IRS and Treasury Issue Proposed Regulations on Present Value of Estate Deductions
The IRS and the U.S. Department of the Treasury recently issued proposed regulations REG-130975-08, providing guidance on the use of present-value principles in determining the amount deductible by an estate of certain expenses and claims against the estate under Sec. 2053 of the Internal Revenue Code.
The regulations apply present-value principles to contingent and noncontingent expenses and claims and allow a three-year "grace period" from the decedent’s date of death before a present-value calculation is required. For a deductible claim or expense detailed in Sec. 2053(a) and Regs. Sec. 20.2053-1(a) that will be paid after the third anniversary of the decedent's date of death, estates may discount the deductible amount by the applicable federal rate under Sec. 1274(d) for the month in which the decedent's death occurs, compounded annually. Reasonable assumptions or methodology may be utilized concerning the time period measurements used to calculate present value. The expected date(s) of payment may be determined by a fair and reasonable estimate using all information reasonably available to the taxpayer.
Additionally, the proposed regulations discuss the deductibility of certain interest expenses as an expense of administering an estate, including (non–Sec. 6166) interest accruing on unpaid tax and penalties.
The regulations also address substantiation requirements for valuations performed pursuant to Regs. Secs. 20.2053-4(b) and (c) of certain deductible claims against an estate. They also cover the deductibility of amounts paid pursuant to a decedent's personal guarantee.
The regulations would apply to the estates of decedents dying on or after the date of their publication as final.