This case involves credits for tax on prior transfers under IRC §2013. The credit amount varies based on the number of years between the two taxpayers’ deaths. In this case husband died first and his wife died three months later. Under §2013, if the taxpayers died within 2 years of each other, the credit amount is the lesser of two limits. The first limit is the amount of the federal estate tax attributable to the transferred property in the estate that has already been taxed. The second limit is the amount of the federal estate tax attributable to the transferred property in the estate that has not yet been taxed.

The husband’s personal representatives purposely caused certain of the husband’s assets to not qualify for the marital deduction and therefore be taxed in the husband’s estate. The husband’s estate paid approximately $200k federal estate tax and $25,000 in Nevada estate tax. The Nevada estate tax is a “pickup” or “sponge” tax in that Nevada imposes a tax in the amount of the maximum credit allowable against the federal estate tax for payment of state death taxes.

The wife’s estate claimed a credit in the full amount of all death taxes paid by the husband’s estate, without taking into account any limits under §2013. The estate argued that the only portion of the husband’s estate that was subject to estate tax was the nonmarital portion and, therefore, the limitations on the tax credit were not triggered when the husband passed no other property subject to the estate tax. The estate argued further that since the Nevada tax was essentially a portion of the federal tax paid to the state, it should also be given a credit. The tax court rejected both arguments, stating that the limitations apply and the state tax was not entitled to a credit.

The wife’s estate also filed an amended return in which it deducted the husband’s estate tax payment as a debt of the wife. The tax court also denied this deduction because the wife’s estate did not introduce any evidence showing that the taxes were actually paid with assets in the wife’s estate.