Internal Revenue Service
Revenue Ruling

TaxLinks.com   sm

 Rev. Rul. 68-80

1968-1 C.B. 348

Sec. 1014

IRS Headnote

A surviving spouse is not entitled, under section 1014(b)(6) of the Internal Revenue Code of 1954, to a new income tax basis on the death of her spouse for her separately owned property that had previously been converted from community property to separate property. This rule applies even though for the purpose of computing the adjusted gross estate under section 2056(c)(2)(C) of the Code the property was considered to be held as community property.

Full Text

Rev. Rul. 68-80

Advice has been requested with respect to the application of section 1014(b)(6) of the Internal Revenue Code of 1954 to the income tax basis of a surviving spouse's separate property that had been previously converted from community property to separate property.

H and W , husband and wife, owned real property in New Mexico as community property. In 1965 they moved to Virginia and traded their community property in New Mexico for real property in Virginia to which they took title as tenants in common. H died in 1966 and by will left his undivided one-half interest in the Virginia property to W .

For Federal estate tax purposes H's estate was valued as of the date of his death and his undivided one-half interest in the property in Virginia was included in his gross estate. The interest left to W , however, did not entitle the estate to a marital deduction because the property although separately owned by the husband had been converted from community property to separate property after December 31, 1941, and was considered to have been `held as * * * community property' under section 2056(c)(2)(C) of the Code.

Section 1014(b)(6) of the Code provides, in pertinent part, that in the case of decedents dying after December 31, 1947, property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State, is considered, for purposes of section 1014(a) of the Code, to have been acquired from or to have passed from the decedent if at least one-half of the whole of the community interest in such property was includible in determining the value of the decedent's gross estate under chapter 11 of subtitle B (section 2001 and following, relating to estate tax).

Thus, in this case, the basis of the property is its fair market value at the date of decedent's death. There is nothing in the Internal Revenue Code or regulations that would indicate that section 1014(b)(6) of the Code relating to `community property held' was intended to include separate property that had previously been converted from community property to separate property.

Accordingly, W's unadjusted basis in her undivided one-half interest in the Virginia property held as tenants in common at the date of H's death is her cost. Her unadjusted basis in the undivided one-half interest she acquired by inheritance from H is its fair market value at the time of H's death. See sections 1012 and 1014(a) of the Code.