COMPUTATION AND RATES OF THE FEDERAL ESTATE TAX The gross estate tax is computed by applying the rate of tax shown in the following table to the value of the taxable estate. A special tax benefit is provided for U.S. military personnel who die as a result of service in a combat zone. The decedent must have been a U.S. resident or citizen and must have died during active services. Death must have been caused by wounds, injury, or disease suffered in a combat zone, by reason of a hazard to which he was subjected as an incident of such service. CREDITS AGAINST THE GROSS ESTATE TAX The net estate tax payable is determined by deducting from the gross estate tax the allowable credits for: (1) State death taxes; (2) Federal gift taxes; (3) Federal estate taxes on prior transfers; and (4) foreign death taxes. A. Credit for State Death Taxes A limited credit is allowed against the gross estate tax for the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State (or to the District of Columbia) on account of any property included in the gross estate. The credit only applies for taxes that were actually paid, and for which a credit was claimed, within 4 years after the filing of the estate tax return for the decedent's estate or before the expiration of any extension of time for payment of the Federal estate tax because of undue hardship, whichever is later. If the estate is liable for two or more separate State death taxes, the total State taxes paid are eligible for the credit up to the maximum limit. If the decedent's taxable estate does not exceed $40,000, the credit for State death taxes is zero. If the taxable estate exceeds $40,000, the credit is limited to an amount computed according to the following table: TABLE FOR COMPUTATION OF MAXIMUM CREDIT FOR STATE DEATH TAXES Credit is allowed against the estate tax for the Federal gift tax paid on a gift by the decedent of property subsequently included in his gross estate. The credit is allowable even though the gift tax is paid after the decedent's death and the amount of the gift tax is deducted from the gross estate as a debt of the decedent. The credit is limited to the lesser of the following two amounts: (a) The gift tax paid on the gift that is included in the gross estate, or (b) The amount of estate tax attributable to the inclusion of the gift in the decedent's gross estate. C. Credit for Tax on Prior Transfers Credit is allowed against the tax for Federal estate taxes paid on the transfer of property to the present decedent from a transferor who died within 10 years before, or within 2 years after, the present decedent's death. It is not necessary that the transferred property be identified in the present decedent's estate or that it be in existence at the time of his death. It is sufficient that the transfer of the property was subject to Federal estate tax in the estate of the transferor and that the transferor died wihin the prescribed period of time. The credit is limited to the smaller of the following amounts: (a) The amount of the Federal estate tax attributable to the transferred property in the transferor's estate, or (b) The amount of the Federal estate tax attributable to the transferred property in the present decedent's estate. If the transferor died within 2 years before, or 2 years after, the present decedent's death, the credit is the smaller of limitation (a) or (b) above. If the transferor died more than 2 years before the decedent, the credit is a certain percentage of the smaller of (a) or (b) as (1) 80 percent, if the transferor died within the 3d or 4th year preceding the decedent's death; (2) 60 percent, if within the 5th or 6th year; (4) 20 percent, if within the 9th or 10th year. The amount of limitation (a), above, is a fraction of the transferor's adjusted Federal estate tax, the numerator being the value of the transferred property, and the denominator the transferor's adjusted taxable estate. The "transferor's adjusted Federal estate tax" is the amount of Federal estate tax paid on the transferor's estate plus (1) any credit allowed his estate for gift tax and (2) any credit allowed his estate for tax on prior transfers, but only if the transferor acquired property from a person who died within 10 years before the death of the present decedent. The "transferor's adjusted taxable estate" is the amount of the transferor's taxable estate decreased by the amount of any death taxes paid with respect to his gross estate and increased by the amount of the exemption allowed in computing his taxable estate. The term "death taxes" means the Federal estate tax plus the net amount of all other estate, inheritance, legacy, succession, or similar taxes imposed by and paid to any taxing authority, whether within or without the United States. The "value of the transferred property" is the value at which the property transferred to the decedent was included in the transferor's gross estate for the purpose of the Federal estate tax, reduced by (1) the amount of any death taxes payable out of, or paid by the decedent in connection with, the transferred property, (2) the amount of any encumbrance on the property or obligation imposed by the transferor upon, and incurred by, the present decedent with respect to the property, and (3) the amount of any marital deduction allowed the transferor's estate if the decedent was the transferor's spouse at the time of the transferor's death. D. Credit for Foreign Death Taxes. Credit is allowed against the estate tax for any estate, inheritance, legacy, or succession taxes actually paid to any foreign country. For purposes of this subsection, the term "foreign country" refers not only to states in the international sense but also to possessions or political subdivisions of foreign states and to possessions of the United States. The credit is allowed for death taxes paid with respect to property (1) situated within the foreign country to which the tax is paid, and (2) included in the decedent's gross estate. No credit is allowed for such taxes paid with respect to the estate of a person other than the decedent. No credit is allowed for interest or penalties paid in connection with foreign death taxes. The credit is allowable to the estate of a decedent who, at the time of his death, was a citizen of the United States. It is also allowable to the estate of a noncitizen resident of the United States unless there is a proclamation by the President of the United States denying the foreign death tax credit to citizens of the foreign country of which the decedent was a citizen. No credit is allowable to the estate of a decedent who was neither a citizen nor resident of the United States at the time of his death. Whether particular property included in a decedent's gross estate is situated in the foreign country imposing the tax is determined according to the same principles used in determining whether similar property of a nonresident alien decedent is situated within the United States for Federal estate tax purposes. If the tax is imposed by a political subdivision of a foreign country, credit for the tax may be allowed even though, under the foregoing principles, the property involved is situated in a political subdivision different from the one imposing the tax. The credit is limited to the smaller of the following: (a) The amount of the foreign death tax attributable to the property situated in the country imposing the tax and included in the decedent's gross estate for Federal estate tax purposes, or (b) The amount of the Federal estate tax attributable to particular property situated in a foreign country, subject to death tax in that country, and included in the decedent's gross estate for Federal estate tax purposes. The amount of limitation (a) is a fraction of the tax imposed by the foreign country, without allowance of any credit for U.S. estate tax, the numerator being the value of the property situated in the foreign country subjected to the foreign tax and included in the decedent's gross estate for Federal estate tax purposes, and the denominator being the value of all the property subjected to the foreign tax. The values used in this computation are those used by the foreign jurisdiction in imposing its tax. If a foreign country imposes more than one kind of death tax or imposes tax at different rates upon the several shares of an estate, or if a foreign country and a political subdivision or possession thereof each imposes a death tax, separate computations must be made and the results added to determine the amount of limitation (a). The amount of limitation (b) is a fraction of the gross Federal estate tax reduced by any credit for State death taxes and by any credit for gift tax the numerator being the adjusted value of the property situated in the foreign country, subjected to the foreign death tax, and included in the gross estate, and the denominator being the value of the entire gross estate, reduced by the total amount of the deductions allowed for charitable contributions and for bequests to the surviving spouse. The values used in this computation are those determined for purposes of the Federal estate tax. In addition to the credit for foreign death taxes under the provisions of Federal estate tax law, similar credits are allowed under death tax conventions with a number of foreign countries. If credit is allowable either under the provisions of law or under the provisions of a convention, there is allowed that credit which is most beneficial to the estate. If property of the estate is subjected to tax by a country with which the United States has concluded a convention, and also by a political subdivision or possession of that country, there is allowed either (1) a credit for the combined death taxes paid to the foreign country and its political subdivisions or possessions as provided for by the convention, (2) a credit for the combined death taxes paid to the foreign country and its political subdivisions or possessions as determined under the provisions of law, or (3) a credit for that amount of the divisions or possessions as allowed under the convention, and a further credit, determined in the regular manner, for the death taxes paid to each political subdivision or possession to the extent the death taxes are not directly or indirectly covered by the convention whichever is the most beneficial to the estate. It is possible, in certain cases, for a credit to be allowable for the same property, as regularly determined, for tax paid to one foreign country and as regularly determined or under a convention for tax paid to another foreign country. In such cases, the credits are combined and the total amount is credited against the Federal estate tax. The amount allowable is limited, however, to the amount of the Federal estate tax attributable to the property involved, determined according to the rules set forth above for computing the amount of limitation (b). The credit for foreign death taxes, as regularly determined, is limited to those taxes that were actually paid, and for which a credit was claimed, within 4 years after the filing of the estate tax return, or before the date of expiration of any extension of time for paying the Federal estate tax because of undue hardship, whichever is later. If an election is made to postpone payment of the estate tax attributable to a remainder or reversionary interest, the part of a foreign death tax allowable as a credit with respect to the remainder or reversionary interest may be allowed if that part is paid, and credit, therefore, is claimed, either within 4 years after the filing of the return or within the time for payment of the Federal estate tax as postponed and extended, whichever is later. ESTATES OF NONRESIDENTS NOT CITIZENS The entire gross estate, wherever situated, of a decedent who, at the time of his death, was not a resident or citizen of the United States is made up in the same way as the gross estate of a citizen or resident of the United States. However, only that part of the entire gross estate that is situated in the United States is subject to the tax. Rules for determining the location of property are set forth below along with the different rules concerning the allowable exemption, deductions, and credits with regard to estates of nonresident aliens. A. Situs of Property Property of a decedent who, at time of death, was neither a citizen nor a resident of the United States is considered situated in the United States if it is: (1) Real property located in the United States (2) Tangible personal property located in the United States, such as clothing, jewelry, automobiles, furniture, currency, etc. Exception is made for works of art imported into the United States solely for public exhibition purposes; (3) Subject to the exceptions discussed below, a debt obligation of a citizen or resident of the United States, a domestic partnership or corporation, any estate or trust (but not a foreign estate or trust), the United States, a State or any political subdivision thereof, or the District of Columbia; (4) Shares of stock issued by domestic corporations; (5) Moneys on deposit with a domestic branch of a foreign cor |