26 C.F.R. § 20.2014-7
If a deduction is allowed under section 2053(d) for foreign death taxes paid with respect to a charitable gift, the credit for foreign death taxes is subject to special limitations. In such a case the property described in subparagraphs (A), (B), and (C) of paragraphs (1) and (2) of section 2014(b) shall not include any property with respect to which a deduction is allowed under section 2053(d). The application of this section may be illustrated by the following example:
Example. The decedent, a citizen of the United States, died July 1, 1955, leaving a gross estate of $1,200,000 consisting of: Shares of stock issued by United States corporations, valued at $600,000; bonds issued by the United States Government physically located in the United States, valued at $300,000; and shares of stock issued by a Country X corporation, valued at $300,000. Expenses, indebtedness, etc., amounted to $40,000. The decedent made specific bequests of $400,000 of the United States corporation stock to a niece and $100,000 of the Country X corporation stock to a nephew. The residue of his estate was left to charity. There is no death tax convention in existence between the United States and Country X. The Country X tax imposed was at a 50-percent rate on all beneficiaries. A State inheritance tax of $20,000 was imposed on the niece and nephew. The decedent did not provide in his will for the payment of the death taxes, and under local law the Federal estate tax is payable from the general estate, the same as administration expenses.
DISTRIBUTION OF THE ESTATE
| Gross estate | $1,200,000.00 | |
| Debts and charges | $40,000.00 | |
| Bequest of U.S. corporation stock to niece | 400,000.00 | |
| Bequest of country X corporation stock to nephew | 100,000.00 | |
| Net Federal estate tax | 136,917.88 | |
| 676,917.88 | ||
| Residue before country X tax | 523,082.12 | |
| Country X succession tax on charity | 100,000.00 | |
| Charitable deduction | 423,082.12 | |
| TAXABLE ESTATE AND FEDERAL ESTATE TAX | ||
| Gross estate | 1,200,000.00 | |
| Debts and charges | 40,000.00 | |
| Deduction of foreign death tax under section 2053(d) | 100,000.00 | |
| Charitable deduction | 423,082.12 | |
| Exemption | 60,000.00 | |
| 623,082.12 | ||
| Taxable estate | 576,917.88 | |
| Gross estate tax | 172,621.26 | |
| Credit for State death taxes | 15,476.72 | |
| Gross estate tax less credit for State death taxes | 157,144.54 | |
| Credit for foreign death taxes | 20,226.66 | |
| Net Federal estate tax | 136,917.88 | |
| CREDIT FOR FOREIGN DEATH TAXES | ||
| COUNTRY X TAX | ||
| Succession tax on nephew: | ||
| Value of stock of country X corporation | 100,000 | |
| Tax (50% rate) | $50,000 | |
| Succession tax on charity: | ||
| Value of stock of country X corporation | 200,000 | |
| Tax (50% rate) | 100,000 | |
| COMPUTATION OF EXCLUSION UNDER SECTION 2014(B) | ||
| Value of situated in country X | 300,000 | |
| Value of property in respect of which a deduction is allowed under section 2053(d) | 200,000 | |
| Value of property situated within country X, subjected to tax, and included in gross estate as limited by section 2014(f) | 100,000 | |
First Limitation, § 28.2014-2(a)
$100,000 (factor C of the ratio stated at § 20.2014-2(a) ) ÷ $100,000 + $200,000 (factor D of the ratio stated at § 20.2014 2(a) * $50,000 + $100,000) (factor B of the ratio stated at § 20.2014-2(a) ) = $50,000.00
Second Limitation, § 28.2014-3(a)
$100,000 (factor G of the ratio stated at § 20.2014-3(a) ) (as limited by section 2014(f)) ÷ $1,200,000 - $423,082.12 (factor H of the ratio stated at § 20.2014 3(a) * $172,621.26 - $15,476.72) (factor F of the ratio stated at § 20.2014-3(a) ) = $20,226.66Z
26 C.F.R. §20.2014-7