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) × 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 § 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.
Code of Federal Regulations
(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.
Code of Federal Regulations
Code of Federal Regulations
Code of Federal Regulations
251
Value of property situated in Country X | $200,000.00 | |
Less: | ||
Reduction described in § 20.2014-3(b)(1) | $25,000.00 | |
Reduction described in § 20.2014-3(b)(2) = [$175,000 (factor K of the ratio stated at § 20.2014-3 (b)(2) ) ÷ ($175,000 $650,000 (factor L of the ratio stated at § 20.2014-3 (b)(2) ))] × $100,000 (factor J of the ratio stated at § 20.2014-3(b)(2) ) = | 21,212.12 | |
46,212.12 | ||
Factor “G” of the ratio | 153,787.88 |
Code of Federal Regulations
Value of property situated in Country X. | $300,000 |
Less: Reduction described in § 20.2014-3 (b)(1) determined as follows (see also end of § 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 |
500,000 | |
Limitation on aggregate marital deduction under section 2056(c) | 400,000 |
Part of specific bequest of Country X stock with respect to which the marital deduction is allowed—($400,000 ÷ $500,000 × $300,000) | 240,000 |
Factor “G” of the ratio | 60,000 |
(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 § 20.2014-2. The lesser of the “first limitation” and the “second limitation” is the credit for foreign death taxes.