Rev. Rul. 66-236

Advice has been requested whether the value of convertible debentures of a domestic corporation, which are among the assets of a nonresident who was not a citizen of the United States at the time of his death, is includible in the value of his gross estate for Federal estate tax purposes.

Section 2103 of the Internal Revenue Code of 1954 provides, in part, that for Federal estate tax purposes, the value of the gross estate of every decedent nonresident not a citizen of the United States shall be that part of his entire gross estate which at the time of his death is situated in the United States.

Section 20.2104-1 of the Estate Tax Regulations provides, in part:

(a) IN GENERAL.-Property of a nonresident who was not a citizen of the United States at the time of his death is considered to be situated in the United States if it is-

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(3) Written evidence of intangible personal property which is treated as being the property itself, such as a bond for the payment of money, if it is physically located in the United States, * * *

Section 20.2105-1 of the Estate Tax Regulations provides, in part:

Property of a nonresident who was not a citizen of the United States at the time of his death is considered to be situated outside the United States if it is-

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(c) Written evidence of intangible personal property which is treated as being the property itself, such as a bond for the payment of money, if it is not physically located in the United States.

Convertible debentures issued by a corporation are instruments which acknowledge a debt of the corporation and promise payment, but which may, at the option of the personal property which is of common stock of the corporation upon specified terms. Prior to conversion, a convertible debenture is the written evidence of intangible person property which is treated as being the property itself, within the meaning of section 20.2104-1 and 20.2105-1 of the Estate Tax Regulations.

Accordingly, it is held that the value of convertible debentures of a domestic corporation which are among the assets of a nonresident who was not a citizen of the United States at the time of his death is not includible in his gross estate for Federal estate tax purposes unless the debentures were physically situated in the United States at the time of his death.