Portability of a Deceased Spousal Unused Exclusion Amount, 36150-36163 [2012-14781]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 77, Number 117 (Monday, June 18, 2012)]
[Rules and Regulations]
[Pages 36150-36163]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14781]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 20, 25, and 602

[TD 9593]
RIN 1545-BK34


Portability of a Deceased Spousal Unused Exclusion Amount

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations that provide 
guidance on the estate and gift tax applicable exclusion amount, in 
general, as well as on the applicable requirements for electing 
portability of a deceased spousal unused exclusion (DSUE) amount to the 
surviving spouse and on the applicable rules for the surviving spouse's 
use of this DSUE amount. The statutory provisions underlying the 
portability rules were enacted as part of the Tax Relief, Unemployment 
Insurance Reauthorization, and Job Creation Act of 2010. The 
portability rules affect married spouses where the death of the first 
spouse to die occurs on or after January 1, 2011. The text of the 
temporary regulations also serves as the text of proposed regulations 
set forth in the notice of proposed rulemaking on this subject 
appearing elsewhere in this issue of the Federal Register.

DATES: Effective Date. These regulations are effective on June 15, 
2012.
    Applicability Dates: Sections of the temporary regulation relating 
to portability of a deceased spousal unused exclusion amount apply to 
estates of decedents dying on or after January 1, 2011. For specific 
dates of applicability, see Sec. Sec.  20.2001-2T(b), 20.2010-1T(e), 
20.2010-2T(e), 20.2010-3T(f), 25.2505-1T(e), and 25.2505-2T(g).

FOR FURTHER INFORMATION CONTACT: Karlene Lesho (202) 622-3090 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and, pending receipt and evaluation of public comments, 
approved by the Office of Management and Budget under control number 
1545-0015. Responses to this collection of information are voluntary to 
obtain the benefit of being able to elect portability or to take 
advantage of the special reporting requirements applicable to certain 
assets, and, for certain estates, to opt out of a deemed portability 
election.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number. For further information 
concerning this collection of information, and the address for the 
submission of comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble of the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    Books and records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    On December 17, 2010, in section 303 of the Tax Relief, 
Unemployment Insurance Reauthorization, and Job Creation Act of 2010, 
Public Law 111-312 (124 Stat. 3296, 3302) (TRUIRJCA), Congress amended 
section 2010(c) of the Internal Revenue Code (Code) to allow 
portability of the applicable exclusion amount between spouses, and it 
made conforming amendments to sections 2505(a), 2631(c), and 6018(a)(1) 
of the Code. Section 303 of TRUIRJCA directs the Secretary to issue 
such regulations as may be necessary or appropriate to carry out 
section 303(a) of TRUIRJCA.

[[Page 36151]]

    This document contains amendments to the Estate Tax Regulations (26 
CFR part 20) under sections 2001 and 2010 of the Code and to the Gift 
Tax Regulations (26 CFR part 25) under section 2505 of the Code. The 
temporary regulations address not only the amendments made to section 
2010(c) by TRUIRJCA and the conforming amendment to section 2505(a), 
but also the entirety of sections 2010 and 2505 of the Code for which 
there are no existing regulations. Finally, the amendment to the Estate 
Tax Regulations under section 2001 of the Code clarifies the 
application of the rule in section 2010(c)(5)(B) to section 2001 of the 
Code.

Section 303(a) of TRUIRJCA

    Section 303(a) of TRUIRJCA amends section 2010(c) of the Code by 
striking paragraph (2) of section 2010(c) and adding new paragraphs (2) 
through (6) of section 2010(c). Section 2010(c)(2) now defines the 
applicable exclusion amount, used to determine the applicable credit 
amount, as the sum of the basic exclusion amount and, in the case of a 
surviving spouse, the DSUE amount. Section 2010(c)(3) provides that the 
basic exclusion amount is $5,000,000, to be adjusted for inflation in 
each year after calendar year 2011. Section 2010(c)(4) defines the DSUE 
amount to mean the lesser of (A) the basic exclusion amount or (B) the 
basic exclusion amount of the last deceased spouse of the surviving 
spouse, less the amount with respect to which the tentative tax is 
determined under section 2001(b)(1) on the estate of such deceased 
spouse.
    Section 2010(c)(5) describes special rules relating to the 
portability of a DSUE amount. Section 2010(c)(5)(A) provides certain 
requirements that must be met to allow a surviving spouse to take into 
account a DSUE amount of a deceased spouse. In particular, the executor 
of the estate of the deceased spouse must file an estate tax return, 
compute the DSUE amount on such return, elect portability of the DSUE 
amount on such return, and ensure that such return is filed within the 
time prescribed by law (including extensions) for filing such return. 
Section 2010(c)(5)(B) allows the Secretary to examine a return of the 
deceased spouse to determine the DSUE amount, even after the expiration 
of the time provided under section 6501 for assessing a tax under 
chapter 11 or 12.
    Section 2010(c)(6) directs the Secretary to prescribe regulations 
as may be necessary or appropriate to carry out section 2010(c).

Notice 2011-82

    On October 17, 2011, the Department of the Treasury (Treasury) and 
the IRS issued Notice 2011-82 (2011-42 IRB 516) which can be found on 
www.IRS.gov. Notice 2011-82 alerts taxpayers to the requirements for 
the estate of a deceased spouse to elect portability of a DSUE amount. 
In addition, Notice 2011-82 announces that the estate of a deceased 
spouse will be deemed to elect portability of the DSUE amount by timely 
filing a complete and properly-prepared estate tax return, and that 
such return will be deemed to include a computation of the DSUE amount 
until such time as the IRS revises the estate tax return to expressly 
contain the DSUE amount computation. Notice 2011-82 also provides 
guidance to the estates of deceased spouses who choose not to make the 
portability election. Notice 2011-82 announces that Treasury and the 
IRS intend to issue regulations to implement section 303 of TRUIRJCA. 
Accordingly, Treasury and the IRS invited comments on a number of 
specific issues. Treasury and the IRS received comments on these 
issues, as well as additional issues identified by commenters. The 
comments are discussed in more detail in the ``Explanation of 
Provisions'' section of this preamble.

Notice 2012-21

    On March 3, 2012, Treasury and the IRS issued Notice 2012-21 (2012-
10 IRB 450) (which can be found on www.IRS.gov). Notice 2012-21 grants 
to qualifying estates a six-month extension of time for filing an 
estate tax return to elect portability of an unused exclusion amount 
provided that the qualifying estate files Form 4768, ``Application for 
Extension of Time to File a Return and/or Pay U.S. Estate (and 
Generation-Skipping Transfer) Taxes,'' within 15 months of the 
decedent's death. A qualifying estate is the estate of a person who 
died, survived by a spouse, during the first half of calendar year 
2011, and whose gross estate has a fair market value that does not 
exceed $5 million. With the extension granted by this notice, the 
estate tax return must be filed within 15 months of the decedent's 
death.

Explanation of Provisions

1. Rules in Section 2010(a), (b), and (d) of the Code

    The temporary regulations in Sec.  20.2010-1T(a) state the general 
rule of section 2010(a) that an applicable credit amount will be 
allowed to the estate of every decedent against the estate tax imposed 
by section 2001. The temporary regulations in Sec.  20.2010-1T(b) 
incorporate the rule in section 2010(b) relating to an adjustment to 
the applicable credit amount for certain gifts made before 1977. 
Finally, as provided in section 2010(d), the temporary regulations in 
Sec.  20.2010-1T(c) limit the amount of the allowable credit so that it 
does not exceed the amount of the estate tax imposed by section 2001.

2. Explanation of Applicable Terms

    The temporary regulations in Sec.  20.2010-1T(d) define terms 
relevant to computing the credit amount allowable under section 2010. 
The relevant terms include applicable credit amount, applicable 
exclusion amount, basic exclusion amount, DSUE amount, and last 
deceased spouse.

3. Making the Portability Election

a. Election Required on Estate Tax Return
    The temporary regulations in Sec.  20.2010-2T(a) require an 
executor electing portability to make that election on a timely-filed 
estate tax return. The last return filed by the due date of the return, 
including extensions actually granted, will supersede any previously-
filed return. Thus, an executor may supersede a previously-filed 
portability election on a subsequent timely-filed estate tax return if 
the executor satisfies the requirement in Sec.  20.2010-2T(a)(3)(i). 
But see Sec.  20.2010-2T(a)(6) when contrary elections are made by more 
than one person permitted to make the election. The temporary 
regulations in Sec.  20.2010-2T(a)(4) provide that a portability 
election is irrevocable once the due date (as extended) of the return 
has passed.
b. Timely Filing Required
    For a valid portability election, section 2010(c)(5) requires the 
executor to make the election on an estate tax return filed within the 
``time prescribed by law'' (including extensions) for filing that 
return. Section 6075(a) requires the filing of an estate tax return 
made under section 6018(a) within 9 months of the date of the 
decedent's death. Section 6018(a) requires an estate tax return to be 
filed when the gross estate of a citizen or resident exceeds the excess 
(if any) of the basic exclusion amount in effect under section 2010(c) 
in the calendar year of the decedent's death over the sum of the 
decedent's adjusted taxable gifts as defined in section 2001(b) and the 
amount allowed to the decedent as a specific exemption under section 
2521 as in effect prior to its repeal by the Tax Reform Act of 1976.

[[Page 36152]]

    A commenter on Notice 2011-82 noted that neither section 
2010(c)(5)(A) nor any other section of the Code provides a ``time 
prescribed by law'' for filing an estate tax return on behalf of a 
decedent's estate when the basic exclusion amount exceeds the value of 
the decedent's gross estate. Accordingly, the commenter requested that 
the regulations clarify the meaning of ``time prescribed by law'' as it 
applies in section 2010(c)(5)(A).
    For executors who are required to file an estate tax return under 
section 6018(a), section 6075(a) requires the executor to file the 
estate tax return within nine months after the decedent's date of 
death. When an executor is not required to file an estate tax return 
under section 6018(a), the Code does not specify a due date for a 
return filed for the purpose of making the portability election. The 
temporary regulations in Sec.  20.2010-2T(a)(1) require every estate 
electing portability of a decedent's DSUE amount to file an estate tax 
return within 9 months of the decedent's date of death, unless an 
extension of time for filing has been granted. (See Notice 2012-21 
providing for an extension of time to file an estate tax return for the 
estates of certain decedents who died in the first half of calendar 
year 2011.) This timing requirement for filing a return applies to all 
estates electing portability regardless of the size of the gross 
estate. The temporary regulations provide in Sec.  20.2010-2T(a)(1) 
that an estate choosing to elect portability will be considered for 
purposes of Subtitle B and Subtitle F of the Code to be required to 
file a return under section 6018(a).
    This rule will benefit the IRS as well as taxpayers choosing the 
benefit of portability because the records required to compute and 
verify the DSUE amount are more likely to be available at the time of 
the death of the first deceased spouse than at the time of a subsequent 
transfer by the surviving spouse by gift or at death, which could occur 
many years later. This rule also is consistent with the ``Technical 
Explanation of the Revenue Provisions Contained in the `Tax Relief, 
Unemployment Insurance Reauthorization, and Job Creation Act of 2010' 
Scheduled for Consideration by the United States Senate,'' J. Comm. On 
Taxation, 111th Cong., JCX-55-10 (Dec. 10, 2010) (Technical 
Explanation), which suggests that estates deciding to elect portability 
that are not otherwise required to file an estate tax return under 
section 6018(a) are intended to be subject to the same timely-filing 
requirements applicable to estates required to file an estate tax 
return under section 6018(a). The Technical Explanation states that the 
DSUE amount is available to a surviving spouse ``only if an election is 
made on a timely filed estate tax return (including extensions) of the 
predeceased spouse * * * regardless of whether the predeceased spouse 
otherwise is required to file an estate tax return.'' JCX-55-10, page 
52; see also ``General Explanation of Tax Legislation Enacted in the 
111th Congress,'' J. Comm. On Taxation, 111th Cong., JCS-2-11, pages 
554-555 (March 2011) (General Explanation) (incorporating the same 
language from the Technical Explanation).
c. Portability Election Upon Filing of ``Complete and Properly-
Prepared'' Estate Tax Return
    Notice 2011-82 provides that the estate of a decedent dying after 
December 31, 2010, will be deemed to make the portability election upon 
the timely filing of a ``complete and properly-prepared'' estate tax 
return. The temporary regulations in Sec.  20.2010-2T(a)(2) provide 
that the estate of a decedent (survived by a spouse) makes the 
portability election by timely filing a complete and properly-prepared 
estate tax return for the decedent's estate.
    Several commenters responding to Notice 2011-82 requested that 
Treasury and the IRS define what is meant by a ``complete and properly-
prepared'' estate tax return. Commenters further requested that 
Treasury and the IRS consider the cost and burden associated with 
filing an estate tax return and establishing and substantiating the 
values reported on such return for those estates that are not required 
to file a return under section 6018(a) but are filing such a return 
solely to elect portability of the decedent's DSUE amount.
    The temporary regulations in Sec.  20.2010-2T(a)(7)(i) provide that 
an estate tax return prepared in accordance with all applicable 
requirements is considered a ``complete and properly-prepared'' estate 
tax return. The temporary regulations in Sec.  20.2010-2T(a)(7)(ii), 
however, provide that executors of estates that are not otherwise 
required to file an estate tax return under section 6018(a) do not have 
to report the value of certain property that qualifies for the marital 
or charitable deduction. If an executor chooses to make use of this 
special rule in filing an estate tax return, the executor must estimate 
the total value of the gross estate (including the values of the 
property that do not have to be reported on the estate tax return under 
this provision), based on a determination made in good faith and with 
due diligence regarding the value of all of the assets includible in 
the gross estate. The instructions issued with respect to the estate 
tax return (``Instructions for Form 706'') will provide ranges of 
dollar values, and the executor must identify on the estate tax return 
the particular range within which falls the executor's best estimate of 
the total gross estate. An amount corresponding to this range will be 
included on line 1, part 2, of the estate tax return, along with an 
indication of whether the line 1 total includes an estimate under this 
special rule. By signing the return, the executor is certifying, under 
penalties of perjury, that the estimate falls within the identified 
range of values to the best of the executor's knowledge and belief. The 
inquiry required to determine the executor's best estimate is the same 
an executor of any estate must make under current law to determine 
whether the estate has a filing obligation pursuant to section 6018(a); 
that is, to determine whether the fair market value of the gross estate 
exceeds the excess of the basic exclusion amount over the sum of the 
decedent's adjusted taxable gifts and the amount allowed to the 
decedent as a specific exemption under section 2521.
d. Opting Out of Portability Election
    If the executor of the estate of a decedent with a surviving spouse 
does not wish to make the portability election, the temporary 
regulations in Sec.  20.2010-2T(a)(3) require the executor to make an 
affirmative statement on the estate tax return signifying the decision 
to have the portability election not apply. If no estate tax return is 
required for that decedent's estate under section 6018(a), not filing a 
timely return will be considered to be an affirmative statement 
signifying the decision not to make a portability election.
e. Executor Responsible for Making Portability Election
    A commenter responding to Notice 2011-82 suggested that the 
temporary regulations allow a surviving spouse to file an estate tax 
return on behalf of a decedent independently of a duly-appointed 
executor if the surviving spouse notifies the executor of the intention 
to file and the executor does not, in fact, file a return. Section 
2010(c)(5), however, permits only the executor of the decedent's estate 
to file the estate tax return and make the portability election. 
Section 2203 defines the term ``executor'' for purposes of the estate 
tax to mean ``the executor or administrator of the decedent, or, if 
there is no executor or administrator appointed, qualified, and

[[Page 36153]]

acting within the United States, then any person in actual or 
constructive possession of any property of the decedent.''
    The temporary regulations in Sec.  20.2010-2T(a)(6)(i) provide that 
an executor or administrator that is appointed, qualified, and acting 
within the United States for the decedent's estate (an appointed 
executor), may file an estate tax return to elect portability or to opt 
to have the portability election not apply. The temporary regulations 
in Sec.  20.2010-2T(a)(6)(ii) provide that, if there is no appointed 
executor, any person in actual or constructive possession of any 
property of the decedent may file the estate tax return to elect 
portability or to opt to have the portability election not apply. The 
temporary regulations in Sec.  20.2010-2T(a)(6)(ii) refer to such a 
person as a ``non-appointed executor'' and provide that a portability 
election made by a non-appointed executor cannot be superseded by a 
contrary election made by another non-appointed executor of that same 
decedent's estate.

4. Computing the DSUE Amount

a. Computation Required on Estate Tax Return To Elect Portability
    The temporary regulations in Sec.  20.2010-2T(b)(1) require that an 
executor include a computation of the DSUE amount on the estate tax 
return of the decedent to allow portability of that decedent's DSUE 
amount. A complete and properly-prepared return contains the 
information required to compute a decedent's DSUE amount. Accordingly, 
in a transitional rule consistent with Notice 2011-82, the temporary 
regulations in Sec.  20.2010-2T(b)(2) provide that the IRS will deem 
the required computation of the decedent's DSUE amount to have been 
made on an estate tax return that is considered complete and properly-
prepared. The temporary regulations further clarify that, once the IRS 
revises the prescribed form for the estate tax return expressly to 
include the computation of the DSUE amount, executors that previously 
filed an estate tax return pursuant to the transitional rule will not 
be required to file a supplemental estate tax return using the revised 
form.
b. Method of Computing the DSUE Amount
    Section 2010(c)(4) defines the DSUE amount as the lesser of (A) the 
basic exclusion amount, or (B) the excess of (i) the basic exclusion 
amount of the last deceased spouse of the surviving spouse, over (ii) 
the amount with respect to which the tentative tax is determined under 
section 2001(b)(1) on the estate of such deceased spouse.
    The temporary regulations in Sec.  20.2010-2T(c)(1)(i) confirm that 
the term ``basic exclusion amount'' referred to in section 
2010(c)(4)(A) means the basic exclusion amount in effect in the year of 
the death of the decedent whose DSUE amount is being computed. 
Generally, only the basic exclusion amount of the decedent, as in 
effect in the year of the decedent's death, will be known at the time 
the DSUE amount must be computed and reported on the decedent's estate 
tax return. Because section 2010(c)(5)(A) requires the executor of an 
estate electing portability to compute and report the DSUE amount on a 
timely-filed estate tax return, and because the basic exclusion amount 
is integral to this computation, the term ``basic exclusion amount'' in 
section 2010(c)(4)(A) necessarily refers to such decedent's basic 
exclusion amount.
    In responding to Notice 2011-82, several commenters also argued 
that the reference to ``basic exclusion amount'' in section 
2010(c)(4)(B)(i) should be interpreted to mean ``applicable exclusion 
amount,'' citing to the computation of the DSUE amount in Example 3 on 
page 53 of the Technical Explanation and to footnote 1582A that was 
added to the General Explanation by the ``ERRATA--`General Explanation 
of Tax Legislation Enacted in the 111th Congress''' (ERRATA). JCX-20-
11, at page 1. Example 3 computes the DSUE amount of a deceased spouse 
who was preceded in death by one spouse and was survived by another 
spouse. The deceased spouse's DSUE amount is computed using the 
applicable exclusion amount rather than the basic exclusion amount of 
the deceased spouse (as reduced by the amount of the deceased spouse's 
taxable estate). Example 3 is reproduced verbatim in the General 
Explanation. See JCS-2-11 at page 555. The ERRATA acknowledges that 
section 2010(c)(4)(B)(i) uses the term basic exclusion amount, but 
notes that ``[a] technical correction may be necessary to replace the 
reference to the basic exclusion amount of the last deceased spouse of 
the surviving spouse with a reference to the applicable exclusion 
amount of such last deceased spouse, so that the statute reflects 
intent.'' JCX-20-11, at page 1, n. 1582A.
    Treasury and the IRS have carefully considered this issue. 
Construing the language of section 2010(c)(4)(B)(i) as referring to the 
same number described in section 2010(c)(4)(A) would lead to an 
illogical result because it would effectively render the use of ``basic 
exclusion amount'' in section 2010(c)(4)(A) meaningless. Specifically, 
the basic exclusion amount (the amount referenced in section 
2010(c)(4)(A)) cannot be less than that same number reduced by another 
number (the amount referenced in section 2010(c)(4)(B)). Under such an 
interpretation, the basic exclusion amount referenced in section 
2010(c)(4)(A) could not limit or impact the DSUE amount, and thus it 
would serve no purpose as written. Based on the principle that a 
statute should not be construed in a manner that renders a provision of 
that statute superfluous and consistent with the indicia of legislative 
intent reflected in the Technical Explanation and the General 
Explanation, and in the exercise of the express authority granted by 
Congress in sections 2010(c)(6) and 7805, Treasury and the IRS have 
determined that the reference in section 2010(c)(4)(B)(i) to the basic 
exclusion amount is properly interpreted to mean the applicable 
exclusion amount. Thus, the temporary regulations adopt this 
interpretation.
c. Effect of Gift Taxes Paid and Payable on Computing the DSUE Amount
    Several commenters on Notice 2011-82 suggested that, for purposes 
of computing the DSUE amount under section 2010(c)(4), the amount 
referred to in section 2010(c)(4)(B)(ii), which is the amount on which 
the decedent's tentative tax is determined under section 2001(b)(1), be 
construed to take into account gift tax paid by such decedent. The 
commenters noted that, to avoid using exclusion for amounts on which 
gift tax was paid, this construction should apply in computing the DSUE 
amount of such a decedent if (1) gift tax was paid by a decedent on 
transfers that caused the total of his or her taxable transfers to 
exceed the applicable exclusion amount at the time of the transfer, and 
(2) the total adjusted taxable gifts of the decedent is less than the 
applicable exclusion amount on the date of his or her death. The 
temporary regulations in Sec.  20.2010-2T(c)(2) provide that amounts on 
which gift taxes were paid by a decedent are excluded from adjusted 
taxable gifts for the purpose of computing that decedent's DSUE amount.
d. Potential Impact of Credits in Sections 2013-2015 on the DSUE Amount
    Commenters on Notice 2011-82 asked for clarification as to whether 
the DSUE amount is determined before or after the application of other 
available credits, such as the credit for tax on prior transfers 
(section 2013), the credit for foreign death taxes (section 2014), and 
the credit for death taxes on remainders

[[Page 36154]]

(section 2015). The issue of the impact of the credits in sections 2013 
to 2015 on computing the DSUE amount merits further consideration. The 
temporary regulations reserve Sec.  20.2010-2T(c)(3) to provide future 
guidance on this issue. Treasury and the IRS request comments regarding 
appropriate rules to coordinate these credits with portability of the 
exclusion. For the manner of submitting these comments, see the notice 
of proposed rulemaking on this subject appearing elsewhere in this 
issue of the Federal Register.

5. Use of the DSUE Amount by the Surviving Spouse

a. Date DSUE Amount May Be Taken Into Consideration by Surviving Spouse
    Commenters on Notice 2011-82 asked for clarification on when the 
DSUE amount of a decedent is available to the surviving spouse or to 
the surviving spouse's estate for use in determining the surviving 
spouse's applicable exclusion amount. The temporary regulations in 
Sec. Sec.  20.2010-3T(a) and 25.2505-2T(a) provide that, if the 
decedent is the last deceased spouse of the surviving spouse on the 
date of a transfer by the surviving spouse that is subject to gift or 
estate tax, the surviving spouse, or the estate of the surviving 
spouse, of that decedent may take into account that decedent's DSUE 
amount in determining the applicable exclusion amount of the surviving 
spouse when computing the surviving spouse's gift or estate tax 
liability on that transfer. This rule applies only if the decedent's 
executor elected portability. In addition, the temporary regulations in 
Sec. Sec.  20.2010-3T(c)(1) and 25.2505-2T(d)(1) provide that a 
portability election made by the executor of a decedent's estate is 
effective as of the date of the decedent's death. Thus, the DSUE amount 
of a decedent survived by a spouse may be included in determining the 
applicable exclusion amount of the surviving spouse under section 
2010(c)(2), subject to any applicable limitations, with respect to all 
transfers occurring after the death of the decedent, if the executor of 
the decedent's estate makes a portability election and the election is 
not superseded by the executor of the decedent's estate before the due 
date of the return, including extensions.
b. Last Deceased Spouse Limitation on DSUE Amount Available to 
Surviving Spouse
    Some commenters responding to Notice 2011-82 suggested that the 
regulations clarify the scope of the last deceased spouse limitation in 
section 2010(c)(4)(B)(i). The temporary regulations in Sec.  20.2010-
1T(d)(5) explain that the term ``last deceased spouse'' referred to in 
section 2010(c)(4)(B)(i) means the most recently deceased individual 
who was married to the surviving spouse at that individual's death, 
except that an individual dying before calendar year 2011 cannot be 
considered the last deceased spouse of such surviving spouse. The 
temporary regulations in Sec. Sec.  20.2010-3T(a)(3) and 25.2505-
2T(a)(3) clarify that remarriage alone does not affect who will be 
considered the last deceased spouse and does not prevent the surviving 
spouse from including in the surviving spouse's applicable exclusion 
amount the DSUE amount of the deceased spouse who most recently 
preceded the surviving spouse in death. The temporary regulations 
further clarify that the identity of the last deceased spouse of the 
surviving spouse for purposes of portability is not affected by whether 
the estate of the last deceased spouse elects portability of the 
deceased spouse's DSUE amount or whether the last deceased spouse has 
any DSUE amount available. This is consistent with the statutory 
language, which refers to the ``last deceased spouse of such surviving 
spouse'' without further qualification, as well as with the Technical 
Explanation, which states that ``[t]he last deceased spouse limitation 
applies whether or not the last deceased spouse has any unused 
exclusion or the last deceased spouse's estate makes a timely 
election.'' JCX-55-10, at page 52, n. 57; see also General Explanation, 
JCS-2-11, at page 554, n. 1582.
    For purposes of determining the applicable credit amount under 
section 2505(a)(1), a commenter asked Treasury and the IRS to clarify 
when one determines the identity of the last deceased spouse. Although 
section 2505(a)(1) refers to the applicable credit amount in effect 
under section 2010(c) as would apply if the donor died as of the end of 
the calendar year, this does not mean that the identity of the last 
deceased spouse is subject to change for purposes of computing the 
surviving spouse's applicable exclusion amount if the surviving spouse 
is preceded in death by a subsequent spouse after the gift transfer but 
before the end of the calendar year. Therefore, the temporary 
regulations provide in Sec.  25.2505-2T(a) that for purposes of 
determining a surviving spouse's applicable exclusion amount when the 
surviving spouse makes a taxable gift, the surviving spouse's last 
deceased spouse is identified as of the date of the taxable gift. See 
Sec.  20.2010-3T(a) for a comparable rule for estate tax purposes.
c. DSUE Amount Available in Case of Multiple Spouses and Previously-
Applied DSUE Amount
    Some commenters responding to Notice 2011-82 requested that the 
regulations clarify the outcome when a surviving spouse is preceded in 
death by more than one spouse. In particular, commenters asked how the 
DSUE amount to be included in the applicable exclusion amount of a 
surviving spouse is affected when a decedent who is currently 
considered the last deceased spouse of such surviving spouse either has 
no DSUE amount or has a smaller amount of DSUE in comparison to a 
decedent who previously was considered the last deceased spouse of such 
surviving spouse. The temporary regulations clarify that, in either 
situation, the surviving spouse may not apply any remaining DSUE amount 
from a prior deceased spouse.
    In addition, the temporary regulations address how to compute the 
DSUE amount included in the applicable exclusion amount of a surviving 
spouse who made gifts between the deaths of two decedents, each of whom 
were at separate times the last deceased spouse of such surviving 
spouse. First, the temporary regulations in Sec.  25.2505-2T(b) create 
an ordering rule by providing that, when a surviving spouse makes a 
taxable gift, the DSUE amount of the decedent who is the last deceased 
spouse of such surviving spouse will be considered to apply against the 
amount of the surviving spouse's taxable gifts for that calendar year 
before the surviving spouse's own basic exclusion amount will apply.
    Second, the temporary regulations, in Sec. Sec.  25.2505-2T(c) and 
20.2010-3T(b), compute the DSUE amount available to such a surviving 
spouse or to his or her estate, respectively, as including both: (i) 
The DSUE amount of the surviving spouse's last deceased spouse, and 
(ii) any DSUE amount actually applied to taxable gifts pursuant to the 
rule in Sec.  25.2505-2T(b) to the extent the DSUE amount so applied 
was from a decedent who no longer is the last deceased spouse for 
purposes of section 2010(c)(4)(B)(i). Under the rules in Sec.  25.2505-
2T, a surviving spouse may use the DSUE amount of a predeceased spouse 
as long as, for each transfer, such DSUE amount is from the surviving 
spouse's last deceased spouse at the time of that transfer. Thus, a 
spouse who has survived multiple spouses may use each last deceased 
spouse's DSUE amount before the death of that spouse's next spouse, and 
thereby may apply the

[[Page 36155]]

DSUE amount of multiple deceased spouses in succession. However, this 
does not permit the surviving spouse to use the sum of the DSUE amounts 
of those deceased spouses at one time, and a surviving spouse may not 
use the remaining DSUE amount of a prior deceased spouse following the 
death of a subsequent spouse.

6. Authority To Examine Returns of Deceased Spouses

    Section 2010(c)(5)(B) confirms the IRS's authority to examine 
returns of each deceased spouse of the surviving spouse to determine 
the allowable DSUE amount even if the period of limitations on 
assessment under section 6501 has expired for the tax under chapters 11 
or 12 with respect to such returns.
    Section 7602(a) provides that the IRS may examine any books, 
papers, records, or other data which may be relevant or material to an 
inquiry for the purpose of ascertaining the accuracy of any return or 
determining the liability of any person for any internal revenue tax or 
liability. The returns of each deceased spouse whose executor elected 
portability are relevant or material to the determination of the 
allowable DSUE amount to be applied by the surviving spouse to a 
taxable transfer.
    Accordingly, the temporary regulations confirm in Sec. Sec.  
20.2001-2T(a), 20.2010-2T(d), 20.2010-3T(d), and 25.2505-2T(e) that, in 
determining the allowable DSUE amount, the IRS may examine any one or 
more returns of each deceased spouse of the surviving spouse whose 
executor elected portability. Upon examination, the IRS may adjust or 
eliminate the DSUE amount reported on a return; however, the IRS may 
make an assessment of additional tax with respect to the deceased 
spouse's return only within the period of limitations under section 
6501. The ability of the IRS to examine returns of a deceased spouse 
applies to each transfer by the surviving spouse to which a DSUE amount 
is or has been applied. The returns and return information of a 
deceased spouse may be disclosed to the surviving spouse or the 
surviving spouse's estate as appropriate under section 6103.
    A commenter to Notice 2011-82 suggested that the regulations 
clarify whether the IRS's authority to examine returns even after the 
period of limitations on assessment has expired, as confirmed in 
section 2010(c)(5)(B), would suspend the substantive review and 
examination of the estate tax return of a decedent with a surviving 
spouse. Except to the extent provided in section 2010(c)(5)(B) with 
regard to the computation of the DSUE amount, the limitation in section 
6501 continues to apply to the estate tax return so examination of the 
estate tax return will not be suspended solely because of the 
possibility of future reviews to determine the decedent's DSUE amount.

7. Applicability of Portability Rules to Nonresidents Who Are Not 
Citizens

    Several commenters requested that the regulations clarify the 
applicability of the rules in section 2010(c) to estates of 
nonresidents who are not citizens. In response to these comments, the 
temporary regulations provide in Sec.  20.2010-2T(a)(5) that an 
executor of the estate of a nonresident decedent who was not a citizen 
of the United States at the time of death may not make a portability 
election on behalf of that decedent. The temporary regulations in 
Sec. Sec.  20.2010-3T(e) and 25.2505-2T(f) provide that a nonresident 
surviving spouse who was not a citizen of the United States at the time 
of such surviving spouse's death may not take into account the DSUE 
amount of any deceased spouse of such surviving spouse, except to the 
extent allowed under a treaty obligation of the United States.

8. Applicability of Portability in Case of Qualified Domestic Trusts

    A commenter suggested that the regulations clarify how the 
portability rules apply when a qualified domestic trust (QDOT) (defined 
in section 2056A(a)) is created for the benefit of a surviving spouse 
who is a not a citizen of the United States. When property of a 
decedent passes to a QDOT, the decedent's estate is allowed a marital 
deduction under section 2056(d)(2) for the value of such property. 
Ultimately, however, estate tax is imposed on such property under 
section 2056A as distributions constituting taxable events are made 
from the QDOT. The estate tax imposed by section 2056A is the 
decedent's estate tax liability, and that tax generally equals the 
amount of additional estate tax that would have been imposed under 
section 2001 if the amount involved in the taxable event had been 
included in the decedent's taxable estate and had not been deductible 
under section 2056. See Sec.  20.2056A-5(a). The estate tax that would 
have been imposed under section 2001 is computed by determining the net 
tax under section 2001 after the allowance of any credits, including 
the applicable credit amount determined under section 2010(c). 
Consequently, when a QDOT has been created for the benefit of a 
decedent's surviving spouse, the executor of the decedent's estate will 
compute a DSUE amount, on a preliminary basis, that may decrease as 
distributions constituting taxable events under section 2056A are made.
    Commenters made several suggestions for applying portability to 
this situation. One proposal is to allow a decedent's DSUE amount to be 
computed and available to the surviving spouse as of the date of death 
of the decedent, without regard to the estate tax to be imposed by 
section 2056A. A second suggestion is to allow an executor of such an 
estate to elect portability with respect to only a portion of the DSUE 
amount so that an executor could reserve a portion of the decedent's 
DSUE amount for the estate tax to be imposed by section 2056A. A third 
proposal is to allow the decedent's applicable exclusion amount and the 
initially-determined DSUE amount to be applied on a chronological, or 
first come, first served, basis; that is, by applying the decedent's 
applicable exclusion amount on the occurrence of a taxable event 
subject to the estate tax imposed by section 2056A and at the time of a 
transfer by the surviving spouse subject to the gift tax imposed by 
section 2501, in each case, to the extent applicable exclusion amount 
or DSUE amount, respectively, is available at such times.
    Each of the proposals raises issues of fairness, complexity, and 
administrability. The applicable exclusion amount first and foremost 
belongs to the decedent. Portability of a DSUE amount allows a 
surviving spouse to use a decedent's exclusion amount only to the 
extent it is not used by that decedent. Accordingly, the temporary 
regulations allow the decedent's estate full availability of the 
decedent's applicable exclusion amount until such time as the final 
estate tax liability of the decedent is computed. The temporary 
regulations in Sec.  20.2010-2T(c)(4) provide that the executor of a 
decedent's estate claiming a marital deduction for property passing to 
a QDOT shall compute the decedent's DSUE amount on a preliminary basis 
on the decedent's estate tax return for the purpose of electing 
portability, although such amount subsequently will be reduced by the 
estate tax imposed by section 2056A. The temporary regulations further 
provide that the DSUE amount of such a decedent shall be redetermined 
upon the final distribution or other taxable event on which estate tax 
under section 2056A is imposed, which is generally upon the death of 
the surviving spouse or the earlier termination of all QDOTs created 
for that surviving spouse. The temporary regulations provide in

[[Page 36156]]

Sec.  20.2010-3T(c)(2) that the earliest date such a decedent's DSUE 
amount may be included in determining the applicable exclusion amount 
available to the surviving spouse or the surviving spouse's estate is 
the date of the event that triggers the final estate tax liability of 
the decedent under section 2056A. Generally, this means that such a 
decedent's DSUE amount will be available for transfers occurring by 
reason of the surviving spouse's death, but generally will not be 
available to the surviving spouse during life. However, the decedent's 
DSUE amount will be available to apply to the surviving spouse's 
taxable gifts made in the year of the surviving spouse's death, or, if 
the event terminating the QDOT occurs prior to the surviving spouse's 
death, then in the year of that terminating event and/or any subsequent 
year during the surviving spouse's life. Treasury and the IRS request 
further comments on this issue. For the manner of submitting these 
comments, see the notice of proposed rulemaking on this subject 
appearing elsewhere in this issue of the Federal Register.

Special Analyses

    It has been determined that this Treasury decision is not 
considered a significant regulatory action as defined in Executive 
Order 12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. In addition, section 553(b) of 
the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these regulations because they are excepted from the notice and comment 
requirements of section 553(b) and (c) of the Administrative Procedure 
Act under the interpretive rule and good cause exceptions provided by 
section 553(b)(3)(A) and (B) of that Act. These regulations are 
necessary to provide immediate guidance to estates of a decedent with a 
surviving spouse and to spouses surviving such a decedent on the 
application of the portability rules of section 2010(c), which applies 
to estates of decedents dying and gifts made after December 31, 2010. 
These regulations provide necessary guidance to address fundamental 
issues concerning the portability election, the computation of the DSUE 
amount, the identity of the last deceased spouse, and the application 
of the DSUE amount by the surviving spouse. In addition, the issues 
addressed by the regulations have been publicly noticed and subject to 
comment through the publication of Notice 2011-82. For these reasons, 
good cause exists for dispensing with notice and public comment 
pursuant to section 553(b) and (c) of the Administrative Procedure Act. 
For the applicability of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), please refer to the Special Analyses section of the 
preamble to the cross-referenced notice of proposed rulemaking 
published in the Proposed Rules section in this issue of the Federal 
Register. Pursuant to section 7805(f) of the Code, these regulations 
have been submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on their impact on small business.

Drafting Information

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

List of Subjects

26 CFR Part 20

    Estate taxes, Reporting and recordkeeping requirements.

26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR parts 20, 25, and 602 are amended as follows:

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

0
Paragraph 1. The authority citation for part 20 is amended by adding 
entries in numerical order to read as follows:

    Authority:  26 U.S.C. 7805. * * *
    Section 20.2010-0T also issued under 26 U.S.C. 2010(c)(6).
    Section 20.2010-1T also issued under 26 U.S.C. 2010(c)(6).
    Section 20.2010-2T also issued under 26 U.S.C. 2010(c)(6).
    Section 20.2010-3T also issued under 26 U.S.C. 2010(c)(6). * * *


0
Par. 2. Section 20.2001-2T is added to read as follows:


Sec.  20.2001-2T  Valuation of adjusted taxable gifts for purposes of 
determining the deceased spousal unused exclusion amount of last 
deceased spouse (temporary).

    (a) General rule. Notwithstanding Sec.  20.2001-1(b), see 
Sec. Sec.  20.2010-2T(d) and 20.2010-3T(d) for additional rules 
regarding the authority of the Internal Revenue Service to examine any 
gift or other tax return(s), even if the time within which a tax may be 
assessed under section 6501 has expired, for the purpose of determining 
the deceased spousal unused exclusion (DSUE) amount available under 
section 2010(c) of the Internal Revenue Code (Code).
    (b) Effective/applicability date. Paragraph (a) of this section 
applies to the estates of decedents dying in calendar year 2011 or a 
subsequent year in which the applicable exclusion amount is determined 
under section 2010(c) of the Code by adding the basic exclusion amount 
and, in the case of a surviving spouse, the DSUE amount.
    (c) Expiration date. The applicability of this section expires on 
or before June 15, 2015.

0
Par. 3. Section 20.2010-0T is added to read as follows:


Sec.  20.2010-0T  Table of contents (temporary).

    This section lists the table of contents for Sec. Sec.  20.2010-1T 
through 20.2010-3T.

Sec.  20.2010-1T Unified credit against estate tax; in general 
(temporary).

    (a) General rule.
    (b) Special rule in case of certain gifts made before 1977.
    (c) Credit limitation.
    (d) Explanation of terms.
    (1) Applicable credit amount.
    (2) Applicable exclusion amount.
    (3) Basic exclusion amount.
    (4) Deceased spousal unused exclusion (DSUE) amount.
    (5) Last deceased spouse.
    (e) Effective/applicability date.
    (f) Expiration date.

Sec.  20.2010-2T Portability provisions applicable to estate of a 
decedent survived by a spouse (temporary).

    (a) Election required for portability.
    (1) Timely filing required.
    (2) Portability election upon filing of estate tax return.
    (3) Portability election not made; requirements for election not 
to apply.
    (4) Election irrevocable.
    (5) Estates eligible to make the election.
    (6) Persons permitted to make the election.
    (7) Requirements of return.
    (b) Computation required for portability election.
    (1) General rule.
    (2) Transitional rule.
    (c) Computation of the DSUE amount.
    (1) General rule.
    (2) Special rule to consider gift taxes paid by decedent.
    (3) [Reserved]
    (4) Special rule in case of property passing to qualified 
domestic trust.
    (5) Examples.
    (d) Authority to examine returns of decedent.
    (e) Effective/applicability date.
    (f) Expiration date.

Sec.  20.2010-3T Portability provisions applicable to the surviving 
spouse's estate (temporary).


[[Page 36157]]


    (a) Surviving spouse's estate limited to DSUE amount of last 
deceased spouse.
    (1) In general.
    (2) No DSUE amount available from last deceased spouse.
    (3) Identity of last deceased spouse unchanged by subsequent 
marriage or divorce.
    (b) Special rule in case of multiple deceased spouses and a 
previously-applied DSUE amount.
    (1) In general.
    (2) Example.
    (c) Date DSUE amount taken into consideration by surviving 
spouse's estate.
    (1) General rule.
    (2) Special rule when property passes to surviving spouse in a 
qualified domestic trust.
    (d) Authority to examine returns of deceased spouses.
    (e) Availability of DSUE amount for estates of nonresidents who 
are not citizens.
    (f) Effective/applicability date.
    (g) Expiration date.


0
Par. 4. Section 20.2010-1T is added to read as follows:


Sec.  20.2010-1T  Unified credit against estate tax; in general 
(temporary).

    (a) General rule. Section 2010(a) allows the estate of every 
decedent a credit against the estate tax imposed by section 2001. The 
allowable credit is the applicable credit amount. See paragraph (d)(1) 
of this section for an explanation of the term applicable credit 
amount.
    (b) Special rule in case of certain gifts made before 1977. The 
applicable credit amount allowable under paragraph (a) of this section 
must be reduced by an amount equal to 20 percent of the aggregate 
amount allowed as a specific exemption under section 2521 (as in effect 
before its repeal by the Tax Reform Act of 1976) for gifts made by the 
decedent after September 8, 1976, and before January 1, 1977.
    (c) Credit limitation. The applicable credit amount allowed under 
paragraph (a) of this section cannot exceed the amount of the estate 
tax imposed by section 2001.
    (d) Explanation of terms. The explanation of terms in this section 
applies to this section and to Sec. Sec.  20.2010-2T and 20.2010-3T.
    (1) Applicable credit amount. The term applicable credit amount 
refers to the allowable credit against estate tax imposed by section 
2001 and gift tax imposed by section 2501. The applicable credit amount 
equals the amount of the tentative tax that would be determined under 
section 2001(c) if the amount on which such tentative tax is to be 
computed were equal to the applicable exclusion amount. The applicable 
credit amount is determined by applying the unified rate schedule in 
section 2001(c) to the applicable exclusion amount.
    (2) Applicable exclusion amount. The applicable exclusion amount 
equals the sum of the basic exclusion amount and, in the case of a 
surviving spouse, the deceased spousal unused exclusion (DSUE) amount.
    (3) Basic exclusion amount. The basic exclusion amount is the sum 
of--
    (i) For any decedent dying in calendar year 2011, $5,000,000; and
    (ii) For any decedent dying after calendar year 2011, $5,000,000 
multiplied by the cost-of-living adjustment determined under section 
1(f)(3) for that calendar year by substituting ``calendar year 2010'' 
for ``calendar year 1992'' in section 1(f)(3)(B) and by rounding to the 
nearest multiple of $10,000.
    (4) Deceased spousal unused exclusion (DSUE) amount. The term DSUE 
amount refers, generally, to the unused portion of a decedent's 
applicable exclusion amount to the extent this amount does not exceed 
the basic exclusion amount in effect in the year of the decedent's 
death. For rules on computing the DSUE amount, see Sec. Sec.  20.2010-
2T(c) and 20.2010-3T(b).
    (5) Last deceased spouse. The term last deceased spouse means the 
most recently deceased individual who, at that individual's death after 
December 31, 2010, was married to the surviving spouse. See Sec. Sec.  
20.2010-3T(a) and 25.2505-2T(a) of this chapter for additional rules 
pertaining to the identity of the last deceased spouse for purposes of 
determining the applicable exclusion amount of the surviving spouse.
    (e) Effective/applicability date. Paragraphs (d)(2), (d)(3), 
(d)(4), and (d)(5) of this section apply to the estates of decedents 
dying in calendar year 2011 or a subsequent year in which the 
applicable exclusion amount is determined under section 2010(c) of the 
Internal Revenue Code by adding the basic exclusion amount and, in the 
case of a surviving spouse, the DSUE amount. Paragraphs (a), (b), (c), 
and (d)(1) of this section apply to the estates of decedents dying on 
or after June 15, 2012.
    (f) Expiration date. The applicability of this section expires on 
or before June 15, 2015.
0
Par. 5. Section 20.2010-2T is added to read as follows:


Sec.  20.2010-2T  Portability provisions applicable to estate of a 
decedent survived by a spouse (temporary).

    (a) Election required for portability. To allow a decedent's 
surviving spouse to take into account that decedent's deceased spousal 
unused exclusion (DSUE) amount, the executor of the decedent's estate 
must elect portability of the DSUE amount on a timely-filed Form 706, 
``United States Estate (and Generation-Skipping Transfer) Tax Return'' 
(estate tax return). This election is referred to in this section and 
in Sec.  20.2010-3T as the portability election.
    (1) Timely filing required. An estate that elects portability will 
be considered, for purposes of Subtitle B and Subtitle F of the 
Internal Revenue Code (Code), to be required to file a return under 
section 6018(a). Accordingly, the due date of an estate tax return 
required to elect portability is 9 months after the decedent's date of 
death or the last day of the period covered by an extension (if an 
extension of time for filing has been obtained). See Sec. Sec.  
20.6075-1 and 20.6081-1 for additional rules relating to the time for 
filing estate tax returns.
    (2) Portability election upon filing of estate tax return. Upon the 
timely filing of a complete and properly-prepared estate tax return, an 
executor of an estate of a decedent (survived by a spouse) will have 
elected portability of the decedent's DSUE amount unless the executor 
chooses not to elect portability and satisfies the requirement in 
paragraph (a)(3)(i) of this section. See paragraph (a)(7) of this 
section for the return requirements related to the portability 
election.
    (3) Portability election not made; requirements for election not to 
apply. The executor of the estate of a decedent (survived by a spouse) 
will not make or be considered to make the portability election if 
either of the following applies:
    (i) The executor states affirmatively on a timely-filed estate tax 
return, or in an attachment to that estate tax return, that the estate 
is not electing portability under section 2010(c)(5). The manner in 
which the executor may make this affirmative statement on the estate 
tax return will be as set forth in the instructions issued with respect 
to such form (``Instructions for Form 706'').
    (ii) The executor does not timely file an estate tax return in 
accordance with paragraph (a)(1) of this section.
    (4) Election irrevocable. An executor of the estate of a decedent 
(survived by a spouse) who timely files an estate tax return may make 
and may supersede a portability election previously made, provided that 
the estate tax return reporting the decision not to make a portability 
election is filed on or before the due date of the return, including 
extensions actually granted. However, see paragraph (a)(6) of this 
section when contrary elections are made by more

[[Page 36158]]

than one person permitted to make the election. The portability 
election, once made, becomes irrevocable once the due date of the 
estate tax return, including extensions actually granted, has passed.
    (5) Estates eligible to make the election. An executor may elect 
portability on behalf of the estate of a decedent (survived by a 
spouse) if the decedent dies in calendar year 2011 or during a 
subsequent period in which portability of a DSUE amount is in effect. 
However, an executor of the estate of a nonresident decedent who was 
not a citizen of the United States at the time of death may not elect 
portability on behalf of that decedent, and the timely filing of such a 
decedent's estate tax return will not constitute the making of a 
portability election.
    (6) Persons permitted to make the election--(i) Appointed executor. 
An executor or administrator of the estate of a decedent (survived by a 
spouse) that is appointed, qualified, and acting within the United 
States, within the meaning of section 2203 (an appointed executor), may 
file the estate tax return on behalf of the estate of the decedent and, 
in so doing, elect portability of the decedent's DSUE amount. An 
appointed executor also may elect not to have portability apply 
pursuant to paragraph (a)(3) of this section.
    (ii) Non-appointed executor. If there is no appointed executor, any 
person in actual or constructive possession of any property of the 
decedent (a non-appointed executor) may file the estate tax return on 
behalf of the estate of the decedent and, in so doing, elect 
portability of the decedent's DSUE amount, or, by complying with 
paragraph (a)(3) of this section, may elect not to have portability 
apply. A portability election made by a non-appointed executor cannot 
be superseded by a contrary election made by another non-appointed 
executor of that same decedent's estate (unless such other non-
appointed executor is the successor of the non-appointed executor who 
made the election). See Sec.  20.6018-2 for additional rules relating 
to persons permitted to file the estate tax return.
    (7) Requirements of return--(i) General rule. An estate tax return 
will be considered complete and properly-prepared for purposes of this 
section if it is prepared in accordance with the instructions issued 
for the estate tax return (Instructions for Form 706) and if the 
requirements of Sec. Sec.  20.6018-2, 20.6018-3, and 20.6018-4 are 
satisfied. However, see paragraph (a)(7)(ii) of this section for 
reduced requirements applicable to certain property of certain estates.
    (ii) Reporting of value not required for certain property--(A) In 
general. A special rule applies with respect to certain property of 
estates in which the executor is not required to file an estate tax 
return under section 6018(a), as determined without regard to paragraph 
(a)(1) of this section. With respect to such an estate, for bequests, 
devises, or transfers of property included in the gross estate, the 
value of which is deductible under section 2056 or 2056A (marital 
deduction property) or under section 2055(a) (charitable deduction 
property), an executor is not required to report a value for such 
property on the estate tax return (except to the extent provided in 
this paragraph (a)(7)(ii)(A)) and will be required to report only the 
description, ownership, and/or beneficiary of such property, along with 
all other information necessary to establish the right of the estate to 
the deduction in accordance with Sec. Sec.  20.2056(a)-1(b)(i) through 
(iii) and 20.2055-1(c), as applicable. However, this rule does not 
apply to marital deduction property or charitable deduction property 
if--
    (1) The value of such property relates to, affects, or is needed to 
determine, the value passing from the decedent to another recipient;
    (2) The value of such property is needed to determine the estate's 
eligibility for the provisions of sections 2032, 2032A, 6166, or 
another provision of the Code;
    (3) Less than the entire value of an interest in property 
includible in the decedent's gross estate is marital deduction property 
or charitable deduction property; or
    (4) A partial disclaimer or partial qualified terminable interest 
property (QTIP) election is made with respect to a bequest, devise, or 
transfer of property includible in the gross estate, part of which is 
marital deduction property or charitable deduction property.
    (B) Statement required on the return. Paragraph (a)(7)(ii)(A) of 
this section applies only if the executor exercises due diligence to 
estimate the fair market value of the gross estate, including the 
property described in paragraph (a)(7)(ii)(A) of this section. The 
Instructions for Form 706 will provide ranges of dollar values, and the 
executor must identify on the estate tax return an amount corresponding 
to the particular range within which falls the executor's best estimate 
of the total gross estate. Until such time as the prescribed form for 
the estate tax return expressly includes this estimate in the manner 
described in the preceding sentence, the executor must include the 
executor's best estimate, rounded to the nearest $250,000, on or 
attached to the estate tax return, signed under penalties of perjury.
    (C) Examples. The following examples illustrate the application of 
paragraph (a)(7)(ii) of this section. In each example, assume that 
Husband (H) dies in 2011, survived by his wife (W), that both H and W 
are US citizens, that H's gross estate does not exceed the excess of 
the applicable exclusion amount for the year of his death over the 
total amount of H's adjusted taxable gifts and any specific exemption 
under section 2521, and that H's executor (E) timely files Form 706 
solely to make the portability election.
    Example 1. (i) Facts. The assets includible in H's gross estate 
consist of a parcel of real property and bank accounts held jointly 
with W with rights of survivorship, a life insurance policy payable 
to W, and a survivor annuity payable to W for her life. H made no 
taxable gifts during his lifetime.
    (ii) Application. E files an estate tax return on which these 
assets are identified on the proper schedule, but E provides no 
information on the return with regard to the date of death value of 
these assets in accordance with paragraph (a)(7)(ii)(A) of this 
section. To establish the estate's entitlement to the marital 
deduction in accordance with Sec.  20.2056(a)-1(b) (except with 
regard to establishing the value of the property) and the 
instructions for the estate tax return, E includes with the estate 
tax return evidence to verify the title of each jointly held asset, 
to confirm that W is the sole beneficiary of both the life insurance 
policy and the survivor annuity, and to verify that the annuity is 
exclusively for W's life. Finally, E certifies on the estate return 
E's best estimate, determined by exercising due diligence, of the 
fair market value of the gross estate in accordance with paragraph 
(a)(7)(ii)(B) of this section. The estate tax return is considered 
complete and properly prepared and E has elected portability.
    Example 2. (i) Facts. H's will, duly admitted to probate and not 
subject to any proceeding to challenge its validity, provides that 
H's entire estate is to be distributed to a QTIP trust for W. The 
non-probate assets includible in H's gross estate consist of a life 
insurance policy payable to H's children from a prior marriage, and 
H's individual retirement account (IRA) payable to W. H made no 
taxable gifts during his lifetime.
    (ii) Application. E files an estate tax return on which all of 
the assets includible in the gross estate are identified on the 
proper schedule. In the case of the probate assets and the IRA, no 
information is provided with regard to date of death value in 
accordance with paragraph (a)(7)(ii)(A) of this section. However, E 
makes a QTIP election and attaches a copy of H's will creating the 
QTIP, and describes each such asset and its ownership to establish 
the estate's entitlement to the marital deduction in accordance with 
the instructions for the estate tax return and Sec.  20.2056(a)-1(b) 
(except with regard to establishing the value of the property). In 
the case of the life

[[Page 36159]]

insurance policy payable to H's children, all of the regular return 
requirements, including reporting and establishing the fair market 
value of such asset, apply. Finally, E certifies on the estate 
return E's best estimate, determined by exercising due diligence, of 
the fair market value of the gross estate in accordance with 
paragraph (a)(7)(ii)(B) of this section. The estate tax return is 
considered complete and properly prepared and E has elected 
portability.
    (iii) Variation. The facts are the same except that there are no 
non-probate assets, and E elects to make only a partial QTIP 
election. In this case, the regular return requirements apply to all 
of the property includible in the gross estate and the provisions of 
paragraph (a)(7)(ii) of this section do not apply.
    Example 3. (i) Facts. H's will, duly admitted to probate and not 
subject to any proceeding to challenge its validity, provides that 
50 percent of the property passing under the terms of H's will is to 
be paid to a marital trust for W and 50 percent is to be paid to a 
trust for W and their descendants.
    (ii) Application. The amount passing to the non-marital trust 
cannot be verified without knowledge of the full value of the 
property passing under the will. Therefore, the value of the 
property of the marital trust relates to or affects the value 
passing to the trust for W and the descendants of H and W. 
Accordingly, the general return requirements apply to all of the 
property includible in the gross estate and the provisions of 
paragraph (a)(7)(ii) of this section do not apply.

    (b) Computation required for portability election--(1) General 
rule. In addition to the requirements described in paragraph (a) of 
this section, an executor of a decedent's estate must include a 
computation of the DSUE amount on the estate tax return to elect 
portability and thereby allow the decedent's surviving spouse to take 
into account that decedent's DSUE amount. See paragraph (b)(2) of this 
section for a transitional rule when the estate tax return form 
prescribed by the Internal Revenue Service (IRS) does not show 
expressly the computation of the DSUE amount. See paragraph (c) of this 
section for rules on computing the DSUE amount.
    (2) Transitional rule. Until such time as the prescribed form for 
the estate tax return expressly includes a computation of the DSUE 
amount, a complete and properly-prepared estate tax return will be 
deemed to include the computation of the DSUE amount. See paragraph 
(a)(7) of this section for the requirements for a return to be 
considered complete and properly-prepared. Once the IRS revises the 
prescribed form for the estate tax return to include expressly the 
computation of the DSUE amount, executors that previously filed an 
estate tax return pursuant to this transitional rule will not be 
required to file a supplemental estate tax return using the revised 
form.
    (c) Computation of the DSUE amount--(1) General rule. Subject to 
paragraphs (c)(2) through (c)(4) of this section, the DSUE amount of a 
decedent with a surviving spouse is the lesser of the following 
amounts--
    (i) The basic exclusion amount in effect in the year of the death 
of the decedent; or
    (ii) The excess of--
    (A) The decedent's applicable exclusion amount; over
    (B) The sum of the amount of the taxable estate and the amount of 
the adjusted taxable gifts of the decedent, which together is the 
amount on which the tentative tax on the decedent's estate is 
determined under section 2001(b)(1).
    (2) Special rule to consider gift taxes paid by decedent. Solely 
for purposes of computing the decedent's DSUE amount, the amount of the 
adjusted taxable gifts of the decedent referred to in paragraph 
(c)(1)(ii)(B) of this section is reduced by the amount, if any, on 
which gift taxes were paid for the calendar year of the gift(s).
    (3) [Reserved]
    (4) Special rule in case of property passing to qualified domestic 
trust. When property passes for the benefit of a surviving spouse in a 
qualified domestic trust (QDOT) as defined in section 2056A(a), the 
DSUE amount of the decedent is computed on the decedent's estate tax 
return for the purpose of electing portability in the same manner as 
this amount is computed under paragraph (c)(1) of this section, but 
this DSUE amount is subject to subsequent adjustments. The DSUE amount 
of the decedent must be redetermined upon the occurrence of the final 
distribution or other event (generally the death of the surviving 
spouse or the earlier termination of all QDOTs for that surviving 
spouse) on which estate tax is imposed under section 2056A. See Sec.  
20.2056A-6 for rules on determining the estate tax under section 2056A. 
See Sec.  20.2010-3T(c)(2) regarding the timing of the availability of 
the decedent's DSUE amount to the surviving spouse.
    (5) Examples. The following examples illustrate the application of 
this paragraph (c):

    Example 1. Computation of DSUE amount. (i) Facts. In 2002, 
having made no prior taxable gift, Husband (H) makes a taxable gift 
valued at $1,000,000 and reports the gift on a timely-filed gift tax 
return. Because the amount of the gift is equal to the applicable 
exclusion amount for that year ($1,000,000), $345,800 is allowed as 
a credit against the tax, reducing the gift tax liability to zero. H 
dies on September 29, 2011, survived by Wife (W). H and W are US 
citizens and neither has any prior marriage. H's taxable estate is 
$1,000,000. The executor of H's estate timely files H's estate tax 
return and elects portability, thereby allowing W to benefit from 
H's DSUE amount.
    (ii) Application. The executor of H's estate computes H's DSUE 
amount to be $3,000,000 (the lesser of the $5,000,000 basic 
exclusion amount in 2011, or the excess of H's $5,000,000 applicable 
exclusion amount over the sum of the $1,000,000 taxable estate and 
the $1,000,000 amount of adjusted taxable gifts).
    Example 2. Computation of DSUE amount when gift tax paid. (i) 
Facts. The facts are the same as in Example 1 except that the value 
of H's taxable gift in 2002 is $2,000,000. After application of the 
applicable credit amount, H owes gift tax on $1,000,000, the amount 
of the gift in excess of the applicable exclusion amount for that 
year. H pays the gift tax owed on the transfer in 2002.
    (ii) Application. On H's death, the executor of H's estate 
computes the DSUE amount to be $3,000,000 (the lesser of the 
$5,000,000 basic exclusion amount in 2011, or the excess of H's 
$5,000,000 applicable exclusion amount over the sum of the 
$1,000,000 taxable estate and $1,000,000 adjusted taxable gifts). 
H's adjusted taxable gifts of $2,000,000 were reduced for purposes 
of this computation by $1,000,000, the amount of taxable gifts on 
which gift taxes were paid.
    Example 3. Computation of DSUE amount when QDOT created. (i) 
Facts. Husband (H), a US citizen, makes his first taxable gift in 
2002, valued at $1,000,000, and reports the gift on a timely-filed 
gift tax return. No gift tax is due because the applicable exclusion 
amount for that year ($1,000,000) equals the fair market value of 
the gift. H dies in 2011 with a gross estate of $2,000,000. H's wife 
(W) is a US resident but not a citizen of the United States and, 
under H's will, a pecuniary bequest of $1,500,000 passes to a QDOT 
for the benefit of W. H's executor timely files an estate tax return 
and makes the QDOT election for the property passing to the QDOT, 
and H's estate is allowed a marital deduction of $1,500,000 under 
section 2056(d) for the value of that property. H's taxable estate 
is $500,000. On H's estate tax return, H's executor computes H's 
preliminary DSUE amount to be $3,500,000 (the lesser of the 
$5,000,000 basic exclusion amount in 2011, or the excess of H's 
$5,000,000 applicable exclusion amount over the sum of the $500,000 
taxable estate and the $1,000,000 adjusted taxable gifts). No 
taxable events within the meaning of section 2056A occur during W's 
lifetime with respect to the QDOT, and W makes no taxable gifts. In 
2012, W dies and the value of the assets of the QDOT is $1,800,000.
    (ii) Application. H's DSUE amount is redetermined to be 
$1,700,000 (the lesser of the $5,000,000 basic exclusion amount in 
2011, or the excess of H's $5,000,000 applicable exclusion amount 
over $3,300,000 (the sum of the $500,000 taxable estate augmented by 
the $1,800,000 of QDOT assets and the $1,000,000 adjusted taxable 
gifts)).

    (d) Authority to examine returns of decedent. The IRS may examine 
returns of a decedent in determining the

[[Page 36160]]

decedent's DSUE amount, regardless of whether the period of limitations 
on assessment has expired for that return. See Sec.  20.2010-3T(d) for 
additional rules relating to the IRS's authority to examine returns. 
See also section 7602 for the IRS's authority, when ascertaining the 
correctness of any return, to examine any returns that may be relevant 
or material to such inquiry.
    (e) Effective/applicability date. This section applies to the 
estates of decedents dying in calendar year 2011 or a subsequent year 
in which the applicable exclusion amount is determined under section 
2010(c) of the Code by adding the basic exclusion amount and, in the 
case of a surviving spouse, the DSUE amount.
    (f) Expiration date. The applicability of this section expires on 
or before June 15, 2015.

0
Par. 6. Section 20.2010-3T is added to read as follows:


Sec.  20.2010-3T  Portability provisions applicable to the surviving 
spouse's estate (temporary).

    (a) Surviving spouse's estate limited to DSUE amount of last 
deceased spouse--(1) In general. A deceased spousal unused exclusion 
(DSUE) amount of a decedent, computed under Sec.  20.2010-2T(c), is 
included in determining a surviving spouse's applicable exclusion 
amount under section 2010(c)(2), provided--
    (i) Such decedent is the last deceased spouse of such surviving 
spouse within the meaning of Sec.  20.2010-1T(d)(5) on the date of the 
death of the surviving spouse; and
    (ii) The executor of the decedent's estate elected portability (see 
Sec.  20.2010-2T(a) and (b) for applicable requirements).
    (2) No DSUE amount available from last deceased spouse. If the last 
deceased spouse of such surviving spouse had no DSUE amount, or if the 
executor of such a decedent's estate did not make a portability 
election, the surviving spouse's estate has no DSUE amount (except as 
provided in paragraph (b)(1)(ii) of this section) to be included in 
determining the applicable exclusion amount, even if the surviving 
spouse previously had a DSUE amount available from another decedent 
who, prior to the death of the last deceased spouse, was the last 
deceased spouse of such surviving spouse. See paragraph (b) of this 
section for a special rule in the case of multiple deceased spouses and 
a previously-applied DSUE amount.
    (3) Identity of last deceased spouse unchanged by subsequent 
marriage or divorce. A decedent is the last deceased spouse (as defined 
in Sec.  20.2010-1T(d)(5)) of a surviving spouse even if, on the date 
of the death of the surviving spouse, the surviving spouse is married 
to another (then-living) individual. If a surviving spouse marries 
again and that marriage ends in divorce or an annulment, the subsequent 
death of the divorced spouse does not end the status of the prior 
deceased spouse as the last deceased spouse of the surviving spouse. 
The divorced spouse, not being married to the surviving spouse at 
death, is not the last deceased spouse as that term is defined in Sec.  
20.2010-1T(d)(5).
    (b) Special rule in case of multiple deceased spouses and 
previously-applied DSUE amount--(1) In general. A special rule applies 
to compute the DSUE amount included in the applicable exclusion amount 
of a surviving spouse who previously has applied the DSUE amount of one 
or more deceased spouses to taxable gifts in accordance with Sec.  
25.2505-2T(b) and (c) of this chapter. If a surviving spouse has 
applied the DSUE amount of one or more last deceased spouses to the 
surviving spouse's transfers during life, and if any of those last 
deceased spouses is different from the surviving spouse's last deceased 
spouse as defined in Sec.  20.2010-1T(d)(5) at the time of the 
surviving spouse's death, then the DSUE amount to be included in 
determining the applicable exclusion amount of the surviving spouse at 
the time of the surviving spouse's death is the sum of--
    (i) The DSUE amount of the surviving spouse's last deceased spouse 
as described in paragraph (a)(1) of this section; and
    (ii) The DSUE amount of each other deceased spouse of the surviving 
spouse, to the extent that such amount was applied to one or more 
taxable gifts of the surviving spouse.
    (2) Example. The following example, in which all described 
individuals are US citizens, illustrates the application of this 
paragraph (b):

    Example. (i) Facts. Husband 1 (H1) dies on January 15, 2011, 
survived by Wife (W). Neither has made any taxable gifts during H1's 
lifetime. H1's executor elects portability of H1's DSUE amount. The 
DSUE amount of H1 as computed on the estate tax return filed on 
behalf of H1's estate is $5,000,000. On December 31, 2011, W makes 
taxable gifts to her children valued at $2,000,000. W reports the 
gifts on a timely-filed gift tax return. W is considered to have 
applied $2,000,000 of H1's DSUE amount to the amount of taxable 
gifts, in accordance with Sec.  25.2505-2T(c), and, therefore, W 
owes no gift tax. W has an applicable exclusion amount remaining in 
the amount of $8,000,000 ($3,000,000 of H1's remaining DSUE amount 
plus W's own $5,000,000 basic exclusion amount). After the death of 
H1, W marries Husband 2 (H2). H2 dies in June 2012. H2's executor 
elects portability of H2's DSUE amount, which is properly computed 
on H2's estate tax return to be $2,000,000. W dies in October 2012.
    (ii) Application. The DSUE amount to be included in determining 
the applicable exclusion amount available to W's estate is 
$4,000,000, determined by adding the $2,000,000 DSUE amount of H2 
and the $2,000,000 DSUE amount of H1 that was applied by W to W's 
2011 taxable gifts. Thus, W's applicable exclusion amount is 
$9,000,000.

    (c) Date DSUE amount taken into consideration by surviving spouse's 
estate--(1) General rule. A portability election made by an executor of 
a decedent's estate (see Sec.  20.2010-2T(a) and (b) for applicable 
requirements) applies as of the date of the decedent's death. Thus, the 
decedent's DSUE amount is included in the applicable exclusion amount 
of the decedent's surviving spouse under section 2010(c)(2) and will be 
applicable to transfers made by the surviving spouse after the 
decedent's death. However, such decedent's DSUE amount will not be 
included in the applicable exclusion amount of the surviving spouse, 
even if the surviving spouse had made a transfer in reliance on the 
availability or computation of the decedent's DSUE amount:
    (i) If the executor of the decedent's estate supersedes the 
portability election by filing a subsequent estate tax return in 
accordance with Sec.  20.2010-2T(a)(4);
    (ii) To the extent that the DSUE amount subsequently is reduced by 
a valuation adjustment or the correction of an error in calculation; or
    (iii) To the extent that the surviving spouse cannot substantiate 
the DSUE amount claimed on the surviving spouse's return.
    (2) Special rule when property passes to surviving spouse in a 
qualified domestic trust. When property passes from a decedent for the 
benefit of a surviving spouse in one or more qualified domestic trusts 
(QDOT) as defined in section 2056A(a) and the decedent's executor 
elects portability, the DSUE amount available to be included in the 
applicable exclusion amount of the surviving spouse under section 
2010(c)(2) is the DSUE amount of the decedent as redetermined in 
accordance with Sec.  20.2010-2T(c)(4). The earliest date on which the 
decedent's DSUE amount may be included in the applicable exclusion 
amount of the surviving spouse under section 2010(c)(2) is the date of 
the occurrence of the final QDOT distribution or final other event 
(generally, the death of the surviving spouse or the earlier

[[Page 36161]]

termination of all QDOTs for that surviving spouse) on which tax under 
section 2056A is imposed. However, the decedent's DSUE amount as 
redetermined in accordance with Sec.  20.2010-2T(c)(4) may be applied 
to certain taxable gifts of the surviving spouse. See Sec.  25.2505-
2T(d)(2)(i) of this chapter.
    (d) Authority to examine returns of deceased spouses. For the 
purpose of determining the DSUE amount to be included in the applicable 
exclusion amount of the surviving spouse, the Internal Revenue Service 
(IRS) may examine returns of each of the surviving spouse's deceased 
spouses whose DSUE amount is claimed to be included in the surviving 
spouse's applicable exclusion amount, regardless of whether the period 
of limitations on assessment has expired for any such return. The IRS's 
authority to examine returns of a deceased spouse applies with respect 
to each transfer by the surviving spouse to which a DSUE amount is or 
has been applied. Upon examination, the IRS may adjust or eliminate the 
DSUE amount reported on such a return; however, the IRS may assess 
additional tax on that return only if that tax is assessed within the 
period of limitations on assessment under section 6501 applicable to 
the tax shown on that return. See also section 7602 for the IRS's 
authority, when ascertaining the correctness of any return, to examine 
any returns that may be relevant or material to such inquiry. For 
purposes of these examinations to determine the DSUE amount, the 
surviving spouse is considered to have a material interest that is 
affected by the return information of the deceased spouse within the 
meaning of section 6103(e)(3).
    (e) Availability of DSUE amount for estates of nonresidents who are 
not citizens. The estate of a nonresident surviving spouse who is not a 
citizen of the United States at the time of such surviving spouse's 
death shall not take into account the DSUE amount of any deceased 
spouse of such surviving spouse within the meaning of Sec.  20.2010-
1T(d)(5) except to the extent allowed under any applicable treaty 
obligation of the United States. See section 2102(b)(3).
    (f) Effective/applicability date. This section applies to the 
estates of decedents dying in calendar year 2011 or a subsequent year 
in which the applicable exclusion amount is determined under section 
2010(c) of the Code by adding the basic exclusion amount and, in the 
case of a surviving spouse, the DSUE amount.
    (g) Expiration date. The applicability of this section expires on 
or before June 15, 2015.

PART 25--GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954

0
Par. 7. The authority citation for part 25 is amended by adding an 
entry in numerical order to read as follows:

    Authority:  26 U.S.C. 7805. * * *
    Section 25.2505-2T also issued under 26 U.S.C. 2010(c)(6). * * *


0
Par. 8. Section 25.2505-0T is added to read as follows:


Sec.  25.2505-0T  Table of contents (temporary).

    This section lists the table of contents for Sec. Sec.  25.2505-1T 
and 25.2505-2T.

Sec.  25.2505-1T Unified credit against gift tax; in general 
(temporary).

    (a) General rule.
    (b) Applicable rate of tax.
    (c) Special rule in case of certain gifts made before 1977.
    (d) Credit limitation.
    (e) Effective/applicability date.
    (f) Expiration date.

Sec.  25.2505-2T Gifts made by a surviving spouse having a DSUE 
amount available (temporary).

    (a) Donor who is surviving spouse is limited to DSUE amount of 
last deceased spouse.
    (1) In general.
    (2) No DSUE amount available from last deceased spouse.
    (3) Identity of last deceased spouse unchanged by subsequent 
marriage or divorce.
    (b) Manner in which DSUE amount is applied.
    (c) Special rule in case of multiple deceased spouses and 
previously-applied DSUE amount.
    (1) In general.
    (2) Example.
    (d) Date DSUE amount taken into consideration by donor who is a 
surviving spouse.
    (1) General rule.
    (2) Special rule when property passes to surviving spouse in a 
qualified domestic trust.
    (e) Authority to examine returns of deceased spouses.
    (f) Availability of DSUE amount for nonresidents who are not 
citizens.
    (g) Effective/applicability date.
    (h) Expiration date.


0
Par. 9. Section 25.2505-1T is added to read as follows:


Sec.  25.2505-1T  Unified credit against gift tax; in general 
(temporary).

    (a) General rule. Section 2505(a) allows a citizen or resident of 
the United States a credit against the tax imposed by section 2501 for 
each calendar year. The allowable credit is the applicable credit 
amount in effect under section 2010(c) that would apply if the donor 
died as of the end of the calendar year, reduced by the sum of the 
amounts allowable as a credit against the gift tax due for all 
preceding calendar periods. See Sec. Sec.  25.2505-2T, 20.2010-1T, and 
20.2010-2T of this chapter for additional rules and definitions related 
to determining the applicable credit amount in effect under section 
2010(c).
    (b) Applicable rate of tax. In determining the amounts allowable as 
a credit against the gift tax due for all preceding calendar periods, 
the unified rate schedule under section 2001(c) in effect for such 
calendar year applies instead of the rates of tax actually in effect 
for preceding calendar periods. See sections 2505(a) and 2502(a)(2).
    (c) Special rule in case of certain gifts made before 1977. The 
applicable credit amount allowable under paragraph (a) of this section 
must be reduced by an amount equal to 20 percent of the aggregate 
amount allowed as a specific exemption under section 2521 (as in effect 
before its repeal by the Tax Reform Act of 1976) for gifts made by the 
decedent after September 8, 1976, and before January 1, 1977.
    (d) Credit limitation. The applicable credit amount allowed under 
paragraph (a) of this section for any calendar year shall not exceed 
the amount of the tax imposed by section 2501 for such calendar year.
    (e) Effective/applicability date. Paragraph (a) of this section 
applies to gifts made on or after January 1, 2011. Paragraphs (b), (c), 
and (d) of this section apply to gifts made on or after June 15, 2012.
    (f) Expiration date. The applicability of this section expires on 
or before June 15, 2015.

0
Par. 10. Section 25.2505-2T is added to read as follows:


Sec.  25.2505-2T  Gifts made by a surviving spouse having a DSUE amount 
available (temporary).

    (a) Donor who is surviving spouse is limited to DSUE amount of last 
deceased spouse--(1) In general. In computing a surviving spouse's gift 
tax liability with regard to a transfer subject to the tax imposed by 
section 2501 (taxable gift), a deceased spousal unused exclusion (DSUE) 
amount of a decedent, computed under Sec.  20.2010-2T(c) of this 
chapter, is included in determining the surviving spouse's applicable 
exclusion amount under section 2010(c)(2), provided:
    (i) Such decedent is the last deceased spouse of such surviving 
spouse within the meaning of Sec.  20.2010-1T(d)(5) of

[[Page 36162]]

this chapter at the time of the surviving spouse's taxable gift; and
    (ii) The executor of the decedent's estate elected portability (see 
Sec.  20.2010-2T(a) and (b) of this chapter for applicable 
requirements).
    (2) No DSUE amount available from last deceased spouse. If on the 
date of the surviving spouse's taxable gift the last deceased spouse of 
such surviving spouse had no DSUE amount or if the executor of the 
estate of such last deceased spouse did not elect portability, the 
surviving spouse has no DSUE amount (except as and to the extent 
provided in paragraph (c)(1)(ii) of this section) to be included in 
determining his or her applicable exclusion amount, even if the 
surviving spouse previously had a DSUE amount available from another 
decedent who, prior to the death of the last deceased spouse, was the 
last deceased spouse of such surviving spouse. See paragraph (c) of 
this section for a special rule in the case of multiple deceased 
spouses.
    (3) Identity of last deceased spouse unchanged by subsequent 
marriage or divorce. A decedent is the last deceased spouse (as defined 
in Sec.  20.2010-1T(d)(5) of this chapter) of a surviving spouse even 
if, on the date of the surviving spouse's taxable gift, the surviving 
spouse is married to another (then-living) individual. If a surviving 
spouse marries again and that marriage ends in divorce or an annulment, 
the subsequent death of the divorced spouse does not end the status of 
the prior deceased spouse as the last deceased spouse of the surviving 
spouse. The divorced spouse, not being married to the surviving spouse 
at death, is not the last deceased spouse as that term is defined in 
Sec.  20.2010-1T(d)(5) of this chapter.
    (b) Manner in which DSUE amount is applied. If a donor who is a 
surviving spouse makes a taxable gift and a DSUE amount is included in 
determining the surviving spouse's applicable exclusion amount under 
section 2010(c)(2), such surviving spouse will be considered to apply 
such DSUE amount to the taxable gift before the surviving spouse's own 
basic exclusion amount.
    (c) Special rule in case of multiple deceased spouses and 
previously-applied DSUE amount--(1) In general. A special rule applies 
to compute the DSUE amount included in the applicable exclusion amount 
of a surviving spouse who previously has applied the DSUE amount of one 
or more deceased spouses. If a surviving spouse applied the DSUE amount 
of one or more last deceased spouses to the surviving spouse's previous 
lifetime transfers, and if any of those last deceased spouses is 
different from the surviving spouse's last deceased spouse as defined 
in Sec.  20.2010-1T(d)(5) of this chapter at the time of the current 
taxable gift by the surviving spouse, then the DSUE amount to be 
included in determining the applicable exclusion amount of the 
surviving spouse that will be applicable at the time of the current 
taxable gift is the sum of--
    (i) The DSUE amount of the surviving spouse's last deceased spouse 
as described in paragraph (a)(1) of this section; and
    (ii) The DSUE amount of each other deceased spouse of the surviving 
spouse to the extent that such amount was applied to one or more 
previous taxable gifts of the surviving spouse.
    (2) Example. The following example, in which all described 
individuals are US citizens, illustrates the application of this 
paragraph (c):

    Example. (i) Facts.
    Husband 1 (H1) dies on January 15, 2011, survived by Wife (W). 
Neither has made any taxable gifts during H1's lifetime. H1's 
executor elects portability of H1's deceased spousal unused 
exclusion (DSUE) amount. The DSUE amount of H1 as computed on the 
estate tax return filed on behalf of H1's estate is $5,000,000. On 
December 31, 2011, W makes taxable gifts to her children valued at 
$2,000,000. W reports the gifts on a timely-filed gift tax return. W 
is considered to have applied $2,000,000 of H1's DSUE amount to the 
2011 taxable gifts, in accordance with paragraph (b) of this 
section, and, therefore, W owes no gift tax. W is considered to have 
an applicable exclusion amount remaining in the amount of $8,000,000 
($3,000,000 of H1's remaining DSUE amount plus W's own $5,000,000 
basic exclusion amount). After the death of H1, W marries Husband 2 
(H2). H2 dies on June 30, 2012. H2's executor elects portability of 
H2's DSUE amount, which is properly computed on H2's estate tax 
return to be $2,000,000.
    (ii) Application. The DSUE amount to be included in determining 
the applicable exclusion amount available to W for gifts during the 
second half of 2012 is $4,000,000, determined by adding the 
$2,000,000 DSUE amount of H2 and the $2,000,000 DSUE amount of H1 
that was applied by W to W's 2011 taxable gifts. Thus, W's 
applicable exclusion amount during the balance of 2012 is 
$9,000,000.

    (d) Date DSUE amount taken into consideration by donor who is a 
surviving spouse--(1) General rule. A portability election made by an 
executor of a decedent's estate (see Sec.  20.2010-2T(a) and (b) of 
this chapter for applicable requirements) applies as of the date of the 
decedent's death. Thus, the decedent's DSUE amount is included in the 
applicable exclusion amount of the decedent's surviving spouse under 
section 2010(c)(2) and will be applicable to transfers made by the 
surviving spouse after the decedent's death. However, such decedent's 
DSUE amount will not be included in the applicable exclusion amount of 
the surviving spouse, even if the surviving spouse had made a taxable 
gift in reliance on the availability or computation of the decedent's 
DSUE amount:
    (i) If the executor of the decedent's estate supersedes the 
portability election by filing a subsequent estate tax return in 
accordance with Sec.  20.2010-2T(a)(4) of this chapter;
    (ii) To the extent that the DSUE amount subsequently is reduced by 
a valuation adjustment or the correction of an error in calculation; or
    (iii) To the extent that the DSUE amount claimed on the decedent's 
return cannot be determined.
    (2) Special rule when property passes to surviving spouse in a 
qualified domestic trust--(i) In general. When property passes from a 
decedent for the benefit of a surviving spouse in one or more qualified 
domestic trusts (QDOT) as defined in section 2056A(a) and the 
decedent's executor elects portability, the DSUE amount available to be 
included in the applicable exclusion amount of the surviving spouse 
under section 2010(c)(2) is the DSUE amount of the decedent as 
redetermined in accordance with Sec.  20.2010-2T(c)(4) of this chapter. 
The earliest date on which the decedent's DSUE amount may be included 
in the applicable exclusion amount of the surviving spouse under 
section 2010(c)(2) is the date of the occurrence of the final QDOT 
distribution or final other event (generally, the death of the 
surviving spouse or the earlier termination of all QDOTs for that 
surviving spouse) on which tax under section 2056A is imposed. However, 
the decedent's DSUE amount as redetermined in accordance with Sec.  
20.2010-2T(c)(4) of this chapter may be applied to the surviving 
spouse's taxable gifts made in the year of the surviving spouse's 
death, or if the terminating event occurs prior to the surviving 
spouse's death, then in the year of that terminating event and/or any 
subsequent year during the surviving spouse's life.
    (ii) Example. The following example illustrates the application of 
this paragraph (d)(2):

    Example.  (i) Facts. Husband (H), a US citizen, dies in January 
2011 having made no taxable gifts during his lifetime. H's gross 
estate is $3,000,000. H's wife (W) is a US resident but not a 
citizen of the United States and, under H's will, a pecuniary 
bequest of $2,000,000 passes to a QDOT for the benefit of W. H's 
executor timely files an estate tax return and makes the QDOT 
election for the

[[Page 36163]]

property passing to the QDOT, and H's estate is allowed a marital 
deduction of $2,000,000 under section 2056(d) for the value of that 
property. H's taxable estate is $1,000,000. On H's estate tax 
return, H's executor computes H's preliminary DSUE amount to be 
$4,000,000. No taxable events within the meaning of section 2056A 
occur during W's lifetime with respect to the QDOT. W makes a 
taxable gift of $1,000,000 to X in December 2011 and a taxable gift 
of $1,000,000 to Y in January 2012. W dies in September 2012, not 
having married again, when the value of the assets of the QDOT is 
$2,200,000.
    (ii) Application. H's DSUE amount is redetermined to be 
$1,800,000 (the lesser of the $5,000,000 basic exclusion amount in 
2011, or the excess of H's $5,000,000 applicable exclusion amount 
over $3,200,000 (the sum of the $1,000,000 taxable estate augmented 
by the $2,200,000 of QDOT assets)). On W's gift tax return filed for 
2011, W cannot apply any DSUE amount to the gift made to X. However, 
because W's gift to Y was made in the year that W died, W's executor 
will apply $1,000,000 of H's redetermined DSUE amount to the gift on 
W's gift tax return filed for 2012. The remaining $800,000 of H's 
redetermined DSUE amount is included in W's applicable exclusion 
amount to be used in computing W's estate tax liability.

    (e) Authority to examine returns of deceased spouses. For the 
purpose of determining the DSUE amount to be included in the applicable 
exclusion amount of the surviving spouse, the Internal Revenue Service 
(IRS) may examine returns of each of the surviving spouse's deceased 
spouses whose DSUE amount is claimed to be included in the surviving 
spouse's applicable exclusion amount, regardless of whether the period 
of limitations on assessment has expired for any such return. The IRS's 
authority to examine returns of a deceased spouse applies with respect 
to each transfer by the surviving spouse to which a DSUE amount is or 
has been applied. Upon examination, the IRS may adjust or eliminate the 
DSUE amount reported on such a return; however, the IRS may assess 
additional tax on that return only if that tax is assessed within the 
period of limitations on assessment under section 6501 applicable to 
the tax shown on that return. See also section 7602 for the IRS's 
authority, when ascertaining the correctness of any return, to examine 
any returns that may be relevant or material to such inquiry.
    (f) Availability of DSUE amount for nonresidents who are not 
citizens. A nonresident surviving spouse who was not a citizen of the 
United States at the time of making a transfer subject to tax under 
chapter 12 of the Internal Revenue Code shall not take into account the 
DSUE amount of any deceased spouse except to the extent allowed under 
any applicable treaty obligation of the United States. See section 
2102(b)(3).
    (g) Effective/applicability date. This section applies to gifts 
made in calendar year 2011 or in a subsequent year in which the 
applicable exclusion amount is determined under section 2010(c) of the 
Code by adding the basic exclusion amount and, in the case of a 
surviving spouse, the DSUE amount.
    (h) Expiration date. The applicability of this section expires on 
or before June 15, 2015.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 11. The authority citation for part 602 continues to read as 
follows:

    Authority:  26 U.S.C. 7805.


0
Par. 12. In Sec.  602.101, paragraph (b) is amended by adding the 
following entry in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR Part or section where identified and described       Control No.
------------------------------------------------------------------------
 
                                * * * * *
20.2010-2T..............................................       1545-0015
 
                                * * * * *
------------------------------------------------------------------------


Steven T. Miller,
Deputy Commissioner for Services and Enforcement.

    Approved: June 12, 2012.
Emily S. McMahon,
Acting Assistant Secretary of Treasury (Tax Policy).
[FR Doc. 2012-14781 Filed 6-15-12; 8:45 am]
BILLING CODE 4830-01-P