accommodation i know you've read the briefs so you understand that the central issue in this case is whether a right to an annuity is the same thing as a right to income within the meaning of six a one is an ambiguous or must we consider the treasury department's interpretation of the statute under chevron nd step so are you saying that's an ambiguous decision decided by the supreme court last year a statute must be read literally in the words of the statute given their ordinary meaning at the time the statute was an act could be an instrument purchased from a rd party organ sharing company but it wasn't in this case it's a mechanism that was created in this trust and it was a mechanism to make payments of money to younger so this is yet it was transferring out of her estate a significant income producing asset an interest in a business and in exchange over a period of time she was being essentially guaranteed she would receive a significant amount of money each year so why is the terminology annuity or payment or divot in a renter royalty or commission what does any of that matter i mean that all seems to me to be money produced by the asset that is then going to the transfer or during their lifetime no question it it's money produce that's paid out to the taxpayer annually in a fixed sum get it irrespective of whether those assets that represent the source of the payment produce any income at all for example it's quite commonplace to have so called grant or retained annuity trust which was what we're dealing with here set up with non income producing assets for example it stopped we wouldn't be here so what would happen though is something very significant and something very significant about this statute is that the decision would have transferred a very significant asset out of her state now this asset w half interest in a business that her her husband had known to cheat on with her husband her husband passed away she received the interest in the business with a stepped up basis she transfers it out of her state st sum of money to be paid over time that is discounted to pres value and they pay a gift tax of roughly one hundred and eighty thousand dollars which was miniscule and connection to what the estate tax would alternately be so they take the rest they could have set this up for two years three years five years ten years say they want long term they said fifteen years on a sixty five year old woman and if they had succeeded if she had outlived the grat then the property would have transferred to her beneficiaries and they would not pay estate tax or income tax or and they would receive the stepped up basis so it's a huge boon for the taxpayer but there's also the risk but there's also risk right they know under the statute that if they die while they still have a lot of received as well in any of it ok so they don't get the stepped up basis but they get her stepped up basis and they get it without paying the estate tax and they don't pay the gift tax either it's already been paid a another to take them out of an estate so you can avoid estate tax and so the statute applies the strings possession enjoyment the income right to the income so that if you haven't really just given up the asset if you still are holding on to it  getting the benefit from it is one cases present economic benefit then you have time right in the statute tells you what happens if you don't if you're still alive on this and then it fails if you retain one of the statutory shrooms and why isn't what you described as an annuity present economic benefit which is how the case law has defined enjoyment of the property overall enjoyment is a straw man there's a there's absolutely no authority whatsoever that suggests in fact appellant has never before i think if you check ever raised the enjoyment argument in with respect to a retained annuity this is a does st time that i think the arguments and in fact  if in fact retained and nobody was enjoyment isn't there some statement in the record of what the deceit in thought would happen if she died before the fifteen years yes and what was that  knew at that time she knew that the aros took the position that the statute it covered in new orders that was their position was well known and when she entered into the transaction she understood but any time you look to things that the i r s is position about this was not taken for the purpose of litigation it had been taken or it's been a long stint  but i'm going to do a hypothetical for you just what i understand your position that the statutes on ambiguous and that that's but let's say we think and i'm saying this hypothetically let's say we decide i'd have to show that the regulation was unreasonable and i can't look i think what this boils down to i just want to take it through every what this boils down to i think and i think what your questions are getting to is the fact that it seems like a loophole for a retained a new ity to not be covered by section two thousand and thirty six it seems like it should be in terms of the legislative history in the purpose of the statute and that very well may be true but that was also true in wisconsin central in wisconsin central limited the which said with words one money  cashed in the next day is not money within the meaning of this statute and just as course it said that's exactly what i'm saying money has to be given sajid's must be read literally and money must be given its ordinary meaning at the time the statute was an acted in money mean at that time was intended meant currency an option is not currency and if there's a problem go back to congress that's exactly what happened in byron versus the let's go to the question here what is your best argument that the code is exactly what it is so that the language of the code please and why is it not exactly in to the extent it does it creates a loophole that's for congress we're dealing with the separation of power ours case here and that's exactly what course it was dealing with in wisconsin central it's what the court supreme court was dealing well the two thousand and nine regulation the regulation issue here yes weren't they trying to scale back what the supreme court was saying i'm not sure i understand what they were saying was they were saying this is the result of statute should produce in terms of his legislative history and purpose and we're going to we're going to regulate we're going to probably need a regulation that says that because we think that's what it should what we claim it's an empty well i need you to as but i mean they go to the fallback position all of a claimants on ambiguous how do they get the chevron well their take i think they're taking both positions you only in the united states the government's position here is that this court can answer this question or decide this case that chevron step one when a person retains the right to a payment of three hundred and two thousand dollars that it derives soley from an item of property and the income produced by that property then and under an ordinary understanding of the words of the statute that constitutes that retention constitutes a retention of possession or enjoyment or the right to income from the property that's i think that's just a commonsense interpretation of the language but as you understand this is also a case that is that the regulation is clear and on point  question counsel tells us before we get to the regulation we have to get to the code he says the code is an ambiguous therefore you do not yet to the regulation you tell us the code is an ambiguous but you do get to the regulation i think that this court does the illustration that i think that the court doesn't need to get to the regulation it i think it can decide based on the statutory language alone i think it's the statue language speaks for itself and i also think that this court has interpreted this very very portion of the statute in a in a quite similar circumstance in its decision in reading actually thing re is is a was a better argument for the taxpayer than that than the situation here  the trustee could invade principle if necessary to to pay the annuity so the same thing that the the annuity could theoretically be paid out of income or principal and re just as here although in both right and here it was that supports his reading of the statute how do you distinguish wisconsin well i think wisconsin central did i mean obviously of a different statute i think with continental stands for the proposition that where the statute is clear and then you don't get to the then you then you know you stop at step one you don't get to the chevron step to inquiry we think it's we think it's clear in our favor if it's not clear we think we also you know to the extent that it's not clear  term enjoyment a when you have your when you're paid three hundred and two thousand dollars a year out of property and it's and that's to be clear that it's done with all of the property  that it's out if he has and he has said well no it's not a right to income because it could be paid out of the trust of the property itself but either way whether the whether you get paid out of the the property itself state supports that amply i think it's important to help just go ahead counsels the operative word for us to consider not enjoyment but right i think the distribution of the corpus in sort of an app apple cart upsetting decision decided well no possession transfer of the title even where there's a life a stay is enough to satisfy the statute congress then added the clause that that mr mark focus on focuses on here has the right to income later on in church as a state the supreme court interpret ing the earlier language and that's critical interpreted only in the possession or in the possession or enjoyment language concluded that in getting the income from property placed in tr constitutes enjoying it specifically the court rejected an interpretation of the possession or join a clause that would allow the transfer or the deceiving to enjoy quote the fruits of his property during his life and direct its distribution during that at that i would say that that's exactly what's happening here there's no question not the deceiving here enjoyed the fruits of the property the fifty percent interest in the family company during her life and then directed it approximate match between the amount of the annuity and the amount of income it's talking it says that's significant because the the corpus is going to remain intact so in re this court as is is you know considering an argument similar to the argument mr marks makes about the footnote of philadelphia fidelity to the supreme court's decision in philadelphia it's important to remember that that's a that's an argument that the bonafide sale exception was mapped i don't i don't take mr marx to be arguing that the bona fide sale exception is met here but that but this court in re rejected the argument for a number of reasons one because that regulation dropped away my speculation is that it happened around that same one thousand nine hundred and thirty mayberg says heiner time and perhaps that they thought that the so for whatever reason it dropped out but but the treasury department has never changed its interpretation of that so i i think it's clear in the preamble to the final regulations that the treasury understood itself to be simply stating expressly something that has always been what was previously stated expressly in regulations and has always been the interpretation of of this statute that treasury has understood and already the reg provides something else and i don't fully understand how this part works that the r applies the formula for how much of the property is not in the estate and that's not in the statute so the reg provides some overlay on the step that's right and that was really the primary purpose of of the regulation was to to to do that formula of course says no you know we understand that the uninvested of the statute particularly as interpreted by the supreme court in cases like churches of state and and then also our our own regulatory certainly within this court's praga have to remand it to the district where we think there's enough information in the record although we certainly hope you don't reach that question because that because we think that you know we certainly we certainly hope you don't raise that for question because you think the regulation li exercised over this over these assets that that's that's a significant factor as well the one other case i would just direct this court's attention to the think it's very helpful is the rd circuit decision in m nichols a state that's a case like here where there was not strictly a right to income because there was no it was just an oral understanding so there was no legally enforceable right to income the rd circuit said well  no the right to include language that was added in the wake of may versus heiner was not intended to contract the coverage of the statute which is really the argument that mr marks is making but was intended to if anything expand the coverage of the statute and it and and it a situation there where the individual the deceiving got the income from from the from the property placed in trust counts as right correct but does that batter in our interpretation of the statute or the code i think it's in other words in a situation where you have a set of a trust providing as counsel demonstrates is that example a case where were the proceeds of the excuse me not the protease proceeds  but the principle of the trust is be continuously invaded soley invaded for the purpose of meeting the terms of the nobody is that differ from a case for the proceeds of where the income from the trust is adequate to be determined the regulation under the rug under the code the submit that it's the same under the code in the regulation clearly covers both cases i would just say i'd like to not get to the rego got an a list but unless you want to declare an ambiguity though i don't i don't see how we get to the regular right i under the code we think that with that use of the property itself clearly is enjoyment of the property so in  income as understood in the statute means a very specific very specific definition of income to the trust so there did drawing a distinction between the principle and then the income property earns and whether the transfer had a right to actual income and you're saying doesn't matter if it's principle if it cuts principle income or corpus or whatever you call it if the transfer has a right to getting money back from the property this place in the trust that's income it's income to the transfer is that correct yeah so i guess our principle position is whether whether you get paid out of whether you get paid income of the property or whether you use a portion of the property itself that's enjoyment of the property in addition here there was a was a right to income at the initial stage because if you look at the amount of the value of the property at the beginning of the  be some income produced to pay out the whole the whole grat if you would simply dispose of the property on day one that would have been enough and you know put the money under a mattress there would have been enough money to pay pay out the distribution from a trust is not income in the it in or it in in the ordinary ordinary income sense of the word right you're  the distance between those two i just think here it's in fact true that all of the the nudie payments were always made out of income we think it doesn't matter whether earlier they were made out of income or whether they were made out of  the disposition of the property itself i would just point to one thing that's responsive to your question your honor that the the the statute makes clear that we're not talking about principal of a trust or income of a trust we're talking about income from the property that is the property placed in trust and so there is this argument that well once the once the you know at's the whole point right because not only do you transfer the income producing assets out of your state if that asset grows and value you transfer that as well correct right that you have what you have here is just one thing it's the fifty percent interest in in the company and the and what sort of the fruits of that and that fruits languages right out of church as a state if you have that when you're enjoying the fruits of your property and that's that's constructed the argument i compliment you on it's very creative but mr pollard tells us that it is not a fair characterization of the code or the argument to focus on the word income but rather that the focus should be other word enjoyment and if you look at the word enjoyment that is broad enough under traditional interpretation of the code of that word to suggest that a distribution of a the of the trust whether it comes from corpus or from income from principle or or interest is not relevant that any distribution is enjoyment and the problem is that when one payment was cited in the brief which the government lost they never raised the argument that the annuity there was enjoyment and yet according to apparently that would have been a winning argument why didn't they raise it because they knew it didn't have merit the regulation doesn't even use the word enjoyment the regulation substitutes the word use which is a much clearer term than enjoyment and so to say that the retention of a new he is the retention of the use of the assets is a stretch furthermore the regulation itself doesn't doesn't say that the retention of an annuity is enjoyment if you read it carefully as i point out in my brief and you you you pay attention to the disjunctive syntax the treasury department determining what should be the value include a bill in the estate or there's a retention of an annuity now if the retention of an annuity was the retention of us there'd be no need for a formula because when a tax payer retains use the entire value of the assets comes back if the estate not some formulaic value so the very to the very  insertion of a formula in the regulation is further evidence that the not even treasury thinks that at a new it constitutes enjoyment and then finally the reason that the commentators suggestion that an exception should be made where principle is sufficient to pay the new he and no income required the fact that the treasury rejected that suggestion on a policy grounds the policy being we should let the trustee determine the estate tax consequence by the trustees investment policy whether the trusts invests in an income producing or income producing that's not good policy well if the retention of a nudie were enjoyment that entire discussion would be irrelevant because enjoyment is is is indifferent to the mix of income  principle if it's enjoyment whether it's income whether it's principle with some is irrelevant and then as i say you don't need a formula so the regulation itself shows us that you