In computing the taxable estate of an individual on Form 706 or computing the taxable income of an estate on Form 1041, expenses of administration under IRC Sec. 2053(a)(2) or expenses of loss during the administration of the estate under Sec. 2054 may be deducted on either return but not on both.
While each situation is different, presumably these deductions would be taken on the return where their use would yield the greater tax benefit. For instance, where an estate has no transfer tax liability due to a marital deduction, these deductions would probably be more beneficial on the estate's income tax return rather than on the estate tax return.
If the decision is made to claim these deductions on the income tax return, under Reg. Sec. 1.642(g)-1, the fiduciary must file a formal election in duplicate stating that the amounts involved are not being allowed as estate tax deductions and that all rights to have such items allowed are waived. It should be pointed out that if these deductions are to be included on the estate tax return the fiduciary need give no assurance on that return that he or she has not or will not also claim the same deduction as an income tax deduction.
UNIFORMITY IS NOT REQUIRED
The law under Reg. Sec. 1.642(g)-2 does not require that all deductions be treated the same or that the total of any one type of deduction be treated the same. Thus, certain deductions may be treated as estate tax deductions and other deductions may be treated as income tax deductions. In addition, a portion of one type of deduction may be claimed as an estate tax deduction and another part of the same deduction may be claimed as an income tax deduction. …