Internal Revenue Service
Revenue Ruling
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smRev. Rul. 73-47
1973-1 C.B. 397
IRS Headnote
Credit for tax on prior transfers may not be waived in whole or in part and each transfer meeting the requirements of section 2013 of the Code must be taken into account in computing the credit.
Full Text
Rev. Rul. 73-47
Advice has been requested whether, for purposes of computing the credit for tax on prior transfers under section 2013 of the Internal Revenue Code of 1954, it is necessary to take into account every previously taxed transfer received by the decedent during the period starting 10 years before and ending 2 years after his death.
During the 10-year period prior to his death, the decedent received legacies from the estate of a deceased uncle and the estate of a deceased grandmother. The uncle died 3 years before the decedent and the grandmother died 7 years before the decedent. The transfer from the uncle is valued at $90,000.00, and the transfer from the grandmother is valued at $10,000.00, for purposes of section 2013 of the Code. The transferor's tax deemed attributable to each transfer under section 2013(b) of the Code is $43,000.00 and $615.00, respectively.
The computation of the decedent's taxable estate is summarized as follows:
Gross estate $200,000.00
Less:
Debts and expenses $20,000.00
Charitable deduction 0.00
Marital deduction 0.00
Exemption 60,000.00 80,000.00
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Taxable estate $120,000.00
The net Federal estate tax thereon, after allowance of the maximum credit for state death tax but before allowance of any credit for prior transfer taxes, is $25,820.00.
Section 2013(a) of the Code provides, in part, that the tax imposed by section 2001 of the Code shall be credited with all or part of the amount of the Federal estate tax paid with respect to the transfer of an interest in property to a decedent (the transferee) from a person (the transferor) who died within 10 years before, or within 2 years after, the decedent's death.
The amount of Federal estate tax considered as "paid with respect to a transfer" is limited to the lesser of two limitations. These two limitations are described in Code sections 2013(b) and 2013(c), respectively. The first limitation is the portion of the transferor's Federal estate tax that is attributable to the value of the property transferred. And the second limitation is the portion of the transferee's Federal estate tax that is attributable to the value of the property transferred.
Section 2013(a) of the Code provides that the lesser of the two limitations determined under Code section 2013(b) or 2013(c) shall be multiplied by a reduction percentage of 80 percent or less if the transfer occurred more than 2 years prior to the death of the decedent. This reduction percentage decreases by 20 percent increments at 2-year intervals so that credit for a transfer of 10 years or more is reduced to zero.
When there are two or more transferor estates, the section 2013(b) first limitation on the prior transfer tax credit is computed separately for each transferor estate. However, the second limitation for each transferor estate is to be computed concurrently whenever there are two or more transferor estates. Section 2013(c)(2) of the Code states:
(2) TWO OR MORE TRANSFERS.--If the credit provided in this section relates to property received from 2 or more transferors, the limitation provided in paragraph (1) of this subsection shall be computed by aggregating the value of the property so transferred to the decedent. The aggregate limitation so determined shall be apportioned in accordance with the value of the property transferred to the decedent by each transferor.
The details of the second limitation computation for the two transfers are as follows:
(SECOND LIMITATION)
Transferee's net tax before
section 2013 credit $25,820.00
Transferee's gross estate $200,000.00
Less transfers
Uncle's transfer $90,000.00
Grandmother's transfer 10,000.00 100,000.00
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Transferee's reduced gross
estate $100,000.00
Less deductions for reduced
estate 80,000.00
-----------
Reduced taxable estate $ 20,000.00
Net Federal estate tax thereon 1,600.00
---------
Subtract to obtain transfe-
ree's tax on transfers $24,220.00
Apportion tax to transfers
on basis of value ratios:
Transferor: Uncle Grandmother Total
Transfer values: $90,000.00 $10,000.00 $100,000.00
Value ratios: .90 .10 1.00
Second limitation: $21,798.00 $ 2,422.00 $24,220.00
The second limitation applies for the uncle's transfer because the first limitation amount $43,000.00 exceeds the second limitation amount $21,798.00. However, the first limitation amount $615.00 for the grandmother's transfer is less than the $2,422.00 second limitation. The lesser limitation for each respective transfer is then reduced by the percentage prescribed in section 2013(a) of the Code:
Uncle Grandmother Total
Lesser limitation $21,798.00 $615.00
Times percentage X 80% X 40%
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Credit allowable $17,438.40 $246.00 $17,684.40
If the transfer from the grandmother were not taken into account, the section 2013 credit for the transfer from the uncle would be $18,256.00, instead of $17,684.40. Thus, if it were permissible under section 2013 of the Code, it would be to the taxpayer's advantage in this case to take into account the uncle's transfer but not the grandmother's transfer.
Section 2013 of the Code does not permit the estate to elect to waive the prior transfer tax credit with respect to any transfer that meets the requirements of section 2013. The repeated use of the word "shall" in each subsection of section 2013 of the Code indicates the mandatory, rather than permissive, nature of the credit for tax on prior transfers. See Revenue Ruling 59-123, 1959-1 C.B. 248, which holds that in view of the mandatory language "shall" in section 2056 of the Code, the estate tax marital deduction authorized by that section may not be waived by the taxpayer.
Accordingly, it is held that the credit for tax on prior transfers, authorized by section 2013 of the Code, may not be waived, in whole or in part, and that each transfer meeting the requirements of section 2013 must be taken into account in computing the credit.