Rev. Rul. 81-85

1981-1 C.B. 452, 1981-11 I.R.B. 44.

                       Internal Revenue Service
                                 Revenue Ruling

               SPLIT GIFT MADE WITHIN 3 YEARS OF SPOUSES' DEATHS

                           Published: March 16, 1981

SECTION 2001.--IMPOSITION AND RATE OF TAX

(Also Sections 2035, 2513; 26 CFR 25.2513-1.)

  Split gift made within 3 years of spouses' deaths. If a decedent's spouse dies after the decedent, and a gift that the decedent consented to split is includible in the spouse's estate under section 2305 of the Code, the decedent's estate is entitled to recompute its tax as a result of section 2001(e).

ISSUE

  When a decedent's spouse dies after the decedent and a gift that the decedent consented to split is includible in the spouse's estate under section 2035 of the Internal Revenue Code, is the decedent's estate entitled to recompute its tax as a result of section 2001(e) of the Code?

FACTS

  G made a gift to G's child, A, on January 1, 1978. In accordance with section 2513(a) of the Code, G's spouse, D, consented to have the gift, for gift tax purposes, considered as made one-half by D. The gift tax was paid and the returns filed on May 15, 1978.  The gift tax was paid entirely from G's assets.  Neither G nor D made any other taxable gifts.

  On January 1, 1979, D died. No part of the split gift was includible in D's gross estate.  Rev. Rul. 54-246, 1954-1 C.B. 179.

  Under section 2001(b) of the Code, the estate tax, before the allowance of any credit, is computed by determining a tentative tax on the value of the taxable estate plus the adjusted taxable gifts and subtracting from that amount the tax payable on the gifts made after 1976.  The adjusted taxable gifts include only the value of the taxable gifts made by the decedent after 1976 that are not includible in the decedent's gross estate.  Accordingly, D's estate tax before allowance of any credit equaled the excess of the tentative tax on the sum of D's taxable estate and one-half of the amount of the 1978 split gift over the gift tax payable with respect to such one-half share of the gift.  D's estate filed the estate tax return and paid the estate tax on October 1, 1979.

  On January 1, 1980, G died. The total mount of the split gift, including the one-half share considered as made by D for gift tax purposes, and the total gift taxes thereon are includible in G's gross estate, because the gift was made within the last 3 years preceding G's death.  Section 2035(a) and (c) of the Code.

  D's estate then filed a timely claim for refund on the basis that, as a consequence of G's death within 3 years of the split gift, section 2001(e) entitles D's estate to recompute its tax.

LAW AND ANALYSIS

  Under section 2001(e) of the Code if the decedent's spouse was the donor of any split gift that is includible in the gross estate of the decedent's spouse by reason of section 2035 of the Code, the split gift is not included in the adjusted taxable gifts of the consenting spouse, and, consequently, the amount of the split gift is not added to the taxable estate in determining the tentative tax on the consenting spouse's estate.  Further, the tentative tax is not reduced by any amount of gift tax payable on the split gift.

  Section 2001(e) was added to the Code by section 702(h)(1) of the Revenue Act of 1978, Pub.L. 95-600, 1978-3 C.B. (Vol. 1) 1, 164.  The reason for the section was that Congress believed that where the full amount of the gift is included in the estate of the donor spouse, the consenting spouse's estate tax should be determined without regard to the gift, because the benefits of gift splitting have been generally eliminated by inclusion of the gift in the gross estate of the donor spouse.  H.R.Rep.No.95-700, 95th Cong., 1st Sess. 75 (1977);   S.Rep.No.95-745, 95th Cong., 2nd Sess. 89 (1978).

  The congressional intent underlying section 2001(e) is to prevent taxation of any part of a split gift in the consenting spouse's estate, when the full amount of the gift is includible in the gross estate of the donor spouse under section 2035 of the Code.  Therefore, in such instances, section 2001(e) applies, regardless of the order of death of the spouses.

HOLDING

  When the decedent's spouse dies after the decedent and a gift that the decedent consented to split is includible in the spouse's

estate under section 2035 of the Code, the decedent's estate is entitled to recompute its tax as a result of section 2001(e) of the Code.  The decedent's estate may obtain any amount due as a result of this recomputation by filing a timely claim for refund.

Rev. Rul. 81-85, 1981-1 C.B. 452, 1981-11 I.R.B. 44.