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Issues concerning Section 2056(d) of the Tax Code

M. Chalmers Middleton II[1]*

The Estate Tax Marital Deduction currently provides an unlimited deduction against estate taxes for any bequest to a surviving spouse. However, Section 2056(d) disallows the use of this deduction when the surviving spouse is not a United States citizen. This is unless the bequest is put into a Qualified Domestic Trust for the benefit of the surviving foreign spouse. However, any distributions from this trust that are not made from the trust income or for hardship will be taxed. Similarly, the final disposition of such trust, regardless of who the final beneficiaries are, will also be taxed. This creates a significant issue of unfair tax treatment towards a person simply because they are not a U.S. citizen, even though, for resident non-citizens, they will eventually be subject to the estate tax or to a similar tax which would prevent them from leaving the U.S. with a large sum of tax-free property. The rules provided under Section 2056(d) and 2056A are unfair and can cause unlawful deterrents against marriage and should be repealed or amended.

I. Introduction 392

II. Background 394

A. The Federal Estate Tax 394

B. The Estate Tax Marital Deduction 397

1. Terminable Interests and QTIP 398

2. Sections 2056(d) and 2056A 399

III. Analysis of Policy and Law 401

A. Horizontal Equity Issues: Similar Taxpayers being Treated Fundamentally Different 401

B. The Foreign Spouse Rules Cause Unnecessary Deterrents Against Marriages between US Citizens and Non-Citizens. 404

IV. Solutions 406

A. Long-Term Resident 407

B. Reverse-Portability 407

V. Conclusion 410


Suzy, a newly widowed woman, enters the office of her newly hired attorney. Her late husband, Joseph, was the owner of a $20,000,000 real estate fortune, but through poor communication and planning with his financial advisors, he has died intestate. Without children, Suzy’s lawyer initially thinks that while the process will be complex, as the probate of multi-million-dollar fortunes usually are, it will not have a tax burden, as Joseph’s estate will be able to take advantage of the unlimited Estate Tax Marital Deduction.[2] However, as his conversation with Suzy develops, he makes a shocking discovery: Suzy is Italian. A few years ago, Suzy came to the United States to be with her husband. Being complacent with her status as a permanent resident alien, Suzy has never attempted to become a citizen. Suzy states that she has enjoyed her life in the United States with Joseph but has not decided whether she will return to Italy or stay in the United States. She also states that she still does not wish to become a citizen for various personal reasons. The attorney tells Suzy that because of her citizenship status, she does not qualify for the Estate Tax Marital Deduction, and Joseph’s estate will have to pay approximately $2,800,000 in Federal Estate Taxes.

This is the strict treatment imposed by Section 2056(d) of the Internal Revenue Code.[3] Regardless of length of marriage, citizenship of the decedent,[4] or a pending application for citizenship,[5] if the surviving spouse of a decedent is not a citizen of the United States before the Estate Tax Return is filed with the Internal Revenue Service, then the liberal deduction provided by Section 2056(a) will not apply.[6] Congressional reports state that the reason for this disallowance is to guarantee that property passing to the non-citizen spouse will be taxed by the United States.[7] The fear being that a non-citizen spouse could (1) inherit the citizen spouse’s estate tax-free,[8] (2) move all the inherited assets outside the United States, (3) die, and (4) such inherited property would no longer be taxable in the United States as the non-citizen spouse’s estate would be taxed according to foreign law.

This is not the only deduction in Subtitle B to be affected by the citizenship of a Spouse. The Gift Tax Marital Deduction, found in Section 2523, is also greatly limited by a non-citizen spouse, albeit not near as severely as the effect of Section 2056(d).[9] The resulting disparity of the tax consequences between the estate of a person married to a citizen spouse as opposed to a non-citizen spouse is immense. The code speaks for itself in uncharacteristically simple terms: a citizen surviving spouse will receive an unlimited deduction against the estate tax, while a non-citizen surviving spouse will not even get a reduced deduction.[10]

This disparity presents an examinable problem in the inequitable treatment of non-citizens, which this note will argue should be changed to avoid placing tax advantages on certain kinds of marriages. This disparity is even worse when measured with long-term resident aliens, who, while still being subject to the Foreign Spouse Rules, are also subject to the expatriation tax under Sections 877 and 877A. Part II of this Note shall in sequence: (1) provide a basic overview of the operation of the federal Estate Tax; (2) provide an overview of the Estate Tax Marital Deduction; and (3) provide a detailed overview of the Foreign Spouse Rules of Section 2056(d), its exceptions, and the use of Qualified Domestic Trusts to gain limited access to the deduction. Part III shall analyze the policy aspects of the Foreign Spouse Rules and argue that the rules are inequitable and have the potential to create unintended discouragement of mixed-citizenship marriages and that Congress’s purpose of guaranteeing taxation could be accomplished through less strict means. Part IV shall discuss two amendments to the Foreign Spouse Rules which would create more equitable means of taxation while continuing to guarantee that property will not be moved out of the United States.


The Federal Estate Tax

Under Section 2001 of the Code, “[a] tax is [] imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.”[11] A decedent’s taxable estate is calculated by taking deductions from a decedent’s gross estate.[12] A decedent’s gross estate is “the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.”[13] One familiar with probate might immediately recognize that this definition is much wider than the typical state definition of what is included in a decedent’s probate estate. States typically provide that a great deal of property which the decedent owned at his death will not then be included in the probate estate.[14] The gross estate calculation takes an approach decidedly opposite to the probate codes of many states, what are typically known as “Non-Probate Transfers” and are usually not included in the probate estate but are instead specifically included.[15]

With the decedent’s gross estate calculated, the deductions can be applied to reach the decedent’s taxable estate. There are five existing deductions in the Code. First is a deduction for estate expenses and indebtedness, such as a funeral bill, probate attorney’s fees, and valid creditor’s claims.[16] Second is a deduction for casualty losses not covered by insurance.[17] Third is the charitable deduction, which allows an unlimited deduction for any transfers for public, charitable, or religious purposes.[18] Fourth is the Estate Tax Marital Deduction, discussed in depth below.[19] Fifth is a deduction for State death taxes actually paid for the same estate in any State of the United States or the District of Columbia.[20]

With the decedent’s taxable estate calculated, the rate table can be applied to determine the estate liability.[21] Many tax professionals describe the estate tax as a flat tax of 40% on the decedent’s taxable estate.[22] While this is a practically correct assessment of the estate tax, it is technically inaccurate. According to the code, the estate tax is calculated via a table much like how the income taxes are calculated. The estate tax table is as follows:[23]

Table 1: Estate Tax Table

If the amount with respect to which the tentative tax to be computed is: The tentative tax is:
Not over $10,000 18 percent of such amount.
Over $10,000 but not over $20,000 $1,800, plus 20 percent of the excess of such amount over $10,000.
Over $20,000 but not over $40,000 $3,800, plus 22 percent of the excess of such amount over $20,000.
Over $40,000 but not over $60,000 $8,200, plus 24 percent of the excess of such amount over $40,000.
Over $60,000 but not over $80,000 $13,000, plus 26 percent of the excess of such amount over $60,000.
Over $80,000 but not over $100,000 $18,200, plus 28 percent of the excess of such amount over $80,000.
Over $100,000 but not over $150,000 $23,800, plus 30 percent of the excess of such amount over $100,000.
Over $150,000 but not over $250,000 $38,800, plus 32 percent of the excess of such amount over $150,000.
Over $250,000 but not over $500,000 $70,800, plus 34 percent of the excess of such amount over $250,000.
Over $500,000 but not over $750,000 $155,800, plus 37 percent of the excess of such amount over $500,000.
Over $750,000 but not over $1,000,000 $248,300, plus 39 percent of the excess of such amount over $750,000.
Over $1,000,000 $345,800, plus 40 percent of the excess of such amount over $1,000,000.

However, this chart does not have the same importance as the Income Tax brackets due to the unified credit against estate tax provided under Section 2010 (the “Unified Credit”). The Unified Credit operates in such a way that makes it appear as a tax exemption rather than a tax credit.[24] Currently the basic exclusion amount of the Unified Credit is set at $12,920,000.[25] This means that an individual who dies in 2023 with a Taxable Estate below $12,920,000 will not pay any estate tax, and, if the Gross Estate is less than $12,920,000, will not even have to file an estate tax return.[26] Another factor to consider is the process known as portability, in which a surviving spouse is entitled to use whatever Unified Credit is left over from the deceased spouse.[27] This is known as the Deceased Spousal Unused Exclusion Amount (DSUE Amount).[28] When factoring in portability and the DSUE Amount, a married couple both dying in 2023 will not pay estate taxes unless their combined net worth is more than $25,840,000. When practitioners say that the estate tax is a flat rate tax of 40%, while they are technically incorrect, they are practically correct as the only people currently affected by the estate tax are paying a 40% flat rate tax.[29]

The Estate Tax Marital Deduction

The Estate Tax Marital Deduction, as mentioned above, is an unlimited deduction on mostly all property passing to the surviving spouse of a decedent.[30] While the deduction is unlimited with regard to value, the deduction does include limitations as to what kinds of property may qualify for the deduction.[31] The first limitation is that the marital deduction will not apply to so-called “terminable interests.”[32] The second limitation is that the marital deduction will not apply to a bequest to a spouse who is a foreign citizen.[33]

Terminable Interests and QTIP

A terminable interest is one in which, “on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail.”[34] Essentially, the deduction will not be applied if the interest is not given to the surviving spouse outright after the decedent’s death. Additionally, if there are mixed assets, in which the surviving spouse is receiving both an outright interest as well as a terminable interest, then the marital deduction shall be reduced by the value of the terminable interest.[35] However, even if the bequest is a terminable interest, there are four main exceptions to maintain use of the marital deduction. The first three are simply explained. First, if the termination event is the surviving spouse’s death, but only if the surviving spouse dies within six months of the decedent.[36] Second, if the interest is a life estate over which the surviving spouse has a general power of appointment, which allows the surviving spouse to appoint the interest to themselves or their estate.[37] Third, if the interest is in the form of a life insurance or annuity payment plan, commencing no later than thirteen months after death and payable to the surviving spouse only, over which the surviving spouse has a general power of appointment similar to the one stipulated in Section 2056(b)(5).[38] The final exception is Qualified Terminable Interest Property provided by Section 2056(b)(7), more commonly referred to as QTIP.[39]

QTIP was introduced to the code at the same time as the amendment to change the marital deduction to an unlimited amount.[40] QTIP is defined in the code as property in which the surviving spouse is entitled to a “qualifying income interest for life” and which the executor makes an election for the property to become QTIP.[41] A “qualifying income interest for life” is simply an interest by which the spouse is (1) “entitled to all the income from the property,” payable at least annually and (2) which “no person has a power to appoint any part of the property to” anyone except the surviving spouse.[42] Congress brought forth the QTIP rules in order to allow the decedent to ensure that property can provide for the surviving spouse but eventually go to whoever the decedent intends.[43] An important note is that the QTIP will be included in the surviving spouse’s estate at his or her death, regardless of whether the spouse has any control over the final disposition of the property.[44]

Sections 2056(d) and 2056A

In addition to the denial of the marital deduction in the case of terminable interests, the deduction is also disallowed when “the surviving spouse of the decedent is not a citizen of the United States.”[45] There are two exceptions and one special allowance for this rule. Beginning with the special allowance, if estate tax is paid as a result of Section 2056(d), then the surviving spouse will be permitted to take advantage of the credit for tax on prior transfers (TPT Credit).[46] Ordinarily, the TPT Credit operates as essentially a credit against death in quick succession, and the credit amount falls the more time has passed since the first death.[47] The special TPT Credit allowed by the Foreign Spouse Rules gives the non-citizen surviving spouse a credit for estate tax already paid as a result of the disallowance of the marital deduction, regardless of the elapsed time.[48] The first exception is that if the surviving spouse becomes a U.S. citizen before the estate tax return is filed and the surviving spouse was a resident the entire time, then the deduction will be allowed.[49] The IRS has expressed that this is a hard rule.[50] If the surviving spouse’s application has not been approved by the date the estate tax return is filed, then the marital deduction will not apply, regardless of the surviving spouse’s loyalty or continuing ties to the U.S.[51]

The second exception to the disallowance of the marital deduction under the Foreign Spouse Rules is a transfer into a Qualified Domestic Trust (QDOT).[52] A QDOT is a special trust created specifically for the purpose of allowing the marital deduction for a non-citizen surviving spouse.[53] A QDOT will avoid taxation at the decedent’s death but will be charged estate tax on (1) any distribution before the date of the surviving spouse’s death and (2) the value of any property remaining in the trust after the surviving spouse’s death.[54] However, there are exceptions for all distributions of income and any distributions made on account of hardship.[55] To ensure collection of this tax, at least one trustee of a QDOT must be a U.S. citizen or domestic corporation.[56] If the decedent bequeathed to the surviving spouse through a QDOT, then the QDOT must also follow all the marital deduction rules applicable for terminable interests.[57] On the other hand, if the decedent transferred property to the non-citizen spouse outright, the non-citizen spouse will still be able to access the QDOT exception so long as the non-citizen spouse irrevocably transfers the bequeathed property into a QDOT meeting the statutory requirements.[58]

Analysis of Policy and Law

The Foreign Spouse Rules implicate various problems with tax policy. First, the rules result in a non-citizen spouse having a tax treatment that is greatly different from the tax treatment on a citizen spouse. Congress’s explanation for this difference is reasonable for a non-citizen spouse who lives permanently abroad, but for a resident alien spouse this difference is unnecessary.[59] Second, the rules create an unnecessary discouragement on marriage to a non-citizen. Someone with a substantial enough wealth that would make use of the estate tax marital deduction could find it to be tax preferable to marry a United States citizen rather than a citizen or subject of a foreign nation. In today’s enlightened society, marriage specifically for social or governmental benefits is out of fashion, and any law which creates a burden or accelerant to specific kinds of marriages should not be desirable.

Horizontal Equity Issues: Similar Taxpayers Being Treated Fundamentally Different

A common consideration when analyzing tax policy is the economic theory of horizontal equity.[60] Horizontal equity simply means “that equals should be treated alike.”[61] In the context of income taxes, this has been interpreted to mean that “individuals with the same income should pay the same tax.”[62] A simple translation for the estate tax should be that estates with the same taxable value should pay the same tax.

However, imagine two estates both valued at $15,000,000. One estate pays approximately $1,200,000 in estate taxes, the other pays no estate tax. What is the difference between these two estates? The citizenship of the person with whom the decedent chose to form a marital bond. This great difference does not follow the policy of horizontal equity, and it treats estates in a fundamentally different way simply because of the citizenship of the surviving spouse. Congress stated that the reason for the introduction of this rule was to prevent a non-citizen from inheriting property tax-free and then leaving the country.[63] For a foreign resident spouse, this may be a true concern for the cited tax collection reasons. After all, in the case of an estate with a U.S. surviving spouse, the deducted property will eventually be taxable, while a foreign spouse could take the property and leave the United States with it.

One might be quick to assume that a QDOT will eliminate this issue by operating virtually the same as a QTIP Trust, especially as the regulations for QDOTs provide that if a QDOT is created by the citizen spouse, the QDOT must follow the QTIP rules in addition to the QDOT rules.[64] However, the major difference between the two types of bequests is that QDOTs will not become a part of the surviving spouse’s estate at the surviving spouse’s death.[65] Rather than be included in the surviving spouse’s estate, the remaining value in a QDOT will incur additional estate tax with regard to the first spouse’s estate.[66] This effectively renders the marital deduction using a QDOT to be a postponement of taxes rather than a true deduction.[67] Observe the following example:[68]

Table 2: QTIP vs. QDOT

Citizen Spouse w/ QTIP Election Non-Citizen Spouse w/ QDOT
Gross Estate at First Death $15,000,000.00 $15,000,000.00
Unified Credit ($12,000,000.00) ($12,000,000.00)
Marital Deduction ($3,000,000.00) ($3,000,000.00)
Taxable Estate $0.00 $0.00
Tax Owed $0.00 $0.00
Gross Estate at Second Death $3,000,000.00 $3,000,000.00
Included in Transferor Spouse’s Estate $0.00 $3,000,000.00
Included Surviving Spouse’s Estate $3,000,000.00 $0.00
Surviving Spouse Unified Credit ($3,000,000.00) Unusable
Surviving Spouse Taxable Estate $0.00 $0.00
Tax Owed $0.00 $1,200,000.00

In the above example, after exhausting the Unified Credit in other bequests, both estates need to use the marital deduction to transfer assets to the surviving spouse tax-free. In the case of the U.S. surviving spouse, the marital deduction was used to transfer QTIP, which, at the surviving spouse’s death, was included in the surviving spouse’s estate and was able to take advantage of the surviving spouse’s Unified Credit. The non-citizen spouse, regardless of residence, will not include the remaining value of the QDOT in his or her estate, meaning that the value in the QDOT must return to the estate of the transferor spouse and be taxed without regard to the non-citizen spouse’s Unified Credit.[69]

In the case of a permanent resident alien surviving spouse, the concerns of Congress are null. When a resident alien dies, they are considered a U.S. citizen for estate tax purposes, and all of their property, wherever situated, shall be included in their gross estate.[70] A permanent resident alien may also be subject to the expatriation tax.[71] The expatriation tax, put simply, is a rule that when a U.S. citizen relinquishes their citizenship they are deemed to have sold all their assets and will be taxed accordingly.[72] The expatriation tax also applies to a resident alien who has been a resident of the United States for at least eight of the previous fifteen taxable years.[73] Therefore, the Foreign Spouse Rules create a totally unnecessary need for the creation of a QDOT in the case of a permanent resident alien surviving spouse, assuming that spouse is a “long-term resident” under Section 877(e)(2).

The Foreign Spouse Rules violate the policy of horizontal equity. Not only do the rules cause the same valued estates to pay vastly different tax rates on their face, the rules also prevent tax benefits normally available to any resident of the United States.

The Foreign Spouse Rules Cause Unnecessary Deterrents Against Marriages Between U.S. Citizens and Non-Citizens.

Marriage is the oldest relationship between humans in history; in many religions, one of the first acts of the primogenitor of humankind is the first marriage.[74] The Supreme Court calls marriage “the most important relation in life, [] having more to do with the morals and civilization of a people than any other institution.”[75] In fact, a long-protected aspect of the constitutional right to privacy are “decisions ‘relating to marriage.’”[76] However, this does not mean that the state has (or even should have) no power to regulate marriage. While marriage had an especially protected status under U.S. law, there was no right to marriage until 1965,[77] states could restrict marriage between different races until 1967,[78] and same-sex marriages were restricted until 2015.[79] Today, there remain three major restrictions on marriage: incest, bigamy, and age.[80] No state currently prohibits marriage between persons of different national origin or citizenship.

The Foreign Spouse Rules do not present a restriction on marriage in the traditional sense. That is, Section 2056(d) does not read that a citizen cannot marry a non-citizen. Ignoring the issue that laws regarding marriage would be ill placed in the Internal Revenue Code, a federal attempt to ban inter-citizenship marriage would not last long. It would not be long before a federal court would overturn such a law. What the Foreign Spouse Rules do create is a tax-favorable treatment of same-citizenship marriages.

Referring to the example in Section III.A, the Foreign Spouse Rules essentially eliminate portability, in a backwards sense. As discussed above, portability is the use of the DSUE Amount, which traditionally moves from the first decedent spouse to the estate of the second decedent spouse. The Foreign Spouse Rules create two options, both of which eliminate the double Unified Credit afforded to married couples. If the first decedent spouse leaves the bequest outright to the non-citizen surviving spouse, the bequest is taxed immediately. If the Unified Credit is exhausted, then there is no DSUE Amount. If the first decedent spouse leaves the bequest in a QDOT for the benefit of the non-citizen surviving spouse, then the deduction is allowed until the death of the surviving spouse. At the death of the surviving spouse, the bequest is taxed as if the bequest had been outright, even if the surviving spouse’s will changed the direction of the QDOT funds.

When comparing the previous tax paths with the tax path of a same-citizenship marriage, the tax advantage of a same-citizenship marriage becomes clear. While the primary advantage is that portability may be used to double the couple’s Unified Credit, secondary advantages can be seen as well. A major secondary advantage comes in the form of interim distributions of principal from a QTIP Trust as opposed to a QDOT. In a QTIP Trust, lifetime distributions of principal may be given to the surviving spouse tax-free so long as the surviving spouse is not legally bound to distribute the distribution to another person.[81] In contrast, QDOTs may only distribute tax-free if the distribution is income or for hardship as determined by the Treasury Regulations.[82] Another advantage is privacy. In the case of a QTIP Trust, the Trust only reports the income and distributions each year in its Form 1041.[83] A QDOT will have to file an annual Form 706-QDT to report any distribution not of income or for hardship; in addition, it must report what property is being held by the trust and its value.[84]

While these tax advantages do not constitute formal restrictions on marriage, they have the potential to create tax hardship on marriages between people of different citizenships. The fact that the law as currently written only affects the wealthy does not mean that the tax disadvantage to certain kinds of marriage should be ignored. After all, only twenty years ago the basic exclusion amount was only $1,000,000 and the tax rate 49%.[85] If the exclusion is lowered and/or the tax rate is raised, these advantages will become critical for more and more people, and some may be forced to alter their marriage prospects based on tax favorability.


The Foreign Spouse Rules could simply be repealed and removed from the tax code. The rules were only inserted in 1988; the code could go back to the old treatment that foreign spouses are the same as domestic spouses.[86] Congress introduced the rules to combat real concerns. Through the use of the unlimited marital deduction, a non-citizen spouse could easily leave the United States with a wealthy estate which would not be taxed in the United States on the surviving spouse’s death. However, the rules can still be altered to adjust the fairness of the rules and to ensure that a same-citizenship marriage has no tax advantage over a marriage of mixed citizenship. The first potential solution would be to amend the rule to provide that the marital deduction is only disallowed when the non-citizen spouse is not defined as a long-term resident alien under the expatriation tax. The second is to create a reverse-portability election so that a non-citizen spouse’s Unified Credit can be used to offset the estate tax due upon distributions from a QDOT.

Long-Term Resident

Congress created the Foreign Spouse Rules in response to the idea that a non-citizen spouse could inherit from a citizen tax-free and then leave the United States without paying tax on such property.[87] For a short-term resident or a non-resident, this is a reasonable concern and response. However, for a long-term resident, the concern is already alleviated by the expatriation tax, which treats a long-term resident leaving the United States the same as a citizen renouncing his or her citizenship.[88] Combined with the Foreign Spouse Rules, the expatriation tax has the potential to inflict upon a non-citizen spouse a nearly 80% tax on inheritance if the non-citizen spouse is a long-term resident and leaves the United States. Regardless of level of wealth, an 80% tax is an obscene infringement on an individual’s right to property.

The solution to this disparity is a change to the code which would essentially consider long-term resident aliens to be equivalent to U.S. citizens for the purposes of the estate tax marital deduction. A proposed amendment is attached as Appendix A.

An amendment such as this would allow the estate tax marital deduction to be taken for transfers to a long-term resident, while still allowing the effects of the expatriation tax. Under a new scheme provided by such an amendment, a foreign spouse who would not be subject to the expatriation tax would be taxed to ensure taxation of the property. While a long-term resident spouse would only be subject to pre-second death taxation if the spouse was to take the property out of the United States and cause the expatriation tax to take effect. This amendment would make the Foreign Spouse Rules fairer to long-term resident spouses, the estates of whom will be taxed the same as the estate of a U.S. citizen.


Another solution could alleviate the unfair restriction on the use of the surviving spouse’s Unified Credit. As discussed above, the Foreign Spouse Rules essentially forbid the use of both spouse’s Unified Credit. In the case of QDOT, the use of the surviving spouse’s Unified Credit is not essentially forbidden: it is truly forbidden and cannot be used to avoid tax on either distributions or the final disposition of the QDOT assets. Our current rules surrounding portability allow the unused exclusion amount from the first spouse to die to be used by the estate of the second spouse to die.[90] A modified, or reverse, portability would be to use to the exclusion amount of the second spouse to die for the estate of the first spouse to die.

Ordinarily this would be a strange exercise, and it would likely never be used in the regular context. However, in the context of the final disposition of a QDOT, a concept of reverse-portability would allow QDOT assets to reap the same benefits as a typical QTIP plan for same-citizenship marriages. Observe the following example comparing the basic outline of a typical QTIP plan, a QDOT plan under the current rules, and a QDOT plan under a potential reverse-portability rule:[91]

Table 3: Portability Comparison

Same-Citizenship Couple using QTIP QDOT without Reverse Portability QDOT with Reverse Portability
Gross Estate at First Death $15,000,000.00 $15,000,000.00 $15,000,000.00
Unified Credit Used $0.00 $0.00 $0.00
Marital Deduction Used ($15,000,000.00) ($15,000,000.00) ($15,000,000.00)
Tax Due at First Death $0.00 $0.00 $0.00
Gross Estate at Second Death $15,000,000.00 $15,000,000.00 $15,000,000.00
DSUE Amount (or Unified Credit) Used ($3,000,000.00) ($12,000,000.00) ($12,000,000.00)
Surviving Spouse Unified Credit Used ($12,000,000.00) Unusable ($3,000,000.00)
Taxable Estate at Second Death $0.00 $3,000,000.00 $0.00
Tax Due at Second Death $0.00 $1,200,000.00 $0.00

As is demonstrated above, the purpose of reverse-portability would be to ensure that a QDOT is simply a method to keep property in the United States, and not to punish people who marry non-citizens. The exact specifications of a reverse-portability amendment require much more space than available. Though suffice to write that such an amendment would likely limit the use of such a concept to the case of a QDOT. The myriad of issues adding a regular reverse-portability provision could cause many issues between spouses. In addition, the unlimited marital deduction makes it very unlikely that a reverse-portability would be needed, outside the QDOT issue, except in exceedingly rare cases.


The Foreign Spouse Rules of the estate tax marital deduction present complex issues of equity and fairness; however, they are backed up with real concerns about the departure of potentially significant amounts of property from the United States. Although, these concerns are deflated when faced with the reality of long-term resident spouses or the requirement that QDOTs must remain in the United States to be taxed at the surviving spouse’s death. In these two situations, there is no reason that the estate tax marital deduction should be so significantly modified to render marriage to a non-citizen spouse a tax disadvantage. The United States has no reason to require such different treatment of people who will likely be taxed anyway. The Foreign Spouse Rules should be amended to account for these circumstances, and marriage to certain persons should no longer be a reason for tax advantage or disadvantage.

Appendix A: Proposed Amendment and Section 877(e)(2)

  1. Proposed Amendment

Section 2056(d)(1) is amended to read:

(1) In general. Except as provided in paragraphs (2) and (6), if the surviving spouse of the decedent is not a citizen of the United States–

Section 2056(d) is amended by adding a new paragraph, designated paragraph (6), to follow paragraph (5), and to read as follows:

(6) Marital deduction allowed for certain resident aliens. Paragraph (1) shall not apply to any property passing to a surviving spouse who is defined as a “long-term resident” under section 877(e)(2).

  1. Section 877(e)(2)

(2) Long-term resident. For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country.

  1. * LL.M Candidate, University of Florida, Levin College of Law, 2024; J.D. University of South Carolina School of Law, 2023; Incoming Associate, Merline & Meacham, P.A., Greenville, South Carolina. I would like to thank Professor Clinton G. Wallace for his advice and commentary during the drafting of this Article; Phillip J. Martin and W. Verne McGough, both of Merline & Meacham, P.A., for their respective review of this Article and discussions of the QDOT provisions; Mary Reagan Crosby for her proofreading, commentary, and friendship. I would also like to thank Evan Dawkins, Chloë Satzger, and all the editors of the South Carolina Law Review for their diligent work on this Article. Finally, I thank Elizabeth Sanford for her unyielding support, even as I delved into an area of Tax Law so dull (to her) that it literally put her to sleep.
  2. . See I.R.C. § 2056(a).
  3. . Throughout, together with the provisions of Section 2056A, referred to collectively as the “Foreign Spouse Rules.”
  4. . See I.R.C. § 2106(a)(3) (stating that the Marital Deduction as it applies to the estates of nonresident aliens follows the principals of 2056).
  5. . See I.R.S. Priv. Ltr. Rul. 90-21-037 (Feb. 23, 1990).
  6. . See id.
  7. . See H.R. Rep. No. 100–795 (1988) (Conf. Rep.). Congress justifies this fear by explaining that the Estate Tax for foreign citizens only applies to property owned in the United States. I.R.C. § 2056(d)(1); I.R.C. § 2013.
  8. . This article refers to certain transactions as having no tax liability. It should be noted that, unless otherwise stated, this is referring to the taxes imposed under Chapter 11 of the Tax Code (i.e. Estate Taxes). Other tax regimes have their own rules and are not being considered.
  9. . Compare I.R.C. § 2523(i) (reducing the unlimited deduction to a deduction of $100,000 adjusted for inflation), with I.R.C. § 2056(d) (eliminating the Estate Tax Marital Deduction entirely).
  10. . But cf. I.R.C. § 2056(d)(3). As will be discussed in detail below, while not allowing a future deduction or credit against the future taxation of the same property (which would essentially have the effect of a “reverse” marital deduction), Section 2056(d)(3) does allow modified use of the TPT Credit provided under Section 2013 against the non-citizen surviving spouse’s estate when he or she eventually dies.
  11. . I.R.C. § 2001(a).
  12. . I.R.C. § 2051(a).
  13. . I.R.C. § 2031(a). The Gross Estate may be alternatively valued under Sections 2032 and 2032A; this Article assumes all valuation is under Section 2031.
  14. . See, e.g., S.C. Code Ann. § 62-1-201(35) (“‘Probate estate’ means the decedent’s property passing under the decedent’s will plus the decedent’s property passing by intestacy.”). Meaning that the portion of a decedent’s estate held in multiparty accounts, as joint tenants with rights of survivorship, or in trust will not be included in the decedent’s probate estate.
  15. . E.g., I.R.C. §§ 2038 (revocable transfers), 2040 (joint interests), 2042 (proceeds of life insurance).
  16. . I.R.C. § 2053.
  17. . I.R.C. § 2054.
  18. . I.R.C. § 2055.
  19. . I.R.C. § 2056.
  20. . I.R.C. § 2058.
  21. . I.R.C. § 2001(c).
  22. . See Brookings Institution, Briefing Book: A Citizen’s Guide to the Fascinating (Though Often Complex) Elements of the Federal Tax System, Tax Pol’y Ctr., [].
  23. . I.R.C. § 2001(c).
  24. . The applicable credit amount, which is the amount applied against estate tax liability, is determined by computing “the tentative tax which would be determined under Section 2001(c) if the amount with respect to which such tentative tax is to be computed were equal to the applicable exclusion amount.” I.R.C. § 2010(c)(1). The applicable exclusion amount is the sum of the basic exclusion amount and the DSUE amount. I.R.C. § 2010(c)(2).
  25. . I.R.C. § 2010(c)(3)(A), (C); Rev. Proc. 2022-38, 2022-45 I.R.B. 445 (Oct. 18, 2022). Under Section 2010(c)(3)(A), the basic exclusion amount is $5,000,000 but under Section 2010(c)(3)(C), which was added by the Tax Cuts and Jobs Act of 2017, the amount is set at $10,000,000, adjusted for inflation, until January 1, 2026.
  26. . I.R.C. § 6018(a). However, the estate must still file an estate tax return if the surviving spouse intends to use the Deceased Spousal Unused Exclusion Amount on his or her own death.
  27. . I.R.C. § 2010(c)(4).
  28. . Id.
  29. . This is because of the way the Unified Credit is computed. Since it is calculated by taking what would be tax liability if the exclusion amount were the taxable estate, and the basic exclusion amount is over $1,000,000, the variable rates computed under the Section 2001(c) table will always be credited. As such, everything that is taxed is over that first $1,000,000 and will be taxed at 40%.
  30. . See I.R.C. § 2056(a).
  31. . See I.R.C. § 2056(b).
  32. . I.R.C. § 2056(b).
  33. . I.R.C. § 2056(d).
  34. . I.R.C. § 2056(b)(1).
  35. . I.R.C. § 2056(b)(2). The Federal Tax Coordinator refers to these assets as “tainted assets” and offers the following illustration to demonstrate the operation of the statute:

    Decedent bequeaths one-third of his residuary estate to his spouse. The value of this bequest is $850,000. The residuary estate includes a leasehold, worth $600,000, in property given by the decedent to his son subject to the reserved leasehold. If the executor had the right under decedent’s will or local law to satisfy the bequest by assigning the entire lease to the widow, the marital deduction would be reduced by the full value of the lease to $250,000. If the executor could only assign one-third of the lease to the widow, the marital deduction would be reduced by $200,000, to $650,000. But if the will provided that the widow’s bequest could not be satisfied with a nondeductible interest, the marital deduction would be the full $850,000.

    Federal Tax Coordinator 2d, ¶ R-6310. See also Treas. Reg. § 20.2056(b)–2(d).

  36. . I.R.C. § 2056(b)(3). Essentially, this rule is permitting a bequest that requires the surviving spouse to survive the decedent for up to six months in order to vest such surviving spouse’s bequest. However, the code does require that, in order for this exception to apply, the surviving spouse must, in fact, survive such that the termination event does not occur.
  37. . I.R.C. § 2056(b)(5).
  38. . I.R.C. § 2056(b)(6).
  39. . I.R.C. § 2056(b)(7); see Bittker & Lokken, Federal Taxation of Income, Estates, and Gifts, 129–59 (Thomson Reuters/Tax & Accounting, 2d/3d ed. 1993–2019 & 2023 Cum. Supp. No. 1. 2023).
  40. . Bittker & Lokken, supra note 38, ¶ 129.4.5.
  41. . I.R.C. § 2056(b)(7)(B)(i).
  42. . I.R.C. § 2056(b)(7)(B)(ii)
  43. . Bittker & Lokken, supra note 38, ¶ 129.4.5.
  44. . See I.R.C. § 2044.
  45. . I.R.C. § 2056(d).
  46. . I.R.C. § 2056(d)(3).
  47. . See I.R.C. § 2013(a). The credit prevents beneficiaries of two estates of people dying in relatively quick succession from suffering a heavy tax burden. See the Regulations beginning at 20.2013-1 for a comprehensive analysis of its operation.
  48. . See I.R.C. § 2056(d)(3); see also Bittker & Lokken, supra note 38, ¶ 134.5.1.
  49. . I.R.C. § 2056(d)(4).
  50. . See I.R.S. Priv. Ltr. Rul. 90-21-037 (Feb. 23, 1990). 
  51. . Id.
  52. . See I.R.C. § 2056(d)(2).
  53. . Mary Randolph, Using QDOTs the Plan for Noncitizen Spouses, NOLO, [].
  54. . I.R.C. § 2056A(b)(1).
  55. . I.R.C. § 2056A(b)(3);

    A distribution of principal is treated as made on account of hardship if the distribution is made to the spouse from the QDOT in response to an immediate and substantial financial need relating to the spouse’s health, maintenance, education, or support, or the health, maintenance, education, or support of any person that the surviving spouse is legally obligated to support. A distribution is not treated as made on account of hardship if the amount distributed may be obtained from other sources that are reasonably available to the surviving spouse; e.g., the sale by the surviving spouse of personally owned, publicly traded stock or the cashing in of a certificate of deposit owned by the surviving spouse. Assets such as closely held business interests, real estate and tangible personalty are not considered sources that are reasonably available to the surviving spouse.

    Treas. Reg. § 20.2056A-5(c)(1).

  56. . I.R.C. § 2056A(a)(1)(A). If this rule is not fulfilled, then no distributions, other than income distributions, may be made from the QDOT. I.R.C. § 2056A(a)(1)(B). Additionally, QDOTs with more than $2,000,000 in value must also be secured by a Bond or Letter of Credit or the Trustee must be a domestic Bank. Treas. Reg. § 20.2056A-2(d)(1)(i). The aggregate value of multiple QDOTs for the benefit of one person will be considered in determining whether this rule applies. Treas. Reg. § 20.2056A-2(d)(1)(ii)(A). 
  57. . Treas. Reg. § 20.2056A-2(b)(1).
  58. . Id. § 20.2056A-2(b)(2). 
  59. . As will be discussed below, long-term residents are subject to an expatriation tax upon leaving the United States. See I.R.C. § 877(e).
  60. . See James Repetti & Diane Ring, Horizontal Equity Revisited, 13 Fla. Tax Rev. 135, 135 (2012). 
  61. . Id. at 136.
  62. . Id.
  63. . See H.R. Rep. No. 100-795, at 113–115 (1988) (Conf. Rep.). 
  64. . Treas. Reg. § 20.2056A-2(b)(1).
  65. . Stephens et al., Federal Estate and Gift Taxation, ¶ 5.07[1] (Thomson Reuters/WG&L, 9th ed. 2013, & Supp. 2023-1). 
  66. . See id.
  67. . Id. However, in truth QTIP is doing almost the same thing, delaying the payment of the taxes until the death of the surviving spouse. Although, as will be demonstrated, the difference between QTIP being included in the surviving spouse’s estate and the remaining value of the QDOT being taxed in the decedent spouse’s estate can be great.
  68. . This example assumes a Unified Credit of $12,000,000 and ignores issues of interim distributions and appreciation. In the example, the Unified Credit for both transferor spouse’s is being exhausted on other bequests.
  69. . Although, it must be stated, that the additional tax burden was deferred, which saved taxes up front and allowed the full value of the QDOT to generate income for however long the surviving spouse survived. The significance of this deferral will vary by estate, but for some estates that deferral will have a very significant effect.
  70. . See I.R.C. § 2001(a).
  71. . I.R.C. § 877(e).
  72. . See generally I.R.C. § 877A.
  73. . I.R.C. §§ 877A(g)(3)(B), (5); 877(e)(2).
  74. . E.g., Genesis 2:21-25 (Douay-Rheims); The Japan Society, London, Nihongi: Chronicles of Japan from the Earliest Times to A.D. 697, at 12–13 (William G. Aston trans.) (1896). 
  75. . Maynard v. Hill, 125 U.S. 190, 205 (1888).
  76. . Carey v. Population Servs. Int’l, 431 U.S. 678, 684–85 (1977) (citing Loving v. Virginia, 388 U.S. 1, 12 (1967)).
  77. . Griswold v. Connecticut, 381 U.S. 479 (1965),
  78. . Loving v. Virginia, 388 U.S. 1 (1967),
  79. . Obergerfell v. Hodges, 567 U.S. 644 (2015).
  80. . E.g., S.C. Code Ann. §§ 20-1-10, -80, -100; see also Reynolds v. U.S., 98 U.S. 145 (1879) (holding the Morrill Anti-Bigamy Act to be constitutional).
  81. . See Treas. Reg. § 20.2056(b)-7(d)(6).
  82. . Treas. Reg. § 20.2056A-5(c)(1) (“A distribution is not treated as made on account of hardship if the amount distributed may be obtained from other sources that are reasonably available to the surviving spouse. . . .”). The Regulations also stipulate that any hardship need must be “immediate and substantial.” Id.
  83. . However, it will likely not pay any tax. See I.R.C. § 651(a).
  84. . Treas. Reg. § 20.2056A-11(a)–(b).
  85. . Pub. L. No. 107-16, §§ 511(a), (c); 521(a) (2001). Indeed, President Biden has called for (1) separating the estate tax exclusion from the lifetime gift tax exclusion, (2) reducing the estate tax exclusion to $3,500,000, and (3) raising the estate tax rate to 45%. See Andrew Osterland, Here’s How Wealthy Families Will Save on Estate Taxes in the Biden Presidency, CNBC (Jan. 19, 2021, 8:30 A.M.), []. Although, if President Biden hasn’t attempted to make those changes by now, it is unlikely supporters will be able to successfully pass any legislation for it, especially now that the Democratic Party has lost control of the House of Representatives. 
  86. . Pub. L. No. 100-647, § 5033(a)(1) (1988).
  87. . See H.R. Rep. No. 100-795, at 113–115 (1988) (Conf. Rep.). 
  88. . See I.R.C. §§ 877A(g)(3)(B), (5); 877(e)(2). 
  89. . A similar rule to what is being proposed exists under Section 2056A(b)(12), which allows a non-citizen surviving spouse to treat previously taxed QDOT distributions as gifts made by such surviving spouse and, therefore, the ability to use the surviving spouse’s Unified Credit instead of the deceased spouse’s credit. Section 2056A(b)(12) is only available to a non-citizen surviving spouse who later becomes a citizen of the United States.
  90. . John Nuckolls, Portability of Unused Estate and Gift Tax Exclusion Between Spouses, Tax Adviser (May 1, 2011), [].
  91. . This example again assumes a Unified Credit of $12,000,000 and ignores issues of interim distributions and appreciation.