some portion of the decrease in the Federal estate tax would inure to the benefit of X since the allowance of the deduction would increase the size of the corpus from which X is to receive the income for life. Also, the Federal estate tax is not considered to be equitably apportioned in this case since each legatee's share of the Federal estate tax is not based upon the net amount of his bequest subjected to the tax (note that the deductions under sections 2053 (d) and 2055 will not have the effect of reducing the charity's proportionate share of the tax). Inasmuch as some of the decrease in the Federal estate tax payable would inure to the benefit of X, and inasmuch as there is no equitable apportionment of the tax, no deduction is allowable under section 2053 (d).

Example (5). The decedent's gross estate was valued at $750,000. Expenses, indebtedness, etc., amounted to $50,000. The decedent bequeathed $350,000 of his estate to his surviving spouse and the remainder of his estate equally to his son and Charity D. State inheritance tax in the amount of $7,000 was imposed upon the bequest to the surviving spouse, $26,250 upon the bequest to the son, and $26,250 upon the bequest to Charity D. The will was silent concerning the payment of taxes. In such a case, the local law provides that each legatee shall pay his own State inheritance tax. The local law further provides for an apportionment of the Federal estate tax among the legatees of the estate. Under the apportionment provisions, the surviving spouse is not required to bear any part of the Federal estate tax with respect to her $350,000 bequest. It should be noted, however, that the marital deduction allowed to the decedent's estate by reason of the bequest to the surviving spouse is limited to $343,000 ($350,000 bequest less $7,000 State inheritance tax payable by the surviving spouse). Thus, the bequest to the surviving spouse is subjected to the Federal estate tax in the net amount of $7,000. If the deduction for State death tax on the charitable bequest is allowed in this case, some portion of the decrease in the Federal estate tax would inure to the benefit of the son. The Federal estate tax is not considered to be equitably apportioned in this case since each legatee's share of the Federal estate tax is not based upon the net amount of his bequest subjected to the tax (note that the surviving spouse is to pay no tax). Inasmuch as some of the decrease in the Federal estate tax payable would inure to the benefit of the son, and inasmuch as there is no equitable apportionment of the tax, no deduction is allowable under section 2053 (d).

§ 20.2054 Statutory provisions; losses. SEC. 2054. Losses. For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate losses incurred during the settlement of estates arising from fires, storms, shipwrecks,

or other casualties, or from theft, when such losses are not compensated for by insurance or otherwise.

§ 20.2054-1 Deduction for losses from casualties or theft. A deduction is allowed for losses incurred during the settlement of the estate arising from fires, storms, shipwrecks, or other casualties, or from theft, if the losses are not compensated for by insurance or otherwise. If the loss is partly compensated for, the excess of the loss over the compensation may be deducted. Losses which are not of the nature described are not deductible. In order to be deductible a loss must occur during the settlement of the estate. If a loss with respect to an asset occurs after its distribution to the disNottributee it may not be deducted. withstanding the foregoing, no deduction is allowed under this section if the estate has waived its right to take such a deduction pursuant to the provisions of section 642 (g) in order to permit its allowance for income tax purposes. See further § 1.642 (g)-1.

§ 20.2055 Statutory provisions; transfers for public, charitable, and religious

uses.

SEC. 2055. Transfers for public, charitable, and religious uses—(a) In general. For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of all bequests. legacies, devises, or transfers (including the interest which falls into any such bequest legacy, devise, or transfer as a result of an irrevocable diclaimer of a bequest, legacy devise, transfer, or power, if the disclaimer is made before the date prescribed for the filing of the estate tax return)—

(1) To or for the use of the United States any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes;

(2) To or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or ed ucational purposes, including the encourage ment of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation;

(3) To a trustee or trustees, or a fraternal society, order, or association operating unde the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society order, or association, exclusively for religious charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, and no substantial part

of the activities of such trustee or trustees, or of such fraternal society, order, or association, is carrying on propaganda, or otherwise attempting, to influence legislation; or

(4) To or for the use of any veterans' organization incorporated by act of Congress, or of its departments or local chapters or posts, no part of the net earnings of which Inures to the benefit of any private shareholder or individual.

For purposes of this subsection, the complete termination before the date prescribed for the filing of the estate tax return of a power to consume, invade, or appropriate property for the benefit of an individual before such power has been exercised by reason of the death of such individual or for any other reason shall be considered and deemed to be an irrevocable disclaimer with the same full force and effect as though he had filed such irrevocable disclaimer.

(b) Powers of appointment—(1) General rule. Property includible in the decedent's gross estate under section 2041 (relating to powers of appointment) received by a donee described in this section shall, for purposes of this section, be considered a bequest of such decedent.

(2) Special rule for certain bequests subject to power of appointment. For purposes of this section, in the case of a bequest in trust, if the surviving spouse of the decedent is entitled for life to all of the net income from the trust and such surviving spouse has a power of appointment over the corpus of such trust exercisable by will in favor of, among others, organizations described in Fubsection (a) (2), such bequest in trust, reduced by the value of the life estate, shall, to the extent such power is exercised in favor of such organizations, be deemed a transfer to such organizations by the decedent if(A) No part of the corpus of such trust is distributed to a beneficiary during the life of the surviving spouse;

(B) Such surviving spouse was over 80 years of age at the date of the decedent's death;

(C) Such surviving spouse by affidavit executed within one year after the death of the decedent specifies the organizations described in subsection (a) (2) in favor of which he intends to exercise the power of ppointment and indicates the amount or proportion each such organization is to receive; and

(D) The power of appointment is exercised in favor of such organizations and in the mounts or proportions specified in the affidavit required under subparagraph (C). The affidavit referred to in subparagraph (C) shall be attached to the estate tax return of *he decedent and shall constitute a sufficient basis for the allowance of the deduction under this paragraph in the first instance subect to a later disallowance of the deduction If the conditions herein specified are not mplied with.

(c) Death taxes payable out of bequests. If the tax imposed by section 2001, or any

estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this section, then the amount deductible under this section shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes.

(d) Limitation on deduction. The amount of the deduction under this section for any transfer shall not exceed the value of the transferred property required to be included in the gross estate.

cases.

(e) Disallowance of deductions in certain For disallowance of certain charitable, etc., deductions otherwise allowable under this section, see sections 504 and 681. (f) Other cross references. (1) For option as to time for valuation for purpose of deduction under this section, see section 2032.

(2) For exemption of bequests to or for benefit of Library of Congress, see section 5 of the Act of March 3, 1925, as amended (56 Stat. 765; 2 U. S. C. 161).

(3) For construction of bequests for benefit of the library of the Post Office Department as bequests to or for the use of the United States, see section 2 of the Act of August 8, 1946 (60 Stat. 924; 5 U. S. C. 393).

(4) For exemption of bequests for benefit of Office of Naval Records and Library, Navy Department, see section 2 of the Act of March 4, 1937 (50 Stat. 25; 5 U. S. C. 419b).

(5) For exemption of bequests to or for benefit of National Park Service, see section 5 of the Act of July 10, 1935 (49 Stat. 478; 16 U. S. C. 19c).

(6) For construction of devises or bequests accepted by the Secretary of State under the Foreign Service Act of 1946 as devises or bequests to or for the use of the United States, see section 1021 (e) of that Act (60 Stat. 1032; 22 U. S. C. 809).

(7) For construction of gifts or bequests of money accepted by the Attorney General for credit to "Commissary Funds, Federal Prisons" as gifts or bequests to or for the use of the United States, see section 2 of the Act of May 15, 1952, 66 Stat. 73, as amended by the Act of July 9, 1952, 66 Stat. 479 (31 U. S. C. 725s-4).

(8) For payment of tax on bequests of United States obligations to the United States, see section 24 of the Second Liberty Bond Act, as amended (59 Stat. 48, § 4; 31 U. S. C. 757e).

(9) For construction of bequests for benefit of or use in connection with the Naval Academy as bequests to or for the use of the United States, see section 3 of the Act of March 31, 1944 (58 Stat. 135; 34 U. S. C. 1115b).

(10) For exemption of bequests for benefit of Naval Academy Museum, see section 4 of the Act of March 26, 1938 (52 Stat. 119; 34 U. S. C. 1119).

(11) For exemption of bequests received by National Archives Trust Fund Board, see section 7 of the National Archives Trust Fund Board Act (55 Stat. 582; 44 U. S. C. 300gg).

[Sec. 2055 as amended by sec. 1, Act of Aug. 6, 1956 (Pub. Law 1011, 84th Cong., 70 Stat. 1075)]

§ 20.2055-1 Deduction for transfers for public, charitable, and religious uses; in general-(a) General rule. A deduction is allowed under section 2055 (a) from the gross estate of a decedent who was a citizen or resident of the United States at the time of his death for the value of property included in the decedent's gross estate and transferred by the decedent during his lifetime or by will

(1) To or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes;

(2) To or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes (including the encouragement of art and the prevention of cruelty to children or animals), if no part of the net earnings of the corporation or association inures to the benefit of any private stockholder or individual (other than as a legitimate object of such purposes), and no substantial part of its activities is carrying on propaganda, or otherwise attempting, to influence legislation;

(3) To a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, if the transferred property is to be used exclusively for religious, charitable, scientific, literary, or educational purposes (or for the prevention of cruelty to children or animals), and if no substantial part of the activities of such transferee is carrying on propaganda, or otherwise attempting, to influence legislation; or

(4) To or for the use of any veterans' organzation incorporated by act of Congress, or of any of its departments, local chapters, or posts, no part of the net earnings of which inures to the benefit of any private shareholder or individual. The deduction is not limited, in the case of estates of citizens or residents of the United States, to transfers to domestic corporations or associations, or to trus

tees for use within the United States. Nor is the deduction subject to percentage limitations such as are applicable to the charitable deduction under the income tax. However, sections 503 (e) and 681 (b) (5) provide that no deduction is allowed for transfers to organizations or trusts described in subparagraphs (2) and (3) of this paragraph which have engaged in certain "prohibited transactions" (see § 20.2055-4).

(b) Powers of appointment—(1) General rule. A deduction is allowable under section 2055 (b) for the value of property passing to or for the use of a transferee described in paragraph (a) of this section by the exercise, failure to exercise, release or lapse of a power of appointment by reason of which the property is includible in the decedent's gross estate under section 2041.

(2) Certain bequests subject to power of appointment. For the allowance of a deduction in the case of a bequest in trust where the decedent's surviving spouse (i) was over 80 years of age at the date of decedent's death, (ii) was entitled for life to all of the net income from the trust, and (iii) had a power of oppointment over the corpus of the trust exercisable by will in favor of, among others, a charitable organization, see section 2055 (b) (2). See also section 6503 (e) for suspension of the period of limitations for assessment or collection of any deficiency attributable to the allowance of the deduction.

(c) Submission of evidence. In establishing the right of the estate to the deduction authorized by section 2055, the executor should submit the following with the return:

(1) A copy of any instrument in writing by which the decedent made a transfer of property in his lifetime the value of which is required by statute to be included in his gross estate, for which a deduction under section 2055 is claimed. If the instrument is of record the copy should be certified, and if not of record, the copy should be verified.

(2) A written statement by the executor containing a declaration that it is made under penalties of perjury and stating whether any action has been instituted to construe or to contest the decedent's will or any provision thereof affecting the charitable deduction claimed and whether, according to his information and belief, any such action is designed or contemplated.

The executor shall also submit such other documents or evidence as may be requested by the district director.

§ 20.2055-2 Transfers not exclusively for charitable purposes—(a) Remainders and similar interests. If a trust is created or property is transferred for both a charitable and a private purpose, deduction may be taken of the value of the charitable beneficial interest only insofar as that interest is presently ascertainable, and hence severable from the noncharitable interest. The present value of a remainder or other deferred payment to be made for a charitable purpose is to be determined in accordance with the rules stated in § 20.2031-7. Thus, if money or property is placed in trust to pay the income to an individual during his life, or for a term of years, and then to pay the principal to a charitable organization, the present value of the remainder is deductible. To determine the present value of such remainder use the appropriate factor from column 4 of Table I or Table II of § 20.2031-7, whichever is applicable. If the interest transferred is such that its value is to be determined by a special computation (see paragraph (e) of § 20.2031-7), a request for a specific factor, accompanied by a statement of the date of birth of each person the duration of whose life may affect the value of the remainder, and by copies of the relevant instruments, may be submitted by the executor to the Commissioner who may, if conditions permit, supply the factor requested. If the Commissioner does not furnish the factor, the claim for deduction must be supported by a full statement of the computation of the present value made in accordance with the principles set forth in the applicable paragraph of 20.2031-7.

(b) Transfers subject to a condition or a power. If, as of the date of a decedent's death, a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charItable transfer will not become effective is so remote as to be negligible. If an estate or interest has passed to or is vested in charity at the time of a decedent's death and the estate or interest would be defeated by the performance

of some act or the happening of some

event, the occurrence of which appeared to have been highly improbable at the time of the decedent's death, the deduction is allowable. If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, the deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of the power. The deduction is not allowed in the case of a transfer in trust conveying to charity a present interest in income if by reason of all the conditions and circumstances surrounding the transfer it appears that the charity may not receive the beneficial enjoyment of the interest. For example, assume that assets placed in trust by the decedent consist of stock in a corporation the fiscal policies of which are controlled by the decedent and his family, that the trustees and remaindermen are likewise members of the decedent's family, and that the governing instrument contains no adequate guarantee of the requisite income to the charitable organization. Under such circumstances, no deduction will be allowed. Similarly, if the trustees are not members of the decedent's family but have no power to sell or otherwise dispose of the closely held stock, or otherwise insure the requisite enjoyment of income to the charitable organization, no deduction will be allowed.

(c) Disclaimers. The amount of a bequest, devise, or transfer, for which a deduction is allowable under section 2055, includes an interest which falls into the bequest, devise, or transfer as a result of either

(1) A disclaimer of a bequest, devise, transfer, or power, if (i) the disclaimer is made within 15 months after the decedent's death (the period of time within which the estate tax return must be filed under section 6075) or within any extension of time for filing the return granted pursuant to section 6081, and (ii) the disclaimer is irrevocable at the time the deduction is allowed, or

(2) The complete termination of a power to consume, invade, or appropriate property for the benefit of an individual (whether the termination occurs by reason of the death of the individual, or otherwise) if the termination occurs (i)

within the period described in subparagraph (1) (i) of this paragraph, and (ii) before the power has been exercised. Ordinarily, a disclaimer made by a person not under any legal disability will be considered irrevocable when filed with the probate court. A disclaimer is a complete and unqualified refusal to accept the rights to which one is entitled. Thus, if a beneficiary uses these rights for his own purposes, as by receiving a consideration for his formal disclaimer, he has not refused the rights to which he was entitled. There can be no disclaimer after an acceptance of these rights, expressly or impliedly. The disclaimer of a power is to be distinguished from the release or exercise of a power. The release or exercise of a power by the donee of the power in favor of a person or object described in paragraph (a) of § 20.2055-1 does not result in any deduction under section 2055 in the estate of the donor of a power (but see paragraph (b) (1) of § 20.2055-1 with respect to the donee's estate).

(d) Payments in compromise. If a charitable organization assigns or surrenders a part of a transfer to it pursuant to a compromise agreement in settlement of a controversy, the amount so assigned or surrendered is not deductible as a transfer to that charitable organization.

§ 20.2055-3 Death taxes payable out of charitable transfers. (a) If under the terms of the will or other governing instrument, the law of the jurisdiction under which the estate is administered, or the law of the jurisdiction imposing the particular tax, the Federal estate tax, or any estate, succession, legacy, or inheritance tax is payable in whole or in part out of any property the transfer of which would otherwise be allowable as a deduction under section 2055, section 2055 (c) provides that the sum deductible is the amount of the transferred property reduced by the amount of the tax. Section 2055 (c) in effect provides that the deduction is based on the amount actually available for charitable uses, that is, the amount of the fund remaining after the payment of all death taxes. Thus, if $50,000 is bequeathed for a charitable purpose and is subjected to a State inheritance tax of $5,000, payable out of the $50,000, the amount deductible is $45,000. If a life estate is bequeathed to an individual with remainder over to a charitable organization, and by the local law the inheritance tax upon the life

estate is paid out of the corpus with t result that the charitable organizati will be entitled to receive only t amount of the fund less the tax, t deduction is limited to the present valu as of the date of the testator's death, the remainder of the fund so reduce If a testator bequeaths his residua estate, or a portion of it, to charity, a his will contains a direction that certa inheritance taxes, otherwise payal

from legacies upon which they were in posed, shall be payable out of the resi uary estate, the deduction may not e ceed the bequest to charity thus reduc pursuant to the direction of the will. a residuary estate, or a portion of it, bequested to charity, and by the lo law the Federal estate tax is payable o of the residuary estate, the deducti may not exceed that portion of the resi uary estate bequeathed to charity as duced by the Federal estate tax. return should fully disclose the comp tation of the amount to be deducted. the amount to be deducted is depende upon the amount of any death tax whi has not been paid before the filing of t return, there should be submitted wi the return a computation of that tax.

T

(b) It should be noted that if the Fe eral estate tax is payable out of a cha table transfer so that the amount of t transfer otherwise passing to charity reduced by the amount of the tax, t resultant decrease in the amount pas ing to charity will further reduce t allowable deduction. In such a case, t amount of the charitable deduction c be obtained only by a series of trial-an error computations, or by a formu If, in addition, interdependent State a Federal taxes are involved, the comput tion becomes highly complicated. E amples of methods of computation the charitable deduction and the ma tal deduction (with which similar pro lems are encountered) in vario situations are contained in supplement instructions to the estate tax return.

(c) For the allowance of a deducti to a decedent's estate for certain Sta death taxes imposed upon charitat transfers, see section 2053 (d) al § 20.2053-9.

§ 20.2055-4 Disallowance of char table, etc., deductions because of "pr hibited transactions". (a) Sections 5 (e) and 681 (b) (5) provide that no d duction which would otherwise be allow able under section 2055 for the value