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September 2, 2010 - Phil Hodgen

Estate tax sunset in 2010 applies to nonresidents

I received an email inquiry from a CPA friend about this, so I thought I would share it generally.

Question

Does the 2010 repeal of the estate tax apply to nonresidents of the United States?

Answer

Yes.  The repeal applies to residents and nonresidents alike.

Background

The estate tax disappeared on December 31, 2009.  It is designed to re-appear on January 1, 2011.  Tag that:  #politicalgames

The Tax Geek’s explanation

Section 2210(a) of the Internal Revenue Code says:

“Except as provided in subsection (b), this chapter shall not apply to estates of decedents dying after December 31, 2009.”

“This chapter” means Internal Revenue Code, Subtitle B, Chapter 11, which contains Sections 2001 through 2210.  These are the estate tax rules.  Thus, the estate tax rules are universally not applied to decedents dying after December 31, 2009.

The estate tax as it applies to nonresidents is described in Sections 2101 through 2108 of the Internal Revenue Code.  These sections are within Chapter 11.  The same Chapter 11 that does not apply to people dying after December 31, 2009.

Therefore, nonresidents are not subjected to U.S. estate taxation if they die after December 31, 2009.

Reinstatement of estate tax in 2011

The estate tax comes back in 2011, for residents and nonresidents alike.  Here’s the magic language, which is from Section 901 (Sunset of Provisions of Act) of Pub. L. 107-16, as amended by Pub. L. 107-358:

(a) IN GENERAL.–All provisions of, and amendments made by, this Act shall not apply–

(1) to taxable, plan, or limitation years beginning after December 31, 2010, or

(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.

(b) APPLICATION OF CERTAIN LAWS.–The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.

(c) EXCEPTION.-Subsection (a) shall not apply to section 803 (relating to no federal income tax on restitution received by victims of the Nazi regime or their heirs or estates).

Reinstatement means 2001 rules apply

For your purposes, Section 901(a)(1) is what matters. The “Act” (which is what put the estate tax on ice for 2010) does not apply at all after December 31, 2010. That means you look at the law as if the “Act” never existed. And that, in turn, means that you look at estate tax law as it existed in 2001 to see what the tax rules will be.

Trust me. The estate tax rules apply to nonresidents in 2011.

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