The Internal Revenue Service has completed work on final rules that could make it easier for estate administrators to handle deductions for claims against estates.
The final regulations, which appear today in the Federal Register, relate “to the amount deductible from a decedent’s gross estate for claims against the estate under section 2053(a)(3) of the Internal Revenue Code,” officials write in a preamble to the regulations.
The final regulations, which take effect today, also update rules relating to the state death tax deduction to reflect changes Congress made in 2001 to sections 2053(d) and 2058 of the Internal Revenue Code.
“The regulations primarily will affect estates of decedents against which there are claims outstanding at the time of the decedent’s death,” officials write.
Section 2053(a) lets estates take deductions for funeral expenses, administration expenses, claims against the estate, and “unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross estate.”
“The amount an estate may deduct for claims against the estate has been a highly litigious issue,” officials note.
Section 2053(a) does not contain a specific order to value a deductible claim at its value at the time of the decedent’s death.
“The lack of consistency in the case law has resulted in different estate tax treatment of estates that are similarly situated, depending only upon the jurisdiction in which the executor resides,” officials write. “The Treasury Department and the IRS believe that similarly-situated estates should be treated consistently by having section 2053(a)(3) construed and applied in the same way in all jurisdictions.”
Treasury and IRS officials tried to address those concerns in proposed regulations released in April 2007.
“The proposed regulations proposed amendments to the regulations under Section 2053 to clarify that events occurring after a decedent’s death are to be considered when determining the amount deductible under all provisions of Section 2053 and that deductions under Section 2053 generally are limited to amounts actually paid by the estate in satisfaction of deductible expenses and claims,” officials write.