Portability of a Deceased Spousal Unused Exclusion Amount, 34279-34292 [2015-14663]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 80, Number 115 (Tuesday, June 16, 2015)]
[Rules and Regulations]
[Pages 34279-34292]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14663]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 20, 25, and 602

[TD 9725]
RIN 1545-BK74


Portability of a Deceased Spousal Unused Exclusion Amount

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that provide guidance 
under sections 2010 and 2505 of the Internal Revenue Code 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, and these provisions were made permanent by 
the American Taxpayer Relief Act of 2012. The portability rules affect 
the estates of married decedents dying on or after January 1, 2011, and 
the surviving spouses of those decedents.

DATES: 
    Effective Date. These regulations are effective on June 12, 2015.
    Applicability Dates: For specific dates of applicability of the 
final regulations,

[[Page 34280]]

see Sec. Sec.  20.2001-2(b), 20.2010-1(e), 20.2010-2(e), 20.2010-3(f), 
25.2505-1(e), and 25.2505-2(g).

FOR FURTHER INFORMATION CONTACT: Karlene Lesho (202) 317-6859 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in these regulations have 
been reviewed and approved by the Office of Management and Budget under 
control number 1545-0015. The collections of information are in 
Sec. Sec.  20.2010-2(a), 20.2010-2(a)(1), 20.2010-2(a)(3)(i), 20.2010-
2(a)(7)(ii)(B), and 20.2010-2(b). Responses to each 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. The likely respondents are executors of 
estates of decedents survived by a spouse.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number.
    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

    This document amends the Estate Tax Regulations (26 CFR part 20) 
under sections 2001 and 2010 of the Internal Revenue Code (Code) and 
the Gift Tax Regulations (26 CFR part 25) under section 2505 of the 
Code. 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 Code to allow portability of the applicable 
exclusion amount between spouses and made conforming amendments to 
sections 2505(a), 2631(c), and 6018(a)(1) of the Code. The changes made 
by TRUIRJCA to sections 2010(c), 2505(a), 2631(c), and 6018(a)(1) of 
the Code were scheduled to expire after December 31, 2012, pursuant to 
section 304 of TRUIRJCA. However, on January 2, 2013, Congress enacted 
the American Taxpayer Relief Act of 2012, Public Law 112-240 (126 Stat. 
2313) (ATRA), which made portability permanent. In section 101(c)(2) of 
ATRA, Congress made a technical correction to section 2010(c)(4)(B) of 
the Code, retroactive to the original date of enactment of section 303 
of TRUIRJCA, by amending clause (i) to replace ``basic exclusion 
amount'' with ``applicable exclusion amount.''
    On June 18, 2012, temporary regulations relating to this topic (TD 
9593, 77 FR 36150) (``2012 temporary regulations'') and a notice of 
proposed rulemaking cross-referencing the temporary regulations (REG-
141832-11, 77 FR 36229) (``NPRM'') were published in the Federal 
Register. No requests to speak at the scheduled public hearing were 
received, and the hearing was canceled. Comments responding to the NPRM 
were received and are available for public inspection and copying at 
https://www.regulations.gov or upon request. After consideration of all 
the comments, the proposed rules in the NPRM are adopted as amended by 
this Treasury decision. The public comments and revisions are discussed 
in this preamble.

Summary of Comments and Explanation of Revisions

1. Availability of Extension of Time To Elect Portability

    Section 2010(c) of the Code allows the estate of a decedent who is 
survived by a spouse to make a portability election, which generally 
allows the surviving spouse to apply the decedent's deceased spousal 
unused exclusion (DSUE) amount to the surviving spouse's own transfers 
during life and at death. Under section 2010(c)(5)(A), a portability 
election is effective only if made on an estate tax return filed by the 
executor of the decedent's estate within the time prescribed by law for 
filing such return. Section 20.2010-2T(a)(1) of the 2012 temporary 
regulations requires every estate electing portability of a decedent's 
DSUE amount to file an estate tax return within nine months of the 
decedent's date of death, unless an extension of time for filing has 
been granted.
    A commenter requested that the final regulations address the 
availability of an extension of time under Sec. Sec.  301.9100-2 and 
301.9100-3 of the Procedure and Administration Regulations to elect 
portability under section 2010(c)(5)(A) of the Code. Section 301.9100-
2(b) provides an automatic six-month extension of time for making 
certain statutory and regulatory elections if the return is timely 
filed. Because the portability election is deemed to be made by the 
timely filing of a complete and properly prepared estate tax return, 
this relief provision will not be helpful with regard to the 
portability election unless the return that was timely filed was not 
complete or properly prepared and that insufficiency is corrected 
within six months from the unextended due date of the return.
    Section 301.9100-3 allows the grant of an extension of time for 
making regulatory elections that do not meet the requirements for an 
automatic extension of time under Sec.  301.9100-2. An extension under 
Sec.  301.9100-3 to elect portability is not available to estates that 
are required to file an estate tax return based on the applicable 
amount in section 6018(a) because, in such a case, the due date for the 
portability election is prescribed by statute and Sec.  301.9100-3 
applies only to an election whose due date is prescribed by regulation. 
See sections 2010(c)(5)(A), 6075(a), and 6018(a); Sec.  301.9100-1(b). 
However, an extension of time under Sec.  301.9100-3 to elect 
portability may be available to estates that are under the value 
threshold described in section 6018 for being required to file an 
estate tax return. In such a case, the due date for the portability 
election is prescribed by regulation, not by statute. See Rev. Proc. 
2014-18, 2014-7 IRB 513, section 2.03.
    The Treasury Department and the IRS believe that clarifying the 
availability of an extension of time under Sec.  301.9100-3 to elect 
portability will assist taxpayers in understanding and meeting their 
tax responsibilities. Accordingly, the final regulations provide that 
an extension of time to elect portability will not be granted under 
Sec.  301.9100-3 to any estate that is required to file an estate tax 
return because the value of the gross estate equals or exceeds the 
threshold amount described in section 6018, but may be granted under 
the rules set forth in Sec.  301.9100-3 to estates with a gross estate 
value below that threshold amount and thus not otherwise required to 
file an estate tax return.
    As transitional relief in the wake of TRUIRJCA and ATRA, the 
Treasury Department and the IRS have published guidance regarding the 
availability of an automatic extension of time for executors of certain 
estates under the filing threshold of section 6018(a) to file an estate 
tax return to elect portability of an unused exclusion amount. See 
Notice 2012-21, 2012-10 IRB 450; Rev. Proc. 2014-18. The Treasury 
Department and the IRS continue to receive, and are continuing to 
consider, requests for permanent extensions of this type of relief. 
However, such relief is not included in the final regulations.

[[Page 34281]]

2. Effect of Portability Election Where DSUE Amount Is Uncertain

    Section 20.2010-2T(a)(2) of the 2012 temporary regulations provides 
that upon the timely filing of a complete and properly prepared estate 
tax return, an executor of the estate of a decedent survived by a 
spouse will have elected portability of the decedent's DSUE amount, 
unless the executor validly opts out of making the portability 
election. The inclusion of a computation of the DSUE amount is an 
essential requirement of a complete and properly prepared estate tax 
return intended to make the portability election. See section 
2010(c)(5)(A) and Sec.  20.2010-2T(b)(1). Section 20.2010-3T(c) 
provides that the portability election applies (and generally is 
available to the surviving spouse) upon the decedent's death, but, to 
the extent the DSUE amount subsequently is reduced or cannot be 
substantiated, the DSUE amount will not be available to the surviving 
spouse.
    A commenter requested that the final regulations address whether an 
estate can make a ``protective'' election if a DSUE amount is not 
reflected on an otherwise complete and properly prepared estate tax 
return at the time of its timely filing, but subsequent adjustments to 
amounts on the estate tax return would result in unused exclusion of 
that decedent. The following example illustrates such a scenario. An 
executor files a complete and properly prepared estate tax return that 
shows a DSUE amount equal to zero at the time of the return's timely 
filing and does not follow the instructions set forth in the 
instructions for opting out of portability. At the same time, the 
executor also files a protective claim for refund attributable to a 
claim against the estate. Subsequently, the estate becomes entitled to 
a deduction under section 2053 for a payment made in satisfaction of 
the claim against the estate which reduces the estate tax and results 
in unused exemption.
    In this example, the Treasury Department and the IRS believe that 
the executor has elected portability in accordance with Sec.  20.2010-
2T(a)(2) and that the recomputed DSUE amount will be available to the 
decedent's surviving spouse. The final regulations clarify this 
intended result by providing in Sec.  20.2010-2(b) that the computation 
requirement in section 2010(c)(5)(A) will be satisfied if the estate 
tax return is prepared in accordance with the requirements of Sec.  
20.2010-2(a)(7). Accordingly, there is no need for a protective 
election.

3. Persons Permitted To Make the Election

    Several commenters requested that the final regulations allow a 
surviving spouse who is not an executor as defined in section 2203 of 
the Code to file an estate tax return and make the portability election 
in several different circumstances. A few of the circumstances 
described include those in which the spouse is given the right to file 
the estate tax return in a prenuptial or marital agreement, or the 
spouse has petitioned the appropriate local court for the spouse's 
appointment as an executor solely for the limited purpose of filing the 
estate tax return and the executor does not make the portability 
election. The Treasury Department and the IRS recognize the possibility 
that an executor may exercise the executor's discretion to not make the 
portability election, thus causing the estate to forfeit the 
opportunity to elect portability, but note that section 2010(c)(5) of 
the Code permits only the executor of the decedent's estate to file the 
estate tax return and make the portability election. The 2012 temporary 
regulations address the circumstances in which an appointed executor or 
a non-appointed executor may file the estate tax return and decide 
whether or not to elect portability. The Treasury Department and the 
IRS believe that any consideration of what, if any, state law action 
might bring the surviving spouse within the definition of executor 
under section 2203 is outside of the scope of this regulation. 
Accordingly, the final regulations adopt the applicable rules in the 
2012 temporary regulations without change.

4. Requirement of a ``Complete and Properly Prepared'' Estate Tax 
Return

    Section 20.2010-2T(a)(2) provides 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. Section 20.2010-2T(a)(7)(i) provides that an estate tax return 
prepared in accordance with all applicable requirements is considered a 
``complete and properly prepared'' estate tax return. Section 20.2010-
2T(a)(7)(ii)(A), however, provides a special rule applicable to estates 
that are not otherwise required to file an estate tax return under 
section 6018. For these estates, the executor does not need to report 
the value of certain property that qualifies for the marital or 
charitable deduction. The 2012 temporary regulations also included 
exceptions to the application of the special rule by providing specific 
circumstances under which the special rule will not apply.
    A commenter suggested that the final regulations elaborate on the 
circumstances under which a timely filed estate tax return may be 
considered so deficient as to render the estate tax return incomplete 
for purposes of electing portability. The Treasury Department and the 
IRS acknowledge that, as with all tax returns, some errors or omissions 
made with respect to an estate tax return will be considered minor and 
correctible. However, the Treasury Department and the IRS consider the 
issue of whether an estate tax return is complete and properly prepared 
to be determined most appropriately on a case-by-case basis by applying 
standards as prescribed in current law. Therefore, this suggestion has 
not been adopted.
    A commenter recommended that the final regulations modify the 
special rule in Sec.  20.2010-2T(a)(7)(ii)(A) to narrow the exceptions 
to the application of the special rule, thus allowing more estates to 
avoid the expense of a potentially-complicated appraisal to value 
assets includible in the gross estate. Specifically, the commenter 
recommended that the special rule in Sec.  20.2010-2T(a)(7)(ii)(A) 
should apply to certain property, the value of which qualifies for the 
marital deduction or charitable deduction (marital deduction property 
or charitable deduction property), when: (i) The marital deduction 
property or charitable deduction property is a stated number of shares 
of stock and a stated number of shares of the same stock are includible 
in the gross estate but are not marital deduction property or 
charitable deduction property; (ii) the property represents the balance 
of the value of shares remaining after a non-marital or non-charitable 
bequest of shares based on a specific value; and (iii) the property 
represents the marital or charitable portion of a fractional division 
of property, whether by bequest, spousal election, or disclaimer. In 
the first two instances, the value of the marital deduction property or 
charitable deduction property may be relevant to assessing the accuracy 
of the valuation of the nondeductible interest and whether any 
valuation premium or discount is warranted. In the last instance, 
because any beneficiary's share of the estate usually can be satisfied 
in a manner other than with that beneficiary's proportional share of 
each individual asset, it will be necessary to know the total value in 
order to verify the non-deductible portion of the estate. Therefore, 
the Treasury Department and the IRS

[[Page 34282]]

continue to believe that Sec.  20.2010-2T(a)(7)(ii)(A) appropriately 
excludes the described circumstances from application of the special 
rule. While the final regulations do not adopt the commenter's 
suggestion to narrow the exceptions to the application of the special 
rule, the final regulations provide flexibility to refine the rules in 
subregulatory guidance at any time in the future when the IRS may 
determine that additional guidance would be appropriate with regard to 
the application of the special rule to particular types of transfers.
    The same commenter suggested that the exception in Sec.  20.2010-
2T(a)(7)(ii)(A)(2) is made unnecessarily broad by its reference to 
``another provision of the Code.'' The commenter was concerned that, 
because the fair market value of a bequeathed asset determines the 
basis of that asset in the hands of the legatee, the value of all 
estate assets would have an impact on section 1014, and, thus, all 
assets would have to be valued. In referring to value needed to 
determine an estate's eligibility under other Code sections such as 
sections 2032 and 2032A, the Treasury Department and the IRS did not 
intend to include a basis determination under section 1014. 
Accordingly, the language of Sec.  20.2010-2T(a)(7)(ii)(A)(2) has been 
clarified.
    Finally, a commenter repeated a suggestion (first made in response 
to a request for comments in Notice 2011-82, 2011-42 IRB 516) that the 
IRS prepare a shorter version of the estate tax return to be used by 
estates that are not otherwise required to file an estate tax return 
but do so only to elect portability. The Treasury Department and the 
IRS have reconsidered this suggestion, taking into account several 
factors including: The information needed by the IRS to compute and 
verify the DSUE amount; how such an abbreviated return would differ 
from a return qualifying for the special rule regarding valuations 
under Sec.  20.2010-2(a)(7)(ii); the past experience of the IRS 
regarding the accuracy of abbreviated returns; the administrative 
issues in creating and maintaining alternate return forms; and the 
reasons provided by commenters. The Treasury Department and the IRS 
have concluded that, on balance, a timely filed, complete, and properly 
prepared estate tax return affords the most efficient and administrable 
method of obtaining the information necessary to compute and verify the 
DSUE amount, and the alleged benefits to taxpayers from an abbreviated 
form is far outweighed by the anticipated administrative difficulties 
in administering the estate tax. In addition, 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 
Tax'n, 111th Cong., JCX-55-10 (December 10, 2010), suggests that 
estates electing portability that are not otherwise required to file an 
estate tax return under section 6018(a) are intended to be subject to 
the same filing requirements applicable to estates required to file an 
estate tax return under section 6018(a). For these reasons, this 
suggestion is not adopted.

5. Special Rules for Qualified Domestic Trusts

    The preamble to the 2012 regulations discussed comments and 
proposals the Treasury Department and the IRS had received on the 
proper application of the portability rules to qualified domestic 
trusts (QDOTs) created for spouses who are not U.S. citizens. The 
preamble noted that each of the proposals raised issues of fairness, 
complexity, and administrability.
    The QDOT rules in the 2012 temporary regulations 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 
the decedent's estate tax return for the purpose of electing 
portability in the same way the DSUE amount is computed for any other 
decedent. However, because the estate tax payments made from the QDOT 
after the decedent's death are part of the decedent's estate tax 
liability, the decedent's DSUE amount must be redetermined upon the 
final distribution or other taxable event on which estate tax under 
section 2056A is imposed (generally, this occurs upon the termination 
of all QDOTs created by or funded with assets passing from the decedent 
or upon the death of the surviving spouse). See Sec.  20.2010-2T(c)(4). 
The QDOT rules in the 2012 temporary regulations further provide 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. See Sec.  20.2010-3T(c)(2). The preamble to the 2012 temporary 
regulations requested further comments on the QDOT issue.
    A commenter challenged this delay in the surviving spouse's ability 
to use the decedent's DSUE amount if the surviving spouse becomes a 
United States citizen after the decedent's estate tax return is filed 
and after property passes to a QDOT for the benefit of that surviving 
spouse.
    Under section 2056A(b)(12), the estate tax imposed under section 
2056A(b)(1) will cease to apply to property held in a QDOT if the 
surviving spouse becomes a United States citizen (a fact to be 
certified to the IRS under Sec.  20.2056A-10(a)(2)) and either of the 
following requirements are met: (A) the spouse was a resident of the 
United States at all times after the death of the decedent and before 
the spouse becomes a citizen of the United States, or (B) no tax was 
imposed by section 2056A(b)(1)(A) with respect to any distribution 
before the spouse becomes a citizen. If the spouse becomes a U.S. 
citizen, but does not satisfy either of these two requirements, section 
2056A(b)(12)(C) provides that the section 2056A(b)(1) estate tax will 
cease to apply to the QDOT if the spouse elects (i) to treat any 
distribution on which tax was imposed by section 2056A(b)(1)(A) as a 
taxable gift made by the spouse during the year in which the spouse 
becomes a U.S. citizen or in any subsequent year, and thereby including 
each such distribution in the spouse's own adjusted taxable gifts for 
both estate and gift tax purposes, and (ii) to treat any reduction in 
the tax imposed by section 2056A(b)(1)(A) by reason of the credit 
allowable under section 2010 with respect to the decedent as a credit 
allowable to such surviving spouse under section 2505 for purposes of 
determining the amount of the credit allowable under section 2505 with 
respect to taxable gifts made by the surviving spouse during the year 
in which the spouse becomes a U.S. citizen or any subsequent year.
    The Treasury Department and the IRS conclude that, if the surviving 
spouse of the decedent becomes a citizen of the United States and the 
requirements under section 2056A(b)(12) and the corresponding 
regulations are satisfied so that the tax imposed by section 
2056A(b)(1) no longer applies, then the decedent's DSUE amount is no 
longer subject to adjustment and will become available for transfers by 
the surviving spouse as of the date the surviving spouse becomes a 
citizen of the United States. Accordingly, the final regulations make 
clarifying changes in Sec. Sec.  20.2010-2(c)(4), 20.2010-3(c)(3), and 
25.2505-2(d)(3).
    A commenter also requested clarification of the rules in Sec. Sec.  
20.2010-3T(b), 25.2505-2T(b) and 25.2505-2T(c) as they apply to a QDOT. 
Section 25.2505-2T(b) provides that, in the case of a surviving spouse 
making a gift, the surviving spouse will be considered to

[[Page 34283]]

apply any available DSUE amount to the taxable gift before the 
surviving spouse's own basic exclusion amount. Sections 20.2010-3T(b) 
and 25.2505-2T(c) address how to compute the DSUE amount included in 
the applicable exclusion amount of a surviving spouse who previously 
has applied a DSUE amount of one or more deceased spouses. These rules 
are applicable to all surviving spouses but can be applied only after 
the surviving spouse determines the spouse's available DSUE amount, if 
any. Sections 20.2010-3T(c)(2) and 25.2505-2T(d)(2) provide rules 
governing the date DSUE can be taken into consideration by the 
surviving spouse or the surviving spouse's estate when property passes 
from a decedent for the benefit of a surviving spouse in one or more 
QDOTs and the decedent elects portability. The Treasury Department and 
the IRS believe that the impact of these rules in the context of QDOTs 
is sufficiently clear. Thus, the final regulations adopt these rules 
without change, except that the rule in Sec.  25.2505-2T(d)(2) is now 
provided in Sec.  25.2505-2(d)(3).

6. Issues Related to Examination of Returns To Determine DSUE Amount

    Section 2010(c)(5)(B) grants the IRS the authority to examine 
returns of each deceased spouse of the surviving spouse to determine 
the DSUE amount allowed to be included in the applicable exclusion 
amount of the surviving spouse, even if the period of limitations under 
section 6501 has expired for assessing gift or estate tax with respect 
to the returns of the deceased spouse. The Treasury Department and the 
IRS received several comments and recommendations related to this 
examination authority.
    First, a commenter requested that the final regulations provide 
that, during an examination to determine the allowable DSUE amount, the 
examination authority of the IRS be limited to issues of the reporting 
and valuation of assets, and not extend to other legal issues that may 
impact the availability of the DSUE amount to the surviving spouse. The 
Treasury Department and the IRS note that section 2010(c)(5)(B) grants 
broad statutory authority to the IRS to examine the correctness of any 
return, without regard to the period of limitations on assessment, ``to 
make determinations with respect to [the allowable DSUE] amount for 
purposes of carrying out [section 2010(c) of the Code].'' Thus, the 
Treasury Department and the IRS conclude that limiting such authority 
is inconsistent with the statute. Accordingly, this suggestion is not 
adopted.
    Second, a commenter requested confirmation that, in the examination 
of a return for the purpose of determining the allowable DSUE amount 
that takes place after the expiration of the period of limitations on 
assessment of tax, the valuation of assets may be adjusted upward or 
downward with a possible result that the allowable DSUE amount may 
decrease or increase. The accurate valuation of assets reported on an 
estate or gift tax return, regardless of whether the valuation is 
higher or lower than the reported value, is fundamental to the 
examination of such a return and fundamental to the accurate 
determination of the DSUE amount available to the surviving spouse. The 
Treasury Department and the IRS accordingly conclude no clarifying 
change is necessary on this issue.
    Third, a commenter suggested the final regulations consider 
whether, in the examination of a return for the purpose of determining 
the allowable DSUE amount that takes place after the expiration of the 
period of limitations on assessment of tax, an adjustment to the value 
of an asset reported on the return affects the basis of that asset 
under section 1014. Section 1014 generally provides that the basis of 
property acquired from a decedent is the fair market value of such 
property on the decedent's date of death. The Treasury Department and 
the IRS believe that a change to the date-of-death value of an asset 
included in the estate of a decedent survived by a spouse, made 
pursuant to an examination of a return of that decedent after the 
expiration of the period of limitations on the assessment of tax on 
that return, does not necessarily result in a change to the basis of 
that asset under section 1014. Rather, the basis of property acquired 
from a decedent is determined in accordance with the existing 
principles of section 1014. The Treasury Department and the IRS 
conclude that the scope of the examination authority granted in section 
2010(c)(5)(B) is sufficiently clear and, therefore, make no change in 
the final regulations.
    Fourth, a commenter suggested that the final regulations clarify 
the deductibility of administrative expenses associated with the 
examination to determine the allowable DSUE amount. The Treasury 
Department and the IRS conclude that any expenses associated with an 
examination to determine the DSUE amount to be included in the 
applicable exclusion amount of the surviving spouse should be treated 
as any other expense associated with the preparation of the surviving 
spouse's return. Thus, in the case of an examination arising with 
respect to a gift tax return of the surviving spouse, such expenses are 
not deductible and, in the case of an examination arising with respect 
to an estate tax return of the surviving spouse, such expenses may be 
deductible if such expenses meet all of the applicable requirements for 
deductibility under section 2053. The Treasury Department and the IRS 
believe that the standards for deducting expenses for estate and gift 
tax purposes are sufficiently clear so that no change to the 2012 
temporary regulations is necessary.
    Finally, a commenter suggested clarifying who may participate in 
the examination to determine the DSUE amount to be included in the 
applicable exclusion amount of the surviving spouse. In general, 
pursuant to the current rules, each taxpayer has the authority to 
participate in the resolution of the issues raised in the audit of his 
or her return. However, the Treasury Department and the IRS believe 
addressing this issue is outside the scope of this final regulation 
and, therefore, make no change in the final regulation.

7. Availability of DSUE Amount by Surviving Spouse Who Becomes a 
Citizen of the United States

    A commenter requested further guidance on the rules in Sec. Sec.  
20.2010-3T(e) and 25.2505-2T(f), which prohibit a noncitizen, 
nonresident surviving spouse, or the estate of such a surviving spouse, 
from taking into account the DSUE amount of any deceased spouse except 
to the extent allowed under any treaty obligation of the United States. 
First, the commenter suggested the final regulations clarify the 
specificity a treaty must employ in referencing portability or the DSUE 
amount for the exception to apply. The Treasury Department and the IRS 
consider this question regarding the interpretation of treaty language 
to be outside the scope of these final regulations and, thus, decline 
to make this change.
    Next, the commenter requested that the final regulations allow a 
surviving spouse who becomes a U.S. citizen after the death of the 
deceased spouse to take into account the DSUE amount of such deceased 
spouse. Because a surviving spouse who becomes a U.S. citizen is 
subject to the estate and gift tax rules of chapter 11 and 12 that 
apply to U.S. citizens and residents, the Treasury Department and the 
IRS believe it is appropriate that such a surviving spouse be permitted 
to take into account the DSUE amount available from any deceased spouse 
as of the date such surviving spouse becomes a U.S. citizen,

[[Page 34284]]

provided the deceased spouse's executor has made the portability 
election. Accordingly, the final regulations include such a rule in 
Sec. Sec.  20.2010-3 and 25.2505-2.

8. Effect of Portability Election on Application of Rev. Proc. 2001-38

    Multiple commenters have requested guidance on the application of 
Rev. Proc. 2001-38, 2001-24 IRB 1335, when an estate makes a 
portability election under section 2010(c)(5)(A) as well as an election 
under section 2056(b)(7) to treat qualified terminable interest 
property (QTIP) as passing to the surviving spouse for purposes of the 
marital deduction.
    Rev. Proc. 2001-38 provides a procedure by which the IRS will 
disregard and treat as a nullity for Federal estate, gift, and 
generation-skipping transfer tax purposes a QTIP election made under 
section 2056(b)(7) in cases where the election was not necessary to 
reduce the estate tax liability to zero. The commenter notes that, with 
the introduction of portability of a deceased spouse's unused exclusion 
amount, an executor may purposefully elect both portability and QTIP 
treatment and the rationale for the rule voiding the election in Rev. 
Proc. 2001-38 (that the election was of no benefit to the taxpayer) is 
no longer applicable. The Treasury Department and the IRS intend to 
provide guidance, by publication in the Internal Revenue Bulletin, to 
clarify whether a QTIP election made under section 2056(b)(7) may be 
disregarded and treated as null and void when an executor has elected 
portability of the DSUE amount under section 2010(c)(5)(A).

9. Incorrect Basic Exclusion Amount in Examples

    A commenter noted that Sec. Sec.  20.2010-3T and 25.2505-2T include 
an incorrect basic exclusion amount for the applicable year in the 
examples. The final regulations correct this mistake.

10. Order of Credits

    The NPRM requested comments on, and reserved Sec.  20.2010-2(c)(3) 
to provide guidance on, the impact of the credits in sections 2012 
through 2015 on computing the DSUE amount. One comment was received, 
and advocated for a rule in computing the DSUE amount that the 
tentative tax is equal to the net estate tax after the application of 
all available credits. The commenter stated that a deceased spouse's 
applicable credit amount should not be applied to the extent one or 
more of the estate tax credits are available to reduce the decedent's 
estate tax.
    The amount of the allowable credit in sections 2012 through 2015 
can be determined only after subtracting from the tax imposed by 
section 2001 the applicable credit amount determined under section 
2010. Accordingly, to the extent the applicable credit amount is 
applied to reduce the tax imposed by section 2001 to zero, the credits 
in sections 2012 through 2015 are not available. The rule in section 
2010(c)(4) for computing the DSUE amount does not take into account any 
unused credits arising under sections 2012 through 2015. Based on these 
considerations, the Treasury Department and the IRS conclude that no 
adjustment to the computation of the DSUE amount to account for any 
unused credits is warranted. Accordingly, Sec.  20.2010-2(c)(3) of the 
final regulations clarifies that eligibility for credits against the 
tax imposed by section 2001 does not factor into the computation of the 
DSUE amount.

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
flexibility assessment is not required. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these final regulations. It is hereby 
certified that the collection of information contained in this 
regulation will not have a significant economic impact on a substantial 
number of small entities. This certification is based on the fact that 
these regulations primarily affect estates of a decedent which 
generally are not small entities under the Act. Thus, we do not expect 
a substantial number of small entities to be affected. Therefore, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the 
Code, the 2012 temporary regulations, as well as the cross-referencing 
notice of proposed rulemaking preceding these final regulations, were 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small entities, and no 
comments were received.

Statement of Availability for Documents Published in the Internal 
Revenue Bulletin

    For copies of recently issued revenue procedures, revenue rulings, 
notices, and other guidance published in the Internal Revenue Bulletin 
or Cumulative Bulletin, please visit the IRS Web site at https://www.irs.gov.

Drafting Information

    The principal author of these final 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.

Adoption of 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 removing 
the entries for Sec. Sec.  20.2010-0T, 20.2010-1T, 20.2010-2T, and 
20.2010-3T and adding entries in numerical order to read in part as 
follows:

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

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


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

    (a) General rule. Notwithstanding Sec.  20.2001-1(b), Sec. Sec.  
20.2010-2(d) and 20.2010-3(d) provide 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 amount available under section 
2010(c) of the Internal Revenue Code.

[[Page 34285]]

    (b) Effective/applicability date. Paragraph (a) of this section 
applies to the estates of decedents dying on or after June 12, 2015. 
See 26 CFR 20.2001-2T(a), as contained in 26 CFR part 20, revised as of 
April 1, 2015, for the rules applicable to estates of decedents dying 
on or after January 1, 2011, and before June 12, 2015.


Sec.  20.2001-2T  [Removed]

0
Par. 3. Section 20.2001-2T is removed.

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


Sec.  20.2010-0  Table of contents.

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


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

    (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.


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

    (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) Requirement for DSUE computation on estate tax return.
    (c) Computation of the DSUE amount.
    (1) General rule.
    (2) Special rule to consider gift taxes paid by decedent.
    (3) Impact of applicable credits.
    (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.


Sec.  20.2010-3  Portability provisions applicable to the surviving 
spouse's estate.

    (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 
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) Exception when surviving spouse not a U.S. citizen on date of 
deceased spouse's death.
    (3) 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.


Sec.  20.2010-0T  [Removed]

0
Par. 5. Section 20.2010-0T is removed.

0
Par. 6. Section 20.2010-1 is added to read as follows:


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

    (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.  20.2010-2 and 20.2010-3.
    (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 the rules on computing the DSUE amount, see Sec. Sec.  
20.2010-2(c) and 20.2010-3(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.  
20.2010-3(a) and 25.2505-2(a) 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. This section applies to the 
estates of decedents dying on or after June 12, 2015. See 26 CFR 
20.2010-1T, as contained in 26 CFR part 20, revised as of April 1, 
2015, for the rules applicable to estates of decedents dying on or 
after January 1, 2011, and before June 12, 2015.


Sec.  20.2010-1T  [Removed]

0
Par. 7. Section 20.2010-1T is removed.

0
Par. 8. Section 20.2010-2 is added to read as follows:


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

    (a) Election required for portability. To allow a decedent's 
surviving spouse

[[Page 34286]]

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.  
20.2010-3 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 nine 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. An extension of time to elect portability 
under this paragraph (a) will not be granted under Sec.  301.9100-3 of 
this chapter to an estate that is required to file an estate tax return 
under section 6018(a), as determined without regard to this paragraph 
(a). Such an extension, however, may be available under the procedures 
applicable under Sec. Sec.  301.9100-1 and 301.9100-3 of this chapter 
to an estate that is not required to file a return under section 
6018(a), as determined without regard to this paragraph (a).
    (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 is 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 or 
may supersede a portability election previously made, provided that the 
estate tax return reporting the election or the superseding 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 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 on or after January 1, 2011. 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 
timely 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 timely 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 when 
there is no appointed executor for that decedent's estate can be 
superseded by a subsequent contrary election made by an appointed 
executor of that same decedent's estate on an estate tax return filed 
on or before the due date of the return, including extensions actually 
granted. An election to allow portability made by a non-appointed 
executor cannot be superseded by a contrary election to have 
portability not apply 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 in certain circumstances as provided in this paragraph (a) and as 
may be further described in guidance issued from time to time by 
publication in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii)(b) of this chapter). In particular, 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 a recipient other 
than the recipient of the marital or charitable deduction property;
    (2) The value of such property is needed to determine the estate's 
eligibility for the provisions of sections 2032, 2032A, or another 
estate or

[[Page 34287]]

generation-skipping transfer tax provision of the Code for which the 
value of such property or the value of the gross estate or adjusted 
gross estate must be known (not including section 1014 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) Return requirements when reporting of value not required for 
certain property. 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. Using the executor's best 
estimate of the value of properties to which paragraph (a)(7)(ii)(A) of 
this section applies, the executor must report on the estate tax 
return, under penalties of perjury, the amount corresponding to the 
particular range within which falls the executor's best estimate of the 
total gross estate, in accordance with the Instructions for Form 706.
    (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 2015, survived by his wife (W), that both H and W 
are U.S. 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 reports 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 outright to 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 
attaches a copy of H's will 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 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 reports 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 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) Requirement for DSUE computation on estate tax return. Section 
2010(c)(5)(A) requires an executor of a decedent's estate to 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. This requirement is satisfied 
by the timely filing of a complete and properly prepared estate tax 
return, as long as the executor has not elected out of portability as 
described in paragraph (a)(3)(i) of this section. See paragraph (a)(7) 
of this section for the requirements for a return to be considered 
complete and properly prepared.
    (c) Computation of the DSUE amount--(1) General rule. Subject to 
paragraphs (c)(2) through (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) Impact of applicable credits. An estate's eligibility under 
sections 2012 through 2015 for credits against the tax imposed by 
section 2001 does not impact the computation of the DSUE amount.
    (4) Special rule in case of property passing to qualified domestic 
trust--(i) In general. 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 
termination of all QDOTs created by or funded with assets passing from 
the decedent or the death of the surviving spouse) on which estate tax 
is imposed under section 2056A. See Sec.  20.2056A-6 for the rules on 
determining the estate tax under section 2056A. See Sec.  20.2010-
3(c)(3) regarding the timing of the availability of the

[[Page 34288]]

decedent's DSUE amount to the surviving spouse.
    (ii) Surviving spouse becomes a U.S. citizen. If the surviving 
spouse becomes a U.S. citizen and if the requirements of section 
2056A(b)(12) and the corresponding regulations are satisfied, the 
estate tax imposed under section 2056A(b)(1) ceases to apply. 
Accordingly, no estate tax will be imposed under section 2056A either 
on subsequent QDOT distributions or on the property remaining in the 
QDOT on the surviving spouse's death and the decedent's DSUE amount is 
no longer subject to adjustment.
    (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 in 2015, survived by Wife (W). H and W are U.S. 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 $3,430,000 (the lesser of the $5,430,000 basic 
exclusion amount in 2015, or the excess of H's $5,430,000 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 of this paragraph 
(c)(5) 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 2002 transfer.
    (ii) Application. On H's death, the executor of H's estate 
computes the DSUE amount to be $3,430,000 (the lesser of the 
$5,430,000 basic exclusion amount in 2015, or the excess of H's 
$5,430,000 applicable exclusion amount over the sum of the 
$1,000,000 taxable estate and $1,000,000 of adjusted taxable gifts 
sheltered from tax by H's applicable credit amount). 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 U.S. 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 2015 with a gross estate of $2,000,000. H's 
surviving spouse (W) is a 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 $3,930,000 (the lesser of 
the $5,430,000 basic exclusion amount in 2015, or the excess of H's 
$5,430,000 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. At 
all times since H's death, W has been a U.S. resident. In 2017, 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 
$2,130,000 (the lesser of the $5,430,000 basic exclusion amount in 
2015, or the excess of H's $5,430,000 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)).
    Example 4. Computation of DSUE amount when surviving spouse with 
QDOT becomes a U.S. citizen. (i) Facts. The facts are the same as in 
Example 3 of this paragraph (c)(5) except that W becomes a U.S. 
citizen in 2016 and dies in 2018. The U.S. Trustee of the QDOT 
notifies the IRS that W has become a U.S. citizen by timely filing a 
final estate tax return (Form 706-QDT). Pursuant to section 
2056A(b)(12), the estate tax under section 2056A no longer applies 
to the QDOT property.
    (ii) Application. Because H's DSUE amount no longer is subject 
to adjustment once W becomes a citizen of the United States, H's 
DSUE amount is $3,930,000, as it was preliminarily determined as of 
H's death. Upon W's death in 2018, the value of the QDOT property is 
includible in W's gross estate.

    (d) Authority to examine returns of decedent. The IRS may examine 
returns of a decedent in determining the decedent's DSUE amount, 
regardless of whether the period of limitations on assessment has 
expired for that return. See Sec.  20.2010-3(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 on or after June 12, 2015. See 26 CFR 
20.2010-2T, as contained in 26 CFR part 20, revised as of April 1, 
2015, for the rule applicable to estates of decedents dying on or after 
January 1, 2011, and before June 12, 2015.


Sec.  20.2010-2T  [Removed]

0
Par. 9. Section 20.2010-2T is removed.

0
Par. 10. Section 20.2010-3 is added to read as follows:


Sec.  20.2010-3  Portability provisions applicable to the surviving 
spouse's estate.

    (a) Surviving spouse's estate limited to DSUE amount of last 
deceased spouse--(1) In general. The deceased spousal unused exclusion 
(DSUE) amount of a decedent, computed under Sec.  20.2010-2(c), 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.  20.2010-1(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.  20.2010-2(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.  20.2010-1(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-
1(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

[[Page 34289]]

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.  25.2505-2(b) 
and (c). If a surviving spouse has applied the DSUE amount of one or 
more (successive) 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.  20.2010-1(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 U.S. citizens, illustrates the application of this 
paragraph (b):

    Example.  (i) Facts. Husband 1 (H1) dies in 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. In 2012, 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.  
25.2505-2(c), and, therefore, W owes no gift tax. W has an 
applicable exclusion amount remaining in the amount of $8,120,000 
($3,000,000 of H1's remaining DSUE amount plus W's own $5,120,000 
basic exclusion amount). W marries Husband 2 (H2) in 2013. H2 dies 
in 2014. 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 2015.
    (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 
2012 taxable gifts. The $4,000,000 DSUE amount added to W's 
$5,430,000 basic exclusion amount (for 2015), causes W's applicable 
exclusion amount to be $9,430,000.

    (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.  20.2010-2(a) and (b) for applicable 
requirements) generally applies as of the date of the decedent's death. 
Thus, such 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 (subject to the limitations in 
paragraph (a) of this section). 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.  20.2010-2(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) Exception when surviving spouse not a U.S. citizen on date of 
deceased spouse's death. If a surviving spouse becomes a citizen of the 
United States after the death of the surviving spouse's last deceased 
spouse, the DSUE amount of the surviving spouse's last deceased spouse 
becomes available to the surviving spouse on the date the surviving 
spouse becomes a citizen of the United States (subject to the 
limitations in paragraph (a) of this section). However, when the 
special rule regarding qualified domestic trusts in paragraph (c)(3) of 
this section applies, the earliest date on which a decedent's DSUE 
amount may be included in the applicable exclusion amount of such 
decedent's surviving spouse who becomes a U.S. citizen is as provided 
in paragraph (c)(3) of this section.
    (3) 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 the decedent's 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.  20.2010-2(c)(4) 
(subject to the limitations in paragraph (a) of this section). The 
earliest date on which such 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 termination of all QDOTs created 
by or funded with assets passing from the decedent or the death of the 
surviving spouse) on which tax under section 2056A is imposed. However, 
the decedent's DSUE amount as redetermined in accordance with Sec.  
20.2010-2(c)(4) may be applied to certain taxable gifts of the 
surviving spouse. See Sec.  25.2505-2(d)(3)(i).
    (ii) Surviving spouse becomes a U.S. citizen. If a surviving spouse 
for whom property has passed from a decedent in one or more QDOTs 
becomes a citizen of the United States and the requirements in section 
2056A(b)(12) and the corresponding regulations are satisfied, then the 
date on which such decedent's DSUE amount may be included in the 
applicable exclusion amount of the surviving spouse under section 
2010(c)(2) (subject the limitations in paragraph (a) of this section) 
is the date on which the surviving spouse becomes a citizen of the 
United States. See Sec.  20.2010-2(c)(4) for the rules for computing 
the decedent's DSUE amount in the case of a qualified domestic trust.
    (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 a 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 of a deceased spouse; 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

[[Page 34290]]

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-
1(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 on or after June 12, 2015. See 26 CFR 
20.2010-3T, as contained in 26 CFR part 20, revised as of April 1, 
2015, for the rules applicable to estates of decedents dying on or 
after January 1, 2011, and before June 12, 2015.


Sec.  20.2010-3T  [Removed]

0
Par. 11. Section 20.2010-3T is removed.

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

0
Par. 12. The authority citation for part 25 is amended by removing the 
entry for Sec.  25.2505-2T and adding an entry in numerical order to 
read in part as follows:

    Authority: 26 U.S.C. 7805.

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

0
Par. 13. Section 25.2505-0 is added to read as follows:


Sec.  25.2505-0  Table of contents.

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


Sec.  25.2505-1  Unified credit against gift tax; in general.

    (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.


Sec.  25.2505-2  Gifts made by a surviving spouse having a DSUE amount 
available.

    (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) Exception when surviving spouse not a U.S. citizen on date of 
deceased spouse's death.
    (3) 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.


Sec.  25.2505-0T  [Removed]

0
Par. 14. Section 25.2505-0T is removed.

0
Par. 15. Section 25.2505-1 is added to read as follows:


Sec.  25.2505-1  Unified credit against gift tax; in general.

    (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.  25.2505-2, 20.2010-1, and 
20.2010-2 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. This section applies to gifts 
made on or after June 12, 2015. See 26 CFR 25.2505-1T, as contained in 
26 CFR part 25, revised as of April 1, 2015, for the rules applicable 
to gifts made on or after January 1, 2011, and before June 12, 2015.


Sec.  25.2505-1T  [Removed]

0
Par. 16. Section 25.2505-1T is removed.

0
Par. 17. Section 25.2505-2 is added to read as follows:


Sec.  25.2505-2  Gifts made by a surviving spouse having a DSUE amount 
available.

    (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.  20.2010-2(c), 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.  20.2010-1(d)(5) at the time of the 
surviving spouse's taxable gift; and
    (ii) The executor of the decedent's estate elected portability (see 
Sec.  20.2010-2(a) and (b) 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.  20.2010-1(d)(5)) of a surviving spouse even if, on the date of 
the surviving spouse's taxable gift, the surviving spouse is married to

[[Page 34291]]

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-
1(d)(5).
    (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 (successive) 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.  20.2010-1(d)(5) 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 U.S. citizens, illustrates the application of this 
paragraph (c):

    Example. (i) Facts. Husband 1 (H1) dies in 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. In 
2012, 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 2012 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 $8,120,000 ($3,000,000 
of H1's remaining DSUE amount plus W's own $5,120,000 basic 
exclusion amount). In 2013, W marries Husband 2 (H2). H2 dies on 
June 30, 2015. 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 2015 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 2012 taxable gifts. Thus, W's 
applicable exclusion amount during the balance of 2015 is $9,430,000 
($4,000,000 DSUE plus $5,430,000 basic exclusion amount for 2015).

    (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.  20.2010-2(a) and (b) for 
applicable requirements) generally applies as of the date of such 
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 (subject to the limitations 
in paragraph (a) of this section). 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.  20.2010-2(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 DSUE amount claimed on the decedent's 
return cannot be determined.
    (2) Exception when surviving spouse not a U.S. citizen on date of 
deceased spouse's death. If a surviving spouse becomes a citizen of the 
United States after the death of the surviving spouse's last deceased 
spouse, the DSUE amount of the surviving spouse's last deceased spouse 
becomes available to the surviving spouse on the date the surviving 
spouse becomes a citizen of the United States (subject to the 
limitations in paragraph (a) of this section). However, when the 
special rule regarding qualified domestic trusts in paragraph (d)(3) of 
this section applies, the earliest date on which a decedent's DSUE 
amount may be included in the applicable exclusion amount of such 
decedent's surviving spouse who becomes a U.S. citizen is as provided 
in paragraph (d)(3) of this section.
    (3) 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 the decedent's 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.  20.2010-2(c)(4) 
(subject to the limitations in paragraph (a) of this section). The 
earliest date on which such 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 termination of all QDOTs created 
by or funded with assets passing from the decedent or the death of the 
surviving spouse) on which tax under section 2056A is imposed. However, 
the decedent's DSUE amount as redetermined in accordance with Sec.  
20.2010-2(c)(4) 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 in any subsequent year during the 
surviving spouse's life.
    (ii) Surviving spouse becomes a U.S. citizen. If a surviving spouse 
for whom property has passed from a decedent in one or more QDOTs 
becomes a citizen of the United States and the requirements in section 
2056A(b)(12) and the corresponding regulations are satisfied, then the 
date on which such decedent's DSUE amount may be included in the 
applicable exclusion amount of the surviving spouse under section 
2010(c)(2) (subject to the limitations in paragraph (a) of this 
section) is the date on which the surviving spouse becomes a citizen of 
the United States. See Sec.  20.2010-2(c)(4) for the rules for 
computing the decedent's DSUE amount in the case of a qualified 
domestic trust.

[[Page 34292]]

    (iii) Example. The following example illustrates the application of 
this paragraph (d)(3):

    Example. (i) Facts. Husband (H), a U.S. citizen, dies in 2011 
having made no taxable gifts during his lifetime. H's gross estate 
is $3,000,000. H's wife (W) is 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 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, and W resides in the United States at all 
times after H's death. W makes a taxable gift of $1,000,000 to X in 
2012 and a taxable gift of $1,000,000 to Y in January 2015, in each 
case from W's own assets rather than from the QDOT. W dies in 
September 2015, 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 for 
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 
2012, 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 2015. 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 a 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 of a deceased spouse; 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 on or after June 12, 2015. See 26 CFR 25.2505-2T, as contained in 
26 CFR part 25, revised as of April 1, 2015, for the rules applicable 
to gifts made on or after January 1, 2011, and before June 12, 2015.


Sec.  25.2505-2T  [Removed]

0
Par. 18. Section 25.2505-2T is removed.

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

0
Par. 19. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 20. In Sec.  602.101, paragraph (b) is amended by:
0
1. Removing the entry for 20.2010-2T.
0
2. Adding in numerical order an entry for 20.2010-2.
    The addition reads as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

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


John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: June 8, 2015.
Mark J. Mazur,
Assistant Secretary of Treasury (Tax Policy).
[FR Doc. 2015-14663 Filed 6-12-15; 4:15 pm]
 BILLING CODE 4830-01-P