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ESTATES, TRUSTS & GIFTS

■ The deductibility of interest ex- regulations that the amount payable Transfer) Tax Return, showing how the
pense accruing on tax and penalties under a decedent’s noncontingent recur- present value was calculated.
that an estate owes; ring obligation is deemed ascertainable Once finalized, Prop. Regs. Sec.
■ The deductibility of interest with reasonable certainty and, therefore, 20.2053-1(d)(6) completes the 2009
expense accruing on certain loan may be deducted in advance, while the revisions to the regulations under Sec.
obligations that an estate incurred; amount payable under a contingent re- 2053 that set forth the use of post-death
■ Requirements for substantiating curring obligation cannot be determined events in determining the amount de-
the value of a claim against an with reasonable certainty and thus is ductible for expenses and claims against
estate that is deductible under deductible only as paid. The 2009 final the estate. Before the 2009 revisions to
Regs. Sec. 20.2053-4(b) or (c); and regulations also removed the language the regulations, the courts were split as
■ The deductibility of amounts paid making the present-value limitation ap- to whether post-death events had to be
under a personal guaranty by the plicable only to noncontingent recurring taken into account when determining
decedent. obligations and reserved the issue for the amount deductible in computing the
future guidance. taxable estate. The new proposed regula-
Applying present-value principles The new proposed regulations tion sets forth the use of present-value
to deductible amounts generally would apply present-value concepts in determining the amount of
The 2009 final regulations implement- principles consistently to expenses and the deduction for expenses and claims
ed the present-value accounting prin- claims without regard to whether they against the estate, depending on when
ciple in determining the amount that are contingent. (Only unpaid mortgages those expenses and claims will be paid
an estate may deduct for certain claims and indebtedness excluded under Regs. by the estate. The proposed regulations
and expenses. They generally limit the Sec. 20.2053-7 would be excluded.) Ac- provide a three-year grace period for
Sec. 2053 deduction to the amount knowledging that estates “often cannot payment of the expenses and claims
actually paid to settle or satisfy a claim pay every deductible claim and expense before these present-value rules would
or expense and clarify that events oc- within a short time after the decedent’s have to be used. As with the general im-
curring after death are considered in death,” the proposed regulations allow plications of the 2009 revisions, the de-
determining the allowable Sec. 2053 a three-year grace period following the ductible amount of expenses and claims
deduction. To more accurately measure decedent’s death for the estate to pay de- against the estate may be lower than
the amounts not passing to heirs and ductible debts. Therefore, an estate would their values on the date of the decedent’s
legatees, the IRS determined that the be required to make a present-value death due to post-death events.
deductible amount should be limited to calculation only if a deductible claim or
the present value of the amounts paid expense is not paid or to be paid by the Deducting interest expense as
after an extended post-death period. third anniversary of the decedent’s death. estate administration expense:
Proposed regulations15 (the 2007 A general formula in the new regula- Interest on unpaid tax and
proposed regulations) that preceded the tions determines the present value of penalties
2009 final regulations permitted deduc- these not-yet-paid amounts by applying An estate generally must pay interest
tions for a decedent’s noncontingent a discount rate equal to the applicable at the Sec. 6621 underpayment rate on
recurring obligations if the present federal rate determined under Sec. any unpaid federal tax and additions
value of future payments under the 1274(d) for the month of the decedent’s to tax (Sec. 6621 interest). In contrast,
obligation was computed. In contrast, a death, compounded annually for the interest payable under Sec. 6601 on
decedent’s contingent recurring obliga- length of time between the date of death unpaid estate tax deferred under Sec.
tions were deductible only as the estate and the anticipated date of payment. The 6166 (Sec. 6166 interest) receives a
paid amounts to satisfy the claims — proposed regulations would allow any more favorable interest rate under Sec.
and computing the present value of the reasonable assumptions or methodology 6601(j) and is not deductible.
amounts was not necessary. Responding regarding time period measurements to The preamble to the proposed
to commenters who argued the pro- be used in calculating the present value regulations notes that non–Sec. 6166
posed regulations produced an incon- and require the estate to submit a sup- interest may accrue on or after the
sistent and inequitable result, Treasury porting statement on Form 706, United date of death on unpaid estate tax in
and the IRS clarified in the 2009 final States Estate (and Generation-Skipping connection with a Sec. 6161 extension,

15. REG-143316-03.

30 November 2022 The Tax Adviser