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& Lane, supra sec. 1.06 at 1-12 to 1-13.15 In each of these
preceding instances, Federal income tax treatment takes into
account the legal and economic characteristics of the property
interest under State law by excluding the transfer of such
property from the subchapter J distribution rules.
Section 1.661(a)-2(e), Income Tax Regs., limits the scope of
section 662(a)(2)(B) by excluding from second tier distributions
all transfers of a decedent’s fee simple interest in real
property to heirs, legatees, or devisees when title passes
directly under State law upon decedent’s death. Specific devises
by a decedent of real property the title to which passes directly
at his death, which might otherwise be excluded from subchapter J
property under an expansive reading of section 663(a)(1), are
instead excluded from second tier distributions because they do
“not constitute an amount paid, credited, or required to be
distributed under section 661”. Sec. 1.663(a)-1(c)(1)(ii),
Income Tax Regs.
The Commissioner has also ruled that a transfer of real
property, which would otherwise be part of the residuary estate,
15 The Code also provides for other exclusions from the
subchapter J distribution rules such as lump-sum rollovers of a
decedent’s IRA assets to the IRA of a surviving spouse, secs.
401(a)(9)(B)(iv), 408(a)(6), and the “successor in interest”
regulations of sec. 1.706-1(c)(3)(iii), Income Tax Regs. Sec.
706(c)(2)(A), as amended by Taxpayer Relief Act of 1997, Pub. L.
105-34, sec. 1246(a), 111 Stat. 788, 1030, has been modified to
end the tax year of a partnership year with respect to the death
of a partner for tax years beginning after Dec. 31, 1997.
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