Accommodation of Code Section 2032A Assets

• Author: Jerold I. Horn
• Profession: Lawyer
• Pages: 407-416

407

I. THE ISSUE

Any property that is to qualify for special use valuation must pass to one or more quali-

ed heirs. Treasury regulations section 20.2032A-8(a)(2) applies this rule to successive

interests by stating that the property must not be able, in any event or under any cir-

cumstance, to pass to or for any person who is not a qualied heir, before the property

passes to a qualied heir or is subject to inclusion in the gross estate for estate tax pur-

poses of a qualied heir. See Code §§ 2032A(b)(1)(A)(ii), 2032A(b)(1)(B), 2032A(g); Treas.

Reg. § 20.2032A-8(a)(2); Rev. Rul. 81-220, 1981-2 C.B. 175; Rev. Rul. 82-140, 1982-2 C.B.

208; Priv. Ltr. Ruls. 8146020, 8209004, 8203011. Cf. Treas. Reg. § 20.2032A-3(c), Priv.

Ltr. Rul. 8020011.

A number of cases have held that Treasury regulations section 20.2032A-8(a)(2) is

invalid. Generally, the cases enunciate a “wait-and-see” approach. According to the wait-

and-see approach, a mere possibility of passage of a successive interest to other than a

qualied heir before the property is included in the gross estate of a qualied heir does

not preclude eligibility. However, actual passage within the period during which tax

savings are subject to recapture does trigger recapture. Smoot v. United States, 892 F.2d

597 (7th Cir. 1989); Estate of Thompson v. Comm’r, 864 F.2d 1128 (4th Cir. 1989); Kunze

v. United States No. 85-4173, 1988 U.S. Dist. LEXIS 16642 (Dist. KS 1988); Estate of Clin-

ard v. Comm’r, 86 T.C. 1180 (1986); Estate of Davis v. Comm’r, 86 T.C. 1156 (1986); Pliske

v. Comm’r, T.C. Mem. 1986-311 (1986). The IRS has not acquiesced in these decisions.

Nevertheless, even a letter ruling, TAM 8643005, has held that the mere remote possibil-

ity of passage to other than a qualied heir does not preclude eligibility. As a practical

matter, current law possibly consists of the “wait-and-see” approach. The wait-and-see

approach is workable, and it supports the policy that underlies the statute.

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Accommodation of Code

Section 2032A Assets