Rev. Rul. 66-233

Advice has been requested whether certain expenses of administration otherwise allowable as deductions from the decedent's gross estate under section 2053 of the Internal Revenue Code of 1954 will have the effect of increasing the value of an interest in the residuary estate passing to the transferee for use in computing the credit for tax on prior transfers under section 2013 of the Code, should the decedent's executor elect to claim such expenses as deductions for Federal income tax purposes under sections 162 or 212 of the Code.

Section 2013 of the Code provides in part that the tax imposed by section 2001 of the Code, on the estate of a decedent, shall be credited with all or a part of the amount of the Federal estate tax paid with respect to the transfer of property. This section also provides that the value of the property transferred to the transferee (present decedent) shall be the value used for the purpose of determining the Federal estate tax of the transferor (prior decedent), taking into account the effect of any death taxes, encumbrances or any obligations imposed by the transferor and incurred by the transferee with respect to such property, and the marital deduction allowed.

In Senate Report No. 1622 of the Committee on Finance, Eighty-third Congress, Second Session, page 467, the Committee reported that subsection (d) of section 2013 of the Code was revised `* * * so as to provide that the value of property transferred to the decedent shall be determined in the same manner as the value of property interests passing to a surviving spouse under section 2056 of the Code is determined.' The Committee also reported that `The property transferred to the decedent by the transferor is only such property as the transferor can give. If the transferor by his will leaves the residue of his estate to the decedent and he pays, or if the estate income is used to pay, claims against the estate so as to increase the residue, such increase in the residue is acquired by purchase and not by bequest. Accordingly, the value of any such additional part of the residue passing to the decedent cannot be included in the value of the property transferred to the decedent.'

The valuation of an interest in the residuary estate of a transferor for the purpose of computing the credit allowable under section 2013 of the Code is determined by subtracting from the value of the residuary estate all of the administration expenses actually allowable under section 2053 of the Code whether such expenses are taken as deductions under section 2053 for Federal estate tax purposes or under section 162 or 212 for Federal income tax purposes.