Opinion ID: 1200224
Heading Depth: 4
Heading Rank: 1

Heading: Regulation's Language and Structure

Text: We interpret regulations in the same manner as statutes, looking first to the regulation's plain language. Lara, 207 F.3d at 787. Where the language is unambiguous, we do not look beyond the plain wording of the regulation to determine meaning. Copeland v. Comm'r, 290 F.3d 326, 332-33 (5th Cir.2002). A regulation should be interpreted in a manner that effectuates its central purposes. Jochum v. Pico Credit Corp. of Westbank, Inc., 730 F.2d 1041, 1047 (5th Cir.1984). Further, courts should not interpret an agency regulation to thwart the statutory mandate it was designed to implement. Id. The language of Section 20.7520-3(b)(1)(ii) is broad: [a] restricted beneficial interest is an annuity, income, remainder, or reversionary interest that is subject to any contingency, power, or other restriction, whether the restriction is provided for by the terms of the trust, will, or other governing instrument or is caused by other circumstances. In effect, the Estate asks this Court to begin and end our analysis of Section 20.7520-3(b)(1)(ii) by reading only three words of the regulation  any . . . other restriction. As we will explain, we find more to be required, namely, a consideration of the regulation as a whole and interpreting that phrase in context. Lara, 207 F.3d at 787; see Malacara v. Garber, 353 F.3d 393, 400 (5th Cir.2003). First, we note that the other restriction language follows two specific types of restrictions, a contingency and a power. Both are restrictions that might undermine the fundamental assumptions supporting the valuation of an ordinary beneficial interest under the tables. See Treas. Reg. § 20.7520-3(b)(1)(i). [5] For example, the right to receive annuity payments may be contingent on the survival of a person who is terminally ill. See Treas. Reg. § 20.7520-3(b)(4) (Example 1); Estate of Jennings v. Comm'r, 10 T.C. 323, 1948 WL 147 (1948). Or a trustee may exercise a power to invade the corpus and, thereby, exhaust or diminish the income stream. See Treas. Reg. § 20.7520-3(b)(2)(v) (Example 4); Froh v. Comm'r, 100 T.C. 1, 1993 WL 1869 (1993). These restrictions, unlike the one on assignability with which we are concerned in this appeal, threaten to end an annuitant's right to receive any future payments. Next, the structure of the regulation also suggests a narrow definition of other restriction. Subparagraph (ii) of Section 20.7520-3(b)(1) defines restricted beneficial interest. However, subparagraph (iii) does not repeat the term restricted beneficial interest but instructs the taxpayer that [i]f, under the provisions of this paragraph (b), the interest rate and mortality components prescribed under section 7520 are not applicable in determining the value of any annuity . . . the actual fair market value of the interest (determined without regard to section 7520) is based on all of the facts and circumstances. . . . Treas. Reg. § 20.7520-3(b)(1)(iii) (emphasis added). Again, emphasis is placed on the two assumptions underlying the tables, not more broadly on any factor that might affect the value. A reading of the entirety of Section 20.7520-3(b) discloses an emphasis on the fundamental assumptions  the interest rate and mortality components  when determining whether departure from the tables is warranted. Subparagraph (2) is replete with illustrations of circumstances under which its exceptions are applicable. The regulation explains that a standard Section 7520 annuity factor should not be used where an annuity is expected to exhaust the fund before the last possible payment is made (Treas.Reg. § 20.7520-3(b)(2)(i)), where the trust corpus may be invaded without the beneficiary's consent (Treas.Reg. § 20.7520-3(b)(2)(ii)), or where an individual who is a measuring life is terminally ill (Treas.Reg. § 20.7520-3(b)(3)). In addition, the regulation provides examples of its applications. These are examples in which either the interest rate or mortality component is inapplicable, or the corpus that funds the payments is subject to diversion or exhaustion. See Treas. Reg. § 20.7520-3(b)(2)(v), (b)(4). The regulation offers no examples of marketability or transferability restrictions.