## Facts

- Lucien Le Caer died owning a multimillion-dollar estate, with most assets passing to his wife, Marie Le Caer.
- Due to Lucien’s estate plan, $495,000 passing to Marie did not qualify for the marital deduction and was subject to estate tax in Lucien’s estate.
- Lucien’s estate paid $225,000 in federal and state estate taxes attributable to that non-marital-deduction property.
- Marie died less than three months after Lucien and her estate included the transferred property in Marie’s gross estate.
- Marie’s estate claimed a $225,000 credit under I.R.C. § 2013 (credit for tax on prior transfers) based on taxes paid by Lucien’s estate.
- The Commissioner determined the allowable § 2013 credit was substantially less than claimed, disallowed an asserted reduction of Marie’s gross estate for Lucien’s estate taxes, and disputed the estates’ reliance on a protective QTIP election.
- The case proceeded in the Tax Court, with the final deficiency to be computed under Rule 155 following resolution of the legal issues.

## Issues

1. How must the I.R.C. § 2013 credit be computed for property included in the later decedent’s estate that was previously taxed in the prior decedent’s estate?
2. May the later decedent’s estate reduce its gross estate by the amount of estate taxes paid by the prior decedent’s estate on the transferred property?
3. Is a protective QTIP election effective to change the parties’ estate tax computations in the manner asserted during Rule 155 proceedings?

## Decision

- The court held the § 2013 credit must be computed under the statute and regulations and was less than the $225,000 claimed.
- The court held Marie’s estate could not reduce its gross estate by the federal and state estate taxes paid by Lucien’s estate on the transferred property.
- The court rejected the estates’ attempt to use a protective QTIP election to alter the estate tax computations as asserted.
- The court sustained the Commissioner’s determinations in substantial part and directed that the precise amounts be computed under Rule 155.

## Legal Principles

- I.R.C. § 2013 provides a formula-based credit for tax on prior transfers; it is not a dollar-for-dollar reimbursement of prior estate tax paid on the transferred property.
- The § 2013 credit is limited by statutory constraints tied to (i) the value of the transferred property included in the later estate, (ii) the prior estate tax attributable to that property, and (iii) applicable statutory percentage reductions based on the time between deaths.
- Absent a specific statutory authorization, an estate may not reduce the later decedent’s gross estate merely because a prior decedent’s estate paid estate taxes on property the later decedent received.
- A QTIP election must satisfy statutory and regulatory requirements (including proper and timely making of the election) and cannot be used in a contingent or retroactive manner to obtain computational results inconsistent with the estate tax scheme.
- Rule 155 computations implement the court’s legal holdings and do not permit recharacterizations that effectively bypass statutory limits on deductions, credits, or elections.

## Conclusion

The Tax Court applied the statutory framework to restrict the § 2013 credit to the amount produced by the prescribed formula, disallowed any separate gross-estate reduction for estate taxes paid by the prior estate, and refused to give the asserted effect to a protective QTIP election, leaving the final deficiency to be calculated under Rule 155.


Estate of Le Caer v. Commissioner, 135 T.C. 288 (2010)