Estate must use death-date values when they produce lower tax

Plain-English summary

An estate elected alternate valuation believing that the alternate-date values would reduce both the gross estate and the combined estate and generation-skipping transfer taxes. Examination adjustments later showed that the date-of-death values actually produced the lower combined taxes. Chief Counsel advised that section 2032(c) therefore required use of the date-of-death values. The alternate-valuation election remained valid, but it could not be used when its statutory tax-reduction conditions were not met. The advice compared this result to a protective election that becomes useful only if later determinations make alternate valuation produce the lower tax.

Ruling snapshot

• Question: Which values apply when an estate validly elected alternate valuation but examination adjustments made date-of-death values produce lower combined estate and GST taxes?
• Outcome: Advice given to use date-of-death values despite the continuing validity of the election.
• Key authorities: IRC § 2032(c); Treas. Reg. § 20.2032-1

Full text (IRS public release)

ID:       CCA_2019053010314165
UILC:     2032.00-00

Number: 201926013
Release Date: 6/28/2019
From:
Sent: Thursday, May 30, 2019 10:31:42 AM
To:
Cc:
Bcc:
Subject: RE: 2032 Question


Hello ------,

It seems to me that the rule of § 2032(c) controls. This means that alternate valuation
date values can only be used if it results in a lower gross estate and a lower combined
estate and GST tax. If, for whatever reason, that is not the case, the taxpayer must use
date of death values, even though the 2032 election remains completely valid.

In your situation, the taxpayer made the election with the assumption that based on the
values that he reported, the taxes at alternate valuation date would be less than the
taxes at date of death. However, after taking into account your examination and
adjustments, the date of death value actually results in the lower value of combined
estate and GST taxes. The date of death value must be used.

To some extent, this is analogous to the situation in Treas. Reg. § 20.2032-1 which
mentions protective elections. There, an executor can make a protective election to use
the alternate valuation date, even though the date of death value produces the lower
combined taxes. The purpose of the protective election is to allow for the alternate
valuation date to be used if it is subsequently determined that the combined taxes will
be lower based on the alternate valuation date than based on the date of death. This
certainly contemplates lower values that result after an IRS examination.