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 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.
(1) (i) Value of income described in section 691(a)(1) included in computing gross estate | $1,500 |
(ii) Deductions in computing gross estate for claims representing deductions described in section 691(b) | 200 |
(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 (item (1)(iii)) in gross estate | 23,235 |
(iii) Portion of estate tax attributable to net value of items described in section 691(a)(1) | 390 |
(3) (i) Value in gross estate of items described in section 691(a)(1) received in taxable year (fee) | 1,000 |
(ii) Value in gross estate of all income items described in section 691(a)(1) (item (1)(i)) | 1,500 |
(iii) Part of estate tax deductible on account of receipt of $1,200 fee (1,000/1,500 of $390) | 260 |
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 (d)(3) of § 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 § 1.421-8 for a similar example involving a stock option subject to the provisions of part II of subchapter D.
26 C.F.R. §1.691(c)-1