[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.691(c)-1]

[Page 336-338]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.691(c)-1  Deduction for estate tax attributable to income in 
respect of a decedent.

    (a) In general. A person who is required to include in gross income 
for any taxable year an amount of income in respect of a decedent may 
deduct for the same taxable year that portion of the estate tax imposed 
upon the decedent's estate which is attributable to the inclusion in the 
decedent's estate of the right to receive such amount. The deduction is 
determined as follows:
    (1) Ascertain the net value in the decedent's estate of the items 
which are included under section 691 in computing gross income. This is 
the excess of the value included in the gross estate on account of the 
items of gross income in respect of the decedent (see Sec. 1.691(a)-1 
and paragraph (c) of this section) over the deductions from the gross 
estate for claims which represent the deductions and credit in respect 
of the decedent (see Sec. 1.691(b)-1). But see section 691(d) and 
paragraph (b) of Sec. 1.691(d)-1 for computation of the special value 
of a survivor's annuity to be used in computing the net value for estate 
tax purposes in cases involving joint and survivor annuities.
    (2) Ascertain the portion of the estate tax attributable to the 
inclusion in the gross estate of such net value. This is the excess of 
the estate tax over the estate tax computed without including such net 
value in the gross estate. In computing the estate tax without including 
such net value in the gross estate, any estate tax deduction (such as 
the marital deduction) which may be based upon the gross estate shall be 
recomputed so as to take into account the exclusion of such net value 
from the gross estate. See example 2, paragraph (e) of Sec. 1.691(d)-1.

For purposes of this section, the term estate tax means the tax imposed 
under section 2001 or 2101 (or the corresponding provisions of the 
Internal Revenue Code of 1939), reduced by the credits against such tax. 
Each person including in gross income an amount of income in respect of 
a decedent may deduct as his share of the portion of

[[Page 337]]

the estate tax (computed under subparagraph (2) of this paragraph) an 
amount which bears the same ratio to such portion as the value in the 
gross estate of the right to the income included by such person in gross 
income (or the amount included in gross income if lower) bears to the 
value in the gross estate of all the items of gross income in respect of 
the decedent.
    (b) Prior decedent. If a person is required to include in gross 
income an amount of income in respect of a prior decedent, such person 
may deduct for the same taxable year that portion of the estate tax 
imposed upon the prior decedent's estate which is attributable to the 
inclusion in the prior decedent's estate of the value of the right to 
receive such amount. This deduction is computed in the same manner as 
provided in paragraph (a) of this section and is in addition to the 
deduction for estate tax imposed upon the decedent's estate which is 
attributable to the inclusion in the decedent's estate of the right to 
receive such amount.
    (c) Amounts deemed to be income in respect of a decedent. For 
purposes of allowing the deduction under section 691(c), the following 
items are also considered to be income in respect of a decedent under 
section 691(a):
    (1) The value for estate tax purposes of stock options in respect of 
which amounts are includible in gross income under section 421(b) (prior 
to amendment by section 221(a) of the Revenue Act of 1964), in the case 
of taxable years ending before January 1, 1964, or under section 
422(c)(1), 423(c), or 424(c)(1), whichever is applicable, in the case of 
taxable years ending after December 31, 1963. See section 421(d)(6) 
(prior to amendment by sec. 221(a) of the Revenue Act of 1964), in the 
case of taxable years ending before January 1, 1964, and section 
421(c)(2), in the case of taxable years ending after December 31, 1963.
    (2) Amounts received by a surviving annuitant during his life 
expectancy period as an annuity under a joint and survivor annuity 
contract to the extent included in gross income under section 72. See 
section 691(d).
    (d) Examples. Paragraphs (a) and (b) of this section may be 
illustrated by the following examples:

    Example 1. X, an attorney who kept his books by use of the cash 
receipts and disbursements method, was entitled at the date of his death 
to a fee for services rendered in a case not completed at the time of 
his death, which fee was valued in his estate at $1,000, and to accrued 
bond interest, which was valued in his estate at $500. In all, $1,500 
was included in his gross estate in respect of income described in 
section 691(a)(1). There were deducted as claims against his estate $150 
for business expenses for which his estate was liable and $50 for taxes 
accrued on certain property which he owned. In all, $200 was deducted 
for claims which represent amounts described in section 691(b) which are 
allowable as deductions to his estate or to the beneficiaries of his 
estate. His gross estate was $185,000 and, considering deductions of 
$15,000 and an exemption of $60,000, his taxable estate amounted to 
$110,000. The estate tax on this amount is $23,700 from which is 
subtracted a $75 credit for State death taxes leaving an estate tax 
liability of $23,625. In the year following the closing of X's estate, 
the fee in the amount of $1,200 was collected by X's son, who was the 
sole beneficiary of the estate. This amount was included under section 
691(a)(1)(C) in the son's gross income. The son may deduct, in computing 
his taxable income for such year, $260 on account of the estate tax 
attributable to such income, computed as follows:

(1) (i) Value of income described in section 691(a)(1)            $1,500
 included in computing gross estate.........................
(ii) Deductions in computing gross estate for claims                 200
 representing deductions described in section 691(b)........
                                                             -----------
(iii) Net value of items described in section 691(a)(1).....       1,300
                                                             ===========
(2) (i) Estate tax..........................................      23,625
(ii) Less: Estate tax computed without including $1,300           23,235
 (item (1)(iii)) in gross estate............................
                                                             -----------
(iii) Portion of estate tax attributable to net value of             390
 items described in section 691(a)(1).......................
                                                             ===========
(3) (i) Value in gross estate of items described in section        1,000
 691(a)(1) received in taxable year (fee)...................
(ii) Value in gross estate of all income items described in        1,500
 section 691(a)(1) (item (1)(i))............................
(iii) Part of estate tax deductible on account of receipt of         260
 $1,200 fee (1,000/1,500 of $390)...........................



Although $1,200 was later collected as the fee, only the $1,000 actually 
included in the gross estate is used in the above computations. However, 
to avoid distortion, section 691(c) provides that if the value included 
in the gross estate is greater than the amount finally collected, only 
the amount collected shall be used in the above computations. Thus, if 
the amount collected as the fee were only $500, the estate tax 
deductible on the receipt of such amount would be 500/1,500 of $390, or 
$130. With respect to taxable years ending before January 1, 1964, see 
paragraph

[[Page 338]]

(d)(3) of Sec. 1.421-5 for a similar example involving a restricted 
stock option. With respect to taxable years ending after December 31, 
1963, see paragraph (c)(3) of Sec. 1.421-8 for a similar example 
involving a stock option subject to the provisions of part II of 
subchapter D.
    Example 2. Assume that in example 1 the fee valued at $1,000 had 
been earned by prior decedent Y and had been inherited by X who died 
before collecting it. With regard to the son, the fee would be 
considered income in respect of a prior decedent. Assume further that 
the fee was valued at $1,000 in Y's estate, that the net value in Y's 
estate of items described in section 691 (a)(1) was $5,000 and that the 
estate tax imposed on Y's estate attributable to such net value was 
$550. In such case, the portion of such estate tax attributable to the 
fee would be 1,000/5,000 of $550, or $110. When the son collects the 
$1,200 fee, he will receive for the same taxable year a deduction of 
$110 with respect to the estate tax imposed on the estate of prior 
decedent Y as well as the deduction of $260 (as computed in example 1) 
with respect to the estate tax imposed on the estate of decedent X.

[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6887, 31 FR 
8812, June 24, 1966]