Document: 58 L.Ed.2d 444 99 S.Ct. 476 439 U.S. 180 UNITED CALIFORNIA BANK and Lillian Disney Truyens, Co-Executors of the Estate Walter E. Disney, Petitioners,v.UNITED STATES. No. 77-1016. Argued Oct. 4, 1978. Decided Dec. 11, Syllabus The issue in this case involves computation alternative income tax a decedent's estate that had net long-term capital gains, portion which, pursuant to will, was set aside for charitable purposes within meaning § 642(c) Internal Revenue Code 1954. Under provisions effect during years question, taxpayers, including decedents' estates, with gains exceeding short-term losses, paid either "normal" calculated by applying ordinary graduated rates taxable computed 50% capital-gains deduction permitted 1202 or, if it lesser sum, under 1201(b). In 1967 1968, petitioners, executors an estate, realized from sale securities included residue; there were no losses. Petitioners benefit specified charity as directed will. fiduciary returns petitioners sought use tax, computing excluded charity. District Director disallowed exclusion, without which higher than normal result latter due. Additional taxes assessed paid, suit refund followed. Court allowed but Appeals reversed. Held: is applicable reducible amount set-asides question. Pp. 187-199. (a) While distributions or are not conduit system passing noncharitable beneficiaries §§ 661(a) 662(a) whereby estate's distributable such them rather does mean similar treatment may be accorded deductible 642(c). Section serves extract destined entities thus supplies contributions provided distributees. express 663, those amounts refute amounts, exclusion merely prevents second recognizes well they separate elsewhere Code. 187-194. (b) It doubtful Congress intended part its gain charity, should pay same been distributed beneficiary burden extra borne charities themselves residual legatees. former allocation would contravene 642(c), permits "without limitation," indirectly offend exemption extended 501. And allocating legatees taxation accruing their at effective rate 25% ceiling 1201 impose on gains. 194-195. (c) legislative history 1954 incompatible general applicability concept fact clearly indicates rigorously adhere theory trust treated through passes beneficiary. 195-196. (d) A construction exclude conflict decision United States v. Foster Lumber Co., 429 32, 97 204, 50 199. 197-199. (e) principle currently "as [estate's] income, beneficiary's," whose "share considered his property moment receipt estate," Freuler Helvering, 291 35, 41-42, 54 308, 310-311, 78 L.Ed. 634, survived substance To treat differently purpose 1201(b) "stresses form neglect substance," "the letter must yield when lead unfair unintended result," Statler Trust Co. Commissioner Revenue, 361 F.2d 128, 131. P. 563 400, Ronald Gother, Los Angeles, Cal., petitioners. M. Carr Ferguson, Washington, D. C., respondent. Mr. Justice WHITE delivered opinion Court. 1 estates,1 1201(b).2 section first reduced remaining figure, regular then applied resulting amount. partial added equivalent "excess over loss." 2 here gains,3 which—pursuant terms will "during year, permanently aside" 26 U.S.C. (1964 ed.). That deduct limitation" designated controlling instrument, subject, however, "proper adjustment . any DEDUCTION ALLOWABLE TO THE ESTATE OR TRUST UNDER SECTION ."4 3 * who died 1966, left 45% residue trust. During sold making up thereby realizing $500,622.38 $1,058,018.43 1968. There $16,944.16 1967. Forty-five percent these years, prescribed deduction. therefore 4 Agreeing judgment Second Circuit 128 (1966), sustained executors' position 1201(b), gross being could subject tax. reversed, 400 (CA9 1977), holding total excess unreduced set-aside court expressly disagreed Trust, supra. We granted petition certiorari, 435 922, 98 1483, 55 514 (1978). 5 Court, courts below, parties agree method calculating sharply disagree regard proper illustrate, amounted $88,000 round figures.5 According executors, $70,800,6 Government calculates $125,000 insists properly payable.7 As we have indicated, resolution turns whether permissibly On score, reverse Appeals. II 6 Government's rests what deems plain language directs loss" taxed. This language, said, unambiguously embraces beneficiaries, even though hands exempt. 7 difficulty always understood seems say. concedes extent distribution, despite failure section's provide treatment. event, $70,800, precisely due where distribution purposes. Thus, cannot said never reduction response imperatives emerging other sections Code.8 8 explains application noting manifests pattern treating estates trusts conduits income. Accordingly, although entities, estates. Hence, avoid assessing against both includable beneficiaries' Sections implement end.9 required credited year. turn essentially include described 661(a).10 9 sound justification belonging hence reducing taxed also agree, do because 66311 provides qualifying deductions "shall falling 662(a)," beneficiaries. reject view, explanation negates current to, for, Indeed, way refutes amounts. Rather, 663 Code.12 10 makes much 1202's directive deduction, absence mandate respect set-asides, only argued, sense attributed doubt so 1202.13 provision having operative role removing 661(a), unmistakably sums, just nontaxable entities. 11 Nor regarded one free. arguable more justified looked upon favor all distributee.14 Furthermore, retain character estate. 662(b) If wholly partly composed gain, distributee treats own return. He entitled offset losses accrued transactions nothing may, therefore, suffer gain. Nevertheless, distributable, distribution. position, denied simply it. 12 construe Code, case, Because inevitably reduce residue, result. statutory set-asides—§ deductibility limitation"—and Allocating corpus none lower limited 25%. full tax-exempt entity. III 13 support presents interesting central submission exegesis 1924 taxpayers otherwise resembling 1201, see Act 1924, 208(a)(5), 43 Stat. 262, 1938, present emerged, allowance made 117(c)(1), 52 development interpreted Government—mistakenly think—as deliberate rejection computational advocated executors. 14 serve generally tax; rather, inquiry concerns attributable all. Assuredly, all; 642 negated entire subjecting whatsoever Equally clear entity, extent. dispute recognize exempt organization. now ask recognition relies concept. fact, "to existing law[, which] means beneficiary." H.R.Rep. 1337, 83d Cong., 2d Sess., 61 (1954),15 U.S.Code Cong. & Admin.News, 1954, p. 4087. IV 15 asserts nonetheless ruling favoring run counter Court's 199 (1976), rendered two Terms ago. involved 172 ed.), operating loss incurred corporate taxpayer year carried preceding years. absorbed addition carried, offsetting that, back available carryover subsequent periods exceeded earlier defined concluded carryback sum two. 16 disputed deducted executing step tax.16 limitation, insisted carrybacks 172. Otherwise, utilizing lose corresponding rejecting taxpayer's contention, noted relevant belied notion congressional intention ameliorate "wastage" deductions. able conclude "Congress has hesitated area limit enjoyment eligible two." 46, 212. 17 maintains conflicts our assessment operation Lumber. component subtract But accepted Lumber, assumed valid decisions discerning refusal evidenced discussed Part III, supra permit subtraction 1201.17 deny figuring argue begin with. acknowledges ample Subchapter J distinguishable context. believe similarly inapposite involved.18 18 think, then, arrived correct case. recognized said: estate." 310-11, 634 (1934). Code; substance." F.2d, result." Ibid. 19 20 ordered. 21 STEVENS, whom STEWART REHNQUIST join, dissenting. 22 describes gain.1 "alternative" used produces computation.2 method, one-half half rates. places him high enough bracket, exceed protects high-bracket risk imposing flat limiting remainder 23 designed class taxpayers. includes individuals, corporations, fiduciaries. describe precise scope consistently individual decades. question presented departure statute adopted special fiduciaries brackets. 24 squarely address Instead regards distinction between my questions answered adhering define taxpayers' responsibilities. requires nonfiduciaries methods taxes, draws sharp 25 controversy centers around word "excess." term description 1201's "excess" "net exceeds takes straightforward exactly says—the difference loss—and computations. With challenge interpretation final produces. Both dollar value calculation petitioners' $500,000.3 return "50 excess," $250,000, $500,000.4 did suggest charity.5 27 company actually sequel deducts computes after excluded; he excess, rate. 28 Using example, ante, 186, nn. 7, 1201(b)(1) $250,000. consistency effects $500,000 Petitioners, make I astounding contention $137,500.6 obtained figure charity.7 29 judgment, basis accepting argument thing quite another 1201. rewriting definition order No necessary fulfill statute. For reading consistent underlying provision. view allows every take alternatively, (after taken) 30 sure, situations like advantage capital-gain seek "wasting" alone facing interpretation. Individual find "wasted" interest policy encouraging contributions; point receives contributions, matter donor individual, corporation, fiduciary. 31 Nonetheless, established free calculate manner today holds acceptable certain circumstances authorize gains,8 aspect law changed 1938.9 Ever since time, granted.10 32 upholding taxpayer, Tax observed: 33 "We respondent's determination renders ineffective contributions. repeat, imposed less instant case."11 34 observation equally Government, results greater that: cases, 35 unambiguous. four decades cases involving clarity interpretation, demonstrating read especially heavy. completely failed carry burden. 36 attempt explain why different calculations arguably supports meanings attach Instead, contend ignored least tax—when charitable.12 37 faithful true, argue, 1202. reason clear, critical undermining argument. 38 1202, prescribes beneficiaries.13 Consistency sequential mandates "such excess" provisions; otherwise, scheme frustrated. For, already noted, 39 gives meaning, effectuates stated intent expressed Those provide, majority strongly emphasizes, mere effect, reflect double place paying single excludes 662(a), purposes; Congress, recognizes, avoid.14 40 Obviously, charity: potential itself how shall pay.15 When taxpayers—the beneficiary—the both. while technically arguing lower, ignores receipts By shifted changing income.16 41 focuses connection charities, ascribes conclusion direction illustrates paramount importance giving sections. surely remarkable halves unequal. 42 analysis, us consider highly technical can administered most fairly. firmly best achieve evenhanded administration laws closely Occasionally manifestations contrary justify nonliteral reading, respectfully dissent. 641 et seq. deals trusts, decedents. 641(b) except part." Title ed.) provides: "In loss, trust, excluding (if any), sales exchanges assets, 652 662 (relating inclusions trusts), includible derived exchange assets." "(b) Other "If (other corporation) lieu 511, hereby sections) consist of— "(1) equal subsection enacted, "(2) brevity's sake sometimes speak gain" "capital gain." part: "(c) Deduction purpose.— meeting specifications subpart B) (in 170(a), relating charitable, etc., gifts) governing instrument is, 170(c), exclusively religious, scientific, literary, educational purposes, prevention cruelty children animals, establishment, acquisition, maintenance public cemetery operated profit. purpose, consists assets held months, allowable losses). ." Where avoids redundant Its indicated later text, interworkings agreed, moreover, entity 170(c)(2), 501(c)(3) 170 organizations, 501 affords organizations themselves. agreed illustrated figures, rounded off: Normal long- $595,000 Less: (50% gain) (250,000) Charitable (remaining $225,000 set-aside, plus $32,500 attrib- utable legatees) (145,000) Miscellaneous (54,000) 146,000 approximated following: Alternative $146,000 (137,500) charity(or $225,000), leaving balance $275,000 = $137,500) Partial 8,500 (at rates) 1,800 Plus: (25% $275,000) 1201(b)(2) 69,000 Total $70,800 computation, using approximate follows: employed reflects -0- $500,000) 125,000 flexibly context effectuate facially inconsistent 691(c) decedent before thought honor animating avoiding imposition sums decedent. See, e. g., Read States, 320 550 (CA5 1963); Meissner 364 409, 176 Ct.Cl. 684 (1966); Sidles 65 T.C. 873 acq. 1976-2 Cum.Bull. 2. states: "(a) Deduction.— B applies), (including out year); year; "but trust." Inclusion.— "Subject (b), credited, (by 661), following amounts: Amounts currently.— "The beneficiary, not. (computed purposes) sentence, bears ratio (as computed) section, phrase 'the currently' distributed. "All "(A) "(B) "exceeds (reduced (A)) bear beneficiaries." "distributable income," 643(a) modifications. One modification "[g]ains allocated (A) (B) aside, 642(c)." 643(a)(3). 643(a)(3) variously Ninth Circuits course litigation. "inclu[ded] 643(a)(3)." 131, indicating set-asides. below announced expansive view. implied "[a]mounts remain consisting 404. supportive " 'conduit' [for set-asides] income." (emphasis original). along constituting modified principal allocable possessing characteristics, independently extracted virtue unlike suggested developed brief deemed argued reply, formal instructions produced exclusive At oral argument, appeared mind conceding initial far-reaching error: "[F]or willing concede version [sic] attack example correct. "But submit utterly irrelevant. You come you [which] diminished comes "And adjustments become relevant." Tr. Oral Arg. 35-36. need resolve contrariety views, nature function little 663(a)(2) Exclusions.— "There 662(a)— Charitable, distributions.— "Any 681)." encompassed 662(a)—which ensure beneficiaries—because immunized House Committee explained "[s]ince additional nor determining H.R.Rep.No.1337, A205 (1954); accord, S.Rep.No.1622, 354 (1954), Admin.News pp. 4025, 4344. far dissent indicate. Our dissenting colleagues authorizes according dissent, preserve More specifically, 1201; thus, 100% provisions, construed assertedly absent See post, 208-209. dissenters' thesis, Yet Brethren 1201(b)(2)—the stage literally real abstract form, dissent's definitional misleadingly suggests, maintain loyalty principles manifested 209. Moreover, exclusionary clause respecting readily explainable fashion position. operates prevent deducting 661(a). precluded different, effective, method. Specifically, counterpart 661(a)—§ contemplates taken way, ensures more, certainly less, substance, removed Nothing say warrants n. 14, infra. implicated former. 209-210. exempting liability insulate contributed taxation. Taxing en route temporarily possession federal altogether taxing twice once. vein Senate "[y]our committee's bill contains basic S.Rep. 1622 82 4714. Capital [only] principal," id., 343, 4984. A194-A195 H.R.Conf.Rep. 2543, excepting "paid, Ibid., supra, A194-A195; 1622, 343-344. confirms understanding text manifesting alike. forth 1201(a) directly herein. Weil 424 aff'd, 229 593 (CA6 1956). There, deductions, utilize claim rejected pertinent contradicted construction. occasion Chartier Real 346, 355 (1969), 428 474 (CA1 1970). notable, too, endeavor pyramid advantages associated face discernible "limit benefit." U.S., S.Ct., yields cumulative benefits very likely intended. compels "an percent" Although here, afforded diminution approach ensue moving contingency demonstrated hypothetical example. Assuming 60% benefi- ciary, compute Gross $625,000 (125,000) Taxable 250,000 rate) $150,000 per $250,000 $250,000) (60% 75,000 62,500 $137,500 short- Significantly, complain inadequate absorb Quite contrary, "§ "Other reflected calculation. Taking rounded-off figures return, 185 opinion, $500,000. added). next step, taken: contribution "deduction losses." $112,500 After subtracting miscellaneous shows rates, $88,000. refer They losses" referred prior emphasis discussion, 642. Special rules credits 681 unrelated business prohibited transactions)." astonishing suggestion relationship given nevertheless 192-193 13. tenable produce approves today. instead "excess," gambit rewarded imposes loss: whereas petitioner's $68,750 $275,000). 208(a)(5) provided: 'capital gain' amount, any, 262. 1938 combined percentage revenue acts 1934 Act. Except changes immaterial 1939 1948 substantially same. Compare 117(b) 117(c)(1) 117(c)(2) amended. 117 Act, enacted it, upper levied S.Rept. 1567, 75th 20, reported 1939-1 C. B. (Part 2) 779, 794. rate, separately tax." 424, 428-429 thoughtful opinions, upheld finding mandated words involved. Commissioner, supra; 350-356 aff'd today, soundness decisions. fashioned rule, 432. Were statute, hardly establish apply incorrect taxable. ought mistaken An error cured compounding right freed erred Effectuation departures literal cited 187-188 8. limitations 170(b) taxpayers; not, itself, "conduit" impose. $125,000. litigation $70,800. breaking ceiling.

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