Case Name: Beryl P. WILLIAMSON, Petitioner-Appellant, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1992-09-14
Citations: 974 F.2d 1525
Docket Number: No. 89-70506
Parties: Beryl P. WILLIAMSON, Petitioner-Appellant, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.
Judges: Before: TANG, REINHARDT, and WIGGINS, Circuit Judges.
Reporter: Federal Reporter 2d Series
Volume: 974
Pages: 1525–1544

Head Matter:
Beryl P. WILLIAMSON, Petitioner-Appellant, v. COMMISSIONER INTERNAL REVENUE SERVICE, Respondent-Appellee.
No. 89-70506.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted May 7, 1991.
Decided Sept. 14, 1992.
Robert K. Smith, Shannahan, Smith & Dailey, La Jolla, Cal., for petitioner-appellant.
Bruce R. Ellisen, Tax Div., U.S. Dept, of Justice, Washington, D.C., for respondent-appellee.
Before: TANG, REINHARDT, and WIGGINS, Circuit Judges.

Opinion:
TANG, Circuit Judge:
Beryl Williamson inherited farm land from his mother in 1983. In the estate tax return, Williamson elected the special use valuation for the property provided by 26 U.S.C. § 2032A. Williamson subsequently leased the farm to his nephew for a fixed, semi-annual cash payment. In 1987, the Internal Revenue Service ("IRS") issued a Notice of Deficiency to Williamson, asserting that the cash lease rendered the land ineligible for special use valuation. The Tax Court agreed with the IRS. Williamson appeals. We affirm.
BACKGROUND
A. Statutory Framework
Generally, for purposes of estate taxes, a decedent's property is taxed at its fair market value at the time of death. See 26 U.S.C. § 2031; 26 C.F.R. § 20.2031-1(b). As a consequence, prior to 1976, heirs were often forced to sell family farms because the farm could not produce sufficient profits to finance the estate tax debt. See H.R.Rep. No. 1380, 94th Cong., 2d Sess. 22, reprinted in 1976 U.S.C.C.A.N. 2897, 3356, 3376 ("In some cases, the . [fair market value] estate tax burden makes continuation of farming . not feasible because the income potential from these activities is insufficient to service extended tax payments or loans obtained to pay the tax.").
In 1976, Congress carved out an exception to the estate tax valuation rules in the hope of protecting the family farm. Congress permitted those who inherited qualifying family farms to elect a special use valuation of the property based on the property's actual use rather than its fair market value. 26 U.S.C. § 2032A(a).
Congress carefully delineated the types of property eligible for special use valuation. The property must be real property located in the United States which was "acquired from or passed from the decedent to a qualified heir of the decedent and which, on the date of the decedent's death, was being used for a qualified use by the decedent or a member of the decedent's family." Id. § 2032A(b)(1).
The term "qualified heir" refers to the member of the decedent's family who inherits the decedent's property. Id. § 2032A(e)(l). The statute further provides that, "[i]f a qualified heir disposes of any interest in qualified real property to any member of [her or] his family, such member shall thereafter be treated as the qualified heir with respect to such interest." Id.
"Qualified use" is defined as "the devotion of the property to . use as a farm for farming purposes, or . use in a trade or business other than the trade or business of farming." Id. § 2032A(b)(2). The House Report accompanying the 1976 legislation elaborates on the meaning of "qualified use." The Report emphasizes the need for an active farming or business use of the property. "The mere passive rental of property will not qualify." H.R.Rep. No. 1380 at 23, reprinted in 1976 U.S.C.C.A.N. at 2897, 3377. However, rentals where payment is contingent upon the farm's performance, such as a crop-share lease, are permissible according to the House Report. Id. ("[I]f A, the decedent, owned real property which he leased for use as a farm to the ABC partnership in which he and his sons B and C each had a one-third interest in profits and capital, the real property could qualify for special use valuation.") (emphasis added); see also Martin v. Commissioner, 783 F.2d 81, 83 (7th Cir.1986).
At the same time that Congress acted to afford special estate tax benefits to family farms, it sought to foreclose abuse of the privilege by taxpayers who would engage in family farming only long enough to reap the estate tax benefits and then would convert the property to a more lucrative commercial use. "[I]t would be a windfall to the beneficiaries of an estate," the House Report noted, "to allow real property used for farming or closely held business purposes to be valued for estate tax purposes at its farm or business value unless the beneficiaries continue to use the property for farm or business purposes, at least for a reasonable period of time after the decedent's death." H.R.Rep. No. 1380 at 22, reprinted in 1976 U.S.C.C.A.N. at 2897, 3376; see also S.Rep. No. 938, 94th Cong., 2d Sess. 15, reprinted in 1976 U.S.C.C.A.N. 2897, 4030, 4041. Consequently, Congress added the requirement that the property remain in the qualified use for ten years after the decedent's death. 26 U.S.C. § 2032A(c)(1).
The statute imposes a "recapture tax" on qualified heirs who breach the conditions of the special use valuation:
If, within 10 years after the decedent's death and before the death of the qualified heir—
(A) the qualified heir disposes of any interest in qualified real property (other than by a disposition to a member of [her or] his family), or
(B) the qualified heir ceases to use for the qualified use the qualified property which was acquired (or passed) from the decedent,
then, there is hereby imposed an additional estate tax.
26 U.S.C. § 2032A(c)(1). The recapture tax is designed to recoup the special tax savings inappropriately enjoyed by the qualified heir when the heir elected the special use valuation. See id. § 2032A(c)(2); H.R.Rep. No. 1380 at 25-26, reprinted in 1976 U.S.C.C.A.N. at 2897, 3379-80.
Two amendments to the 1976 version of the family farm valuation provision are of special relevance to the present case. First, in 1981, Congress eased the terms by which a decedent's land could qualify in the first instance for special use valuation. As originally enacted, section 2032A required that the decedent personally have operated the farm prior to death. Recognizing that owners of farms often become ill or disabled during the closing years of their lives, Congress amended the statute to permit land to qualify if either the decedent or a member of her or his family farmed the property prior to the decedent's death. 26 U.S.C. § 2032A(b)(1); H. Conf. Rep. No. 215, 97th Cong. 1st Sess. 248, reprinted in 1981 U.S.C.C.A.N. 105, 285, 337; S.Rep. No. 144, 97th Cong., 1st Sess. 132-33, reprinted in 1981 U.S.C.C.A.N. 105, 233-34; see also Treas. Dec. 7786, 1981-2 Cum. Bull. 174 (amending Treas. Reg. 20.2032A-3(b)(1)). As a consequence of this amendment, net cash leases from the decedent to a member of the family no longer precluded the heirs from subsequently invoking the special use valuation provision. S.Rep. No. 144 at 133, reprinted in 1981 U.S.C.C.A.N. at 105, 233; H.R.Rep. No. 201, 97th Cong., 1st Sess. 169, reprinted in 1981-2 Cum. Bull. 352, 382.
Congress emphasized that the 1981 amendment "[did] not change the present requirement that the qualified heir owning the real property after the decedent's death use it in the qualified use throughout the recapture period." S.Rep. No. 144 at 134, reprinted in 1981 U.S.C.C.A.N. at 105, 234; H.R.Rep. No. 201 at 169, reprinted in 1981-2 Cum. Bull at 382.
The committee reports also reiterated the admonition that the qualified use be "an active trade or business use as opposed to a passive or investment use." S.Rep. No. 144 at 133, reprinted in 1981 U.S.C.C.A.N. at 105, 233; H.R.Rep. No. 201 at 169, reprinted in 1981-2 Cum. Bull. at 382.
The second significant amendment to the special use valuation provision came in 1988. Congress crafted a special rule for the surviving spouse of a decedent that permitted her or him to rent the property to a family member on a net cash basis without running afoul of the qualified use requirement. 26 U.S.C. § 2032A(b)(5). This change, the House Report noted, contrasted sharply with the prior rule that "[c]ash rental of specially valued property is not a qualified use and, therefore, is treated as a recapture event." H.R.Rep. No. 795, 100th Cong., 2d Sess. 590 (1988). The House Report revealed the impetus for the change:
Under present law, property may qualify for special use valuation if the dece dent leases the property to a member of his family. The recapture tax is imposed, however, if the property is not used in a qualified use by the qualified heir. Thus, if a decedent leases the qualified real property to a member of his family and the property passes to his spouse, a recapture tax will be imposed under present law unless the spouse begins to use the property in a qualified use.
The committee believes that the surviving spouse should not be subject to more onerous rules than the decedent. Moreover, imposing a recapture tax unless the surviving spouse uses the property in a qualified use interferes with the orderly operation of the farm. Accordingly, the committee believes that a surviving spouse's cash rent to a member of the spouse's family should not be a recapture event. This rule permits the surviving spouse to obtain a more certain income stream than would be provided by a crop share lease.
Id. at 590-91.
The effect of the 1981 and 1988- amendments, in sum, was to engraft on the special use valuation provision two specific exceptions where passive rental, as opposed to active farming, of property will be deemed consistent with the qualified use requirement.
B. Factual History
Elizabeth Williamson owned real property in Chippewa County, Minnesota. Prior to Elizabeth Williamson's death, her grandson, Harvey Williamson, operated the property as a family farm under a crop share lease with Ms. Williamson.
When Ms. Williamson died in 1983, her son, the appellant Beryl Williamson, inherited the farm land. Williamson elected the special use valuation provision, 26 U.S.C. § 2032A, for purposes of calculating the estate tax. This reduced the base value of the farm from $225,247.50 to $94,209.60.
Williamson, who lives in San Diego, California, subsequently entered into a cash lease of the property, under which his nephew, Harvey Williamson, farmed the land. Under the agreement, Harvey Williamson promised to pay a fixed semi-annual rental fee of $4,297.50, due April 1st and October 1st of each year.
The Commissioner of Internal Revenue determined that the cash lease of the term failed to satisfy the special valuation provision's qualified use requirement. Consequently, the Commissioner issued a Notice of Deficiency to Beryl Williamson, asserting a $42,026 recapture tax.
Williamson petitioned the Tax Court for a redetermination of the deficiency. The parties agreed that the property originally qualified for special use valuation and that Beryl Williamson fit the statutory definition of a qualified heir. Williamson and the Commissioner parted company, however, over two issues of law. First, Williamson argued that the cash lease to his nephew did not constitute a cessation of qualified use within the meaning of 26 U.S.C. § 2032A(c)(l)(B). Second, Williamson contended that the lease represented a disposition of his interest in the property to his nephew, such that the nephew became the qualified heir. Under this theory, the nephew's ongoing farming activities continued to qualify the property for special use valuation, pursuant to 26 U.S.C. § 2032A(e)(l).
The Tax Court rejected both of Williamson's arguments and entered judgment for the Commissioner. Williamson timely noticed his appeal to this court. 26 U.S.C. § 7483; Fed.R.App.P. 13(a). We affirm.
DISCUSSION
A. Standard of Review
Whether the Tax Court erred in interpreting section 2032A's "qualified use" requirement is a question of statutory construction we review de novo. See Home Sav. Bank, F.S.B. v. Gillam, 952 F.2d 1152, 1156 (9th Cir.1991); Estate of Schnack v. Commissioner, 848 F.2d 933, 935 (9th Cir.1988).
B. Cessation of Qualified Use
Williamson argues that the cash lease to his nephew constitutes a qualified use of the property because a family member continues to farm the land. Section 2032A's purpose to perpetuate the family farm, Williamson continues, has thus been fulfilled in this case. Williamson stresses that the statutory definition of a cessation of qualified use focuses solely on the use to which the property is put and does not specifically designate who must be using the property in the qualified úse. 26 U.S.C. § 2032A(c)(6)(A).
The Tax Court disagreed with Williamson, pointing out that the statute expressly provides for the triggering of the recapture tax when "the qualified heir ceases to use for the qualified use the qualified property." Id. § 2032A(c)(1)(B). The Tax Court also noted that Williamson's position conflicted with the legislative history's repeated proscriptions against passive rentals. Lastly, the Tax Court explained that Williamson's reading of the statute would render the 1981 and 1988 amendments redundant.
We agree with the Tax Court that Williamson's proposed interpretation of section 2032A is untenable. Our starting point in the task of statutory construction is, of course, the statute's plain language. S & M Inv. Co. v. Tahoe Regional Planning Agency, 911 F.2d 324, 326 (9th Cir.1990), cert. denied, — U.S. -, 111 S.Ct. 963, 112 L.Ed.2d 1050 (1991). In this case, the plain language of the recapture provision disproves Williamson's suggestion that farming by someone other than the qualified heir preserves the special use valuation. Section 2032A(c)(1)(B) expressly states that the recapture tax is activated when "the qualified heir ceases to use for the qualified use the qualified property." (Emphasis added.) Putting aside for the time being Williamson's disposition argument, Beryl Williamson, not Harvey Williamson, is the qualified heir to Elizabeth Williamson. And Williamson admits that he has not personally used the property for farming.
Williamson counters by pointing out that the plain language of the "cessation of qualified use" provision does not limit its application to the qualified heir. See 26 U.S.C. § 2032A(c)(6)(A). Williamson's argument, however, misunderstands subsection (c)(6)(A). This subsection reads:
For purposes of paragraph (1)(B), real property shall cease to be used for the qualified use if . such property ceases to be used for the qualified use set forth in subparagraph (A) or (B) of subsection (b)(2) [that is, for farming or a trade or business], under which the property qual-ified_
By its language, subsection (c)(6)(A) does not stand alone in defining a cessation of qualified use. . It specifically refers and incorporates into its definition subsection (c)(1)(B), the provision that requires the qualified heir to undertake the qualified use. Contrary to Williamson's assertion, then, subsection (c)(6)(A) neither modifies nor operates independently of subsection (c)(1)(B). Rather, subsection (c)(6)(A) simply clarifies that portion of the statutory language imposing on Williamson, the qualified heir, the obligation personally to conduct a qualified use of the property.
The plain language of the statute further counsels against Williamson's position because it reveals that, when Congress wanted to include family members in addition to the qualified heir in the statute's provisions, it expressly stated so. For example, while Congress couched the qualified use requirement in terms solely of the heir's activities, the provision's material participation requirement can be satisfied by the "qualified heir or any member of [her or] his family." Compare 26 U.S.C. § 2032A(c)(1)(B) with 26 U.S.C. § 2032A(c)(6)(B)(ii).
More particularly, the plain language of the statute demonstrates that, when Con gress intended for intra-family cash leases of the property to satisfy the qualified use requirement, it knew how to say so. In 1988, Congress added language to the special use valuation provision providing that "[a] surviving spouse shall not be treated as failing to use such property in a qualified use solely because such spouse rents such property to a member of such spouse's family on a net cash basis." 26 U.S.C. § 2032A(b)(5)(A) (emphasis added). Indeed, Congress's denomination of this subsection as a "special rule[]" indicates that the absence of language in the provision authorizing other intra-family net cash leases reflects deliberate congressional line-drawing, rather than mere legislative oversight.
When, as here, the plain language of a statute appears to resolve a dispute, we consider the legislative history "to determine only whether there is 'clearly expressed legislative intention contrary to that language.' " S & M Inv., 911 F.2d at 327 (quoting Immigration & Naturalization Serv. v. Cardoza-Fonseca, 480 U.S. 421, 432 n. 12, 107 S.Ct. 1207, 1213 n. 12, 94 L.Ed.2d 434 (1987)) (additional internal quotation omitted).
The legislative history accompanying section 2032A and its amendments reconfirms the statute's plain language insisting that Williamson as the qualified heir must personally use the property in its qualified use. Cash rental to a relative will not suffice. Committee reports repeatedly warn, in no uncertain terms, that the passive rental of property does not satisfy the qualified use requirement. See, e.g., H.R.Rep. No. 1380 at 23, reprinted in 1976 U.S.C.C.A.N. at 2897, 3377 ("The mere passive rental of property will not qualify."); S.Rep. No. 144 at 133, reprinted in 1981 U.S.C.C.A.N. at 105, 233 ("[A] qualified use [must] be an active trade or business use as opposed to a passive, or investment, use."); H.R.Rep. No. 201 at 169, reprinted in 1981-2 Cum. Bull. at 382 (same as S.Rep. No. 144); H.R.Rep. No. 795 at 590 ("Cash rental of specially valued property is not a qualified use and, therefore, is treated as a recapture event.").
Williamson's reading of section 2032A, moreover, would render the 1981 and 1988 amendments meaningless surplusage. If section 2032A already considered intra-fam-ily cash leases to satisfy the qualified use requirement, then Congress's labors, in 1981 and 1988, to make cash leases by decedent's and their surviving spouses "qualified uses" were mere exercises in redundancy. Under Williamson's theory, there simply was no need for the 1988 amendment. We are not at liberty to impose upon a statute a construction that renders parts of its language nugatory. See United States v. Mehrmanesh, 689 F.2d 822, 829 (9th Cir.1982).
Williamson suggests that the 1981 and 1988 amendments simply clarified the original intent of Congress that intra-family cash rentals constitute a qualified use. Williamson's position, however, cannot survive a reading of the legislative history accompanying the amendments.
In 1981, Congress added language providing that property would still be eligible for special use valuation where the decedent had cash leased the land to a family member. 26 U.S.C. § 2032A(b)(1). The Senate report accompanying the amendment specifically labelled the expansion of eligibility a change: "These changes generally expand availability of current use valuation to estates not eligible under present law." S.Rep. No. 144 at 133, reprinted in 1981 U.S.C.C.A.N. at 105, 233 (emphasis added). Congress thus legislated from the viewpoint that intra-family leases did not otherwise satisfy the qualified use criterion. See Martin v. Commissioner, 783 F.2d 81, 83 (7th Cir.1986) ("[T]he qualified use must be active rather than passive; for, if passive were good enough, there would have been no reason to amend the statute to make clear that the decedent himself did not have to be working the farm at the time of his death."); see also Schuneman v. United States, 783 F.2d 694, 698 n. 2 (7th Cir.1986).
Similarly, Congress's 1988 liberalization of the qualified use requirement for surviving spouses worked a change in the law. The House report noted that, "[u]nder pres ent law, . if a decedent leases the qualified real property to a member of [her or] his family and the property passes to [the] spouse, a recapture tax will be imposed under present law unless the spouse begins to use the property in a qualified use." H.R.Rep. No. 795 at 590. Amendment was necessary to effectuate Congress's belief that "a surviving spouse's cash rent to a member of the spouse's family should not be a recapture event." Id. The Committee's call for change rings empty if one accepts Williamson's suggestion that the law already permitted such cash rentals.
Congress carefully tailored its 1981 and 1988 amendments to benefit the decedent and the decedent's spouse only. Williamson's capacious interpretation of the amendments as clarifying the propriety of all intra-family cash leases cannot be reconciled with the straitened and narrowly targeted relief actually enacted by Congress. If Congress intended to authorize a larger class of intra-family cash leases, it should have said so. Unless and until Congress amends the statute, we must decline Williamson's invitation to apply broadly that which Congress has written sparingly.
Numerous courts, we note, have confirmed that passive rentals fail the qualified use test. In Martin, the Seventh Circuit held that a cash lease by a qualified heir to a non-family member did not amount to a qualified use, regardless of the fact that the lessee farmed the land. In words that speak directly to Williamson's contention, the Seventh Circuit refused to focus solely on the use to which the land was being put:
We are asked to infer that all that is required to avoid recapture is that the property continue in a qualified use; the use need not be by the heir. But this interpretation is almost certainly wrong.
783 F.2d at 83. The court elaborated:
When the estate tax return was filed, the heirs were operating the farm through a sharecropping arrangement with one of them; that was the qualifying use and it ceased when the farm was let at a fixed rental. The House Report minces no words: "The mere passive rental of property will not qualify."
Id. (quoting H.R.Rep. No. 1380 at 23, reprinted in 1976 U.S.C.C.A.N. at 2897, 3377); see also Brockman v. Commissioner, 903 F.2d 518, 521 (7th Cir.1990); Heffley v. Commissioner, 884 F.2d 279, 284 (7th Cir.1989) ("Rentiers-heirs (i.e., heirs receiving a fixed income from their investment) forfeit the exceptionally favorable tax treatment that the statute [section 2032A] affords to those meeting its exacting requirements.... Rentiers forego the friendly tax treatment accorded to those meeting the demanding statutory requirements. There is no qualified use during the lease of a farm under a fixed-rental agreement."); Estate of Sherrod v. Commissioner, 774 F.2d 1057, 1064 (11th Cir.1985), cert. denied, 479 U.S. 814, 107 S.Ct. 66, 93 L.Ed.2d 24 (1986).
Williamson calls upon this court to consider the policies animating section 2032A and to interpret the statute to effectuate those ends. Congress's avowed purpose for enacting the special use valuation, Williamson notes, was to preserve the family farm. Williamson insists that his actions are fully consistent with that goal. By leasing to his nephew, Williamson has con tinued the use of his mother's land as a farm.
The difficulty with Williamson's position is twofold. First, the tax legislative process necessarily entails line-drawing. While Congress's purpose in enacting section 2032A was no doubt beneficial, that same Congress intentionally chose to circumscribe narrowly the availability of the tax benefit in the face of a competing concern for maximizing tax revenues. We must accord deference to the balance struck by Congress. See Heffley, 884 F.2d at 283 ("While Congress will allow certain exceptional preferences to avoid excessive tax burdens under certain conditions, in order to achieve the congressional intent these exceptions must be narrowly applied and the corresponding exclusions broadly interpreted."); see also Corn Prods. Ref. Co. v. Commissioner, 350 U.S. 46, 52, 76 S.Ct. 20, 24, 100 L.Ed. 29 (1955); Estate of Thompson v. Commissioner, 864 F.2d 1128, 1136 (4th Cir.1989). Congress thus chose not to make the special use valuation available to all family farms, presumably because to do so would have imposed too heavy a burden on the public fisc. Congress has drawn a line, permitting cash leases by some family members and not by others. To the extent Williamson argues that this line seems arbitrary and could just as easily have been drawn to encompass his situation, he is preaching to the converted. That we might disagree with a legislative distinction Congress has made, however, does not empower us to rewrite the statute. Our task "is to apply the [statute's] text, not to improve upon it." Pavelic & LeFlore v. Marvel Entertainment Group, 493 U.S. 120, 126, 110 S.Ct. 456, 460, 107 L.Ed.2d 438 (1989); see also Badaracco v. Commissioner, 464 U.S. 386, 398, 104 S.Ct. 756, 764, 78 L.Ed.2d 549 (1984) ("Courts are not authorized to rewrite a statute because they might deem its effects susceptible of improvement."); Estate of Cowser v. Commissioner, 736 F.2d 1168, 1171 (7th Cir.1984) ("We may not agree with where the line is drawn, but we are not in a position to move it. We may only interpret and enforce the laws Congress gives us; we may not rewrite or amend them as we see fit.").
Furthermore, the distinction made by Congress in this case is not as arbitrary as Williamson portrays it. Section 2032A's conceded purpose is to protect and insulate the family farmer from excessive estate taxes. Yet the person seeking section 2032A's shelter here is not engaged in family farming. The family farmer here is the nephew, a person not receiving any of section 2032A's benefits. Williamson's relationship to the land is that of a landlord and passive investor. Congress never intended such persons to reap the benefits of section 2032A. Cf. Estate of Abell v. Commissioner, 83 T.C. 696, 701 (1984).
Section 2032A's tax benefits serve as a carrot enticing and rewarding qualified heirs for accepting the financial risks of family farming. See Brockman, 903 F.2d at 523 ("The qualified use requirement . focuses on whether the decedent or the decedent's family incur the risks of farming."). Placing Williamson within section 2032A would effectively let him have his cake and eat it too. He would enjoy the special tax benefits of section 2032A without incurring any of family farming's concomitant costs or risks. Again, the nephew bears those. Other courts have insisted that section 2032A is a two-way street and have withheld its benefits when the qualified heir insulates herself or himself from financial risk through a fixed cash rental scheme. Id. at 526 ("In this case, whether the livestock operation flourished or was wiped out by drought or disease, whether cattle prices rose or fell, whether in short, Dickison's activities were profitable or unprofitable, Donahoe's rental income was unaffected."); Heffley, 884 F.2d at 284 ("Whether farm prices fluctuated or crops flourished or died their rental income would be unaffected because those heirs were rentiers throughout the lease, not farmers who risked the variables of weather and market price."); Martin, 783 F.2d at 84 ("Whether farm prices rose or fell, whether the crops planted on the farm flourished or were wiped out by cold weather or disease, whether in short the farm was productive or unproductive, prof itable or unprofitable, the taxpayers' rental income would be unaffected. They were thus out of the farming business, and outside the scope of [section 2032A]."). Strong policy reasons thus exist for not extending section 2032A in the manner advocated by Williamson.
Finally, much of the emotive force behind Williamson's position is attributable to the feeling one gets, upon first look, that the IRS is making a hypertechnical distinction. The same family member farmed the land before Ms. Williamson's death and after. On the surface, nothing seems to have changed to justify the alteration in tax treatment. But upon closer examination, it becomes apparent that things have changed. Prior to Ms. Williamson's death, Harvey Williamson farmed under a crop-share rental agreement. The owner of the land thus still faced the risks of farming. After Ms. Williamson's death, the owner of the land (Beryl Williamson) is receiving a fixed cash rental for the land. The owner and person seeking to enjoy the preferential tax treatment afforded by § 2032A thus faces none of the risks of farming and, in fact, is not himself a family farmer. A sound rationale thus supports the IRS's distinction for tax purposes between the pre- and post-death uses of the Williamson property. Cf. Estate of Trueman v. United States, 6 Cl.Ct. 380, 1984-2 U.S. Tax Cas. (CCH) ¶ 13,590, at 86,180 (1984) ("Where the use made by a decedent of his property was an investment use, no hardship to decedent's heirs results from forcing them to sell the property in order to realize its full potential value as an investment. Investment properties, such as those held by the decedent, are fungible. The decedent's family rental business is not destroyed by forcing his heirs to exchange old rental properties for new ones.").
In sum, section 2032A's plain language, amendments, legislative history, and policies all support the Commissioner's determination that Williamson's cash lease of the farm to his nephew constituted a cessation of qualified use, triggering the recapture tax.
C. Disposition of the Property
Williamson argues alternatively that, when he leased the property to his nephew, Harvey Williamson, Harvey stepped into Beryl's shoes and became the new qualified heir of the property. Harvey's farming of the land, Williamson urges, therefore satisfies the statutory requirement that a qualified heir actively farm the property.
The Tax Court found Williamson's contention unavailing. The Tax Court reasoned that a lease was not the type of disposition that Congress intended to effect a change in the qualified heir.
We join the Tax Court in rejecting Williamson's argument. Section 2032A(e)(l) provides:
If a qualified heir disposes of any interest in qualified real property to any member of [her or] his family, such member shall thereafter be treated as the qualified heir with respect to such interest.
Williamson insists that the phrase "of any interest" necessarily encompasses a leasehold interest. In so arguing, however, Williamson ignores the preceding condition that the interest be "dispose[d] of." The import of the word "dispose" is a permanent loss or renunciation of an interest. A lease, by contrast, entails only the temporary transfer of a property interest.
While not speaking directly to the issue, the legislative history accompanying the recapture tax provision uses the word "dispose" in conjunction only with permanent losses or transfers of an interest in the qualified property.
Since a sale, exchange, or other disposition (such as a gift) by one qualified heir to another qualified heir is not treated as a recapture event, the bill provides that the second qualified heir is to be treated as if he had received the property from the decedent. Thus, the second qualified heir steps into the shoes of the first heir and becomes liable for the recapture tax....
H.R.Rep. No. 1380 at 26, reprinted in 1976 U.S.C.C.A.N. at 2897, 3380; see also id., H.R.Rep. No. 1380 at 25, 1976 U.S.C.C.A.N. at 3379 (disposition discussed in the context of a sale, involuntary conversion, rollover, or similar transaction).
That the recipient of the disposed interest assumes liability for the recapture tax further indicates that a disposition occurs only when a transfer of legal responsibility for the interest is fully accomplished. Because leases generally transfer only partial legal rights to a lessee, treating a lease as a disposition would create a legal limbo where the lessee and lessor share the responsibilities of a qualified heir. Nothing in the statute's language or legislative history suggests that Congress envisioned or intended such a result. Similarly, the Treasury Regulation requiring persons with certain interests in qualified property to enter into an agreement to pay the recapture tax, should the qualified use cease, contains no indication that legal responsibility attaches to a leasehold interest. See 26 C.F.R. § 20.2032A-8(c)(2).
Moreover, Williamson's suggestion that a lease constitutes a disposition inaugurating a new qualified heir, like his qualified use argument, renders superfluous Congress's 1988 amendment authorizing cash leases by surviving spouses. 26 U.S.C. § 2032A(b)(5)(A). If an intra-family cash lease already accomplished a change in the qualified heir pursuant to section 2032A(e)(l), Congress would have had no need to act to protect surviving spouses. Spouses' cash leases to family members would have continued the qualified use simply by changing the qualified heir. Congress thus legislated in 1988 from the viewpoint that cash leases did not constitute dispositions already protected from the recapture tax by subsection (e)(1). Indeed, implicit in the 1988 amendment is the conclusion that the lessor/surviving spouse remains the qualified heir despite the transfer of a leasehold interest to another family member.
Williamson responds by citing a portion of the 1976 report of the Joint Committee on Taxation, which reads:
The "cessation of qualified use" which constitutes a disposition occurs if (1) the qualified property ceases to be used for the qualified use under which the property qualified for special use valuation. .
Staff of Joint Committee on Taxation Report, 94th Cong., 2d Sess. 542 (1976) (emphasis added). Williamson contends that this language equates a cessation of qualified use with a disposition under subsection (e)(1).
We find this argument untenable. The Committee's language does not suggest that all cessations of qualified use constitute a disposition. Nor is Williamson's interpretation of the Committee's language consistent with the statute's plain terms. Section 2032A provides for two distinct events to trigger the recapture tax— either the disposition of the property to a non-family- member, 26 U.S.C. § 2032(c)(1)(A), or the cessation of qualified use, Id. § 2032A(c)(1)(B). If Congress intended to treat dispositions and cessations of qualified use synonymously, it would not have written section 2032A(c)(l) in the disjunctive.
Williamson also argues that the Commissioner's and Tax Court's interpretation of "dispose" in his case is inconsistent with the position taken by the Commissioner in a Technical Advice Memorandum. In Technical Advice Memorandum 8731001 (March 19, 1987), the Commissioner stated that the grant of an easement was a disposition. Williamson argues that no reasonable distinction can be made between leaseholds and easements for purposes of defining a disposition under section 2032A.
We disagree. In fact, contrary to Williamson's position, Technical Advice Memorandum 8731001 actually strengthens the Commissioners' position. Generally, the grant of an easement, unlike a leasehold, permanently conveys a property interest to another person. The grantor retains no supervisory regulatory control over the property interest conveyed by the easement. See R. Cunningham, W. Stoebuek, D. Whitman, The Law of Property § 8.1 (1984). The Commissioner's conclusion in Technical Advice Memorandum 8731001 thus reinforces our holding that a section 2032A disposition occurs when an interest has been permanently, not temporarily, surrendered by the qualified heir.
In sum, Williamson cannot salvage the special use valuation for his property on the ground that he "dispose[d] of" an interest to his nephew, making his nephew the new qualified heir. Such a short-term transfer of a limited property interest does not amount to a disposition, within the meaning of section 2032A(e)(1).
CONCLUSION
We affirm the decision of the Tax Court denying Williamson's petition for relief and affirming the Commissioner's Notice of Deficiency. Williamson's cash lease of the farm to his nephew constituted a cessation of the qualified use because Williamson, the qualified heir, used the land for passive rental activity instead of an active farming business. Williamson's grant of a leasehold interest to his nephew, moreover, did not effect a disposition under section 2032A(e)(l). Williamson remains the qualified heir.
AFFIRMED.
. References are to the Internal Revenue Code of 1954, as amended.
.The legislation also applies to certain closely-held businesses.
.Only certain relatives qualify as a member of the decedent's family for purposes of the special use valuation. 26 U.S.C. § 2032A(e)(2).
. Originally, the qualified use requirement extended for fifteen years. See H.R.Rep. No. 1380 at 25, reprinted in 1976 U.S.C.C.A.N. at 2897, 3379.
. Williamson would be considered to be personally engaged in the business of farming if he either actively farmed the land himself or entered into a crop-share (as opposed to cash) lease with a person actually farming the land. Under both scenarios, Williamson would confront the business risks and vicissitudes of family farming. See H.R.Rep. No. 1380 at 23, reprinted in 1976 U.S.C.C.A.N. at 2897, 3377; see also Martin v. Commissioner, 783 F.2d 81, 83 (7th Cir.1986).
. As a last resort, Williamson calls our attention to a 1981 amendment to Treasury Regulation 20.2032A-3(b)(1), which recognized that a cash rental by a decedent to a family member constituted a qualified use. See Treas. Dec. 7786, 1981-2 Cum. Bull. 174. Williamson argues that, because this change was proposed before Congress amended section 2032A to permit pre-death cash leases, the Commissioner must have considered intra-family cash leases appropriate under the 1976 version of section 2032A. The Commissioner responds that the amendment was prompted solely by the legislation pending in Congress and notes that the change in the regulation did not take effect until after Congress amended the statute. Cf. Treas.Reg. § 20.2032A-3(a) (1980), reprinted in 1980-2 Cum. Bull. 258. Even were we inclined to accept Williamson's rather strained surmise concerning the impetus for the regulation's amendment, we would nevertheless find a single Treasury Regulation insufficient to overcome the plain language of the statute and the weighty legislative history aligned against permitting intra-family cash rentals.
. We note in passing that Technical Advice Memorandum 8731001 has no binding or prece-dential force on the Commissioner in this case. See Norman Corp. v. District Director of Internal Revenue, 446 F.2d 1374, 1375 (9th Cir.1971).