marital deduction is limited to the smaller of (1) one-half of the value of the adjusted gross estate, or (2) the value of property interests passing to the surviving spouse. The deduction is generally not available in case the gross estate consists exclusively of the decedent's interest in property held by him and his surviving spouse under community property laws. The amounts of adjusted gross estate and of property interests passing to surviving spouse (i. e., bequests to surviving spouse), used in connection with the limitation for marital deduction, are tabulated as information items and explained below. Net deduction for property previously taxed is the deduction, subject to certain conditions and limitations, allowable when there is included in the gross estate of an individual property received by him by gift from any person within 5 years prior to death, or received by gifts, bequest, or inheritance from any person who died within 5 years prior to his death, or property acquired in exchange for property so received. The property respecting which the deduction is sought must have formed a part of the prior decedent's gross estate situated in the United States, or have been included in the total amount of the donor's gifts made within 5 years prior to the decedent's death. An estate tax or a gift tax actually must have been paid with respect to such property and such a deduction in respect of the property must not have been allowable in determining the value of the net estate of the prior decedent. The deduction for property previously taxed cannot include property received from a spouse who died after December 31, 1947, nor gifts received from a spouse after April 2, 1948, nor property exchanged for either.

This deduction is limited to the value of such property as finally determined in the case of the prior decedent or donor, or as it is valued in the gross estate of the present decedent, whichever is lower, and is further reduced by a proportionate reduction which is equal to that proportion of total deductions except property previously taxed, which the value of property previously taxed bears to gross estate. However, in the case of an individual who died on or after October 22, 1942, if the property previously taxed includible in the gross estate is not wholly subject to general claims, the computation of the net deduction gives consideration to the fact that certain claims are enforceable first, or solely, against specified property, and that the value, in whole or in part, of some property included in the gross estate (including property previously taxed), is exempt from claims of creditors. This is accomplished by two reductions in the amount otherwise deductible: First, before applying the proportionate reduction, the amount otherwise deductible is reduced by that portion thereof which represents the specific claims against the property previously taxed; and, second, the balance thus obtained is further reduced by the proportionate reduction as stated above except that the amounts therein represent only such amounts as are subject to general claims. For the estate subject to both basic and additional taxes, the allowance of a different specific exemption for the purpose of each tax causes this net deduction for property previously taxed to differ also, in which case the amount tabulated is the net deduction used in computing the net estate for additional tax.

Specific exemption for the purpose of the additional tax is $60,000 for the estate of a citizen or a resident alien who died on or after October 22, 1942; $40,000 if death occurred in the period August 31,

May 11, 1934 through August 30, 1935; and $50,000 for the estate of a resident citizen or a resident alien who died in the period June 6, 1932 through May 10, 1934.

For purpose of the basic tax, there is allowed a specific exemption of $100,000 for the estate of a resident citizen or a resident alien who died on or after February 26, 1926, and for the estate of a nonresident citizen who died on or after May 11, 1934; or $50,000 for the estate of a resident citizen or a resident alien who died prior to February 26, 1926.

A specific exemption of $2,000 is authorized for the estates of nonresident aliens who died on or after October 22, 1942, in computing the net estate for basic tax as well as the net estate for additional tax.

For estates which are subject to both basic and additional taxes, that is, estates of individuals who died on or after June 6, 1932, the specific exemption tabulated is only that allowable for purposes of the additional tax.

Disallowed deductions constitute that portion of total deductions equal to the excess of the sum of funeral and administration expenses, debts of the decedent, mortgages and liens, and support of dependents over the value of property subject to claims includible in gross estate, and are disallowed as a deduction from gross estate in computing both the net estate for basic tax and the net estate for additional tax. This provision applies only to the estates of individuals who died on or after October 22, 1942.

Net estate is the excess of gross estate over allowable deductions. Net estate for additional tax is the value thereof subject to additional tax; and the net estate for basic tax is the value thereof subject to basic tax. In the case of citizens and resident aliens, the value of net estate subject to additional tax differs from the value of net estate subject to basic tax owing to the different specific exemptions allowable which directly affect deductions and which cause a difference in the net deductions for property previously taxed, as mentioned above. If an estate is subject to both taxes, the net estate for additional tax and the net estate for basic tax are independently tabulated. Estates of nonresident aliens have the same net estate value for both basic and additional taxes.

Net estate before specific exemption is the excess of gross estate over allowable deductions except specific exemption, the allowable deductions for additional tax being used when the estate is subject to both additional and basic taxes.

Net estate for basic tax is the excess of gross estate over allowable deductions for basic tax, which deductions include the specific exemption of $100,000 for estates of resident citizens and resident aliens who died on or after February 26, 1926, and of nonresident citizens who died on or after May 11, 1934, or the specific exemption of $50,000 for estates of resident citizens and resident aliens who died prior to February 26, 1926. Estates of nonresident aliens who died on or after October 22, 1942, are allowed $2,000 specific exemption for basic tax. Net estate for additional tax is the excess of gross estate over the allowable deductions for additional tax, which deductions include the specific exemption of $60,000 for estates of citizens and resident aliens who died on or after October 22, 1942; $40,000 if death occurred in the period August 31, 1935 through October 21, 1942; $50,000 if death occurred in the period May 11, 1934 through August 30, 1935; or the

resident aliens who died in the period June 6, 1932 through May 10, 1934. Estates of nonresident aliens who died on or after October 22, 1942, are allowed specific exemption of $2,000 for the computation of net estate for additional tax.

Gross basic tax is the basic tax, before tax credits, computed at basic tax rates on the net estate for basic tax. The rates in effect February 26, 1926, and thereafter (1926 and subsequent acts) specify 1 percent of the net estate value not in excess of $50,000 increasing to 20 percent of the net estate in excess of $10,000,000. (The rates under earlier acts vary from this range.)

Gross additional tax is the additional tax, before tax credits, on the net estate for additional tax. Gross additional tax is the excess of a tentative tax, computed on the net estate for additional tax at the tentative tax rates in effect at date of death, over the gross basic tax. The tentative tax rates in effect September 21, 1941, and thereafter (1941 and subsequent acts) specify 3 percent of the net estate for additional tax not in excess of $5,000 increasing to 77 percent of such net estate value in excess of $10,000,000. (Tentative tax rates under the earlier acts are successively lower.)

Tax credit for State inheritance, etc., taxes is allowed against the gross basic tax only. This credit is based on the amount of estate, inheritance, legacy, or succession taxes actually paid to any State, Territory, the District of Columbia, or (after June 29, 1939) to a possession of the United States, with respect to property included in the gross estate. The amount of tax credit allowed is limited to 80 percent of the gross basic tax (prior to October 22, 1942, to 80 percent of the gross basic tax less the credit allowed for gift taxes paid).

Tax credit for Federal gift taxes is allowed against both the basic tax and the additional tax, for gift taxes paid in respect to property included in the gross estate. The amount of credit applicable to the basic and to the additional tax is not separately reported. Credit is allowed against the basic tax for any gift tax paid under the 1924 act in respect to property included in the gross estate; but the credit cannot exceed the amount of basic tax after deduction of the credit allowed for State inheritance taxes.

Credit is allowed against both the basic tax and the additional tax for gift tax paid under gift tax provisions of the 1932 and subsequent acts, in respect to property included in the gross estate. This credit is limited to the smaller of (1) the amount of gift tax paid in respect to such property, or (2) the amount of basic and additional estate taxes attributable to such gifts included in the gross estate. Under the 1948 act, the amount of each limitation is computed under a specified formula wherein the value of the included gift is reduced by exclusions, charitable gifts, and marital deduction so that the value of the gift represents only the amount taxed for gift tax purposes or for estate tax purposes as the case may be.

Tax credit for foreign death duties is authorized under conventions with Canada, United Kingdom, and France. Under these agreements for the avoidance of double taxation and prevention of fiscal evasion with respect to taxes on the estates of deceased persons, a tax credit is allowed against the Federal estate tax on the estate of a resident alien or citizen of the United States with respect to property subjected to death taxes by both the United States and the contracting country. Under the convention with Canada, effective June 14, 1941, a tax

paid in respect to property situated in Canada and subjected to taxes in both countries. Under the convention with the United Kingdom, effective July 25, 1946, a tax credit (with limitation) is allowable for Great Britain or Northern Ireland estate duty computed in accordance with the provisions of the convention and paid in respect of property situated as provided therein and subjected to taxes by both the United States and Great Britain or Northern Ireland. Under the convention with France, effective October 17, 1949, a tax credit (with limitation) is allowable for death duties paid to France on property which is also subjected to estate tax by the United States.

Tax liability, as tabulated in this report, is the net estate tax payable; that is, a combination of the basic tax, the additional tax, and the defense tax (effective only during the period June 26, 1940 through September 20, 1941) less the allowable tax credits for State inheritance taxes, Federal gift taxes, and foreign death duties.

Bequests to surviving spouse, tabulated as an information item, represent the net value of property interests includible in gross estate which pass or have passed to the surviving spouse and which qualify for the purpose of the marital deduction. Property interests passing from the decedent to surviving spouse include interests taken as decedent's legatee, devisee, heir, or donee; as decedent's surviving tenant by the entirety or joint tenant; as appointee under the decedent's exercise of power or as taker in default upon his release or nonexercise of a power; or as beneficiary of insurance upon the life of the decedent; and also include dower or courtesy, as the case may be, interest or statutory estate in lieu thereof. To qualify for the purpose of marital deduction, the transfer of property interests must meet the conditions specified in the 1948 act; in general, the transfer must be a complete and absolute transfer to the spouse (or estate of such spouse) and not a transfer in conjunction with any other person. Certain transfers do not qualify for this deduction even though transferred to the spouse; for example, a life interest in property left to the spouse with remainder interest in the same property left to the children will not qualify.

The value of property interests passing to the surviving spouse reported for the purpose of the marital deduction is the net value; that is, the value thereof has been reduced to the extent that a deduction therefor is taken against the gross estate for fees or commissions, for mortgages or other encumbrances, for payments made in satisfaction of a claim of the surviving spouse, and for amounts expended for support of surviving spouse during settlement of the estate. Also, the value of such interests is reduced by the amount of Federal estate tax and the amount of State or other death taxes which are payable out of, or chargeable against, the property interests involved.

Adjusted gross estate, introduced under the 1948 act with respect to the limitation on the marital deduction, is shown in the tabulations as an information item. Adjusted gross estate is the excess of gross estate over the aggregate amount of deductions for funeral expenses, administration expenses, claims against the estate, mortgages, support of dependents, and losses incurred during settlement arising from fire, storm, shipwreck, or other casualty, or from theft, when not compensated for by insurance and not claimed as a deduction on an income tax return. If the decedent and his surviving spouse at any time held property as community property under State

at time of death held as community property and of property transferred by the decedent during life if at the time of transfer such property was held as community property, by proceeds of insurance upon the life of the decedent to the extent purchased from community property, and by an amount which bears the same ratio to the aggregate amount of deductions (mentioned above) as the separate property bears to the entire gross estate. Thus the adjusted gross estate is based on values representing separate property.

CLASSIFICATION OF ESTATE TAX RETURNS

Estate tax returns are classified as returns for the estates of citizens and resident aliens, and returns for the estates of nonresident aliens. Returns for the estates of citizens and resident aliens are classified as taxable or nontaxable, by applicable revenue acts, by States and Territories, by gross estate classes, by net estate before exemption classes, by age, sex, and marital status of the decedent, by number of children, and by types of heirs, devisees, and legatees. Data are presented by these classifications in the estate tax tables, but not all items are available for every classification.

Citizens and resident aliens, and nonresident aliens.-Estates of citizens residing in the United States, and on and after May 11, 1934, citizens residing abroad, and estates of aliens residing in the United States at date of death are taxed under provisions differing from those governing the estates of nonresident aliens, and are segregated for

that reason.

Applicable revenue acts.-Estate tax returns are classified according to the revenue act under which the estate is taxed; that is, the act in effect on the date of death of the individual whose estate is reported. Returns taxed under the 1948 act are distinguished from those taxed under the 1942 act and returns taxed under the 1941 and prior acts are grouped together for this classification.

Only

Taxable and nontaxable returns.-This classification is based on the existence or non-existence of a tax liability before tax credits. in rare instances do the tax credits offset the gross tax liability. Net estate before specific exemption classes.-The size of net estate is based on the value of net estate plus the specific exemption, the net estate and specific exemption for additional tax being used if the estate is subject to both basic and additional taxes. If the combined result is a negative amount or zero, the size is designated "No net estate" and appears as the first class under nontaxable returns.

Gross estate classes.-This classification is based on the value of the entire gross estate which value may be either the date of death value or the optional value, whichever is elected by the executor for tax

purposes.

Types of heirs, devisees, and legatees.-This classification is determined from the list of heirs, next of kin, devisees, and legatees, and their relationship to the decedent, submitted in the general information schedule. Only the names and relationship of the five principal ones are required. For this classification, three relationships-wife, husband, and children-are recognized and all other relationships are considered as "other" which also includes charitable legatees. These four types of heirs, devisees, and legatees, occurring singly and in combination constitute the classifications by which the returns are