United States Tax Court

T.C. Memo. 2023-30

ESTATE OF SUSAN R. BLOCK, DECEASED, JULIE B. SAFFIR 

AND PETER A. BLOCK, EXECUTORS,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 10618-19. Filed March 13, 2023.

—————

Mark H. Neikrie, for petitioners.

Molly H. Donohue and Nina P. Ching, for respondent.

MEMORANDUM OPINION

COPELAND, Judge: This case was submitted to the Court fully 

stipulated pursuant to Rule 122.1 In a Notice of Deficiency dated 

March 21, 2019, respondent determined a total estate tax deficiency of 

$140,085 for the Estate of Susan R. Block (Estate). After concessions,2

the only issue remaining before the Court is whether the Estate qualifies

under section 2055(a) for a deduction from the value of the gross estate

1 Unless otherwise indicated, all statutory references are to the Internal 

Revenue Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, all 

regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in 

effect at all relevant times, and all Rule references are to the Tax Court Rules of 

Practice and Procedure. Some dollar amounts are rounded.

2 The Estate concedes a higher value of real property owned by decedent at her 

death than the value reported. The parties agree that the Estate incurred a larger 

amount of administrative expenses than what was reported on the estate tax return, 

and that the Estate will qualify for a further deduction for legal expenses incurred 

during this litigation.

Served 03/13/23
2

[*2] for the transfer of the remainder interest of the Harriet Katz Trust 

(Katz Trust).

Background

The facts have been stipulated by the parties. The Stipulation of 

Facts (with attached Exhibits) and the First Supplemental Stipulation 

of Facts are incorporated by this reference. When the Petition was filed, 

the Estate was administered in Connecticut, and Executor Julie Saffir 

and Executor Peter Block (co-executors) resided in California.

I. Execution and Amendment of the Katz Trust Instrument

Ms. Block lived in Connecticut at all relevant times, including at 

her death on October 21, 2015. On September 2, 1997, Ms. Block settled 

the Susan Rubin Block Revocable Trust (Trust). On September 17, 

2015, she executed a will that remained in effect at her death and that 

provided for the transfer of her residuary estate to the Trust, whose 

terms she amended and restated on the same day. Ms. Block, Ms. Saffir, 

and Mr. Block were named as the initial co-trustees. Upon Ms. Block’s 

death the following month, the Trust became irrevocable pursuant to 

Article 1.2 of the Trust instrument. Thereafter, Ms. Saffir and Mr. Block

were the only co-trustees of the Trust. The Trust is governed by the laws 

of the State of Connecticut.

In Article 4 of the Trust instrument, Ms. Block provided for a 

subtrust, the Katz Trust, to be funded upon her death. The Katz Trust 

would exist for the benefit of Ms. Block’s sister, Harriet Katz (Harriet), 

and then for the benefit of Harriet’s spouse, I.W. Katz (I.W.), should he 

survive Harriet. Article 4 provides that upon the death of both Harriet 

and I.W., the property remaining in the Katz Trust shall be distributed 

to the Jewish Community Foundation of Greater Hartford, Inc. 

(Foundation). The Foundation is a charitable organization as described 

in sections 170(c) and 2055(a). The co-trustees of the Katz Trust are the

same as the co-trustees of the Trust.

Article 4.1 of the Trust instrument states that Ms. Block intends 

the Katz Trust to be “a charitable remainder annuity trust, within the 

meaning of Rev. Proc. 2003-57 and § 664(d)(1) of the Code, and the terms 

of this Section shall be construed to give maximum effect to such intent.” 

Article 4.1(A) directs that an “annuity amount” be paid to Harriet during 

her life (or to I.W. if he survives her), in an amount “equal to the greater 

of: (a) all net income, or (b) the sum of Fifty Thousand Dollars ($50,000), 
3

[*3] at least annually.” In addition, Article 4.1(I) of the Trust

instrument provides:

Following [Ms. Block’s] death this entire Trust, including 

THE HARRIET KATZ TRUST, shall be irrevocable. 

However, the Trustee shall have the power, acting alone, 

to amend THE HARRIET KATZ TRUST from time to time 

in any manner required for the sole purpose of ensuring 

that THE HARRIET KATZ TRUST qualifies and continues 

to qualify as a charitable remainder annuity trust within 

the meaning of § 664(d)(1) of the Code. The Trustee may 

not, however, change the annuity period, the annuity 

amount, or the identity of the Recipient [of the annuity 

amount].

After respondent initiated an examination of the Estate’s Form 

706, United States Estate (and Generation-Skipping Transfer) Tax 

Return, in August 2017, the co-trustees executed an amendment to the 

Trust instrument (First Amendment) with an effective date of October 

21, 2015, (Ms. Block’s date of death). The First Amendment’s stated 

purpose was to revise Article 4.1(A) to provide that the trustees shall 

pay from the Katz Trust to Harriet for her life, and to I.W. should he 

survive Harriet, “an annuity amount equal to the sum of Fifty Thousand 

Dollars ($50,000), at least annually.” The First Amendment removed

“all net income” from the determination of the “annuity amount.”3

II. Katz Trust Income

The Katz Trust was funded with assets having a date-of-death 

fair market value of $761,000. At all relevant times, all assets have been 

held in the Katz Trust’s brokerage account. The chart that follows lists

the annual income generated by the Katz Trust’s assets and the balance 

in its brokerage account as of December 31 of years 2016–19:

3 As explained below, we need not determine whether the First Amendment 

was effective under the terms of the Trust and Connecticut law.
4 

Year Amount of Income Earned 

During Year

Balance in Brokerage 

Account as of Dec. 31

2016 $29,190 $691,066

2017 23,666 677,348

2018 23,380 633,859

2019 22,242 630,123

The Katz Trust has paid $50,000 each year to Harriet from 2015 through 

at least 2019.

III. The Estate Tax Return and Notice of Deficiency

The co-executors timely filed the Estate’s Form 706 on or before 

the filing deadline of July 21, 2016. On that return, the Estate deducted 

from the value of the gross estate (among other things) the present value 

of the charitable remainder interest of the Katz Trust, which the Estate

calculated on the basis of an annuity amount of $50,000 and the 

actuarial life expectancies of Harriet and I.W. The Internal Revenue 

Service (IRS) initiated an examination of the return in August 2017. At 

the conclusion of the examination, the IRS issued the Notice of 

Deficiency, in which it disallowed the entirety of the Estate’s claimed 

charitable deduction of $352,085 in connection with the Katz Trust. To 

date, the co-trustees of the Trust have not commenced any judicial 

proceeding to reform any provisions of the Trust instrument. 

Discussion

I. Burden of Proof

In general, determinations in a notice of deficiency are presumed 

correct, and the taxpayer bears the burden of proving error. Rule 142(a); 

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v. 

Helvering, 290 U.S. 111, 115 (1933). The Estate does not contend, and 

the evidence does not establish, that the burden of proof shifts to 

respondent under section 7491(a) as to any issue of fact. Accordingly, 

the Estate bears the burden of proof with respect to contesting the

deficiency determinations.

[*4]
5

[*5] II. Split-Interest Charitable Deductions

For purposes of the federal estate tax, section 2055(a) generally

allows a deduction from the value of a decedent’s gross estate for 

transfers for charitable purposes. However, Congress attached special 

conditions in the case of charitable bequests in the form of split-interest 

transfers. Such a transfer occurs “where an interest in property passes 

to a charitable beneficiary while an interest in the same property also 

passes to a noncharitable beneficiary for less than full and adequate 

consideration.” Estate of Schaefer v. Commissioner, 145 T.C. 134, 138 

(2015); see also I.R.C. § 2055(e)(2). Section 2055(e)(2)(A) disallows a

deduction for the charitable remainder portion of a split interest

transfer unless (i) the remainder passes in trust and (ii) the trust is a

charitable remainder annuity trust (CRAT), see I.R.C. § 664(d)(1), a 

charitable remainder unitrust (CRUT), see id. para. (2), or a pooled 

income fund (PIF), see I.R.C. § 642(c)(5).

Congress imposed the section 2055(e)(2)(A) requirement for splitinterest remainders in order to remove the “incentive to favor the income 

beneficiary over the remainder beneficiary by means of manipulating 

the trust’s investments.” Estate of Schaefer, 145 T.C. at 138 (quoting

H.R. Rep. No. 91-413, pt. 1, at 59 (1969), as reprinted in 1969-3 C.B. 200, 

238; S. Rep. No. 91-552, at 88 (1969), as reprinted in 1969-3 C.B. 423, 

480). It had come to Congress’ attention that taxpayers were claiming 

charitable deductions for bequests of remainder interests in trusts by 

making valuation assumptions that were inconsistent with the way the 

trust assets were actually managed. Where trust assets were invested 

to maximize the income interest (for instance, investing in stocks that 

pay high dividends or bonds that pay high interest), the value eventually 

passing to charity through the remainder interest might bear little 

relationship to the deduction previously taken.4 Because of this

potential for abuse of charitable remainder deductions, Congress 

4 Before enactment of section 2055(e)(2)(A), the charitable remainder deduction 

was computed on the assumption that the trust assets would grow by 3.5% per year. 

See H.R. Rep. No. 91-413, pt. 1, at 58, as reprinted in 1969-3 C.B. at 237. The more 

general point is that estimating a present value for an unfixed income interest—and

thus for the charitable remainder—requires certain upfront assumptions about rates 

of current return. (In most or all states, a trust that calls for the annual payment of 

“net income” is generally required to pay out only the “current” portion of the return—

such as interest, dividends, and rent—as opposed to sale proceeds or unrealized 

appreciation. See, e.g., Uniform Principal and Income Act § 102(4) (Unif. L. Comm’n 

2008) (providing a default definition of “income” for trust instruments, viz, “money or 

property that a fiduciary receives as current return from a principal asset”).). These 

assumptions are necessarily blunt and therefore create scope for arbitrage.
6

[*6] mandated that the annual payout to the noncharitable income 

beneficiaries be a fixed dollar amount (in the case of CRATs) or a fixed 

percentage of value of the trust assets (in the case of CRUTs).5 See

Estate of Gillespie v. Commissioner, 75 T.C. 374, 376–78 (1980); Estate 

of Tamulis v. Commissioner, T.C. Memo. 2006-183, 92 T.C.M. (CCH) 

189, aff’d, 509 F.3d 343 (7th Cir. 2007); see also H.R. Rep. No. 91-413,

pt. 1, at 58–60, as reprinted in 1969-3 C.B. at 237–39; S. Rep. No. 91-

552, at 86–87, as reprinted in 1969-3 C.B. at 479–80.

If a trust initially fails to qualify as a CRAT or a CRUT, the

settlor’s estate still may take a charitable deduction if there is a 

“qualified reformation” of the trust. I.R.C. § 2055(e)(3)(A). A qualified 

reformation cannot occur unless the remainder interest is a “reformable 

interest” under section 2055(e)(3)(B), meaning that in the pre-reform

trust (1) the remainder interest is exclusively charitable and (2) all 

payments to the noncharitable beneficiaries are “expressed either in 

specified dollar amounts or a fixed percentage of the fair market value 

of the property.”6 I.R.C. § 2055(e)(3)(C)(i) and (ii). There is an exception 

to the “specified dollar or fixed percentage” requirement: An initially

nonfixed interest will be excused if, within 90 days after the due date for 

the estate tax return, a judicial proceeding is commenced that results in 

the trust qualifying as a CRAT or a CRUT, retroactive to the date of the 

decedent’s death. § 2055(e)(3)(C)(iii). In such a case, the remainder is

deemed a reformable interest just so long as the pre-reform trust 

designated it as exclusively charitable.

III. CRATs

Section 664(d)(1) generally defines a CRAT as a trust with the 

following four characteristics:

A. “[A] sum certain (which is not less than 5 percent nor more 

than 50 percent of the initial fair market value of all 

property placed in trust) is to be paid, not less often than 

annually,” to the income beneficiaries, at least one of which 

5 Alternatively, the income interest may be nonfixed, but only if the trust is a 

PIF, meaning that it is managed by the charitable organization that holds the 

remainder interest. See I.R.C. § 642(c)(5). A PIF’s charity-based governance

inherently protects against abuse.

6 There are a number of other requirements, besides having a charitable 

remainder and a fixed income interest, for a trust to qualify as a CRAT or a CRUT. 

(These are discussed below in the case of CRATs.) Therefore, the qualified reformation 

rules do not require the trust to already be a CRAT or a CRUT.
7 

is not a charitable organization. In the case of individual 

beneficiaries, the annuity may last for either a set period 

of years (not to exceed 20) or the individual’s remaining 

lifetime. I.R.C. § 664(d)(1)(A). 

B. No payments other than the annuity may be made to the

noncharitable beneficiaries. I.R.C. § 664(d)(1)(B).

C. At the end of the annuity period, the entire remainder is to 

be transferred to one or more charitable organizations. 

I.R.C. § 664(d)(1)(C); see also Treas. Reg. § 1.664-2(a)(6)(i).

D. The present value of the remainder interest, determined at 

the time of the trust’s funding, is at least 10% of the initial 

fair market value of the trust assets. I.R.C. § 664(d)(1)(D); 

see also Treas. Reg. § 1.664-2(c).7

A “sum certain” is defined by Treasury Regulation § 1.664-2(a)(1)(ii) to 

mean “a stated dollar amount which is the same either as to each 

recipient or as to the total amount payable for each year of [the annuity] 

period.”

A trust that qualifies as a CRAT is exempt from income taxation 

(although it is subject to an excise tax on unrelated business taxable 

income, as defined in section 512). I.R.C. § 664(c).

IV. Attempted Reformation of the Katz Trust

Article 4.1(A) of the Trust instrument, as it stood on the date of 

Ms. Block’s death, directed the trustees to pay to Harriet or I.W. an 

“annuity amount equal to the greater of: (a) all net income, or (b) the 

sum of Fifty Thousand Dollars ($50,000), at least annually.” This 

provision is not limited to a specific stated dollar amount and therefore 

violates the requirement of section 664 that the annuity of a CRAT be a 

“sum certain.” Consequently, the Katz Trust did not qualify as a CRAT 

at the time of Ms. Block’s death (nor, we should note, as a CRUT or a 

PIF), and the charitable remainder of the Katz Trust was not a 

reformable interest under the default rules—that is, before considering 

the exception for judicial reformations (which can excuse an income 

7 Treasury Regulation § 1.664-2(b) further provides that a trust is not a CRAT 

unless the trust instrument forbids additional contributions to the candidate CRAT 

after its initial funding. Article 4.1(E) of the Trust instrument contains this 

prohibition.

[*7]
8

[*8] interest that is not expressed as either a sum certain or a fixed 

percentage of trust assets).

The Estate argues that the First Amendment to the Trust

instrument effected a qualified reformation. However, since the First 

Amendment could not have done so under the default rules, the only 

remaining possibility was a judicial reformation. Yet the exception for 

judicial reformations clearly does not apply here. First, the First 

Amendment was executed sometime after August 2017, far beyond the 

90-day period following the due date for the estate tax return (July 21, 

2016). Second, the amendment was instituted by the co-trustees alone, 

rather than by a court. Therefore, the First Amendment fails both 

components of the exception.

Petitioners ask us to deem the Estate to have substantially 

complied with the exception. We decline to do so. As we have previously 

observed, Congress made clear that the rules for qualified reformations

are to be construed strictly, in order to prevent abuse of the charitable 

deduction. See Estate of Tamulis, 92 T.C.M. (CCH) at 192–93. 

Specifically, Congress was concerned that if the reformation regime

were overly lenient, taxpayers would not reform trusts to comply with 

the split-interest rules unless and until the IRS discovered defects upon 

audit. As the reports of both the House Committee on Ways and Means 

and the Senate Finance Committee explained:

In order to prevent [such strategic wait-and-see tactics]

from occurring, the committee believes that, in order for a 

governing instrument of a charitable split-interest 

contribution to be reformable, either (1) the creator had to 

make a bona fide attempt to comply with the 1969 Act rules

[requiring the trust to be either a CRAT or a CRUT] or (2) 

the taxpayer must initiate reformation proceedings before 

the Internal Revenue Service could reasonably be expected 

to begin audit. The committee believes that these rules will 

permit the correction of major, obvious defects (such as 

where the “income” interest is not expressed as an annuity 

interest or a unitrust interest) so long as the taxpayer 

initiates reformation proceedings before audit, while 

allowing the correction of minor defects (such as defects in 

determining the correct payout in short taxable years, in 

years of additional contributions, etc.) upon audit so long 

as there was a good faith attempt to comply with the 1969 
9 

Act rules (i.e., the payout is basically expressed as an 

annuity interest or a unitrust interest). 

H.R. Rep. No. 98-432, pt. 2, at 1516–17 (1984); Staff of the S. Comm. on 

Fin., 98th Cong., Deficit Reduction Act of 1984: Explanation of 

Provisions Approved by the Committee on March 21, 1984, S. Prt. No. 

98-169, vol. 1, at 731–32 (Comm. Print 1984).

Accordingly, this Court strictly construes the exception for 

judicial reformations. See, e.g., Estate of Hall v. Commissioner, 93 T.C. 

745 (1989) (finding no qualified reformation of a trust that required net 

income payments to the income beneficiary, because a judicial 

proceeding was not timely commenced); Estate of Tamulis, 92 T.C.M. 

(CCH) 189 (finding no qualified reformation of a trust that required net 

income payments to income beneficiaries, despite statement of intent on 

estate tax return for payments to be limited to 5% of trust assets). Even

if we were to find that the First Amendment was effective for purposes 

of Connecticut law, it did not effect a qualified reformation for purposes 

of section 2055(e).

Congress provided no exception for cases, like this one, where the

income payment would likely never vary from a fixed amount (based on 

the initial size of the trust assets and the wording of the income payment 

provision), or where the co-trustees have in fact always paid the income 

beneficiaries a fixed amount. We cannot craft an exception that 

Congress did not provide for. See Henry Schein, Inc. v. Archer & White 

Sales, Inc., 139 S. Ct. 524, 530 (2019). 

V. Revenue Procedures 2003-57 and 2003-59

The Estate also argues that Revenue Procedure 2003-57, 2003-2 

C.B. 257, and Revenue Procedure 2003-59, 2003-2 C.B. 268 (together, 

Revenue Procedures), allow a trustee to act alone, without court 

involvement, to amend the terms of a trust at any time to ensure it both 

qualifies as a CRAT and retroactively qualifies for an estate tax

charitable deduction. The Estate argues that the Revenue Procedures 

are binding upon respondent. We have indeed held that the IRS is 

generally obligated to follow published administrative positions, 

including revenue procedures. See Dixon v. Commissioner, 141 T.C. 173, 

188 (2013) (citing Rauenhorst v. Commissioner, 119 T.C. 157, 171–73 

(2002)). However, the Revenue Procedures at issue here are unavailing 

for the Estate.

[*9]
10

[*10] The Revenue Procedures provide sample language for a trust to

qualify as a CRAT under section 664. For instance, the following is a 

sample “Limited Power of Amendment” provision:

This trust is irrevocable. However, the Trustee shall have 

the power, acting alone, to amend the trust from time to 

time in any manner required for the sole purpose of 

ensuring that the trust qualifies and continues to qualify 

as a charitable remainder annuity trust within the 

meaning of § 664(d)(1) of the Code.

Rev. Proc. 2003-57, § 4, 2003-2 C.B. at 258; Rev. Proc. 2003-59, § 4,

2003-2 C.B. at 270.

The Estate notes that this sample provision in the Revenue 

Procedures does not specify a time limit for amending the trust, nor does 

it require judicial intervention. However, the corollary provisions of the 

Revenue Procedures must also be considered. Of note, one of the other

sample provisions in each Revenue Procedure specifies that the annuity 

amount is “[a number no less than 5 and no more than 50] percent of the 

initial net fair market value of all property passing to this trust as 

finally determined for federal estate tax purposes.” Rev. Proc. 2003-57, 

§ 4, 2003-2 C.B. at 258 (alteration in original); Rev. Proc. 2003-59, § 4, 

2003-2 C.B. at 269 (alteration in original). Therefore, the nonjudicial 

reformation contemplated by the “Limited Power of Amendment” 

provision does not involve corrections for “major, obvious defects,” such 

as a provision that allows annual payments to the income beneficiary in 

the amount equal to the greater of all net income or $50,000. Major 

defects, “such as where the ‘income’ interest is not expressed as an 

annuity interest,” require a judicial proceeding to be commenced before 

an IRS audit might begin (per section 2055(e)(3)(C)(iii)). See also H.R. 

Rep. No. 98-432, pt. 2, at 1517; S. Prt. No. 98-169, vol. 1, at 732.

Moreover, each of the Revenue Procedures cautions: “A trust 

instrument that contains substantive provisions in addition to those 

provided in . . . this revenue procedure . . . will not necessarily be 

disqualified, but neither will that trust be assured of qualification under 

the provisions of this revenue procedure.” Rev. Proc. 2003-57, § 3, 2003-2 

C.B. at 257 (emphasis added); Rev. Proc. 2003-59, § 3, 2003-2 C.B. at 269 

(emphasis added). The pre-amendment Katz Trust did contain a 

substantive provision beyond those provided in the Revenue 

Procedures—namely, the direction that the income beneficiary receives

“all net income” if that should exceed $50,000. Because this direction 
11

[*11] squarely violates the paramount rule for CRATs, the Katz Trust 

falls outside of the Revenue Procedures’ representations regarding 

eligibility for a charitable deduction.

VI. Construction of the Pre-Amendment Katz Trust

The Estate notes that Article 4.1(A) of the original Trust

instrument called for an “annuity amount equal to the greater of: (a) all 

net income, or (b) the sum of Fifty Thousand Dollars ($50,000), at least 

annually.” (Emphasis added.) Moreover, the flush text of Article 4.1 

states that Ms. Block intends for the Katz Trust to be “a charitable 

remainder annuity trust, within the meaning of Rev. Proc. 2003-57 and 

§ 664(d)(1) of the Code, and the terms of this Section shall be construed 

to give maximum effect to such intent.” These two provisions, according 

to the Estate, show that the Katz Trust was a CRAT from the beginning 

and that the First Amendment merely confirmed this characterization. 

After all, an “annuity amount” as defined in the Code and regulations is 

a “sum certain” and so is incompatible with a “net income” provision.

We understand the Estate to be arguing that the “all net income” 

provision of Article 4.1(A) was void ab initio, so that no qualified 

reformation—let alone a judicial proceeding—was necessary for the 

Katz Trust to be a CRAT. We will assume for the sake of argument that

under Connecticut law, the original Article 4.1(A) was ambiguous and

that, under the Connecticut canons of construction, the phrase “all net 

income” was ineffectual. But that assumption does not necessarily 

entail that the Katz Trust was a CRAT from the beginning. That matter

will depend on the proper construction of section 664(d)(1)(A), which 

provides that a CRAT is (among other things) a trust “from which a sum 

certain . . . is to be paid, not less often than annually, to one or more 

persons.” Perhaps this provision could lead to two interpretations, 

either (1) the trust’s governing instrument unambiguously provides for 

a sum-certain annuity or (2) the governing instrument once properly 

construed (such that any and all ambiguities are resolved in accordance 

with applicable state law) provides for a sum-certain annuity.

The first interpretation accords much more soundly with 

Congress’ intent with regard to section 664. That intent was, as 

discussed above, to deny both income and estate tax charitable 

deductions for remainder interests unless the amount going annually to 

the noncharitable beneficiaries is certain and unmanipulable. See H.R.

Rep. No. 91-413, pt. 1, at 59, as reprinted in 1969-3 C.B. at 238; S. Rep.

No. 91-552, at 88, as reprinted in 1969-3 C.B. at 480. If we were to find 
12

[*12] that trusts can be CRATs when the noncharitable payment is 

simply more likely than not required to be a sum certain, we would 

subvert Congress’ evident goal of removing as much uncertainty as 

possible from the preset-value calculation of remainder interests. 

Therefore, we conclude that under the proper interpretation of section 

664(d), the pre-amendment Katz Trust was not a CRAT. And because 

the trustees did not effect a qualified judicial reformation, the entire 

charitable deduction must be denied under section 2055(e).

We have considered all the arguments made by the parties and, 

to the extent they are not addressed herein, we find them to be moot, 

irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered under Rule 155.