Par. 4. Section 20.2053-4 is amended by: 1. Revising paragraphs (b)(1)(iv), (b)(2), and (c)(1)(iv) and (v), the second sentence of paragraph (c)(3), paragraph (d)(5), and paragraph (d)(7)(iii) introductory text. 2. In paragraph (d)(7)(iii), Examples 1 through 9 are designated as paragraphs (d)(7)(iii)(A) through (I), respectively. 3. In newly designated paragraph (d)(7)(iii)(A), removing “ decision,” and “§ 20.2053-3(c) or § 20.2053-3(d)(3)” adding “ decision.” and “§ 20.2053-3(c) or (d)(3)” in their places, respectively. 4. In newly designated paragraphs (d)(7)(iii)(B) and (C), removing “ payment,”, “ Example 1”, and “§ 20.2053-3(c) or § 20.2053-3(d)(3)” and adding “ payment.”, “paragraph (d)(7)(iii)(A) of this section ( Example 1 )”, and “§ 20.2053-3(c) or (d)(3)” in their places, respectively. 5. In newly designated paragraph (d)(7)(iii)(D), removing “ defendants,”, “ Example 1”, and “§ 20.2053-3(c) or § 20.2053-3(d)(3)” and adding “ defendants.”, “paragraph (d)(7)(iii)(A) of this section ( Example 1 )”, and “§ 20.2053-3(c) or (d)(3)” in their places, respectively. 6. In newly designated paragraph (d)(7)(iii)(E), removing “ payment,”, “ Example 1”, and “§ 20.2053-3(c) or § 20.2053-3(d)(3)” and adding “ payment.”, “paragraph (d)(7)(iii)(A) of this section ( Example 1 )”, and “§ 20.2053-3(c) or (d)(3)” in their places, respectively. 7. In newly designated paragraph (d)(7)(iii)(F), removing “ claims,” and “§ 20.2053-3(c) or § 20.2053-3(d)(3)” and adding “ claims.” and “§ 20.2053-3(c) or (d)(3)” in their places, respectively. 8. In newly designated paragraph (d)(7)(iii)(G), removing “ enforceability,” and adding “ enforceability.” in its place. 9. In newly designated paragraph (d)(7)(iii)(H), removing “ estate,” and adding “ estate.” in its place. 10. In newly designated paragraph (d)(7)(iii)(I), removing “ satisfaction,” and adding “ satisfaction.” in its place. 11. Adding paragraph (d)(7)(iii)(J). 12. Revising paragraph (f). The revisions and addition read as follows:
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(b) * * *
(1) * * *
(iv) The value of each such claim against the estate is supported by a written appraisal document to be filed with the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or successor form, and the written appraisal document—
(A) Adequately reflects post-death events that have occurred prior to the date on which a deduction is claimed on an estate's Form 706;
(B) Reports, considers, and appropriately weighs all relevant facts and elements of value as are known or are reasonably determinable at the time of the appraisal, including the underlying facts of the claim against the estate, potential litigating risks, and the current status of the claim and procedural history;
(C) Takes into account post-death events reasonably anticipated to occur;
(D) Identifies an expected date or dates of payment (for purposes of determining the applicability of the present value limitation in § 20.2053-1(d)(6));
(E) Explains in detail the methods and analysis that support the appraisal's conclusions;
(F) Is prepared, signed under penalties of perjury, and dated by a person who is qualified by knowledge and experience to appraise the claim being valued and is not a family member of the decedent, a related entity, or a beneficiary of the decedent's estate or revocable trust (as those terms are defined in § 20.2053-1(b)(2)(iii)), a family member of a beneficiary or a related entity as to a beneficiary (as those terms would be defined in § 20.2053-1(b)(2)(iii) if references therein to the decedent were replaced with a reference to such beneficiary, and without regard to the limitations in § 20.2053-1(b)(2)(iii) based on the decedent's date of death), or an employee or other owner of any of them; and
(G) Includes a statement providing the basis for the person's qualifications to appraise the claim being valued;
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(2) Limitation on deduction. The deduction under this paragraph (b) is limited to the value of the related claims or particular assets included in decedent's gross estate. See § 20.2053-1(d)(6)(v) for the impact of the present value limitation.
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(c) * * *
(1) * * *
(iv) The value of each such claim against the estate is supported by a written appraisal document to be filed with the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, or successor form, and the written appraisal document—
(A) Adequately reflects post-death events that have occurred prior to the date on which a deduction is claimed on an estate's Form 706;
(B) Reports, considers and appropriately weighs all relevant facts and elements of value as are known or reasonably determinable at the time of the appraisal, including the underlying facts of the claim against the estate, potential litigating risks, and the current status of the claim and procedural history;
(C) Takes into account post-death events reasonably anticipated to occur;
(D) Identifies an expected date or dates of payment (for purposes of determining the applicability of the present value limitation in § 20.2053-1(d)(6));
(E) Explains in detail the methods and analysis that support the appraisal's conclusions;
(F) Is prepared, signed under penalties of perjury, and dated by a person who is qualified by knowledge and experience to appraise the claim being valued, and is not a family member of the decedent, a related entity, or a beneficiary of the decedent's estate or revocable trust (as those terms are defined in § 20.2053-1(b)(2)(iii)), a family member of a beneficiary or a related entity as to a beneficiary (as those terms would be defined in § 20.2053-1(b)(2)(iii) if references therein to the decedent were replaced with a reference to such beneficiary, and without regard to the limitations in § 20.2053-1(b)(2)(iii) based on the decedent's date of death), or an employee or other owner of any of them; and
(G) Includes a statement providing the basis for the person's qualifications to appraise the claim being valued;
(v) The total amount deducted by the estate under paragraph (c) of this section does not exceed $500,000 ( see § 20.2053-1(d)(6)(v) for the impact of the present value limitation);
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(3) * * * Assume that each claim is paid within three years after the decedent's death, and that the value of each claim is determined from a written appraisal document that meets the requirements of paragraph (c)(1)(iv) of this section. * * *
(d) * * *
(5) Claims founded upon a promise —(i) In general. To be deductible, a claim founded on a promise must represent a personal obligation of the decedent existing at the time of the decedent's death, and the claim must be enforceable against the decedent's estate. In addition, except with regard to pledges or subscriptions ( see § 20.2053-5), the deduction for a claim founded upon a promise or agreement is limited to the extent that the promise or agreement was bona fide and in exchange for adequate and full consideration in money or money's worth; that is, the promise or agreement must have been bargained for at arm's length and the price must have been an adequate and full equivalent reducible to money value.
(ii) Decedent's promise to guarantee a debt. A deduction for a claim founded upon a decedent's agreement to guarantee a debt of another is a claim founded on a promise and is subject to the limitation in paragraph (d)(5)(i) of this section. For purposes of section 2053, a decedent's agreement to guarantee a debt of an entity in which the decedent had an interest at the time the guarantee was given satisfies the requirement that the agreement be in exchange for adequate and full consideration in money or money's worth if, at the time the guarantee was given, the decedent had control (within the meaning of section 2701(b)(2)) of the entity. Alternatively, this requirement is satisfied to the extent the maximum liability of the decedent under the guarantee did not exceed, at the time the guarantee was given, the fair market value of the decedent's interest in the entity. The bona fide nature of the decedent's agreement to guarantee a debt of a family member, a related entity, or a beneficiary (as defined in § 20.2053-1(b)(2)(iii)) is determined in accordance with § 20.2053-1(b)(2)(ii). For a claim otherwise deductible under this paragraph (d)(5)(ii), the estate's right of contribution or reimbursement will reduce the amount deductible in accordance with § 20.2053-1(d)(3). Payments made pursuant to the decedent's guarantee of a debt are deductible only to the extent that the debt for which the guarantee is given has not been taken into account in computing the value of the gross estate under § 20.2053-7 or otherwise.
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(7) * * *
(iii) The claimant (C) is not a family member, related entity, or beneficiary of the estate of decedent (D), unless otherwise provided, and is not the executor (E).
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(J) Example 10: Guarantee. On Date 1, D entered into a guarantee agreement with Bank (C) to secure financing for a closely-held business (LLC) in which D had a controlling interest. LLC was solvent at the time LLC executed a promissory note in the amount of $100x in favor of C. Prior to D's death, LLC became insolvent and stopped making payments on the note. After D's death, C filed a claim against D's estate for payment of the remaining balance due under the note and E paid the full amount due. Although E had a right of contribution against LLC for primary payment of the indebtedness, LLC was insolvent and no part of the debt was collectible at the time E deducted the payment. D's estate may deduct the amount paid to C in satisfaction of D's liability under the guarantee agreement. The guarantee agreement is considered to have been contracted for an adequate and full consideration in money or money's worth. The result would be the same if D did not have control of LLC as long as the fair market value of D's interest in the LLC on Date 1 was at least $100x.
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(f) Applicability date. The rules of this section apply to the estates of decedents dying on or after [date of publication of the final rule in the Federal Register ].