Rev. Rul. 84-139
1984-2 C.B. 168, 1984-38 I.R.B. 17.
Internal Revenue Service
Revenue Ruling
BASIS; PROPERTY ACQUIRED FROM NONRESIDENT ALIEN DECEDENT
Published: September 17, 1984
Section 1014. - Basis of Property Acquired from a Decedent, 26 CFR
1.1014.1: Basis of property acquired from a decedent
Basis; property acquired from nonresident alien decedent. Foreign real
property that is inherited by a United States citizen from a nonresident
alien will receive a step-up in basis under section 1014 of the Code even
though the property is not includible in the value of the decedent's gross
estate.
ISSUE
Will a United States citizen who inherits foreign real property from a
nonresident alien receive a stepped-up basis in such property under section
1014 of the Internal Revenue Code even though the property is not
includible in the value of the decedent's gross estate?
FACTS
D, who was a citizen and a resident of Z, a foreign country, died in
1982 owning real property located in Z. B, a United States citizen,
inherited the real property in accordance with the laws of Z. At the time
of D's death, the real property had a basis of 100 x dollars and a fair
market value of 1000x dollars. Because the real property is located outside
the United States and D was a nonresident alien, the value of such property
is not includible in D's gross estate under section 2103 of the Code for
purposes of the United States federal estate tax. B sold the real property
in 1983 for 1050x dollars, claiming a basis of 1000x and a gain of 50x
dollars.
LAW AND ANALYSIS
Section 1014(a)(1) of the Code states that the basis of property in the
hands of a person acquiring the property from a decedent or to whom the
property passed from a decedent shall, if not sold, exchanged, or otherwise
disposed of before the decedent's death by such person, be the fair market
value of the property at the date of the decedent's death.
Section 1014(b)(1) of the Code provides that property acquired by
bequest, devise, or inheritance, or by the decedent's estate from the
decedent shall be considered to have been acquired from or to have passed
from the decedent for purposes of section 1014(a).
Section 1014(b)(9)(C) of the Code further provides that section
1014(b)(9) shall not apply to property described in other paragraphs of
section 1014(b).
Section 1014(b)(9) of the Code provides that, in the case of a decedent
dying after December 31, 1953, property acquired from a decedent by reason
of death, form of ownership, or other conditions (including property
acquired through the exercise or non-exercise of a power of appointment),
if by reason thereof the property is required to be included in determining
the value of a decedent's gross estate shall be considered to have been
acquired from or to have passed from the decedent for purposes of section
1014(a).
Section 1.1014-2(b)(2) of the Income Tax Regulations provides that
section 1014(b)(9) property does not include property that is not
includible in the value of a decedent's gross estate, such as property not
situated in the United States acquired from a nonresident who is not a
citizen of the United States.
In this case, B inherited the real property from D, and such property is
within the description of property acquired from a decedent under section
1014(b)(1) of the Code. Therefore, B will be entitled to a stepped-up basis
under section 1014(a). Under section 1014(b)(9)(c), section 1014(b)(9) does
not apply to property described in section 1014(b)(1); hence, the
requirement of section 1014(b)(9) that property be includible in the value
of a decedent's gross estate does not apply here.
HOLDING
Foreign real property that is inherited by a United States citizen from
a nonresident alien will receive a step-up in basis under sections
1014(a)(1) and 1014(b)(1) of the Code.
B's basis in the real property sold is 1000x, the fair market value of
the property on the date of D's death, as determined under sections
1014(a)(1) and 1014(b)(1) of the Code
Rev. Rul. 84-139, 1984-2 C.B. 168, 1984-38 I.R.B. 17.
