Internal Revenue Service
Revenue Ruling
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smRev. Rul. 59-73
1959-1 C.B. 234
IRS Headnote
The credit allowable under section 2013(b) of the Internal Revenue Code of 1954 for tax on prior transfers is not limited to the actual tax paid by the estate of the immediately preceeding transferor but may, in cases where a credit or deduction was allowed in the prior estate under section 2012 (or corresponding provisions of prior laws), section 2013 of the 1954 Code, or section 812(c) of the Internal Revenue Code of 1939, be smaller, the same, or greater than the actual Federal estate tax paid.
Full Text
Rev. Rul. 59-73
Advice has been requested concerning the method to be used for the computation of the credit allowable under section 2013(b) of the Internal Revenue Code of 1954, where a decedent's estate includes property which has previously been taxed in the estates of transferor decedents.
A died on October 1, 1952, bequeathing all his property to B . This property was taxed in A's estate. B died January 1, 1953, bequeathing his entire estate to C who died December 1, 1954. B , the second transferor, possessed a gross estate of $400,000, of which $100,000 was property previously taxed in the estate of A . Debts and charges amounted to $40,000. All property was subject to general claims. State death taxes were paid in the amount of $3,480, the maximum credit allowable.
Inasmuch as B died prior to August 16, 1954, the provisions of the Internal Revenue Code of 1939 governed the computation of his estate tax. The computation was as follows:
FOR BASIC TAX
B's total gross estate................................ $400,000
Debts and charges.............................. $40,000
Specific exemption............................. 100,000
--------
Total deduction, except property
previously taxed............................. $140,000
proportionate reduction..... $100,000
Proportionate reduction
100,000
------- X 140,000............... 35,000
400,000 --------
Net deduction for property
previously taxed................................... 65,000
--------
Total deductions........................................... 205,000
--------
New estate for basic tax................................... $195,000
========
FOR ADDITIONAL TAX
B's total gross estate................................ $400,000
Debts and charges.............................. $40,000
Specific exemption............................. 60,000
--------
Total deductions, except property
previously taxed............................. $100,000
Deduction for property previously without
proportionate reduction.............. $100,000
Proportionate reduction
100,000
------- X 100,000............... 25,000
400,000 --------
Net deduction for property
previously taxed................................... $75,000
--------
Total deductions........................................... 175,000
--------
Net estate for additional tax.............................. $225,000
========
Basic tax, gross.................................... $4,350
Credit for State death taxes........................ 3,480
--------
Net basic tax.............................................. $870
Total gross taxes, basic and additional............. $58,200
Less: Basic tax, gross......................... 4,350
--------
Net additional tax......................................... 53,850
--------
B's net estate tax......................................... $54,720
========
Since C died on December 1, 1954, his tax would be computed under the provisions of the 1954 Code. The computation of credit for C's estate tax under section 2013(b) of the Code is as follows:
NET VALUE OF TRANSFERS
Transferor's (B's) gross estate....................... $400,000
Debts and charges.............................. $40,000
Federal estate tax............................. 54,720
State death taxes.............................. 3,480 98,200
------- --------
Net value of transfers................................ $301,800
========
VALUE OF TRANSFEROR'S (B'S) ESTATE, ADJUSTED
Net estate for basic tax.............................. $195,000
Specific exemption.................................... 100,000
--------
$295,000
Federal estate tax............................. $54,720
State death taxes.............................. 3,480 58,200
------- --------
Value of transferor's estate, basic tax............... $236,800
========
Net estate for additional tax......................... $225,000
Specific exemption.................................... 60,000
--------
$285,000
Federal estate tax............................. $54,720
State death taxes.............................. 3,480 58,200
------- --------
Value of transferor's estate, additional tax.......... $226,800
========
TAX ON TRANSFEROR'S (B'S) ESTATE
Basic tax............................................. $870
Additional tax........................................ $53,850
TRANSFEROR'S (B'S) TAX ON PRIOR TRANSFERS
Basic Tax:
301,800
------- X 870 = ............................ $1,108.81
236,800
Additional tax:
301,800
------- X 53,850 = ......................... 71,657.54
226,800 ---------
Credit under section 2013(b) for C's estate tax............ $72,766.35
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It should be noted that, under the circumstances of this case, the credit to C's estate under section 2013(b) exceeds the Federal estate tax actually paid in the estate of B , the transferor. It should also be noted that a similar result (credit larger than tax paid in estate of transferor) would be obtained had B died on September 1, 1954, in which case his estate would have received the benefit of a credit for tax on prior transfers, under section 2013 of the 1954 Code, instead of a deduction for property previously taxed, under section 812(c) of the 1939 Code.
If B died on September 1, 1954, the 1954 Code provisions would apply. Assuming that the limitation under section 2013(c) of the Code is applicable and that State death taxes are $5,520, the maximum credit allowable, the computation of tax in B's estate would be as follows:
B's total gross estate........................ $400,000
Debts and charges................ $40,000
Specific exemption............... 60,000 100,000
-------- --------
Taxable estate............................ 300,000
Net tax............................................... $76,180
Reduced gross estate:
Total gross estate......... $400,000
Transfers.................. 100,000 $300,000
--------
Debts and charges............... 40,000
Specific exemption.............. 60,000 100,000
-------- --------
Reduced taxable estate................... 200,000
Net tax.................................................... 48,060
-------
Credit allowable........................................... $28,120
=======
NET TAX PAYABLE
Tax before credit.............................. $76,180
Credit allowable............................... 28,120
--------
Net tax............................................... $48,060
=======
In that case, the computation of credit under section 2013(b) of the 1954 Code in C's estate is as follows:
NET VALUE OF TRANSFERS
Transferor's (B's) gross estate....................... $400,000
Debts and charges.............................. $40,000
Federal estate tax............................. 48,060
State death taxes.............................. 5,520 93,580
------- --------
Net value of transfers................................ $306,420
VALUE OF TRANSFEROR'S ESTATE, ADJUSTED
Taxable estate........................................ $300,000
Specific exemption.................................... 60,000
--------
$360,000
Federal estate tax............................. $48,060
State death taxes.............................. 5,520 53,580
------- --------
Value of transferor's estate.......................... $306,420
TAX ON TRANSFEROR'S ESTATE, ADJUSTED
Federal estate tax paid........................ $48,060
Credit for tax on prior transfers.............. 28,120 $76,180
-------
=======
TRANSFEROR'S TAX ON PRIOR TRANSFERS
306,420
------- X 76,180 =.................................... $76,180
306,420
=======
306,420
Credit allowable under section 2013(b) of the Code
for C's estate............................................ $76,180
=======