[Federal Register Volume 70, Number 2 (Tuesday, January 4, 2005)]
[Rules and Regulations]
[Pages 295-296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-95]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 20 and 301

[TD 9172]
RIN 1545-BB12


Gross Estate; Election to Value on Alternate Valuation Date

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that amend Sec.  
20.2032-1(b) to reflect the change made to section 2032 of the Internal 
Revenue Code by the Deficit Reduction Act of 1984 and the technical 
change to that section made by the Tax Reform Act of 1986. In addition, 
the final regulations remove temporary regulation Sec.  301.9100-6T(b) 
of the Procedure and Administration Regulations so that estates that 
fail to make the alternate valuation election on the last estate tax 
return filed before the due date of the return, or on the first estate 
tax return filed after the due date of the return may request an 
extension of time to make the election under the provisions of 
Sec. Sec.  301.9100-1 and 301.9100-3. The final regulations affect 
estates that are required to file Form 706, United States Estate (and 
Generation-Skipping Transfer) Tax Return.

DATES: Effective Date: These regulations are effective January 4, 2005.
    Applicability Date: For dates of applicability, see Sec.  20.2032-
1(h).

FOR FURTHER INFORMATION CONTACT: Theresa M. Melchiorre at (202) 622-
7830 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On December 24, 2003, proposed regulations (REG-139845-02) were 
published in the Federal Register (68 FR 74534). The proposed 
regulations contained proposed amendments to the Estate Tax Regulations 
(26 CFR part 20) and the Procedure and Administration Regulations (26 
CFR part 301) relating to the election under section 2032 to value a 
decedent's gross estate on the alternate valuation date. The proposed 
regulations reflected changes that were made to section 2032 by the 
Deficit Reduction Act of 1984, Public Law 98-369 (98 Stat. 494). 
Written comments were received on the proposed regulations, and a 
public hearing was held on June 3, 2004. The proposed regulations, with 
certain changes in response to the written and oral comments, are 
adopted as final regulations.

Summary of Comments and Explanation of Provisions

Determination of Eligibility To Make the Alternate Valuation Election

    The proposed regulations provided that the alternate valuation 
election may be made only if the election results in a decrease both in 
the value of the gross estate and in the sum of the estate tax and 
generation-skipping transfer tax liability (reduced by credits 
allowable against these taxes). One commentator noted that it may not 
be possible to determine whether the election will reduce the sum of 
estate tax and generation-skipping transfer tax if the generation-
skipping transfer tax will not be imposed until a later time, as in the 
case of a later taxable termination or taxable distribution. In 
response to this comment, the final regulations provide that the 
determination of whether there has been a decrease in the sum of the 
estate tax and generation-skipping transfer tax liability (reduced by 
credits allowable against these taxes) is made with reference to the 
estate tax and generation-skipping transfer tax payable by reason of 
the decedent's death.

Availability of Relief Under Sec. Sec.  301.9100-1 and 301.9100-3

    In view of the 1-year limitation imposed under section 2032(d)(2), 
the proposed regulations provided that no request for an extension of 
time to make the alternate valuation election under the provisions of 
Sec. Sec.  301.9100-1 and 301.9100-3 will be granted if the request is 
submitted to the IRS more than 1 year after the due date of the return 
of tax imposed by section 2001 (including extensions of time actually 
granted). One commentator argued that the 1-year limitation in section 
2032(d)(2) applies only to late-filed returns, and therefore should not 
limit the availability of relief under Sec. Sec.  301.9100-1 and 
301.9100-3 to make a late alternate valuation election if the taxpayer 
timely filed its return, but failed to make the election on the return. 
After considering the language and intent of section 2032 and 
Sec. Sec.  301.9100-1 and 301.9100-3, the IRS and Treasury Department 
have determined that taxpayers may request relief under Sec. Sec.  
301.9100-1 and 301.9100-3, even after the expiration of the 1-year 
period, and that such relief may be granted (subject to the 
requirements of Sec. Sec.  301.9100-1 and 301.9100-3) provided that the 
return of tax is filed no later than 1 year after the due date of the 
return (including extensions of time actually granted). This rule also 
will apply to requests under Sec. Sec.  301.9100-1 and 301.9100-3 for 
an extension of time to make a protective election under section 2032.
    The IRS and Treasury Department also have determined that taxpayers 
should be permitted to apply for relief under Sec. Sec.  301.9100-1 and 
301.9100-3 to make a late election under section 2056A to be treated as 
a Qualified Domestic Trust (QDOT). Like the alternate valuation 
election of section 2032, no election under section 2056A to be treated 
as a QDOT may be made on a return that is filed more than 1 year after 
the due date of the return (including extensions of time actually 
granted). Section 2056A(d). Thus, taxpayers will be permitted to apply 
for an extension of time under the provisions of Sec. Sec.  301.9100-1 
and 301.9100-3 to make an election under section 2056A(d), provided 
that the

[[Page 296]]

return of tax is filed no later than 1 year after the due date of the 
return (including extensions of time actually granted).
    Any taxpayer eligible for relief under Sec. Sec.  301.9100-1 and 
301.9100-3 to make the section 2032 election or the 2056A(d) election 
is encouraged to file promptly an application for relief and a claim 
for refund before the statute of limitations under section 6511 expires 
in the event the requested relief is granted.

Special Analyses

    It has been determined that this final Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
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 
these regulations do not impose on small entities a collection of 
information requirement, the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 
is not required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding this regulation was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Drafting Information

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

List of Subjects

26 CFR Part 20

    Estate taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR parts 20 and 301 are amended as follows:

PART 20--ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954

0
Paragraph 1. The authority citation for part 20 continues to read in 
part as follows:

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

0
Par. 2. Section 20.2032-1(b) is revised and paragraph (h) is added to 
read as follows:


Sec.  20.2032-1  Alternate valuation.

* * * * *
    (b) Method and effect of election--(1) In general. The election to 
use the alternate valuation method is made on the return of tax imposed 
by section 2001. For purposes of this paragraph (b), the term return of 
tax imposed by section 2001 means the last estate tax return filed by 
the executor on or before the due date of the return (including 
extensions of time to file actually granted) or, if a timely return is 
not filed, the first estate tax return filed by the executor after the 
due date, provided the return is filed no later than 1 year after the 
due date (including extensions of time to file actually granted). Once 
the election is made, it is irrevocable, provided that an election may 
be revoked on a subsequent return filed on or before the due date of 
the return (including extensions of time to file actually granted). The 
election may be made only if it will decrease both the value of the 
gross estate and the sum (reduced by allowable credits) of the estate 
tax and the generation-skipping transfer tax payable by reason of the 
decedent's death with respect to the property includible in the 
decedent's gross estate. If the election is made, the alternate 
valuation method applies to all property included in the gross estate 
and cannot be applied to only a portion of the property.
    (2) Protective election. If, based on the return of tax as filed, 
use of the alternate valuation method would not result in a decrease in 
both the value of the gross estate and the sum (reduced by allowable 
credits) of the estate tax and the generation-skipping transfer tax 
liability payable by reason of the decedent's death with respect to the 
property includible in the decedent's gross estate, a protective 
election may be made to use the alternate valuation method if it is 
subsequently determined that such a decrease would occur. A protective 
election is made on the return of tax imposed by section 2001. The 
protective election is irrevocable as of the due date of the return 
(including extensions of time actually granted). The protective 
election becomes effective on the date on which it is determined that 
use of the alternate valuation method would result in a decrease in 
both the value of the gross estate and in the sum (reduced by allowable 
credits) of the estate tax and generation-skipping transfer tax 
liability payable by reason of the decedent's death with respect to the 
property includible in the decedent's gross estate.
    (3) Requests for extension of time to make the election. A request 
for an extension of time to make the election or protective election 
pursuant to Sec. Sec.  301.9100-1 and 301.9100-3 of this chapter will 
not be granted unless the return of tax imposed by section 2001 is 
filed no later than 1 year after the due date of the return (including 
extensions of time actually granted).
* * * * *
    (h) Effective date. Paragraph (b) of this section is applicable to 
decedents dying on or after January 4, 2005. However, pursuant to 
section 7805(b)(7), taxpayers may elect to apply paragraph (b) of this 
section retroactively if the period of limitations for filing a claim 
for a credit or refund of Federal estate or generation-skipping 
transfer tax under section 6511 has not expired.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 3. The authority citation for part 301 continues to read in part 
as follows:

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


Sec.  301.9100-6T  [Amended]

0
Par. 4. Section 301.9100-6T is amended by:
0
1. Removing the language ``paragraph (b)(2)'' from paragraph (a)(2) 
introductory text, and adding the language ``paragraph (a)(2)'' in its 
place.
0
2. Removing paragraph (b).
0
3. Redesignating paragraphs (c) through (s) as paragraphs (b) through 
(r), respectively.
0
4. Removing the language ``paragraph (c)(2)'' from the last sentence in 
newly designated paragraph (b)(2) and adding the language ``paragraph 
(b)(2)'' in its place.
0
5. Removing the language ``paragraph (l)'' from the second, fourth and 
last sentences in newly designated paragraph (k) and adding the 
language ``paragraph (k)'' in its place.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 28, 2004.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-95 Filed 1-3-05; 8:45 am]
BILLING CODE 4830-01-P