26 C.F.R. § 20.2014-2
Value of property in foreign country subjected to foreign death tax, included in gross estate and for which a deduction is not allowed under section 2053(d)(C) ÷ Value of all property subjected to foreign death tax (D) * Amount of foreign death tax (B)
The values used in this proportion are the values determined for the purpose of the foreign death tax. The amount of the foreign death tax for which credit is allowable must be converted into United States money. The application of this paragraph may be illustrated by the following example:
Example. At the time of his death on June 1, 1966, the decedent, a citizen of the United States, owned stock in X Corporation (a corporation organized under the laws of Country Y) valued at $80,000. In addition, he owned bonds issued by Country Y valued at $80,000. The stock and bond certificates were in the United States. Decedent left by will $20,000 of the stock and $50,000 of the Country Y bonds to his surviving spouse. He left the rest of the stock and bonds to his son. Under the situs rules referred to in paragraph (a)(3) of § 20.2014-1 the stock is deemed situated in Country Y while the bonds are deemed to have their situs in the United States. (The bonds would be deemed to have their situs in Country Y if the decedent had died on or after November 14, 1966.) There is not death tax convention in existence between the United States and Country Y. The laws of Country Y provide for inheritance taxes computed as follows:
| Inheritance tax of surviving spouse: | |
| Value of stock | $20,000 |
| Value of bonds | 50,000 |
| Total value | 70,000 |
| Tax (16 percent rate) | 11,200 |
| Inheritance tax of son: | |
| Value of stock | 60,000 |
| Value of bonds | $30,000 |
| Total value | 90,000 |
| Tax (16 percent rate) | 14,400 |
The "first limitation" on the credit for foreign death taxes is:
$20,000 + $60,000 (factor C of the ratio stated at § 20.2014-2(a) ) ÷ $70,000 + $90,000 (factor D of the ratio stated at § 20.2014-2(a) ) * ($11,200 + $14,400) (factor B of the ratio stated at § 20.2014-2(a) ) = $12,800
Example. The facts are the same as those contained in the example set forth in paragraph (a) of this section, except that the tax of the surviving spouse was computed at a 10 percent rate and amounted to $7,000, and the tax of the son was computed at a 20 percent rate and amounted to $18,000. In this case, the "first limitation" on the credit for foreign death taxes is computed as follows:
| "First limitation" with respect to inheritance tax of surviving spouse: | |
| [$20,000 (factor C of the ratio stated at § 20.2014-2(a) ) ÷ $70,000 (factor D of the ratio stated at § 20.2014-2(a) )] * $7,000 (factor B of the ratio stated at § 20.2014-2(a) ) = | $2,000. |
| "First limitation" with respect to inheritance tax of son: | |
| [$60,000 (factor C of the ratio stated at § 20.2014-2(a) ) ÷ $90,000 (factor D of the ratio stated at § 20.2014-2(a) )] * $18,000 (factor B of the ratio stated at § 20.2014-2(a) ) = | 12,000. |
| Total "first limitation" on the credit for foreign death taxes | 14,000 |
26 C.F.R. §20.2014-2