## Facts

- A decedent was a British subject domiciled in England at death.
- The decedent owned an interest as a partner in a partnership organized in, and conducting business in, New York.
- The question presented was the estate tax situs of the decedent’s partnership interest under the U.S.–U.K. estate tax convention.

## Issues

1. Whether a decedent’s partnership interest should be treated as a “debt” situated at the decedent’s domicile under the treaty’s debt provision.
2. If not treated as a debt, whether situs should be determined by the location of the partnership’s underlying assets.
3. Alternatively, whether situs should be determined by the place where the partnership business is carried on.

## Decision

- The IRS concluded the partnership interest was not a “debt” for purposes of the treaty’s debt rule.
- Because the treaty contained no specific situs rule for partnership interests, the interest fell within the treaty’s residual rule directing situs to be determined by U.S. law for a U.K. domiciliary.
- Under U.S. law as applied by the IRS, the partnership interest’s situs was where the partnership business was carried on.
- Accordingly, the decedent’s interest in the New York operating partnership was treated as property situated in the United States for estate tax purposes.

## Legal Principles

- A partner’s interest in an operating partnership is a proprietary interest in a business enterprise, not a debtor–creditor claim, even if a payment obligation may arise upon dissolution or after death.
- Treaty provisions that situs “debts” at the decedent’s domicile function as a limited exception for debtor–creditor investments and do not extend to proprietary interests such as partnership interests.
- When an applicable estate tax treaty provides no specific situs rule for a property category, and includes a residual clause, situs is determined by the domestic law designated by that clause.
- For a partnership organized and conducting business in the United States, the situs of a nonresident decedent’s partnership interest is determined by the place where the partnership business is carried on, rather than by a look-through to each item of partnership property.

## Conclusion

The IRS treated a U.K.-domiciled decedent’s interest in a U.S. operating partnership as U.S.-situs property under the U.S.–U.K. estate tax convention because the interest is proprietary (not a “debt”) and, under the treaty’s residual rule, is situated where the partnership conducts its business.


Rev. Rul. 55-701, 1955-2 C.B. 836 (1955)