U.S. TREASURY BILL IS INCLUDABLE IN NONRESIDENT ALIEN'S ESTATE.

UIL Number(s) 2104.00-00

                                             February 16, 1993

Whether, under section 2104(c) of the Internal Revenue Code, a short-term United States Treasury obligation held by a decedent nonresident alien at death is includable in the nonresident alien's gross estate.

FACTS

At the time of her death, Decedent was a citizen of Country A or Country B and was domiciled in Country C. She died in City on Date 1. Among her assets was a United States Treasury bill in the face amount of $3,000,000.00 with a fair market value of $2,988,883.33 issued on Date 2 maturing on Date 3. The treasury bill was held in a custody account at Bank and was listed as a United States asset on Decedent's Form 706NA, United States Estate Tax Return. After the estate tax examination was concluded, the estate filed a claim for refund alleging the treasury bill was erroneously included among the United States situs property of the estate.

LAW and ANALYSIS

Section 2104(c) of the Code provides that debt obligations of the United States owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States for estate tax purposes. However, it further provides that this rule does not apply to a debt obligation to which section 2105(b) applies.

Section 2105(b)(3) of the Code provides that debt obligations shall not be deemed property within the United States if any interest thereon would be eligible for exemption from tax under section 872(h)(1), were such interest received by the decedent at the time of his death.

Section 871(a)(1)(A) of the Code provides that, except as provided in sections 871(h), there is imposed for each taxable year a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual as interest (other than original issue discount as defined in section 1273), but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States.

Section 871(a)(1)(C)(i) of the Code provides that, except as provided in sections 871(h), there is imposed for each taxable year a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual as in the case of a sale or exchange of an original issue discount obligation, the amount equal to the original issue discount accruing while such obligation was held by the nonresident alien individual but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States.

Section 871(g)(1)(B)(i) of the Code provides that, for purposes of sections 871 and 881, the term "original issue discount obligation" does not include any obligation payable 183 days or less from the date of original issue (without regard to the period held by the taxpayer).

Section 871(h)(1) of the Code provides that no tax under section 871(a) shall be imposed on portfolio interest received by a nonresident alien individual. Section 871(h)(2) provides that, for purposes of section 871(h), the term "portfolio interest" means any interest (including original issue discount) that would be subject to tax under subsection (a) but for this subsection and that are described in subsections 871(h)(2)(A) and (B).

Section 2104(c) of the Code provides a general rule that includes in a nonresident alien's taxable estate debt obligations held by the person at death. Section 2105(b)(3), however, provides an exception to this rule. It excludes from the estate debt obligations that are exempt under section 871(h)(1) from the 30 percent tax imposed by section 871(a).

In this case, Decedent held a United States Treasury bill that matured in less than 183 days. The United States Treasury bill was an original issue discount obligation and, generally, such obligations are subject to the 30 percent tax imposed by section 871(a) of the Code. Because the United States Treasury bill matured in less than 183 days, however, section 871(g)(1)(B)(i) excluded it from the term "original issue discount obligation." Thus, it was not subject to the tax imposed by section 871(a).

Section 2105(b)(3) of the Code specifically requires that any interest on the obligation must be eligible for the exemption from tax under section 872(h)(1) in order not to be deemed property within the United States. Although the United States Treasury bill in this case was not subject to the 30 percent tax imposed by section 871(a), it was not as a result of the exception provided in section 871(h)(1) of the Code. Accordingly, the United States Treasury bill was property within the United States at the death of the decedent for estate tax purposes.

CONCLUSION

A short-term United States Treasury obligation held by a nonresident alien at death is includable in the nonresident alien's gross estate under section 2104(c) of the Code.

A copy of this technical advice memorandum is to be given to the taxpayer. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent.