(a) In general. (1) A credit is allowed under section 2014 against the Federal estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any foreign country (hereinafter referred to as ``foreign death taxes''). The credit is allowed only for foreign death taxes paid (i) with respect to property situated within the country to which the tax is paid, (ii) with respect to property included in the decedent's gross estate, and (iii) with respect to the decedent's estate. The credit is allowable to the estate of a decedent who was a citizen of the United States at the time of his death. The credit is also allowable, as provided in paragraph (c) of this section, to the estate of a decedent who was a resident but not a citizen of the United States at the time of his death. The credit is not allowable to the estate of a decedent who was neither a citizen nor a resident of the United States at the time of his death. See paragraph (b)(1) of Sec. 20.0-1 for the meaning of the term ``resident'' as applied to a decedent. The credit is allowable not only for death taxes paid to foreign countries which are states in the international sense, but also for death taxes paid to possessions or political subdivisions of foreign states. With respect to the estate of a decedent dying after September 2, 1958, the term ``foreign country'', as used in this section and Sec. Sec. 20.2014-2 to 20.2014-6, includes a possession of the United States. See Sec. Sec. 20.2011-1 and 20.2011-2 for the allowance of a credit for death taxes paid to a possession of the United States in the case of a decedent dying before September 3, 1958. No credit is allowable for interest or penalties paid in connection with foreign death taxes.
(1) A credit is allowed under section 2014 against the Federal estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any foreign country (hereinafter referred to as ``foreign death taxes''). The credit is allowed only for foreign death taxes paid (i) with respect to property situated within the country to which the tax is paid, (ii) with respect to property included in the decedent's gross estate, and (iii) with respect to the decedent's estate. The credit is allowable to the estate of a decedent who was a citizen of the United States at the time of his death. The credit is also allowable, as provided in paragraph (c) of this section, to the estate of a decedent who was a resident but not a citizen of the United States at the time of his death. The credit is not allowable to the estate of a decedent who was neither a citizen nor a resident of the United States at the time of his death. See paragraph (b)(1) of Sec. 20.0-1 for the meaning of the term ``resident'' as applied to a decedent. The credit is allowable not only for death taxes paid to foreign countries which are states in the international sense, but also for death taxes paid to possessions or political subdivisions of foreign states. With respect to the estate of a decedent dying after September 2, 1958, the term ``foreign country'', as used in this section and Sec. Sec. 20.2014-2 to 20.2014-6, includes a possession of the United States. See Sec. Sec. 20.2011-1 and 20.2011-2 for the allowance of a credit for death taxes paid to a possession of the United States in the case of a decedent dying before September 3, 1958. No credit is allowable for interest or penalties paid in connection with foreign death taxes.
(2) In addition to the credit for foreign death taxes under section 2014, similar credits are allowed under death tax conventions with certain foreign countries. If credits against the Federal estate tax are allowable under section 2014, or under section 2014 and one or more death tax conventions, for death taxes paid to more than one country, the credits are combined and the aggregate amount is credited against the Federal estate tax, subject to the limitation provided for in paragraph (c) of Sec. 20.2014-4. For application of the credit in cases involving a death tax convention, see Sec. 20.2014-4.
(3) No credit is allowable under section 2014 in connection with property situated outside of the foreign country imposing the tax for which credit is claimed. However, such a credit may be allowable under certain death tax conventions. In the case of a tax imposed by a political subdivision of a foreign country, credit for the tax shall be allowed with respect to property having a situs in that foreign country, even though, under the principles described in this subparagraph, the property has a situs in a political subdivision different from the one imposing the tax. Whether or not particular property of a decedent is situated in the foreign country imposing the tax is determined in accordance with the same principles that would be applied in determining whether or not similar property of a nonresident decedent not a citizen of the United States is situated within the United States for Federal estate tax purposes. See Sec. Sec. 20.2104-1 and 20.2105-1. For example, under Sec. 20.2104-1 shares of stock are deemed to be situated in the United States only if issued by a domestic corporation. Thus, a share of corporate stock is regarded as situated in the foreign country imposing the tax only if the issuing corporation is incorporated in that country. Further, under Sec. 20.2105-1 amounts receivable as insurance on the life of a nonresident not a citizen of the United States at the time of his death are not deemed situated in the United States. Therefore, in determining the credit under section 2014 in the case of a decedent who was a citizen or resident of the United States, amounts receivable as insurance on the life of the decedent and payable under a policy issued by a corporation incorporated in a foreign country are not deemed situated in such foreign country. In addition, under Sec. 20.2105-1 in the case of an estate of a nonresident not a citizen of the United States who died on or after November 14, 1966, a debt obligation of a domestic corporation is not considered to be situated in the United States if any interest thereon would be treated under section 862(a)(1) as income from sources without the United States by reason of section 861(a)(1)(B) (relating to interest received from a domestic corporation less than 20 percent of whose gross income for a 3-year period was derived from sources within the United States). Accordingly, a debt obligation the primary obligor on which is a corporation incorporated in the foreign country imposing the tax is not considered to be situated in that country if, under circumstances corresponding to those described in Sec. 20.2105-1 less than 20 percent of the gross income of the corporation for the 3-year period was derived from sources within that country. Further, under Sec. 20.2104-1 in the case of an estate of a nonresident not a citizen of the United States who died before November 14, 1966, a bond for the payment of money is not situated within the United States unless it is physically located in the United States. Accordingly, in the case of the estate of a decedent dying before November 14, 1966, a bond is deemed situated in the foreign country imposing the tax only if it is physically located in that country. Finally, under Sec. 20.2105-1 moneys deposited in the United States with any person carrying on the banking business by or for a nonresident not a citizen of the United States who died before November 14, 1966, and who was not engaged in business in the United States at the time of death are not deemed situated in the United States. Therefore, an account with a foreign bank in the foreign country imposing the tax is not considered to be situated in that country under corresponding circumstances.
(4) Where a deduction is allowed under section 2053(d) for foreign death taxes paid with respect to a charitable gift, the credit for foreign death taxes is subject to further limitations as explained in Sec. 20.2014-7.
(b) Limitations on credit. The credit for foreign death taxes is limited to the smaller of the following amounts:
(1) The amount of a particular foreign death tax attributable to property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes, computed as set forth in Sec. 20.2014-2; or
(2) The amount of the Federal estate tax attributable to particular property situated in a foreign country, subjected to foreign death tax in that country, and included in the decedent's gross estate for Federal estate tax purposes, computed as set forth in Sec. 20.2014-3.
(c) Credit allowable to estate of resident not a citizen. (1) In the case of an estate of a decedent dying before November 14, 1966, who was a resident but not a citizen of the United States, a credit is allowed to the estate under section 2014 only if the foreign country of which the decedent was a citizen or subject, in imposing foreign death taxes, allows a similar credit to the estates of citizens of the United States who were resident in that foreign country at the time of death.
(1) In the case of an estate of a decedent dying before November 14, 1966, who was a resident but not a citizen of the United States, a credit is allowed to the estate under section 2014 only if the foreign country of which the decedent was a citizen or subject, in imposing foreign death taxes, allows a similar credit to the estates of citizens of the United States who were resident in that foreign country at the time of death.
(2) In the case of an estate of a decedent dying on or after November 14, 1966, who was a resident but not a citizen of the United States, a credit is allowed to the estate under section 2014 without regard to the similar credit requirement of subparagraph (1) of this paragraph unless the decedent was a citizen or subject of a foreign country with respect to which there is in effect at the time of the decedent's death a Presidential proclamation, as authorized by section 2014(h), reinstating the similar credit requirement. In the case of an estate of a decedent who was a resident of the United States and a citizen or subject of a foreign country with respect to which such a proclamation has been made, and who dies while the proclamation is in effect, a credit is allowed under section 2014 only if that foreign country, in imposing foreign death taxes, allows a similar credit to the estates of citizens of the United States who were resident in that foreign country at the time of death. The proclamation authorized by section 2014(h) for the reinstatement of the similar credit requirement with respect to the estates of citizens or subjects of a specific foreign country may be made by the President whenever he finds that--
(i) The foreign country, in imposing foreign death taxes, does not allow a similar credit to the estates of citizens of the United States who were resident in the foreign country at the time of death,
(ii) The foreign country, after having been requested to do so, has not acted to provide a similar credit to the estates of such citizens, and
(iii) It is in the public interest to allow the credit under section 2014 to the estates of citizens or subjects of the foreign country only if the foreign country allows a similar credit to the estates of citizens of the United States who were resident in the foreign country at the time of death. The proclamation for the reinstatement of the similar credit requirement with respect to the estates of citizens or subjects of a specific foreign country may be revoked by the President. In that case, a credit is allowed under section 2014, to the estate of a decedent who was a citizen or subject of that foreign country and a resident of the United States at the time of death, without regard to the similar credit requirement if the decedent dies after the proclamation reinstating the similar credit requirement has been revoked. [T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6526, 26 FR 415, Jan. 19, 1961; T.D. 6600, 27 FR 4983, May 29, 1962; T.D. 7296, 38 FR 34192, Dec. 12, 1973] Sec. 20.2014-2 ``First limitation''.
(a) The amount of a particular foreign death tax attributable to property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes is the ``first limitation.'' Thus, the credit for any foreign death tax is limited to an amount, A, which bears the same ratio to B (the amount of the foreign death tax without allowance of credit, if any, for Federal estate tax), as C (the value of the property situated in the country imposing the foreign death tax, subjected to the foreign death tax, included in the gross estate and for which a deduction is not allowed under section 2053(d)) bears to D (the value of all property subjected to the foreign death tax). Stated algebraically, the ``first limitation'' (A) equals--
Value of property in foreign country subjected to foreign death tax, included in gross estate and for which a deduction is not allowed under section 2053(d)(C) / Value of all property subjected to foreign death tax (D) x Amount of foreign death tax (B) The values used in this proportion are the values determined for the purpose of the foreign death tax. The amount of the foreign death tax for which credit is allowable must be converted into United States money. The application of this paragraph may be illustrated by the following example:
Example. At the time of his death on June 1, 1966, the decedent, a citizen of the United States, owned stock in X Corporation (a corporation organized under the laws of Country Y) valued at $80,000. In addition, he owned bonds issued by Country Y valued at $80,000. The stock and bond certificates were in the United States. Decedent left by will $20,000 of the stock and $50,000 of the Country Y bonds to his surviving spouse. He left the rest of the stock and bonds to his son. Under the situs rules referred to in paragraph (a)(3) of Sec. 20.2014-1 the stock is deemed situated in Country Y while the bonds are deemed to have their situs in the United States. (The bonds would be deemed to have their situs in Country Y if the decedent had died on or after November 14, 1966.) There is not death tax convention in existence between the United States and Country Y. The laws of Country Y provide for inheritance taxes computed as follows: Inheritance tax of surviving spouse:
Value of stock.............................................. $20,000
Value of bonds.............................................. 50,000
---------
Total value................................................. 70,000
---------
Tax (16 percent rate)....................................... 11,200
=========Inheritance tax of son:
Value of stock.............................................. 60,000Value of bonds................................................ $30,000
---------
Total value................................................ 90,000
---------Tax (16 percent rate)......................................... 14,400
=========
The ``first limitation'' on the credit for foreign death taxes is: $20,000 + $60,000 (factor C of the ratio stated at Sec. 20.2014-2(a)) /
$70,000+ $90,000 (factor D of the ratio stated at Sec.
20.2014-2(a)) x ($11,200+$14,400) (factor B of the ratio
stated at Sec. 20.2014-2(a)) = $12,800
(b) If a foreign country imposes more than one kind of death tax or imposes taxes at different rates upon the several shares of an estate, or if a foreign country and a political subdivision or possession thereof each imposes a death tax, a ``first limitation'' is to be computed separately for each tax or rate and the results added in order to determine the total ``first limitation.'' The application of this paragraph may be illustrated by the following example:
Example. The facts are the same as those contained in the example set forth in paragraph (a) of this section, except that the tax of the surviving spouse was computed at a 10 percent rate and amounted to $7,000, and the tax of the son was computed at a 20 percent rate and amounted to $18,000. In this case, the ``first limitation'' on the credit for foreign death taxes is computed as follows: ``First limitation'' with respect to inheritance tax of
surviving spouse:
[$20,000 (factor C of the ratio stated at Sec. 20.2014- $2,000.
2(a)) / $70,000 (factor D of the ratio stated at Sec.
20.2014-2(a))] x$7,000 (factor B of the ratio stated at
Sec. 20.2014-2(a))=......................................``First limitation'' with respect to inheritance tax of son:
[$60,000 (factor C of the ratio stated at Sec. 20.2014- 12,000.
2(a)) / $90,000 (factor D of the ratio stated at Sec.
20.2014-2(a))] x$18,000 (factor B of the ratio stated at
Sec. 20.2014-2(a))=......................................
---------
Total ``first limitation'' on the credit for foreign death 14,000
taxes......................................................
[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4984, May 29, 1962; T.D. 6684, 28 FR 11408, Oct. 24, 1963; T.D. 7296, 38 FR 34193, Dec. 12, 1973; 39 FR 2090, Jan. 17, 1974] Sec. 20.2014-3 ``Second limitation''.
(a) The amount of the Federal estate tax attributable to particular property situated in a foreign country, subjected to foreign death tax in that country, and included in the decedent's gross estate for Federal estate tax purposes is the ``second limitation.'' Thus, the credit is limited to an amount, E, which bears the same ratio to F (the gross Federal estate tax, reduced by any credit for State death taxes under section 2011 and by any credit for gift tax under section 2012) as G (the ``adjusted value of the property situated in the foreign country, subjected to foreign death tax, and included in the gross estate'', computed as described in paragraph (b) of this section) bears to H (the value of the entire gross estate, reduced by the total amount of the deductions allowed under sections 2055 (charitable deduction) and 2056 (marital deduction)). Stated algebraically, the ``second limitation'' (E) equals: ``Adjusted value of the property situated in the foreign country,
subjected to foreign death taxes, and included in the gross
estate'' (G) / Value of entire gross estate, less charitable
and marital deductions (H) x Gross Federal estate tax, less
credits for State death taxes and gift tax (F) The values used in this proportion are the values determined for the purpose of the Federal estate tax.
(b) Adjustment is required to factor ``G'' of the ratio stated in paragraph (a) of this section if a deduction for foreign death taxes under section 2053(d), a charitable deduction under section 2055, or a marital deduction under section 2056 is allowed with respect to the foreign property. If a deduction for foreign death taxes is allowed, the value of the property situated in the foreign country, subjected to foreign death tax, and included in the gross estate does not include the value of any property in respect of which the deduction for foreign death taxes is allowed. See Sec. 20.2014-7. If a charitable deduction or a marital deduction is allowed, the value of such foreign property (after exclusion of the value of any property in respect of which the deduction for foreign death taxes is allowed) is reduced as follows:
(1) If a charitable deduction or a marital deduction is allowed to a decedent's estate with respect to any part of the foreign property, except foreign property in respect of which a deduction for foreign death taxes is allowed, specifically bequeathed, devised, or otherwise specifically passing to a charitable organization or to the decedent's spouse, the value of the foreign property is reduced by the amount of the charitable deduction or marital deduction allowed with respect to such specific transfer. See example (1) of paragraph (c) of this section.
(2) If a charitable deduction or a marital deduction is allowed to a decedent's estate with respect to a bequest, devise or other transfer of an interest in a group of assets including both the foreign property and other property, the value of the foreign property is reduced by an amount, I, which bears the same ratio to J (the amount of the charitable deduction or marital deduction allowed with respect to such transfer of an interest in a group of assets) as K (the value of the foreign property, except foreign property in respect of which a deduction for foreign death taxes is allowed, included in the group of assets) bears to L (the value of the entire group of assets). As used in this subparagraph, the term ``group of assets'' has reference to those assets which, under applicable law, are chargeable with the charitable or marital transfer. See example (2) of paragraph (c) of this section. Any reduction described in paragraph (b)(1) or (b)(2) of this section on account of the marital deduction must proportionately take into account, if applicable, the limitation on the aggregate amount of the marital deduction contained in Sec. 20.2056(a)-1(c). See Sec. 20.2014-3(c), Example 3.
(c) The application of paragraphs (a) and (b) of this section may be illustrated by the following examples. In each case, the computations relate to the amount of credit under section 2014 without regard to the amount of credit which may be allowable under an applicable death tax convention.
(i) Decedent, a citizen and resident of the United States at the time of his death on February 1, 1967, left a gross estate of $1,000,000 which includes the following: shares of stock issued by a domestic corporation, valued at $750,000; bonds issued in 1960 by the United States and physically located in foreign Country X, valued at $50,000; and shares of stock issued by a Country X corporation, valued at $200,000, with respect to which death taxes were paid to Country X. Expenses, indebtedness, etc., amounted to $60,000. Decedent specifically bequeathed $40,000 of the stock issued by the Country X corporation to a U.S. charity and left the residue of his estate, in equal shares, to his son and daughter. The gross Federal estate tax is $266,500, and the credit for State death taxes is $27,600. Under the situs rules referred to in paragraph (a)(3) of Sec. 20.2014-1, the shares of stock issued by the Country X corporation comprise the only property deemed to be situated in Country X. (The bonds also would be deemed to have their situs in Country X if the decedent had died before November 14, 1966.)
(ii) The ``second limitation'' on the credit for foreign death taxes is: [($200,000 - $40,000 (factor G of the ratio stated at Sec. 20.2014-
3(a); see also Sec. 20.2014-3(b)(1))) / ($1,000,000 - $40,000
(factor H of the ratio stated at Sec. 20.2014-3(a)))] x
($266,500 - $27,600) (factor F of the ratio stated at Sec.
20.2014-3(a)) = $39,816.67. The lesser of this amount and the amount of the ``first limitation'' (computed under Sec. 20.2014-2) is the credit for foreign death taxes.
(i) Decedent, a citizen and resident of the United States at the time of his death, left a gross estate of $1,000,000 which includes: shares of stock issued by a United States corporation, valued at $650,000; shares of stock issued by a Country X corporation, valued at $200,000; and life insurance, in the amount of $150,000, payable to a son. Expenses, indebtedness, etc., amounted to $40,000. The decedent made a specific bequest of $25,000 of the Country X corporation stock to Charity A and a general bequest of $100,000 to Charity B. The residue of his estate was left to his daughter. The gross Federal estate tax is $242,450 and the credit for State death taxes is $24,480. Under these facts and applicable law, neither the stock of the Country X corporation specifically bequeathed to Charity A nor the insurance payable to the son could be charged with satisfying the bequest to Charity B. Therefore, the ``group of assets'' which could be so charged is limited to stock of the Country X corporation valued at $175,000 and stock of the United States corporation valued at $650,000.
(ii) Factor ``G'' of the ratio which is used in determining the ``second limitation'' is computed as follows: Value of property situated in Country X.................... $200,000.00Less:
Reduction described in Sec. 20.2014-3(b)(1) $25,000.00
Reduction described in Sec. 20.2014-3(b)(2) 21,212.12
= [$175,000 (factor K of the ratio stated at
Sec. 20.2014-3 (b)(2)) / ($175,000 +
$650,000 (factor L of the ratio stated at
Sec. 20.2014-3 (b)(2)))] x $100,000
(factor J of the ratio stated at Sec.
20.2014-3(b)(2)) =..........................
------------
.......... 46,212.12
------------
Factor ``G'' of the ratio................... .......... 153,787.88
(iii) In this case, the ``second limitation'' on the credit for foreign death taxes is: [$153,787.88 (factor G of the ratio stated at Sec. 20.2014-3(a); see
also subdivision (ii) above) / ($1,000,000 - $125,000 (factor
H of the ratio stated at Sec. 20.2014-3(a)))] x ($242,450 -
$24,480) (factor F of the ratio stated at Sec. 20.2014-3(a))
= $38,309.88.
(i) Decedent, a citizen and resident of the United States at the time of his death, left a gross estate of $850,000 which includes: shares of stock issued by United States corporations, valued at $440,000; real estate located in the United States, valued at $110,000; and shares of stock issued by Country X corporations, valued at $300,000. Expenses, indebtedness, etc., amounted to $50,000. Decedent devised $40,000 in real estate to a United States charity. In addition, he bequeathed to his wife $200,000 in United States stocks and $300,000 in Country X stocks. The residue of his estate passed to his children. The gross Federal estate tax is $81,700 and the credit for State death taxes is $5,520.
(ii) Decedent's adjusted gross estate is $800,000 (i.e., the $850,000, gross estate less $50,000, expenses, indebtedness, etc.). Assume that the limitation imposed by section 2056(c), as in effect before 1982, is applicable so that the aggregate allowable marital deduction is limited to one-half the adjusted gross estate, or $400,000 (which is 50 percent of $800,000). Factor ``G'' of the ratio which is used in determining the ``second limitation'' is computed as follows: Value of property situated in Country X.................... $300,000Less: Reduction described in Sec. 20.2014-3
(b)(1) determined as follows (see also end of
(1) determined as follows (see also end of
Sec. 20.2014-3(b))--
Total amount of bequests which qualify for
the marital deduction:
Specific bequest of Country X stock........ $300,000
Specific bequest of United States stock.... 200,000
------------
500,000Limitation on aggregate marital deduction under 400,000
section 2056(c)...............................Part of specific bequest of Country X stock with respect to 240,000
which the marital deduction is allowed--($400,000 /
$500,000 x $300,000)......................................
-------------
Factor ``G'' of the ratio............................... 60,000
(iii) Thus, the ``second limitation'' on the credit for foreign death taxes is: [$60,000 (factor G of the ratio stated at Sec. 20.2014-3(a); see also
subdivision (ii) above) / ($850,000 - $40,000 - $400,000
(factor H of the ratio stated at Sec. 20.2014-3(a)))] x
($81,700 - $5,520) (factor F of the ratio stated at Sec.
20.2014-3(a)) = $11,148.29.
(d) If the foreign country imposes more than one kind of death tax or imposes taxes at different rates upon the several shares of an estate, or if the foreign country and a political subdivision or possession thereof each imposes a death tax, the ``second limitation'' is still computed by applying the ratio set forth in paragraph (a) of this section. Factor ``G'' of the ratio is determined by taking into consideration the combined value of the foreign property which is subjected to each different tax or different rate. The combined value, however, cannot exceed the value at which such property was included in the gross estate for Federal estate tax purposes. Thus, if Country X imposes a tax on the inheritance of a surviving spouse at a 10-percent rate and on the inheritance of a son at a 20-percent rate, the combined value of their inheritances is taken into consideration in determining factor ``G'' of the ratio, which is then used in computing the ``second limitation.'' However, the ``first limitation'' is computed as provided in paragraph (b) of Sec. 20.2014-2. The lesser of the ``first limitation'' and the ``second limitation'' is the credit for foreign death taxes. [T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 4984, May 29, 1962; T.D. 7296, 38 FR 34193, Dec. 12, 1973; T.D. 8522, 59 FR 9646, Mar. 1, 1994]