Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 68-49

1968-1 C.B. 304

Sec. 102

Sec. 661

Sec. 662

IRS Headnote

The distribution of real property, which comprises part of a residuary estate, is not deductible by the estate under section 661 of the Internal Revenue Code of 1954, nor is it includible in the distributee's gross income under section 662 of the Code since under local law title to such property passes directly from the decedent to his heirs or devisees. Such a distribution is subject to the general provisions of section 102 of the Code.

Full Text

Rev. Rul. 68-49

Advice has been requested whether distribution by the executor of real property, which comprises part of a residuary estate, is deductible by the estate under section 661 of the Internal Revenue Code of 1954 and includible in the distributee's gross income under section 662 of the Code.

Under the terms of the decedent's will, after providing for certain specific bequests, all of the rest, residue, and remainder of his real property was devised to a specific devisee. Included as part of the residuary estate was a building which was not needed for the payment of claims, expenses of administration, taxes, or legacies. Pursuant to a court order the executor relinquished possession and control of the building to the devisee. Under local law title to the real property passed directly from the decedent to his heirs or devisees even though possession remained in the administrator or executor.

Sections 661 and 662, under subchapter J of chapter 1, subtitle A, of the Code provide for the deductions allowable to an estate for distributions properly made and the inclusion of such distributions in the income of the beneficiaries.

Section 1.661(a)-2(e) of the Income Tax Regulations provides, in pertinent part, that there shall be excluded from the term `any other amounts properly paid or credited or required to be distributed' the value of any interest in real estate owned by a decedent, title to which under local law passes directly from the decedent to his heirs or devisees. This provision of the regulations applies even though the real property is in the possession of the executor or administrator during the period of administration. The exclusion also is not affected by section 663 of the Code, which provides for certain exceptions to insure that gifts and legacies of specific property will not be treated as distributions for purposes of sections 661 and 662 of the Code.

Accordingly, the distribution of the real property, which comprised part of the residuary estate, is not deductible by the estate under section 661 of the Code, nor is it includible in the devisee's gross income under section 662 of the Code since under local law title to such property passed directly from the decedent to his heirs or devisees. Such distribution is subject to the general provisions of section 102 of the Code relating to gifts and inheritances.