[Federal Register Volume 64, Number 3 (Wednesday, January 6, 1999)]
[Proposed Rules]
[Pages 790-794]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-176]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-114841-98]
RIN 1545-AW57


Separate Share Rules Applicable to Estates

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that provide that 
substantively separate and independent shares of different 
beneficiaries are to be treated as separate estates for purposes of 
computing the distributable net income. These proposed regulations also 
provide that a surviving spouse's statutory elective share of a 
decedent's estate is a separate share. Further, a revocable trust that 
elects to be treated as part of a decedent's estate is a separate 
share. Section 1307 of the Taxpayer Relief Act of 1997 amended section 
663 of the Internal Revenue Code by extending the separate share rules 
to estates. These proposed regulations affect estates of decedents. 
This document also provides notice of a public hearing on these 
proposed regulations.

DATES: Written and electronic comments must be received by April 6, 
1999. Outlines of topics to be discussed at the public hearing 
scheduled for April 22, 1999, at 10 a.m. must be received by April 1, 
1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-114841-98), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
114841-98), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
comments electronically via the internet by selecting the ``Tax Regs'' 
option on the IRS Home Page, or by submitting comments directly to the 
IRS internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal 
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Laura 
Howell, (202) 622-3060; concerning submissions of comments, the 
hearing, and/or to be placed on the building access list to attend the 
hearing, Michael L. Slaughter, Jr., (202) 622-7190 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

Background

    Prior to amendment by Section 1307 of the Taxpayer Relief Act of 
1997, Pub. L. 105-34, August 5, 1997, (TRA 1997), section 663(c) of the 
Internal Revenue Code (Code) provided that, for the purpose of 
determining the amount of distributable net income in the application 
of sections 661 and 662, in the case of a single trust having more than 
one beneficiary, substantially separate and independent shares of 
different beneficiaries (or classes of beneficiaries) of the trust 
shall be treated as separate trusts. The application of the separate 
share rule is mandatory where separate shares exist. Section 1.663(c)-
1(d) and H.R. Conf. Rep. No. 2014, 105th Cong. 1st Sess. 712-13 and fn. 
18.
    Section 1307 of TRA 1997 amended section 663(c) of the Code by 
extending the separate share rule to estates. Prior to this amendment, 
a distribution to an estate beneficiary in the ordinary course of 
administration often resulted in the beneficiary being taxed on a 
disproportionate share of the estate's income. The extension of the 
separate share rule to estates promotes fairness by more rationally 
allocating the income of the estate among the estate and its 
beneficiaries thereby reducing the distortion that may occur when a 
disproportionate distribution of estate assets is made to one or more 
estate beneficiaries in a year when an estate has distributable net 
income. Under the separate share rule, a beneficiary is taxed only on 
the amount of income that belongs to that beneficiary's separate share.
    In addition, section 1305 of TRA 1997 added section 645 to the Code 
(originally enacted as section 646 and redesignated as section 645 by 
the Internal Revenue Service Restructuring and Reform Act of 1998). 
Under section 645, both the executor (if any) of an estate and the 
trustee of a qualified revocable trust may elect to treat the revocable 
trust as part of the decedent's probate estate for income tax purposes. 
The legislative history for section 1305 provides that the separate 
share rule applicable to estates will apply when a qualified revocable 
trust elects to be treated as part of the decedent's estate.

Explanation of Provisions

    The proposed regulations conform the current regulations to the 
statutory changes. In addition, the proposed regulations address two 
specific matters involving separate share treatment of interests in 
estates: the treatment of the spousal elective share and the treatment 
of an electing revocable trust under section 645 of the Code.

General Separate Share Rule

    If an estate has multiple beneficiaries, substantially separate and 
independent shares of different beneficiaries (or classes of 
beneficiaries) are to be treated

[[Page 791]]

as separate estates only for purposes of computing distributable net 
income. There are separate shares in an estate when the governing 
instrument of the estate and applicable local law create separate 
economic interests in one beneficiary or class of beneficiaries such 
that the economic interests of those beneficiaries (e.g., rights to 
income or gains from specified items of property) are not affected by 
the economic interests accruing to another separate beneficiary or 
class of beneficiaries. Thus, there are separate shares in an estate 
when a beneficiary or class of beneficiaries has an interest in a 
decedent's estate (whether corpus or income, or both) that no other 
beneficiary or class of beneficiaries has in the decedent's estate. The 
application of the separate share rule to estates is mandatory where 
separate shares exist. The separate share rule requires that the 
estate's income and deductions be allocated among the separate shares 
as if they were separate estates. The section 661 deduction to the 
estate and the section 662 inclusion in the gross income of the 
beneficiary are limited by the distributable net income allocable to 
each separate share.
    These proposed regulations do not change the rules involving 
specific gifts and bequests described in section 663(a).

Surviving Spouse's Elective Share

    Most non-community property states have some form of elective share 
statute which replaces common law dower and curtesy (the common law 
protection for surviving spouses). Generally, an elective share statute 
gives the surviving spouse the right to claim a share of the deceased 
spouse's estate if the surviving spouse is disinherited or dissatisfied 
with what the spouse would have received under the will or otherwise. 
In most states the elective share consists of a fraction, ranging from 
one-fourth to one-half of the decedent's estate. Elective share 
statutes vary as to when the share vests and whether the share includes 
a portion of the estate income, as well as whether the share 
participates in the appreciation or depreciation of the estate's 
assets.
    Rev. Rul. 64-101 (1964-1 C.B. 77) addresses the Florida statutory 
dower interest which, at the time of the revenue ruling, entitled the 
widow to the dower interest and mesne profits thereon. The ruling holds 
that the value of assets transferred to the widow as dower is not a 
distribution to a beneficiary subject to sections 661(a) and 662(a) of 
the Code. Instead, the transfer of assets is governed by section 102.
    Rev. Rul. 71-167 (1971-1 C.B. 163) modifies Rev. Rul. 64-101 by 
holding that the amount distributed to the widow representing mesne 
profits is subject to sections 661(a) and 662(a) of the Code. 
Therefore, an amount corresponding to the allowable deduction to the 
estate under section 661(a) is includible in the gross income of the 
widow under section 662(a).
    Recently, two cases, Deutsch v. Commissioner, TCM 1997-470, and 
Brigham v. United States, 983 F. Supp. 46, (D. Mass. 1997), have 
addressed how to treat payments to the surviving spouse in satisfaction 
of the spouse's elective share amount. In Deutsch, the surviving spouse 
elected to take against the decedent's will as provided by the Florida 
elective share statute. Under the statute, the surviving spouse was 
entitled to 30 percent of the net estate based upon date of death 
values, but was not entitled to any income of the estate, and did not 
participate in appreciation or depreciation of the estate assets. The 
Tax Court, noting Rev. Rul. 64-101, held that payments to the surviving 
spouse in satisfaction of her elective share amount were not subject to 
sections 661(a) and 662(a). Rather, the payments were governed by 
section 102.
    In Brigham, the surviving spouse elected to take against the 
decedent's will as provided by the New Hampshire elective share 
statute. Under the statute, the surviving spouse was entitled to one-
third of the personalty and one-third of the real estate. The court 
held that the payments made to the surviving spouse in satisfaction of 
her elective share amount were subject to sections 661(a) and 662(a). 
Thus, the court held that all of the estate's distributable net income 
was taxable to the surviving spouse because she was the only 
beneficiary to receive a distribution for the year in question and her 
distribution exceeded the amount of the estate's distributable net 
income.
    In light of the uncertainty concerning the proper treatment of 
payments in satisfaction of a surviving spouse's elective share, and 
also given that Rev. Ruls. 64-101 and 71-167 are outdated because dower 
has been replaced by elective share statutes in most states, the 
Internal Revenue Service and Treasury have concluded that regulatory 
guidance is needed to provide uniform treatment.
    These proposed regulations provide that the surviving spouse's 
elective share constitutes a separate share of the estate for the sole 
purpose of determining the amount of distributable net income in 
application of sections 661(a) and 662(a). Therefore, only the income 
that is (1) allocable to the surviving spouse's separate share for a 
taxable year, and (2) distributed to the surviving spouse in 
satisfaction of the elective share will be treated as a distribution 
subject to sections 661(a) and 662(a). This approach results in the 
surviving spouse being taxed on the estate's income earned during 
administration only to the extent of the surviving spouse's right to 
share in the estate's income under state law. Comments are requested on 
whether there are situations in which an elective share or dower 
interest would not be a separate share under the separate economic 
interest test set forth in the proposed regulations.

Electing Revocable Trust To Be a Part of Estate

    These proposed regulations provide that a qualified revocable trust 
that elects to be treated as part of the decedent's estate constitutes 
a separate share for the sole purpose of determining the amount of 
distributable net income in the application of sections 661 and 662. A 
separate proposed regulation project will provide further guidance 
concerning qualified revocable trusts that are treated as part of an 
estate.

Proposed Effective Date

    These regulations apply to estates of decedents dying after the 
date that the Treasury decision adopting these rules as final 
regulations is published in the Federal Register.

Effect on Other Documents

    When these regulations are finalized, Rev. Rul. 64-101 (1964-1 C.B. 
77) and Rev. Rul. 71-167 (1971-1 C.B. 163) will be obsolete.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12886. Therefore, 
a regulatory assessment is not required. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these regulations, and because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking will be submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

[[Page 792]]

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic and written comments (a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. The IRS and Treasury specifically request comments on the clarity 
of the proposed regulation and how it may be made easier to understand. 
All comments will be available for public inspection and copying. We 
especially request comments concerning the treatment of pecuniary 
bequests (including formula pecuniary bequests) as separate shares.
    A public hearing has been scheduled for April 22, 1999, beginning 
at 10 a.m. The hearing will be held in room 2615, Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC. Due to 
building security procedures, visitors must enter at the 10th Street 
entrance, located between Constitution and Pennsylvania Avenues, NW. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 15 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by April 6, 1999, and submit an outline of topics 
to be discussed and the time to be devoted to each topic (a signed 
original and eight (8) copies) by April 1, 1999.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Laura Howell of the 
Office of Assistant Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *

Section 1.663(c)-1 also issued under 26 U.S.C. 663(c).
Section 1.663(c)-2 also issued under 26 U.S.C. 663(c).
Section 1.663(c)-3 also issued under 26 U.S.C. 663(c).
Section 1.663(c)-4 also issued under 26 U.S.C. 663(c).
Section 1.663(c)-5 also issued under 26 U.S.C. 663(c).
Section 1.663(c)-6 also issued under 26 U.S.C. 663(c). * * *

    Par. 2. Section 1.663(c)-1 is amended as follows:
    1. The section heading is revised.
    2. The first sentence of paragraph (a) is amended by removing the 
language ``trust'' and adding the language ``trust (or estate)'' in its 
place and removing the language ``trusts'' and adding the language 
``trusts (or estates)'' in its place. The second sentence of paragraph 
(a) is amended by removing the language ``trusts'' and adding the 
language ``trusts (or estates)'' in its place.
    3. Paragraph (b)(2) is removed.
    4. Paragraphs (b)(3) and (b)(4) are redesignated as paragraphs 
(b)(2) and (b)(3).
    5. Paragraph (b) introductory text, is amended by removing the 
language ``trusts'' and adding the language ``trusts (or estates)'' 
each place it appears.
    6. Paragraph (c) and the last sentence of paragraph (d) are amended 
by removing the language ``trust'' and adding the language ``trust (or 
estate)'' in its place.
    The revision reads as follows:


Sec. 1.663(c)-1  Separate shares treated as separate trusts or as 
separate estates; in general.

* * * * *
    Par. 3. Section 1.663(c)-2 is revised to read as follows:


Sec. 1.663(c)-2  Computation of distributable net income.

    The amount of distributable net income for any share under section 
663(c) is computed for each share as if each share constituted a 
separate trust or estate. Accordingly, any deduction or any loss which 
is applicable solely to one separate share of the trust or estate is 
not available to any other share of the same trust or estate.
    Par. 4. Section 1.663(c)-3 is amended by revising the section 
heading and removing paragraph (f) to read as follows:


Sec. 1.663(c)-3  Applicability of separate share rule to trusts.

* * * * *


Sec. 1.663(c)-4  [Redesignated as Sec. 1.663(c)-5]

    Par. 5. Section 1.663(c)-4 is redesignated as Sec. 1.663(c)-5 and a 
new Sec. 1.663(c)-4 is added to read as follows:


Sec. 1.663(c)-4  Applicability of separate share rule to estates.

    (a) General rule. The applicability of the separate share rule to 
estates provided by section 663(c) will generally depend upon whether 
the governing instrument and applicable local law create separate 
economic interests in one beneficiary or class of beneficiaries of the 
decedent's estate such that the economic interests of the beneficiary 
or class of beneficiaries are not affected by economic interests 
accruing to another beneficiary or class of beneficiaries. A separate 
share should be allocated only the share of the estate's income and 
deductions that the beneficiary (or beneficiaries) of such separate 
share is (or are) entitled to (if any) under the terms of the governing 
instrument or local law. The separate share rule does not affect rules 
under section 663(a) concerning specific gifts and bequests.
    (b) Examples of separate shares. Separate shares include--
    (1) A surviving spouse's elective share;
    (2) A revocable trust that elects to be part of the decedent's 
estate under section 645;
    (3) The residuary estate, or some portion of the residuary estate, 
if the requirements of paragraph (a) of this section are met; and
    (4) A gift or bequest of a specific sum of money or of specific 
property that is paid or credited in more than three installments, if 
the requirements of paragraph (a) of this section are met.
    (c) Shares with multiple beneficiaries and beneficiaries of 
multiple shares. A share may be considered as separate even though more 
than one beneficiary has an interest in it. For example, two 
beneficiaries may have equal, disproportionate, or indeterminate 
interests in one share which is economically separate and independent 
from another share in which one or more beneficiaries have an interest. 
Moreover, the same person may be a beneficiary of more than one 
separate share.
    Par. 6. Newly designated Sec. 1.663(c)-5 is amended by:

[[Page 793]]

    1. Revising the section heading and introductory text.

    2. Redesignating the ``Example.'' as ``Example 1.'' and 
redesignating paragraphs (a), (b), (c), (d), and (e) in newly 
designated Example 1 as paragraphs (i), (ii), (iii), (iv), and (v).

    3. Adding Example 2, Example 3, and Example 4.

    The revisions and addition read as follows:

Sec. 1.663(c)-5

  Examples.

    Section 663(c) may be illustrated by the following examples:


    Example 1. * * *

    Example 2. (i) Facts. (A) Testator died domiciled in State X on 
January 30, 1999, leaving an estate of $40,000,000 after debts, 
expenses, and estate taxes, and survived by a spouse and three adult 
children from a previous marriage. Testator's will directed the 
executrix to pay the surviving spouse $1,000,000 in cash and divide 
the residue, after payment of debts, expenses, and estate taxes, 
equally among Testator's three children.

    (B) The surviving spouse filed an election under State X's 
elective share statute. The court determined that the surviving 
spouse's election was valid and ordered the executrix to pay the 
elective share. Under State X's elective share statute, a surviving 
spouse is entitled to one-fourth of a decedent's estate after debts, 
expenses, and estate taxes if the decedent had children. Further, 
the surviving spouse is entitled to a proportional amount of the 
estate net income and participates proportionally in appreciation or 
depreciation of the estate's assets.

    (C) The executrix elected the calendar year for the estate. On 
June 30, 1999, the executrix distributed $5,000,000 to the surviving 
spouse in partial satisfaction of the elective share. During the 
1999 taxable year, the estate received dividend income of $2,000,000 
and paid expenses of $50,000. For the 1999 taxable year, the value 
of the estate neither appreciated nor depreciated. The executrix 
made no other distributions during the 1999 taxable year.

    (ii) Holding. Separate share treatment applies to each of the 
three residuary bequests, and to the surviving spouse's elective 
share.

    (iii) Application. (A) After determining the income and expenses 
for the estate, the executrix allocated a portion of the income and 
expenses to each separate share based upon each share's percentage 
of the estate. Thus, while the surviving spouse's elective share 
initially constituted 25% of the estate, after the partial 
distribution of $5,000,000 made on June 30, 1999, the elective share 
constituted a smaller percentage of the estate. Accordingly, the 
percentage of the estate's income and expenses allocated to the 
elective share after June 30, 1999, was correspondingly reduced in 
accordance with the executrix's determination of the proper 
allocation of income and expenses to the elective share.

    (B) For the 1999 taxable year, the estate is treated as having 
distributed to the surviving spouse the distributable net income 
that was allocated to the elective share. In accordance with section 
662, the surviving spouse must include in gross income for the 1999 
taxable year an amount equal to the distributable net income 
allocated to the surviving spouse's separate share and distributed 
to the surviving spouse for the 1999 taxable year. The estate will, 
accordingly, be allowed a deduction under section 661 for the amount 
of distributable net income allocated to the elective share and 
distributed to the surviving spouse.

    Example 3. (i) Facts. (A) Assume the same facts as in Example 2 
except that Testator died domiciled in State Y leaving an estate of 
$60,000,000 after debts, expenses, and estate taxes. Under State Y's 
elective share statute, the surviving spouse is entitled to the date 
of death value of one-third of the decedent's estate after debts, 
expenses, and taxes. The statute also provides that the surviving 
spouse is not entitled to any of the estate's income and does not 
participate in appreciation or depreciation of the estate's assets. 
Further, under the statute, the surviving spouse is entitled to 
interest on the elective share from the date of the court order 
directing the executrix to make payments.

    (B) The executrix elected the calendar year for the estate. 
During the 1999 taxable year, the estate received dividend income of 
$3,000,000, and paid administration expenses of $60,000 and paid the 
surviving spouse $1,000,000 of interest payments on the elective 
share. Also, during the 1999 taxable year, the executrix distributed 
$5,000,000 to the surviving spouse in partial satisfaction of the 
elective share. The executrix made no other distributions during the 
1999 taxable year.

    (ii) Holding. Separate share treatment applies to each of the 
three residuary bequests and to the surviving spouse's elective 
share.

    (iii) Application. The distributable net income of each child's 
residuary bequest is $980,000 (a 33.33% share of estate income less 
a 33.33% share of estate expenses). Because the surviving spouse was 
not entitled to any estate income under state law, no income is 
allocated to the spouse's separate share. The distribution in 
satisfaction of the spouse's elective share does not consist of any 
distributable net income and is not included in the spouse's gross 
income under section 662. The $1,000,000 of interest payment to the 
surviving spouse must be included in gross income of the spouse 
under section 61. Therefore, the estate is treated as having 
distributed to the surviving spouse $5,000,000 of amounts other than 
1999 estate income. Accordingly, the estate is not allowed a 
deduction under section 661 for the distribution made to the 
surviving spouse. The taxable income of the estate for the 1999 
taxable year is $2,939,400 ($3,000,000 (dividend income) minus 
$60,000 (expenses) and $600 (personal exemption)). The $1,000,000 
interest payment is a nondeductible personal interest expense 
described in section 163(h).

    Example 4. (i) Facts. (A) Testator died domiciled in State Z on 
February 14, 1999, survived by a spouse and two children. Testator's 
will contains a nonproportional funding fractional formula marital 
bequest for the surviving spouse with a residuary credit shelter 
trust for the lifetime benefit of the surviving spouse, and 
remainder to the two children on the surviving spouse's death. The 
date of death value of the estate is $1,650,000.

    (B) The executrix elected the calendar year for the estate. 
Under the fractional formula, the marital bequest constitutes 60% of 
the estate and the credit shelter trust constitutes 40% of the 
estate. Accordingly, the executrix claims a marital deduction of 
$990,000 on the estate tax return for the amount passing to the 
spouse under the fractional formula. On December 31, 1999, the 
executrix made a partial proportionate distribution of $1,000,000, 
$600,000 to the surviving spouse outright and $400,000 to the credit 
shelter trust. As of December 31, 1999, prior to the distribution, 
the value of Testator's estate had appreciated to $2,000,000.

    (C) During the 1999 taxable year, the estate made no other 
distributions, received dividend income of $20,000, and paid 
expenses of $8,000.

    (ii) Holding. Separate share treatment applies to the fractional 
formula marital bequest and the credit shelter trust.

    (iii) Application. (A) Because Testator provided for a 
fractional formula marital bequest in the will, the income and any 
appreciation in the value of the estate assets is proportionately 
allocated between the marital bequest share and the credit shelter 
trust share. Therefore, the distributable net income must be 
allocated 60% for the marital separate share and 40% for the credit 
shelter separate share.

    (B) The distributable net income allocable to the marital share 
is $7,200 (60% of estate income less 60% of estate expenses). 
Correspondingly, the distributable net income allocable to the 
credit shelter share is $4,800 (40% of estate income less 40% of 
estate expenses). Because the $600,000 amount distributed in partial 
satisfaction of the marital bequest exceeds the distributable net 
income of $7,200 allocated to the marital share, the estate is 
treated as having distributed to the surviving spouse $7,200 of 1999 
distributable net income and $592,800 of other amounts. Similarly, 
because the $400,000 distributed in partial satisfaction of the 
amount payable to the credit shelter trust exceeds the distributable 
net income of $4,800 allocated to the credit shelter trust share, 
the estate is treated as having distributed to the credit shelter 
trust $4,800 of 1999 distributable net income and $395,200 of other 
amounts. Accordingly, the estate is allowed a deduction of $12,000 
under section 661 for the 1999 taxable year. The taxable income of 
the estate is $0, computed as follows:

Dividends..........................................              $20,000
Deductions:
  Distribution to surviving spouse share...........    $7,200
  Distribution to credit shelter trust share.......     4,800
  Expenses.........................................     8,000

[[Page 794]]

 
  Personal exemption...............................       600
                                                       20,600
                                                    ----------
                                                        (600)
 

    (C) In accordance with section 662, the surviving spouse must 
include in gross income for the 1999 taxable year an amount equal to 
the distributable net income of the marital bequest share ($7,200) 
that was distributed to the surviving spouse. The credit shelter 
trust must include in gross income for the 1999 taxable year an 
amount equal to the distributable net income of the credit shelter 
trust share ($4,800) that was distributed to the credit shelter 
trust.

    Par. 7. Section 1.663(c)-6 is added to read as follows:


Sec. 1.663(c)-6  Effective date.

    Sections 1.663(c)-1 through 1.663(c)-5 concerning the application 
of the separate share rules to estates apply to estates of decedents 
dying after the final regulations are published in the Federal 
Register.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-176 Filed 1-5-99; 8:45 am]
BILLING CODE 4830-01-P