§ 20.2056A-6 - Amount of tax.

§ 20.2056A-6 Amount of tax.

(a) Definition of tax. Section 2056A(b)(2) provides for the computation of the section 2056A estate tax. For purposes of sections 2056A(b)(2)(A) (i) and (ii), in determining the tax that would have been imposed under section 2001 on the estate of the first decedent, the rates in effect on the date of the first decedent's death are used. For this purpose, the provisions of section 2001(c)(2) (pertaining to phaseout of graduated rates and unified credit) apply. In addition, for purposes of sections 2056A(b)(2)(A) (i) and (ii), the tax which would have been imposed by section 2001 on the estate of the decedent means the net tax determined under section 2001 or 2101, as the case may be, after allowance of any allowable credits, including the unified credit allowable under section 2010, the credit for state death taxes under section 2011, the credit for tax on prior transfers under section 2013, and the credit for foreign death taxes under section 2014. See paragraph (b)(4) of this section regarding the application of the credits under sections 2011 and 2014. In the case of a decedent nonresident not a citizen of the United States, the applicable credits are determined under section 2102. The estate tax (net of any applicable credits) imposed under section 2056A(b)(1) constitutes an estate tax for purposes of section 691(c)(2)(A).

(b) Benefits allowed in determining amount of section 2056A estate tax -

(1) General rule. Section 2056A(b)(10) provides for the allowance of certain benefits in computing the section 2056A estate tax. Except as provided in this section, the rules of each of the credit, deduction and deferral provisions, as provided in the Internal Revenue Code must be complied with.

(2) Treatment as resident. For purposes of section 2056A(b)(10)(A), a noncitizen spouse is treated as a resident of the United States for purposes of determining whether the QDOT property is includible in the spouse's gross estate under chapter 11 of the Internal Revenue Code, and for purposes of determining whether any of the credits, deductions or deferral provisions are allowable with respect to the QDOT property to the estate of the spouse.

(3) Special rule in the case of trusts described in section 2056(b)(8). In the case of a QDOT in which the spouse's interest qualifies for a marital deduction under section 2056(b)(8), the provisions of section 2056A(b)(10)(A) apply in determining the allowance of a charitable deduction in computing the section 2056A estate tax, notwithstanding that the QDOT is not includible in the spouse's gross estate.

(4) Credit for state and foreign death taxes. If the assets of the QDOT are included in the surviving spouse's gross estate for federal estate tax purposes, or would have been so includible if the spouse had been a United States resident, and state or foreign death taxes are paid by the spouse's estate with respect to the QDOT, the taxes paid by the spouse's estate with respect to the QDOT are creditable, to the extent allowable under section 2011 or 2014, as applicable, in computing the section 2056A estate tax. In addition, state or foreign death taxes previously paid by the decedent/transferor's estate are also creditable in computing the section 2056A estate tax to the extent allowable under sections 2011 and 2014. Specifically, the tax that would have been imposed on the decedent's estate if the taxable estate had been increased by the value of the QDOT assets on the spouse's death plus the amount involved in prior taxable events (section 2056A(b)(2)(A)(i)), is determined after allowance of a credit equal to the lesser of the state or foreign death tax previously paid by the decedent's estate, or the amount prescribed under section 2011(b) or 2014(b) computed based on a taxable estate increased by such amounts. Similarly, the tax that would have been imposed on the decedent's estate if the taxable estate had been increased only by the amount involved in prior taxable events (section 2056A(b)(2)(A)(ii)) is determined after allowance of a credit equal to the lesser of the state or foreign death tax previously paid by the decedent's estate, or the amount prescribed under section 2011(b) or 2014(b) computed based on a taxable estate increased by the amount involved in such prior taxable events. See paragraph (d), Example 2, of this section.

(5) Alternate valuation and special use valuation -

(i) In general. In order to claim the benefits of alternate valuation under section 2032, or special use valuation under section 2032A, for purposes of computing the section 2056A estate tax, an election must be made on the Form 706-QDT that is filed with respect to the balance remaining in the QDOT upon the death of the surviving spouse. In addition, the separate requirements for making the section 2032 and/or section 2032A elections under those sections and the regulations thereunder must be complied with except that, for this purpose, the surviving spouse is treated as a resident of the United States regardless of the surviving spouse's actual residency status. Solely for purposes of this paragraph (b)(5), the citizenship of the first decedent is immaterial.

(ii) Alternate valuation. For purposes of the alternate valuation election under section 2032, the election may not be made unless the election decreases both the value of the property remaining in the QDOT upon the death of the surviving spouse and the net amount of section 2056A estate tax due. Once made, the election is irrevocable.

(iii) Special use valuation. For purposes of section 2032A, the Designated Filer (in the case of multiple QDOTs) or the U.S. Trustee may elect to value certain farm and closely held business real property at its farm or business use value, rather than its fair market value, if all of the requirements under section 2032A and the applicable regulations are met, except that, for this purpose, the surviving spouse is treated as a resident of the United States regardless of the spouse's actual residency status. The total value of property valued under section 2032A in the QDOT cannot be decreased from fair market value by more than $750,000.

(c) Miscellaneous rules. See sections 2056A(b)(2)(B)(i) and 2056A(b)(2)(C) for special rules regarding the appropriate rate of tax. See section 2056A(b)(2)(B)(ii) for provisions regarding a credit or refund with respect to the section 2056A estate tax.

(d) Examples. The rules of this section are illustrated by the following examples.

Example 1.

(i) D, a United States citizen, dies in 1995 a resident of State X, with a gross estate of $1,200,000. Under D's will, a pecuniary bequest of $700,000 passes to a QDOT for the benefit of D's spouse S, who is a resident but not a citizen of the United States. D's estate tax is computed as follows:

Gross estate	$1,200,000
Marital Deduction	(700,000)
Taxable Estate	$500,000
Gross Tax		$155,800
Less: Unified Credit		(155,800)
Net Tax		0

(ii) S dies in 1997 at which time S is still a resident of the United States and the value of the assets of the QDOT is $700,000. Assuming there were no taxable events during S's lifetime with respect to the QDOT, the estate tax imposed under section 2056A(b)(1)(B) is $235,000, computed as follows:

D's actual taxable estate	$500,000
QDOT property	700,000
Total	$1,200,000
Gross Tax		$427,800
Less: Unified Credit		(192,800)
Net Tax		§ 235,000
Less: Tax that would have been imposed on D's actual taxable estate of $500,000		0
Section 2056A Estate Tax		$235,000

Example 2.

(i) The facts are the same as in Example 1, except that D's gross estate was $2,000,000 and D's estate paid $70,000 in state death taxes to State X. D's estate tax is computed as follows:

Gross Estate	$2,000,000
Marital Deduction	(700,000)
Taxable Estate	$1,300,000
Gross Tax			$469,800
Less: Unified Credit		192,800
State Death Tax Credit Limitation (lesser of $51,600 or $70,000 tax paid)		51,600	(244,400)
Estate Tax			$225,400

(ii) S dies in 1997 at which time S is still a resident of the United States and the value of the assets of the QDOT is $800,000. S's estate pays $40,000 in State X death taxes with respect to the inclusion of the QDOT in S's gross estate for state death tax purposes. Assuming there were no taxable events during S's lifetime with respect to the QDOT, the estate tax imposed under section 2056A(b)(1)(B) is $304,800 computed as follows:

D's Actual Taxable Estate	$1,300,000
QDOT Property	800,000
Total	$2,100,000
Gross Tax		$829,800
Less: Unified Credit		(192,800)
Pre-2011 section 2056A estate tax		$637,000
(A) State Death Tax Credit Computation:
(1) State death tax paid by S's estate with respect to the QDOT [$40,000] plus state death tax previously paid by D's estate [$70,000] = $110,000.
(2) Credit limit under section 2011(b) (based on D's adjusted taxable estate of $2,040,000 under sections 2056A(b)(2)(A) and 2011(b)) = $106,800.
(B) State death tax credit allowable against section 2056A estate tax (lesser of paragraph (ii)(A)(1) or (2) of this Example 2		(106,800)
Net Tax		$530,200
Less: Tax that would have been imposed on D's taxable estate of $1,300,000		225,400
Section 2056A Estate Tax		$304,800

[T.D. 8612, 60 FR 43547, Aug. 22, 1995]