Rev. Rul. 54-21

Advice is requested whether bonds of a domestic corporation, which are among the assets of the estate of a decedent who was a resident and citizen of Canada, are includible in the net estate for Federal estate tax purposes.

Section 861(a) of the Internal Revenue Code and section 81.13 of Regulations 105, promulgated pursuant to section 811(a) of the Code, provide, in part, that in the case of a decedent who was a nonresident not a citizen of the United States at the time of death, only the property situated in the United States is includible in the net estate.

The question is presented because of an apparent conflict between the provisions of the supplemental death duty convention between the United States and Canada and the provisions of Estate Tax Regulations 105, relating to the situs of property. Under section 81.50 of the regulations, bonds in the estate of a nonresident not a citizen are deemed not within the United States unless physically situated therein. See Herman A. Holsten, executor, for the estate of Luisa Terry Ponvert v. Commissioner , 35 B.T.A. 568, affirmed per curiam, 93 Fed.(2d) 1002. Under subparagraph (f) of Article II of the convention bonds of a company are deemed to be situated at the place where the company is incorporated. However, the proviso at the end of Article II prescribes that such Article shall not be construed as increasing the liability of the estate of any person under the estate tax laws of the United States.

By virtue of the above-mentioned proviso, the situs rules of Article II do not subject any property to the estate tax that would not otherwise be so subjected. Accordingly, unless the bonds were physically situated within the United States at the time of the decedent's death, they are not includible in the net estate.