Gross Estate; Election to Value on Alternate Valuation Date, 22300-22303 [E8-9025]
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Nutting, E.F., Klimstra, P.D., and Counsell,
R.E. (1966). Anabolic-androgenic activity
of A-ring modified androstane derivatives.
Part I: A comparison of parenteral activity.
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Scow, R.O. (1952). Effect of testosterone on
muscle and other tissues and on carcass
composition in hypophysectomized,
thyroidectomized, and gonadectomized
male rats. Endocrinology, 51: 42–51.
Singh, R., Artaza, J.N., Taylor, W.E.,
Gonzalez-Cadavid, N.F., and Bhasin, S.
(2003). Androgens stimulate myogenic
differentiation and inhibit adipogenesis in
C3H 10T1/2 pluripotent cells through an
androgen receptor-mediated pathway.
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Swerdloff, R.S., Grover, P.K., Jacobs, H.S.,
and Bain, J. (1973). Search for a substance
which selectively inhibits FSH—Effects of
steroids and prostaglandins on serum FSH
and LH levels. Steroids, 21(5): 703–722.
Swerdloff, R.S. and Walsh, P.C. (1973).
Testosterone and oestradiol suppression of
LH and FSH in adult male rats: Duration
of castration, duration of treatment and
combined treatment. ACTA
Endocrinologica, 73: 11–21.
Swerdloff, R.S., Walsh, P.C., and Odell, W.D.
(1972). Control of LH and FSH secretion in
the male: Evidence that aromatization of
androgens to estradiol is not required for
inhibition of gonadotropin secretion.
Steroids, 20(1): 13–22.
Verjans, H.L., Eik-Nes, K.B., Aafjes, J.H., Vels,
F.J.M., and van der Molen, H.J. (1974).
Effects of testosterone propionate, 5alphadihydrotestosterone propionate and
oestradiol benzoate on serum levels of LH
and FSH in the castrated adult male rat.
ACTA Endocrinologica, 77: 643–654.
Vida, J.A. (1969). Androgens and Anabolic
Agents: Chemistry and Pharmacology. New
York: Academic Press.
Wainman, P. and Shipounoff, G.C. (1941).
The effects of castration and testosterone
propionate on the striated perineal
musculature in the rat. Endocrinology,
29(6): 975–978.
Williams, C.L. and Stancel, G.M (1996).
Estrogens and Progestins. In J.G. Hardman,
L.E. Limbird, P.B. Molinoff, R.W. Ruddon,
A. Goodman Gilman (Eds.) Goodman and
Gilman’s The Pharmacological Basis of
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Wilson, V.S., Bobseine, K., Lambright, C.R.,
and Gray, L.E. (2002). A novel cell line,
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[FR Doc. E8–8842 Filed 4–24–08; 8:45 am]
BILLING CODE 4410–09–P
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DEPARTMENT OF THE TREASURY
PART 1—[CORRECTED]
Internal Revenue Service
§ 1.411(a)(13)–1
26 CFR Part 1
[REG–104946–07]
RIN 1545–BG36
Hybrid Retirement Plans; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correction to notice of proposed
rulemaking.
AGENCY:
SUMMARY: This document contains
corrections to a notice of proposed
rulemaking (REG–104946–07) that was
published in the Federal Register on
Friday, December 28, 2007 (72 FR
73680) providing guidance relating to
sections 411(a)(13) and 411(b)(5) of the
Internal Revenue Code concerning
certain hybrid defined benefit plans.
FOR FURTHER INFORMATION CONTACT:
Lauson C. Green or Linda S. F. Marshall
at (202) 622–6090 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Background
The correction notice that is the
subject of this document is under
section 411 of the Internal Revenue
Code.
Need for Correction
As published, the notice of proposed
rulemaking (REG–104946–07) contains
errors that may prove to be misleading
and are in need of clarification.
Correction of Publication
Accordingly, the publication of the
notice of proposed rulemaking (REG–
104946–07), which was the subject of
FR Doc. E7–25025, is corrected as
follows:
1. On page 73683, column 3, in the
preamble, first paragraph of the column,
line 15, the language ‘‘reasonably
expected to result in a larger’’ is
corrected to read ‘‘reasonably expected
to result in a smaller’’.
2. On page 73685, column 1, third
paragraph of the column, line 8, the
language ‘‘ ‘capital’ rule of section
411(b)(5)(b)(i)(II)’’ is corrected to read
‘‘ ‘capital’ rule of section
411(b)(5)(B)(i)(II)’’.
3. On page 73689, column 2, line 3
from the bottom of the fifth paragraph
of the column, the language ‘‘section
411(d)(6) is available for the’’ is
corrected to read ‘‘section 411(d)(6)
relief is available for the’’.
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[Corrected]
4. On page 73691, column 1,
§ 1.411(a)(13)–1(d)(3)(ii), line 18, the
language ‘‘larger annual benefit at
normal’’ is corrected to read ‘‘smaller
annual benefit at normal’’.
5. On page 73691, column 2,
§ 1.411(a)(13)–1(d)(3)(iii)(B), line 9, the
language ‘‘reasonably expected to result
in a larger’’ is corrected to read
‘‘reasonably expected to result in a
smaller’’.
§ 1.411(b)(5)–1
[Corrected]
6. On page 73693, column 3,
§ 1.411(b)(5)–1(c)(3)(ii)(A), line 17, the
language ‘‘participant under the lump
sum-based’’ is corrected to read
‘‘participant under the lump sum-based
benefit’’.
7. On page 73695, column 1,
§ 1.411(b)(5)–1(c)(5) Example 1. (ii), line
17, the language ‘‘permitted to elect
(with spousal consent)’’ is corrected to
read ‘‘permitted to elect (with spousal
consent if applicable)’’.
8. On page 73695, column 2,
§ 1.411(b)(5)–1(c)(5) Example 2. (iii),
line 5, the language ‘‘consent) payment
in the same generalized’’ is corrected to
read ‘‘consent if applicable) payment in
the same generalized’’.
9. On page 73695, column 3,
§ 1.411(b)(5)–1(c)(5) Example 2. (v), line
12, the language ‘‘of 5.5 percent.
Thereafter, Participant’s A’s’’ is
corrected to read ‘‘of 5.5 percent.
Thereafter, Participant A’s’’.
LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel (Procedure and Administration).
[FR Doc. E8–9026 Filed 4–24–08; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 20
[REG–112196–07]
RIN 1545–BH64
Gross Estate; Election to Value on
Alternate Valuation Date
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
SUMMARY: This document contains
proposed regulations that provide
guidance relating to the availability of
the election to use the alternate
valuation method under section 2032 of
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the Internal Revenue Code (Code). The
proposed regulations will affect estates
that file Form 706, United States Estate
(and Generation-Skipping Transfer) Tax
Return, and elect to use the alternate
valuation method.
DATES: Written or electronic comments
and requests for a public hearing must
be received by July 24, 2008.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–112196–07),
Internal Revenue Service, Room 5203,
PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–112196–
07), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC 20224; or sent
electronically via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS–REG–
112196–07).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Theresa M. Melchiorre, at (202) 622–
3090; concerning submissions of
comments or to request a hearing, Kelly
Banks, at (202) 622–7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed
amendments to the Estate Tax
Regulations (26 CFR part 20) under
section 2032 of the Code. Section 2001
imposes a tax on the transfer of the
taxable estate of every decedent who is
a citizen or resident of the United
States. Section 2031(a) provides that the
value of the decedent’s gross estate
includes the value at the time of
decedent’s death of all property, real or
personal, tangible or intangible,
wherever situated. Section 2032(a)
provides that the value of the gross
estate instead may be determined, if the
executor so elects, by valuing all the
property included in the gross estate as
follows. Property distributed, sold,
exchanged, or otherwise disposed of
within 6 months after the decedent’s
death must be valued as of the date of
distribution, sale, exchange, or other
disposition. I.R.C. section 2032(a)(1).
Property not distributed, sold,
exchanged, or otherwise disposed of
within 6 months after the decedent’s
death must be valued as of the date that
is 6 months after the decedent’s death.
I.R.C. section 2032(a)(2). Any interest or
estate which is affected by the mere
lapse of time is included at its value as
of the time of death (instead of the later
date), with adjustment for any
difference in its value as of the later date
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that is not due to the mere lapse of time.
I.R.C. section 2032(a)(3).
The predecessor to section 2032 is
section 302(j) of the Revenue Act of
1926, as added by section 202(a) of the
Revenue Act of 1935. Revenue Act of
1935, 74 Public Law 407, 49 Stat. 1014
(1935). Section 302(j) allowed executors
to elect to use a date that was one year
after the date of decedent’s death to
value estate property. Section 302(j)
contained provisions for valuing the
property on the date of its sale or
disposition during the alternate
valuation period and for not taking into
account changes in value due to a mere
lapse of time. Congress enacted section
302(j) in response to ‘‘the hardships
which were experienced after 1929
when market values decreased very
materially between the period from the
date of death and the date of
distribution to the beneficiaries.’’ 79
Cong. Rec. 14632 (1935) (statement of
Mr. Samuel B. Hill). See, also, H.R. Rep.
No. 74–1681, at 9 (1935); S. Rep. No.
74–1240, part 1, at 9–10 (1935); and S.
Rep. No. 74–1240, part 2, at 8–9 (1935).
Section 302(j) was codified as section
811(j) in the Internal Revenue Code of
1939.
In 1941, the U.S. Supreme Court
addressed whether rents, dividends, and
interest received and accrued during the
alternate valuation period are includible
in the decedent’s gross estate under
section 811(j). Maass v. Higgins, 312
U.S. 443 (1941). In that case, the Court
stated that the purpose of section 811(j)
is ‘‘to mitigate the hardship consequent
upon shrinkage in the value of estates
during the year following death.
Congress enacted it in the light of the
fact that, due to such shrinkages, many
estates were almost obliterated by the
necessity of paying a tax on the value
of the assets at the date of decedent’s
death.’’ Id. at 446.
In 1954, section 811(j) was recodified
as section 2032. Congress considered
proposals to amend section 811(j) and,
again, Congress stated that, ‘‘The option
to value property [on the alternate
valuation date] initially was provided
during the Depression of the early 1930s
because by the time estate taxes were
paid, property values had dropped
substantially, sometimes to such an
extent that the proceeds of the sale
would not pay the estate tax due.’’ H.
Rep. No. 83–1337 at 90 (1954). See, also,
S. Rep. No. 83–1622, at 122–123 (1954).
In 1958, § 20.2032–1 of the Estate Tax
Regulations was published. This
regulation restates the rule in section
2032(a)(3) and provides an example that
illustrates the rule that only changes in
the value of the decedent’s gross estate
due to market conditions, and not
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changes to the value due to a mere lapse
of time, are to be considered in valuing
the decedent’s gross estate under the
alternate valuation method. See
example in § 20.2032–1(f)(1).
Two judicial decisions have
interpreted the language of section 2032
and its legislative history differently in
determining whether post-death events
other than market conditions may be
taken into account under the alternate
valuation method. In Flanders v. United
States, 347 F. Supp. 95 (N.D. Cal. 1972),
the district court held that the reduction
in value of property included in the
decedent’s estate as a result of a
voluntary act by the trustee, instead of
as a result of market conditions, could
not be taken into consideration in
valuing the property under the alternate
valuation method. In that case, a few
months after the death of the decedent,
the trustee of the trust owning
decedent’s undivided one-half interest
in real property entered into a Land
Conservation Agreement pursuant to the
California Land Conservation Act of
1965. In exchange for restricting the
property to agricultural uses for a period
of 10 years, the trustee was allowed to
reduce the assessed value of the land for
purposes of paying property taxes. The
estate elected to use the alternate
valuation method for estate tax purposes
and reported the value of the decedent’s
interest in the land as $25,000. This
value represented one-half of the value
of the ranch after the land use
restriction was placed upon it, less a
lack of marketability discount.
The district court stated that, ‘‘It
seems clear that Congress intended that
the character of the property be
established for valuation purposes at the
date of death. The option to select the
alternate valuation date is merely to
allow an estate to pay a lesser tax if
unfavorable market conditions (as
distinguished from voluntary acts
changing the character of the property)
result in a lessening of its fair market
value.’’ Id. at 98.
In Kohler v. Commissioner, T.C.
Memo. 2006–152, the U.S. Tax Court
held that valuation discounts
attributable to restrictions imposed on
closely-held corporate stock pursuant to
a post-death reorganization of the
Kohler Company should be taken into
consideration in valuing stock on the
alternate valuation date. In that case,
approximately two months after the
death of the decedent, the Kohler
Company underwent a reorganization
that qualified as a tax-free
reorganization under section 368(a) and,
thus, was not a sale or disposition for
purposes of section 2032(a)(1). The
estate opted to receive new Kohler
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shares that were subject to transfer
restrictions. The estate elected to use the
alternate valuation method under
section 2032(a)(2) and took into account
discounts attributable to the transfer
restrictions on the stock in determining
the value for Federal estate tax
purposes. In the Internal Revenue
Bulletin No. 2008–9 on March 3, 2008,
the IRS nonacquiesced to the Tax Court
opinion in Kohler (AOD 2008–1).
Explanation of Provisions
The proposed regulations will amend
§ 20.2032–1 by restructuring paragraph
(f) of this section to clarify that the
election to use the alternate valuation
method under section 2032 is available
to estates that experience a reduction in
the value of the gross estate following
the date of the decedent’s death due to
market conditions, but not due to other
post-death events. The term market
conditions is defined in the proposed
regulations and examples are provided,
which are not intended to be exclusive.
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Proposed Effective Date
The fourth sentence of § 20.2032–
1(f)(2)(i) is applicable to decedents
dying after May 1, 1999, subject to
transition rules for certain incapacitated
individuals. The fifth sentence of
§ 20.2032–1(f)(2)(i) is applicable to
decedents dying after November 30,
1983, subject to transition rules for
certain incapacitated individuals. The
first, second, and third sentences of
§ 20.2032–1(f)(2)(i), § 20.2032–1(f)(2)(ii),
and all but the last sentence in
§ 20.2032–1(f)(2) are applicable to
decedent’s dying after August 16, 1954.
When adopted as final regulations, the
rules contained in § 20.2032–1(f)(1),
§ 20.2032–1(f)(3), and the last sentence
of § 20.2032–1(f)(2), will be made
applicable to estates of decedents dying
on or after April 25, 2008.
Special Analyses
It has been determined that this
proposed regulation 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 Internal Revenue
Code, this regulation has been
submitted to the Chief Counsel for
Advocacy of the Small Business
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Administration for comment on its
impact on small business.
Comments and Requests for a Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written (a signed original and eight (8)
copies) or electronic comments that are
submitted timely to the IRS. The IRS
and the Treasury Department also
request comments on the clarity of the
proposed regulations and how they may
be made easier to understand. All
comments will be available for public
inspection and copying. A public
hearing may be scheduled if requested
in writing by any person that timely
submits written comments. If a public
hearing is scheduled, notice of the date,
time, and place for the hearing will be
published in the Federal Register.
Drafting Information
The principal author of these
proposed regulations is Theresa M.
Melchiorre, Office of Associate Chief
Counsel (Passthroughs and Special
Industries).
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
Paragraph 1. The authority citation
for part 20 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 20.2032–1 is amended
as follows:
1. Paragraph (f)(1) is redesignated as
paragraph (f)(2)(i).
2. Paragraph (f)(2) is redesignated as
paragraph (f)(2)(ii).
3. Paragraph (f) introductory text is
redesignated as paragraph (f)(2)
introductory text and the last sentence
is revised.
4. New paragraphs (f)(1) and (f)(3) are
added.
5. The heading for paragraph (h) is
revised and four sentences are added at
the end of the paragraph.
The additions and revisions read as
follows.
§ 20.2032–1
Alternate valuation.
*
*
*
*
*
(f) Post-death market conditions and
other post-death events—(1) In general.
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The election to use the alternate
valuation method under section 2032
permits the property included in the
gross estate to be valued as of the
alternate valuation date to the extent
that the change in value during the
alternate valuation period is the result
of market conditions. The term market
conditions is defined as events outside
of the control of the decedent (or the
decedent’s executor or trustee) or other
person whose property is being valued
that affect the fair market value of the
property being valued. Changes in value
due to mere lapse of time or to other
post-death events other than market
conditions will be ignored in
determining the value of decedent’s
gross estate under the alternate
valuation method.
(2) Mere lapse of time. * * * The
application of this paragraph (f)(2) is
illustrated in paragraphs (f)(2)(i) and
(f)(2)(ii) of this section:
*
*
*
*
*
(3) Post-death events—(i) In general.
In order to eliminate changes in value
due to post-death events other than
market conditions, any interest or estate
affected by post-death events other than
market conditions is included in a
decedent’s gross estate under the
alternate valuation method at its value
as of the date of the decedent’s death,
with adjustment for any change in value
that is due to market conditions. The
term post-death events includes, but is
not limited to, a reorganization of an
entity (for example, corporation,
partnership, or limited liability
company) in which the estate holds an
interest, a distribution of cash or other
property to the estate from such entity,
or one or more distributions by the
estate of a fractional interest in such
entity.
(ii) Examples. The following
examples illustrate the application of
this paragraph (f)(3). In each example,
decedent’s (D’s) estate elects to value
D’s gross estate under the alternate
valuation method, so that the valuation
date of the property included in D’s
gross estate as of D’s date of death is
either the date the property is
distributed, sold, exchanged, or
disposed of under section 2032(a)(1)
(the date of distribution (distribution
date)) or the date that is 6 months after
the date of the decedent’s death under
section 2032(a)(2) (the six month
alternate valuation date (AVD)).
Example 1. At D’s death, D owned
common stock in Corporation, a closely-held
subchapter C corporation. At that time, the
common stock was not subject to transfer
restrictions. D’s stock was valued at $50X at
the date of death. Two months after D’s
death, D’s estate participated in a tax-free
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reorganization of Corporation that qualified
under section 368(a) with respect to which
no gain or loss was recognized for income tax
purposes under section 354 or 355. Pursuant
to the reorganization, D’s estate opted to
exchange its stock for stock subject to transfer
restrictions. Although the value of the stock
did not change during the alternate valuation
period, discounts for lack of marketability
and lack of control (totaling $20X) were
applied in determining the value of the stock
held by D’s estate on the AVD, and D’s estate
reported the value of the stock on the AVD
as $30X. Because the claimed reduction in
value is not attributable to market conditions,
the discounts may not be taken into account
in determining the value of the stock on the
AVD. Accordingly, the value on the AVD is
$50X.
Example 2. The facts are the same as in
Example 1 except that the value of the stock
declined from $50X to $40X during the
alternate valuation period because of changes
in market conditions during that period. D’s
estate may report the value of the stock as
$40X on the AVD. As in Example 1, however,
no discounts resulting from the
reorganization are allowed in computing the
value on the AVD.
Example 3. At D’s death, D owned property
valued at $100X. Two months after D’s death,
the executor of D’s estate and other family
members formed four limited partnerships.
The estate contributed the estate’s property to
the partnerships in exchange for a 25%
interest in each partnership. Discounts for
lack of marketability and lack of control
(totaling $25X) were applied in determining
the value of the estate’s partnership interests,
and the estate reported $75X as the total
value of the estate’s partnership interests on
the AVD. Because the reduction in value is
not attributable to market conditions, the
discounts for lack of marketability and
control may not be taken into account in
determining the value of the partnership
interests on the AVD. The result would be
the same if the limited partnerships were
formed prior to D’s death, and the estate
transferred property into the partnerships
after D’s death but prior to the AVD.
Example 4. At D’s death, D owned 100%
of the units of a limited liability company
(LLC). The executor elected the alternative
valuation method. During the 6 months
following D’s death and in accordance with
D’s will, the executor made 6 distributions,
each to a different residuary legatee on a
different date and each of a 10% interest in
the LLC. Pursuant to section 2032(a)(1), each
distribution is valued on the distribution
date. On the AVD, the estate held 40% of the
units in the LLC. Pursuant to section
2032(a)(2), the 40% is valued on the AVD. In
valuing the 10% interests distributed and the
40% interest held on the AVD, discounts for
lack of control and lack of marketability were
applied. The reduction in value of the units
is not attributable to market conditions.
Accordingly, the discounts for lack of
marketability and control may not be taken
into account in determining the value of the
units distributed or held by the estate. The
value of each 10% distribution is determined
by taking 10% of the value on the
distribution date of the units (100%) owned
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by the estate at D’s death. The value of the
units held by the estate on the AVD is
determined by taking 40% of the value on the
AVD of all of the units (100%) owned by the
estate at D’s death. If because of market
conditions, the units had declined in value
as of each distribution date or as of the AVD,
D’s estate would take such reduction in value
into account.
Example 5. D died owning 100% of
Blackacre. D’s will directs that Blackacre be
divided between two trusts, 70% to Trust A
for the benefit of S, D’s surviving spouse, and
30% to Trust B for the benefit of C, D’s
surviving child. The executor of D’s estate
distributed a 70% interest in Blackacre to
Trust A three months after D’s death, and
distributed a 30% interest in Blackacre to
Trust B four months after D’s death. On the
estate tax return, the executor elected to
value the estate’s property under the
alternate valuation method under section
2032. There was no change in the value of
Blackacre during the four-month period
following D’s death. The 70% interest in
Blackacre is to be valued as of the
distribution date to Trust A, and that value
is determined by taking 70% of the value of
all (100%) of Blackacre as of the distribution
date. The 30% interest in Blackacre is to be
valued as of the distribution date to Trust B,
and that value is determined by taking 30%
of the value of all (100%) of Blackacre as of
the distribution date. If, however, because of
market conditions such as a decline in the
real estate market, Blackacre’s value had
declined by 10% between D’s date of death
and the distribution date of the 30% interest,
the value of the 30% interest would be
determined by ascertaining 30% of the value
of all (100%) of Blackacre as of the
distribution date, which would equal 30% of
90% of the date of death value of Blackacre.
*
*
*
*
*
(h) Effective/applicability date. * * *
The fourth sentence of paragraph
(f)(2)(i) of this section is applicable to
decedents dying after May 1, 1999,
subject to transition rules for certain
incapacitated individuals. The fifth
sentence of paragraph (f)(2)(i) of this
section is applicable to decedents dying
after November 30, 1983, subject to
transition rules for certain incapacitated
individuals. The first, second, and third
sentences of paragraph (f)(2)(i),
paragraph (f)(2)(ii), and all but the last
sentence in paragraph (f)(2) of this
section are applicable to decedents
dying after August 16, 1954. When
adopted as final regulations, the rules
contained in paragraphs (f)(1), (f)(3), and
the last sentence of paragraph (f)(2) of
this section, will be made applicable to
estates of decedents dying on or after
April 25, 2008.
*
*
*
*
*
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. E8–9025 Filed 4–24–08; 8:45 am]
BILLING CODE 4830–01–P
PO 00000
Frm 00015
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22303
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 100
[USCG–2008–0220]
RIN 1625–AA08
Regattas and Marine Parades; Great
Lakes Annual Marine Events
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
SUMMARY: The Coast Guard proposes to
amend special local regulations for
annual regattas and marine parades in
the Captain of the Port Detroit zone.
This proposed rule is intended to ensure
safety of life on the navigable waters
immediately prior to, during, and
immediately after regattas or marine
parades. This proposed rule will
establish restrictions upon, and control
movement of, vessels in a specified area
immediately prior to, during, and
immediately after regattas or marine
parades.
DATES: Comments and related materials
must reach the Coast Guard on or before
May 27, 2008.
ADDRESSES: You may submit comments
identified by Coast Guard docket
number USCG–2008–0220 to the Docket
Management Facility at the U.S.
Department of Transportation. To avoid
duplication, please use only one of the
following methods:
(1) Online: https://
www.regulations.gov.
(2) Mail: Docket Management Facility
(M–30), U.S. Department of
Transportation, West Building Ground
Floor, Room W12–140, 1200 New Jersey
Avenue, SE., Washington, DC 20590–
0001.
(3) Hand delivery: Room W12–140 on
the Ground Floor of the West Building,
1200 New Jersey Avenue, SE.,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The telephone
number is 202–366–9329.
(4) Fax: 202–493–2251.
FOR FURTHER INFORMATION CONTACT: LT
Jeff Ahlgren, Waterways Management,
U.S. Coast Guard Sector Detroit, 110
Mount Elliot Ave., Detroit, MI 48207;
(313) 568–9580.
I. Public Participation and Request for
Comments
We encourage you to participate in
this rulemaking by submitting
comments and related materials. All
comments received will be posted,
without change, to https://
E:\FR\FM\25APP1.SGM
25APP1
]]>Agencies
[Federal Register Volume 73, Number 81 (Friday, April 25, 2008)]
[Proposed Rules]
[Pages 22300-22303]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-9025]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 20
[REG-112196-07]
RIN 1545-BH64
Gross Estate; Election to Value on Alternate Valuation Date
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations that provide
guidance relating to the availability of the election to use the
alternate valuation method under section 2032 of
[[Page 22301]]
the Internal Revenue Code (Code). The proposed regulations will affect
estates that file Form 706, United States Estate (and Generation-
Skipping Transfer) Tax Return, and elect to use the alternate valuation
method.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 24, 2008.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-112196-07), Internal
Revenue Service, Room 5203, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
112196-07), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC 20224; or sent electronically via the
Federal eRulemaking Portal at https://www.regulations.gov (IRS-REG-
112196-07).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Theresa M. Melchiorre, at (202) 622-3090; concerning submissions of
comments or to request a hearing, Kelly Banks, at (202) 622-7180 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Estate Tax
Regulations (26 CFR part 20) under section 2032 of the Code. Section
2001 imposes a tax on the transfer of the taxable estate of every
decedent who is a citizen or resident of the United States. Section
2031(a) provides that the value of the decedent's gross estate includes
the value at the time of decedent's death of all property, real or
personal, tangible or intangible, wherever situated. Section 2032(a)
provides that the value of the gross estate instead may be determined,
if the executor so elects, by valuing all the property included in the
gross estate as follows. Property distributed, sold, exchanged, or
otherwise disposed of within 6 months after the decedent's death must
be valued as of the date of distribution, sale, exchange, or other
disposition. I.R.C. section 2032(a)(1). Property not distributed, sold,
exchanged, or otherwise disposed of within 6 months after the
decedent's death must be valued as of the date that is 6 months after
the decedent's death. I.R.C. section 2032(a)(2). Any interest or estate
which is affected by the mere lapse of time is included at its value as
of the time of death (instead of the later date), with adjustment for
any difference in its value as of the later date that is not due to the
mere lapse of time. I.R.C. section 2032(a)(3).
The predecessor to section 2032 is section 302(j) of the Revenue
Act of 1926, as added by section 202(a) of the Revenue Act of 1935.
Revenue Act of 1935, 74 Public Law 407, 49 Stat. 1014 (1935). Section
302(j) allowed executors to elect to use a date that was one year after
the date of decedent's death to value estate property. Section 302(j)
contained provisions for valuing the property on the date of its sale
or disposition during the alternate valuation period and for not taking
into account changes in value due to a mere lapse of time. Congress
enacted section 302(j) in response to ``the hardships which were
experienced after 1929 when market values decreased very materially
between the period from the date of death and the date of distribution
to the beneficiaries.'' 79 Cong. Rec. 14632 (1935) (statement of Mr.
Samuel B. Hill). See, also, H.R. Rep. No. 74-1681, at 9 (1935); S. Rep.
No. 74-1240, part 1, at 9-10 (1935); and S. Rep. No. 74-1240, part 2,
at 8-9 (1935). Section 302(j) was codified as section 811(j) in the
Internal Revenue Code of 1939.
In 1941, the U.S. Supreme Court addressed whether rents, dividends,
and interest received and accrued during the alternate valuation period
are includible in the decedent's gross estate under section 811(j).
Maass v. Higgins, 312 U.S. 443 (1941). In that case, the Court stated
that the purpose of section 811(j) is ``to mitigate the hardship
consequent upon shrinkage in the value of estates during the year
following death. Congress enacted it in the light of the fact that, due
to such shrinkages, many estates were almost obliterated by the
necessity of paying a tax on the value of the assets at the date of
decedent's death.'' Id. at 446.
In 1954, section 811(j) was recodified as section 2032. Congress
considered proposals to amend section 811(j) and, again, Congress
stated that, ``The option to value property [on the alternate valuation
date] initially was provided during the Depression of the early 1930s
because by the time estate taxes were paid, property values had dropped
substantially, sometimes to such an extent that the proceeds of the
sale would not pay the estate tax due.'' H. Rep. No. 83-1337 at 90
(1954). See, also, S. Rep. No. 83-1622, at 122-123 (1954).
In 1958, Sec. 20.2032-1 of the Estate Tax Regulations was
published. This regulation restates the rule in section 2032(a)(3) and
provides an example that illustrates the rule that only changes in the
value of the decedent's gross estate due to market conditions, and not
changes to the value due to a mere lapse of time, are to be considered
in valuing the decedent's gross estate under the alternate valuation
method. See example in Sec. 20.2032-1(f)(1).
Two judicial decisions have interpreted the language of section
2032 and its legislative history differently in determining whether
post-death events other than market conditions may be taken into
account under the alternate valuation method. In Flanders v. United
States, 347 F. Supp. 95 (N.D. Cal. 1972), the district court held that
the reduction in value of property included in the decedent's estate as
a result of a voluntary act by the trustee, instead of as a result of
market conditions, could not be taken into consideration in valuing the
property under the alternate valuation method. In that case, a few
months after the death of the decedent, the trustee of the trust owning
decedent's undivided one-half interest in real property entered into a
Land Conservation Agreement pursuant to the California Land
Conservation Act of 1965. In exchange for restricting the property to
agricultural uses for a period of 10 years, the trustee was allowed to
reduce the assessed value of the land for purposes of paying property
taxes. The estate elected to use the alternate valuation method for
estate tax purposes and reported the value of the decedent's interest
in the land as $25,000. This value represented one-half of the value of
the ranch after the land use restriction was placed upon it, less a
lack of marketability discount.
The district court stated that, ``It seems clear that Congress
intended that the character of the property be established for
valuation purposes at the date of death. The option to select the
alternate valuation date is merely to allow an estate to pay a lesser
tax if unfavorable market conditions (as distinguished from voluntary
acts changing the character of the property) result in a lessening of
its fair market value.'' Id. at 98.
In Kohler v. Commissioner, T.C. Memo. 2006-152, the U.S. Tax Court
held that valuation discounts attributable to restrictions imposed on
closely-held corporate stock pursuant to a post-death reorganization of
the Kohler Company should be taken into consideration in valuing stock
on the alternate valuation date. In that case, approximately two months
after the death of the decedent, the Kohler Company underwent a
reorganization that qualified as a tax-free reorganization under
section 368(a) and, thus, was not a sale or disposition for purposes of
section 2032(a)(1). The estate opted to receive new Kohler
[[Page 22302]]
shares that were subject to transfer restrictions. The estate elected
to use the alternate valuation method under section 2032(a)(2) and took
into account discounts attributable to the transfer restrictions on the
stock in determining the value for Federal estate tax purposes. In the
Internal Revenue Bulletin No. 2008-9 on March 3, 2008, the IRS
nonacquiesced to the Tax Court opinion in Kohler (AOD 2008-1).
Explanation of Provisions
The proposed regulations will amend Sec. 20.2032-1 by
restructuring paragraph (f) of this section to clarify that the
election to use the alternate valuation method under section 2032 is
available to estates that experience a reduction in the value of the
gross estate following the date of the decedent's death due to market
conditions, but not due to other post-death events. The term market
conditions is defined in the proposed regulations and examples are
provided, which are not intended to be exclusive.
Proposed Effective Date
The fourth sentence of Sec. 20.2032-1(f)(2)(i) is applicable to
decedents dying after May 1, 1999, subject to transition rules for
certain incapacitated individuals. The fifth sentence of Sec. 20.2032-
1(f)(2)(i) is applicable to decedents dying after November 30, 1983,
subject to transition rules for certain incapacitated individuals. The
first, second, and third sentences of Sec. 20.2032-1(f)(2)(i), Sec.
20.2032-1(f)(2)(ii), and all but the last sentence in Sec. 20.2032-
1(f)(2) are applicable to decedent's dying after August 16, 1954. When
adopted as final regulations, the rules contained in Sec. 20.2032-
1(f)(1), Sec. 20.2032-1(f)(3), and the last sentence of Sec. 20.2032-
1(f)(2), will be made applicable to estates of decedents dying on or
after April 25, 2008.
Special Analyses
It has been determined that this proposed regulation 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 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 Requests for a Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and the Treasury Department also request comments on the
clarity of the proposed regulations and how they may be made easier to
understand. All comments will be available for public inspection and
copying. A public hearing may be scheduled if requested in writing by
any person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will be
published in the Federal Register.
Drafting Information
The principal author of these proposed regulations is Theresa M.
Melchiorre, Office of Associate Chief Counsel (Passthroughs and Special
Industries).
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
Paragraph 1. The authority citation for part 20 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 20.2032-1 is amended as follows:
1. Paragraph (f)(1) is redesignated as paragraph (f)(2)(i).
2. Paragraph (f)(2) is redesignated as paragraph (f)(2)(ii).
3. Paragraph (f) introductory text is redesignated as paragraph
(f)(2) introductory text and the last sentence is revised.
4. New paragraphs (f)(1) and (f)(3) are added.
5. The heading for paragraph (h) is revised and four sentences are
added at the end of the paragraph.
The additions and revisions read as follows.
Sec. 20.2032-1 Alternate valuation.
* * * * *
(f) Post-death market conditions and other post-death events--(1)
In general. The election to use the alternate valuation method under
section 2032 permits the property included in the gross estate to be
valued as of the alternate valuation date to the extent that the change
in value during the alternate valuation period is the result of market
conditions. The term market conditions is defined as events outside of
the control of the decedent (or the decedent's executor or trustee) or
other person whose property is being valued that affect the fair market
value of the property being valued. Changes in value due to mere lapse
of time or to other post-death events other than market conditions will
be ignored in determining the value of decedent's gross estate under
the alternate valuation method.
(2) Mere lapse of time. * * * The application of this paragraph
(f)(2) is illustrated in paragraphs (f)(2)(i) and (f)(2)(ii) of this
section:
* * * * *
(3) Post-death events--(i) In general. In order to eliminate
changes in value due to post-death events other than market conditions,
any interest or estate affected by post-death events other than market
conditions is included in a decedent's gross estate under the alternate
valuation method at its value as of the date of the decedent's death,
with adjustment for any change in value that is due to market
conditions. The term post-death events includes, but is not limited to,
a reorganization of an entity (for example, corporation, partnership,
or limited liability company) in which the estate holds an interest, a
distribution of cash or other property to the estate from such entity,
or one or more distributions by the estate of a fractional interest in
such entity.
(ii) Examples. The following examples illustrate the application of
this paragraph (f)(3). In each example, decedent's (D's) estate elects
to value D's gross estate under the alternate valuation method, so that
the valuation date of the property included in D's gross estate as of
D's date of death is either the date the property is distributed, sold,
exchanged, or disposed of under section 2032(a)(1) (the date of
distribution (distribution date)) or the date that is 6 months after
the date of the decedent's death under section 2032(a)(2) (the six
month alternate valuation date (AVD)).
Example 1. At D's death, D owned common stock in Corporation, a
closely-held subchapter C corporation. At that time, the common
stock was not subject to transfer restrictions. D's stock was valued
at $50X at the date of death. Two months after D's death, D's estate
participated in a tax-free
[[Page 22303]]
reorganization of Corporation that qualified under section 368(a)
with respect to which no gain or loss was recognized for income tax
purposes under section 354 or 355. Pursuant to the reorganization,
D's estate opted to exchange its stock for stock subject to transfer
restrictions. Although the value of the stock did not change during
the alternate valuation period, discounts for lack of marketability
and lack of control (totaling $20X) were applied in determining the
value of the stock held by D's estate on the AVD, and D's estate
reported the value of the stock on the AVD as $30X. Because the
claimed reduction in value is not attributable to market conditions,
the discounts may not be taken into account in determining the value
of the stock on the AVD. Accordingly, the value on the AVD is $50X.
Example 2. The facts are the same as in Example 1 except that
the value of the stock declined from $50X to $40X during the
alternate valuation period because of changes in market conditions
during that period. D's estate may report the value of the stock as
$40X on the AVD. As in Example 1, however, no discounts resulting
from the reorganization are allowed in computing the value on the
AVD.
Example 3. At D's death, D owned property valued at $100X. Two
months after D's death, the executor of D's estate and other family
members formed four limited partnerships. The estate contributed the
estate's property to the partnerships in exchange for a 25% interest
in each partnership. Discounts for lack of marketability and lack of
control (totaling $25X) were applied in determining the value of the
estate's partnership interests, and the estate reported $75X as the
total value of the estate's partnership interests on the AVD.
Because the reduction in value is not attributable to market
conditions, the discounts for lack of marketability and control may
not be taken into account in determining the value of the
partnership interests on the AVD. The result would be the same if
the limited partnerships were formed prior to D's death, and the
estate transferred property into the partnerships after D's death
but prior to the AVD.
Example 4. At D's death, D owned 100% of the units of a limited
liability company (LLC). The executor elected the alternative
valuation method. During the 6 months following D's death and in
accordance with D's will, the executor made 6 distributions, each to
a different residuary legatee on a different date and each of a 10%
interest in the LLC. Pursuant to section 2032(a)(1), each
distribution is valued on the distribution date. On the AVD, the
estate held 40% of the units in the LLC. Pursuant to section
2032(a)(2), the 40% is valued on the AVD. In valuing the 10%
interests distributed and the 40% interest held on the AVD,
discounts for lack of control and lack of marketability were
applied. The reduction in value of the units is not attributable to
market conditions. Accordingly, the discounts for lack of
marketability and control may not be taken into account in
determining the value of the units distributed or held by the
estate. The value of each 10% distribution is determined by taking
10% of the value on the distribution date of the units (100%) owned
by the estate at D's death. The value of the units held by the
estate on the AVD is determined by taking 40% of the value on the
AVD of all of the units (100%) owned by the estate at D's death. If
because of market conditions, the units had declined in value as of
each distribution date or as of the AVD, D's estate would take such
reduction in value into account.
Example 5. D died owning 100% of Blackacre. D's will directs
that Blackacre be divided between two trusts, 70% to Trust A for the
benefit of S, D's surviving spouse, and 30% to Trust B for the
benefit of C, D's surviving child. The executor of D's estate
distributed a 70% interest in Blackacre to Trust A three months
after D's death, and distributed a 30% interest in Blackacre to
Trust B four months after D's death. On the estate tax return, the
executor elected to value the estate's property under the alternate
valuation method under section 2032. There was no change in the
value of Blackacre during the four-month period following D's death.
The 70% interest in Blackacre is to be valued as of the distribution
date to Trust A, and that value is determined by taking 70% of the
value of all (100%) of Blackacre as of the distribution date. The
30% interest in Blackacre is to be valued as of the distribution
date to Trust B, and that value is determined by taking 30% of the
value of all (100%) of Blackacre as of the distribution date. If,
however, because of market conditions such as a decline in the real
estate market, Blackacre's value had declined by 10% between D's
date of death and the distribution date of the 30% interest, the
value of the 30% interest would be determined by ascertaining 30% of
the value of all (100%) of Blackacre as of the distribution date,
which would equal 30% of 90% of the date of death value of
Blackacre.
* * * * *
(h) Effective/applicability date. * * * The fourth sentence of
paragraph (f)(2)(i) of this section is applicable to decedents dying
after May 1, 1999, subject to transition rules for certain
incapacitated individuals. The fifth sentence of paragraph (f)(2)(i) of
this section is applicable to decedents dying after November 30, 1983,
subject to transition rules for certain incapacitated individuals. The
first, second, and third sentences of paragraph (f)(2)(i), paragraph
(f)(2)(ii), and all but the last sentence in paragraph (f)(2) of this
section are applicable to decedents dying after August 16, 1954. When
adopted as final regulations, the rules contained in paragraphs (f)(1),
(f)(3), and the last sentence of paragraph (f)(2) of this section, will
be made applicable to estates of decedents dying on or after April 25,
2008.
* * * * *
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-9025 Filed 4-24-08; 8:45 am]
BILLING CODE 4830-01-P
