[Federal Register Volume 61, Number 231 (Friday, November 29, 1996)]
[Rules and Regulations]
[Pages 60551-60559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29827]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 20 and 602
[TD 8686]
RIN 1545-AT64
Requirements to Ensure Collection of Section 2056A Estate Tax
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that provide guidance
relating to the additional requirements necessary to ensure the
collection of the estate tax imposed under section 2056A(b) with
respect to taxable events involving qualified domestic trusts (QDOTs)
described in section 2056A(a).
DATES: These regulations are effective November 29, 1996.
For dates of applicability, see Sec. 20.2056A-2(d).
FOR FURTHER INFORMATION CONTACT: Susan Hurwitz (202) 622-3090 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1443. Responses to this collection of information
are required in order for an estate to be eligible for the estate tax
marital deduction in cases where the surviving spouse is not a United
States citizen.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent varies from 30 minutes
to 3 hours, depending on individual circumstances, with an estimated
average of 1.39 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attention: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
A notice of proposed rulemaking was published in the Federal
Register on January 5, 1993 (58 FR 305), reflecting amendments to the
Internal Revenue Code by the Technical and Miscellaneous Revenue Act of
1988 (Public Law 100-647), the Revenue Reconciliation Act of 1989
(Public Law 101-239), and the Revenue Reconciliation Act of 1990
(Public Law 101-508). The amendments generally relate to sections 2056
and 2523, and affect the availability of the estate and gift tax
marital deduction when the surviving spouse or the donee spouse is not
a United States citizen. Part of the NPRM was published in the Federal
Register as final regulations, in TD 8612, on August 22, 1995 (60 FR
43531). That part of the NPRM that addressed the regulatory
requirements to ensure the collection of the estate tax imposed by
section 2056A(b)(1) (A) and (B) was published in the Federal Register
on August 22, 1995, in the form of temporary and proposed regulations,
(60 FR 43554 and 60 FR 43575, respectively) in order to afford the
public a further opportunity to comment on these security arrangements.
On January 16, 1996, the IRS held a hearing on the temporary and
proposed regulations. These final regulations reflect the comments
received in response to the temporary and proposed regulations.
Explanation of Provisions
The following is a summary of the significant comments received and
the reasons for accepting or rejecting those comments in the final
regulations.
Under the temporary regulations, a qualified domestic trust (QDOT)
that has assets in excess of $2 million, may alternate among the three
security arrangements provided in the regulations (U.S. bank trustee,
bond or letter of credit), provided that at all times, at least one of
the three arrangements is in effect. A QDOT with assets of $2 million
or less need not satisfy these requirements, if, in general, the trust
holdings of foreign situs real property are limited to 35 percent of
the fair market value of the trust corpus.
Comments were received that trusts in actual compliance with these
regulatory requirements, but which do not explicitly include the
required language, will not qualify as a QDOT. In addition, comments
suggested that the imposition of numerous governing instrument
requirements will increase the difficulty of drafting a QDOT and result
in a trust document that will have to include detailed provisions, many
of which are not likely to be applicable. A suggestion was made that if
the governing instrument requirement is retained in the regulations,
then the required security provisions should be permitted to be
incorporated by reference in a trust document. This suggestion was
adopted. However, in order to assist taxpayers who may wish to specify
the required provisions in the governing instrument, the IRS has
published guidance in the Internal Revenue Bulletin (see
Sec. 602.101(d)(2) of this chapter) providing sample language that may
be used in a QDOT instrument to satisfy the additional security
requirements contained in the final regulations.
In response to comments, the language of the regulations has been
modified to clarify that the QDOT may alternate among the three
arrangements provided in the regulations as long as, at any given time,
one of the three arrangements is required to be operative.
Comments suggested that the temporary regulations may be viewed as
requiring that a QDOT that initially employs the bank trustee security
alternative must, irrespective of whether the QDOT has switched to
another security option, continue to have at least one U.S. Bank acting
as a trustee. In response to this comment, the final regulations
clarify that, if the QDOT changes to a different security arrangement,
a U.S. bank need not continue to act as trustee.
Under the temporary regulations, in determining whether the value
of the assets passing to a QDOT are in excess of, or less than, $2
million, indebtedness with respect to the assets is not taken into
account to reduce value. Similarly,
[[Page 60552]]
under the temporary regulations, the amount of the bond or letter of
credit that is furnished to the IRS must be equal to 65 percent of the
fair market value of the trust assets determined ``without regard to
any indebtedness thereon.'' Comments suggested that indebtedness should
be taken into account in determining whether the $2 million dollar
threshold has been exceeded and the amount of the bond or letter of
credit required. This change has not been made. The IRS and Treasury
believe that the retention of the rule that indebtedness on the
property is not taken into account to reduce value most effectively
ensures collection of the estate tax imposed under section 2056A(b).
For the limited purpose under this section (i.e., to determine whether
the $2 million threshold is exceeded and the amount of the bond or
letter of credit to be furnished to the IRS) the complexity that would
be involved in drafting rules to determine which debts qualify to be
taken into account and which do not is not warranted.
Under the temporary regulations, with regard to the bond and letter
of credit security options, if the fair market value of the trust
assets, is ``finally determined'' to be in excess of the value of the
trust assets as originally reported, the trustee has a reasonable
period of time (not exceeding sixty days from the date of the final
determination) to adjust the amount of the bond or letter of credit.
The temporary regulations also use the term ``finally determined'' in
addressing substantial undervaluations of property passing to a QDOT
and the grace period provided to meet the security requirements when a
QDOT is determined to contain assets in excess of $2 million. Comments
were received suggesting that the regulations provide a definition of
``finally determined''.
Accordingly, the final regulations provide that the value of the
assets will be finally determined on the earliest to occur of--
1. The entry of a decision, judgment, decree, or other order by any
court of competent jurisdiction that has become final;
2. The execution of a closing agreement made under section 7121;
3. Any final disposition by the IRS of a claim for refund;
4. The issuance of an estate tax closing letter (if no claim for
refund is filed); or
5. The expiration of the statute of limitations for assessment with
respect to the decedent's estate tax liability.
In response to comments, the regulation addressing the required
duration of the bond or letter of credit has been clarified to provide
that the security arrangement must remain in effect until the trust
ceases to function as a QDOT.
Comments have been received regarding the amount of the bond or
letter of credit that must be furnished to the IRS. One commentator
stated that, since the purpose of the bond or letter of credit
requirement is to provide a source of funds for the payment of the
section 2056A(b) estate tax, the amount of the required bond or letter
of credit should be based on either the maximum federal estate tax
rate, or the amount of estate tax deferred, rather than 65% of the
value of the QDOT, as provided in the regulations. This suggestion has
not been adopted. Generally, the regulation requires a bond of 65
percent of the initial fair market value of the trust assets to ensure
that the potential estate tax liability is adequately secured if the
trust property appreciates in value.
The temporary regulations providing that notice of failure to renew
a bond or letter of credit must be ``received by the IRS at least 60
days prior to the end of the term of the bond or letter of credit'' has
been changed to reference the date the notice is ``mailed to'' the IRS.
Further, under the final regulations, the notice must also be mailed to
the U.S. Trustee of the QDOT.
Under the regulations, in the case of a QDOT of less than $2
million, if on the last day of a taxable year of the QDOT, the value of
foreign real property owned by the QDOT exceeds 35 percent of the QDOT
assets because of distributions of principal during that year, or
because of fluctuations in the value of the foreign currency in the
jurisdiction where the real property is located, a grace period of one
year is provided to allow the trustee to comply with the 35 percent
limit. Comments suggested that changes in the relative value of the
trust assets would also cause the trust to fail to satisfy the 35
percent limit, and failure to comply due to such changes that are
beyond the control of the trustee should also be eligible for the grace
period. Accordingly, under the final regulations, the trustee will also
be accorded the grace period to satisfy the 35 percent limit if, as a
result of changes in the relative values of the trust assets, more than
35 percent of the value of the trust consists of foreign real estate.
Under the temporary regulations, for purposes of determining
whether the $2 million threshold has been exceeded, and for purposes of
determining the amount of the bond or letter of credit, the executor of
the decedent's estate may exclude up to $600,000 in value attributable
to real property wherever situated (and related furnishings) owned
directly by the QDOT that is used by the surviving spouse as the
spouse's principal residence. Comments were received that the
regulations should be expanded to allow the exclusion of all
residential real property that is actually used by the surviving
spouse. Thus, a vacation home or second home would qualify for the
exclusion. It was also suggested that all personally used residential
real property, regardless of value, should be eligible for the
exclusion. The final regulations do not change the monetary limit of
$600,000 for the exclusion. The $600,000 limit for the exclusion
facilitates the reduction of the costs associated with providing
security while adequately ensuring the collection of the section
2056A(b) tax. This is especially the case in situations where the
residential real property is situated outside the United States so that
a significant collection risk is presented. However, under the final
regulations the exclusion has been redesignated as a ``personal
residence'' exclusion. The exclusion is now available for the principal
residence of the surviving spouse and one additional residence, to the
extent the combined value excluded does not exceed $600,000. The second
residence will be eligible for the exclusion only if the residence is
used by the surviving spouse as a personal residence and not subject to
any rental arrangement with any person.
Under the temporary regulations, the residence exclusion election
is made by attaching a written statement to the estate tax return on
which the QDOT election is made. Commentators suggested that the final
regulations allow the election to be made at any time during the term
of the QDOT, and not necessarily at the time of filing of the
decedent's estate tax return. For example, if the bank trustee
alternative is selected by the trustee of the QDOT, but at some future
date the trustee desires to change to the bond or letter of credit
security arrangement, the trustee should be given the opportunity to
make a delayed election of the exclusion. In response to these
comments, the final regulations provide that the election may be made
at any time during the term of the QDOT. In addition, the final
regulation provides for the cancellation of a prior election.
Under the temporary regulations, the U.S. Trustee of a QDOT is
required to file an annual statement with the IRS containing specified
items of information (including a list of all assets held by the QDOT
together with the fair market value of each asset determined as of the
last day of the taxable year) if the residence exclusion applies during
the taxable year. Comments were
[[Page 60553]]
received suggesting that the cost of compliance with this annual
reporting requirement will limit the utility of the residence
exclusion. In response to these comments, annual reporting is no longer
required solely because the personal residence exclusion was elected.
However, the regulations retain the annual reporting requirement where
the residence previously subject to the exclusion is sold, or where the
residence ceases to be used as a personal residence during the taxable
or calendar year.
Under the temporary regulations, if a residence that is subject to
the exclusion is sold during the term of the QDOT, the exclusion will
continue to apply if, within 12 months of the date of sale, the amount
of the adjusted sales price (as defined in section 1034(d)(1)) is used
to purchase a new residence for the spouse. In response to comments,
this provision has been amended to provide that if a residence ceases
to be used as the personal residence of the spouse, or if the residence
is sold during the term of the QDOT, the exclusion may be applied to
another residence that is held in either the same QDOT or in another
QDOT, if the other residence is used as a personal residence of the
spouse. The amount of exclusion that may be applied to the new personal
residence under these circumstances can be up to $600,000 (less that
amount previously allocated to a residence that continues to qualify
for the exclusion) even if the entire $600,000 exclusion was not
previously used for the initial personal residence(s).
Also, under the temporary regulations, on the sale of a residence,
if less than the entire adjusted sales price is reinvested in a new
residence, then the amount of the exclusion initially claimed by the
QDOT is reduced proportionately. For example, if a residence is sold
for an adjusted sales price of $1,000,000 and a new residence is
acquired for $800,000, then, the original exclusion would be reduced by
$120,000 to $480,000: $200,000 (adjusted sales price not reinvested)/
$1,000,000 (adjusted sales price) x $600,000. Comments were received
suggesting that this rule be changed to provide that the amount of the
exclusion as adjusted not be reduced below the amount actually
reinvested (up to $600,000). This suggestion was adopted in the final
regulations, reflecting that two residences can now qualify for the
$600,000 exclusion.
Special Analyses
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 the notice of proposed rulemaking
preceding the regulations was issued prior to March 29, 1996, the
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.
Drafting Information
The principal author of these regulations is Susan Hurwitz, Office
of Assistant Chief Counsel (Passthroughs and Special Industries).
However, other personnel from the IRS and Treasury Department
participated in their development.
List of Subjects
26 CFR Part 20
Estate taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 20 and 602 are 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. In Sec. 20.2056A-0, the table of contents is amended by
revising the entry for Sec. 20.2056A-2(d) to read as follows:
Sec. 20.2056A-0 Table of contents.
* * * * *
Sec. 20.2056A-2 Requirements for qualified domestic trust.
* * * * *
(d) Additional requirements to ensure collection of the section
2056A estate tax.
(1) Security and other arrangements for payment of estate tax
imposed under section 2056A(b)(1).
(2) Individual trustees.
(3) Annual reporting requirements.
(4) Request for alternate arrangement or waiver.
(5) Adjustment of dollar threshold and exclusion.
(6) Effective date and special rules.
* * * * *
Par. 3. In Sec. 20.2056A-2, paragraph (d) is added to read as
follows:
Sec. 20.2056A-2 Requirements for qualified domestic trust.
* * * * *
(d) Additional requirements to ensure collection of the section
2056A estate tax--(1) Security and other arrangements for payment of
estate tax imposed under section 2056A(b)(1)--(i) QDOTs with assets in
excess of $2 million. If the fair market value of the assets passing,
treated, or deemed to have passed to the QDOT (or in the form of a
QDOT), determined without reduction for any indebtedness with respect
to the assets, as finally determined for federal estate tax purposes,
exceeds $2 million as of the date of the decedent's death or, if
applicable, the alternate valuation date (adjusted as provided in
paragraph (d)(1)(iii) of this section), the trust instrument must meet
the requirements of either paragraph (d)(1)(i) (A), (B), or (C) of this
section at all times during the term of the QDOT. The QDOT may
alternate between any of the arrangements provided in paragraphs
(d)(1)(i) (A), (B), and (C) of this section provided that, at any given
time, one of the arrangements must be operative. See paragraph
(d)(1)(iii) of this section for the definition of finally determined.
The QDOT may provide that the trustee has the discretion to use any one
of the security arrangements or may provide that the trustee is limited
to using only one or two of the arrangements specified in the trust
instrument. A trust instrument that specifically states that the trust
must be administered in compliance with paragraph (d)(1)(i) (A), (B),
or (C) of this section is treated as meeting the requirements of
paragraphs (d)(1)(i) (A), (B), or (C) of this section for purposes of
paragraphs (d)(1)(i) and, if applicable, (d)(1)(ii) of this section.
(A) Bank Trustee. Except as otherwise provided in paragraph (d)(6)
(ii) or (iii) of this section, the trust instrument must provide that
whenever the Bank Trustee security alternative is used for the QDOT, at
least one U.S. Trustee must be a bank as defined in section 581.
Alternatively, except as otherwise provided in paragraph (d)(6) (ii) or
(iii) of this section, at least one trustee must be a United States
branch of a foreign bank, provided that, in such cases, during the
entire term of the QDOT a U.S. Trustee must act as a trustee with the
foreign bank trustee.
(B) Bond. Except as otherwise provided in paragraph (d)(6) (ii) or
(iii) of this section, the trust instrument must provide that whenever
the bond security arrangement alternative is used for the QDOT, the
U.S. Trustee must furnish a bond in favor of the Internal Revenue
Service in an amount equal to 65 percent of the fair market value of
the trust assets (determined without regard to any indebtedness with
respect to the assets) as of the date of the decedent's death (or
alternate valuation date, if
[[Page 60554]]
applicable), as finally determined for federal estate tax purposes (and
as further adjusted as provided in paragraph (d)(1)(iv) of this
section). If, after examination of the estate tax return, the fair
market value of the trust assets, as originally reported on the estate
tax return, is adjusted (pursuant to a judicial proceeding or
otherwise) resulting in a final determination of the value of the
assets as reported on the return, the U.S. Trustee has a reasonable
period of time (not exceeding sixty days after the conclusion of the
proceeding or other action resulting in a final determination of the
value of the assets) to adjust the amount of the bond accordingly. But
see, paragraph (d)(1)(i)(D) of this section for a special rule in the
case of a substantial undervaluation of QDOT assets. Unless an
alternate arrangement under paragraph (d)(1)(i) (A), (B), or (C) of
this section, or an arrangement prescribed under paragraph (d)(4) of
this section, is provided, or the trust is otherwise no longer subject
to the requirements of section 2056A pursuant to section 2056A(b)(12),
the bond must remain in effect until the trust ceases to function as a
QDOT and any tax liability finally determined to be due under section
2056A(b) is paid, or is finally determined to be zero.
(1) Requirements for the bond. The bond must be with a satisfactory
surety, as prescribed under section 7101 and Sec. 301.7101-1 of this
chapter (Regulations on Procedure and Administration), and is subject
to Internal Revenue Service review as may be prescribed by the
Commissioner. The bond may not be cancelled. The bond must be for a
term of at least one year and must be automatically renewable at the
end of that term, on an annual basis thereafter, unless notice of
failure to renew is mailed to the U.S. Trustee and the Internal Revenue
Service at least 60 days prior to the end of the term, including
periods of automatic extensions. Any notice of failure to renew
required to be sent to the Internal Revenue Service must be sent to the
Estate and Gift Tax Group in the District Office of the Internal
Revenue Service that has examination jurisdiction over the decedent's
estate (Internal Revenue Service, District Director, [specify location]
District Office, Estate and Gift Tax Examination Group, [specify Street
Address, City, State, Zip Code]) (or in the case of noncitizen
decedents and United States citizens who die domiciled outside the
United States, Estate Tax Group, Assistant Commissioner
(International), 950 L'Enfant Plaza, CP:IN:D:C:EX:HQ:1114, Washington,
DC 20024). The Internal Revenue Service will not draw on the bond if,
within 30 days of receipt of the notice of failure to renew, the U.S.
Trustee notifies the Internal Revenue Service (at the same address to
which notice of failure to renew is to be sent) that an alternate
arrangement under paragraph (d)(1)(i) (A), (B), or (C) or (d)(4) of
this section, has been secured and that the arrangement will take
effect immediately prior to or upon expiration of the bond.
(2) Form of bond. The bond must be in the following form (or in a
form that is the same as the following form in all material respects),
or in such alternative form as the Commissioner may prescribe by
guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2) of this chapter):
Bond in Favor of the Internal Revenue Service To Secure Payment
of Section 2056A Estate Tax Imposed Under Section 2056A(b) of the
Internal Revenue Code.
KNOW ALL PERSONS BY THESE PRESENTS, That the undersigned,
________, the SURETY, and ________, the PRINCIPAL, are irrevocably
held and firmly bound to pay the Internal Revenue Service upon
written demand that amount of any tax up to $[amount determined
under paragraph (d)(1)(i)(B) of this section], imposed under section
2056A(b)(1) of the Internal Revenue Code (including penalties and
interest on said tax) determined by the Internal Revenue Service to
be payable with respect to the principal as trustee for: [Identify
trust and governing instrument, name and address of trustee], a
qualified domestic trust as defined in section 2056A(a) of the
Internal Revenue Code, for the payment of which the said Principal
and said Surety, bind themselves, their heirs, executors,
administrators, successors and assigns, jointly and severally,
firmly by these presents.
WHEREAS, The Internal Revenue Service may demand payment under
this bond at any time if the Internal Revenue Service in its sole
discretion determines that a taxable event with respect to the trust
has occurred; the trust no longer qualifies as a qualified domestic
trust as described in section 2056A(a) of the Internal Revenue Code
and the regulations promulgated thereunder, or a distribution
subject to the tax imposed under section 2056A(b)(1) has been made.
Demand by the Internal Revenue Service for payment may be made
whether or not the tax and tax return (Form 706-QDT) with respect to
the taxable event is due at the time of such demand, or an
assessment has been made by the Internal Revenue Service with
respect to the tax.
NOW THEREFORE, The condition of this obligation is such that it
must not be cancelled and, if payment of all tax liability finally
determined to be imposed under section 2056A(b) is made, then this
obligation is null and void; otherwise, this obligation is to remain
in full force and effect for one year from its effective date and is
to be automatically renewable on an annual basis unless, at least 60
days prior to the expiration date, including periods of automatic
renewals, the surety mails to the U.S. Trustee and the Internal
Revenue Service by Registered or Certified Mail, return receipt
requested, notice of the failure to renew. Receipt of this notice of
failure to renew by the Internal Revenue Service may be considered a
taxable event. The Internal Revenue Service will not draw upon the
bond if, within 30 days of receipt of the notice of failure to
renew, the trustee notifies the Internal Revenue Service that an
alternate security arrangement has been secured and that the
arrangement will take effect immediately prior to or upon expiration
of the bond. The surety remains liable for all taxable events
occurring prior to the date of expiration. All notices required to
be sent to the Internal Revenue Service under this instrument should
be sent to District Director, [specify location] District Office,
Estate and Gift Tax Examination Group, Street Address, City, State,
Zip Code. (In the case of nonresident noncitizen decedents and
United States citizens who die domiciled outside the United States,
all notices should be sent to Estate Tax Group, Assistant
Commissioner (International), 950 L'Enfant Plaza,
CP:IN:D:C:EX:HQ:1114, Washington, DC 20024).
This bond shall be effective as of ______. Principal ______ Date
______ Surety ______ Date ______
(3) Additional governing instrument requirements. The trust
instrument must provide that in the event the Internal Revenue Service
draws on the bond, in accordance with its terms, neither the U.S.
Trustee nor any other person will seek a return of any part of the
remittance until after April 15th of the calendar year following the
year in which the bond is drawn upon. After that date, any such
remittance will be treated as a deposit and returned (without interest)
upon request of the U.S. Trustee, unless it is determined that
assessment or collection of the tax imposed by section 2056A(b)(1) is
in jeopardy, within the meaning of section 6861. If an assessment under
section 6861 is made, the remittance will first be credited to any tax
liability reported on the Form 706-QDT, then to any unpaid balance of a
section 2056A(b)(1)(A) tax liability (plus interest and penalties) for
any prior taxable years, and any balance will then be returned to the
U.S. Trustee.
(4) Procedure. The bond is to be filed with the decedent's federal
estate tax return, Form 706 or 706NA (unless an extension for filing
the bond is granted under Sec. 301.9100 of this chapter). The U.S.
Trustee must provide a written statement with the bond that provides a
list of the assets that will be used to fund the QDOT and the
respective values of the assets. The written statement must also
indicate whether
[[Page 60555]]
any exclusions under paragraph (d)(1)(iv) of this section are claimed.
(C) Letter of credit. Except as otherwise provided in paragraph
(d)(6) (ii) or (iii) of this section, the trust instrument must provide
that whenever the letter of credit security arrangement is used for the
QDOT, the U.S. Trustee must furnish an irrevocable letter of credit
issued by a bank as defined in section 581, a United States branch of a
foreign bank, or a foreign bank with a confirmation by a bank as
defined in section 581. The letter of credit must be for an amount
equal to 65 percent of the fair market value of the trust assets
(determined without regard to any indebtedness with respect to the
assets) as of the date of the decedent's death (or alternate valuation
date, if applicable), as finally determined for federal estate tax
purposes (and as further adjusted as provided in paragraph (d)(1)(iv)
of this section). If, after examination of the estate tax return, the
fair market value of the trust assets, as originally reported on the
estate tax return, is adjusted (pursuant to a judicial proceeding or
otherwise) resulting in a final determination of the value of the
assets as reported on the return, the U.S. Trustee has a reasonable
period of time (not exceeding 60 days after the conclusion of the
proceeding or other action resulting in a final determination of the
value of the assets) to adjust the amount of the letter of credit
accordingly. But see, paragraph (d)(1)(i)(D) of this section for a
special rule in the case of a substantial undervaluation of QDOT
assets. Unless an alternate arrangement under paragraph (d)(1)(i) (A),
(B), or (C) of this section, or an arrangement prescribed under
paragraph (d)(4) of this section, is provided, or the trust is
otherwise no longer subject to the requirements of section 2056A
pursuant to section 2056A(b)(12), the letter of credit must remain in
effect until the trust ceases to function as a QDOT and any tax
liability finally determined to be due under section 2056A(b) is paid
or is finally determined to be zero.
(1) Requirements for the letter of credit. The letter of credit
must be irrevocable and provide for sight payment. The letter of credit
must have a term of at least one year and must be automatically
renewable at the end of the term, at least on an annual basis, unless
notice of failure to renew is mailed to the U.S. Trustee and the
Internal Revenue Service at least sixty days prior to the end of the
term, including periods of automatic renewals. If the letter of credit
is issued by the U.S. branch of a foreign bank and the U.S. branch is
closing, the branch (or foreign bank) must notify the U.S. Trustee and
the Internal Revenue Service of the closure and the notice of closure
must be mailed at least 60 days prior to the date of closure. Any
notice of failure to renew or closure of a U.S. branch of a foreign
bank required to be sent to the Internal Revenue Service must be sent
to the Estate and Gift Tax Group in the District Office of the Internal
Revenue Service that has examination jurisdiction over the decedent's
estate (Internal Revenue Service, District Director, [specify location]
District Office, Estate and Gift Tax Examination Group, [Street
Address, City State, Zip Code]) (or in the case of noncitizen decedents
and United States citizens who die domiciled outside the United States,
Estate Tax, Assistant Commissioner (International), 950 L'Enfant Plaza,
CP:IN:D:C:EX:HQ:1114, Washington, DC 20024). The Internal Revenue
Service will not draw on the letter of credit if, within 30 days of
receipt of the notice of failure to renew or closure of the U.S. branch
of a foreign bank, the U.S. Trustee notifies the Internal Revenue
Service (at the same address to which notice is to be sent) that an
alternate arrangement under paragraph (d)(1)(i) (A), (B), or (C), or
(d)(4) of this section, has been secured and that the arrangement will
take effect immediately prior to or upon expiration of the letter of
credit or closure of the U.S. branch of the foreign bank.
(2) Form of letter of credit. The letter of credit must be made in
the following form (or in a form that is the same as the following form
in all material respects), or an alternative form that the Commissioner
prescribes by guidance published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2) of this chapter):
[Issue Date]
To: Internal Revenue Service
Attention: District Director, [specify location] District Office
Estate and Gift Tax Examination Group [Street Address, City, State,
ZIP Code]
[Or in the case of nonresident noncitizen decedents and United
States citizens who die domiciled outside the United States,
To: Estate Tax Group, Assistant Commissioner (International) 950
L'Enfant Plaza CP:IN:D:C:EX:HQ:1114 Washington, DC 20024].
Dear Sirs: We hereby establish our irrevocable Letter of Credit
No. ____ in your favor for drawings up to U.S. $ [Applicant should
provide bank with amount which Applicant determined under paragraph
(d)(1)(i)(C)] effective immediately. This Letter of Credit is
issued, presentable and payable at our office at ________ and
expires at 3:00 p.m. [EDT, EST, CDT, CST, MDT, MST, PDT, PST] on
____ at said office.
For information and reference only, we are informed that this
Letter of Credit relates to [Applicant should provide bank with the
identity of qualified domestic trust and governing instrument], and
the name, address, and identifying number of the trustee is
[Applicant should provide bank with the trustee name, address and
the QDOT's TIN number, if any].
Drawings on this Letter of Credit are available upon
presentation of the following documents:
1. Your draft drawn at sight on us bearing our Letter of Credit
No. ____; and
2. Your signed statement as follows:
The amount of the accompanying draft is payable under [identify
bank] irrevocable Letter of Credit No. ______ pursuant to section
2056A of the Internal Revenue Code and the regulations promulgated
thereunder, because the Internal Revenue Service in its sole
discretion has determined that a ``taxable event'' with respect to
the trust has occurred; e.g., the trust no longer qualifies as a
qualified domestic trust as described in section 2056A of the
Internal Revenue Code and regulations promulgated thereunder, or a
distribution subject to the tax imposed under section 2056A(b)(1) of
the Internal Revenue Code has been made.
Except as expressly stated herein, this undertaking is not
subject to any agreement, requirement or qualification. The
obligation of [Name of Issuing Bank] under this Letter of Credit is
the individual obligation of [Name of Issuing Bank] and is in no way
contingent upon reimbursement with respect thereto.
It is a condition of this Letter of Credit that it is deemed to
be automatically extended without amendment for a period of one year
from the expiration date hereof, or any future expiration date,
unless at least 60 days prior to any expiration date, we mail to you
and to the U.S. Trustee notice by Registered Mail or Certified Mail,
return receipt requested, or by courier to your and the trustee's
address indicated above, that we elect not to consider this Letter
of Credit renewed for any such additional period. Upon receipt of
this notice, you may draw hereunder on or before the then current
expiration date, by presentation of your draft and statement as
stipulated above.
[In the case of a letter of credit issued by a U.S. branch of a
foreign bank the following language must be added]. It is a further
condition of this Letter of Credit that if the U.S. branch of [name
of foreign bank] is to be closed, that at least sixty days prior to
closing, we mail to you and the U.S. Trustee notice by Registered
Mail or Certified Mail, return receipt requested, or by courier to
your and the U.S. Trustee's address indicated above, that this
branch will be closing. This notice will specify the actual date of
closing. Upon receipt of the notice, you may draw hereunder on or
before the date of closure, by presentation of your draft and
statement as stipulated above.
Except where otherwise stated herein, this Letter of Credit is
subject to the Uniform Customs and Practice for Documentary Credits,
1993 Revision, ICC Publication No.
[[Page 60556]]
500. If we notify you of our election not to consider this Letter of
Credit renewed and the expiration date occurs during an interruption
of business described in Article 17 of said Publication 500, unless
you had consented to cancellation prior to the expiration date, the
bank hereby specifically agrees to effect payment if this Letter of
Credit is drawn against within 30 days after the resumption of
business.
Except as stated herein, this Letter of Credit cannot be
modified or revoked without your consent.
Authorized Signature ______Date ______
(3) Form of confirmation. If the requirements of this paragraph
(d)(1)(i)(C) are satisfied by the issuance of a letter of credit by a
foreign bank with confirmation by a bank as defined in section 581, the
confirmation must be made in the following form (or in a form that is
the same as the following form in all material respects), or an
alternative form as the Commissioner prescribes by guidance published
in the Internal Revenue Bulletin (see Sec. 602.101(d)(2) of this
chapter):
[Issue Date]
To: Internal Revenue Service
Attention: District Director, [specify location] District Office
Estate and Gift Tax Examination Group [State Address, City, State,
ZIP Code]
[or in the case of nonresident noncitizen decedents and United
States citizens who die domiciled outside the United States,
To: Estate Tax Group, Assistant Commissioner (International) 950
L'Enfant Plaza CP:IN:D:C:EX:HQ:1114, Washington, DC 20024].
Dear Sirs: We hereby confirm the enclosed irrevocable Letter of
Credit No. ______, and amendments thereto, if any, in your favor by
________ [Issuing Bank] for drawings up to U.S. ________ [same
amount as in initial Letter of Credit] effective immediately. This
confirmation is issued, presentable and payable at our office at
________and expires at 3:00 p.m. [EDT, EST, CDT, CST, MDT, MST, PDT,
PST] on ______at said office.
For information and reference only, we are informed that this
Confirmation relates to [Applicant should provide bank with the
identity of qualified domestic trust and governing instrument], and
the name, address, and identifying number of the trustee is
[Applicant should provide bank with the trustee name, address and
the QDOT's TIN number, if any].
We hereby undertake to honor your sight draft(s) drawn as
specified in the Letter of Credit.
Except as expressly stated herein, this undertaking is not
subject to any agreement, condition or qualification. The obligation
of [Name of Confirming Bank] under this Confirmation is the
individual obligation of [Name of Confirming Bank] and is in no way
contingent upon reimbursement with respect thereto.
It is a condition of this Confirmation that it is deemed to be
automatically extended without amendment for a period of one year
from the expiry date hereof, or any future expiration date, unless
at least sixty days prior to the expiration date, we send to you and
to the U.S. Trustee notice by Registered Mail or Certified Mail,
return receipt requested, or by courier to your and the trustee's
addresses, respectively, indicated above, that we elect not to
consider this Confirmation renewed for any additional period. Upon
receipt of this notice by you, you may draw hereunder on or before
the then current expiration date, by presentation of your draft and
statement as stipulated above.
Except where otherwise stated herein, this Confirmation is
subject to the Uniform Customs and Practice for Documentary Credits,
1993 Revision, ICC Publication No. 500. If we notify you of our
election not to consider this Confirmation renewed and the
expiration date occurs during an interruption of business described
in Article 17 of said Publication 500, unless you had consented to
cancellation prior to the expiration date, the bank hereby
specifically agrees to effect payment if this Confirmation is drawn
against within 30 days after the resumption of business.
Except as stated herein, this Confirmation cannot be modified or
revoked without your consent.
Authorized Signature ________ Date ______
(4) Additional governing instrument requirements. The trust
instrument must provide that if the Internal Revenue Service draws on
the letter of credit (or confirmation) in accordance with its terms,
neither the U.S. Trustee nor any other person will seek a return of any
part of the remittance until April 15th of the calendar year following
the year in which the letter of credit (or confirmation) is drawn upon.
After that date, any such remittance will be treated as a deposit and
returned (without interest) upon request of the U.S. Trustee after the
date specified above, unless it is determined that assessment or
collection of the tax imposed by section 2056A(b)(1) is in jeopardy,
within the meaning of section 6861. If an assessment under section 6861
is made, the remittance will first be credited to any tax liability
reported on the Form 706-QDT, then to any unpaid balance of a section
2056A(b)(1)(A) tax liability (plus interest and penalties) for any
prior taxable years, and any balance will then be returned to the U.S.
Trustee.
(5) Procedure. The letter of credit (and confirmation, if
applicable) is to be filed with the decedent's federal estate tax
return, Form 706 or 706NA (unless an extension for filing the letter of
credit is granted under Sec. 301.9100 of this chapter). The U.S.
Trustee must provide a written statement with the letter of credit that
provides a list of the assets that will be used to fund the QDOT and
the respective values of the assets. The written statement must also
indicate whether any exclusions under paragraph (d)(1)(iv) of this
section are claimed.
(D) Disallowance of marital deduction for substantial
undervaluation of QDOT property in certain situations. (1) If either--
(i) The bond or letter of credit security arrangement under
paragraph (d)(1)(i) (B) or (C) of this section is chosen by the U.S.
Trustee; or
(ii) The QDOT property as originally reported on the decedent's
estate tax return is valued at $2 million or less but, as finally
determined for federal estate tax purposes, the QDOT property is
determined to be in excess of $2 million, then the marital deduction
will be disallowed in its entirety for failure to comply with the
requirements of section 2056A if the value of the QDOT property
reported on the estate tax return is 50 percent or less of the amount
finally determined to be the correct value of the property for federal
estate tax purposes.
(2) The preceding sentence does not apply if--
(i) There was reasonable cause for the undervaluation; and
(ii) The fiduciary of the estate acted in good faith with respect
to the undervaluation. For this purpose, Sec. 1.6664-4(b) of this
chapter applies, to the extent applicable, with respect to the facts
and circumstances to be taken into account in making this
determination.
(ii) QDOTs with assets of $2 million or less. If the fair market
value of the assets passing, treated, or deemed to have passed to the
QDOT (or in the form of a QDOT), determined without reduction for any
indebtedness with respect to the assets, as finally determined for
federal estate tax purposes, is $2 million or less as of the date of
the decedent's death or, if applicable, the alternate valuation date
(adjusted as provided in paragraph (d)(1)(iv) of this section), the
trust instrument must provide that either no more than 35 percent of
the fair market value of the trust assets, determined annually on the
last day of the taxable year of the trust (or on the last day of the
calendar year if the QDOT does not have a taxable year), will consist
of real property located outside of the United States, or the trust
will meet the requirements prescribed by paragraph (d)(1)(i)(A), (B),
or (C) of this section. See paragraph (d)(1)(ii)(D) of this section for
special rules in the case of principal distributions from a QDOT,
fluctuations in the value of foreign real property held by a QDOT due
to changes in value of foreign currency, and fluctuations in the fair
market value
[[Page 60557]]
of assets held by the QDOT. See paragraph (d)(1)(iv) of this section
for a special rule for personal residences. If the fair market value,
as originally reported on the decedent's estate tax return, of the
assets passing or deemed to have passed to the QDOT (determined without
reduction for any indebtedness with respect to the assets) is $2
million or less, but the fair market value of the assets as finally
determined for federal estate tax purposes is more than $2 million, the
U.S. Trustee has a reasonable period of time (not exceeding sixty days
after the conclusion of the proceeding or other action resulting in a
final determination of the value of the assets) to meet the
requirements prescribed by paragraph (d)(1)(i) (A), (B), or (C) of this
section. However, see paragraph (d)(1)(i)(D) of this section in the
case of a substantial undervaluation of QDOT assets. See Sec. 20.2056A-
2(d)(1)(iii) for the definition of finally determined.
(A) Multiple QDOTs. For purposes of this paragraph (d)(1)(ii), if
more than one QDOT is established for the benefit of the surviving
spouse, the fair market value of all the QDOTs are aggregated in
determining whether the $2 million threshold under this paragraph
(d)(1)(ii) is exceeded.
(B) Look-through rule. For purposes of determining whether no more
than 35 percent of the fair market value of the QDOT assets consists of
foreign real property, if the QDOT owns more than 20% of the voting
stock or value in a corporation with 15 or fewer shareholders, or more
than 20% of the capital interest of a partnership with 15 or fewer
partners, then all assets owned by the corporation or partnership are
deemed to be owned directly by the QDOT to the extent of the QDOT's pro
rata share of the assets of that corporation or partnership. For a
partnership, the QDOT partner's pro rata share is based on the greater
of its interest in the capital or profits of the partnership. For
purposes of this paragraph, all stock in the corporation, or interests
in the partnership, as the case may be, owned by or held for the
benefit of the surviving spouse, or any members of the surviving
spouse's family (within the meaning of section 267(c)(4)), are treated
as owned by the QDOT solely for purposes of determining the number of
partners or shareholders in the entity and the QDOT's percentage voting
interest or value in the corporation or capital interest in the
partnership, but not for the purpose of determining the QDOT's pro rata
share of the assets of the entity.
(C) Interests in other entities. Interests owned by the QDOT in
other entities (such as an interest in a trust) are accorded treatment
consistent with that described in paragraph (d)(1)(ii)(B) of this
section.
(D) Special rule for foreign real property. For purposes of this
paragraph (d)(1)(ii), if, on the last day of any taxable year during
the term of the QDOT (or the last day of the calendar year if the QDOT
does not have a taxable year), the value of foreign real property owned
by the QDOT exceeds 35 percent of the fair market value of the trust
assets due to: distributions of QDOT principal during that year;
fluctuations in the value of the foreign currency in the jurisdiction
where the real estate is located; or fluctuations in the fair market
value of any assets held in the QDOT, then the QDOT will not be treated
as failing to meet the requirements of this paragraph (d)(1).
Accordingly, the QDOT will not cease to be a QDOT within the meaning of
Sec. 20.2056A-5(b)(3) if, by the end of the taxable year (or the last
day of the calendar year if the QDOT does not have a taxable year) of
the QDOT immediately following the year in which the 35 percent limit
was exceeded, the value of the foreign real property held by the QDOT
does not exceed 35 percent of the fair market value of the trust assets
or, alternatively, the QDOT meets the requirements of either paragraph
(d)(1)(i) (A), (B), or (C) of this section on or before the close of
that succeeding year.
(iii) Definition of finally determined. For purposes of
Sec. 20.2056A-2(d)(1) (i) and (ii), the fair market value of assets
will be treated as finally determined on the earliest to occur of--
(A) The entry of a decision, judgment, decree, or other order by
any court of competent jurisdiction that has become final;
(B) The execution of a closing agreement made under section 7121;
(C) Any final disposition by the Internal Revenue Service of a
claim for refund;
(D) The issuance of an estate tax closing letter (Form L-154 or
equivalent) if no claim for refund is filed; or
(E) The expiration of the period of assessment.
(iv) Special rules for personal residence and related personal
effects--(A) Two million dollar threshold. For purposes of determining
whether the $2 million threshold under paragraphs (d)(1)(i) and (ii) of
this section has been exceeded, the executor of the estate may elect to
exclude up to $600,000 in value attributable to real property (and
related furnishings) owned directly by the QDOT that is used by, or
held for the use of the surviving spouse as a personal residence and
that passes, or is treated as passing, to the QDOT under section
2056(d). The election may be made regardless of whether the real
property is situated within or without the United States. The election
is made by attaching to the estate tax return on which the QDOT
election is made a written statement claiming the exclusion. The
statement must clearly identify the property or properties (i.e.
address and location) for which the election is being made.
(B) Security requirement. For purposes of determining the amount of
the bond or letter of credit required when paragraph (d)(1)(i)(B) or
(C) of this section applies, the executor of the estate may elect to
exclude, during the term of the QDOT, up to $600,000 in value
attributable to real property (and related furnishings) owned directly
by the QDOT that is used by, or held for the use of the surviving
spouse as a personal residence and that passes, or is treated as
passing, to the QDOT under section 2056(d). The election may be made
regardless of whether the real property is situated within or without
the United States. The election is made by attaching to the estate tax
return on which the QDOT election is made a written statement claiming
the exclusion. If an election is not made on the decedent's estate tax
return, the election may be made, prospectively, at any time, during
the term of the QDOT, by attaching to the Form 706-QDT a written
statement claiming the exclusion. A statement may also be attached to
the Form 706-QDT that cancels a prior election of the personal
residence exclusion that was made under this paragraph, either on the
decedent's estate tax return or on a Form 706-QDT.
(C) Foreign real property limitation. The special rules of this
paragraph (d)(1)(iv) do not apply for purposes of determining whether
more than 35 percent of the QDOT assets consist of foreign real
property under paragraph (d)(1)(ii) of this section.
(D) Personal residence. For purposes of this paragraph (d)(1)(iv),
a personal residence is either the principal residence of the surviving
spouse within the meaning of section 1034 or one other residence of the
surviving spouse. In order to be used by or held for the use of the
spouse as a personal residence, the residence must be available at all
times for use by the surviving spouse. The residence may not be rented
to another party, even when not occupied by the spouse. A personal
residence may include appurtenant structures used by the
[[Page 60558]]
surviving spouse for residential purposes and adjacent land not in
excess of that which is reasonably appropriate for residential purposes
(taking into account the residence's size and location).
(E) Related furnishings. The term related furnishings means
furniture and commonly included items such as appliances, fixtures,
decorative items and china, that are not beyond the value associated
with normal household and decorative use. Rare artwork, valuable
antiques, and automobiles of any kind or class are not within the
meaning of this term.
(F) Required statement. If one or both of the exclusions provided
in paragraph (d)(1)(iv)(A) or (B) of this section are elected by the
executor of the estate and the personal residence is later sold or
ceases to be used, or held for use as a personal residence, the U.S.
Trustee must file the statement that is required under paragraph (d)(3)
of this section at the time and in the manner provided in paragraphs
(d)(3)(ii) and (iii) of this section.
(G) Cessation of use. Except as provided in this paragraph
(d)(1)(iv)(G), if the residence ceases to be used by, or held for the
use of, the spouse as a personal residence of the spouse, or if the
residence is sold during the term of the QDOT, the exclusions provided
in paragraphs (d)(1)(iv)(A) and (B) of this section cease to apply.
However, if the residence is sold, the exclusion continues to apply if,
within 12 months of the date of sale, the amount of the adjusted sales
price (as defined in section 1034(b)(1)) is reinvested to purchase a
new personal residence for the spouse. If less than the amount of the
adjusted sales price is reinvested, the amount of the exclusion equals
the amount reinvested in the new residence plus any amount previously
allocated to a residence that continues to qualify for the exclusion,
up to a total of $600,000. If the QDOT ceases to qualify for all or any
portion of the initially claimed exclusions, paragraph (d)(1)(i) of
this section, if applicable (determined as if the portion of the
exclusions disallowed had not been initially claimed by the QDOT), must
be complied with no later than 120 days after the effective date of the
cessation. In addition, if a residence ceases to be used by, or held
for the use of the spouse as a personal residence of the spouse or if
the personal residence is sold during the term of the QDOT, the
personal residence exclusion may be allocated to another residence that
is held in either the same QDOT or in another QDOT that is established
for the surviving spouse, if the other residence qualifies as being
used by, or held for the use of the spouse as a personal residence. The
trustee may allocate up to $600,000 to the new personal residence (less
the amount previously allocated to a residence that continues to
qualify for the exclusion) even if the entire $600,000 exclusion was
not previously utilized with respect to the original personal
residence(s).
(v) Anti-abuse rule. Regardless of whether the QDOT designates a
bank as the U.S. Trustee under paragraph (d)(1)(i)(A) of this section
(or otherwise complies with paragraph (d)(1)(i)(A) of this section by
naming a foreign bank with a United States branch as a trustee to serve
with the U.S. Trustee), complies with paragraph (d)(1)(i)(B) or (C) of
this section, or is subject to and complies with the foreign real
property requirements of paragraph (d)(1)(ii) of this section, the
trust immediately ceases to qualify as a QDOT if the trust utilizes any
device or arrangement that has, as a principal purpose, the avoidance
of liability for the estate tax imposed under section 2056A(b)(1), or
the prevention of the collection of the tax. For example, the trust may
become subject to this paragraph (d)(1)(v) if the U.S. Trustee that is
selected is a domestic corporation established with insubstantial
capitalization by the surviving spouse or members of the spouse's
family.
(2) Individual trustees. If the U.S. Trustee is an individual
United States citizen, the individual must have a tax home (as defined
in section 911(d)(3)) in the United States.
(3) Annual reporting requirements--(i) In general. The U.S. Trustee
must file a written statement described in paragraph (d)(3)(iii) of
this section, if the QDOT satisfies any one of the following criteria
for the applicable reporting years--
(A) The QDOT directly owns any foreign real property on the last
day of its taxable year (or the last day of the calendar year if it has
no taxable year), and the QDOT does not satisfy the requirements of
paragraph (d)(1)(i) (A), (B), or (C) or (d)(4) of this section by
employing a bank as trustee or providing security; or
(B) The personal residence previously subject to the exclusion
under paragraph (d)(1)(iv) of this section is sold, or that personal
residence ceases to be used, or held for use, as a personal residence,
during the taxable year (or during the calendar year if the QDOT does
not have a taxable year); or
(C) After the application of the look-through rule contained in
paragraph (d)(1)(ii)(B) of this section, the QDOT is treated as owning
any foreign real property on the last day of the taxable year (or the
last day of the calendar year if the QDOT has no taxable year), and the
QDOT does not satisfy the requirements of paragraph (d)(1) (A), (B),
(C) or (d)(4) of this section by employing a bank as trustee or
providing security.
(ii) Time and manner of filing. The written statement, containing
the information described in paragraph (d)(3)(iii) of this section, is
to be filed for the taxable year of the QDOT (calendar year if the QDOT
does not have a taxable year) for which any of the events or conditions
requiring the filing of a statement under paragraph (d)(3)(i) of this
section have occurred or have been satisfied. The written statement is
to be submitted to the Internal Revenue Service by filing a Form 706-
QDT, with the statement attached, no later than April 15th of the
calendar year following the calendar year in which or with which the
taxable year of the QDOT ends (or by April 15th of the following year
if the QDOT has no taxable year), unless an extension of time is
obtained under Sec. 20.2056A-11(a). The Form 706-QDT, with attached
statement, must be filed regardless of whether the Form 706-QDT is
otherwise required to be filed under the provisions of this chapter.
Failure to file timely the statement may subject the QDOT to the rules
of paragraph (d)(1)(v) of this section.
(iii) Contents of statement. The written statement must contain the
following information--
(A) The name, address, and taxpayer identification number, if any,
of the U.S. Trustee and the QDOT; and
(B) A list summarizing the assets held by the QDOT, together with
the fair market value of each listed QDOT asset, determined as of the
last day of the taxable year (December 31 if the QDOT does not have a
taxable year) for which the written statement is filed. If the look-
through rule contained in paragraph (d)(1)(ii)(B) of this section
applies, then the partnership, corporation, trust or other entity must
be identified and the QDOT's pro rata share of the foreign real
property and other assets owned by that entity must be listed on the
statement as if directly owned by the QDOT; and
(C) If a personal residence previously subject to the exclusion
under paragraph (d)(1)(iv) of this section is sold during the taxable
year (or during the calendar year if the QDOT does not have a taxable
year), the statement must provide the date of sale, the adjusted sales
price (as defined in section 1034(b)(1)), the extent to which the
amount of the adjusted sales price has been or will be used to purchase
a new
[[Page 60559]]
personal residence and, if not timely reinvested, the steps that will
or have been taken to comply with paragraph (d)(1)(i) of this section,
if applicable; and
(D) If the personal residence ceases to be used, or held for use,
as a personal residence by the surviving spouse during the taxable year
(or during the calendar year if the QDOT does not have a taxable year),
the written statement must describe the steps that will or have been
taken to comply with paragraph (d)(1)(i) of this section, if
applicable.
(4) Request for alternate arrangement or waiver. If the
Commissioner provides guidance published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2) of this chapter) pursuant to which a
testator, executor, or the U.S. Trustee may adopt an alternate plan or
arrangement to assure collection of the section 2056A estate tax, and
if the alternate plan or arrangement is adopted in accordance with the
published guidance, then the QDOT will be treated, subject to paragraph
(d)(1)(v) of this section, as meeting the requirements of paragraph
(d)(1) of this section. Until this guidance is published in the
Internal Revenue Bulletin (see Sec. 601.601(d)(2) of this chapter),
taxpayers may submit a request for a private letter ruling for the
approval of an alternate plan or arrangement proposed to be adopted to
assure collection of the section 2056A estate tax in lieu of the
requirements prescribed in this paragraph (d)(4).
(5) Adjustment of dollar threshold and exclusion. The Commissioner
may increase or decrease the dollar amounts referred to in paragraph
(d)(1)(i), (ii) or (iv) of this section in accordance with guidance
published in the Internal Revenue Bulletin (see Sec. 601.601(d)(2) of
this chapter).
(6) Effective date and special rules. (i) This paragraph (d) is
effective for estates of decedents dying after February 19, 1996.
(ii) Special rule in the case of incompetency. A revocable trust or
a trust created under the terms of a will is deemed to meet the
governing instrument requirements of this paragraph (d) notwithstanding
that the requirements are not contained in the governing instrument (or
otherwise incorporated by reference) if the trust instrument (or will)
was executed on or before November 20, 1995, and--
(A) The testator or settlor dies after February 19, 1996;
(B) The testator or settlor is, on November 20, 1995, and at all
times thereafter, under a legal disability to amend the will or trust
instrument;
(C) The will or trust instrument does not provide the executor or
the U.S. Trustee with a power to amend the instrument in order to meet
the requirements of section 2056A; and
(D) The U.S. Trustee provides a written statement with the federal
estate tax return (Form 706 or 706NA) that the trust is being
administered (or will be administered) so as to be in actual compliance
with the requirements of this paragraph (d) and will continue to be
administered so as to be in actual compliance with this paragraph (d)
for the duration of the trust. This statement must be binding on all
successor trustees.
(iii) Special rule in the case of certain irrevocable trusts. An
irrevocable trust is deemed to meet the governing instrument
requirements of this paragraph (d) notwithstanding that the
requirements are not contained in the governing instrument (or
otherwise incorporated by reference) if the trust was executed on or
before November 20, 1995, and:
(A) The settlor dies after February 19, 1996;
(B) The trust instrument does not provide the U.S. Trustee with a
power to amend the trust instrument in order to meet the requirements
of section 2056A; and
(C) The U.S. Trustee provides a written statement with the
decedent's federal estate tax return (Form 706 or 706NA) that the trust
is being administered in actual compliance with the requirements of
this paragraph (d) and will continue to be administered so as to be in
actual compliance with this paragraph (d) for the duration of the
trust. This statement must be binding on all successor trustees.
Sec. 20.2056A-2T [Removed]
Par. 3a. Section 20.2056A-2T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 4. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 5. In Sec. 602.101, paragraph (c) is amended by:
1. Removing the following entry from the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
20.2056A-2T(d)...................................... 1545-1443
* * * * *
------------------------------------------------------------------------
2. Adding the following entry in numerical order to the table to
read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
20.2056A-2.......................................... 1545-1443
* * * * *
------------------------------------------------------------------------
Approved: September 19, 1996.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-29827 Filed 11-27-96; 8:45 am]
BILLING CODE 4830-01-U
