[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of January 1, 2007]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR20.2014-2]

[Page 253-254]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 20_ESTATE TAX; ESTATES OF DECEDENTS DYING AFTER AUGUST 16, 
1954--Table of Contents
 
Sec.  20.2014-2  ``First limitation''.

    (a) The amount of a particular foreign death tax attributable to 
property situated in the country imposing the tax and included in the 
decedent's gross estate for Federal estate tax purposes is the ``first 
limitation.'' Thus, the credit for any foreign death tax is limited to 
an amount, A, which bears the same ratio to B (the amount of the foreign 
death tax without allowance of credit, if any, for Federal estate tax), 
as C (the value of the property situated in the country imposing the 
foreign death tax, subjected to the foreign death tax, included in the 
gross estate and for which a deduction is not allowed under section 
2053(d)) bears to D (the value of all property subjected to the foreign 
death tax). Stated algebraically, the ``first limitation'' (A) equals--

    Value of property in foreign country subjected to foreign death tax, 
included in gross estate and for which a deduction is not allowed under 
section 2053(d)(C) / Value of all property subjected to foreign death 
tax (D) x Amount of foreign death tax (B)


The values used in this proportion are the values determined for the 
purpose of the foreign death tax. The amount of the foreign death tax 
for which credit is allowable must be converted into United States 
money. The application of this paragraph may be illustrated by the 
following example:

    Example. At the time of his death on June 1, 1966, the decedent, a 
citizen of the United States, owned stock in X Corporation (a 
corporation organized under the laws of Country Y) valued at $80,000. In 
addition, he owned bonds issued by Country Y valued at $80,000. The 
stock and bond certificates were in the United States. Decedent left by 
will $20,000 of the stock and $50,000 of the Country Y bonds to his 
surviving spouse. He left the rest of the stock and bonds to his son. 
Under the situs rules referred to in paragraph (a)(3) of Sec.  20.2014-1 
the stock is deemed situated in Country Y while the bonds are deemed to 
have their situs in the United States. (The bonds would be deemed to 
have their situs in Country Y if the decedent had died on or after 
November 14, 1966.) There is not death tax convention in existence 
between the United States and Country Y. The laws of Country Y provide 
for inheritance taxes computed as follows:

Inheritance tax of surviving spouse:
  Value of stock..............................................   $20,000
  Value of bonds..............................................    50,000
                                                               ---------
  Total value.................................................    70,000
                                                               ---------
  Tax (16 percent rate).......................................    11,200
                                                               =========
Inheritance tax of son:
  Value of stock..............................................    60,000
Value of bonds................................................   $30,000
                                                               ---------
   Total value................................................    90,000
                                                               ---------
Tax (16 percent rate).........................................    14,400
                                                               =========



The ``first limitation'' on the credit for foreign death taxes is:

$20,000 + $60,000 (factor C of the ratio stated at Sec.  20.2014-2(a)) / 
          $70,000+ $90,000 (factor D of the ratio stated at Sec.  
          20.2014-2(a)) x ($11,200+$14,400) (factor B of the ratio 
          stated at Sec.  20.2014-2(a)) = $12,800

    (b) If a foreign country imposes more than one kind of death tax or 
imposes taxes 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, a ``first limitation'' is to be 
computed separately for each tax or rate and the results added in order 
to

[[Page 254]]

determine the total ``first limitation.'' The application of this 
paragraph may be illustrated by the following example:

    Example. The facts are the same as those contained in the example 
set forth in paragraph (a) of this section, except that the tax of the 
surviving spouse was computed at a 10 percent rate and amounted to 
$7,000, and the tax of the son was computed at a 20 percent rate and 
amounted to $18,000. In this case, the ``first limitation'' on the 
credit for foreign death taxes is computed as follows:

``First limitation'' with respect to inheritance tax of
 surviving spouse:
  [$20,000 (factor C of the ratio stated at Sec.  20.2014-      $2,000.
   2(a)) / $70,000 (factor D of the ratio stated at Sec.  
   20.2014-2(a))] x$7,000 (factor B of the ratio stated at
   Sec.  20.2014-2(a))=......................................
``First limitation'' with respect to inheritance tax of son:
  [$60,000 (factor C of the ratio stated at Sec.  20.2014-      12,000.
   2(a)) / $90,000 (factor D of the ratio stated at Sec.  
   20.2014-2(a))] x$18,000 (factor B of the ratio stated at
   Sec.  20.2014-2(a))=......................................
                                                               ---------
   Total ``first limitation'' on the credit for foreign death     14,000
   taxes......................................................



[T.D. 6296, 23 FR 4529, June 24, 1958, as amended by T.D. 6600, 27 FR 
4984, May 29, 1962; T.D. 6684, 28 FR 11408, Oct. 24, 1963; T.D. 7296, 38 
FR 34193, Dec. 12, 1973; 39 FR 2090, Jan. 17, 1974]