Allocation of estate taxes

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Problem 1: Ralph Heard dies in 2008 leaving a large estate. After providing for specific bequest to friend and distant relative, his will states, "I leave the residue of my estate to be divided between my wife and two children." Applicable state law contains an apportionment provision that precludes the allocation of estate taxes to assets that did not create or generate such taxes unless the decedent provided otherwise.

On the Form 706 that Ralph's executor filed for the estate, the estate taxes were deducted soley from the children's portion of the residue. After audit by the IRS, the estate taxes were charged against the entire residue of the estate.

a. What difference does it make?

b. Is the IRS's position correct? Explain.

Reference no: EM13834683

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