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Estate Tax Deductions — Sections 2053 and 2054 (Portfolio 840)

Product Code: TPOR42
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Estate Tax Deductions — Sections 2053 and 2054 discusses two of the five categories of deductions permitted from a decedent's gross estate in arriving at his or her taxable estate. The other three are the §2056 marital deduction, the §2055 charitable deduction, and the §2058 state death taxes deduction.  Written by Edward Jay Beckwith, Esq., Baker & Hostetler, LLP, and Turney P. Berry, Esq., Wyatt, Tarrant & Combs, LLP, this Portfolio analyzes:

  • Deductions Under Section 2053
    • General Requirements
    • Funeral Expenses
    • Administration Expenses
    • Claims Against the Estate
  • Deductions Under Section 2054 — Losses
    • Losses During Settlement of Estate
    • Nature of the Losses

Section 2053 encompasses deductions for funeral expenses, administration expenses, claims against the estate, charitable pledges or subscriptions, taxes, and unpaid mortgages. Expenses of the estate and claims against it are deductible only if they are allowable under state law. In addition, some expenses incurred in administering property that is not part of the probate estate are deductible, provided they would have been deductible if incurred in connection with the administration of probate assets and are paid within a specific time period. Claims against the estate must have existed at the time of death, must be enforceable against the estate, and must generally either be based upon a promise or agreement supported by consideration or be imposed by law.

Section 2054 covers certain casualty losses incurred during the administration of an estate. These losses must be of the same nature as allowable casualty losses under the income tax provisions of the Internal Revenue Code.

Estate Tax Deductions — Sections 2053 and 2054 allows you to benefit from:

  • Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
  • Invaluable practice documents including tables, charts and lists
  • Plain-English guidance from world-class experts
  • Real-world and in-depth analysis that lets you explore various options
  • Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more
  • Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the Estates, Gifts and Trusts Portfolios Library, a comprehensive series containing more than 80 Portfolios, which covers critical transactions in estate, gifts and trusts planning. This highly-regarded resource library offers commentary on a wide range of estate planning topics including: Generation Skipping Tax, Family Limited Partnerships, Charitable Remainder Trusts, Estate Planning for Closely-Held Businesses, Exempt Organizations and Private Foundations, Life Insurance, Valuation, and more.

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Detailed Analysis

I. Introduction

A. Taxable Estate Defined

B. Legislative History

1. Section 2053

2. Section 2054

C. Income Tax Deductions

II. Deductions Under Section 2053

A. General Requirements

1. First Category: Amounts Payable with Respect to the Probate Estate

a. Definitions

b. Limitations

2. Second Category: Amounts Payable with Respect to Nonprobate Estate

3. Provisions Applicable to Both Categories

a. In General

b. Effect of Local Court Decisions

c. Settlements

d. Exception for Certain Ascertainable Amounts

e. Prolongation of Administration

B. Funeral Expenses

1. Includible Items

a. Funeral Itself

b. Burial Site

c. Perpetual Care of Cemetery Lot or Mausoleum

2. Payment Requirements

a. In General

b. Reimbursement by Governmental Agency

c. Recoveries Under Wrongful Death Statutes

3. Limitations

a. Test of Reasonableness

b. Local Law Limitations

(1) In General

(2) Estates of Married Women

(3) Community Property States

c. "Total Allowable Amount"

C. Administration Expenses

1. In General

a. Definition

b. Limitations

(1) First Category Expenses

(2) Second Category Expenses

c. Will Contests

d. No Formal Administration

e. Community Property

f. Widow's Award

2. Executor's Commissions

a. Commissions Paid

b. Commissions Agreed Upon

c. Commissions Not Yet Allowed by Court

d. Commissions Fixed by Will

e. Bequests in Lieu of Commission

f. Trustee's Fees

3. Attorney's Fees

a. In General

b. The Test of "Reasonableness"

(1) Amount Involved

(2) Time and Effort of Attorney

(3) Seriousness of Matter

(4) Results Obtained

(5) Experience and Ability of Attorney

(6) Length of Administration

c. Allowed Under Local Law

(1) Normal fees

(2) Extraordinary Services

(3) Formal Administration Not Necessary

d. Benefit to the Estate

(1) Nature of the Controversy

(2) Results Achieved

e. Allowance of Fees Claimed but Not Yet Paid

f. Fees Incurred in Estate Tax Controversies

g. Time Limits

h. Monetary Limits

4. Miscellaneous Administration Expenses

a. Court Costs

b. Fees and Related Expenses

c. Post-Death Interest Expense

(1) Interest on Obligations Incurred by the Decedent

(2) Interest on Obligations Incurred by the Estate

(3) Interest on Deferred Estate Tax

(4) Deducting Post-Death Interest Before It Accrues

d. Expenses to Preserve Property

e. Expenses of Selling Property

(1) Types of Expenses

(2) Necessity of Sale

(3) Double Deductions

(4) Sale of Estate Property by a Trust

(5) Sales for Less than Fair Market Value

D. Claims Against the Estate

1. In General

2. Personal Obligations of Decedent Existing at Time of Death

a. In General

b. Source of Payment

c. Partnership Liabilities

d. Joint and Several Liability

e. Community Property States

f. Contingent Claims and Debt Guarantees

g. Debts to Relatives

3. Enforceability Against the Estate

a. In General

b. Effect of Subsequent Events

c. Claims Informally Presented

d. Barred Claims

4. Claims Based on Promise or Agreement

a. In General

b. Effect of State Law

c. Donative Intent

d. Premarital Agreements

e. Separation Agreements

(1) In General

(2) Payments to Children Based on Separation Agreements

5. Liabilities Imposed by Law

a. Divorce Settlements

b. Insurance Proceeds

c. Statutory Liability

d. Effect of State Court Decree

6. Liabilities Arising Out of Torts

7. Charitable Pledges and Subscriptions

8. Taxes

a. In General

b. Property Taxes

c. Death Taxes

d. Gift Taxes

e. Excise Taxes

f. Income Taxes

(1) Joint Returns

(2) Assessed Tax Deficiencies

g. Post-Death Adjustments of Deductible Tax Liability

9. Unpaid Mortgages and Indebtedness

a. In General

b. Indebtedness of Property Only

c. Accrued Interest

10. Deduction for Certain State and Foreign Death Taxes

a. In General

b. Conditions for Allowance of Deduction

(1) The "Inure Solely" Test

(2) The "Equitably Apportioned" Test

c. Exercise of Election

(1) In General

(2) Making the Election

(3) Formula for Determining Deduction

III. Deductions Under Section 2054 - Losses

A. Losses During Settlement of Estate

B. Nature of the Losses

Working Papers

Table of Worksheets

Worksheet 1 H.R. Rep. No. 1337, 83d Cong., 2d Sess. (1954) - General Discussion

Worksheet 2 H.R. Rep. No. 1337, 83d Cong., 2d Sess. (1954) - Detailed Discussion

Worksheet 3 S. Rep. No. 1401, 84th Cong., 2d Sess. (1956), 1956-1 C.B. 920

Worksheet 4 S. Rep. No. 483, 86th Cong., 1st Sess. (1959), 1959-2 C.B. 863

Worksheet 5 [Reserved]

Worksheet 6 [Reserved]

Worksheet 7 [Reserved]

Worksheet 8 Declaration - Executor's Commissions and Attorney's Fees (Form 4421)

Worksheet 9 Examination Technique Handbook for Estate Tax Examiners IRS Manual 4350-31, Sections (15)00-(16)40 (12/16/87)

Bibliography

OFFICIAL

Statutes:

Treasury Regulations:

Legislative History:

State Statutes:

Treasury Rulings:

Cases:

UNOFFICIAL

Periodicals:

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1977

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2007

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Edward J. Beckwith
Edward Jay Beckwith, partner, Baker & Hostetler, LLP; B.S., Pennsylvania State University (1971); J.D., Georgetown University Law Center (1974); M.L.T., Georgetown University Law Center (1983); Adjunct Professor of Law, Georgetown University Law Center; member, Bar of the District of Columbia (1975); member, American Bar Association (Sections on Taxation and Real Property, Probate and Trust Law); member, American Law Institute; fellow, American College of Trusts and Estates Counsel; Founder and Chair, Advanced Estate Planning Institute, Georgetown University Law Center (1988-Present); member Estate Planning Council, Washington, D.C.; Who's Who in America.
Turney P. Berry
Turney P. Berry, partner, Wyatt, Tarrant & Combs, LLP; B.A. (with honors, 1983) and B.L.S. (with university honors, 1983), Memphis State University; J.D., Vanderbilt University (1986); Adjunct Law Professor, Vanderbilt University (2004 to present); Fellow, American College of Trust and Estate Counsel (Estate and Gift, Charitable Planning and Exempt Organizations and Program committees); Delegate, National Conference of Commissioners on Uniform State Laws (NCCUSL); member, Legal Advisory Subcommittee of the Council on Foundations; listed in the publication The Best Lawyers in America; frequent writer and speaker on the local, state, and national levels.