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The IRS has issued proposed regulations (REG-119683-22) that would update the qualified domestic trust (QDOT) regulations under IRC Section 2056A. The proposed regulations would primarily affect estates of decedents that pass property to or for the benefit of a noncitizen spouse through a QDOT.

Proposed regulations

Removal of references to temporary regulations in Treas. Reg. Sections 20.2056A-2 and -4

Due to an oversight in final regulations published in 1996 under IRC Section 2056A, the references to the temporary regulations were not updated. As a result, the proposed regulations would update the regulations under IRC Section 2056A to remove references to Treas. Reg. Section 20.2056A-2T(d) and replace them with Treas. Reg. Section 20.2056A-2(d).

'Finally determined' definition

Currently, Treas. Reg. Section 20.2056A-2(d)(1)(i) and (ii) contain additional requirements for QDOTs — one of which depends on the fair market value of the assets passing to the QDOT, as "finally determined" for federal estate tax purposes. The definition of "finally determined" depends on the IRS issuing an estate tax closing letter, which it routinely did before June 1, 2015. Because the IRS no longer routinely issues estate tax closing letters, the proposed regulations would update the definition of "finally determined" in Treas. Reg. Section 20.2056A-2(d)(iii), so it conforms to the current IRS procedures for establishing an asset's value.

Removal of offices and addresses

Treas. Reg. Section 20.2056A-2(d)(1)(i) requires QDOTs with assets of more than $2 million to satisfy one of three alternative security arrangements for paying the IRC Section 2056A estate tax. The regulations direct QDOTs to specific offices and addresses for submitting notifications to the IRS if a security arrangement is replaced or not renewed.

Treas. Reg. Section 20.2056A-4(c)(6) and (c)(7) direct taxpayers to file an "Agreement to Pay Section 2056A Estate Tax" with the District Director and an "Agreement to Roll Over Annuity Payments" with the Assistant Commissioner (International).

Because the offices and addresses listed in Treas. Reg. Section 20.2056A-2 (d) no longer exist, the proposed regulations would remove references to those offices and addresses and direct taxpayers to "Publication 4235, Collection Advisory Offices Contact Information, or as otherwise provided in IRS forms and instructions or on https://www.irs.gov, to determine the correct address" for submitting the required notifications. Additionally, the proposed regulations would update Treas. Reg. Section 20.2056A-4 to direct taxpayers to file both agreements with the Chief Tax Compliance Officer, or their delegate or designee, or as provided in the forms and instructions, or on https://www.irs.gov.

The proposed regulations also would remove references to Uniform Customs and Practice for Documentary Credits, 1993 Revision, ICC Publication No. 500 (Publication 500) because it is no longer the most recent edition of that publication. They would direct taxpayers to the most recent edition of Publication 500 at www.iccwbo.org.

In addition, the proposed regulations would no longer require taxpayers to attach the security instrument to the decedent's federal estate tax return. Instead, taxpayers would submit the security instrument with the Estate Tax Advisory Group, the contact information for which can be found in Publication 4235, IRS forms and instructions or on https://www.irs.gov.

Filing requirements and payment of IRC Section 2056A estate tax

Treas. Reg. Section 20.2056A-11(a) directs taxpayers to Treas. Reg. Section 20.2056A-2T(d)(3) for the requirements for filing Form 706-QDT. The proposed regulations would update Treas. Reg. Section 20.2056A-11(a) to direct readers to Treas. Reg. Section 20.2056A-2(d)(3), instead of Treas. Reg. Section 20.2056A-2T(d)(3).

Treas. Reg. Sections 20.2056A-11(c)(1) and (2) state that the district director or the director of the service center where the Form 706-QDT is filed may grant an extension of time for paying the IRC Section 2056A estate tax. The proposed regulations would update the current regulations by replacing references to "the district director or the director of the service center where the Form 706-QDT" with "the Advisory Group Managers (or their delegate or designee or as otherwise provided in IRS forms and instructions or on https://www.irs.gov)."

Comments

Commenters may submit comments electronically via the Federal eRulemaking Portal at https://www.regulations.gov by following the online instructions. On their comments, they should indicate IRS and REG-119683-22. Commenters also may submit paper submissions to: CC:PA:01:PR (REG-119683-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Implications

The proposed regulations update a number of outdated references, information and procedures contained in the previous temporary regulations under IRC Section 2056A. Taxpayers considering a QDOT or currently administering a QDOT should review the proposed regulations for the updated references and procedures.