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ticle III by contending that the decedent was domiciled in a third country. ticle III (1), Article IV (2) (a) and Article V of the convention.)

For the purpose of determining whether the decedent was domiciled in either contracting country at time of death, the United States includes the States thereof, the Territory of Alaska, the Territory of Hawaii, and the District of Columbia, and the United Kingdom of Great Britain and Northern Ireland includes Great Britain (England, Wales and Scotland) and Northern Ireland. For this purpose the United Kingdom does not include the Channel Islands or the Isle of Man. (Article II (1) of the convention.)

§ 82.104 Situs of property. The determination of the situs of property is necessary for two purposes, i. e., first, in order to ascertain the property that may be included in the application of the tax if jurisdiction is based upon situs of property within the country, and, second, in order to ascertain the credit for death duties authorized by the convention since the crediting country only allows such credit under paragraph (1) of Article V with respect to property situated in the other contracting country and under paragraph (2) of Article V with respect to property situated outside both contracting countries or with respect to property deemed to be situated in both such countries. For such purposes, the convention provides rules of situs for specific classes of property as hereinafter set forth. These rules are applicable only in case the decedent was at time of death domiciled in the United States or the United Kingdom. The convention also provides that with respect to property not within the described classes, if the decedent was domiciled in the United States the situs thereof shall be determined in accordance with the law of the United Kingdom, or if the decedent was domiciled in the United Kingdom the situs thereof shall be determined in accordance with the law of the United States. The rules of situs provided by the convention are not applicable in the case of a deceased citizen of the United States who was not domiciled in either country. (Article III (2) of the convention.)

Specific applications of the foregoing principles are shown by the following:

(a) If one of the contracting countries taxes on the basis of domicile and the other on the basis of situs of property,

the allowance of credit by the former and the imposition of tax by the latter are determined in accordance with the situs rules of the convention with respect to property of the described classes and in accordance with the situs rules under the law of the latter with respect to any property not within such classes.

(b) If the United States taxes on the basis of citizenship and the United Kingdom taxes on the basis of domicile (the United States not regarding the domicile of the decedent as having been in the United States), the allowance of credit by each country is determined in accordance with the situs rules of the convention with respect to property of the described classes and in accordance with the situs rules under the law of the United States with respect to any property not within such classes.

(c) If the United States taxes on the basis of citizenship and the United Kingdom taxes on the basis of situs of property (both contracting countries considering that the decedent was domiciled in a third country), the allowance of credit by the United States and the imposition of tax by the United Kingdom are determined in accordance with the situs rules under the law of the United Kingdom with respect to both the property of the described classes and the property not within such classes. In this case the situs rules of the convention are not applicable to any extent.

(d) If both contracting countries tax on the basis of domicile, the allowance of credit by the United States is determined in accordance with the situs rules of the convention with respect to the property of the described classes and in accordance with the situs rules under the law of the United Kingdom with respect to any property not within such classes, and the allowance of credit by the United Kingdom is determined in accordance with the situs rules of the convention with respect to the property of the described classes and in accordance with the situs rules under the law of the United States with respect to any property not within such classes. Rules of situs provided by the convention for specific classes of property follow:

(1) Real property and leaseholds. Immovable property shall be deemed to be situated at the place where the land involved is located. Immovable property comprises real property and leases of real property. The duration of the

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(6) Negotiable promissory notes and bills of exchange. Negotiable promissory notes and bills of exchange shall be deemed to be situated at the place of the physical location of the documents at the time of decedent's death, or, if in transitu, at the place of destination. (Article III (2) (b) of the convention.).

lease is immaterial. Immovable property does not include mortgages, liens or other right or interest in real or immovable property by way of security. though for the purpose of this situs rule leaseholds are classed with real property, this provision of the treaty does not purport to extend the scope of the term "real property" as used in the first paragraph of section 811 of the Internal Revenue Code whereunder real property (but not a lease of real property) situated outside the United States is excluded from the gross estate. (Article III (2) (a) of the convention.)

(2) Tangible personal property. Tangible movable property (tangible personal property), except as hereinafter specifically provided in this paragraph with respect to ships and aircraft, shall be deemed to be situated at the place of physical location at the time of the decedent's death, or, if in transitu, at the place of destination. Tangible personal property includes bank notes and other forms of currency recognized as legal tender at the place of issue. (Article III (2) (b) of the convention.)

(3) Ships and aircraft. Ships and aircraft and fractional interests therein shall be deemed to be situated at the place of registration or documentation of such ships and aircraft. (Article III (2) (f) of the convention.)

(4) Bonds and other forms of indebtedness. Debts included as assets of the estate (credits), except as hereinafter specifically provided in this paragraph with respect to judgment debts and negotiable promissory notes and bills of exchange, shall be deemed to be situated where the decedent was domiciled at the time of his death. This rule refers to both secured and unsecured debts, and comprehends bonds, simple contract debts, and bank deposits characterized by the debtor-creditor relationship. Issues of stock, such as are common in the United Kingdom, which are evidences of debts and do not represent stockholders' proprietary shares are properly classifiable with bonds. Such issues include stock issued by municipal or governmental corporations, stock issued by public boards, and debentures or debenture stock of a corporation. (Article III (2) (c) of the convention.)

(5) Judgment debts. Judgment debts shall be deemed to be situated where the judgment is recorded. (Article III (2) (k) of the convention.)

(7) Stock. Shares of stock of a corporation shall be deemed to be situated at the place in or under the laws of which such corporation was created or organized. This rule comprehends shares of stock held by a nominee where the beneficial ownership is evidenced by scrip certificates or otherwise. This rule has no reference to issues of stock, such as are common in the United Kingdom, which are evidences of debts, do not represent stockholders' proprietary shares, and are properly classifiable with bonds. Such issues include stock issued by municipal or governmental corporations, stock issued by public boards, and debentures or debenture stock of a corporation. (Article III (2) (d) of the convention.)

(8) Life insurance. Proceeds of insurance on the life of the decedent shall be deemed to be situated where the decedent was domiciled at the time of his death. (Article III (2) (e) of the convention.)

(9) Goodwill. Goodwill as a trade, business or professional asset shall be deemed to be situated at the place where the business or profession, to which it pertains, is carried on (Article III (2) (g) of the convention.)

(10) Patents, trademarks and designs. Patents, trademarks and designs shall be deemed to be situated at the place where they are registered. (Article III (2) (h) of the convention.)

(11) Copyrights and licenses to use copyrights, patents, trademarks and designs. Copyrights, franchises, and rights or licenses to use any copyrighted material, patent, trademark or design, shall be deemed to be situated at the place where the rights arising therefrom are exercisable. (Article III (2) (1) of the convention.)

(12) Actions ex delicto. Rights or causes of action ex delicto surviving for the benefit of the estate of a decedent shall be deemed to be situated at the place where such rights or causes of action arise. (Article III (2) (j) of the convention.)

The rules whereunder property of certain classes shall be deemed to be situ

ated at the place of the decedent's domicile are in effect rules exempting such classes of property from the tax imposed by reason of situs of property within each contracting State's jurisdiction.

Under a special proviso at the end of Article III of the convention, the foregoing rules of situs are not applicable in determining whether particular property may be subjected to tax by reason of its situs within the taxing country if (i) such property passes under a disposition not governed by its law, and (ii) such property is not subjected to the tax by the other contracting country for any reason other than the application of a specific exemption. In such case the situs of the property will be determined in accordance with the law of the taxing country.

This special proviso is particularly applicable to cases of settled property that come under the provisions of the estate duty statute of Great Britain or Northern Ireland. As an example of the operation of the special proviso under the estate duty statute, suppose the decedent's father established a trust governed by New York law under which the decedent was given a life estate with the remainder over absolutely to the trustor's grandson. The trustor, the life tenant and the remainderman were domiciled in and citizens of the United States. Under this special proviso, the corpus of the trust, consisting of shares of stock of a United States corporation evidenced by certificates in bearer form physically located in Great Britain, would be regarded as situated in Great Britain without the application of the situs rules of Article III and would be subjected to the estate duty reaching settled property since (i) such property passes under a disposition not governed by the law of Great Britain and (ii) such property is not subjected to the tax by the United States regardless of the $60,000 specific exemption.

Although the primary purpose of this special proviso concerns settled property under the estate duty statute of Great Britain or Northern Ireland, it is applicable under the Federal estate tax statute in some cases involving certain unusual circumstances. As an example of the operation of the special proviso under the Federal estate tax statute, suppose the decedent in contemplation of death established a trust for the benefit of his children, the property transferred

by gift to the trust consisting of shares of stock of a British corporation evidenced by certificates physically located in the United States. The gift was made six years before the decedent's death and the decedent retained no possession or enjoyment or any other right in the property. The decedent and the beneficiaries were domiciled in Great Britain and the trust is governed by British law. Under the special proviso, the situs rules of Article III would be inapplicable and the shares of stock would be regarded as situated in the United States and subjected to the Federal estate tax since (i) such property passes under a disposition not governed by United States law and (ii) such property is not, regardless of any specific exemption, subjected to the estate duty imposed in Great Britain.

For the purpose of determining whether property is situated in either contracting country, the United States includes the States thereof, the Territory of Alaska, the Territory of Hawaii and the District of Columbia, and the United Kingdom of Great Britain and Northern Ireland includes Great Britain (England, Wales and Scotland) and Northern Ireland. For this purpose the United Kingdom does not include the Channel Islands or the Isle of Man. (Article II (1) of the convention.)

§ 82.105 Taxation on basis of domicile, citizenship, or the law governing disposition of property. Both the United States and the United Kingdom assume jurisdiction for the tax upon the basis of domicile within the taxing country. In addition, the United States, but not the United Kingdom, assumes jurisdiction for the tax upon the basis of citizenship, and the United Kingdom, but not the United States, assumes jurisdiction for the tax upon the basis of the law governing the disposition of the property. Thus, tax in Great Britain is imposed in respect of property passing under a disposition (such as a trust) governed by the law of Great Britain, even though the decedent was not domiciled in Great Britain and the property is not regarded as situated in Great Britain. (Article IV (2) (b) of the convention.)

The application of the tax (the Federal estate tax or the estate duty imposed in Great Britain or Northern Ireland, as the case may be) in any of the foregoing cases is not affected by the convention, except insofar as credit is authorized under Article V. The con

vention does not prohibit the subjection to tax in any of the foregoing cases, of any property (real or personal) situated outside the taxing country and in the other contracting country. However, by section 811 of the Internal Revenue Code, real property (but not a lease of real property) situated outside the United States is excluded from the gross estate. Under the present practice in the United Kingdom, immovables located outside the United Kingdom are, with rare exception, not subjected to estate duty.

§ 82.106 Taxation on basis of situs of property. In case jurisdiction to impose the tax by one of the contracting countries is based upon situs of property within such country and the decedent was at the time of death domiciled in the other contracting country, the convention provides that property situated outside the former shall not be taken into account in determining the amount or rate of such tax. (Article IV (2) of the convention.) For the purpose of determining what property is situated within the country and, therefore, subject to taxation on the basis of situs, the provisions of § 82.104 are pertinent. The rules of situs for certain classes of property prescribed by Article III of the convention and § 82.104 are applicable to the imposition of the Federal estate tax in the case of a decedent who at time of death was not domiciled in or a citizen of the United States, and who was domiciled in the United Kingdom. The rules that certain classes of property shall be deemed to be situated where the decedent was domiciled are in effect rules exempting such classes of property from taxation on the basis of situs.

The deductions from the gross estate in the case of a nonresident not a citizen of the United States authorized by section 861 of the Internal Revenue Code, including the specific exemption of $2,000 prescribed thereunder, are unaffected. (Article IV (1) of the convention.) The restrictions of the preceding paragraph do not affect what is referred to in section 861 (a) (1) of the Internal Revenue Code as the gross estate wherever situated, and utilized in ascertaining the proportionate deductions for administration expenses, debts, etc., as prescribed in 26 CFR 81.52.

§ 82.107 Credit for estate duties imposed in Great Britain and Northern Ireland-(a) General. In the case of the

estate of a decedent who at time of death was domiciled in or a citizen of the United States, credit is authorized against the Federal estate tax for Great Britain or Northern Ireland estate duty computed in accordance with the provisions of the convention and paid in respect of property situated as hereinafter provided and subject to such taxes by both the United States and Great Britain or Northern Ireland. No credit is allowable for any interest or penalty paid in connection with the estate duty. (Article V of the convention.)

Real property situated in the United Kingdom is not subjected to the Federal estate tax. Also, Great Britain and Northern Ireland subject to estate duty trust property (as, for example, on the death of a life tenant who was not the settlor and who had no other interest in the property) which is not subjected to Federal estate tax. Credit is not allowable under the convention for estate duty paid in respect of such property, since the requirement of double taxation is not fulfilled.

If only a part of the property subjected to estate duty imposed in Great Britain or Northern Ireland meets both of the required conditions (i. e., as to situs and double taxation), it will be necessary to determine the portion of such estate duty attributable to such part. Such portion of the estate duty, (provided all property is subjected to such estate duty at a uniform rate) is an amount, A, which bears the same ratio to B (the total amount of such estate duty) that C (the value of the property situated as hereinafter provided and subjected to such estate duty and to the Federal estate tax) bears to D (the value of all property subjected to such estate duty). The values used in this proportion are the net values determined for the purpose of the Great Britain or Northern Ireland estate duty. If for any reason property is subjected to such estate duty at other than a uniform rate, a separate computation is to be made with respect to property taxed at each rate.

As an example of the determination of the amount of United Kingdom estate duty attributable to specific property, assume that a deceased resident of the United States owned personal property in Great Britain, $12,000, and real property in Great Britain, $12,000, and owed debts (not charged on any particular

The amount of estate duty attributable to 8,000 X81,920, or $768 20,000 Similarly, the amount of the Federal estate tax attributable to the property which meets the required conditions (as to situs and double taxation) is an amount, A, which bears the same ratio to B (the Federal estate tax) as C (the value of the property situated as hereinafter provided and subjected to both the estate duty imposed in Great Britain or Northern Ireland and the Federal estate tax, or such value adjusted as hereinafter indicated) bears to D (the value of the gross estate, or such value adjusted as hereinafter indicated). The values used in this proportion are the values determined for the purpose of the Federal estate tax, and amounts C and D of the proportion are to be reduced by the amount of any deductions allowable under section 812 of the Internal Revenue Code in respect of such property (1) lost during the settlement of the estate, (2) identified as previously taxed property or (3) specifically bequeathed or devised for charitable, etc., uses.

the personal property is,

The amount of the estate tax or estate duty attributable to specific property is, for the purposes of this section, the amount ascertained after the allowance of any applicable credit, remission or reduction of tax, other than, first, credit authorized under this convention and, second, (except as otherwise provided in paragraph (c) of this section) credit authorized under death duty conventions between the United States and any other country. In determining by proportion the amount of estate tax or estate duty attributable to property which meets the required conditions to the allowance of credit the following rules apply:

(i) If the credit (as, for example, the credit for State inheritance tax) does not pertain to specific property, the amount of tax ascertained after the allowance of such credit should be proportioned.

(ii) If the credit pertains to specific property, the tax ascertained before the allowance of such credit should be proportioned, and the amount of tax thus found to be attributable to the property which meets the required conditions should then be reduced by the amount of such credit pertaining to such property. Examples of credit pertaining to specific property are the Federal gift tax credit, credits under death duty conventions, the British quick succession allowance, the British allowance for colonial death duties, the British allowance for settlement estate duty, the British allowance for duties paid before August 2, 1894, and the remissions of British estate duty under the Killed in War Acts.

(It may be noted that in consequence of this rule the estate duty imposed in Great Britain or Northern Ireland is to be reduced by credit allowable against such duty for the tax paid in a British possession or in any other country only if such credit pertains to the same property in respect of which credit is allowable under this section.)

For the purpose of determining the situs of property in respect of which credit is claimed, the provisions of § 82.104 are pertinent.

If at the time the Federal estate tax return, Form 706, is filed, the estate duty imposed in Great Britain or Northern Ireland has not been determined and paid, credit therefor may be entered on the return in an estimated amount. The computation of the credit should be set forth on Form 706e, "Computation of Credit for United Kingdom Estate Duty," the supplemental form prescribed for the purpose.

However, before credit for Great Britain or Northern Ireland estate duty is finally allowed, a statement by an authorized official of the Estate Duty Office of Great Britain or Northern Ireland must be submitted certifying (a) the full amount of such estate duty (exclusive of any interest or penalties), as computed before allowance of any credit, remission or relief, (b) the amount of any credit, allowance, remission or relief and other pertinent information, including the nature of such allowance and a description of the property to which it pertains, (c) the net estate duty payable after any such allowance, (d) the date on which the estate duty was paid, or if not all paid at one time, the amount and date of each partial payment, and (e) a list of