(a) The amount of a particular foreign death tax attributable to property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes is the “first limitation.” Thus, the credit for any foreign death tax is limited to an amount, A, which bears the same ratio to B (the amount of the foreign death tax without allowance of credit, if any, for Federal estate tax), as C (the value of the property situated in the country imposing the foreign death tax, subjected to the foreign death tax, included in the gross estate and for which a deduction is not allowed under section 2053(d)) bears to D (the value of all property subjected to the foreign death tax). Stated algebraically, the “first limitation” (A) equals—
Value of property in foreign country subjected to foreign death tax, included in gross estate and for which a deduction is not allowed under section 2053(d)(C) ÷ Value of all property subjected to foreign death tax (D) × Amount of foreign death tax (B)
At the time of his death on June 1, 1966, the decedent, a citizen of the United States, owned stock in X Corporation (a corporation organized under the laws of Country Y) valued at $80,000. In addition, he owned bonds issued by Country Y valued at $80,000. The stock and bond certificates were in the United States. Decedent left by will $20,000 of the stock and $50,000 of the Country Y bonds to his surviving spouse. He left the rest of the stock and bonds to his son. Under the situs rules referred to in paragraph (a)(3) of § 20.2014-1 the stock is deemed situated in Country Y while the bonds are deemed to have their situs in the United States. (The bonds would be deemed to have their situs in Country Y if the decedent had died on or after November 14, 1966.) There is not death tax convention in existence between the United States and Country Y. The laws of Country Y provide for inheritance taxes computed as follows:
| Inheritance tax of surviving spouse: | |
| Value of stock | $20,000 |
| Value of bonds | 50,000 |
| Total value | 70,000 |
| Tax (16 percent rate) | 11,200 |
| Inheritance tax of son: | |
| Value of stock | 60,000 |
| Value of bonds | $30,000 |
| Total value | 90,000 |
| Tax (16 percent rate) | 14,400 |
(b) If a foreign country imposes more than one kind of death tax or imposes taxes at different rates upon the several shares of an estate, or if a foreign country and a political subdivision or possession thereof each imposes a death tax, a “first limitation” is to be computed separately for each tax or rate and the results added in order to determine the total “first limitation.” The application of this paragraph may be illustrated by the following example:
The facts are the same as those contained in the example set forth in paragraph (a) of this section, except that the tax of the surviving spouse was computed at a 10 percent rate and amounted to $7,000, and the tax of the son was computed at a 20 percent rate and amounted to $18,000. In this case, the “first limitation” on the credit for foreign death taxes is computed as follows:
| “First limitation” with respect to inheritance tax of surviving spouse: | |
| [$20,000 (factor C of the ratio stated at 20.2014-2(a)) ÷ $70,000 (factor D of the ratio stated at 20.2014-2(a))] × $7,000 (factor B of the ratio stated at 20.2014-2(a)) = | $2,000. |
| “First limitation” with respect to inheritance tax of son: | |
| [$60,000 (factor C of the ratio stated at 20.2014-2(a)) ÷ $90,000 (factor D of the ratio stated at 20.2014-2(a))] × $18,000 (factor B of the ratio stated at 20.2014-2(a)) = | 12,000. |
| Total “first limitation” on the credit for foreign death taxes | 14,000 |
The preliminary Code is a preliminary release of the Internal Revenue Code of 1986 (the "Code") by the Office of the Law Revision Counsel and is subject to further revision before it is released again as a final version. The source of the preliminary Code used in TouchTax is available here: https://uscode.house.gov/download/download.shtml. The Code is a consolidation and codification by subject matter of the general and permanent laws of the U.S. prepared by the Office of the Law Revision Counsel of the U.S. House of Representatives. The Treasury Regulations are a codification of the general and permanent rules published in the Federal Register by the departments and agencies of the federal government. The version of the Treasury Regulations available within TouchTax is part of the Electronic Code of Federal Regulations which is not an official legal edition of the Code of Federal Regulations but is an editorial compilation of CFR material and Federal Register amendments produced by the National Archives and Records Administration's Office of the Federal Register (OFR) and the Government Publishing Office. The source of the CFR used in TouchTax is available here: https://www.govinfo.gov/bulkdata/ECFR/title-26. Those using TouchTax for legal research should verify their results against the printed versions of the Code and Treasury Regulations. TouchTax is copyright 2024 by Com-Lab (Mobile). Learn more at http://touchtax.edrich.de.