Section 2013 Credit for Tax on Prior Transfers with Active Section 6166 Elections in One or Both Estates
Section 2013(a) provides:
(a) General rule
The tax imposed by section 2001 shall be credited with all or a part of the amount of the Federal estate tax paid with respect to the transfer of property (including property passing as a result of the exercise or non-exercise of a power of appointment) to the decedent by or from a person (herein designated as a "transferor") who died within 10 years before, or within 2 years after, the decedent's death. If the transferor died within 2 years of the death of the decedent, the credit shall be the amount determined under subsections (b) and (c). If the transferor predeceased the decedent by more than 2 years, the credit shall be the following percentage of the amount so determined-
(1) 80 percent, if within the third or fourth years preceding the decedent's death;
(2) 60 percent, if within the fifth or sixth years preceding the decedent's death;
(3) 40 percent, if within the seventh or eighth years preceding the decedent's death; and
(4) 20 percent, if within the ninth or tenth years preceding the decedent's death.
The following regulations explain the application of section 2013.
Reg. 20.2013-1 General description; percentage reductions in allowable credit over the 10-year period
Reg. 20.2013-2 First limitation
Reg. 20.2013-3 Second limitation
Reg. 20.2013-4 Valuation of property transferred
Reg. 20.2013-5 "Property" and "transfer" defined
Reg. 20.2013-6 Examples
| Section 2013, Comment 1: Neither the computation examples in Reg. section 20.2013-6 nor the 20.2013-2 first limitation or 20.2013-3 second limitation regulations specifically describe the consequences of section 6166 elections in the affected estates. Some applicable rules are explained in PLR 200043031 and Revenue Ruling 83-15, 1983-1 CB 224. |
The allowable credit for tax on prior transfers is calculated on Schedule Q of Form 706. There is a separate computation sheet in the Schedule Q Instructions for Form 706, which must be used in order to determine the correct credit amount.
Section 2013 generally applies when the following facts exist:
| 1 | A decedent (transferee) dies within 10 years after the date of death of a person (transferor) from whose estate an interest passed to the decedent, or within 2 years before the death of a transferor; |
| 2 | Federal estate tax is paid or payable by both estates; and, |
| 3 | Federal estate tax is attributable to the interest passing to the decedent from the transferor's estate. |
| 4 | State estate tax is not includible in the amount of the allowable credit. |
Section 2013 Example A:
| Dec-15-2013 | A makes a $1,000,000 taxable gift of property to B. A files a gift tax return, Form 709, reporting the $1,000,000 taxable value of the gift. |
| Apr-10-2016 | B dies. An estate tax return, Form 706, is timly filed for B's estate on Jan-10-2017. Estate tax is paid with the return filing. |
| Sep-28-2017 | A dies. An estate tax return, Form 706, is timly filed for A's estate on Mar-28-2018. Estate tax is paid with the return filing. The date of death fair market value of the property that was gifted to B in 2013 is included in A's gross estate under section 2036. |
| Because the value of the property gifted to B is 2013 is now included in A's gross estate under section 2036, the taxable gift value of $1,000,000 is removed from the total adjusted taxable gifts reported on line 4, Part 2, Tax Computation, on page 1 of the estate tax return filed for A's estate. | |
| Jan-17-2019 | B's estate files a supplemental estate tax return (or a claim on Form 843) for a refund of estate tax attributable to a section 2013 credit for tax on prior transfers relating to the 2013 gift from A. |
| Section 2013, Comment 2: If A had died on or after Apr-11-2018, B's estate would not have been eligible for a credit for tax on prior transfers with regard to the 2013 gift. |
There are two limitations on the amount of the credit allowable, which are known as the first limitation and the second limitation.
The first limitation is the tax paid by the transferor's estate on the property transferred, while the second limitation is the tax paid by the transferee's estate on the transferred property. The initial credit allowable is the lesser of these two limitation amounts. If more than 2 years have passed between the two dates of death, the initial credit allowable is reduced to the percentage thereof that is allowable under section 2013(a), above.
It is possible to have multiple transferors, and the sum of their respective first limitation amounts would be the first limitation for purposes of calculating the credit allowable in the transferee's estate, as would the sum of the second limitation amounts attributable to each transfer in the transferee's estate.
If there are active section 6166 elections in both estates, the full amount of estate tax in each will not have been paid. The first and second limitations are reduced accordingly, which further reduces the credit allowable on the transferee's estate tax return. In this event it often happens that a first limitation credit will change over to a second limitation credit, or vice-versa, as the section 6166 installments are paid by each estate. If state estate tax is also being paid in installments, the allowable section 2058 state death tax deduction would also change as each state payment is made, which would further affect both limitations.
| Section 2013, Comment 3: Anecdotal evidence indicates that, at the time the author retired from IRS in 2010, Cincinnati Campus had about 75 active pairs of related section 2013 cases with on-going section 6166 elections in both estates. Many of those were husband-and-wife estates. See e.g. Estate of Lucien Le Caer v. Commissioner, 135 T.C. 288 (section 6166 protective elections; state estate tax is not includible in the allowable credit amount). |
Section 2013 Computation Examples
| Section 2013 Example 1 | Credit for tax on prior transfers with 3 Transferor's estates. The percentages of each credit allowed are 100%, 60%, and 20%, with one First Limitation Credit and two Second Limitation Credits. Section 6166 elections are not involved. |