Castle Estate Planning: irs estate tax code 2001d
IRS Estate Tax Code: 26 USCS 2042-2055
26 USCS § 2042 (2005)
§ 2042. Proceeds of life insurance.
The value of the gross estate shall include the value of all property--
(1) Receivable by the executor. To the extent of the amount receivable by the executor as insurance under policies on the life of the decedent.
(2) Receivable by other beneficiaries. To the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. For purposes of the preceding sentence, the term "incident of ownership" includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of the value of the policy immediately before the death of the decedent. As used in this paragraph, the term "reversionary interest" includes a possibility that the policy, or the proceeds of the policy, may return to the decedent or his estate, or may be subject to a power of disposition by him. The value of a reversionary interest at any time shall be determined (without regard to the fact of the decedent's death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, pursuant to regulations prescribed by the Secretary. In determining the value of a possibility that the policy or proceeds thereof may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his estate.
26 USCS § 2043 (2005)
§ 2043. Transfers for insufficient consideration.
(a) In general. If any one of the transfers, trusts, interests, rights, or powers enumerated and described in sections 2035 to 2038 [26 USCS § § 2035-2038], inclusive, and section 2041 [26 USCS § 2041] is made, created, exercised, or relinquished for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent.
(b) Marital rights not treated as consideration.
(1) In general. For purposes of this chapter [26 USCS § § 2001 et seq.], a relinquishment or promised relinquishment of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration "in money or money's worth".
(2) Exception. For purposes of section 2053 [26 USCS § 2053] (relating to expenses, indebtedness, and taxes), a transfer of property which satisfies the requirements of paragraph (1) of section 2516 [26 USCS § 2516] (relating to certain property settlements) shall be considered to be made for an adequate and full consideration in money or money's worth.
26 USCS § 2044 (2005)
§ 2044. Certain property for which marital deduction was previously allowed.
(a) General rule. The value of the gross estate shall include the value of any property to which this section applies in which the decedent had a qualifying income interest for life.
(b) Property to which this section applies. This section applies to any property if--
(1) a deduction was allowed with respect to the transfer of such property to the decedent--
(A) under section 2056 [26 USCS § 2056] by reason of subsection (b)(7) thereof, or
(B) under section 2523 [26 USCS § 2523] by reason of subsection (f) thereof, and
(2) section 2519 [26 USCS § 2519] (relating to dispositions of certain life estates) did not apply with respect to a disposition by the decedent of part or all of such property.
(c) Property treated as having passed from decedent. For purposes of this chapter and chapter 13 [26 USCS § § 2001 et seq. and 2601 et seq.], property includible in the gross estate of the decedent under subsection (a) shall be treated as property passing from the decedent.
26 USCS § 2045 (2005)
Except as otherwise specifically provided by law, sections 2034 to 2042 [26 USCS § § 2034-2042], inclusive, shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whenever made, created, arising, existing, exercised, or relinquished.
26 USCS § 2046 (2005)
For provisions relating to the effect of a qualified disclaimer for purposes of this chapter [26 USCS § § 2001 et seq.], see section 2518 [26 USCS § 2518].
26 USCS § 2047 (2005)
§ 2047--2050. [Reserved for future use.]
26 USCS § 2051 (2005)
§ 2051. Definition of taxable estate.
For purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate shall be determined by deducting from the value of the gross estate the deductions provided for in this part [26 USCS § § 2051 et seq.].
26 USCS § 2052 (2005)
§ 2052. [Repealed]
26 USCS § 2053 (2005)
§ 2053. Expenses, indebtedness, and taxes [Caution: See prospective amendment note below.].
(a) General rule. For purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts--
(1) for funeral expenses,
(2) for administration expenses,
(3) for claims against the estate, and
(4) for unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent's interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate,
as are allowable by the laws of the jurisdiction, whether within or without the United States under which the estate is being administered.
(b) Other administration expenses. Subject to the limitations in paragraph (1) of subsection (c), there shall be deducted in determining the taxable estate amounts representing expenses incurred in administering property not subject to claims which is included in the gross estate to the same extent such amounts would be allowable as a deduction under subsection (a) if such property were subject to claims, and such amounts are paid before the expiration of the period of limitation for assessment provided in section 6501 [26 USCS § 6501].
(c) Limitations.
(1) Limitations applicable to subsections (a) and (b).
(A) Consideration for claims. The deduction allowed by this section in the case of claims against the estate, unpaid mortgages, or any indebtedness shall, when founded on a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth; except that in any case in which any such claim is founded on a promise or agreement of the decedent to make a contribution or gift to or for the use of any donee described in section 2055 [26 USCS § 2055] for the purposes specified therein, the deduction for such claims shall not be so limited, but shall be limited to the extent that it would be allowable as a deduction under section 2055 [26 USCS § 2055] if such promise or agreement constituted a bequest.
(B) Certain taxes. Any income taxes on income received after the death of the decedent, or property taxes not accrued before his death, or any estate, succession, legacy, or inheritance taxes, shall not be deductible under this section.
(C) Certain claims by remaindermen. No deduction shall be allowed under this section for a claim against the estate by a remainderman relating to any property described in section 2044 [26 USCS § 2044].
(D) Section 6166 interest. No deduction shall be allowed under this section for any interest payable under section 6601 [26 USCS § 6601] on any unpaid portion of the tax imposed by section 2001 [26 USCS § 2001] for the period during which an extension of time for payment of such tax is in effect under section 6166 [26 USCS § 6166].
(2) Limitations applicable only to subsection (a). In the case of the amounts described in subsection (a), there shall be disallowed the amount by which the deductions specified therein exceed the value, at the time of the decedent's death, of property subject to claims, except to the extent that such deductions represent amounts paid before the date prescribed for the filing of the estate tax return. For purposes of this section, the term "property subject to claims" means property includible in the gross estate of the decedent which, or the avails of which, would under the applicable law, bear the burden of the payment of such deductions in the final adjustment and settlement of the estate, except that the value of the property shall be reduced by the amount of the deduction under section 2054 [26 USCS § 2054] attributable to such property.
(d) Certain foreign death taxes.
(1) In general. Notwithstanding the provisions of subsection (c)(1)(B), for purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate may be determined, if the executor so elects before the expiration of the period of limitation for assessment provided in section 6501 [26 USCS § 6501], by deducting from the value of the gross estate the amount (as determined in accordance with regulations prescribed by the Secretary) of any estate, succession, legacy, or inheritance tax imposed by and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United States, upon a transfer by the decedent for public, charitable, or religious uses described in section 2055 [26 USCS § 2055]. The determination under this paragraph of the country within which property is situated shall be made in accordance with the rules applicable under subchapter B (sec. 2101 and following) in determining whether property is situated within or without the United States. Any election under this paragraph shall be exercised in accordance with regulations prescribed by the Secretary.
(2) Condition for allowance of deduction. No deduction shall be allowed under paragraph (1) for a foreign death tax specified therein unless the decrease in the tax imposed by section 2001 [26 USCS § 2001] which results from the deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2) [26 USCS § 2055 or 2106(a)(2)]. In any case where the tax imposed by section 2001 [26 USCS § 2001] is equitably apportioned among all the transferees of property included in the gross estate, including those described in sections 2055 and 2106(a)(2) [26 USCS § § 2055 and 2106(a)(2)] (taking into account any exemptions, credits, or deductions allowed by this chapter [26 USCS § § 2001 et seq.]), in determining such decrease, there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described in sections 2055 and 2106(a)(2) [26 USCS § § 2055 and 2106(a)(2)] are required to pay.
(3) Effect on credit for foreign death taxes of deduction under this subsection.
(A) Election. An election under this subsection shall be deemed a waiver of the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country for any tax or portion thereof in respect of which a deduction is taken under this subsection.
(B) Cross reference. See section 2014(f) [26 USCS § 2014(f)] for the effect of a deduction taken under this paragraph on the credit for foreign death taxes.
(e) Marital rights. For provisions treating certain relinquishments of marital rights as consideration in money or money's worth, see section 2043(b)(2) [26 USCS § 2043(b)(2)].
26 USCS § 2054 (2005)
For purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate shall be determined by deducting from the value of the gross estate losses incurred during the settlement of estates arising from fires, storms, shipwrecks, or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise.
26 USCS § 2055 (2005)
§ 2055. Transfers for public, charitable, and religious uses.
(a) In general. For purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests, legacies, devises, or transfers--
(1) to or for the use of the United States, any State, any political subdivision thereof, or the District of Columbia, for exclusively public purposes;
(2) to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, which is not disqualified for tax exemption under section 501(c)(3) [26 USCS § 501(c)(3)] by reason of attempting to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;
(3) to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, such trust, fraternal society, order, or association would not be disqualified for tax exemption under section 501(c)(3) [26 USCS § 501(c)(3)] by reason of attempting to influence legislation, and such trustee or trustees, or such fraternal society, order, or association, does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office;
(4) to or for the use of any veterans' organization incorporated by Act of Congress, or of its departments or local chapters or posts, no part of the net earnings of which inures to the benefit of any private shareholder or individual; or
(5) to an employee stock ownership plan if such transfer qualifies as a qualified gratuitous transfer of qualified employer securities within the meaning of section 664(g) [26 USCS § 664(g)].
For purposes of this subsection, the complete termination before the date prescribed for the filing of the estate tax return of a power to consume, invade, or appropriate property for the benefit of an individual before such power has been exercised by reason of the death of such individual or for any other reason shall be considered and deemed to be a qualified disclaimer with the same full force and effect as though he had filed such qualified disclaimer. Rules similar to the rules of section 501(j) [26 USCS § 501(j)] shall apply for purposes of paragraph (2).
(b) Powers of appointment. Property includible in the decedent's gross estate under section 2041 [26 USCS § 2041] (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.
(c) Death taxes payable out of bequests. If the tax imposed by section 2001 [26 USCS § 2001], or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this section, then the amount deductible under this section shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes.
(d) Limitation on deduction. The amount of the deduction under this section for any transfer shall not exceed the value of the transferred property required to be included in the gross estate.
(e) Disallowance of deductions in certain cases.
(1) No deduction shall be allowed under this section for a transfer to or for the use of an organization or trust described in section 508(d) or 4948(c)(4) subject to the conditions specified in such sections.
(2) Where an interest in property (other than an interest described in section 170(f)(3)(B) [26 USCS § 170(f)(3)(B)]) passes or has passed from the decedent to a person, or for a use, described in subsection (a), and an interest (other than an interest which is extinguished upon the decedent's death) in the same property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to a person, or for a use, not described in subsection (a), no deduction shall be allowed under this section for the interest which passes or has passed to the person, or for the use, described in subsection (a) unless--
(A) in the case of a remainder interest, such interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664 [26 USCS § 664]) or a pooled income fund (described in section 642(c)(5) [26 USCS § 642(c)(5)]), or
(B) in the case of any other interest, such interest is in the form of a guaranteed annuity or is a fixed percentage distributed yearly of the fair market value of the property (to be determined yearly).
(3) Reformations to comply with paragraph (2).
(A) In general. A deduction shall be allowed under subsection (a) in respect of any qualified reformation.
(B) Qualified reformation. For purposes of this paragraph, the term "qualified reformation" means a change of a governing instrument by reformation, amendment, construction, or otherwise which changes a reformable interest into a qualified interest but only if--
(i) any difference between--
(I) the actuarial value (determined as of the date of the decedent's death) of the qualified interest, and
(II) the actuarial value (as so determined) of the reformable interest,
does not exceed 5 percent of the actuarial value (as so determined) of the reformable interest,
(ii) in the case of--
(I) a charitable remainder interest, the nonremainder interest (before and after the qualified reformation) terminated at the same time, or
(II) any other interest, the reformable interest and the qualified interest are for the same period, and
(iii) such change is effective as of the date of the decedent's death.
A nonremainder interest (before reformation) for a term of years in excess of 20 years shall be treated as satisfying subclause (I) of clause (ii) if such interest (after reformation) is for a term of 20 years.
(C) Reformable interest. For purposes of this paragraph--
(i) In general. The term "reformable interest" means any interest for which a deduction would be allowable under subsection (a) at the time of the decedent's death but for paragraph (2).
(ii) Beneficiary's interest must be fixed. The term "reformable interest" does not include any interest unless, before the remainder vests in possession, all payments to persons other than an organization described in subsection (a) are expressed either in specified dollar amounts or a fixed percentage of the fair market value of the property. For purposes of determining whether all such payments are expressed as a fixed percentage of the fair market value of the property, section 664(d)(3) [26 USCS § 664(d)(3)] shall be taken into account.
(iii) Special rule where timely commencement of reformation. Clause (ii) shall not apply to any interest if a judicial proceeding is commenced to change such interest into a qualified interest not later than the 90th day after--
(I) if an estate tax return is required to be filed, the last date (including extensions) for filing such return, or
(II) if no estate tax return is required to be filed, the last date (including extensions) for filing the income tax return for the 1st taxable year for which such a return is required to be filed by the trust.
(iv) Special rule for will executed before January 1, 1979, etc. In the case of any interest passing under a will executed before January 1, 1979, or under a trust created before such date, clause (ii) shall not apply.
(D) Qualified interest. For purposes of this paragraph, the term "qualified interest" means an interest for which a deduction is allowable under subsection (a).
(E) Limitation. The deduction referred to in subparagraph (A) shall not exceed the amount of the deduction which would have been allowable for the reformable interest but for paragraph (2).
(F) Special rule where income beneficiary dies. If (by reason of the death of any individual, or by termination or distribution of a trust in accordance with the terms of the trust instrument) by the due date for filing the estate tax return (including any extension thereof) a reformable interest is in a wholly charitable trust or passes directly to a person or for a use described in subsection (a), a deduction shall be allowed for such reformable interest as if it had met the requirements of paragraph (2) on the date of the decedent's death. For purposes of the preceding sentence, the term "wholly charitable trust" means a charitable trust which, upon the allowance of a deduction, would be described in section 4947(a)(1) [26 USCS § 4947(a)(1)].
(G) Statute of limitations. The period for assessing any deficiency of any tax attributable to the application of this paragraph shall not expire before the date 1 year after the date on which the Secretary is notified that such reformation (or other proceeding pursuant to subparagraph (J) has occurred.
(H) Regulations. The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including regulations providing such adjustments in the application of the provisions of section 508 [26 USCS § 508] (relating to special rules relating to section 501(c)(3) [26 USCS § 501(c)(3)] organizations), subchapter J [26 USCS § § 641 et seq.] (relating to estates, trusts, beneficiaries, and decedents), and chapter 42 [26 USCS § § 4940 et seq.] (relating to private foundations) as may be necessary by reason of the qualified reformation.
(I) Reformations permitted in case of remainder interests in residence or farm, pooled income funds, etc. The Secretary shall prescribe regulations (consistent with the provisions of this paragraph) permitting reformations in the case of any failure--
(i) to meet the requirements of section 170(f)(3)(B) [26 USCS § 170(f)(3)(B)] (relating to remainder interests in personal residence or farm, etc.), or
(ii) to meet the requirements of section 642(c)(5) [26 USCS § 642(c)(5)].
(J) Void or reformed trust in cases of insufficient remainder interests. In the case of a trust that would qualify (or could be reformed to qualify pursuant to subparagraph (B)) but for failure to satisfy the requirement of paragraph (1)(D) or (2)(D) of section 664(d) [26 USCS § 664(d)], such trust may be--
(i) declared null and void ab initio, or
(ii) changed by reformation, amendment, or otherwise to meet such requirement by reducing the payout rate or the duration (or both) of any noncharitable beneficiary's interest to the extent necessary to satisfy such requirement,
pursuant to a proceeding that is commenced within the period required in subparagraph (C)(iii). In a case described in clause (i), no deduction shall be allowed under this title for any transfer to the trust and any transactions entered into by the trust prior to being declared void shall be treated as entered into by the transferor.
(4) Works of art and their copyrights treated as separate properties in certain cases.
(A) In general. In the case of a qualified contribution of a work of art, the work of art and the copyright on such work of art shall be treated as separate properties for purposes of paragraph (2).
(B) Work of art defined. For purposes of this paragraph, the term "work of art" means any tangible personal property with respect to which there is a copyright under Federal law.
(C) Qualified contribution defined. For purposes of this paragraph, the term "qualified contribution" means any transfer of property to a qualified organization if the use of the property by the organization is related to the purpose or function constituting the basis for its exemption under section 501 [26 USCS § 501].
(D) Qualified organization defined. For purposes of this paragraph, the term "qualified organization" means any organization described in section 501(c)(3) [26 USCS § 501(c)(3)] other than a private foundation (as defined in section 509) [26 USCS § 509]. For purposes of the preceding sentence, a private operating foundation (as defined in section 4942(j)(3) [26 USCS § 4942(j)(3)]) shall not be treated as a private foundation.
(f) Special rule for irrevocable transfers of easements in real property. A deduction shall be allowed under subsection (a) in respect of any transfer of a qualified real property interest (as defined in section 170(h)(2)(C) [26 USCS § 170(h)(2)(C)]) which meets the requirements of section 170(h) [26 USCS § 170(h)] (without regard to paragraph (4)(A) thereof).
(g) Cross references.
(1) For option as to time for valuation for purpose of deduction under this section, see section 2032 [26 USCS § 2032].
(2) For treatment of certain organizations providing child care, see section 501(k) [26 USCS § 501(k)].
(3) For exemption of gifts and bequests to or for the benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (2 U.S.C. 161).
(4) For treatment of gifts and bequests for the benefit of the Naval Historical Center as gifts or bequests to or for the use of the United States, see section 7222 of title 10, United States Code.
(5) For treatment of gifts and bequests to or for the benefit of National Park Foundation as gifts or bequests to or for the use of the United States, see section 8 of the Act of December 18, 1967 (16 U.S.C. 191).
(6) For treatment of gifts, devises, or bequests accepted by the Secretary of State, the Director of the International Communication Agency, or the Director of the United States International Development Cooperation Agency as gifts, devises, or bequests to or for the use of the United States, see section 25 of the State Department Basic Authorities Act of 1956 [22 USCS § 2697].
(7) For treatment of gifts or bequests of money accepted by the Attorney General for credit to "Commissary Funds, Federal Prisons," as gifts or bequests to or for the use of the United States, see section 4043 of title 18, United States Code.
(8) For payment of tax on gifts and bequests of United States obligations to the United States, see section 3113(e) of title 31, United States Code.
(9) For treatment of gifts and bequests for benefit of the Naval Academy as gifts or bequests to or for the use of the United States, see section 6973 of title 10, United States Code.
(10) For treatment of gifts and bequests for benefit of the Naval Academy Museum as gifts or bequests to or for the use of the United States, see section 6974 of title 10, United States Code.
(11) For exemption of gifts and bequests received by National Archives Trust Fund Board, see section 2308 of title 44, United States Code.
(12) For treatment of gifts and bequests to or for the use of Indian tribal governments (or their subdivisions), see section 7871 [26 USCS § 7871].
26 USCS § 2056 (2005)
§ 2056. Bequests, etc., to surviving spouse.
(a) Allowance of marital deduction. For purposes of the tax imposed by section 2001 [26 USCS § 2001], the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.
(b) Limitation in the case of life estate or other terminable interest.
(1) General rule. Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest--
(A) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and
(B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse;
and no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under subparagraphs (A) and (B))--
(C) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.
For purposes of this paragraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.
(2) Interest in unidentified assets. Where the assets (included in the decedent's gross estate) out of which, or the proceeds of which, an interest passing to the surviving spouse may be satisfied include a particular asset or assets with respect to which no deduction would be allowed if such asset or assets passed from the decedent to such spouse, then the value of such interest passing to such spouse shall, for purposes of subsection (a), be reduced by the aggregate value of such particular assets.
(3) Interest of spouse conditional on survival for limited period. For purposes of this subsection, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if--
(A) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event; and
(B) such termination or failure does not in fact occur.
(4) Valuation of interest passing to surviving spouse. In determining for purposes of subsection (a) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this section--
(A) there shall be taken into account the effect which the tax imposed by section 2001 [26 USCS § 2001], or any estate, succession, legacy, or inheritance tax, has on the net value to the surviving spouse of such interest; and
(B) where such interest or property is encumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the passing of such interest, such encumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined.
(5) Life estate with power of appointment in surviving spouse. In the case of an interest in property passing from the decedent, if his surviving spouse is entitled for life to all the income from the entire interest, or all the income from a specific portion thereof, payable annually or at more frequent intervals, with power in the surviving spouse to appoint the entire interest, or such specific portion (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), and with no power in any other person to appoint any part of the interest, or such specific portion, to any person other than the surviving spouse--
(A) the interest or such portion thereof so passing shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
(B) no part of the interest so passing shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse.
This paragraph shall apply only if such power in the surviving spouse to appoint the entire interest, or such specific portion thereof, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.
(6) Life insurance or annuity payments with power of appointment in surviving spouse. In the case of an interest in property passing from the decedent consisting of proceeds under a life insurance, endowment, or annuity contract, if under the terms of the contract such proceeds are payable in installments or are held by the insurer subject to an agreement to pay interest thereon (whether the proceeds, on the termination of any interest payments, are payable in a lump sum or in annual or more frequent installments), and such installment or interest payments are payable annually or at more frequent intervals, commencing not later than 13 months after the decedent's death, and all amounts, or a specific portion of all such amounts, payable during the life of the surviving spouse are payable only to such spouse, and such spouse has the power to appoint all amounts, or such specific portion, payable under such contract (exercisable in favor of such surviving spouse, or of the estate of such surviving spouse, or in favor of either, whether or not in each case the power is exercisable in favor of others), with no power in any other person to appoint such amounts to any person other than the surviving spouse--
(A) such amounts shall, for purposes of subsection (a), be considered as passing to the surviving spouse, and
(B) no part of such amounts shall, for purposes of paragraph (1)(A), be considered as passing to any person other than the surviving spouse.
This paragraph shall apply only if, under the terms of the contract, such power in the surviving spouse to appoint such amounts, whether exercisable by will or during life, is exercisable by such spouse alone and in all events.
(7) Election with respect to life estate for surviving spouse.
(A) In general. In the case of qualified terminable interest property--
(i) for purposes of subsection (a), such property shall be treated as passing to the surviving spouse, and
(ii) for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.
(B) Qualified terminable interest property defined. For purposes of this paragraph--
(i) In general. The term "qualified terminable interest property" means property--
(I) which passes from the decedent,
(II) in which the surviving spouse has a qualifying income interest for life, and
(III) to which an election under this paragraph applies.
(ii) Qualifying income interest for life. The surviving spouse has a qualifying income interest for life if--
(I) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
(II) no person has a power to appoint any part of the property to any person other than the surviving spouse.
Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).
(iii) Property includes interest therein. The term "property" includes an interest in property.
(iv) Specific portion treated as separate property. A specific portion of property shall be treated as separate property.
(v) Election. An election under this paragraph with respect to any property shall be made by the executor on the return of tax imposed by section 2001 [26 USCS § 2001]. Such an election, once made, shall be irrevocable.
(C) Treatment of survivor annuities. In the case of an annuity included in the gross estate of the decedent under section 2039 [26 USCS § 2039] (or, in the case of an interest in an annuity arising under the community property laws of a State, included in the gross estate of the decedent under section 2033 [26 USCS § 2033]) where only the surviving spouse has the right to receive payments before the death of such surviving spouse--
(i) the interest of such surviving spouse shall be treated as a qualifying income interest for life, and
(ii) the executor shall be treated as having made an election under this subsection with respect to such annuity unless the executor otherwise elects on the return of tax imposed by section 2001 [26 USCS § 2001].
An election under clause (ii), once made, shall be irrevocable.
(8) Special rule for charitable remainder trusts.
(A) In general. If the surviving spouse of the decedent is the only beneficiary of a qualified charitable remainder trust who is not a charitable beneficiary nor an ESOP beneficiary, paragraph (1) shall not apply to any interest in such trust which passes or has passed from the decedent to such surviving spouse.
(B) Definitions. For purposes of subparagraph (A)--
(i) Charitable beneficiary. The term 'charitable beneficiary' means any beneficiary which is an organization described in section 170(c) [26 USCS § 170(c)].
(ii) ESOP beneficiary. The term 'ESOP beneficiary' means any beneficiary which is an employee stock ownership plan (as defined in section 4975(e)(7) [26 USCS § 4975(e)(7)]) that holds a remainder interest in qualified employer securities (as defined in section 664(g)(4) [26 USCS § 664(g)(4)]) to be transferred to such plan in a qualified gratuitous transfer (as defined in section 664(g)(1) [26 USCS § 664(g)(1)]).
(iii) Qualified charitable remainder trust. The term 'qualified charitable remainder trust' means a charitable remainder annuity trust or a charitable remainder unitrust (described in section 664 [26 USCS § 664]).
(9) Denial of double deduction. Nothing in this section or any other provision of this chapter [26 USCS § § 2001 et seq.] shall allow the value of any interest in property to be deducted under this chapter [26 USCS § § 2001 et seq.] more than once with respect to the same decedent.
(10) Specific portion. For purposes of paragraphs (5), (6), and (7)(B)(iv), the term "specific portion" only includes a portion determined on a fractional or percentage basis.
(c) Definition. For purposes of this section, an interest in property shall be considered as passing from the decedent to any person if and only if--
(1) such interest is bequeathed or devised to such person by the decedent;
(2) such interest is inherited by such person from the decedent;
(3) such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent;
(4) such interest has been transferred to such person by the decedent at any time;
(5) such interest was, at the time of the decedent's death, held by such person and the decedent (or by them and any other person) in joint ownership with right of survivorship;
(6) the decedent had a power (either alone or in conjunction with any person) to appoint such interest and if he appoints or has appointed such interest to such person, or if such person takes such interest in default on the release or nonexercise of such power; or
(7) such interest consists of proceeds of insurance on the life of the decedent receivable by such person.
Except as provided in paragraph (5) or (6) of subsection (b), where at the time of the decedent's death it is not possible to ascertain the particular person or persons to whom an interest in property may pass from the decedent, such interest shall, for purposes of subparagraphs (A) and (B) of subsection (b)(1), be considered as passing from the decedent to a person other than the surviving spouse.
(d) Disallowance of marital deduction where surviving spouse not United States citizen.
(1) In general. Except as provided in paragraph (2), if the surviving spouse of the decedent is not a citizen of the United States--
(A) no deduction shall be allowed under subsection (a), and
(B) section 2040(b) [26 USCS § 2040(b)] shall not apply.
(2) Marital deduction allowed for certain transfers in trust.
(A) In general. Paragraph (1) shall not apply to any property passing to the surviving spouse in a qualified domestic trust.
(B) Special rule. If any property passes from the decedent to the surviving spouse of the decedent, for purposes of subparagraph (A), such property shall be treated as passing to such spouse in a qualified domestic trust if--
(i) such property is transferred to such a trust before the date on which the return of the tax imposed by this chapter [26 USCS § § 2001 et seq.] is made, or
(ii) such property is irrevocably assigned to such a trust under an irrevocable assignment made on or before such date which is enforceable under local law.
(3) Allowance of credit to certain spouses. If--
(A) property passes to the surviving spouse of the decedent (hereinafter in this paragraph referred to as the "first decedent"),
(B) without regard to this subsection, a deduction would be allowable under subsection (a) with respect to such property, and
(C) such surviving spouse dies and the estate of such surviving spouse is subject to the tax imposed by this chapter [26 USCS § § 2001 et seq.],
the Federal estate tax paid (or treated as paid under section 2056A(b)(7) [26 USCS § 2056A(b)(7)]) by the first decedent with respect to such property shall be allowed as a credit under section 2013 [26 USCS § 2013] to the estate of such surviving spouse and the amount of such credit shall be determined under such section without regard to when the first decedent died and without regard to subsection (d)(3) of such section.
(4) Special rule where resident spouse becomes citizen. Paragraph (1) shall not apply if--
(A) the surviving spouse of the decedent becomes a citizen of the United States before the day on which the return of the tax imposed by this chapter [26 USCS § § 2001 et seq.] is made, and
(B) such spouse was a resident of the United States at all times after the date of the death of the decedent and before becoming a citizen of the United States.
(5) Reformations permitted.
(A) In general. In the case of any property with respect to which a deduction would be allowable under subsection (a) but for this subsection, the determination of whether a trust is a qualified domestic trust shall be made--
(i) as of the date on which the return of the tax imposed by this chapter [26 USCS § § 2001 et seq.] is made, or
(ii) if a judicial proceeding is commenced on or before the due date (determined with regard to extensions) for filing such return to change such trust into a trust which is a qualified domestic trust, as of the time when the changes pursuant to such proceeding are made.
(B) Statute of limitations. If a judicial proceeding described in subparagraph (A)(ii) is commenced with respect to any trust, the period for assessing any deficiency of tax attributable to any failure of such trust to be a qualified domestic trust shall not expire before the date 1 year after the date on which the Secretary is notified that the trust has been changed pursuant to such judicial proceeding or that such proceeding has been terminated.