the IRS published proposed 

regulations in the Federal Register on 

April 23, 2007. In formulating the 

proposed rule, the Treasury Department 

and the IRS carefully considered: The 

statutory framework and legislative 

history of section 2053 and its 

predecessors; the existing regulatory 

provisions under section 2053, 

particularly those that are generally 

applicable to all amounts deductible 

under section 2053; the numerous 

judicial decisions involving an issue 

under section 2053(a)(3) and the 

analysis and conclusion in each; and, 

the practical consequences of various 

possible alternatives for determining the 

amount deductible under section 

2053(a)(3). 

The proposed regulations proposed 

amendments to the regulations under 

section 2053 to clarify that events 

occurring after a decedent’s death are to 

be considered when determining the 

amount deductible under all provisions 

of section 2053 and that deductions 

under section 2053 generally are limited 

to amounts actually paid by the estate 

in satisfaction of deductible expenses 

and claims. The proposed regulations 

also proposed amendments to address 

more specifically issues involving final 

court decisions, settlements, protective 

claims, reimbursed amounts, claims that 

are potential, unmatured, or contested, 

claims involving multiple defendants, 

claims by a family member or 

beneficiary of a decedent’s estate, 

unenforceable claims, recurring 

payments, and the changes made to 

section 2053(d) in 2001. 

Written comments were received on 

the proposed regulations and a public 

hearing was held on August 6, 2007. 

After careful consideration of the 

written and oral comments, the 

proposed regulations are adopted as 

revised by this Treasury decision. In 

addition, the Treasury Department and 

the IRS plan to issue additional 

guidance, including additional 

proposed regulations, in order to 

respond to certain comments and 

emerging issues that the Treasury 

Department and the IRS believe merit 

further consideration, as indicated in 

the Summary. 

The comments and revisions to the 

proposed regulations are discussed in 

this preamble. 

Summary of Comments and 

Explanation of Revisions 

1. Comments Relating to Prop. Reg. 

§ 20.2051–1 

One commentator suggested that the 

sentence relating to the computation of 

the taxable estate of a decedent who was 

not a citizen or resident of the United 

States should continue to reference the 

regulations under section 2106, and not 

the regulations under section 2051. The 

final regulations restore the reference to 

the regulations under section 2106. 

2. Comments Relating to the Standard 

for Deductibility Set Forth in the 

Proposed Regulation 

The proposed regulations generally 

provide that only claims actually paid 

by the estate may be deducted under 

section 2053(a)(3). Many commentators 

disagreed with this approach and 

suggested that claims against a 

decedent’s estate be valued on the basis 

of what was reasonably known on the 

date of the decedent’s death. These 

commentators cited the line of cases 

following the decision in Ithaca Trust v. 

Commissioner, 279 U.S. 151 (1929), to 

support the same valuation rule for both 

claims against the estate and claims for 

inclusion purposes under section 2031. 

Commentators were concerned that the 

approach of the proposed regulations 

could lengthen the process of estate 

administration (on account of the 

anticipated increase in the need for 

protective claims), cause tax 

motivations to factor into litigation 

strategy, and produce liquidity 

shortfalls in estates with both claims by 

and claims against a decedent. The 

divergence of court opinions on this 

issue is evidence that the proper way to 

deduct claims against an estate is a very 

difficult issue. After giving serious 

consideration to the comments 

submitted on this issue, the Treasury 

Department and the IRS continue to 

believe that a deduction for claims 

under section 2053(a)(3) only for 

amounts actually paid by the estate 

most closely aligns with the legislative 

intent behind section 2053 and its 

predecessors and best furthers the goal 

of effective and fair administration of 

the tax laws. Accordingly, the final 

regulations generally maintain the 

approach of the proposed regulations. 

Notwithstanding the adherence to the 

general approach of the proposed 

regulations, however, the Treasury 

Department and the IRS acknowledge 

that, as was pointed out in many of the 

comments, there are practical 

difficulties associated with each of the 

alternatives, including the approach 

taken in the proposed regulations. In 

order to make the practical application 

of the approach more administrable, the 

final regulations include several 

exceptions to the approach of the 

proposed regulations. The final 

regulations include an exception for 

claims against the estate with respect to 

which there is an asset or claim 

includible in the gross estate that is 

substantially related to the claim against 

the estate. See paragraph 10 of this 

‘‘Summary of Comments and 

Explanation of Revisions’’ and 

§ 20.2053–4(b). The final regulations 

also include an exception for claims 

against the estate that, collectively, do 

not exceed $500,000 (not including 

those deductible as ascertainable 

amounts). See paragraph 5 of this 

‘‘Summary of Comments and 

Explanation of Revisions’’ and 

§ 20.2053–4(c). Although both 

exceptions provide an opportunity to 

claim a deduction at the time of filing 

the United States Estate (and 

Generation-Skipping Transfer) Tax 

Return (Form 706), in each case, the 

amount of the deduction is subject to 

adjustment to reflect post-death events, 

consistent with the general approach of 

the regulations. 

3. Comments Relating to the Effect of a 

Court Decree in Prop. Reg. § 20.2053– 

1(b)(2) 

The proposed regulations changed the 

language regarding a court decree from 

‘‘the court passes upon the facts upon 

which deductibility depends’’ to ‘‘the 

court reviewed the facts relating to the 

expenditures.’’ A commentator 

suggested that such a change in 

language may give the unintended 

impression that this constitutes a 

substantive change. Thus, these final 

regulations remove the language of the 

proposed regulations and reinstate the 

original language. 

A commentator also requested that an 

example be added to clarify that the last 

sentence of Prop. Reg. § 20.2053– 

1(b)(2)(i) would apply to jurisdictions in 

which a court approves the 

administration of an estate without 

specifically approving expenses and 

claims, absent a challenge from an 

interested party. The final regulations 

include such an example. 

Some commentators recommended 

the removal of the requirement that a 


cprice-sewell on DSKGBLS3C1PROD with RULES
53654 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

settlement be within the range of 

reasonable outcomes under applicable 

state law in order for a settlement 

amount to be deductible because the 

requirement places the Commissioner or 

a court in the position of having to 

evaluate the legal merits of a claim 

adjudicated in another court 

proceeding. The commentators also 

maintained that the requirement is 

superfluous in light of the existing 

requirements that the settlement resolve 

a bona fide issue in an active and 

genuine contest and that adverse parties 

negotiate at arm’s length. The final 

regulations eliminate the separate 

requirement that the settlement be 

within the range of reasonable outcomes 

under applicable state law. 

Some commentators claimed that the 

rules relating to settlements did not 

recognize that, in some instances, the 

cost of defending a claim and the delay 

associated with litigating the claim will 

factor into the decision to settle a claim. 

The final regulations clarify that a 

deduction will not be denied for a 

settlement amount otherwise deductible 

under section 2053 if an estate can 

establish that the cost of defending the 

claim or contesting the expense, the 

delay associated with litigating such 

claim or expense, or another significant 

factor will impose a higher burden on 

the estate relative to the amount paid to 

settle the claim or the contested 

expense. 

4. Comments Relating to the Rule for 

Estimated Amounts in Prop. Reg. 

§ 20.2053–1(b)(4) 

The rule provided in Prop. Reg. 

§ 20.2053–1(b)(4) involving estimated 

amounts is now provided in § 20.2053– 

1(d)(4) of these final regulations and the 

paragraph heading is changed from 

‘‘[e]stimated amounts’’ to ‘‘[e]xception 

for certain ascertainable amounts.’’ The 

final regulations use a consistent 

description of the rule contained in 

§ 20.2053–1(d)(4) where applicable in 

the remainder of the regulation. No 

substantive change is intended; rather, 

the modified paragraph heading in the 

final regulations is intended to describe 

the substance of the rule more 

accurately. 

A commentator noted that use of the 

language ‘‘will be paid’’ in Prop. Reg. 

§ 20.2053–1(b)(4) may be inconsistent 

with the language in Prop. Reg. 

§ 20.2053–3(b)(1) (‘‘may reasonably be 

expected to be paid’’) and in Prop. Reg. 

§ 20.2053–4(b)(7)(i) (claims cannot be 

estimated if there is ‘‘reasonable 

likelihood that full satisfaction of the 

liability will not be made’’). The 

commentator suggested modification of 

the language in Prop. Reg. § 20.2053– 

1(b)(4) to incorporate the reasonableness 

standard found in the other sections and 

requested conforming changes 

throughout the regulation for 

consistency purposes. The final 

regulations do not add a reasonableness 

component to the standard for meeting 

the ‘‘will be paid’’ requirement, 

although the final regulations clarify 

that a deduction is allowed under the 

rule for deducting certain ascertainable 

amounts to the extent that the 

Commissioner is reasonably satisfied 

that the amount to be paid is 

ascertainable with reasonable certainty 

and will be paid. The final regulations 

use consistent language where 

applicable in describing the standard for 

meeting the ‘‘will be paid’’ requirement 

in each reference to the rule for 

deducting certain ascertainable 

amounts. 

In addition, some commentators 

requested clarification on whether the 

rule previously provided in Prop. Reg. 

§ 20.2053–1(b)(4) applies not only to 

claims but to administration expenses as 

well. The final regulations make the 

requested clarification and § 20.2053– 

1(d)(4) provides that the rule for 

deducting certain ascertainable amounts 

applies to both a claim and an expense. 

A commentator suggested that the 

statement in Prop. Reg. § 20.2053– 

1(b)(4) prohibiting a deduction for ‘‘a 

vague or uncertain estimate’’ be omitted 

because it puts forth a subjective 

standard open to a wide range of 

interpretations. The Treasury 

Department and the IRS believe that the 

rule previously provided in Prop. Reg. 

§ 20.2053–1(b)(4), now provided in 

§ 20.2053–1(d)(4) of these final 

regulations, sets forth clear 

requirements for determining the 

amount allowable as a deduction under 

section 2053. Because the statement in 

Prop. Reg. § 20.2053–1(b)(4) merely 

clarifies this rule, the statement has 

been retained in the final regulations. 

A commentator suggested that the 

language in Prop. Reg. § 20.2053–1(b)(4), 

indicating that a deduction in advance 

of payment will be disallowed if the 

payment is thereafter waived or 

otherwise left unpaid, negates the 

purpose of allowing a deduction for an 

estimated amount and should be 

deleted. However, the Treasury 

Department and the IRS believe that 

there is an important difference. The 

rule for deducting certain ascertainable 

amounts previously provided in Prop. 

Reg. § 20.2053–1(b)(4), and now 

provided in § 20.2053–1(d)(4) of these 

final regulations, provides an estate 

with the opportunity to claim a 

deduction at the time of filing Form 706, 

even though the amount ultimately 

allowable as a deduction under this rule 

will take into account events occurring 

after the date of a decedent’s death. The 

ability to deduct an ascertainable 

amount does not change the general rule 

that the amount of the deduction is to 

reflect post-death events. 

Some commentators questioned 

whether the proposed regulations 

impose a duty on the executor to report 

amounts that were claimed as 

deductions on the estate tax return, but 

were subsequently not paid or not paid 

in full, and whether such a duty could 

be enforced after the period of 

limitations on assessment has expired. 

The Treasury Department and the IRS 

did not intend for the proposed 

regulations to impose a duty on the 

executor that could be enforced after the 

expiration of the period of limitations 

on assessment. As a result, the final 

regulations eliminate this provision. 

The final regulations also include a 

provision clarifying the period during 

which post-death events will be 

considered. 

5. Comments Relating to Protective 

Claims 

A commentator expressed concern 

that the protective claim procedures in 

the proposed regulations would result 

in increased administrative costs and a 

delay in the administration of the estate 

because filing a protective claim 

effectively would keep the period of 

limitations open to the extent of the 

amount of the claim for refund. The 

Treasury Department and the IRS 

believe that protective claims for refund 

are an appropriate and necessary 

component of these regulations, as they 

provide a mechanism to ensure that the 

deductibility rule provided for in these 

regulations is implemented in a fair and 

equitable manner. Nevertheless, the 

Treasury Department and the IRS 

acknowledge that the commentator’s 

concern is valid. In an effort to make the 

regulation more administrable for both 

taxpayers and the Commissioner, the 

final regulations in § 20.2053–4(c) 

include an exception for claims against 

the estate that do not exceed, in the 

aggregate, $500,000. Because the 

purpose of this provision is to provide 

certain relief from the need to file a 

protective claim, a claim is not eligible 

for this provision unless the entire 

amount of the claim may be covered 

within this cap. This rule allows an 

estate a deduction on Form 706 for 

claims against the estate. However, 

consistent with the general approach of 

the final regulations, the amount of the 

deduction is subject to adjustment to 

reflect post-death events. To address the 

commentator’s concern regarding the 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53655 

effect of a protective claim for refund on 

the applicable period of limitations, the 

Treasury Department and the IRS are 

issuing, concurrent with this regulation, 

a Notice announcing the IRS’s decision 

to limit the review of a return, in certain 

circumstances, when a timely-filed 

claim for refund of estate taxes that is 

based on a deduction under section 

2053 ripens after the expiration of the 

limitations period on assessment. 

Some commentators requested more 

detailed guidance on the procedures for 

filing a protective claim for refund. In 

response to this comment, the final 

regulations include a provision under 

§ 20.2053–1(d)(5) to explain the 

protective claim for refund process. The 

Treasury Department and the IRS also 

intend to provide, by publication in the 

Internal Revenue Bulletin, further 

procedural guidance on protective 

claims for refund due to section 2053 

claims or expenses. In addition, a 

commentator suggested that Form 706 

be revised to incorporate a protective 

claim for refund so that a separate form 

need not be filed. The Treasury 

Department and the IRS believe this 

suggestion will make the final 

regulations more administrable and are 

contemplating amending Form 706 to 

implement this suggestion. 

Another commentator suggested that 

the IRS be lenient in granting extensions 

of time to pay the estate tax under 

section 6161 when an estate is 

confronting a liquidity issue arising 

from the inability to deduct a claim that 

is the subject of a protective claim for 

refund. Although in many cases the 

illiquidity resulting from a not-yetdeductible claim may be reasonable 

cause for granting an extension of time 

to pay the estate tax for purposes of 

section 6161, the Treasury Department 

and the IRS believe that any regulatory 

provision implementing this suggestion 

would be outside the scope of this 

regulation. 

6. Comments Relating to the Effect on 

the Marital and Charitable Deductions 

Some commentators requested 

clarification of the impact of the 

approach taken in the proposed 

regulations on the marital and charitable 

deductions in estates where a claim or 

expense is payable in whole or in part 

from a bequest that qualifies for the 

marital or charitable deduction. 

Commentators requested that the final 

regulations include a rule confirming 

that, if a claim or expense is the subject 

of a protective claim for refund under 

section 2053 and is payable out of a 

fund that meets the requirements for a 

charitable or marital deduction under 

section 2055 or 2056, respectively, the 

charitable or marital deduction will not 

be reduced by the amount of the claim 

or expense until the amount is actually 

paid. In the interest of enhancing the 

administrability of these regulations, 

such a rule is included in § 20.2053– 

1(d)(5)(ii). The Treasury Department 

and the IRS view this rule as similar to 

the rules in the regulations under 

sections 2055 and 2056 that provide, 

respectively, for the reduction of the 

value of the charitable or marital share 

by the amount of estate transmission 

expenses paid from the charitable or 

marital share. For purposes of the estate 

tax charitable deduction under section 

2055, a claim or expense that is the 

subject of a protective claim for refund 

under section 2053 will not render the 

charitable deduction, to the extent of the 

amount of that claim or expense, 

contingent and thus nondeductible 

under section 2055. 

7. Comments Relating to 

Reimbursements, Prop. Reg. § 20.2053– 

1(b)(3) 

The proposed regulations provide that 

a deduction is not allowed to the extent 

that the expense or claim is or could be 

compensated for by insurance or is or 

could be otherwise reimbursed. A 

commentator recommended that the 

final regulations explain the method by 

which an executor may establish that 

there is no available reimbursement 

either from another party or insurance. 

In response to this comment, the final 

regulations provide that an executor 

may certify on Form 706 that no 

reimbursement is available for a claim 

or expense if the executor neither knows 

nor reasonably should have known of 

the availability of any such 

reimbursement. 

Additionally, some commentators 

recommended that the final regulations 

reflect the possibility that the cost of 

obtaining the reimbursement might 

outweigh the benefit of reimbursement. 

In response, the final regulations 

provide that an executor need not 

reduce the amount of a claim or expense 

deductible under section 2053 by the 

amount of a potential reimbursement if 

the executor provides a reasonable 

explanation on Form 706 for his or her 

reasonable determination that the 

burden of necessary collection efforts 

would outweigh the anticipated benefits 

from those efforts. 

8. Comments Relating to Deduction for 

Expenses of Administering Estate Under 

Prop. Reg. § 20.2053–3 

A commentator recommended 

removing from Prop. Reg. § 20.2053–3(b) 

and (c) any language restating the 

general requirements for deductibility 

set forth in Prop. Reg. § 20.2053–1 and 

the general rules regarding protective 

claims. The commentator suggested that 

duplicating the language in Prop. Reg. 

§ 20.2053–3(b) and (c) was unnecessary 

and perhaps confusing. In response, the 

final regulations remove the language 

that merely restates the general rules set 

forth in Prop. Reg. § 20.2053–1. 

Some commentators recommended 

omitting the sentence in Prop. Reg. 

§ 20.2053–3(d)(3) that prohibits a 

deduction for expenses incurred merely 

for the purpose of unreasonably 

extending the time for payment, or 

incurred other than in good faith. The 

commentators stated that a situation 

where litigation has been intentionally 

prolonged other than in good faith is 

rare and unlikely to occur. Furthermore, 

the commentators expressed concern 

that the rule may subject the estate’s 

legal strategy to IRS inquiry. Finally, the 

commentators maintained that it would 

be extremely difficult to prove that 

litigation expenses have not been 

incurred to unreasonably extend the 

time for payment or other than in good 

faith. The Treasury Department and the 

IRS find these comments persuasive and 

additionally believe that including this 

sentence in the final regulations is not 

necessary because expenses incurred 

merely for the purpose of unreasonably 

extending the time for payment or other 

than in good faith will not be 

considered actually and necessarily 

incurred in the administration of the 

decedent’s estate and, therefore, are not 

deductible for that reason. 

9. Comments Relating to Claims Against 

the Estate, Prop. Reg. § 20.2053–4(a) 

The proposed regulations provide that 

deductible claims against a decedent’s 

estate are limited to legitimate and bona 

fide claims. A commentator stated that 

the terms ‘‘legitimate’’ and ‘‘bona fide’’ 

in Prop. Reg. § 20.2053–4(a)(1) are 

redundant. The final regulations remove 

the term ‘‘legitimate’’ and provide that 

deductible claims against a decedent’s 

estate are limited to bona fide claims. 

A commentator requested clarification 

that the Commissioner shall be bound in 

the same manner as the estate to 

consider events occurring after the date 

of a decedent’s death when determining 

the amount deductible by the decedent’s 

estate. The Treasury Department and the 

IRS believe that the rule of Prop. Reg. 

§ 20.2053–4(a)(2) sets forth a general 

principle that governs the determination 

of the amount deductible against a 

decedent’s estate, and that therefore is 

binding on both estates and the 

Commissioner. Accordingly, no change 

is believed to be necessary. 


cprice-sewell on DSKGBLS3C1PROD with RULES
53656 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

10. Comments Relating to Claims and 

Counterclaims 

Some commentators, citing fairness 

and liquidity concerns, suggested 

allowing a deduction for a claim against 

the estate on the initial filing of Form 

706 if the value of the gross estate 

includes a claim in the same or a 

substantially-related matter or includes 

an asset integrally related or subject to 

the claim against the estate. The 

Treasury Department and the IRS find 

this suggestion persuasive when a 

decedent’s substantially-related claim 

against a third party or a decedent’s 

integrally-related asset constitutes a 

significant percentage of the gross 

estate. The final regulations under 

§ 20.2053–4(b) provide that the current 

value of a claim against the estate with 

respect to which there is one or more 

substantially-related claims or 

integrally-related assets that are 

included in a decedent’s gross estate 

may be deducted on Form 706, provided 

that the related claim or asset of the 

estate constitutes at least 10 percent of 

the decedent’s gross estate, the value of 

each such claim against the estate is 

determined from a ‘‘qualified appraisal’’ 

performed by a ‘‘qualified appraiser’’ 

(within the meaning of section 170 of 

the Code and the corresponding 

regulations), and the value of each such 

claim against the estate is subject to 

adjustment to reflect post-death events. 

The deductible amount of each such 

claim is limited to the value of the 

related asset or claim included in the 

gross estate. The amount of the claim 

against the estate in excess of this 

limitation may be the subject of a 

protective claim for refund. 

11. Comments Relating to Prop. Reg. 

§ 20.2053–4(b)(4), Claims by Family 

Members, Related Entities, or 

Beneficiaries 

The proposed regulations include a 

rebuttable presumption that claims by a 

family member of the decedent, a 

related entity, or a beneficiary of the 

decedent’s estate or a revocable trust are 

not legitimate and bona fide. Many 

commentators requested that the 

rebuttable presumption be removed 

from the regulation. A commentator 

suggested that the presumption be 

replaced by a provision requiring close 

scrutiny of claims by family members, 

related entities, or beneficiaries. 

Although such claims are in fact closely 

scrutinized during the examination of a 

return, the Treasury Department and the 

IRS believe that a regulatory provision 

prescribing the level of scrutiny to be 

given a particular item is not 

appropriate for this regulation. 

Other commentators stated that the 

presumption is inconsistent with the 

burden of proof provision of section 

7491 and that such a presumption 

should apply only when the facts 

indicate possible collusion. After careful 

consideration, the Treasury Department 

and the IRS have concluded that the 

rebuttable presumption in the proposed 

regulations does not conflict with 

section 7491. 

Some commentators maintained that 

the presumption is unfair and 

unwarranted because the proposed 

regulations and the burden of proof 

provisions adequately deter the 

manipulation of claims by family 

members, related entities or 

beneficiaries. The Treasury Department 

and the IRS carefully considered these 

comments and, in response to the 

enumerated concerns with the creation 

of a rebuttable presumption, have 

removed the presumption from the final 

regulations. Instead, the final 

regulations continue to include the 

generally applicable requirement that 

any claim or expense deductible under 

section 2053 must be bona fide in 

nature, but also include a paragraph that 

(as suggested by a commentator) 

provides a nonexclusive list of factors 

indicative of the bona fide nature of a 

claim or expense involving a family 

member, related entity, or beneficiary of 

the estate of a decedent. 

12. Comments Relating to Payments in 

Prop. Reg. § 20.2053–4(b)(5) 

A commentator suggested removing 

the rule in Prop. Reg. § 20.2053–4(b)(5) 

providing that claims that are 

unenforceable prior to or at the 

decedent’s death are not deductible 

even if paid. The Treasury Department 

and the IRS believe that this rule is 

mandated by the statutory requirement 

that only amounts allowable by the laws 

of the jurisdiction under which the 

estate is being administered may be 

deducted from the value of the gross 

estate. Therefore, this suggestion has not 

been adopted. 

13. Comments Relating to Recurring 

Payments in Prop. Reg. § 20.2053– 

4(b)(7) 

The proposed regulations provide that 

certain recurring, noncontingent 

obligations may be deducted as 

estimated amounts. Some commentators 

suggested that not allowing an estate to 

deduct the value of a contingent 

obligation is inefficient and inequitable 

because it forces the estate to remain 

open unless the estate purchases a 

commercial annuity. The Treasury 

Department and the IRS acknowledge 

that a contingent obligation may extend 

the period of estate administration 

unless the estate purchases a 

commercial annuity to satisfy the 

obligation or makes distributions that 

are encumbered by the contingent 

obligation. However, the Treasury 

Department and the IRS believe that 

allowing a deduction for a 

noncontingent recurring payment as an 

ascertainable amount (deductible under 

§ 20.2053–1(d)(4) of the final 

regulations), but not allowing a 

deduction for a contingent recurring 

payment until paid is a necessary 

component of the rules of deductibility 

provided for in these regulations. 

Nevertheless, the Treasury Department 

and the IRS believe that the purchase of 

a commercial annuity (with a cost 

determined by the market and based on 

the particular contingency) to fund a 

contingent obligation should be deemed 

to be substantially equivalent to a 

reasonably ascertainable (and thus 

deductible) noncontingent obligation for 

purposes of section 2053 and these 

regulations. 

Some commentators requested 

clarification on whether death or 

remarriage is considered a contingency 

with respect to decedent’s obligation to 

make a recurring payment. The final 

regulations clarify that, for purposes of 

section 2053, an obligation subject to 

death or remarriage is treated as a 

noncontingent obligation under 

§ 20.2053–4(d)(6)(i). 

Some commentators suggested that 

the disparate treatment afforded 

noncontingent obligations (deduction 

for present value of obligations) versus 

contingent obligations (dollar-for-dollar 

deduction as paid) is inequitable and 

produces an inconsistent result without 

meaningful justification. These 

commentators requested that the final 

regulations allow an estate to choose 

between deducting the present value of 

a noncontingent recurring payment on 

the estate tax return, or instead 

deducting the amounts paid in the same 

manner as provided for a contingent 

obligation (after filing an appropriate 

protective claim for refund). The 

Treasury Department and the IRS find 

the arguments against the disparate 

treatment of noncontingent and 

contingent obligations to be persuasive. 

The final regulations eliminate the 

disparate treatment by removing the 

present value limitation applicable only 

to noncontingent recurring payments. 

The Treasury Department and the IRS 

believe that the issue of the appropriate 

use of present value in determining the 

amount of the deduction allowable 

under section 2053 merits further 

consideration. The final regulations 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53657 

reserve § 20.2053–1(d)(6) to provide 

future guidance on this issue. 

A commentator requested clarification 

on whether the rule in Prop. Reg. 

§ 20.2053–4(b)(7) will or will not apply 

to mortgages and other indebtedness 

under a note. The final regulations 

clarify that the rules applicable to 

recurring payments do not apply to 

payments made in connection with a 

mortgage or other indebtedness 

described in § 20.2053–7. 

Finally, a commentator requested 

further guidance on the commercial 

annuity provision; specifically, whether 

the executor must transfer ownership of 

the purchased annuity to the creditor or 

to a third party who will use the annuity 

to make payments to the creditor, or 

whether granting the creditor a security 

interest in the annuity is sufficient in 

order for the amount paid for the 

annuity to be deductible under section 

2053. For income tax purposes, the 

transfer of the annuity is likely to cause 

immediate gain recognition of the entire 

amount to the transferee unless the 

annuity meets several specific 

requirements. In light of the purpose 

and intent of these regulations, the 

Treasury Department and the IRS 

believe that the purchase of a 

commercial annuity, and the 

nonrefundable and generally significant 

costs involved in that purchase, should 

be sufficient to permit a deduction of 

the cost of the annuity for purposes of 

section 2053. For these reasons, the final 

regulations clarify that the estate may be 

permitted to own the annuity. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 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 a collection 

of information on small entities, 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 Code, this regulation has been 

submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small business. 

Drafting Information 

The principal author of these 

regulations is Karlene M. 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 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 20.2051–1 is revised to 

read as follows: 

§ 20.2051–1 Definition of taxable estate. 

(a) General rule. The taxable estate of 

a decedent who was a citizen or resident 

(see § 20.0–1(b)(1)) of the United States 

at death is determined by subtracting 

the total amount of the deductions 

authorized by sections 2053 through 

2058 from the total amount which must 

be included in the gross estate under 

sections 2031 through 2044. These 

deductions are in general as follows— 

(1) Funeral and administration 

expenses and claims against the estate 

(including certain taxes and charitable 

pledges) (section 2053). 

(2) Losses from casualty or theft 

during the administration of the estate 

(section 2054). 

(3) Charitable transfers (section 2055). 

(4) The marital deduction (section 

2056). 

(5) Qualified domestic trusts (section 

2056A). 

(6) Family-owned business interests 

(section 2057) to the extent applicable to 

estates of decedents. 

(7) State death taxes (section 2058) to 

the extent applicable to estates of 

decedents. 

(b) Special rules. See section 2106 and 

the corresponding regulations for 

special rules regarding the computation 

of the taxable estate of a decedent who 

was not a citizen or resident of the 

United States. See also § 1.642(g)–1 of 

this chapter concerning the 

disallowance for income tax purposes of 

certain deductions allowed for estate tax 

purposes. 

(c) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 3. Section 20.2053–1 is amended 

by: 

■ 1. Revising paragraphs (a), (b)(2), 

(b)(3), and adding paragraph (b)(4). 

■ 2. Redesignating paragraph (d) as 

paragraph (e). 

■ 3. Adding paragraphs (d) and (f). 

The revisions and additions read as 

follows: 

§ 20.2053–1 Deductions for expenses, 

indebtedness, and taxes; in general. 

(a) General rule. In determining the 

taxable estate of a decedent who was a 

citizen or resident of the United States 

at death, there are allowed as 

deductions under section 2053(a) and 

(b) amounts falling within the following 

two categories (subject to the limitations 

contained in this section and in 

§§ 20.2053–2 through 20.2053–10)— 

* * * * * 

(b) * * * 

(2) Bona fide requirement—(i) In 

general. Amounts allowed as 

deductions under section 2053(a) and 

(b) must be expenses and claims that are 

bona fide in nature. No deduction is 

permissible to the extent it is founded 

on a transfer that is essentially donative 

in character (a mere cloak for a gift or 

bequest) except to the extent the 

deduction is for a claim that would be 

allowable as a deduction under section 

2055 as a charitable bequest. 

(ii) Claims and expenses involving 

family members. Factors indicative (but 

not necessarily determinative) of the 

bona fide nature of a claim or expense 

involving a family member of a 

decedent, a related entity, or a 

beneficiary of a decedent’s estate or 

revocable trust, in relevant instances, 

may include, but are not limited to, the 

following— 

(A) The transaction underlying the 

claim or expense occurs in the ordinary 

course of business, is negotiated at arm’s 

length, and is free from donative intent. 

(B) The nature of the claim or expense 

is not related to an expectation or claim 

of inheritance. 

(C) The claim or expense originates 

pursuant to an agreement between the 

decedent and the family member, 

related entity, or beneficiary, and the 

agreement is substantiated with 

contemporaneous evidence. 

(D) Performance by the claimant is 

pursuant to the terms of an agreement 

between the decedent and the family 

member, related entity, or beneficiary 

and the performance and the agreement 

can be substantiated. 

(E) All amounts paid in satisfaction or 

settlement of a claim or expense are 

reported by each party for Federal 

income and employment tax purposes, 

to the extent appropriate, in a manner 

that is consistent with the reported 

nature of the claim or expense. 


cprice-sewell on DSKGBLS3C1PROD with RULES
53658 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

(iii) Definitions. The following 

definitions apply for purposes of this 

paragraph (b)(2): 

(A) Family members include the 

spouse of the decedent; the 

grandparents, parents, siblings, and 

lineal descendants of the decedent or of 

the decedent’s spouse; and the spouse 

and lineal descendants of any such 

grandparent, parent, and sibling. Family 

members include adopted individuals. 

(B) A related entity is an entity in 

which the decedent, either directly or 

indirectly, had a beneficial ownership 

interest at the time of the decedent’s 

death or at any time during the threeyear period ending on the decedent’s 

date of death. Such an entity, however, 

shall not include a publicly-traded 

entity nor shall it include a closely-held 

entity in which the combined beneficial 

interest, either direct or indirect, of the 

decedent and the decedent’s family 

members, collectively, is less than 30 

percent of the beneficial ownership 

interests (whether voting or non-voting 

and whether an interest in stock, capital 

and/or profits), as determined at the 

time a claim described in this section is 

being asserted. Notwithstanding the 

foregoing, an entity in which the 

decedent, directly or indirectly, had any 

managing interest (for example, as a 

general partner of a partnership or as a 

managing member of a limited liability 

company) at the time of the decedent’s 

death shall be considered a related 

entity. 

(C) Beneficiaries of a decedent’s estate 

include beneficiaries of a trust of the 

decedent. 

(3) Court decrees and settlements—(i) 

Court decree. If a court of competent 

jurisdiction over the administration of 

an estate reviews and approves 

expenditures for funeral expenses, 

administration expenses, claims against 

the estate, or unpaid mortgages (referred 

to in this section as a ‘‘claim or 

expense’’), a final judicial decision in 

that matter may be relied upon to 

establish the amount of a claim or 

expense that is otherwise deductible 

under section 2053 and these 

regulations provided that the court 

actually passes upon the facts on which 

deductibility depends. If the court does 

not pass upon those facts, its decree 

may not be relied upon to establish the 

amount of the claim or expense that is 

otherwise deductible under section 

2053. It must appear that the court 

actually passed upon the merits of the 

claim. This will be presumed in all 

cases of an active and genuine contest. 

If the result reached appears to be 

unreasonable, this is some evidence that 

there was not such a contest, but it may 

be rebutted by proof to the contrary. 

Any amount meeting the requirements 

of this paragraph (b)(3)(i) is deductible 

to the extent it actually has been paid 

or will be paid, subject to any applicable 

limitations in this section. 

(ii) Claims and expenses where court 

approval not required under local law. 

A deduction for the amount of a claim 

or expense that is otherwise deductible 

under section 2053 and these 

regulations will not be denied under 

section 2053 solely because a local court 

decree has not been entered with 

respect to such amount, provided that 

no court decree is required under 

applicable law to determine the amount 

or allowability of the claim or expense. 

(iii) Consent decree. A local court 

decree rendered by consent may be 

relied on to establish the amount of a 

claim or expense that is otherwise 

deductible under section 2053 and these 

regulations provided that the consent 

resolves a bona fide issue in a genuine 

contest. Consent given by all parties 

having interests adverse to that of the 

claimant will be presumed to resolve a 

bona fide issue in a genuine contest. 

Any amount meeting the requirements 

of this paragraph (b)(3)(iii) is deductible 

to the extent it actually has been paid 

or will be paid, subject to any applicable 

limitations in this section. 

(iv) Settlements. A settlement may be 

relied on to establish the amount of a 

claim or expense (whether contingent or 

noncontingent) that is otherwise 

deductible under section 2053 and these 

regulations, provided that the settlement 

resolves a bona fide issue in a genuine 

contest and is the product of arm’slength negotiations by parties having 

adverse interests with respect to the 

claim or expense. A deduction will not 

be denied for a settlement amount paid 

by an estate if the estate can establish 

that the cost of defending or contesting 

the claim or expense, or the delay 

associated with litigating the claim or 

expense, would impose a higher burden 

on the estate than the payment of the 

amount paid to settle the claim or 

expense. Nevertheless, no deduction 

will be allowed for amounts paid in 

settlement of an unenforceable claim. 

For this purpose, to the extent a claim 

exceeds an applicable limit under local 

law, the claim is deemed to be 

unenforceable. However, as long as the 

enforceability of the claim is at issue in 

a bona fide dispute, the claim will not 

be deemed to be unenforceable for this 

purpose. Any amount meeting the 

requirements of this paragraph (b)(3)(iv) 

is deductible to the extent it actually has 

been paid or will be paid, subject to any 

applicable limitations in this section. 

(v) Additional rules. Notwithstanding 

paragraph (b)(3)(i) through (iv) of this 

section, additional rules may apply to 

the deductibility of certain claims and 

expenses. See § 20.2053–2 for additional 

rules regarding the deductibility of 

funeral expenses. See § 20.2053–3 for 

additional rules regarding the 

deductibility of administration 

expenses. See § 20.2053–4 for additional 

rules regarding the deductibility of 

claims against the estate. See § 20.2053– 

7 for additional rules regarding the 

deductibility of unpaid mortgages. 

(4) Examples. Unless otherwise 

provided, assume that the amount of 

any claim or expense is paid out of 

property subject to claims and is paid 

within the time prescribed for filing the 

‘‘United States Estate (and GenerationSkipping Transfer) Tax Return,’’ Form 

706. The following examples illustrate 

the application of this paragraph (b): 

Example 1. Consent decree at variance 

with the law of the State. Decedent’s (D’s) 

estate is probated in State. D’s probate estate 

is valued at $100x. State law provides that 

the executor’s commission shall not exceed 

3 percent of the probate estate. A consent 

decree is entered allowing the executor’s 

commission in the amount of $5x. The estate 

pays the executor’s commission in the 

amount of $5x. For purposes of section 2053, 

the executor may deduct only $3x of the $5x 

expense paid for the executor’s commission 

because the amount approved by the consent 

decree in excess of $3x is in excess of the 

applicable limit for executor’s commissions 

under local law. Therefore, for purposes of 

section 2053, the consent decree may not be 

relied upon to establish the amount of the 

expense for the executor’s commission. 

Example 2. Decedent’s (D’s) estate is 

probated in State. State law grants authority 

to an executor to administer an estate 

without court approval, so long as notice of 

and a right to object to a proposed action is 

provided to interested persons. The executor 

of D’s estate (E) proposes to sell property of 

the estate in order to pay the debts of D. E 

gives requisite notice to all interested parties 

and no interested person objects. E sells the 

real estate and pays a real estate commission 

of $20x to a professional real estate agent. 

The amount of the real estate commission 

paid does not exceed the applicable limit 

under State law. Provided that the sale of the 

property was necessary to pay D’s debts, 

expenses of administration, or taxes, to 

preserve the estate, or to effect distribution, 

the executor may deduct the $20x expense 

for the real estate commission under section 

2053 even though no court decree was 

entered approving the expense. 

Example 3. Claim by family member. For 

a period of three years prior to D’s death, D’s 

niece (N) provides accounting and 

bookkeeping services on D’s behalf. N is a 

CPA and provides similar accounting and 

bookkeeping services to unrelated clients. At 

the end of each month, N presents an 

itemized bill to D for services rendered. The 

fees charged by N conform to the prevailing 

market rate for the services rendered and are 

comparable to the fees N charges other 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53659 

clients for similar services. The amount due 

is timely paid each month by D and is 

properly reported for Federal income and 

employment tax purposes by N. In the six 

months prior to D’s death, D’s poor health 

prevents D from making payments to N for 

the amount due. After D’s death, N asserts a 

claim against the estate for $25x, an amount 

representing the amount due for the sixmonth period prior to D’s death. D’s estate 

pays $25x to N in satisfaction of the claim 

before the return is timely filed and N 

properly reports the $25x received by E for 

income tax purposes. Barring any other 

relevant facts or circumstances, E may rely 

on the following factors to establish that the 

claim is bona fide: (1) N’s claim for services 

rendered arose in the ordinary course of 

business, as N is a CPA performing similar 

services for other clients; (2) the fees charged 

were deemed to be negotiated at arm’s length, 

as the fees were consistent with the fees N 

charged for similar services to unrelated 

clients; (3) the billing records and the records 

of D’s timely payments to N constitute 

contemporaneous evidence of an agreement 

between D and N for N’s bookkeeping 

services; and (4) the amount of the payments 

to N is properly reported by N for Federal 

income and employment tax purposes. E may 

deduct the amount paid to N in satisfaction 

of the claim. 

* * * * * 

(d) Amount deductible—(1) General 

rule. To take into account properly 

events occurring after the date of a 

decedent’s death in determining the 

amount deductible under section 2053 

and these regulations, the deduction for 

any claim or expense described in 

paragraph (a) of this section is limited 

to the total amount actually paid in 

settlement or satisfaction of that item 

(subject to any applicable limitations in 

this section). However, see paragraph 

(d)(4) of this section for the rules for 

deducting certain ascertainable 

amounts; see § 20.2053–4(b) and (c) for 

the rules regarding the deductibility of 

certain claims against the estate; and see 

§ 20.2053–7 for the rules regarding the 

deductibility of unpaid mortgages and 

other indebtedness. 

(2) Application of post-death events. 

In determining whether and to what 

extent a deduction under section 2053 

is allowable, events occurring after the 

date of a decedent’s death will be taken 

into consideration— 

(i) Until the expiration of the 

applicable period of limitations on 

assessment prescribed in section 6501 

(including without limitation at all 

times during which the running of the 

period of limitations is suspended); and 

(ii) During subsequent periods, in 

determining the amount (if any) of an 

overpayment of estate tax due in 

connection with a claim for refund filed 

within the time prescribed in section 

6511(a). 

(3) Reimbursements. A deduction is 

not allowed to the extent that a claim or 

expense described in paragraph (a) of 

this section is or could be compensated 

for by insurance or otherwise could be 

reimbursed. If the executor is able to 

establish that only a partial 

reimbursement could be collected, then 

only that portion of the potential 

reimbursement that reasonably could 

have been expected to be collected will 

reduce the estate’s deductible portion of 

the total claim or expense. An executor 

may certify that the executor neither 

knows nor reasonably should have 

known of any available reimbursement 

for a claim or expense described in 

section 2053(a) or (b) on the estate’s 

United States Estate (and GenerationSkipping Transfer) Tax Return (Form 

706), in accordance with the 

instructions for that form. A potential 

reimbursement will not reduce the 

deductible amount of a claim or expense 

to the extent that the executor, on Form 

706 and in accordance with the 

instructions for that form, provides a 

reasonable explanation for his or her 

reasonable determination that the 

burden of necessary collection efforts in 

pursuit of a right of reimbursement 

would outweigh the anticipated benefit 

from those efforts. Nevertheless, even if 

a reasonable explanation is provided, 

subsequent events (including without 

limitation an actual reimbursement) 

occurring within the period described in 

§ 20.2053–1(d)(2) will be considered in 

determining the amount (if any) of a 

reduction under this paragraph (d)(3) in 

the deductible amount of a claim or 

expense. 

(4) Exception for certain ascertainable 

amounts—(i) General rule. A deduction 

will be allowed for a claim or expense 

that satisfies all applicable requirements 

even though it is not yet paid, provided 

that the amount to be paid is 

ascertainable with reasonable certainty 

and will be paid. For example, 

executors’ commissions and attorneys’ 

fees that are not yet paid, and that meet 

the requirements for deductibility under 

§ 20.2053–3(b) and (c), respectively, are 

deemed to be ascertainable with 

reasonable certainty and may be 

deducted if such expenses will be paid. 

However, no deduction may be taken 

upon the basis of a vague or uncertain 

estimate. To the extent a claim or 

expense is contested or contingent, such 

a claim or expense cannot be 

ascertained with reasonable certainty. 

(ii) Effect of post-death events. A 

deduction under this paragraph (d)(4) 

will be allowed to the extent the 

Commissioner is reasonably satisfied 

that the amount to be paid is 

ascertainable with reasonable certainty 

and will be paid. In making this 

determination, the Commissioner will 

take into account events occurring after 

the date of a decedent’s death. To the 

extent the amount for which a 

deduction was claimed does not satisfy 

the requirements of this paragraph 

(d)(4), and is not otherwise deductible, 

the deduction will be disallowed by the 

Commissioner. If a deduction is claimed 

on Form 706 for an amount that is not 

yet paid and the deduction is 

disallowed in whole or in part (or if no 

deduction is claimed on Form 706), 

then if the claim or expense 

subsequently satisfies the requirements 

of this paragraph (d)(4) or is paid, relief 

may be sought by filing a claim for 

refund. To preserve the estate’s right to 

claim a refund for amounts becoming 

deductible after the expiration of the 

period of limitation for the filing of a 

claim for refund, a protective claim for 

refund may be filed in accordance with 

paragraph (d)(5) of this section. 

(5) Protective claim for refund—(i) In 

general. A protective claim for refund 

under this section may be filed at any 

time before the expiration of the period 

of limitation prescribed in section 

6511(a) for the filing of a claim for 

refund to preserve the estate’s right to 

claim a refund by reason of claims or 

expenses that are not paid or do not 

otherwise meet the requirements of 

deductibility under section 2053 and 

these regulations until after the 

expiration of the period of limitation for 

filing a claim for refund. Such a 

protective claim shall be made in 

accordance with guidance that may be 

provided from time to time by 

publication in the Internal Revenue 

Bulletin (see § 601.601(d)(2)(ii)(b)). 

Although the protective claim need not 

state a particular dollar amount or 

demand an immediate refund, a 

protective claim must identify each 

outstanding claim or expense that 

would have been deductible under 

section 2053(a) or (b) if such item 

already had been paid and must 

describe the reasons and contingencies 

delaying the actual payment of the 

claim or expense. Action on protective 

claims will proceed after the executor 

has notified the Commissioner within a 

reasonable period that the contingency 

has been resolved and that the amount 

deductible under § 20.2053–1 has been 

established. 

(ii) Effect on marital and charitable 

deduction. To the extent that a 

protective claim for refund is filed with 

respect to a claim or expense that would 

have been deductible under section 

2053(a) or (b) if such item already had 

been paid and that is payable out of a 

share that meets the requirements for a 


cprice-sewell on DSKGBLS3C1PROD with RULES
53660 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

charitable deduction under section 2055 

or a marital deduction under section 

2056 or section 2056A, or from a 

combination thereof, neither the 

charitable deduction nor the marital 

deduction shall be reduced by the 

amount of such claim or expense until 

the amount is actually paid or meets the 

requirements of paragraph (d)(4) of this 

section for deducting certain 

ascertainable amounts or the 

requirements of § 20.2053–4(b) or (c) for 

deducting certain claims against the 

estate. 

(6) [Reserved]. 

(7) Examples. Assume that the 

amounts described in section 2053(a) 

are payable out of property subject to 

claims and are allowable by the law of 

the jurisdiction governing the 

administration of the estate, whether the 

applicable jurisdiction is within or 

outside of the United States. Assume 

that the claims against the estate are not 

deductible under § 20.2053–4(b) or (c). 

Also assume, unless otherwise 

provided, that none of the limitations on 

the amount of the deduction described 

in this section apply to the deduction 

claimed under section 2053. The 

following examples illustrate the 

application of this paragraph (d): 

Example 1. Amount of expense 

ascertainable. Decedent’s (D’s) estate was 

probated in State. State law provides that the 

personal representative shall receive 

compensation equal to 2.5 percent of the 

value of the probate estate. The executor (E) 

may claim a deduction for estimated fees 

equal to 2.5 percent of D’s probate estate on 

the Form 706 filed for D’s estate under the 

rule for deducting certain ascertainable 

amounts set forth in paragraph (d)(4) of this 

section, provided that the estimated amount 

will be paid. However, the Commissioner 

will disallow the deduction upon 

examination of the estate’s Form 706 to the 

extent that the amount for which a deduction 

was claimed no longer satisfies the 

requirements of paragraph (d)(4) of this 

section. If this occurs, E may file a protective 

claim for refund in accordance with 

paragraph (d)(5) of this section in order to 

preserve the estate’s right to claim a refund 

for the amount of the fee that is subsequently 

paid or that subsequently meets the 

requirements of paragraph (d)(4) of this 

section for deducting certain ascertainable 

amounts. 

Example 2. Amount of claim not 

ascertainable. Prior to death, Decedent (D) is 

sued by Claimant (C) for $100x in a tort 

proceeding and responds asserting 

affirmative defenses available to D under 

applicable local law. C and D are unrelated. 

D subsequently dies and D’s Form 706 is due 

before a final judgment is entered in the case. 

The executor of D’s estate (E) may not claim 

a deduction with respect to C’s claim on D’s 

Form 706 under the special rule contained in 

paragraph (d)(4) of this section because the 

deductible amount cannot be ascertained 

with reasonable certainty. However, E may 

file a timely protective claim for refund in 

accordance with paragraph (d)(5) of this 

section in order to preserve the estate’s right 

to subsequently claim a refund at the time a 

final judgment is entered in the case and the 

claim is either paid or meets the 

requirements of paragraph (d)(4) of this 

section for deducting certain ascertainable 

amounts. 

Example 3. Amount of claim payable out 

of property qualifying for marital deduction. 

The facts are the same as in Example 2 

except that the applicable credit amount, 

under section 2010, against the estate tax was 

fully consumed by D’s lifetime gifts, D is 

survived by Spouse (S), and D’s estate passes 

entirely to S in a bequest that qualifies for the 

marital deduction under section 2056. Even 

though any amount D’s estate ultimately pays 

with respect to C’s claim will be paid from 

the assets qualifying for the marital 

deduction, in filing Form 706, E need not 

reduce the amount of the marital deduction 

claimed on D’s Form 706. Instead, pursuant 

to the protective claim filed by E, the marital 

deduction will be reduced by the claim once 

a final judgment is entered in the case. At 

that time, a deduction will be allowed for the 

amount that is either paid or meets the 

requirements of paragraph (d)(4) of this 

section for deducting certain ascertainable 

amounts. 

* * * * * 

(f) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 4. Section 20.2053–3 is amended 

by: 

■ 1. Revising paragraph (b)(1) and the 

second sentence of paragraph (b)(2). 

■ 2. Revising paragraph (c)(1) and the 

second sentence of paragraph (c)(2). 

■ 3. Revising the second sentence of 

paragraph (d)(1) and the first sentence of 

paragraph (d)(2). 

■ 4. Adding paragraphs (d)(3) and (e). 

The revisions and additions read as 

follows: 

§ 20.2053–3 Deductions for expenses of 

administering estate. 

* * * * * 

(b) Executor’s commissions—(1) 

Executors’ commissions are deductible 

to the extent permitted by § 20.2053–1 

and this section, but no deduction may 

be taken if no commissions are to be 

paid. In addition, the amount of the 

commissions claimed as a deduction 

must be in accordance with the usually 

accepted standards and practice of 

allowing such an amount in estates of 

similar size and character in the 

jurisdiction in which the estate is being 

administered, or any deviation from the 

usually accepted standards or range of 

amounts (permissible under applicable 

local law) must be justified to the 

satisfaction of the Commissioner. 

(2) * * * If, however, the terms of the 

will set forth the compensation payable 

to the executor for services to be 

rendered in the administration of the 

estate, a deduction may be taken to the 

extent that the amount so fixed does not 

exceed the compensation allowable by 

the local law or practice and to the 

extent permitted by § 20.2053–1. 

* * * * * 

(c) Attorney’s fees—(1) Attorney’s fees 

are deductible to the extent permitted 

by § 20.2053–1 and this section. Further, 

the amount of the fees claimed as a 

deduction may not exceed a reasonable 

remuneration for the services rendered, 

taking into account the size and 

character of the estate, the law and 

practice in the jurisdiction in which the 

estate is being administered, and the 

skill and expertise of the attorneys. 

(2) * * * A deduction for reasonable 

attorney’s fees actually incurred in 

contesting an asserted deficiency or in 

prosecuting a claim for refund will be 

allowed to the extent permitted by 

§ 20.2053–1 even though the deduction, 

as such, was not claimed on the estate 

tax return or in the claim for refund. 

* * * 

* * * * * 

(d) * * * 

(1) * * * Expenses necessarily 

incurred in preserving and distributing 

the estate, including the cost of storing 

or maintaining property of the estate if 

it is impossible to effect immediate 

distribution to the beneficiaries, are 

deductible to the extent permitted by 

§ 20.2053–1. * * * 

(2) Expenses for selling property of 

the estate are deductible to the extent 

permitted by § 20.2053–1 if the sale is 

necessary in order to pay the decedent’s 

debts, expenses of administration, or 

taxes, to preserve the estate, or to effect 

distribution. * * * 

(3) Expenses incurred in defending 

the estate against claims described in 

section 2053(a)(3) are deductible to the 

extent permitted by § 20.2053–1 if the 

expenses are incurred incident to the 

assertion of defenses to the claim 

available under the applicable law, even 

if the estate ultimately does not prevail. 

For purposes of this paragraph (d)(3), 

‘‘expenses incurred in defending the 

estate against claims’’ include costs 

relating to the arbitration and mediation 

of contested issues, costs associated 

with defending the estate against claims 

(whether or not enforceable), and costs 

associated with reaching a negotiated 

settlement of the issues. 

(e) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 5. Section 20.2053–4 is revised to 

read as follows: 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53661 

§ 20.2053–4 Deduction for claims against 

the estate. 

(a) In general—(1) General rule. For 

purposes of this section, liabilities 

imposed by law or arising out of 

contracts or torts are deductible if they 

meet the applicable requirements set 

forth in § 20.2053–1 and this section. To 

be deductible, a claim against a 

decedent’s estate must represent a 

personal obligation of the decedent 

existing at the time of the decedent’s 

death. Except as otherwise provided in 

paragraphs (b) and (c) of this section 

and to the extent permitted by 

§ 20.2053–1, the amounts that may be 

deducted as claims against a decedent’s 

estate are limited to the amounts of bona 

fide claims that are enforceable against 

the decedent’s estate (and are not 

unenforceable when paid) and claims 

that— 

(i) Are actually paid by the estate in 

satisfaction of the claim; or 

(ii) Meet the requirements of 

§ 20.2053–1(d)(4) for deducting certain 

ascertainable amounts. 

(2) Effect of post-death events. Events 

occurring after the date of a decedent’s 

death shall be considered in 

determining whether and to what extent 

a deduction is allowable under section 

2053. See § 20.2053–1(d)(2). 

(b) Exception for claims and 

counterclaims in related matter—(1) 

General rule. If a decedent’s gross estate 

includes one or more claims or causes 

of action and there are one or more 

claims against the decedent’s estate in 

the same or a substantially-related 

matter, or, if a decedent’s gross estate 

includes a particular asset and there are 

one or more claims against the 

decedent’s estate integrally related to 

that particular asset, the executor may 

deduct on the estate’s United States 

Estate (and Generation-Skipping 

Transfer) Tax Return (Form 706) the 

current value of the claim or claims 

against the estate, even though payment 

has not been made, provided that— 

(i) Each such claim against the estate 

otherwise satisfies the applicable 

requirements set forth in § 20.2053–1; 

(ii) Each such claim against the estate 

represents a personal obligation of the 

decedent existing at the time of the 

decedent’s death; 

(iii) Each such claim is enforceable 

against the decedent’s estate (and is not 

unenforceable when paid); 

(iv) The value of each such claim 

against the estate is determined from a 

‘‘qualified appraisal’’ performed by a 

‘‘qualified appraiser’’ within the 

meaning of section 170 of the Internal 

Revenue Code and the corresponding 

regulations; 

(v) The value of each such claim 

against the estate is subject to 

adjustment for post-death events; and 

(vi) The aggregate value of the related 

claims or assets included in the 

decedent’s gross estate exceeds 10 

percent of the decedent’s gross estate. 

(2) Limitation on deduction. The 

deduction under this paragraph (b) is 

limited to the value of the related claims 

or particular assets included in 

decedent’s gross estate. 

(3) Effect of post-death events. If, 

under this paragraph (b), a deduction is 

claimed on Form 706 for a claim against 

the estate and, during the period 

described in § 20.2053–1(d)(2), the 

claim is paid or meets the requirements 

of § 20.2053–1(d)(4) for deducting 

certain ascertainable amounts, the 

claimed deduction is subject to 

adjustment to reflect, and may not 

exceed, the amount paid on the claim or 

the amount meeting the requirements of 

§ 20.2053–1(d)(4). If, under this 

paragraph (b), a deduction is claimed on 

Form 706 for a claim against the estate 

and, during the period described in 

§ 20.2053–1(d)(2), the claim remains 

unpaid (and does not meet the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable 

amounts), the claimed deduction is 

subject to adjustment to reflect, and may 

not exceed, the current valuation of the 

claim. A valuation of the claim will be 

considered current if it reflects events 

occurring after the decedent’s death. 

With regard to any amount in excess of 

the amount deductible under this 

paragraph (b), an estate may preserve 

the estate’s right to claim a refund for 

claims that are paid or that meet the 

requirements of § 20.2053–(1)(d)(4) after 

the expiration of the period of limitation 

for filing a claim for refund by filing a 

protective claim for refund in 

accordance with the rules in § 20.2053– 

1(d)(5). 

(c) Exception for claims totaling not 

more than $500,000—(1) General rule. 

An executor may deduct on Form 706 

the current value of one or more claims 

against the estate even though payment 

has not been made on the claim or 

claims to the extent that— 

(i) Each such claim against the estate 

otherwise satisfies the applicable 

requirements for deductibility set forth 

in § 20.2053–1; 

(ii) Each such claim against the estate 

represents a personal obligation of the 

decedent existing at the time of the 

decedent’s death; 

(iii) Each such claim is enforceable 

against the decedent’s estate (and is not 

unenforceable when paid); 

(iv) The value of each such claim 

against the estate is determined from a 

‘‘qualified appraisal’’ performed by a 

‘‘qualified appraiser’’ within the 

meaning of section 170 of the Internal 

Revenue Code and the corresponding 

regulations; 

(v) The total amount deducted by the 

estate under this paragraph (c) does not 

exceed $500,000; 

(vi) The full value of each claim, 

rather than just a portion of that 

amount, must be deductible under this 

paragraph (c) and, for this purpose, the 

full value of each such claim is deemed 

to be the unpaid amount of that claim 

that is not deductible after the 

application of §§ 20.2053–1 and 

20.2053–4(b); and 

(vii) The value of each claim deducted 

under this paragraph (c) is subject to 

adjustment for post-death events. 

(2) Effect of post-death events. If, 

under this paragraph (c), a deduction is 

claimed for a claim against the estate 

and, during the period described in 

§ 20.2053–1(d)(2), the claim is paid or 

meets the requirements of § 20.2053– 

1(d)(4) for deducting certain 

ascertainable amounts, the amount of 

the allowable deduction for that claim is 

subject to adjustment to reflect, and may 

not exceed, the amount paid on the 

claim or the amount meeting the 

requirements of § 20.2053–1(d)(4). If, 

under this paragraph (c), a deduction is 

claimed for a claim against the estate 

and, during the period described in 

§ 20.2053–1(d)(2), the claim remains 

unpaid (and does not meet the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable 

amounts), the amount of the allowable 

deduction for that claim is subject to 

adjustment to reflect, and may not 

exceed, the current value of the claim. 

The value of the claim will be 

considered current if it reflects events 

occurring after the decedent’s death. To 

claim a deduction for amounts in excess 

of the amount deductible under this 

paragraph (c), the estate may preserve 

the estate’s right to claim a refund for 

claims that are not paid or that do not 

meet the requirements of § 20.2053– 

1(d)(4) until after the expiration of the 

period of limitation for the filing of a 

claim for refund by filing a protective 

claim for refund in accordance with the 

rules in § 20.2053–1(d)(5). 

(3) Examples. The following examples 

illustrate the application of this 

paragraph (c). Assume that the value of 

each claim is determined from a 

‘‘qualified appraisal’’ performed by a 

‘‘qualified appraiser’’ and reflects events 

occurring after the death of the decedent 

(D). Also assume that each claim 

represents a personal obligation of D 

that existed at D’s death, that each claim 

is enforceable against the decedent’s 


cprice-sewell on DSKGBLS3C1PROD with RULES
53662 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

estate (and is not unenforceable when 

paid), and that each claim otherwise 

satisfies the requirements for 

deductibility of § 20.2053–1. 

Example 1. There are three claims against 

the estate of the decedent (D) that are not 

paid and are not deductible under § 20.2053– 

1(d)(4) or paragraph (b) of this section: 

$25,000 of Claimant A, $35,000 of Claimant 

B, and $1,000,000 of Claimant C. The 

executor of D’s estate (E) may not claim a 

deduction under this paragraph with respect 

to any portion of the claim of Claimant C 

because the value of that claim exceeds 

$500,000. E may claim a deduction under 

this paragraph for the total amount of the 

claims filed by Claimant A and Claimant B 

($60,000) because the aggregate value of the 

full amount of those claims does not exceed 

$500,000. 

Example 2. There are three claims against 

the estate of the decedent (D) that are not 

paid and are not deductible under § 20.2053– 

1(d)(4) or paragraph (b) of this section; 

specifically, a separate $200,000 claim of 

each of three claimants, A, B and C. The 

executor of D’s estate (E) may claim a 

deduction under this paragraph for any two 

of these three claims because the aggregate 

value of the full amount of any two of the 

claims does not exceed $500,000. E may not 

deduct any part of the value of the remaining 

claim under this paragraph because the 

aggregate value of the full amount of all three 

claims would exceed $500,000. 

Example 3. As a result of an automobile 

accident involving the decedent (D) and A, 

D’s gross estate includes a claim against A 

that is valued at $750,000. In the same 

matter, A files a counterclaim against D’s 

estate that is valued at $1,000,000. A’s claim 

against D’s estate is not paid and is not 

deductible under § 20.2053–1(d)(4). All other 

section 2053 claims and expenses of D’s 

estate have been paid and are deductible. The 

executor of D’s estate (E) deducts $750,000 of 

A’s claim against the estate under § 20.2053– 

4(b). E may claim a deduction under this 

paragraph (c) for the total value of A’s claim 

not deducted under § 20.2053–4(b), or 

$250,000. If, instead, the value of A’s claim 

against D’s estate is $1,500,000, so that the 

amount not deductible under § 20.2053–4(b) 

exceeds $500,000, no deduction is available 

under this paragraph (c). 

(d) Special rules—(1) Potential and 

unmatured claims. Except as provided 

in § 20.2053–1(d)(4) and in paragraphs 

(b) and (c) of this section, no estate tax 

deduction may be taken for a claim 

against the decedent’s estate while it 

remains a potential or unmatured claim. 

Claims that later mature may be 

deducted (to the extent permitted by 

§ 20.2053–1) in connection with a 

timely claim for refund. To preserve the 

estate’s right to claim a refund for 

claims that mature and become 

deductible after the expiration of the 

period of limitation for filing a claim for 

refund, a protective claim for refund 

may be filed in accordance with 

§ 20.2053–1(d)(5). See § 20.2053–1(b)(3) 

for rules relating to the treatment of 

court decrees and settlements. 

(2) Contested claims. Except as 

provided in paragraphs (b) and (c) of 

this section, no estate tax deduction 

may be taken for a claim against the 

decedent’s estate to the extent the estate 

is contesting the decedent’s liability. 

Contested claims that later mature may 

be deducted (to the extent permitted by 

§ 20.2053–1) in connection with a claim 

for refund filed within the time 

prescribed in section 6511(a). To 

preserve the estate’s right to claim a 

refund for claims that mature and 

become deductible after the expiration 

of the period of limitation for filing a 

claim for refund, a protective claim for 

refund may be filed in accordance with 

§ 20.2053–1(d)(5). See § 20.2053–1(b)(3) 

for rules relating to the treatment of 

court decrees and settlements. 

(3) Claims against multiple parties. If 

the decedent or the decedent’s estate is 

one of two or more parties against 

whom the claim is being asserted, the 

estate may deduct only the portion of 

the total claim due from and paid by the 

estate, reduced by the total of any 

reimbursement received from another 

party, insurance, or otherwise. The 

estate’s deductible portion also will be 

reduced by the contribution or other 

amount the estate could have collected 

from another party or an insurer but 

which the estate declines or fails to 

attempt to collect. See further 

§ 20.2053–1(d)(2). 

(4) Unenforceable claims. Claims that 

are unenforceable prior to or at the 

decedent’s death are not deductible, 

even if they are actually paid. Claims 

that become unenforceable during the 

administration of the estate are not 

deductible to the extent that they are 

paid (or will be paid) after they become 

unenforceable. However, see § 20.2053– 

1(b)(3)(iv) regarding a claim whose 

enforceability is at issue. 

(5) Claims founded upon a promise. 

Except with regard to pledges or 

subscriptions (see § 20.2053–5), section 

2053(c)(1)(A) provides that the 

deduction for a claim founded upon a 

promise or agreement is limited to the 

extent that the promise or agreement 

was bona fide and in exchange for 

adequate and full consideration in 

money or money’s worth; that is, the 

promise or agreement must have been 

bargained for at arm’s length and the 

price must have been an adequate and 

full equivalent reducible to a money 

value. 

(6) Recurring payments—(i) 

Noncontingent obligations. If a decedent 

is obligated to make recurring payments 

on an enforceable and certain claim that 

satisfies the requirements for 

deductibility under this section and the 

payments are not subject to a 

contingency, the amount of the claim 

will be deemed ascertainable with 

reasonable certainty for purposes of the 

rule for deducting certain ascertainable 

amounts set forth in § 20.2053–1(d)(4). If 

the recurring payments will be paid, a 

deduction will be allowed under the 

rule for deducting certain ascertainable 

amounts set forth in § 20.2053–1(d)(4) 

(subject to any applicable limitations in 

§ 20.2053–1). Recurring payments for 

purposes of this section exclude those 

payments made in connection with a 

mortgage or indebtedness described in 

and governed by § 20.2053–7. If a 

decedent’s obligation to make a 

recurring payment is contingent on the 

death or remarriage of the claimant and 

otherwise satisfies the requirements of 

this paragraph (d)(6)(i), the amount of 

the claim (measured according to 

actuarial principles, using factors set 

forth in the transfer tax regulations or 

otherwise provided by the IRS) will be 

deemed ascertainable with reasonable 

certainty for purposes of the rule for 

deducting certain ascertainable amounts 

set forth in § 20.2053–1(d)(4). 

(ii) Contingent obligations. If a 

decedent has a recurring obligation to 

pay an enforceable and certain claim but 

the decedent’s obligation is subject to a 

contingency or is not otherwise 

described in paragraph (d)(6)(i) of this 

section, the amount of the claim is not 

ascertainable with reasonable certainty 

for purposes of the rule for deducting 

certain ascertainable amounts set forth 

in § 20.2053–1(d)(4). Accordingly, the 

amount deductible is limited to 

amounts actually paid by the estate in 

satisfaction of the claim in accordance 

with § 20.2053–1(d)(1) (subject to any 

applicable limitations in § 20.2053–1). 

(iii) Purchase of commercial annuity 

to satisfy recurring obligation to pay. If 

a decedent has a recurring obligation 

(whether or not contingent) to pay an 

enforceable and certain claim and the 

estate purchases a commercial annuity 

from an unrelated dealer in commercial 

annuities in an arm’s-length transaction 

to satisfy the obligation, the amount 

deductible by the estate (subject to any 

applicable limitations in § 20.2053–1) is 

the sum of— 

(A) The amount paid for the 

commercial annuity, to the extent that 

the amount paid is not refunded, or 

expected to be refunded, to the estate; 

(B) Any amount actually paid to the 

claimant by the estate prior to the 

purchase of the commercial annuity; 

and 

(C) Any amount actually paid to the 

claimant by the estate in excess of the 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53663 

annuity amount as is necessary to 

satisfy the recurring obligation. 

(7) Examples. The following examples 

illustrate the application of paragraph 

(d) of this section. Except as is 

otherwise provided in the examples, 

assume— 

(i) A claim satisfies the applicable 

requirements set forth in § 20.2053–1 

and paragraph (a) of this section, is 

payable from property subject to claims, 

and the amount of the claim is not 

subject to any other applicable 

limitations in § 20.2053–1; 

(ii) A claim is not deductible under 

paragraphs (b) or (c) of this section as an 

exception to the general rule contained 

in paragraph (a) of this section; and 

(iii) The claimant (C) is not a family 

member, related entity or beneficiary of 

the estate of decedent (D) and is not the 

executor (E). 

Example 1. Contested claim, single 

defendant, no decision. D is sued by C for 

$100x in a tort proceeding and responds 

asserting affirmative defenses available to D 

under applicable local law. D dies and E is 

substituted as defendant in the suit. D’s Form 

706 is due before a judgment is reached in 

the case. D’s gross estate exceeds $100x. E 

may not take a deduction on Form 706 for 

the claim against the estate. However, E may 

claim a deduction under § 20.2053–3(c) or 

§ 20.2053–3(d)(3) for expenses incurred in 

defending the estate against the claim if the 

expenses have been paid in accordance with 

§ 20.2053–1(d)(1) or if the expenses meet the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable amounts. E 

may file a protective claim for refund before 

the expiration of the period of limitation 

prescribed in section 6511(a) in order to 

preserve the estate’s right to claim a refund, 

if the amount of the claim will not be paid 

or cannot be ascertained with reasonable 

certainty by the expiration of this limitation 

period. If payment is subsequently made 

pursuant to a court decision or a settlement, 

the payment, as well as expenses incurred 

incident to the claim and not previously 

deducted, may be deducted and relief may be 

sought in connection with a timely-filed 

claim for refund. 

Example 2. Contested claim, single 

defendant, final court decree and payment. 

The facts are the same as in Example 1 

except that, before the Form 706 is timely 

filed, the court enters a decision in favor of 

C, no timely appeal is filed, and payment is 

made. E may claim a deduction on Form 706 

for the amount paid in satisfaction of the 

claim against the estate pursuant to the final 

decision of the local court, including any 

interest accrued prior to D’s death. In 

addition, E may claim a deduction under 

§ 20.2053–3(c) or § 20.2053–3(d)(3) for 

expenses incurred in defending the estate 

against the claim and in processing payment 

of the claim if the expenses have been paid 

in accordance with § 20.2053–1(d)(1) or if the 

expenses meet the requirements of 

§ 20.2053–1(d)(4) for deducting certain 

ascertainable amounts. 

Example 3. Contested claim, single 

defendant, settlement and payment. The 

facts are the same as in Example 1 except that 

a settlement is reached between E and C for 

$80x and payment is made before Form 706 

is timely filed. E may claim a deduction on 

Form 706 for the amount paid to C ($80x) in 

satisfaction of the claim against the estate. In 

addition, E may claim a deduction under 

§ 20.2053–3(c) or § 20.2053–3(d)(3) for 

expenses incurred in defending the estate, 

reaching a settlement, and processing 

payment of the claim if the expenses have 

been paid in accordance with § 20.2053– 

1(d)(1) or if the expenses meet the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable amounts. 

Example 4. Contested claim, multiple 

defendants. The facts are the same as in 

Example 1 except that the suit filed by C lists 

D and an unrelated third-party (K) as 

defendants. If the claim against the estate is 

not resolved prior to the time the Form 706 

is filed, E may not take a deduction for the 

claim on Form 706. If payment is 

subsequently made of D’s share of the claim 

pursuant to a court decision holding D liable 

for 40 percent of the amount due and K liable 

for 60 percent of the amount due, then E may 

claim a deduction for the amount paid in 

satisfaction of the claim against the estate 

representing D’s share of the liability as 

assigned by the court decree ($40x), plus any 

interest on that share accrued prior to D’s 

death. If the court decision finds D and K 

jointly and severally liable for the entire 

$100x and D’s estate pays the entire $100x 

but could have reasonably collected $50x 

from K in reimbursement, E may claim a 

deduction of $50x together with the interest 

on $50x accrued prior to D’s death. In both 

instances, E also may claim a deduction 

under § 20.2053–3(c) or § 20.2053–3(d)(3) for 

expenses incurred and not previously 

deducted in defending the estate against the 

claim and processing payment of the amount 

due from D if the expenses have been paid 

in accordance with § 20.2053–1(d)(1) or if the 

expenses meet the requirements of 

§ 20.2053–1(d)(4) for deducting certain 

ascertainable amounts. 

Example 5. Contested claim, multiple 

defendants, settlement and payment. The 

facts are the same as in Example 1 except that 

the suit filed by C lists D and an unrelated 

third-party (K) as defendants. D’s estate 

settles with C for $10x and payment is made 

before Form 706 is timely filed. E may take 

a deduction on Form 706 for the amount paid 

to C ($10x) in satisfaction of the claim against 

the estate. In addition, E may claim a 

deduction under § 20.2053–3(c) or § 20.2053– 

3(d)(3) for expenses incurred in defending 

the estate, reaching a settlement, and 

processing payment of the claim if the 

expenses have been paid in accordance with 

§ 20.2053–1(d)(1) or if the expenses meet the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable amounts. 

Example 6. Mixed claims. During life, D 

contracts with C to perform specific work on 

D’s home for $75x. Under the contract, 

additional work must be approved in 

advance by D. C performs additional work 

and sues D for $100x for work completed 

including the $75x agreed to in the contract. 

D dies and D’s Form 706 is due before a 

judgment is reached in the case. E accepts 

liability of $75x but contests liability of $25x. 

E may take a deduction of $75x on Form 706 

if the amount has been paid or meets the 

requirements of § 20.2053–1(d)(4) for 

deducting certain ascertainable amounts. In 

addition, E may claim a deduction under 

§ 20.2053–3(c) or § 20.2053–3(d)(3) for 

expenses incurred in defending the estate 

against the claim if the expenses have been 

paid or if the expenses meet the requirements 

of § 20.2053–1(d)(4) for deducting certain 

ascertainable amounts. E may file a 

protective claim for refund before the 

expiration of the period of limitation 

prescribed in section 6511(a) in order to 

preserve the estate’s right to claim a refund 

for any amount in excess of $75x that is 

subsequently paid to resolve the claim 

against the estate. To the extent that any 

unpaid expenses incurred in defending the 

estate against the claim are not deducted as 

an ascertainable amount pursuant to 

§ 20.2053–1(d)(4), they may be included in 

the protective claim for refund. 

Example 7. Claim having issue of 

enforceability. D is sued by C for $100x in a 

tort proceeding in which there is an issue as 

to whether the claim is barred by the 

applicable period of limitations. After D’s 

death but prior to the decision of the court, 

a settlement meeting the requirements of 

§ 20.2053–1(b)(3)(iv) is reached between E 

and C in the amount of $50x. E pays C this 

amount before the Form 706 is timely filed. 

E may take a deduction on Form 706 for the 

amount paid to C ($50x) in satisfaction of the 

claim. If, subsequent to E’s payment to C, 

facts develop to indicate that the claim was, 

in fact, unenforceable, the deduction will not 

be denied provided the enforceability of the 

claim was at issue in a bona dispute at the 

time of the payment. See § 20.2053– 

1(b)(3)(iv). A deduction may be available 

under § 20.2053–3(d)(3) for expenses 

incurred in defending the estate, reaching a 

settlement, and processing payment of the 

claim if the expenses have been paid in 

accordance with § 20.2053–1(d)(1) or if the 

expenses meet the requirements of 

§ 20.2053–1(d)(4) for deducting certain 

ascertainable amounts. 

Example 8. Noncontingent and recurring 

obligation to pay, binding on estate. D’s 

property settlement agreement incident to D’s 

divorce, signed three years prior to D’s death, 

obligates D or D’s estate to pay to S, D’s 

former spouse, $20x per year until S’s death 

or remarriage. Prior to D’s death, D made 

payments in accordance with the agreement 

and, after D’s death, E continues to make the 

payments in accordance with the agreement. 

D’s obligation to pay S under the property 

settlement agreement is deemed to be a claim 

against the estate that is ascertainable with 

reasonable certainty for purposes of 

§ 20.2053–1(d)(4). To the extent the 

obligation to make the recurring payment is 

a claim that will be paid, E may deduct the 

amount of the claim (measured according to 

actuarial principles, using factors set forth in 

the transfer tax regulations or otherwise 

provided by the IRS) under the rule for 

deducting certain ascertainable amounts set 

forth in § 20.2053–1(d)(4). 


cprice-sewell on DSKGBLS3C1PROD with RULES
53664 Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 

Example 9. Recurring obligation to pay, 

estate purchases a commercial annuity in 

satisfaction. D’s settlement agreement with T, 

the claimant in a suit against D, signed three 

years prior to D’s death, obligates D or D’s 

estate to pay to T $20x per year for 10 years, 

provided that T does not reveal the details of 

the claim or of the settlement during that 

period. D dies in Year 1. In Year 2, D’s estate 

purchases a commercial annuity from an 

unrelated issuer of commercial annuities, 

XYZ, to fund the obligation to T. E may 

deduct the entire amount paid to XYZ to 

obtain the annuity, even though the 

obligation to T was contingent. 

(e) Interest on claim—(1) Subject to 

any applicable limitations in § 20.2053– 

1, the interest on a deductible claim is 

itself deductible as a claim under 

section 2053 to the extent of the amount 

of interest accrued at the decedent’s 

death (even if the executor elects the 

alternate valuation method under 

section 2032), but only to the extent of 

the amount of interest actually paid or 

meeting the requirements of § 20.2053– 

1(d)(4) for deducting certain 

ascertainable amounts. 

(2) Post-death accrued interest may be 

deductible in appropriate circumstances 

either as an estate tax administration 

expense under section 2053 or as an 

income tax deduction. 

(f) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 6. Section 20.2053–5 is amended 

by: 

■ 1. Redesignating paragraphs (a) and 

(b) as (a)(1) and (a)(2). 

■ 2. Redesignating the introductory text 

as paragraph (a). 

■ 3. Revising newly redesignated 

paragraph (a). 

■ 4. Adding a new paragraph (b). 

The revision and addition read as 

follows: 

§ 20.2035–5 Deductions for charitable, 

etc., pledges or subscriptions. 

(a) A pledge or a subscription, 

evidenced by a promissory note or 

otherwise, even though enforceable 

against the estate, is deductible (subject 

to any applicable limitations in 

§ 20.2053–1) only to the extent that— 

* * * * * 

(b) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 7. Section 20.2053–6 is amended 

by: 

■ 1. Revising paragraphs (a) and (c). 

■ 2. Adding paragraphs (g) and (h). 

The revisions and additions read as 

follows: 

§ 20.2053–6 Deduction for taxes. 

(a) In general—(1) Taxes are 

deductible in computing a decedent’s 

gross estate— 

(i) Only as claims against the estate 

(except to the extent that excise taxes 

may be allowable as administration 

expenses); 

(ii) Only to the extent not disallowed 

by section 2053(c)(1)(B) and this 

section; and 

(iii) Subject to any applicable 

limitations in § 20.2053–1. 

(2) See §§ 20.2053–9 and 20.2053–10 

with respect to the deduction allowed 

for certain state and foreign death taxes. 

* * * * * 

(c) Death taxes—(1) For the estates of 

decedents dying on or before December 

31, 2004, no estate, succession, legacy or 

inheritance tax payable by reason of the 

decedent’s death is deductible, except 

as provided in §§ 20.2053–9 and 

20.2053–10 with respect to certain state 

and foreign death taxes on transfers for 

charitable, etc., uses. However, see 

sections 2011 and 2014 and the 

corresponding regulations with respect 

to credits for death taxes. 

(2) For the estates of decedents dying 

after December 31, 2004, see section 

2058 to determine the deductibility of 

state death taxes. 

* * * * * 

(g) Post-death adjustments of 

deductible tax liability. Post-death 

adjustments increasing a tax liability 

accrued prior to the decedent’s death, 

including increases of taxes deducted 

under this section, will increase the 

amount of the deduction available 

under section 2053(a)(3) for that tax 

liability. Similarly, any refund 

subsequently determined to be due to 

and received by the estate or its 

successor in interest with respect to 

taxes deducted by the estate under this 

section reduce the amount of the 

deduction taken for that tax liability 

under section 2053(a)(3). Expenses 

associated with defending the estate 

against the increase in tax liability or 

with obtaining the refund may be 

deductible under § 20.2053–3(d)(3). A 

protective claim for refund of estate 

taxes may be filed before the expiration 

of the period of limitation for filing a 

claim for refund in order to preserve the 

estate’s right to claim a refund if the 

amount of a deductible tax liability may 

be affected by such an adjustment or 

refund. The application of this section 

may be illustrated by the following 

examples: 

Example 1. Increase in tax due. After the 

decedent’s death, the Internal Revenue 

Service examines the gift tax return filed by 

the decedent in the year before the 

decedent’s death and asserts a deficiency of 

$100x. The estate pays attorney’s fees of $30x 

in a non-frivolous defense against the 

increased deficiency. The final determination 

of the deficiency, in the amount of $90x, is 

paid by the estate prior to the expiration of 

the limitation period for filing a claim for 

refund. The estate may deduct $90x under 

section 2053(a)(3) and $30x under § 20.2053– 

3(c)(2) or (d)(3) in connection with a timely 

claim for refund. 

Example 2. Refund of taxes paid. 

Decedent’s estate timely files D’s individual 

income tax return for the year in which the 

decedent died. The estate timely pays the 

entire amount of the tax due, $50x, as shown 

on that return. The entire $50x was 

attributable to income received prior to the 

decedent’s death. Decedent’s estate 

subsequently discovers an error on the 

income tax return and timely files a claim for 

refund of income tax. Decedent’s estate 

receives a refund of $10x. The estate is 

allowed a deduction of only $40x under 

section 2053(a)(3) for the income tax liability 

accrued prior to the decedent’s death. If D’s 

estate had claimed a deduction of $50x on 

D’s United States Estate (and GenerationSkipping Transfer) Tax Return (Form 706), 

the deduction claimed under section 

2053(a)(3) will be allowed only to the extent 

of $40x upon examination by the 

Commissioner. 

(h) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

■ Par. 8. Section 20.2053–9 is amended 

by: 

■ 1. Adding a sentence at the end of 

paragraph (a). 

■ 2. Revising the first and last sentences 

of paragraph (c). 

■ 3. Adding paragraph (f). 

The revisions and addition read as 

follows: 

§ 20.2053–9 Deduction for certain State 

death taxes. 

(a) * * * However, see section 2058 

to determine the deductibility of state 

death taxes by estates to which section 

2058 is applicable. 

* * * * * 

(c) * * * The election to take a 

deduction for a state death tax imposed 

upon a transfer for charitable, etc., uses 

shall be exercised by the executor by the 

filing of a written notification to that 

effect with the Commissioner. * * * 

The election may be revoked by the 

executor by the filing of a written 

notification to that effect with the 

Commissioner at any time before the 

expiration of such period. 

* * * * * 

(f) Effective/applicability date—(1) 

The last sentence of paragraph (a) of this 

section applies to the estates of 

decedents dying on or after October 20, 

2009, to which section 2058 is 

applicable. 


cprice-sewell on DSKGBLS3C1PROD with RULES
Federal Register / Vol. 74, No. 201 / Tuesday, October 20, 2009 / Rules and Regulations 53665 

(2) The other provisions of this 

section apply to the estates of decedents 

dying on or after October 20, 2009, to 

which section 2058 is not applicable. 

■ Par. 9. Section 20.2053–10 is 

amended by removing the language 

‘‘district director’’ and adding the 

language ‘‘Commissioner’’ in its place in 

paragraph (c) and by adding a new 

paragraph (e) to read as follows: 

§ 20.2053–10 Deduction for certain foreign 

death taxes. 

* * * * * 

(e) Effective/applicability date. This 

section applies to the estates of 

decedents dying on or after October 20, 

2009. 

Linda E. Stiff, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: October 14, 2009. 

Michael F. Mundaca, 

Acting Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. E9–25138 Filed 10–16–09; 11:15 

am] 

BILLING CODE 4830–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 73 

[DA 09–2190; MB Docket No. 09–160; RM– 

11558] 

Television Broadcasting Services; 

Traverse City, MI 

AGENCY: Federal Communications 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commission grants a 

petition for rulemaking filed by 

Barrington Traverse City License LLC, 

the permittee of station WPBN–TV, 

channel 7, Traverse City, Michigan, 

requesting the substitution of channel 

47 for its allotted channel 7 at Traverse 

City. 

DATES: This rule is effective October 20, 

2009. 

FOR FURTHER INFORMATION CONTACT: 

David J. Brown, Media Bureau, (202) 

418–1600. 

SUPPLEMENTARY INFORMATION: This is a 

synopsis of the Commission’s Report 

and Order, MB Docket No. 09–160, 

adopted October 7, 2009, and released 

October 8, 2009. The full text of this 

document is available for public 

inspection and copying during normal 

business hours in the FCC’s Reference 

Information Center at Portals II, CY– 

A257, 445 12th Street, SW., 

Washington, DC 20554. This document 

will also be available via ECFS (http:// 

www.fcc.gov/cgb/ecfs/). (Documents 

will be available electronically in ASCII, 

Word 97, and/or Adobe Acrobat.) This 

document may be purchased from the 

Commission’s duplicating contractor, 

Best Copy and Printing, Inc., 445 12th 

Street, SW., Room CY–B402, 

Washington, DC 20554, telephone 1– 

800–478–3160 or via e-mail http:// 

www.BCPIWEB.com. To request this 

document in accessible formats 

(computer diskettes, large print, audio 

recording, and Braille), send an e-mail 

to fcc504@fcc.gov or call the 

Commission’s Consumer and 

Governmental Affairs Bureau at (202) 

418–0530 (voice), (202) 418–0432 

(TTY). This document does not contain 

information collection requirements 

subject to the Paperwork Reduction Act 

of 1995, Public Law 104–13. In addition, 

therefore, it does not contain any 

information collection burden ‘‘for 

small business concerns with fewer than 

25 employees,’’ pursuant to the Small 

Business Paperwork Relief Act of 2002, 

Public Law 107–198, see 44 U.S.C. 

3506(c)(4). Provisions of the Regulatory 

Flexibility Act of 1980 do not apply to 

this proceeding. 

The Commission will send a copy of 

this Report and Order in a report to be 

sent to Congress and the Government 

Accountability Office pursuant to the 

Congressional Review Act, see 5 U.S.C. 

801(a)(1)(A). 

List of Subjects in 47 CFR Part 73 

Television, Television broadcasting. 

■ For the reasons discussed in the 

preamble, the Federal Communications 

Commission amends 47 CFR part 73 as 

follows: 

PART 73—RADIO BROADCAST 

SERVICES 

■ 1. The authority citation for part 73 

continues to read as follows: 

Authority: 47 U.S.C. 154, 303, 334, 336. 

§ 73.622 [Amended] 

■ 2. Section 73.622(i), the PostTransition Table of DTV Allotments 

under Michigan, is amended by adding 

channel 47 and removing channel 7 at 

Traverse City. 

Federal Communications Commission. 

Clay C. Pendarvis, 

Associate Chief, Video Division, Media 

Bureau. 

[FR Doc. E9–25234 Filed 10–19–09; 8:45 am] 

BILLING CODE 6712–01–P 

DEPARTMENT OF THE INTERIOR 

Fish and Wildlife Service 

50 CFR Part 20 

[Docket No. FWS–R9–MB–2009–0003; 

91200–1231–9BPP] 

RIN 1018–AW46 

Migratory Bird Hunting; Approval of 

Tungsten-Iron-Fluoropolymer Shot 

Alloys as Nontoxic for Hunting 

Waterfowl and Coots; Availability of 

Final Environmental Assessment 

AGENCY: Fish and Wildlife Service, 

Interior. 

ACTION: Final rule; availability of final 

environmental assessment. 

SUMMARY: We, the U.S. Fish and 

Wildlife Service, approve tungsten-ironfluoropolymer shot alloys for hunting 

waterfowl and coots. Having completed 

our review of the application materials, 

we have concluded that these alloys are 

very unlikely to adversely affect fish, 

wildlife, or their habitats. We therefore 

add this shot type to the list of those 

approved for hunting waterfowl and 

coots. 

DATES: This rule is effective on October 

20, 2009. 

ADDRESSES: You can view the final 

environmental assessment for this 

action on http://www.regulations.gov, or 

you can obtain a copy by contacting the 

person listed under FOR FURTHER

INFORMATION CONTACT. 

FOR FURTHER INFORMATION CONTACT: 

George T. Allen, Division of Migratory 

Bird Management, 703–358–1825. 

SUPPLEMENTARY INFORMATION: 

Background 

The Migratory Bird Treaty Act of 1918 

(Act) (16 U.S.C. 703–711) and the Fish 

and Wildlife Improvement Act of 1978 

(16 U.S.C. 712) implement migratory 

bird treaties between the United States 

and Great Britain for Canada (1916, 

amended), Mexico (1936, amended), 

Japan (1972, amended), and Russia 

(then the Soviet Union, 1978). These 

treaties protect certain migratory birds 

from take, except as permitted under the 

Acts. The Acts authorize the Secretary 

of the Interior to regulate take of 

migratory birds in the United States. 

Under this authority, we control 

hunting of migratory game birds through 

regulations in 50 CFR part 20. 

Deposition of toxic shot and release of 

toxic shot components in waterfowl 

hunting locations are potentially 

harmful to many organisms. Research 

has shown that ingested spent lead shot 


cprice-sewell on DSKGBLS3C1PROD with RULES