§2032 — Alternate valuation
137 citing cases
Statute Text — 26 U.S.C. §2032
The value of the gross estate may be determined, if the executor so elects, by valuing all the property included in the gross estate as follows:
In the case of property distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date of distribution, sale, exchange, or other disposition.
In the case of property not distributed, sold, exchanged, or otherwise disposed of, within 6 months after the decedent’s death such property shall be valued as of the date 6 months after the decedent’s death.
Any interest or estate which is affected by mere lapse of time shall be included at its value as of the time of death (instead of the later date) with adjustment for any difference in its value as of the later date not due to mere lapse of time.
No deduction under this chapter of any item shall be allowed if allowance for such items is in effect given by the alternate valuation provided by this section. Wherever in any other subsection or section of this chapter reference is made to the value of property at the time of the decedent’s death, such reference shall be deemed to refer to the value of such property used in determining the value of the gross estate. In case of an election made by the executor under this section, then—
for purposes of the charitable deduction under section 2055 or 2106(a)(2), any bequest, legacy, devise, or transfer enumerated therein, and
for the purpose of the marital deduction under section 2056, any interest in property passing to the surviving spouse,
shall be valued as of the date of the decedent’s death with adjustment for any difference in value (not due to mere lapse of time or the occurrence or nonoccurrence of a contingency) of the property as of the date 6 months after the decedent’s death (substituting, in the case of property distributed by the executor or trustee, or sold, exchanged, or otherwise disposed of, during such 6-month period, the date thereof).
No election may be made under this section with respect to an estate unless such election will decrease—
the value of the gross estate, and
the sum of the tax imposed by this chapter and the tax imposed by chapter 13 with respect to property includible in the decedent’s gross estate (reduced by credits allowable against such taxes).
The election provided for in this section shall be made by the executor on the return of the tax imposed by this chapter. Such election, once made, shall be irrevocable.
No election may be made under this section if such return is filed more than 1 year after the time prescribed by law (including extensions) for filing such return.
Treasury Regulations
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Treas. Reg. §20.2032-1Alternate valuation
(a) In general. In general, section 2032 provides for the valuation of a decedent's gross estate at a date other than the date of the decedent's death. More specifically, if an executor elects the alternate valuation method under section 2032, the property included in the decedent's gross estate on the date of his death is valued as of whichever of the following dates is applicable:
(1) Any property distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date on which it is first distributed, sold, exchanged, or otherwise disposed of;
(2) Any property not distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the date of the decedent's death;
(3) Any property, interest, or estate which is affected by mere lapse of time is valued as of the date of the decedent's death, but adjusted for any difference in its value not due to mere lapse of time as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death, or as of the date of its distribution, sale, exchange, or other disposition, whichever date first occurs.
(b) Method and effect of election—(1) In general. The election to use the alternate valuation method is made on the return of tax imposed by section 2001. For purposes of this paragraph (b), the term return of tax imposed by section 2001 means the last estate tax return filed by the executor on or before the due date of the return (including extensions of time to file actually granted) or, if a timely return is not filed, the first estate tax return filed by the executor after the due date, provided the return is filed no later than 1 year after the due date (including extensions of time to file actually granted). Once the election is made, it is irrevocable, provided that an election may be revoked on a subsequent return filed on or before the due date of the return (including extensions of time to file actually granted). The election may be made only if it will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate. If the election is made, the alternate valuation method applies to all property included in the gross estate and cannot be applied to only a portion of the property.
(2) Protective election. If, based on the return of tax as filed, use of the alternate valuation method would not result in a decrease in both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate, a protective election may be made to use the alternate valuation method if it is subsequently determined that such a decrease would occur. A protective election is made on the return of tax imposed by section 2001. The protective election is irrevocable as of the due date of the return (including extensions of time actually granted). The protective election becomes effective on the date on which it is determined that use of the alternate valuation method would result in a decrease in both the value of the gross estate and in the sum (reduced by allowable credits) of the estate tax and generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate.
(3) Requests for extension of time to make the election. A request for an extension of time to make the election or protective election pursuant to §§ 301.9100-1 and 301.9100-3 of this chapter will not be granted unless the return of tax imposed by section 2001 is filed no later than 1 year after the due date of the return (including extensions of time actually granted).
(c) Meaning of “distributed, sold, exchanged, or otherwise disposed of”. (1) The phrase “distributed, sold, exchanged, or otherwise disposed of” comprehends all possible ways by which property ceases to form a part of the gross estate. For example, money on hand at the date of the decedent's death which is thereafter used in the payment of funeral expenses, or which is thereafter invested, falls within the term “otherwise disposed of.” The term also includes the surrender of a stock certificate for corporate assets in complete or partial liquidation of a corporation pursuant to section 331. The term does not, however, extend to transactions which are mere changes in form. Thus, it does not include a transfer of assets to a corporation in exchange for its stock in a transaction with respect to which no gain or loss would be recognizable for income tax purposes under section 351. Nor does it include an exchange of stock or securities in a corporation for stock or securities in the same corporation or another corporation in a transaction, such as a merger, recapitalization, reorganization or other transaction described in section 368 (a) or 355, with respect to which no gain or loss is recognizable for income tax purposes under section 354 or 355.
(2) Property may be “distributed” either by the executor, or by a trustee of property included in the gross estate under section 2035 through 2038, or section 2041. Property is considered as “distributed” upon the first to occur of the following:
(i) The entry of an order or decree of distribution, if the order or decree subsequently becomes final;
(ii) The segregation or separation of the property from the estate or trust so that it becomes unqualifiedly subject to the demand or disposition of the distributee; or
(iii) The actual paying over or delivery of the property to the distributee.
(3) Property may be “sold, exchanged, or otherwise disposed of” by:
(i) The executor;
(ii) A trustee or other donee to whom the decedent during his lifetime transferred property included in his gross estate under sections 2035 through 2038, or section 2041;
(iii) An heir or devisee to whom title to property passes directly under local law;
(iv) A surviving joint tenant or tenant by the entirety; or
(v) Any other person.
If a binding contract for the sale, exchange, or other disposition of property is entered into, the property is considered as sold, exchanged, or otherwise disposed of on the effective date of the contract, unless the contract is not subsequently carried out substantially in accordance with its terms. The effective date of a contract is normally the date it is entered into (and not the date it is consummated, or the date legal title to the property passes) unless the contract specifies a different effective date.
(d) “Included property” and “excluded property”. If the executor elects the alternate valuation method under section 2432, all property interests existing at the date of decedent's death which form a part of his gross estate as determined under sections 2033 through 2044 are valued in accordance with the provisions of this section. Such property interests are referred to in this section as “included property”. Furthermore, such property interests remain “included property” for the purpose of valuing the gross estate under the alternate valuation method even though they change in form during the alternate valuation period by being actually received, or disposed of, in whole or in part, by the estate. On the other hand, property earned or accrued (whether received or not) after the date of the decedent's death and during the alternate valuation period with respect to any property interest existing at the date of the decedent's death, which does not represent a form of “included property” itself or the receipt of “included property” is excluded in valuing the gross estate under the alternate valuation method. Such property is referred to in this section as “excluded property”. Illustrations of “included property” and “excluded property” are contained in the subparagraphs (1) to (4) of this paragraph:
(1) Interest-bearing obligations. Interest-bearing obligations, such as bonds or notes, may comprise two elements of “included property” at the date of the decedent's death, namely, (i) the principal of the obligation itself, and (ii) interest accrued to the date of death. Each of these elements is to be separately valued as of the applicable valuation date. Interest accrued after the date of death and before the subsequent valuation date constitutes “excluded property”. However, any part payment or principal made between the date of death and the subsequent valuation date, or any advance payment of interest for a period after the subsequent valuation date made during the alternate valuation period which has the effect of reducing the value of the principal obligation as of the subsequent valuation date, will be included in the gross estate, and valued as of the date of such payment.
(2) Leased property. The principles set forth in subparagraph (1) of this paragraph with respect to interest- bearing obligations also apply to leased realty or personalty which is included in the gross estate and with respect to which an obligation to pay rent has been reserved. Both the realty or personalty itself and the rents accrued to the date of death constitute “included property”, and each is to be separately valued as of the applicable valuation date. Any rent accrued after the date of death and before the subsequent valuation date is “excluded property”. Similarly, the principle applicable with respect to interest paid in advance is equally applicable with respect to advance payments of rent.
(3) Noninterest-bearing obligations. In the case of noninterest-bearing obligations sold at a discount, such as savings bonds, the principal obligation and the discount amortized to the date of death are property interests existing at the date of death and constitute “included property”. The obligation itself is to be valued at the subsequent valuation date without regard to any further increase in value due to amortized discount. The additional discount amortized after death and during the alternate valuation period is the equivalent of interest accruing during that period and is, therefore, not to be included in the gross estate under the alternate valuation method.
(4) Stock of a corporation. Shares of stock in a corporation and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at the date of death constitute “included property” of the estate. On the other hand, ordinary dividends out of earnings and profits (whether in cash, shares of the corporation, or other property) declared to stockholders of record after the date of the decedent's death are “excluded property” and are not to be valued under the alternate valuation method. If, however, dividends are declared to stockholders of record after the date of the decedent's death with the effect that the shares of stock at the subsequent valuation date do not reasonably represent the same “included property” of the gross estate as existed at the date of the decedent's death, the dividends are “included property”, except to the extent that they are out of earnings of the corporation after the date of the decedent's death. For example, if a corporation makes a distribution in partial liquidation to stockholders of record during the alternate valuation period which is not accompanied by a surrender of a stock certificate for cancellation, the amount of the distribution received on stock included in the gross estate is itself “included property”, except to the extent that the distribution was out of earnings and profits since the date of the decedent's death. Similarly, if a corporation, in which the decedent owned a substantial interest and which possessed at the date of the decedent's death accumulated earnings and profits equal to its paid-in capital, distributed all of its accumulated earnings and profits as a cash dividend to shareholders of record during the alternate valuation period, the amount of the dividends received on stock includible in the gross estate will be included in the gross estate under the alternate valuation method. Likewise, a stock dividend distributed under such circumstances is “included property”.
(e) Illustrations of “included property” and “excluded property”. The application of paragraph (d) of this section may be further illustrated by the following example in which it is assumed that the decedent died on January 1, 1955:
(f) Mere lapse of time. In order to eliminate changes in value due only to mere lapse of time, section 2032(a)(3) provides that any interest or estate “affected by mere lapse of time” is included in a decedent's gross estate under the alternate valuation method at its value as of the date of the decedent's death, but with adjustment for any difference in its value as of the subsequent valuation date not due to mere lapse of time. Properties, interests, or estates which are “affected by mere lapse of time” include patents, estates for the life of a person other than the decedent, remainders, reversions, and other like properties, interests, or estates. The phrase “affected by mere lapse of time” has no reference to obligations for the payment of money, whether or not interest-bearing, the value of which changes with the passing of time. However, such an obligation, like any other property, may become affected by lapse of time when made the subject of a bequest or transfer which itself is creative of an interest or estate so affected. The application of this paragraph is illustrated in subparagraphs (1) and (2) of this paragraph:
(1) Life estates, remainders, and similar interests—(i) In general. The values of life estates, remainders, and similar interests are to be obtained by applying the methods prescribed in § 20.2031-7, using the age of each person, the duration of whose life may affect the value of the interest, as of the date of the decedent's death, and the value of the property as of the alternate valuation date.
(ii) Sample factors from actuarial Table S. The present value of a remainder interest dependent on the termination of one life is determined by using the formula in § 20.2031-7(d)(2)(ii)(B) to derive a remainder factor from the appropriate mortality table to at least five decimal places. For the convenience of taxpayers, actuarial factors have been computed by the IRS and appear in Table S. Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For purposes of the example in paragraph (e)(5)(iii) of this section, the following relevant factors from Table S is used:
(iii) Example. Assume that the decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, who was entitled to the income for life. At the time of the decedent's death, A was 65 years and 5 months old, and the section 7520 rate was 4.6 percent. The value of the decedent's remainder interest at the date of the decedent's death would be, as illustrated in § 20.2031-7(d)(5)(i) (Example 1), $22,931.00 ($50,000 × 0.45862). On the date that is 6 months after the decedent's death, A was 65 years and 11 months old, and the section 7520 rate was 4.2 percent. If, because of economic conditions, the property declined in value and was worth only $40,000 on the date that was 6 months after the date of the decedent's death, and the decedent's executor elected to use the alternate valuation date, the value of the remainder interest would be $19,482.40 ($40,000 × 0.48706). When the alternate valuation date is elected, the age of A, and other aspects of valuation which change by reason of the mere passage of time, is determined as of the date of the decedent's death, while the value of the property and the relevant section 7520 interest rate is determined as of the alternate valuation date. Thus, the computation uses A's age of 65 years old at the date of the decedent's death, even though A would be closest to 66 years old on the alternate valuation date.
(2) Patents. To illustrate the alternate valuation of a patent, assume that the decedent owned a patent which, on the date of the decedent's death, had an unexpired term of ten years and a value of $78,000. Six months after the date of the decedent's death, the patent was sold, because of lapse of time and other causes, for $60,000. The alternate value thereof would be obtained by dividing $60,000 by 0.95 (ratio of the remaining life of the patent at the alternate date to the remaining life of the patent at the date of the decedent's death), and would, therefore, be $63,157.89.
(g) Effect of election on deductions. If the executor elects the alternate valuation method under section 2032, any deduction for administration expenses under section 2053(b) (pertaining to property not subject to claims) or losses under section 2054 (or section 2106(a)(1), relating to estates of nonresidents not citizens) is allowed only to the extent that it is not otherwise in effect allowed in determining the value of the gross estate. Furthermore, the amount of any charitable deduction under section 2055 (or section 2106(a)(2), relating to the estates of nonresidents not citizens) or the amount of any marital deduction under section 2056 is determined by the value of the property with respect to which the deduction is allowed as of the date of the decedent's death, adjusted, however, for any difference in its value as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after death, or as of the date of its distribution, sale, exchange, or other disposition, whichever first occurs. However, no such adjustment may take into account any difference in value due to lapse of time or to the occurrence or nonoccurrence of a contingency.
(h) Applicability date. Paragraph (b) of this section is applicable to decedents dying on or after January 4, 2005. However, pursuant to section 7805(b)(7), taxpayers may elect to apply paragraph (b) of this section retroactively if the period of limitations for filing a claim for a credit or refund of Federal estate or generation-skipping transfer tax under section 6511 has not expired. Paragraph (f)(1) of this section applies on and after June 1, 2023.
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Treas. Reg. §20.2032-1(a)In general.
In general. In general, section 2032 provides for the valuation of a decedent's gross estate at a date other than the date of the decedent's death. More specifically, if an executor elects the alternate valuation method under section 2032, the property included in the decedent's gross estate on the date of his death is valued as of whichever of the following dates is applicable:
(1) Any property distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date on which it is first distributed, sold, exchanged, or otherwise disposed of;
(2) Any property not distributed, sold, exchanged, or otherwise disposed of within 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death is valued as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the date of the decedent's death;
(3) Any property, interest, or estate which is affected by mere lapse of time is valued as of the date of the decedent's death, but adjusted for any difference in its value not due to mere lapse of time as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after the decedent's death, or as of the date of its distribution, sale, exchange, or other disposition, whichever date first occurs.
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Treas. Reg. §20.2032-1(b)Method and effect of election—(1) In general.
Method and effect of election—(1) In general. The election to use the alternate valuation method is made on the return of tax imposed by section 2001. For purposes of this paragraph (b), the term return of tax imposed by section 2001 means the last estate tax return filed by the executor on or before the due date of the return (including extensions of time to file actually granted) or, if a timely return is not filed, the first estate tax return filed by the executor after the due date, provided the return is filed no later than 1 year after the due date (including extensions of time to file actually granted). Once the election is made, it is irrevocable, provided that an election may be revoked on a subsequent return filed on or before the due date of the return (including extensions of time to file actually granted). The election may be made only if it will decrease both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate. If the election is made, the alternate valuation method applies to all property included in the gross estate and cannot be applied to only a portion of the property.
(2) Protective election. If, based on the return of tax as filed, use of the alternate valuation method would not result in a decrease in both the value of the gross estate and the sum (reduced by allowable credits) of the estate tax and the generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate, a protective election may be made to use the alternate valuation method if it is subsequently determined that such a decrease would occur. A protective election is made on the return of tax imposed by section 2001. The protective election is irrevocable as of the due date of the return (including extensions of time actually granted). The protective election becomes effective on the date on which it is determined that use of the alternate valuation method would result in a decrease in both the value of the gross estate and in the sum (reduced by allowable credits) of the estate tax and generation-skipping transfer tax liability payable by reason of the decedent's death with respect to the property includible in the decedent's gross estate.
(3) Requests for extension of time to make the election. A request for an extension of time to make the election or protective election pursuant to §§ 301.9100-1 and 301.9100-3 of this chapter will not be granted unless the return of tax imposed by section 2001 is filed no later than 1 year after the due date of the return (including extensions of time actually granted).
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Treas. Reg. §20.2032-1(c)Meaning of “distributed, sold, exchanged, or otherwise disposed of”.
Meaning of “distributed, sold, exchanged, or otherwise disposed of”. (1) The phrase “distributed, sold, exchanged, or otherwise disposed of” comprehends all possible ways by which property ceases to form a part of the gross estate. For example, money on hand at the date of the decedent's death which is thereafter used in the payment of funeral expenses, or which is thereafter invested, falls within the term “otherwise disposed of.” The term also includes the surrender of a stock certificate for corporate assets in complete or partial liquidation of a corporation pursuant to section 331. The term does not, however, extend to transactions which are mere changes in form. Thus, it does not include a transfer of assets to a corporation in exchange for its stock in a transaction with respect to which no gain or loss would be recognizable for income tax purposes under section 351. Nor does it include an exchange of stock or securities in a corporation for stock or securities in the same corporation or another corporation in a transaction, such as a merger, recapitalization, reorganization or other transaction described in section 368 (a) or 355, with respect to which no gain or loss is recognizable for income tax purposes under section 354 or 355.
(2) Property may be “distributed” either by the executor, or by a trustee of property included in the gross estate under section 2035 through 2038, or section 2041. Property is considered as “distributed” upon the first to occur of the following:
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Treas. Reg. §20.2032-1(d)§20.2032-1(d)
“Included property” and “excluded property”. If the executor elects the alternate valuation method under section 2432, all property interests existing at the date of decedent's death which form a part of his gross estate as determined under sections 2033 through 2044 are valued in accordance with the provisions of this section. Such property interests are referred to in this section as “included property”. Furthermore, such property interests remain “included property” for the purpose of valuing the gross estate under the alternate valuation method even though they change in form during the alternate valuation period by being actually received, or disposed of, in whole or in part, by the estate. On the other hand, property earned or accrued (whether received or not) after the date of the decedent's death and during the alternate valuation period with respect to any property interest existing at the date of the decedent's death, which does not represent a form of “included property” itself or the receipt of “included property” is excluded in valuing the gross estate under the alternate valuation method. Such property is referred to in this section as “excluded property”. Illustrations of “included property” and “excluded property” are contained in the subparagraphs (1) to (4) of this paragraph:
(1) Interest-bearing obligations. Interest-bearing obligations, such as bonds or notes, may comprise two elements of “included property” at the date of the decedent's death, namely, (i) the principal of the obligation itself, and (ii) interest accrued to the date of death. Each of these elements is to be separately valued as of the applicable valuation date. Interest accrued after the date of death and before the subsequent valuation date constitutes “excluded property”. However, any part payment or principal made between the date of death and the subsequent valuation date, or any advance payment of interest for a period after the subsequent valuation date made during the alternate valuation period which has the effect of reducing the value of the principal obligation as of the subsequent valuation date, will be included in the gross estate, and valued as of the date of such payment.
(2) Leased property. The principles set forth in subparagraph (1) of this paragraph with respect to interest- bearing obligations also apply to leased realty or personalty which is included in the gross estate and with respect to which an obligation to pay rent has been reserved. Both the realty or personalty itself and the rents accrued to the date of death constitute “included property”, and each is to be separately valued as of the applicable valuation date. Any rent accrued after the date of death and before the subsequent valuation date is “excluded property”. Similarly, the principle applicable with respect to interest paid in advance is equally applicable with respect to advance payments of rent.
(3) Noninterest-bearing obligations. In the case of noninterest-bearing obligations sold at a discount, such as savings bonds, the principal obligation and the discount amortized to the date of death are property interests existing at the date of death and constitute “included property”. The obligation itself is to be valued at the subsequent valuation date without regard to any further increase in value due to amortized discount. The additional discount amortized after death and during the alternate valuation period is the equivalent of interest accruing during that period and is, therefore, not to be included in the gross estate under the alternate valuation method.
(4) Stock of a corporation. Shares of stock in a corporation and dividends declared to stockholders of record on or before the date of the decedent's death and not collected at the date of death constitute “included property” of the estate. On the other hand, ordinary dividends out of earnings and profits (whether in cash, shares of the corporation, or other property) declared to stockholders of record after the date of the decedent's death are “excluded property” and are not to be valued under the alternate valuation method. If, however, dividends are declared to stockholders of record after the date of the decedent's death with the effect that the shares of stock at the subsequent valuation date do not reasonably represent the same “included property” of the gross estate as existed at the date of the decedent's death, the dividends are “included property”, except to the extent that they are out of earnings of the corporation after the date of the decedent's death. For example, if a corporation makes a distribution in partial liquidation to stockholders of record during the alternate valuation period which is not accompanied by a surrender of a stock certificate for cancellation, the amount of the distribution received on stock included in the gross estate is itself “included property”, except to the extent that the distribution was out of earnings and profits since the date of the decedent's death. Similarly, if a corporation, in which the decedent owned a substantial interest and which possessed at the date of the decedent's death accumulated earnings and profits equal to its paid-in capital, distributed all of its accumulated earnings and profits as a cash dividend to shareholders of record during the alternate valuation period, the amount of the dividends received on stock includible in the gross estate will be included in the gross estate under the alternate valuation method. Likewise, a stock dividend distributed under such circumstances is “included property”.
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Treas. Reg. §20.2032-1(e)Illustrations of “included property” and “excluded property”.
Illustrations of “included property” and “excluded property”. The application of paragraph (d) of this section may be further illustrated by the following example in which it is assumed that the decedent died on January 1, 1955:
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Treas. Reg. §20.2032-1(f)Mere lapse of time.
Mere lapse of time. In order to eliminate changes in value due only to mere lapse of time, section 2032(a)(3) provides that any interest or estate “affected by mere lapse of time” is included in a decedent's gross estate under the alternate valuation method at its value as of the date of the decedent's death, but with adjustment for any difference in its value as of the subsequent valuation date not due to mere lapse of time. Properties, interests, or estates which are “affected by mere lapse of time” include patents, estates for the life of a person other than the decedent, remainders, reversions, and other like properties, interests, or estates. The phrase “affected by mere lapse of time” has no reference to obligations for the payment of money, whether or not interest-bearing, the value of which changes with the passing of time. However, such an obligation, like any other property, may become affected by lapse of time when made the subject of a bequest or transfer which itself is creative of an interest or estate so affected. The application of this paragraph is illustrated in subparagraphs (1) and (2) of this paragraph:
(1) Life estates, remainders, and similar interests—(i) In general. The values of life estates, remainders, and similar interests are to be obtained by applying the methods prescribed in § 20.2031-7, using the age of each person, the duration of whose life may affect the value of the interest, as of the date of the decedent's death, and the value of the property as of the alternate valuation date.
(ii) Sample factors from actuarial Table S. The present value of a remainder interest dependent on the termination of one life is determined by using the formula in § 20.2031-7(d)(2)(ii)(B) to derive a remainder factor from the appropriate mortality table to at least five decimal places. For the convenience of taxpayers, actuarial factors have been computed by the IRS and appear in Table S. Table S can be found on the IRS website at https://www.irs.gov/retirement-plans/actuarial-tables (or a corresponding URL as may be updated from time to time). For purposes of the example in paragraph (e)(5)(iii) of this section, the following relevant factors from Table S is used:
(iii) Example. Assume that the decedent, or the decedent's estate, was entitled to receive certain property worth $50,000 upon the death of A, who was entitled to the income for life. At the time of the decedent's death, A was 65 years and 5 months old, and the section 7520 rate was 4.6 percent. The value of the decedent's remainder interest at the date of the decedent's death would be, as illustrated in § 20.2031-7(d)(5)(i) (Example 1), $22,931.00 ($50,000 × 0.45862). On the date that is 6 months after the decedent's death, A was 65 years and 11 months old, and the section 7520 rate was 4.2 percent. If, because of economic conditions, the property declined in value and was worth only $40,000 on the date that was 6 months after the date of the decedent's death, and the decedent's executor elected to use the alternate valuation date, the value of the remainder interest would be $19,482.40 ($40,000 × 0.48706). When the alternate valuation date is elected, the age of A, and other aspects of valuation which change by reason of the mere passage of time, is determined as of the date of the decedent's death, while the value of the property and the relevant section 7520 interest rate is determined as of the alternate valuation date. Thus, the computation uses A's age of 65 years old at the date of the decedent's death, even though A would be closest to 66 years old on the alternate valuation date.
(2) Patents. To illustrate the alternate valuation of a patent, assume that the decedent owned a patent which, on the date of the decedent's death, had an unexpired term of ten years and a value of $78,000. Six months after the date of the decedent's death, the patent was sold, because of lapse of time and other causes, for $60,000. The alternate value thereof would be obtained by dividing $60,000 by 0.95 (ratio of the remaining life of the patent at the alternate date to the remaining life of the patent at the date of the decedent's death), and would, therefore, be $63,157.89.
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Treas. Reg. §20.2032-1(g)Effect of election on deductions.
Effect of election on deductions. If the executor elects the alternate valuation method under section 2032, any deduction for administration expenses under section 2053(b) (pertaining to property not subject to claims) or losses under section 2054 (or section 2106(a)(1), relating to estates of nonresidents not citizens) is allowed only to the extent that it is not otherwise in effect allowed in determining the value of the gross estate. Furthermore, the amount of any charitable deduction under section 2055 (or section 2106(a)(2), relating to the estates of nonresidents not citizens) or the amount of any marital deduction under section 2056 is determined by the value of the property with respect to which the deduction is allowed as of the date of the decedent's death, adjusted, however, for any difference in its value as of the date 6 months (1 year, if the decedent died on or before December 31, 1970) after death, or as of the date of its distribution, sale, exchange, or other disposition, whichever first occurs. However, no such adjustment may take into account any difference in value due to lapse of time or to the occurrence or nonoccurrence of a contingency.
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Treas. Reg. §20.2032-1(h)Applicability date.
Applicability date. Paragraph (b) of this section is applicable to decedents dying on or after January 4, 2005. However, pursuant to section 7805(b)(7), taxpayers may elect to apply paragraph (b) of this section retroactively if the period of limitations for filing a claim for a credit or refund of Federal estate or generation-skipping transfer tax under section 6511 has not expired. Paragraph (f)(1) of this section applies on and after June 1, 2023.
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Treas. Reg. §20.2032-1(i)§20.2032-1(i)
The executor;
(ii) A trustee or other donee to whom the decedent during his lifetime transferred property included in his gross estate under sections 2035 through 2038, or section 2041;
(iii) An heir or devisee to whom title to property passes directly under local law;
(iv) A surviving joint tenant or tenant by the entirety; or
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Treas. Reg. §20.2032-1(v)Any other person.
Any other person.
If a binding contract for the sale, exchange, or other disposition of property is entered into, the property is considered as sold, exchanged, or otherwise disposed of on the effective date of the contract, unless the contract is not subsequently carried out substantially in accordance with its terms. The effective date of a contract is normally the date it is entered into (and not the date it is consummated, or the date legal title to the property passes) unless the contract specifies a different effective date.
137 Citing Cases
After concessions by the parties,2 the issues remaining for decision are the following: (1) whether the estate timely elected to use an alternate valuation date pursuant to section 2032 to value decedent’s gross estate; (2) whether the estate may exclude $200,000 from the value of property located at 90 and 90-A Industrial Park Road, Hingham, Massachusetts (Hingham Property), for a qualified conservation easement contribution; (3) whether the fair market value of the Hingham Prope
Respondent also reduced the estate’s Schedule F assets by the $4,632,489 value of the estate’s pending claim against the SK Trust, as originally reported on the 6 On neither the executors’ nor the limited administrators’ Form 706 did the estate elect pursuant to section 2032 to have the gross estate valued as of a date subsequent to decedent’s death.
e in its highest and best use on the valuation date. See Estate of Kahn v. Commissioner, 125 T.C. 227, 240 (2005); Estate of Mitchell v. -100- [*100] Commissioner, 101 T.C.M. (CCH) 1435, 1438-39 (2011). The Code provides some exceptions. See, e.g., sec. 2032A (exception for family farms); Van Alen v. Commissioner, 106 T.C.M. (CCH) 427, 430 (2013). But it makes these exceptions explicit. And here, there are none that apply. We must include the value of Jackson’s image and likeness at its highest
We do not agree with petitioners' assertion that the disposal ofproperty (and the development rights attached thereto) constitutes cultivating the soil, raising agricultural or horticultural commodities, the handling ofsuch commodities, or tree farming.
We do not agree with petitioners' assertion that the disposal ofproperty (and the development rights attached thereto) constitutes cultivating the soil, raising agricultural or horticultural commodities, the handling ofsuch commodities, or tree farming.
Exception to Section 2031--Alternate Valuation Date Pursuant to section 2032, property includible in the gross estate is included at its fair market value on the date ofthe decedent's death unless the executor elects the alternate valuation method.
For purposes ofthis Section, death taxes shall not include any additional estate tax imposed by Section 2031(c)(5)(C), Section 2032A(c) or Section 2057(f) ofthe Internal Revenue Code or any other comparable recapture tax imposed by any taxing authority.
butable Cash shall be made to the Partners on a regular basis according to their respective Partnership Interests." Decedent died on January 7, 2009, and July 7, 2009, was selected as the alternate valuation date for decedent's estate as allowed by section 2032. The fair market value ofall ofthe assets owned by Oak Capital, without discount or other adjustment, on July 7, 2009, was $4,064,759. The value ofdecedent's interest in Oak Capital was reported on Schedule F, Other Miscellaneous Property
M - 31 - The next wave ofcases addressed section 2032A, enacted in 1976, which provided beneficial estate tax treatment for certain farm property.
1960), Brett says that "courts disfavor the application ofthe duty ofconsistency because ofthe inequity imposed upon a minor." But here, unlike the taxpayers in Ford, the minor--Brett--wasrepresented by a guardian ad litem, and that guardian was requiredto make a representation on the estate-tax return for the section 2032A election to be effective.
eath). When he filed the petition, petitioner resided in Pennsylvania. Estate Tax Return Petitioner timely filed Form 706, United States Estate (and Generation- Skipping Transfer) Tax Return, electing thereon alternate valuation as provided for in section 2032. Schedule G, Transfers During Decedent's Life, attached to the Form 706, includes the subject interest, reporting the interest to be worth $1,788,000 both on the date ofdecedent's death and on August 23, 2007, the alternate valuation date
Except as otherwise provided in § 20.2053-5 with respect to pledges or subscriptions, Section 2053(c) (1) (A) provides that the allowance of a deduction for a claim founded upon a promise or agreement is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money or money's worth.
f the valuation date was $34,936,000, or $8,800.per unit, based upon a July 12, 2004, appraisal of the company's units by D vid Michael Paxton (Mr. Paxton), PMG's president and chief executive officer.2 They did not elect alternative valuation under section 2032. Upon J. Frederick Paxton's death, petitioner became the sole personal representative of decedent's estate. Respondent selected the return for examination, and, on June 13, 2007, petitioner received respondent's notice of proposed adjust
time of his death, whether or not then matured, and interest thereon which had accrued at the time of death. Only interest accrued at the date of the decedent’s death is allowable even though the executor elects the alternate valuation method under section 2032. Only claims enforceable against the decedent’s estate may be deducted. Except as otherwise provided in § 20.2053-5 with respect to pledges or subscriptions, Section 2053(c)(1)(A) provides that the allowance of a deduction for a claim fou
Respondent argues that because section 6165 provides that he "may" require a bond, and provides no other conditions for this authority, the decision to require security when granting a section 6166 extension is "committed entirely to respondent's discretion.
In most instances, the value of the gross estate is the fair market value of the included property as of either the date of death, or the alternate valuation date under section 2032 if elected by the executor as is the case here.
General Rules on Valuation Date Section 2032 allows the executor of an estate to choose to value the estate’s property at a time after the date of death.
General Rules on Valuation Date Section 2032 allows the executor of an estate to choose to value the estate’s property at a time after the date of death.
General Rules on Valuation Date Section 2032 allows the executor of an estate to choose to value the estate’s property at a time after the date of death.
raph (3), exceeds 50 percent of the adjusted gross estate, and (D) during the 8-year period ending on the date of the decedent's death there have been periods aggregating 5 years or more during which– (i) such interests were owned by the decedent or a member of the decedent's family, and (ii) there was material participation (within the meaning of section 2032A(e)(6)) by the - 6 - decedent or a member of the decedent’s family in the operation of the business to which such interests relate.
luation is set forth in section 20.2031-1(b), Estate Tax Regs.: The value of every item of property includible in a decedent's gross estate under sections 2031 through 2044 [now 2045 due to addition and renumbering] is its fair market value at the time of the decedent's death, except that if the executor elects the alternate valuation method under section 2032, it is the fair market value thereof at the date, and with the adjustments, prescribed in that section.
We further hold that the fair market value of DP on the valuation date was $4,829,252. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts is incorporated herein by this reference. ¹ The estate filed a sec. 2032A protective election with its estate tax return. The estate has indicated its intent to perfect this protective election by filing an additional notice of election if we determine the value of DP to be greater than the amount it asserted at
989, 994 (1984) (looking to principles of administrative law, “now incorporated into the Administrative Procedure Act”, as supporting a presumption that the Commissioner’s discretionary actions in denying a request for a filing extension under section 2032A were subject to judicial review).
tled to only limited recognition for Federal tax purposes. We acknowledge that, as pointed out by the estate, this Court has relied on the doctrine in determining the requisite signatory beneficiaries for a valid special use valuation election under section 2032A. McDonald v. Commissioner, 89 T.C. 293, 304-305 (1987), affd. in part on this issue and revd. in part on other grounds 853 F.2d 1494 (8th Cir. 1988). In McDonald v. Commissioner, supra at 304-305, we held insufficient an election signed
- 42 - section 931 confers no benefit of the type contemplated in Estate of Maddox (i.e., reduction in estate tax due to application of section 2032A), and First Chicago and Occidental (i.e., relief from alternative minimum tax liability).
In the estate tax return, petitioner valued the shares at $16,380,000, or $26,000 a share. In determining a deficiency in estate tax, respondent valued the shares at $30,177,000, or $47,900 a share. Organization and Operation of Korbel Korbel was formed in 1903. Its business began in 1860, when three Korbel brothers purchased property in
oceeds), section 2042 - 5 - (relating to powers of appointment), or section 2044 (relating to qualified terminable interest property) of the Internal Revenue Code, or any comparable provision of state law, but excluding, however, any tax imposed by section 2032A(c) (relating to qualified real property) or chapter 13 (relating to generation-skipping transfers) of the Ihternal Revenue Code, or any comparable provision of state law, for which my estate is not liable.
l rule is set forth in section 20.2031-1(b), Estate Tax Regs.: The value of every item of property includible in a decedent’s gross estate under sections 2031 through 2044 [now 2045 due to addition and renumbering] is its fair market value at the time of the decedents’s death, except that if the executor elects the alternate valuation method under section 2032, it is the fair market value thereof at the date, and with the adjustments, prescribed in that section.
the postdeath lease was $3,350,000. In the notice of deficiency, respondent determined that the fair market value of the Sinton Ranch on the date of decedent's death was $4,150,000. Respondent reduced the value by $750,000 for a valid election under section 2032A. The estate reported the fair market value of the interest in the Cotulla Ranch on Form 706, Schedule A, at $1,070,000. The real estate appraisal report that was prepared by Dorsey and submitted with the estate's Form 706 concludcd that
The date with respect to which the asset is valued is either the date of death or, if the alternate valuation method under section 2032 is elected, the date prescribed in that section.
The election to value decedent’s property as of the alternate valuation date was made in the instant case. The term value means fair market value, which is defined for Federal estate tax purposes as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy
l rule is set forth in section 20.2031-l(b), Estate Tax Regs.: The value of every item of property includible in a decedent’s gross estate under sections 2031 through 2044 [now 2045 due to addition and renumbering] is its fair market value at the time of the decedents’s death, except that if the executor elects the alternate valuation method under section 2032, it is the fair market value thereof at the date, and with the adjustments, prescribed in that section.
eral estate tax purposes of decedent's interests in the five partnerships. Under the regulations, the value of property includable in decedent's gross estate is its fair market value at the alternate valuation date with adjustments prescribed under section 2032. See sec. 20.2031-1(b), Estate Tax Regs. Fair market value is defined for these purposes as "the net amount which a willing purchaser * * * would pay for the interest to a willing seller, neither being under any compulsion to buy or to se
After concessions,1 the issues for decision are: (1) Whether, despite the executor's failure to make the alternate valuation election pursuant to section 2032 within 1 year after the time prescribed by law (including extensions) for filing the Federal estate tax return, the value of the gross estate may be determined by valuing all the property included in the gross estate as of the alternate valuation date.2 We hold it may not.
* * * * * * * (3) 3-Year Rule Retained for Certain Purposes.--Paragraph (1) shall not apply for purposes of– - 11 - (A) section 303(b) (relating to distributions in redemption of stock to pay death taxes), (B) section 2032A (relating to special valuation of certain farm, etc., real property), and (C) subchapter C of chapter 64 (relating to lien for taxes).
value was $2,785,248. Held: The fair market value was $2,417,491. 4. P elected special use valuation of certain farm real property on its Form 706. R disallowed the election because P failed to document comparable rental property in accordance with sec. 2032A(e)(7), I.R.C., and the regulations thereunder. See sec. 20.2032A-4, Estate Tax Regs. Held: P may not value its elected properties under the valuation formula of sec. 2032A(e)(7), I.R.C. Held, further, by reason of sec. 20.2032A-4, Estate T
olyn J. Rogers (decedent). After concessions by the parties,1 the issue 1The parties made the following concessions: Petitioner did (continued...) - 2 - remaining for decision is the valuation of decedent's qualified and elected real property under section 2032A. There are two questions for determination: (1) Whether petitioner can value the real property under the provisions of section 2032A(e)(7) or must value the property under section 2032A(e)(8), which requires a determination of whether th
* * * * * * * (3) 3-Year Rule Retained for Certain Purposes.--Paragraph (1) shall not apply for purposes of– - 11 - (A) section 303(b) (relating to distributions in redemption of stock to pay death taxes), (B) section 2032A (relating to special valuation of certain farm, etc., real property), and (C) subchapter C of chapter 64 (relating to lien for taxes).
After concessions, the issues for decision are: (1) Whether, despite the executor’s failure to make the alternate valuation election pursuant to section 2032 within 1 year after the time prescribed by law (including extensions) for filing the Federal estate tax return, the value of the gross estate may be determined by valuing all the property included in the gross estate as of the alternate valuation date.
For Federal estate tax purposes, the fair market value of the subject property is determined as of the date of death of the decedent, or alternatively, on the alternate valuation date under section 2032; ordinarily, no consideration is given to any unforeseeable future event that may have affected the value of the subject property on some later date.
Section 2031(a) provides that "the value of the gross estate of the decedent shall be determined by including to the extent provided for in this part [sections 2031-2046], the value at the time of his death of all property, real or personal, tangible or intangible, wherever - 17 - situated." It provides that the time of valuat
r the maintenance of CMP pending the resolution of this dispute. On a timely filed Federal estate tax return, P reported the value of CMP at its fair market value (FMV). P also made a valid protective election for special use valuation of CMP under sec. 2032A, I.R.C. In addition, P deducted the interest incurred on the borrowed funds from the value of D's gross estate as an administrative expense under sec. 2053(a)(2), I.R.C. On a timely filed amended estate tax return, P claimed that it is enti
Such part of the entire value is that portion of the entire value of the property at the decedent's death (or at the alternate valuation date described in section 2032) which the consideration in money or money's worth furnished by the other joint owner or owners bears to the total cost of acquisition and capital additions.
31-2046], the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.” It provides that the time of valuation is at the date of the decedent’s death (or the alternate valuation date as provided by section 2032). Value is “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” United States v. C
ted in North Myrtle Beach, South Carolina known as the Oak Den Trailer Court (Oak Den). Oak Den had a fair market value of $259,000 on the date of Mr. Ogden's death. The executor of Mr. Ogden's estate did not elect the alternate valuation date under section 2032. Mrs. Ogden died testate on May 11, 1990. Her will had been prepared by Mr. Williams and was executed on May 14, 1982. Mrs. Ogden's will was probated, and her estate was distributed according to its provisions. Mr. Ogden's will directed
v. Commissioner, T.C. Memo. 1985-179; Appraisal Institute, The Appraisal of Real Estate, 280 n.5, 282 (10th ed. 1992). Respondent's assertions fail to consider reality as it existed on 1Petitioner does not argue that it made an election pursuant to sec. 2032A. Sec. 2032A permits an estate to elect to value qualified real property used for farming and small business purposes on the basis of income capitalization rather than on the basis of highest and best use. Sec. 2032A(e)(7); Williamson v. Co
NITED STATES TAX COURT RICHARD D. HOHENSTEIN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 22282-94. Filed January 30, 1997. P, a qualified heir, received farm property subject to a special use valuation election pursuant to sec. 2032A, I.R.C. P farmed the property for approximately 8 years after the death of his father and then, after becoming physically incapacitated, sold a portion of the farmland and leased the remainder of the property to unrelated parties on a cash
. Corp. F. Decedent's Estate Tax Return On decedent's estate tax return, the estate reported a gross estate of $2,813,175, deductions of $1,772,808, and adjusted taxable gifts of $595,091.6 The estate did not elect the alternate valuation date under section 2032. The estate reported that the value of decedent's Beth W. Corp. stock was $2,293,800, or $307.61 per share. The estate 6The parties have stipulated that the gross estate should be increased by $3,343 because petitioner inadvertently omit
r. 1988); cf. Estate of Hoover v. Commissioner, 102 T.C. 777, 782 (1994), revd. on another issue 69 F.3d 1044 (10th Cir. 1995), where we adopted a similar view in respect of the absence of regulations directed to be prescribed by the Secretary under section 2032A(g). More recently, in H. Enters. Intl., Inc. v Commissioner, supra, we dealt with a situation comparable to that herein, involving the impact of the failure of the Secretary to issue regulations to prevent tax avoidance under section 77
x Return. On that return the executors reported that the value of decedent’s shares was - 11 - $2,298,161.25. That was the amount paid for the shares under the 1987 redemption agreement. The executors elected alternate valuation, as provided for in section 2032. Value of Decedent’s Shares The value of decedent’s shares on the alternate valuation date was $4,000,000. OPINION I. Introduction A. Questions Presented This case concerns the value for Federal estate tax purposes of certain shares of st
ident of Indiana when he petitioned the Court, filed a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, on behalf of the Decedent's estate. Form 706 reflects the Fiduciary’s election of an alternate valuation date under section 2032. The alternate valuation date is June 11, 1990. Corporation for General Trade (CGT) is a corporation whose stock is not listed on an exchange. CGT’s stock was entirely owned by the Decedent when he died. CGT’s principal asset at the time
sue bearing this evidence in mind. 2. Value of Property For Federal estate tax purposes, property includable in a decedent's gross estate is valued on either: (1) The date of the decedent's death or (2) the alternate valuation date as provided under section 2032. Secs. 2031(a) and 2032(a); sec. 20.2031- 1(b), Estate Tax Regs. For Federal gift tax purposes, property is valued on the date of the gift. Sec. 2512(a); sec. 25.2512-1, Gift Tax Regs. In both cases, value is a factual determination for
- 18 - or money's worth". Sec. 2036(a).10 The parties do not dispute that the 1971 transfer in trust of the proceeds of Cyril's shares in JM was one in which he retained a life interest within the meaning of section 2036(a). Instead, petitioner contends that the transfer of the remainder interest to Cyril's children was made pursuant to
Rohmer v. Commissioner, supra at 1106 (withholding - 17 - payments to be paid from gift proceeds do not reduce value of gift); Rev. Rul. 81-230, 1981-2 C.B. 186 (value of gift not reduced for additional tax that could subsequently be imposed under section 2032A(c)). This Court has previously addressed this argument. In Gray v. Commissioner, a Memorandum Opinion of this Court dated June 7, 1944, 3 T.C.M. (CCH) 552, 555, 44 P-H Memo T.C. par. 44,203 at 646, it was stated: In the instant proceedin
- 7 - for her remainder interest in the stock. According to the executrix, Decedent's gross estate does not include the value of any Vaparo preferred stock because, during her life, she sold the remainder interest in the stock for adequate and full consideration. The executrix argues that Gradow v. United States, 11 Cl. Ct. 808 (1987),
specifying the manner of resolving all issues raised in R's notice of deficiency. During discussions regarding the proposed stipulated decision document, P sought to raise an issue as to its entitlement to use the special use valuation provisions of sec. 2032A, I.R.C. This issue was not covered in R's notice of deficiency, and was not raised or preserved by P in the pleadings or the stipulated settlement agreement. Held: The issue raised by P is a new issue that is not before the Court. - 2 - St
Nor are we bound by the opinions of commentators on which the executrix relies.
§ 2032 and 26 C.F.R. § 20.2032-1. To accomplish this on remand, the Tax Court may choose to reconsider the present record, or it may have further proceedings allowing the parties to present additional evidence; the Court should then make its new findings and decision. [Id. at 1439-1440.] Pursuant to the direction of the Court of Appeals, additional