Legal Document

387 U.S. 213 87 Supreme Court Reporter 1573 18 United States Reports Lawyer’s Edition 2d Series KF101.8 U54 726 NORTHEASTERN PENNSYLVANIA NATIONAL BANK & TRUST COMPANY, Petitioner,v.UNITED STATES. Number 637. Argued March 20, 1967. Decided May 22, Milton I. Baldinger, Washington, D.C., for petitioner. Richard C. Pugh, respondent. Mr. Justice FORTAS delivered the opinion of Court. 1 The issue in this case is whether a bequest trust providing monthly payment to decedent's widow fixed amount can qualify estate tax marital deduction under § 2056(b)(5) Internal Revenue Code 1954, 26 KF62 2056(b)(5). That section allows from adjusted gross up one-half value respect specified interests which pass surviving spouse. Among one spouse 'is entitled life * all income specific portion (of property), payable annually or at more frequent intervals, with power appoint such *.'1 2 At date death, corpus created by his will was $69,246. provided that should receive $300 per month until youngest child reached 18, and $350 thereafter. If were insufficient, could be invaded make payments; if exceeded amount, it accumulated. 3 given entire will.2 4 On return, executor reported an $199,750. claimed maximum estate, $99,875, on ground qualified passing wife amount. property passed outright $41,751. To added full trust, Commissioner, however, determined did not because widow's right expressed as 'fractional percentile share' total income, Treasury Regulation, 20.2056(b)—5(c), requires. Accordingly, Commissioner reduced allowable resulting deficiency paid, claim refund disallowed, sued District refund, Judge gave summary judgment executor. appeal, Appeals Third Circuit, 363 Federal Reporter, 2nd 476, sitting en banc, reversed, three judges dissenting. Because acknowledged conflict between decision Circuit Seventh Citizens National Bank Evansville versus States, 359 817, petition certiorari pending, 488, October Term, 1966,3 we granted certiorari. 385 967, 509, 17 432. We reverse. 5 basis Commissioner's disallowance lay Regulation 20.2056(b)—5(c). This interpretative purports define 'specific portion' used Code: 'A partial interest treated unless rights constitute fractional share *.' specifically provides 'if annual limited sum deductible interest.'4 properly implements Code, plainly fails deduction. hold, context improperly restricts scope congressionally 6 In Court, initially simply because, time trial, had yet produced excess month, therefore 'to interest.' rejected contention, observing exceed $330 event would have executor's alternative claim, accepted, whose computed, allowed amount.5 7 Resolution question case, qualifying computed stipend will, essentially matter discovering intent Congress. general history well known. See Stapf, 375 118, 128, 84 248, 255, 11 195 (1963). enacted 1948, underlying purpose equalize incidence community common-law jurisdictions. Under system takes ownership half property, included deceased spouse's estate. transfer non-community free tax. Congress, even when transferred less than affords. 'recognition customary modes States,'6 1948 statute 'entitled corpus'7 8 legislation required entitle 'all income' corpus, grant 'entire corpus.' These requirements held several lower courts disqualify single (for example) corpus.8 Since there no good reason require testator create two separate trusts—one wife, other children, example—Congress 1954 revised provision allow where decedent gives interest, thereof' 'appoint portion'. House Report change states 'The bill makes clear plus appointment over only undivided part deduction.'9 Senate contains identical language.10 There indication legislative conclude Congress—in using words statute, equivalent 'a part' committee reports—intended afforded defeated merely 'undivided terms whole corpus.11 9 Congress' afford liberal 'estate-splitting' possibility married couples, ultimately—if consumed—be taxable survivor, unmistakable. Indeed, 93 Technical Amendments Act 1958, 72 Statutes-at-Large 1668, Congress made realistic rules Code' apply retroactively original enactment opened limitations refunds credits overpayments.12 Plainly construed so impose unwarranted restrictions upon availability Yet Government insists are well-established principles computing principal produce cannot way. must, urges, corpus. deprived any benefit deduction, according Government's view. But find warrant narrow view, common sense its history. 10 puts most reliance phrase occurred once enactment. stated available 'where spouse, her (sic) appointment, virtual owner property.'13 argument intended cases State granted, what meant 'virtual owner.' Actually, all. those derive deals rule that, minor exceptions, does person has trust. It described Hence, subjects vagaries fluctuations economic performance way be, irrelevant. whatsoever situation, nor apparent connection purposes limitation availability. Compare Gelb Revenue, 298 544, 550—551 (C.A.2d Cir. 1962). Obviously intend ownership, trusts been permitted all.14 advanced somewhat different support conclusion. Without relying validity maintained found acceptable method it, present sort. noted computation must the'ratio (producible corpus) (provided trust).' 484. following example given: 12 'If investment factors involved constant was, example, $500 then relationship purposes, i.e.: 13 '$300 being 3/5 $69,245.85 production circumstances. 14 'Though reality might take stipend, necessity invade present, nevertheless said, after theoretical represented 'Specific accurately defined purposes.' (Italics original.) F.2d, 484, n. 17. 15 concluded, '(t)he market conditions unknown' and, therefore, use possible 16 latter conclusion disagree. sure, perfect prediction future rates return15 possible. However, projected return administration federal laws hardly innovation. Cf. 551, difficult settle rate trustee reasonable conditions, compute equal As Second observed Gelb, supra, 'the actuarial tables dealing problems widespread long standing assume balked here; business enough taxpayers law averages ample opportunity work.' 551—552. concedes, application determine allotted result combined escaping ultimate taxation either argues, analogous methods dollar given, fact extends but subject measurable invasions benefit, child, result, some cases, enable substantial avoidance Whether, viewed, holds true, so, effect qualification matter. Needless say nothing hold reference quite problem, before us. Revnu e, supra. annuity-valuation approach portion.' incorrect. question, recognized, payments actuarially expectancy. reverse remand further proceedings conformity opinion. 19 Reversed remanded. 20 STEWART, whom BLACK HARLAN join, 21 'Resolution is', says 'essentially Congress.' Ante, Page 219. Substituting 'exclusively' 'essentially,' N Dec. Immigration Nationality Decisions entirely agree Court's statement case. jurisdictions.' Again agree. differ determination leads today reaches. For allowing us inevitably lead ironic unjustified giving jurisdictions favorable treatment States. 22 stream capitalized assumed rates. said qualifies A corollary theory (in dollars) deduction.1 qualifies, limits she also survivor portion.'2 (Emphasis added.) scheme community-property couple easily illustrated. 23 Assume $200,000, receiving $100,000 $100,000, children balance during life, their remainders vest dies. Now suppose dies doubled $400,000. wife's applies estate.3 remaining $300,000 passes children. Contrast situation State. 50% places $200,000 expanded assets such; directly Thus, interpretation affords estates significant advantage dispositions obtain. 24 By changing share, both into lump bearing relation capital appreciation children's without consequence. today's opposed previously recognized deduction: 25 permit couple's taxed stages tax-exempt wealth succeeding generations. Thus generally restricted includible estate.' 195. owner(ship)' explained discerned supra.4 owner,' appreciate rest Similarly, congressional reports, limiting examples portions' shares, manifest understanding via deduction.5 manner 'equalize(d) jurisdictions,' aptly it. 27 ruling frustrates basic ignores brushes aside guideposts deciding carefully established prior decisions 10-year-old contained Regulations invalid, although consistently great weight regulations statutes. See, e.g., 127, 11, 255. 28 Of greater importance sharp attitude toward heralds. Treasury's invalid 'Congress' (was) possibility'. finding 'liberalism' '(p)lainly deduction.' 221. mean o write new here 'ascertainable amount.' Jackson 376 503, 510, 869, 873, 871, eight members speaking through MR. JUSTICE WHITE, declared knowingly hedged limitations' '(t)o extent thought desirable modify rigors (such limitations), exceptions written Code.' lesson announced Jackson, ignored today, '(c) ourts hesitate provide (other exceptions) straying far statutory language.' Meyer 364 410, 81 210, 161. One looks vain Meyer, Stapf opinions, roots liberalism finds bursting forth 29 With approach, uncertainty now introduced areas long-range meaning essential. Estate planners lawyers technicians schooled view tightly drawn, precise provision. They shown totally workman's compensation act. Lykes Bros. Steamship Co., 386 731, 1419, 488. Such construction promote achievement (which) dependent degree careful drafting wills'. U.S., 511, 873. 30 Believing odds consistent respectfully dissent. reads, full: '(5) Life spouse.—In decedent, thereof, (exercisable favor either, each exercisable others), portion, spouse— '(A) thereof shall, subsection (a), considered '(B) paragraph (1) (A), 'This shall alone events.' discretion $1,500 illness financial emergency. relevant follows: 'ITEM 6. give, devise bequeath (1/2) rest, residue remainder my wheresoever same real personal, may entitled, dispose unto Trustee hereinafter named designated, nevertheless, provided. '(a) direct pay out Beatrice O. Young, Three Hundred Dollars ($300.00) period reaches age eighteen years, thereafter Fifty ($350.00) natural life. '(b) survives me, power, Will, others, death. others above authorized, death (or predeceases death) paid Item Will.' directed $200 years month; sole beneficiary. Director disallowed executorbank's based bank refund. bank, capitalizing 1/2% return. affirmed, judge 544 (1962) (Friendly, J.). trustees one) empowered $5,000 year education testator's daughter, wife. worth daughter actuarially, taking account joint expectancy deducted arrive appointment. 'Congress spoke portion,' *," 550—551, disapproved 'insofar limit share." 551. Definition reflects proportionate increment decline relate. extend percentage equivalent, portion. hand, sum, larger fund, 508, 872, 871 (1964), parties agreed month. S.Rep. 1013, 80th Cong., Sess. (1948), 28, U.S.Code Cong.Service 1163. 1939, 812(e)(1)(F), 361 chapter 168, 62 118. Shedd 237 345 (C.A. 9th Cir.), cert. denied, 352 1024, 77 590, 596 (1957); Sweet (Tracy-Collins Trust company Revenue), 234 401 10th 878, 100, 79 (1956). 1983, 85th Sess., (1958), Pages 240—241, Cong. Admin.News 4791. H.R.Rep. 1337, 83d (1954), 92, 4017. 1622, 125, 4629. reports do give simplest kind covered change: 'For creation term uncontrolled qualify. *' Reports, nn. 10, A319, 475, respectively. language. 107. pt. 16. Note, Stan.L.Rev. 468, 470—472 (1967). An estimated expected obtain used—absent trustee's powers—in order isolate 'part (all) event(s)' paraphrase court below. 483. difference former since defines outset. Neither these current Regulations: 'Definition *. (I)f Treas.Reg. describes involving 'quite problem' today. 225. 'such refer (and see how holding possible), regard survivor's affect meanng Section 2041 1954. 2, (1948). A319 (1954); 475 (1954).

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