[Federal Register Volume 83, Number 226 (Friday, November 23, 2018)]
[Proposed Rules]
[Pages 59343-59348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-25538]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 20

[REG-106706-18]
RIN 1545-B072


Estate and Gift Taxes; Difference in the Basic Exclusion Amount

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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SUMMARY: This document contains proposed regulations addressing the 
effect of recent legislative changes to the basic exclusion amount used 
in computing Federal gift and estate taxes. The proposed regulations 
will affect donors of gifts made after 2017 and the estates of 
decedents dying after 2017.

DATES: Written and electronic comments must be received by February 21, 
2019. Outlines of topics to be discussed at the public hearing 
scheduled for March 13, 2019, must be received by February 21, 2019. If 
no outlines of topics are received by February 21, 2019, the hearing 
will be cancelled.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106706-18), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions also may be hand delivered Monday 
through Friday between the hours of 8 a.m. and 5 p.m. to: CC:PA:LPD:PR 
(REG-106706-18), Courier's Desk, Internal Revenue Service, 1111 
Constitution Avenue NW, Washington, DC 20224, or sent electronically 
via the Federal eRulemaking portal at http://www.regulations.gov (IRS 
REG-106706-18). The public hearing will be held in the Auditorium, 
Internal Revenue Service Building, 1111 Constitution Avenue NW, 
Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Deborah S. Ryan, (202) 317-6859; concerning submissions of comments, 
the hearing, and/or to be placed on the building access list to attend 
the hearing, Regina L. Johnson at (202) 317-6901 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION: 

Background

I. Overview

    In computing the amount of Federal gift tax to be paid on a gift or 
the amount of Federal estate tax to be paid at death, the gift and 
estate tax provisions of the Internal Revenue Code (Code) apply a 
unified rate schedule to the taxpayer's cumulative taxable gifts and 
taxable estate on death to arrive at a net tentative tax. The net 
tentative tax then is reduced by a credit based on the applicable 
exclusion amount (AEA), which is the sum of the basic exclusion amount 
(BEA) within the meaning of section 2010(c)(3) of the Code and, if 
applicable, the deceased spousal unused exclusion (DSUE) amount within 
the meaning of section 2010(c)(4). In certain cases, the AEA also 
includes a restored exclusion amount pursuant to Notice 2017-15, 2017-6 
I.R.B. 783. Prior to January 1, 2018, for estates of decedents dying 
and gifts made beginning in 2011, section 2010(c)(3) provided a BEA of 
$5 million, indexed for inflation after 2011. The credit is applied 
first against the gift tax, on a cumulative basis, as taxable gifts are 
made. To the extent that any credit remains at death, it is applied 
against the estate tax.

[[Page 59344]]

    This document contains proposed regulations to amend the Estate Tax 
Regulations (26 CFR part 20) under section 2010(c)(3) of the Code. The 
proposed regulations would update Sec.  20.2010-1 to conform to 
statutory changes to the determination of the BEA enacted on December 
22, 2017, by sections 11002 and 11061 of the Tax Cuts and Jobs Act, 
Public Law 115-97, 131 Stat. 2504 (2017) (TCJA).

II. Federal Gift Tax Computation Generally

    The Federal gift tax is imposed by section 2501 of the Code on an 
individual's transfers by gift during each calendar year. The gift tax 
is determined under a seven-step computation required under sections 
2502 and 2505 using the rate schedule set forth in section 2001(c) as 
in effect for the calendar year in which the gifts are made.
    First, section 2502(a)(1) requires the determination of a tentative 
tax (that is, a tax unreduced by a credit amount) on the sum of all 
taxable gifts, whether made in the current year or in one or more prior 
periods (Step 1).
    Second, section 2502(a)(2) requires the determination of a 
tentative tax on the sum of the taxable gifts made in all prior periods 
(Step 2).
    Third, section 2502(a) requires the tentative tax determined in 
Step 2 to be subtracted from the tentative tax determined in Step 1 to 
arrive at the net tentative gift tax on the gifts made in the current 
year (Step 3).
    Fourth, section 2505(a)(1) requires the determination of a credit 
equal to the applicable credit amount within the meaning of section 
2010(c). The applicable credit amount is the tentative tax on the AEA 
determined as if the donor had died on the last day of the current 
calendar year. The AEA is the sum of the BEA as in effect for the year 
in which the gift was made, any DSUE amount as of the date of the gift 
as computed pursuant to Sec.  25.2505-2, and any restored exclusion 
amount as of the date of the gift as computed pursuant to Notice 2017-
15 (Step 4).
    Fifth, section 2505(a)(2) and the flush language at the end of 
section 2505(a) require the determination of the sum of the amounts 
allowable as a credit to offset the gift tax on gifts made by the donor 
in all preceding calendar periods. For purposes of this determination, 
the allowable credit for each preceding calendar period is the 
tentative tax, computed at the tax rates in effect for the current 
period, on the AEA for such prior period, but not exceeding the 
tentative tax on the gifts actually made during such prior period. 
Section 2505(c). (Step 5).
    Sixth, section 2505(a) requires that the total credit allowable for 
prior periods determined in Step 5 be subtracted from the credit for 
the current period determined in Step 4. (Step 6).
    Finally, section 2505(a) requires that the credit amount determined 
in Step 6 be subtracted from the net tentative gift tax determined in 
Step 3 (Step 7).

III. Federal Estate Tax Computation Generally

    The Federal estate tax is imposed by section 2001(a) on the 
transfer of a decedent's taxable estate at death. The estate tax is 
determined under a five-step computation required under sections 2001 
and 2010 using the same rate schedule used for gift tax purposes (thus 
referred to as the unified rate schedule) as in effect at the 
decedent's death.
    First, section 2001(b)(1) requires the determination of a tentative 
tax (again, a tax unreduced by a credit amount) on the sum of the 
taxable estate and the adjusted taxable gifts, defined as all taxable 
gifts made after 1976 other than those included in the gross estate 
(Step 1).
    Second, section 2001(b)(2) and (g) require the determination of a 
hypothetical gift tax (a gift tax reduced, but not to below zero, by 
the credit amounts allowable in the years of the gifts) on all post-
1976 taxable gifts, whether or not included in the gross estate. The 
credit amount allowable for each year during which a gift was made is 
the tentative tax, computed using the tax rates in effect at the 
decedent's death, on the AEA for that year, but not exceeding the 
tentative tax on the gifts made during that year. Section 2505(c). The 
AEA is the sum of the BEA as in effect for the year in which the gift 
was made, any DSUE amount as of the date of the gift as computed 
pursuant to Sec.  25.2505-2, and any restored exclusion amount as of 
the date of the gift as computed pursuant to Notice 2017-15. This 
hypothetical gift tax is referred to as the gift tax payable (Step 2).
    Third, section 2001(b) requires the gift tax payable determined in 
Step 2 to be subtracted from the tentative tax determined in Step 1 to 
arrive at the net tentative estate tax (Step 3).
    Fourth, section 2010(a) and (c) require the determination of a 
credit equal to the tentative tax on the AEA as in effect on the date 
of the decedent's death. This credit may not exceed the net tentative 
estate tax. Section 2010(d). (Step 4).
    Finally, section 2010(a) requires that the credit amount determined 
in Step 4 be subtracted from the net tentative estate tax determined in 
Step 3. (Step 5).

IV. TCJA Amendments

    Section 11061 of the TCJA amended section 2010(c)(3) to provide 
that, for decedents dying and gifts made after December 31, 2017, and 
before January 1, 2026, the BEA is increased by $5 million to $10 
million as adjusted for inflation (increased BEA). On January 1, 2026, 
the BEA will revert to $5 million. Thus, an individual or the 
individual's estate may utilize the increased BEA to shelter from gift 
and estate taxes an additional $5 million of transfers made during the 
eight-year period beginning on January 1, 2018, and ending on December 
31, 2025 (increased BEA period).
    In addition, section 11002 of the TCJA amended section 1(f)(3) of 
the Code to base the determination of annual cost-of-living 
adjustments, including those for gift and estate tax purposes, on the 
Chained Consumer Price Index for All Urban Consumers for all taxable 
years beginning after December 31, 2017. Section 11002 of the TCJA also 
made conforming changes in sections 2010(c)(3)(B)(ii), 2032A(a)(3)(B), 
and 2503(b)(2)(B).
    Section 11061 of the TCJA also added section 2001(g)(2) to the 
Code, which, in addition to the necessary or appropriate regulatory 
authority granted in section 2010(c)(6) for purposes of section 
2010(c), directs the Secretary to prescribe such regulations as may be 
necessary or appropriate to carry out section 2001 with respect to any 
difference between the BEA applicable at the time of the decedent's 
death and the BEA applicable with respect to any gifts made by the 
decedent.

V. Summary of Concerns Raised by Changes in BEA

1. In General
    Given the cumulative nature of the gift and estate tax computations 
and the differing manner in which the credit is applied against these 
two taxes, commenters have raised two questions regarding a potential 
for inconsistent tax treatment or double taxation of transfers 
resulting from the temporary nature of the increased BEA. First, in 
cases in which a taxpayer exhausted his or her BEA and paid gift tax on 
a pre-2018 gift, and then either makes an additional gift or dies 
during the increased BEA period, will the increased BEA be absorbed by 
the pre-2018 gift on which gift tax was paid so as to deny the taxpayer 
the full benefit of the increased BEA during the increased BEA period? 
Second, in cases in which a taxpayer

[[Page 59345]]

made a gift during the increased BEA period that was fully sheltered 
from gift tax by the increased BEA but makes a gift or dies after the 
increased BEA period has ended, will the gift that was exempt from gift 
tax when made during the increased BEA period have the effect of 
increasing the gift or estate tax on the later transfer (in effect, 
subjecting the earlier gift to tax even though it was exempt from gift 
tax when made)?
    As discussed in the remainder of this Background section, the 
Treasury Department and the IRS have analyzed the statutorily required 
steps for determining Federal gift and estate taxes in the context of 
several different situations that could occur either during the 
increased BEA period as a result of an increase in the BEA, or 
thereafter as a result of a decrease in the BEA. Only in the last 
situation discussed below was a potential problem identified, and a 
change intended to correct that problem is proposed in this notice of 
proposed rulemaking. This preamble, however, also includes a brief 
explanation of the reason why no potential problem is believed to exist 
in any of the first three situations discussed below. For the sake of 
simplicity, the following discussion assumes that, as may be the more 
usual case, the AEA includes no DSUE or restored exclusion amount and 
thus, refers only to the BEA.
2. Effect of Increase in BEA on Gift Tax
    The first situation considered is whether, for gift tax purposes, 
the increased BEA available during the increased BEA period is reduced 
by pre-2018 gifts on which gift tax actually was paid. This issue 
arises for donors, who made both pre-2018 gifts exceeding the then-
applicable BEA, thus making gifts that incurred a gift tax liability, 
and additional gifts during the increased BEA period. The concern 
raised is whether the gift tax computation will apply the increased BEA 
to the pre-2018 gifts, thus reducing the BEA otherwise available to 
shelter gifts made during the increased BEA period and, in effect, 
allocating credit to a gift on which gift tax in fact was paid.
    Step 3 of the gift tax determination requires the tentative tax on 
all gifts from prior periods to be subtracted from the tentative tax on 
the donor's cumulative gifts (including the current gift). The gifts 
from prior periods include the pre-2018 gifts on which gift tax was 
paid. In this way, the full amount of the gift tax liability on the 
pre-2018 gifts is removed from the current year gift tax computation, 
regardless of whether that liability was sheltered from gift tax by the 
BEA and/or was satisfied by a gift tax payment. Steps 4 through 6 of 
the gift tax determination then require, in effect, that the BEA for 
the current year be reduced by the BEA allowable in prior periods 
against the gifts that were made by the donor in those prior periods. 
The increased BEA was not available in the years when the pre-2018 
gifts were made and thus, was not allowable against those gifts. 
Accordingly, the gift tax determination appropriately reduces the 
increased BEA only by the amount of BEA allowable against prior period 
gifts, thereby ensuring that the increased BEA is not reduced by a 
prior gift on which gift tax in fact was paid.
3. Effect of Increase in BEA on Estate Tax
    The second situation considered is whether, for estate tax 
purposes, the increased BEA available during the increased BEA period 
is reduced by pre-2018 gifts on which gift tax actually was paid. This 
issue arises in the context of estates of decedents who both made pre-
2018 gifts exceeding the then allowable BEA, thus making gifts that 
incurred a gift tax liability, and die during the increased BEA period. 
The concern raised is whether the estate tax computation will apply the 
increased BEA to the pre-2018 gifts, thus reducing the BEA otherwise 
available against the estate tax during the increased BEA period and, 
in effect, allocating credit to a gift on which gift tax in fact was 
paid.
    Step 3 of the estate tax determination requires that the 
hypothetical gift tax on the decedent's post-1976 taxable gifts be 
subtracted from the tentative tax on the sum of the taxable estate and 
adjusted taxable gifts. The post-1976 taxable gifts include the pre-
2018 gifts on which gift tax was paid. In this way, the full amount of 
the gift tax liability on the pre-2018 gifts is removed from the estate 
tax computation, regardless of whether that liability was sheltered 
from gift tax by the BEA and/or was satisfied by a gift tax payment. 
Step 4 of the estate tax determination then requires that a credit on 
the amount of the BEA for the year of the decedent's death be 
subtracted from the net tentative estate tax. As a result, the only 
time that the increased BEA enters into the computation of the estate 
tax is when the credit on the amount of BEA allowable in the year of 
the decedent's death is netted against the tentative estate tax, which 
in turn already has been reduced by the hypothetical gift tax on the 
full amount of all post-1976 taxable gifts (whether or not gift tax was 
paid). Thus, the increased BEA is not reduced by the portion of any 
prior gift on which gift tax was paid, and the full amount of the 
increased BEA is available to compute the credit against the estate 
tax.
4. Effect of Decrease in BEA on Gift Tax
    The third situation considered is whether the gift tax on a gift 
made after the increased BEA period is inflated by a theoretical gift 
tax on a gift made during the increased BEA period that was sheltered 
from gift tax when made. If so, this would effectively reverse the 
benefit of the increased BEA available for gifts made during the 
increased BEA period. This issue arises in the case of donors who both 
made one or more gifts during the increased BEA period that were 
sheltered from gift tax by the increased BEA in effect during those 
years, and made a post-2025 gift. The concern raised is whether the 
gift tax determination on the post-2025 gift will treat the gifts made 
during the increased BEA period as gifts not sheltered from gift tax by 
the credit on the BEA, given that the post-2025 gift tax determination 
is based on the BEA then in effect, rather than on the increased BEA.
    Just as in the first situation considered in part V(2) of this 
Background section, Step 3 of the gift tax determination directs that 
the tentative tax on gifts from prior periods be subtracted from the 
tentative tax on the donor's cumulative gifts (including the current 
gift). The gift tax from prior periods includes the gift tax 
attributable to the gifts made during the increased BEA period. In this 
way, the full amount of the gift tax liability on the increased BEA 
period gifts is removed from the computation, regardless of whether 
that liability was sheltered from gift tax by the BEA or was satisfied 
by a gift tax payment. All that remains is the tentative gift tax on 
the donor's current gift. Steps 4 through 6 of the gift tax 
determination then require that the credit based on the BEA for the 
current year be reduced by such credits allowable in prior periods. 
Even if the sum of the credits allowable for prior periods exceeds the 
credit based on the BEA in the current (post-2025) year, the tax on the 
current gift cannot exceed the tentative tax on that gift and thus will 
not be improperly inflated. The gift tax determination anticipates and 
avoids this situation, but no credit will be available against the 
tentative tax on the post-2025 gift.
5. Effect of Decrease in BEA on Estate Tax
    The fourth situation considered is whether, for estate tax 
purposes, a gift made during the increased BEA period that was 
sheltered from gift tax by the increased BEA inflates a post-2025 
estate tax liability. This will be the case

[[Page 59346]]

if the estate tax computation fails to treat such gifts as sheltered 
from gift tax, in effect reversing the benefit of the increased BEA 
available for those gifts. This issue arises in the case of estates of 
decedents who both made gifts during the increased BEA period that were 
sheltered from gift tax by the increased BEA in effect during those 
years, and die after 2025. The concern raised is whether the estate tax 
computation treats the gifts made during the increased BEA period as 
post-1976 taxable gifts not sheltered from gift tax by the credit on 
the BEA, given that the post-2025 estate tax computation is based on 
the BEA in effect at the decedent's death rather than the BEA in effect 
on the date of the gifts.
    In this case, the statutory requirements for the computation of the 
estate tax, in effect, retroactively eliminate the benefit of the 
increased BEA that was available for gifts made during the increased 
BEA period. This can be illustrated by the following examples.

    Example 1. Individual A made a gift of $11 million in 2018, when 
the BEA was $10 million. A dies in 2026, when the BEA is $5 million, 
with a taxable estate of $4 million. Based on a literal application 
of section 2001(b), the estate tax would be approximately 
$3,600,000, which is equal to a 40 percent estate tax on $9 million 
(specifically, the $9 million being the sum of the $4 million 
taxable estate and $5 million of the 2018 gift sheltered from gift 
tax by the increased BEA). This in effect would impose estate tax on 
the portion of the 2018 gift that was sheltered from gift tax by the 
increased BEA allowable at that time.
    Example 2. The facts are the same as in Example 1, but A dies in 
2026 with no taxable estate. Based on a literal application of 
section 2001(b), A's estate tax is approximately $2 million, which 
is equal to a 40 percent tax on $5 million. Five million dollars is 
the amount by which, after taking into account the $1 million 
portion of the 2018 gift on which gift tax was paid, the 2018 gift 
exceeded the BEA at death. This, in effect, would impose estate tax 
on the portion of the 2018 gift that was sheltered from the gift tax 
by the excess of the 2018 BEA over the 2026 BEA.

    This problem occurs as a result of the interplay between Steps 2 
and 4 of the estate tax determination, and the differing amounts of BEA 
taken into account in those steps. Step 2 determines the credit against 
gift taxes payable on all post-1976 taxable gifts, whether or not 
included in the gross estate, using the BEA amounts allowable on the 
dates of the gifts but determined using date of death tax rates. Step 3 
subtracts gift tax payable from the tentative tax on the sum of the 
taxable estate and the adjusted taxable gifts. The result is the net 
tentative estate tax. Step 4 determines a credit based on the BEA as in 
effect on the date of the decedent's death. Step 5 then reduces the net 
tentative estate tax by the credit determined in Step 4. If the credit 
amount applied at Step 5 is less than that allowable for the decedent's 
post-1976 taxable gifts at Step 2, the effect is to increase the estate 
tax by the difference between those two credit amounts. In this 
circumstance, the statutory requirements have the effect of imposing an 
estate tax on gifts made during the increased BEA period that were 
sheltered from gift tax by the increased BEA in effect when the gifts 
were made.

Explanation of Provisions

    To implement the TCJA changes to the BEA under section 2010(c)(3), 
the proposed regulations would amend Sec.  20.2010-1 to provide that, 
in the case of decedents dying or gifts made after December 31, 2017, 
and before January 1, 2026, the increased BEA is $10 million. The 
proposed regulations also would conform the rules of Sec.  20.2010-1 to 
the changes made by the TCJA regarding the cost of living adjustment.
    Pursuant to section 2001(g)(2), the proposed regulations also would 
amend Sec.  20.2010-1 to provide a special rule in cases where the 
portion of the credit as of the decedent's date of death that is based 
on the BEA is less than the sum of the credit amounts attributable to 
the BEA allowable in computing gift tax payable within the meaning of 
section 2001(b)(2). In that case, the portion of the credit against the 
net tentative estate tax that is attributable to the BEA would be based 
upon the greater of those two credit amounts. In the view of the 
Treasury Department and the IRS, the most administrable solution would 
be to adjust the amount of the credit in Step 4 of the estate tax 
determination required to be applied against the net tentative estate 
tax. Specifically, if the total amount allowable as a credit, to the 
extent based solely on the BEA, in computing the gift tax payable on 
the decedent's post-1976 taxable gifts, whether or not included in the 
gross estate, exceeds the credit amount, again to the extent based 
solely on the BEA in effect at the date of death, the Step 4 credit 
would be based on the larger amount of BEA. As modified, Step 4 of the 
estate tax determination therefore would require the determination of a 
credit equal to the tentative tax on the AEA as in effect on the date 
of the decedent's death, where the BEA included in that AEA is the 
larger of (i) the BEA as in effect on the date of the decedent's death 
under section 2010(c)(3), or (ii) the total amount of the BEA allowable 
in determining Step 2 of the estate tax computation (that is, the gift 
tax payable).
    For example, if a decedent had made cumulative post-1976 taxable 
gifts of $9 million, all of which were sheltered from gift tax by a BEA 
of $10 million applicable on the dates of the gifts, and if the 
decedent died after 2025 when the BEA was $5 million, the credit to be 
applied in computing the estate tax is that based upon the $9 million 
of BEA that was used to compute gift tax payable.
    The proposed regulations ensure that a decedent's estate is not 
inappropriately taxed with respect to gifts made during the increased 
BEA period. Congress' grant of regulatory authority in section 
2001(g)(2) to address situations in which differences exist between the 
BEA applicable to a decedent's gifts and the BEA applicable to the 
decedent's estate clearly permits the Secretary to address the 
situation in which a gift is made during the increased BEA period and 
the decedent dies after the increased BEA period ends.
    Commenters have noted that this problem is similar to that 
involving the application of the AEA addressed in the DSUE regulations. 
Section 20.2010-3(b). The DSUE amount generally is what remains of a 
decedent's BEA that can be used to offset the gift and/or estate tax 
liability of the decedent's surviving spouse. At any given time, 
however, a surviving spouse may use only the DSUE amount from his or 
her last deceased spouse--thus, only until the death of any subsequent 
spouse. Without those regulations, if a DSUE amount was used to shelter 
a surviving spouse's gifts from gift tax before the death of a 
subsequent spouse, and if the surviving spouse also survived the 
subsequent spouse, those gifts would have had the effect of absorbing 
the DSUE amount available to the surviving spouse at death, effectively 
resulting in a taking back of the DSUE amount that had been allocated 
to the earlier gifts. The DSUE regulations resolve this problem by 
providing that the DSUE amount available at the surviving spouse's 
death is the sum of the DSUE amount from that spouse's last deceased 
spouse, and any DSUE amounts from other deceased spouses that were 
``applied to one or more taxable gifts'' of the surviving spouse.

Proposed Effective Date

    The amendment to Sec.  20.2010-1 is proposed to be effective on and 
after the date of publication of a Treasury decision adopting these 
rules as final regulations in the Federal Register.

[[Page 59347]]

Special Analyses

    These proposed regulations are not subject to review under section 
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement 
(April 11, 2018) between the Treasury Department and the Office of 
Management and Budget regarding review of tax regulations.
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that these proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
These proposed regulations apply to donors of gifts made after 2017 and 
to the estates of decedents dying after 2017, and implement an increase 
in the amount that is excluded from gift and estate tax. Neither an 
individual nor the estate of a deceased individual is a small entity 
within the meaning of 5 U.S.C. 601(6). Accordingly, a regulatory 
flexibility analysis is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, this 
regulation has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written or electronic comments that 
are submitted timely (in the manner described under the ADDRESSES 
heading) to the IRS. The Treasury Department and the IRS request 
comments on all aspects of the proposed regulations. All comments will 
be available at http://www.regulations.gov, or upon request. A public 
hearing on these proposed regulations has been scheduled for March 13, 
2019, beginning at 10 a.m. in the Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW, Washington, DC 20224. Due to 
building security procedures, visitors must enter the Constitution 
Avenue entrance. 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 30 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 comments by 
February 21, 2019, and submit an outline of the topics to be discussed 
and the time devoted to each topic by February 21, 2019.
    A period of 10 minutes will be allotted to each person for making 
comments. Copies of the agenda will be available free of charge at the 
hearing.

Drafting Information

    The principal author of these proposed regulations is Deborah S. 
Ryan, Office of the Associate Chief Counsel (Passthroughs and Special 
Industries). Other personnel from the Treasury Department and the IRS 
participated in their development.

Statement of Availability of IRS Documents

    Notice 2017-15 is published in the Internal Revenue Bulletin (or 
Cumulative Bulletin) and is available from the Superintendent of 
Documents, U.S. Government Publishing Office, Washington, DC 20402, or 
by visiting the IRS website at http://www.irs.gov.

List of Subjects in 26 CFR Part 20

    Estate taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 20 is proposed to be amended as follows:

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

0
Par. 1. The authority citation for part 20 is amended by revising the 
entry for Sec.  20.2010-1 to read in part as follows:

    Authority: 26 U.S.C. 7805.
* * * * *
    Section 20.2010-1 also issued under 26 U.S.C. 2001(g)(2) and 26 
U.S.C. 2010(c)(6).
* * * * *
0
Par. 2. Section 20.2010-1 is amended by:
0
1. Redesignating paragraphs (c) through (e) as paragraphs (d) through 
(f) respectively;
0
2. Adding a new paragraph (c); and
0
3. Revising newly redesignated paragraphs (e)(3) and (f).
    The addition and revisions read as follows:


Sec.  20.2010-1  Unified credit against estate tax; in general.

* * * * *
    (c) Special rule in the case of a difference between the basic 
exclusion amount applicable to gifts and that applicable at the donor's 
date of death--(1) Rule. Changes in the basic exclusion amount that 
occur between the date of a donor's gift and the date of the donor's 
death may cause the basic exclusion amount allowable on the date of a 
gift to exceed that allowable on the date of death. If the total of the 
amounts allowable as a credit in computing the gift tax payable on the 
decedent's post-1976 gifts, within the meaning of section 2001(b)(2), 
to the extent such credits are based solely on the basic exclusion 
amount as defined and adjusted in section 2010(c)(3), exceeds the 
credit allowable within the meaning of section 2010(a) in computing the 
estate tax, again only to the extent such credit is based solely on 
such basic exclusion amount, in each case by applying the tax rates in 
effect at the decedent's death, then the portion of the credit 
allowable in computing the estate tax on the decedent's taxable estate 
that is attributable to the basic exclusion amount is the sum of the 
amounts attributable to the basic exclusion amount allowable as a 
credit in computing the gift tax payable on the decedent's post-1976 
gifts. The amount allowable as a credit in computing gift tax payable 
for any year may not exceed the tentative tax on the gifts made during 
that year, and the amount allowable as a credit in computing the estate 
tax may not exceed the net tentative tax on the taxable estate. 
Sections 2505(c) and 2010(d).
    (2) Example. Individual A (never married) made cumulative post-1976 
taxable gifts of $9 million, all of which were sheltered from gift tax 
by the cumulative total of $10 million in basic exclusion amount 
allowable on the dates of the gifts. A dies after 2025 and the basic 
exclusion amount on A's date of death is $5 million. A was not eligible 
for any restored exclusion amount pursuant to Notice 2017-15. Because 
the total of the amounts allowable as a credit in computing the gift 
tax payable on A's post-1976 gifts (based on the $9 million basic 
exclusion amount used to determine those credits) exceeds the credit 
based on the $5 million basic exclusion amount applicable on the 
decedent's date of death, under paragraph (c)(1) of this section, the 
credit to be applied for purposes of computing the estate tax is based 
on a basic exclusion amount of $9 million, the amount used to determine 
the credits allowable in computing the gift tax payable on the post-
1976 gifts made by A.
* * * * *
    (e) * * *
    (3) Basic exclusion amount. Except to the extent provided in 
paragraph (e)(3)(iii) of this section, the basic exclusion amount is 
the sum of the

[[Page 59348]]

amounts described in paragraphs (e)(3)(i) and (ii) of this section.
    (i) For any decedent dying in calendar year 2011 or thereafter, 
$5,000,000; and
    (ii) For any decedent dying after calendar year 2011, $5,000,000 
multiplied by the cost-of-living adjustment determined under section 
1(f)(3) for the calendar year of decedent's death by substituting 
``calendar year 2010'' for ``calendar year 2016'' in section 
1(f)(3)(A)(ii) and rounded to the nearest multiple of $10,000.
    (iii) In the case of the estates of decedents dying after December 
31, 2017, and before January 1, 2026, paragraphs (e)(3)(i) and (ii) of 
this section will be applied by substituting ``$10,000,000'' for 
``$5,000,000.''
    (f) Applicability dates--(1) In general. Except as provided in 
paragraph (f)(2) of this section, this section applies to the estates 
of decedents dying after June 11, 2015. For the rules applicable to 
estates of decedents dying after December 31, 2010, and before June 12, 
2015, see Sec.  20.2010-1T, as contained in 26 CFR part 20, revised as 
of April 1, 2015.
    (2) Exceptions. Paragraph (c) of this section applies to estates of 
decedents dying on and after the date of publication of a Treasury 
decision adopting these rules as final regulations. Paragraph (e)(3) of 
this section applies to the estates of decedents dying after December 
31, 2017.


Sec.  20.2010-3  [Amended]

0
Par. 3. Section 20.2010-3 is amended by removing ``Sec.  20.2010-
1(d)(5)'' wherever it appears and adding in its place ``Sec.  20.2010-
1(e)(5)''.

Kirsten Wielobob,
Deputy Commissioner for Service and Enforcement.
[FR Doc. 2018-25538 Filed 11-20-18; 4:15 pm]
BILLING CODE 4830-01-P