July 15, 2022 - Douglas Myser

Present value of estate deduction rules. The IRS and Treasury issued new regulations incorporating present value principles by which an estate may deduct certain expenses and claims against an estate under Section 2053. The primary issue addressed in the proposed regulations, Reg. 130975-08, had been left reserved at Regs. Section 20.2053-1(d)(6) by final regulations issued in 2009. The preamble for those final regulations (T.D.) explained that, while the regulations generally limited deductions for claims and expenses to the amount actually paid in settlement of satisfaction of those items, future guidance would address the appropriate application of present value principles in determining the amount of future payments that would be deductible. Present value of estate deduction rules.

Rules applying present value principles to certain long term obligations of estates were proposed in 2007 in proposed regulations (Reg. 143316-03. Those proposed rules, which did not apply to contingent recurring obligations were criticized by commentators. The IRS and Treasury found such comments "persuasive", according to the preamble to the final 2009 regulations, and removed a proposed limitation on present value deductibility of future contingent recurring obligations, pending the guidance issued. The new proposed regulations apply present value principles to both contingent and noncontingent expenses and claims. Noting that most ordinary administrative expenses are paid within three years of the decedent's date of death, the proposed regulations would allow a three year "grace period" from that date before a present value calculation is required.

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