(a) The amount of the Federal estate tax attributable to the transferred property in the transferor's estate is the “first limitation.” Thus, the credit is limited to an amount, A, which bears the same ratio to B (the “transferor's adjusted Federal estate tax”, computed as described in paragraph (b) of this section) as C (the value of the property transferred (see §20.2013-4)) bears to D (the “transferor's adjusted taxable estate”, computed as described in paragraph (c) of this section). Stated algebraically, the “first limitation” (A) equals:

(b) For purposes of the ratio stated in paragraph (a) of this section, the “transferor's adjusted Federal estate tax” referred to as factor “B” is the amount of the Federal estate tax paid with respect to the transferor's estate plus:

(1) Any credit allowed the transferor's estate for gift tax under section 2012, or the corresponding provisions of prior law; and

(2) Any credit allowed the transferor's estate, under section 2013, for tax on prior transfers, but only if the transferor acquired property from a person who died within 10 years before the death of the present decedent.

(c)

(1) For purposes of the ratio stated in paragraph (a) of this section, the “transferor's adjusted taxable estate” referred to as factor “D” is the amount of the transferor's taxable estate (or net estate) decreased by the amount of any “death taxes” paid with respect to his gross estate and increased by the amount of the exemption allowed in computing his taxable estate (or net estate). The amount of the transferor's taxable estate (or net estate) is determined in accordance with the provisions of §20.2051-1 in the case of a citizen or resident of the United States or of §20.2106-1 in the case of a nonresident not a citizen of the United States (or the corresponding provisions of prior regulations). The term “death taxes” means the Federal estate tax plus all other estate, inheritance, legacy, succession, or similar death taxes imposed by, and paid to, any taxing authority, whether within or without the United States. However, only the net amount of such taxes paid is taken into consideration.

(2) The amount of the exemption depends upon the citizenship and residence of the transferor at the time of his death. Except in the case of a decedent described in section 2209 (relating to certain residents of possessions of the United States who are considered nonresidents not citizens), if the decedent was a citizen or resident of the United States, the exemption is the $60,000 authorized by section 2052 (or the corresponding provisions of prior law). If the decedent was a nonresident not a citizen of the United States, or is considered under section 2209 to have been such a nonresident, the exemption is the $30,000 or $2,000, as the case may be, authorized by section 2106(a)(3) (or the corresponding provisions of prior law), or such larger amount as is authorized by section 2106(a)(3)(B) or may have been allowed as an exemption pursuant to the prorated exemption provisions of an applicable death tax convention. See §20.2052-1 and paragraph (a)(3) of §20.2106-1.

(d) If the credit for tax on prior transfers relates to property received from two or more transferors, the provisions of this section are to be applied separately with respect to the property received from each transferor. See paragraph (b) of example (2) in §20.2013-6.

(e) For illustrations of the application of this section, see examples (1) and (2) set forth in §20.2013-6.

[T.D. 6296, 23 FR 4529, June 24, 1958; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 7296, 38 FR 34191, Dec. 12, 1973]