Thank you for your reply but I am not sure you understand the issue.

The taxpayer died with their IRA located at three banks.  But there is only ONE Form 8606.  (I believe you would only have multiple Forms 8606 if distributions were being taken from an inherited IRA and your own; this is not the case here).  These IRAs could have been moved between several banks, combined, separated, etc. over last several decades.  At death, there is basis on Form 8606 of $20000.  Bank A IRA has FMV of $100000.  Bank B IRA has FMV of $100000.  Bank C IRA has FMV of $300000.  The beneficiaries of Bank A and Bank B are three children.  The beneficiary of Bank C IRA is the estate.  Thus, this account is not being split cleanly as in your example.  Everyone agrees the basis of $20000 follows the IRA, which is an IRA with a FMV of $500000 before allocation to beneficiaries.  The question is, given these facts, what is the allocation of basis to the beneficiaries?

I think the only way to determine allocation of the basis to the beneficiaries is by %, or as I said "... then allocating the basis by the percentage each institution held to the overall value at date of death".  Specifically, I am suggesting each of the three children receive $2667 of basis (20000 * (200000/500000)/3).  That would account for $8000 of the basis, with the remaining $120000 going to the estate (300000/500000*20000).  I do not see how the RMD rules you linked apply in this case.

Is there a law/reg/ruling which I am unaware of which covers this and results in a different allocation?