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Wednesday, April 17, 2024
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GiftLaw Pro |
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GiftLaw Note:
Donor desires to establish a loan agreement with an art museum. A portion of donor's collection will be lent to the museum. Periodically, fractional interests in the collection may be given to the museum. If the museum fulfills the requirements of the loan agreement, at the death of the donor, the remaining ownership interests in the art collection shall be transferred to the museum. If the museum breaches the agreement during the life of donor or the lives of donor's children, there is a possibility of reversion to the donor's estate, provided that the museum is not able to cure the breach.
Donor requests a ruling that she will qualify for charitable contributions for gifts of fractional interests and that the transfers will be related use of TPP. Furthermore, she may desire to elect to report gift property cost basis as a 50% type deduction, rather than fair market value as a 30% type charitable deduction.
The Service granted all requests. The rights retained by the donor under the loan agreement were deemed not "substantial rights" and thus the charitable deduction was permitted. The gift of fractional interests also qualified for a gift tax deduction under Reg. 25.2522(c)-3(b)(1), since the possibility of reversion was deemed negligible. The artwork clearly was being put to a related use and thus qualifies for a fair market value deduction. While the fractional interest retained by the donor would be in the taxable estate, the transfer to the museum would again be subject to a negligible risk of reversion and thus qualify for a charitable estate deduction under Sec. 2055.
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LTR 9303007 (22 Jan 1993)
Date: October 20, 1992
Refer Reply to: CC:IT&A:03/TR-31-1106-92
Dear * * *
This responds to your June 4, 1992 request for rulings on behalf of the Donor. Your request concerns the treatment of loans and gifts of artwork that the Donor proposes to make to the Donee under a revised Loan and Gift Agreement (new LGA). The Donor represents that she has substantively modified the Loan and Gift Agreement on which a previous ruling was based. Therefore, under section 11.04 of Rev. Proc 92-1, 1992-1 I.R.B. 1, 24, the private letter ruling dated September 30, 1991, (TR-31-3174-90) (PLR 9152036) is revoked. Consequently, that ruling may not be relied upon in determining federal income tax liability for all open years under the statutes. See section 11.04 of Rev. Proc. 91-1. Specifically, you request the following rulings:
INCOME TAX RULINGS
1. Any gift the Donor makes during her life of any undivided fractional interest (which for the purpose of the letter ruling request may include any fraction up to and including 1/1) in any work of the Collection accepted by the Donee subject to the terms and conditions of the new LGA shall qualify as a charitable contribution under section 170(c) of the Internal Revenue Code and shall be deductible by the Donor under section 170.
2. Unless an election is made by the Donor under section 170(b)(1)(C)(iii) of the Code, the amount of the income tax charitable contribution attributable to each gift by the Donor of an undivided fractional interest in a work of the Collection to the Donee shall be determined under section 170(b)(1)(C)(i) and shall equal the product of (a) such fraction times (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work of art at the time of the gift of the fractional interest; provided, however, under section 170(b)(1)(C)(ii) the aggregate amount of all charitable contributions described under section 170(b)(1)(C)(i) in such year shall not exceed 30 percent of the Donor's contribution base as defined in section 170(b)(1)(F). Display Control Rights and Reversion Rights shall have no value for federal income tax purposes. Unless otherwise elected by the Donor under section 170(b)(1)(C)(iii), the limitation of section 170(e)(1)(B) for gifts of tangible personal property, where the use by the donee is unrelated to the purpose or function constituting the basis for its exemption under section 501, shall be inapplicable to the subject gifts.
3. If the Donor makes the election under section 170(b)(1)(C)(iii) of the Code with respect to her gifts of capital gain property for a taxable year, then the amount of the income tax charitable contribution attributable to any gift in that year of an undivided fractional interest in a work of the Collection that is capital gain property shall be subject to the limitation of section 170(e)(1)(B) and shall equal the product of (a) such fraction times (b) another fraction, the numerator of which is the Donor's adjusted basis in her interest in the work immediately preceding the gift of the fractional interest, and the denominator of which is the fraction representing the portion of the Donor's ownership in the entire work immediately preceding the gift of the fractional interest. In such case, the 30 percent limitation under section 170(b)(1)(C)(i) shall not apply to the subject gifts.
GIFT TAX RULINGS
4. The mere consummation of the new LGA shall not be treated for federal gift tax purposes as a gift by the Donor of any part or all of the Collection.
5. If during her life the Donor transfers ownership of an undivided fractional interest in any work of the Collection to the Donee that is accepted by the Donee subject to the terms and conditions of the new LGA, then the gift of such fractional interest shall be deductible for federal gift tax purposes under section 2522 of the Code.
6. The gift tax charitable deduction for each gift by the Donor of an undivided fractional interest in a work of the Collection to the Donee shall equal the product of (a) such fraction times (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work at the date of the gift of the fractional interest. Display Control Rights and Reversion Rights shall have no value for federal gift tax purposes.
7. If during her life the Donor loans to the Donee any work of the Collection, such loan shall not be treated as a gift by the Donor for federal gift tax purposes.
ESTATE TAX RULINGS
8. Upon the Donor's death, only the undivided fractional interests in the works of the Collection retained by the Donor at her death shall be includable in her gross estate for federal estate tax purposes. None of the undivided fractional interests in the works of the Collection owned by the Donee shall be included in the Donor's gross estate. In addition, Display Control Rights and Reversion Rights that pass to the Donor's successors-in-interest shall have no value for federal estate tax purposes.
9. Any transfer to the Donee at the Donor's death of her retained fractional interests in the works of the Collection, to be held by the Donee subject to the terms and conditions of the new LGA, shall be deductible from the Donor's gross estate under section 2055 of the Code.
10. Both the amount so includable in the Donor's gross estate, and the amount so deductible as an estate tax charitable deduction, shall equal for each work of art the product of (a) the fraction of the work that the Donor owned at her death, times (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work as finally determined for federal estate tax purposes in the Donor's estate.
FACTS
The Donor desires to establish an art collection at the Donee museum to be known as Collection consisting of (i) specified X and related works of art currently owned by the Donor (the "X Works"), (ii) works of art by Y (the "Y Works"), fractional interests in a number of which previously have been given to the Donee by the Donor and her late husband, (iii) other works of art previously donated by the Donor to, and previously held as unrestricted gifts by, the Donee (the "Other Works"), and (iv) a fractional interest in a work by Z previously given to the Donee by the Donor. The Donor's purpose and goal in establishing Collection at the Donee museum is to provide for the public enjoyment of Collection while retaining the unity and spirit of the cohesive body of works as collected by the Donor. The Donee is exempt from federal income taxes under section 501(c)(3) of the Code, and is also a charitable organization described in sections 170(b)(1)(A) and 170(c)(2). The Donee desires to accept Collection to effectuate the Donor's purpose and goal and to enhance its W Collection.
In furtherance of her purpose and goal, the Donor has loaned to the Donee a number of the X Works which, together with the Y Works and the Other Works, currently are being publicly exhibited as part of the Donee's W Collection (Loaned Works). Donor also anticipates making lifetime transfers of full and fractional interests in works of Collection (Gifted Works). Those works shall be held subject to the provisions of the new LGA once it is executed. The Donor represents that the new LGA is the complete agreement between the parties with regard to both loans and gifts of the X, Y, Other Works, and the work by Z.
The terms of the new LGA provide that any loans that the Donor makes are to be held subject to certain Loan Obligations, which consist mainly of transportation, maintenance, and insurance requirements. The Loan Obligations do not require the Donee to display the Loaned Works, but the Donee must put them to a use relating to its exemption under section 501 of the Code. If not sooner terminated by the Donor in her discretion, the loan term with respect to all of the Loaned Works shall end on either the date of the Donor's death or the date on which the Donee breaches, and does not cure such breach, any of the Loan Obligations.
If the loan term ends due to the Donor's death, the new LGA provides that if certain Gift Conditions with respect to the Loaned Works have been met throughout the term of the loan, and if certain Gift Obligations with respect to the Gifted Works have been met during the Donor's lifetime, then the Donor shall be obligated at her death to transfer all of her remaining ownership interest in all the works of the Collection to the Donee by gift.
The Gift Conditions that apply to the Loaned Works include, in part, compliance with the Loan Obligations, continuous display of the works, and periodic changes in gallery or installation design if requested by the Donor or with her consent (Display Control Rights). In addition, final editorial control over publicity concerning Collection is granted to the Donor. Those conditions which involve the Donor's approval of gallery design or installation design are subject to a "good museum practice" standard. If the Donee and the Donor are unable to agree on what constitutes "good museum practice," the new LGA provides for the appointment of a mutually acceptable museum curator to decide the issue.
The Donee shall be deemed to be in compliance with all of the Gift Conditions unless and until it has received a gift condition failure notice from the donor or, after her death, any of her children, on a timely basis setting forth one or more violations of the Gift Conditions. Once a gift condition failure notice has been issued, the Donee shall have a period in which to cure the violation of the Gift Conditions.
The Gift Obligations that govern the Gifted Works, which the Donee must comply with in order to retain the X Works and receive Donor's remaining ownership interest in Collection, are similar to the Gift Conditions that govern the Loaned Works. The Gift Obligations are divided into three stages. Stage I commences with the execution of the new LGA and runs until the Donor's death. During Stage I the Display Control Rights are held by the Donor. Stage II commences on the date of the Donor's death and runs until the date that none of the Donor's children are living. During Stage II the approval and display rights are held by the Donor's children. Stage III commences on the date of the death of the last to die of the Donor and the Donor's children. At that time, a majority of the Gift Obligations cease, with certain provisions regarding insurance, scholarly access, and the deaccessioning of Gifted Works remaining in place.
In the event that the Donee breaches any of the Gift Obligations with respect to the X Works, and this breach is the subject of a gift condition failure notice, and the Donee fails to cure such breach in accordance with the provisions of the new LGA, then all of the Donee's ownership rights in all of the X Works shall terminate and revert to the Donor, if the uncured breach occurs during Stage I, or to the Donor's Estate, if the uncured breach occurs during Stage II (Reversion Rights). No such right of reversion exists for the Y Works or the Other Works at any time, or for the X Works with regard to events occurring during Stage III.
The Donor specifically acknowledges that, as of the date of the new LGA, the Donee is in compliance with the Loan Obligations, Gift Conditions, and Gift Obligations as set forth in the new LGA.
RULING REQUEST 1
Section 170(a)(1) of the Code allows as a deduction any charitable contribution to an organization described in section 170(c) payment of which is made within the taxable year.
Section 1.170A-1(c)(1) of the Income Tax Regulations provides that if a charitable contribution is made in property other than money, the amount of the contribution is the fair market value of the property at the time of the contribution reduced as provided in section 170(e) of the Code.
Section 170(f)(3) of the Code generally restricts deductions for partial interests in property, including tangible personal property. However, section 170(f)(3)(B)(ii) provides that the contribution, not in trust, of an "undivided portion" of the taxpayer's entire interest in property is deductible as an exception to that restriction. Under section 1.170A-7(b)(1) of the regulations, an "undivided portion" must consist of a fraction or percentage of each and every substantial interest or right owned by the donor in such property and must extend over the entire term of the donor's interest in such property. A deduction is allowable under this exception if the charitable organization is given the right, as a tenant in common with the donor, to possession, dominion, and control of the property for a portion of each year appropriate to its interest in the property.
In addition, Section 1.170A-1(e) of the regulations provides that if, as of the date of the gift, a transfer for charitable purposes is dependant upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. Further, if an interest has passed to, or is vested in, charity on the date of the gift and the interest would be defeated by the performance of some act or the happening of some event, the possibility of occurrence of which appeared on such date to be so remote as to be negligible, the deduction is allowable.
Section 1.170A-7(a)(3) of the regulations provides that a similar standard applies in determining whether a remote possibility of divestment will invoke the partial interest restrictions.
The term "so remote as to be negligible" has been defined as "a chance which persons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction." U.S. v. Dean, 224 F.2d 26, 29 (1st Cir. 1955). See also 855 Investment Co. v. Commissioner, 95 T.C. 156 (1990), and Briggs v. Commissioner, 72 T.C. 646 (1979)
In the present situation, the Donor and her successors in interest are to retain Display Control Rights and Reversion Rights. However, based upon the facts submitted, these rights are not "substantial" in that they are largely fiduciary powers to be exercised in furtherance of the charitable purposes of the Donee. All rights in the Donor and her heirs must be exercised consistent with good museum practice, and there is an arbitration device to insure that unresolved questions will not lead to breach of the conditions, with resulting forfeiture. Therefore, the possibility that the artwork will revert to the estate of the Donor is so remote as to be negligible. Thus, we conclude that any gift the Donor makes during her life of an undivided fractional interest in any work of Collection accepted by the Donee subject to the terms and conditions of the new LGA will be deductible as a charitable contribution under Section 170 of the Code.
RULING REQUESTS 2 AND 3
Section 170(b)(1)(C) of the Code imposes a special limitation on the deduction allowed for any charitable contribution made by an individual of certain capital gain property. Specifically, section 170(b)(1)(C)(i) limits the amount of the charitable contribution deduction for any taxable year to 30 percent of the taxpayer's contribution base for such taxable year.
Section 170(b)(1)(C)(iv) of the Code defines "capital gain property" as any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain.
Section 170(b)(1)(F) of the Code defines the term "contribution base" as adjusted gross income computed without regard to any net operating loss carryback to the taxable year under section 172.
If the contributions of capital gain property exceed 30 percent of the taxpayer's contribution base for any taxable year, the excess is treated as a charitable contribution of capital gain property to which the 30 percent limitation of section 170(b)(1)(C)(i) of the Code applies in each of the five succeeding taxable years.
However, the taxpayer may elect under section 170(b)(1)(C)(iii) of the Code to have section 170(e)(1) apply to all contributions of capital gain property made by the taxpayer during the taxable year. If this election is made, the amount of any charitable contribution of property is reduced not only by the amount of gain that would not have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value, but also by the amount of gain which would have been long-term capital gain if the property contributed had been sold by the taxpayer at its fair market value, as though the property had been subject to section 170(e)(1)(B). Additionally, if such election is made, the 50 percent limit of section 170(b)(1)(A) will apply.
Section 1.170A-4(b)(3)(i) of the regulations defines, in part, the term "unrelated use" as a use that is unrelated to the purpose or function constituting the basis of the charitable organization's exemption under section 501 of the Code.
Section 170(e)(2) of the Code provides that, in the case of a charitable contribution of less than the taxpayer's entire interest in the property contributed, the taxpayer's adjusted basis in such property shall be allocated between the interest contributed and any interest not contributed in accordance with the regulations.
Section 1.170A-4(c)(1)(ii) of the regulations provides that the adjusted basis of the contributed portion of the property shall be that portion of the adjusted basis of the entire property which bears the same ratio to the total adjusted basis as the fair market value of the contributed portion of the property bears to the fair market value of the entire property.
As stated in our response to Ruling Request l, the Display Control Rights and Reversion Rights are not "substantial" rights and, thus, have no value for federal income tax purposes. Therefore, if the Donor does not elect under section 170(b)(1)(C)(iii) of the Code, the amount of the charitable contribution attributable to each gift by the Donor of an undivided fractional interest in a work of the Collection shall be determined under section 170(b)(1)(C)(i) and shall equal the product of (a) such fraction times (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work of art at the time of the gift of the fractional interest; provided, however, that under section 170(b)(1)(C)(ii) the aggregate amount of all charitable contributions described under section 170(b)(1)(C)(i) in such year shall not exceed 30 percent of the Donor's contribution base as defined in section 170(b)(1)(F).
The works of art and their display are clearly related to the Donee's purpose or function constituting the basis for the Donee's exemption under section 501(c) of the Code. Therefore, section 170(e)(1)(B) does not apply to reduce the amount of the charitable contribution determined otherwise. However, if the Donor makes the election under section 170(b)(1)(C)(iii) of the Code with respect to her gifts of capital gain property for a taxable year, the amount of the charitable contribution attributable to any gift in that year of an undivided fractional interest in a work of the Collection that is capital gain property shall be subject to the reduction under section 170(e)(1)(B)
In calculating the reduction under section 170(e)(1), the Donor's adjusted basis in the contributed portion of the property shall be that portion of the adjusted basis of the entire property which bears the same ratio to the total adjusted basis as the fair market value, determined without regard to the existence of the new LGA, of the contributed portion of the property bears to the fair market value, determined without regard to the existence of the new LGA, of the entire property. If the election under section 170(b)(1)(C)(iii) is made, the 30 percent limitation under section 170(b)(1)(c)(i) will not apply to the subject gifts.
RULING REQUEST 4
Section 2501(a)(1) of the Code imposes a tax for each calendar year on the transfer of property by gift during the calendar year. Section 2503(a) provides in part that the term "taxable gift" means the total amount of gifts made during the calendar year less the deduction allowed under section 2522 (relating to gifts to charities, etc.). Section 2512(a) provides that if a gift is made in property, the value of the property at the date of the gift shall be considered the amount of the gift.
Section 2511(a) of the Code provides in part that the tax imposed by section 2501 shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal and tangible or intangible. However, the gift must be complete before the tax will apply. A gift is not complete if the donor has not relinquished dominion and control over the subject property or property interest. See generally, section 25.2511-2 of the Gift Tax Regulations. See also, Rev. Rul. 79-384, 1979-2 C.B. 344, where it was held that a parent's promise to pay $10,000 to a child if the child graduated from college became a taxable gift on the day that the child graduated and the promise became enforceable and determinable in value. The revenue ruling states that where one promises to transfer property in the future, the gift tax consequences of the promise are judged as of the time at which it is possible to determine that the transfer must be made and that the transfer will be of a determinable amount.
Applying the foregoing to Ruling Request 4 we conclude that the mere execution of the Agreement by the taxpayer will not constitute a taxable gift because at that point in time it will not be possible to determine that the future transfers must be made by her. Similarly, the amount of any future transfer cannot be known until the remaining works owned by the taxpayer at her death are valued at that time.
RULING REQUESTS 5 AND 6
Any lifetime transfer of an undivided fractional interest in the art work from Donor to Donee will constitute a taxable gift at the time the transfer is made.
The amount of the gift will be equal to the full amount of the fair market value of the subject property that is allocable to the transferred undivided fractional interest. In this regard, the amount of the gift will not be reduced because of the Display Control Rights and the Reversion Rights or because of any other provision in the new LGA. Ordinarily, the amount of a gift is the value of the transferred property reduced by the value of any interest therein retained by the donor. See section 25.2512-5(a) of the Gift Tax Regulations. However, since the Display Control Rights and the Reversion Rights in this case are incapable of valuation, no allowance will be made on account thereof and the entire value of the transferred property will be subject to the gift tax. See Robinette v. Helvering, 318 U. S. 184 (1943).
Section 2522 of the Code provides for a deduction, for federal gift tax purposes, of the amount of gifts made to or for the use of qualified charitable organizations.
Under section 2522(c)(2) of the Code, if a donor transfers an interest in property (OTHER THAN AN INTEREST DESCRIBED IN SECTION 170(f)(3)(B)) to a charitable organization and if the donor also retains an interest in the subject property, no deduction is allowable with respect to the transferred portion unless the transaction is structured to conform to specified statutory requirements. For example, if the donor transfers a remainder interest to a charity and retains a life or term interest in the same property, no deduction will be allowed with respect to the transferred remainder interest unless that interest is in a trust which is a charitable remainder annuity trust or a charitable remainder unitrust or a pooled income fund.
One of the transfers described in section 170(f)(3)(B) of the Code is a transfer, not in trust, of an undivided portion of the donor's entire interest in property. Section 1.170A-7(b)(1) of the Income Tax Regulations provides that a deduction is allowable under this rule for a contribution of property to a charitable organization whereby the organization is given the right, as a tenant in common with the donor, to possession, dominion, and control of the property for a portion of each year appropriate to its interest in the property. The above-mentioned provisions in sections 170(f)(3)(B)(ii) and 1.170A-7(b)(1) of the Code and regulations apply to the transfer of art work. See Winokur v. Commissioner, 90 T.C. 733 (1988), acq., 1989-1 C.B. 1.
Although the provision in section 1.170A-7(b)(1) of the regulations regarding possession for only a portion of a year is not found in the corresponding Gift Tax Regulation (section 25.2522(c)- 3(c)(2)(i)), the same rule applies for gift tax purposes. Thus, for example, if Donor in this case transfers an undivided forty percent of her entire interest in a given art work, a retention of the right to possess the work for sixty percent of each year would not result in a disallowance of the deduction, provided that Donee has the right to possession during the other forty percent of the year.
Although the contemplated transfer of an undivided fractional portion of the taxpayer's entire interest coupled with a right to retain possession of the transferred art work for an appropriate portion of each year commensurate with the retained fractional interest will not result in the disallowance of the deduction otherwise allowed by section 2522 of the Code, there remains one additional factor to be considered.
Section 25.2522(c)-3(b)(1) of the regulations provides that if, as of the date of the gift, a transfer for charitable purposes is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. Further, if an interest has passed to, or is vested in, charity on the date of the gift and the interest would be defeated by the performance of some act or the happening of some event, the possibility of occurrence of which appeared on such date to be so remote as to be negligible, the deduction is allowable. The same rules apply for purposes of determining whether income tax and estate tax deductions are allowable. See section 1.170A-1(e) of the Income Tax Regulations and section 20.2055-2(b) of the Estate Tax Regulations. Illustrative cases relating to the income tax deduction under section 170 of the Code include, 855 Investment Co. v. Commissioner, 95 T.C. 156 (1990) and Briggs v. Commissioner, 72 T.C. 646 (1979). Illustrative estate tax cases relating to section 2055 include, Commissioner v. Sternberger's Estate, 348 U.S. 187 (1955); United States v. Dean, 224 F.2d 26 (1st Cir. 1955); St. Louis Union Trust Co. v. Burnet, 59 F.2d 922 (8th Cir. 1932); Churchill v. United States, 68 F. Supp. 267 (E.D. Wisc. 1946); Delaware Trust Co. v. Handy, 53 F.2d 1042 (D. Del. 1931); Estate of Woodworth v. Commissioner, 47 T.C. 193 (1966), and Old Point National Bank, Executor v. Commissioner, 39 B.T.A. 343 (1939).
Based upon the facts in this case, we conclude that the possibility that the art work will revert to the heirs or legatees of Donor is so remote as to be negligible. Accordingly, we conclude that a gift tax deduction will be allowable under section 2522 of the Code. Further, the charitable deduction for the gift of an undivided fractional interest will equal the product of (a) the fraction and (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work of art at the date of the gift of the fractional interest.
RULING REQUEST 7
Section 2503(g) of the Code provides that for purposes of subtitle B (meaning chapters 11 through 14, relating respectively to estate tax, gift tax, generation-skipping transfer tax, and special valuation rules), any loan of a "qualified work of art" shall not be treated as a transfer (and the value of such qualified work of art shall be determined as if such loan had not been made) if -- (A) such loan is to an organization described in section 501(c)(3) and exempt from tax under section 501(c) (other than a private foundation), and (B) the use of such work by the organization is related to the purpose of function constituting the basis for its exemption under section 501.
There is no doubt that every work in the Collection is a "qualified work of art" within the meaning of section 2503(g)(2)(A) of the Code because each work is creative tangible personal property. Further, Donee is exempt from tax under section 501(c) and is not a private foundation. Finally, the contemplated use to which Donee will put any loaned works will be related to the purpose or function constituting the basis for its exemption under section 501. Accordingly, we conclude that any loan of the art work in Collection from Donor to Donee will not be treated as a transfer for gift tax purposes because of section 2503(g).
RULING REQUEST 8
Section 2033 of the Code provides that the value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of death. For section 2033 to apply, the decedent must, at the time of death, possess rights that can be transmitted to a survivor (as distinguished from interests that terminate on the decedent's death). If a decedent has an interest in property at the time of death that can be transmitted, the value of that interest is includable in the gross estate under section 2033 even though the interest is subject to being lawfully curtailed or cut off at any time after the decedent's death. Any determination of the fair market value of a particular remainder or reversionary interest would be affected by its possible curtailment or complete divestment at some point after the decedent's death. However, the mere presence of these possibilities does not warrant the assignment of a merely nominal value to a defeasible interest in any case where there is still a reasonable possibility that the estate will actually acquire possession of at least some substantial portion of the property in question. See Rev. Rul. 67-370, 1967-2 C.B. 324. Under the facts of this case, it cannot be said that there is a reasonable possibility that Collection will revert to the estate. Accordingly, we conclude that the Display Control Rights and the Reversion Rights that will pass to the taxpayer's successors-in- interest will have no value for federal estate tax purposes.
We also conclude that only the undivided fractional interests in the works of Collection retained by Donor at her death shall be includable in her gross estate for federal estate tax purposes.
RULING REQUESTS 9 AND 10
For the reasons discussed above in connection with the gift tax deduction under section 2522 of the Code, we conclude that an estate tax deduction will be allowable under section 2055 because the possibility of a reversion to the heirs or legatees of Donor is so remote as to be negligible. Further, the amount includable in Donor's gross estate, and the amount deductible as an estate tax charitable deduction, shall equal for each work of art the product of (a) the fraction of the work that the taxpayer owned at her death and (b) the fair market value, determined without regard to the existence of the new LGA, of the entire work as finally determined for federal estate tax purposes in Donor's estate.
This ruling does not address the applicability of any section of the Code or regulations to the facts submitted other than the sections described above. This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.
Sincerely,
Assistant Chief Counsel
(Income Tax and Accounting)
By: Karin G. Grass
Senior Technician Reviewer
Branch 3
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