Revising Qualified Domestic Trust Regulations Under Section 2056A To Update Outdated References and Procedures

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 20</CFR> <DEPDOC>[REG-119683-22]</DEPDOC> <RIN>RIN 1545-BQ88</RIN> <SUBJECT>Revising Qualified Domestic Trust Regulations Under Section 2056A To Update Outdated References and Procedures</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains proposed amendments to the Federal estate tax regulations applicable to estates of decedents passing property to or for the benefit of a noncitizen spouse in a domestic trust for which the executor of the decedent's estate has made an election to be a qualified domestic trust and the trust satisfies all of the requirements for such treatment under applicable Federal tax law and regulations. The proposed regulations would modify those regulations to update outdated references, information, and procedures. The proposed regulations primarily would affect the estates of decedents passing property to or for the benefit of a noncitizen spouse in such a trust pursuant to applicable Federal tax law. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written or electronic comments as well as requests for a public hearing must be received by October 21, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at <E T="03">https://www.regulations.gov</E> (indicate IRS and REG-119683-22) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted to the IRS's public docket. Send paper submissions to: CC:PA:01:PR (REG-119683-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, Donna Douglas, (202) 317-6859 (not a toll-free number); concerning the submission of comments and/or requests for a public hearing, Vivian Hayes by email at <E T="03">publichearings@irs.gov</E> or by phone at (202) 317-6901 (not a toll-free number). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> This document contains proposed amendments to the Estate Tax Regulations (26 CFR part 20) under section 2056A of the Internal Revenue Code (Code). <HD SOURCE="HD2">I. Statutory Overview</HD> Although section 2056(d)(1) of the Code generally disallows a marital deduction for the value of property passing to a noncitizen spouse of a decedent or donor, section 2056(d)(2)(A) allows a marital deduction for such property passing to the decedent's surviving spouse in a qualified domestic trust (QDOT), as defined in section 2056A. Section 2056A of the Code was added by the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647) and further amended by the Revenue Reconciliation Act of 1989 (Pub. L. 101-239), the Revenue Reconciliation Act of 1990 (Pub. L. 101-508), the Taxpayer Relief Act of 1997 (Pub. L. 105-34), and the Economic Growth and Tax Relief Reconciliation Act of 2001 (Pub. L. 107-16). Generally, for purposes of sections 2056 and 2056A, section 2056A(a) defines the term “qualified domestic trust,” with respect to any decedent, as any trust if (1) its trust instrument meets certain requirements regarding the identity and powers of the trustee, (2) such trust meets such requirements as the Secretary of the Treasury or her delegate (Secretary) may by regulations prescribe to ensure the collection of any tax imposed by section 2056A(b), and (3) an election under section 2056A by the executor of the decedent's estate applies to such trust. Section 2056A(b) generally prescribes rules relating to a deferred estate tax on distributions of corpus from the QDOT during the spouse's lifetime and on the balance of the corpus held in the QDOT on the date of the spouse's death (section 2056A estate tax). Section 2056A(c) provides definitions of certain relevant terms, and section 2056A(d) provides rules regarding the section 2056A election. Finally, section 2056A(e) directs the Secretary to prescribe regulations as may be necessary or appropriate to carry out the purposes of section 2056A. <HD SOURCE="HD2">II. Regulatory Overview</HD> Regulations addressing the application of sections 2056(d) and 2056A were published in the <E T="04">Federal Register</E> (58 FR 305) as proposed regulations on January 5, 1993 (1993 proposed regulations). The 1993 proposed regulations included proposed rules under §§ 20.2056A-1 through 20.2056A-13. Relevant to these proposed regulations, § 20.2056A-2 of the 1993 proposed regulations sets forth the proposed qualification requirements for a QDOT; § 20.2056A-4 of the 1993 proposed regulations sets forth the proposed procedures for conforming marital trust and nontrust marital transfers to the requirements of a QDOT; and § 20.2056A-11 of the 1993 proposed regulations sets forth the proposed rules relating to filing requirements and payment of the section 2056A estate tax. On August 22, 1995, after consideration of all written comments and public hearing testimony, the 1993 proposed regulations were adopted as final regulations by the publication of TD 8612 in the <E T="04">Federal Register</E> (60 FR 43531), with one exception: section 20.2056A-2(d) of the 1993 proposed regulations, which had proposed additional requirements to ensure collection of the section 2056A estate tax, was not finalized. On the same date, the Treasury Department and the IRS published TD 8613 in the <E T="04">Federal Register</E> (60 FR 43554), which included temporary regulations under § 20.2056A-2T(d) (1995 temporary regulations). The text of the 1995 temporary regulations also served, by cross-reference, as the text of reissued proposed regulations published on the same date in the <E T="04">Federal Register</E> (60 FR 43574) to address and solicit further commentary on the additional requirements necessary to ensure collection of the section 2056A estate tax (1995 proposed regulations). On November 29, 1996, the Treasury Department and the IRS published TD 8686 in the <E T="04">Federal Register</E> (61 FR 60551) to adopt § 20.2056A-2(d) of the 1995 proposed regulations as final regulations (1996 final regulations). In an apparent oversight, the 1996 final regulations did not update the references to § 20.2056A-2T(d) found in §§ 20.2056A-2, 20.2056A-4, and 20.2056A-11. <HD SOURCE="HD1">Explanation of Provisions</HD> The Treasury Department and the IRS have determined that an update of §§ 20.2056A-2, 20.2056A-4, and 20.2056A-11 of the Estate Tax Regulations is required to remove outdated references to § 20.2056A-2T(d). An update of § 20.2056A-2 is also required to correct outdated references to a publication, to IRS officials and offices, and to procedures and addresses to be used by certain trustees to provide a security instrument to satisfy the requirements of a QDOT. In addition, an update to the definition of “finally determined” in § 20.2056A-2(d)(1)(iii) is needed because the current definition of that term includes an outdated reference to the issuance of an estate tax closing letter. An update of §§ 20.2056A-4 and 20.2056A-11 is required to properly identify the titles of IRS officials authorized to enter into agreements with respect to the section 2056A estate tax and to grant extensions of time to file a Form 706-QDT, <E T="03">U.S. Estate Tax Return for Qualified Domestic Trusts,</E> or to pay any section 2056A estate tax. The Treasury Department and the IRS are aware that other matters in the current regulations under section 2056A may be outdated, but these matters do not cause the current regulations to be substantively inaccurate. For instance, the examples in § 20.2056A-6 use outdated figures but accurately illustrate the application of the rules of the regulations. Modifications to update information that does not impede the ability of taxpayers and their representatives to comply with the regulations, or the ability of the IRS to process information provided by taxpayers or their representatives, are outside the scope of these proposed regulations. <HD SOURCE="HD2">I. Section 20.2056A-2—Qualification Requirements for QDOT</HD> <HD SOURCE="HD3">A. Updating References to the 1995 Temporary Regulations in § 20.2056A-2(a) and (b)</HD> Current § 20.2056A-2(a) and (b)(2) and (3) refer to § 20.2056A-2T(d) in describing certain qualification requirements for QDOTs. Because the 1995 proposed regulations have been finalized, the Treasury Department and the IRS propose to update these paragraphs to reference § 20.2056A-2(d) instead of § 20.2056A-2T(d). <HD SOURCE="HD3">B. Updating the Definition of Finally Determined in § 20.2056A-2(d)(1)(iii)</HD> Current § 20.2056A-2(d)(1)(i) and (ii) provide alternate additional requirements, one of which will apply to a QDOT depending upon the fair market value, as finally determined for Federal estate tax purposes, of the assets passing to the QDOT. Current § 20.2056A-2(d)(1)(iii) provides the definition of “finally determined” for purposes of § 20.2056A-2(d)(1)(i) and (ii). This definition relies in part on the issuance by the IRS of an estate tax closing letter, an IRS practice that was routine prior to June 1, 2015, for every Federal estate tax return filed. Estate tax closing letters are no longer routinely issued by the IRS. The Treasury Department and the IRS propose to update § 20.2056A-2(d)(1)(ii ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 47k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━