Court Opinion

ID: 4485448
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:26.415723+00
Date Added: 2024-06-11T14:53:48.674022
License: Public Domain

SIMPSON, J., dissenting: In my judgment, the majority, in its overwhelming desire to avoid an unfortunate result in this case, has ignored the clear meaning of the statute and has invalidated a Treasury regulation without sufficient cause, and accordingly, I must dissent. Section 2032A(b)(l) provides in part that “qualified real property” must be real property that “was acquired from or passed from the decedent to a qualified heir of the decedent.” The statute clearly requires that a taker be a qualified heir, and although the statute has been reexamined by Congress several times since it was enacted in 1976, no exception has been made to this requirement. In fact, although other requirements have been relaxed, the committee reports make clear that there was no intention to relax this requirement: The conferees are aware that the current use valuation provision requires that, when successive interests or concurrent interests are created in specially valued property, all parties with any interest in the property must be qualified heirs and all such parties must enter into the agreement to the election, regardless of the relative values of their interests. The de minimis rule established in this provision is intended to apply solely as a guideline in determining whether perfection of an agreement is to be permitted. The guideline is not intended to give rise to an inference that parties having an interest in specially valued property which has a relatively small value are not required to enter into the agreement or that such persons need not be qualified heirs. [H. Rept. 98-861 (Conf.) (1984), 1984-3 C.B. (Vol. 2) 1, 495 n. 1.] See also Staff of Joint Comm, on Taxation, 98th Cong., 2d Sess., General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984, at 1124 n. 23 (Comm. Print 1984). In this statement by the Conference Committee, it is clear that Congress recognized that successive interests could be created in specially valued property, but all parties with any interest in the property must be qualified heirs. See also H. Rept. 94-1380 (1976), 1976-3 C.B. (Vol. 3) 735, 760. The majority opinion is strangely devoid of rationale. The majority does not deal with the specific words of the statute and offers no explanation of how it is to be interpreted to reach their result. Although the majority here may intend to limit its holding to a case involving facts substantially similar to those of this case, some members of the Court appear to believe that if the first taker is a qualified heir, the gift qualifies, regardless of who takes the successive interests or regardless of how likely the successors will take. See Estate of Clinard v. Commissioner, 86 T.C. 1180, filed on the same date as this opinion. However, requiring that only the first taker be a qualified heir is clearly inconsistent with the words of the statute and the legislative history. Moreover, if the intent is to limit the holding to the facts of this case, where is the line to be drawn: Does the majority intend an exception only when the gift to a nonqualified heir follows two successive life interests in qualified heirs? What if there is a gift to a single life beneficiary who is a qualified heir and then a gift to a nonqualified heir — does the life expectancy of the first of the successive beneficiaries make a difference? Under this opinion, the bar is completely without guidance as to what types of gifts may be made to successive takers. In reaching its conclusion, the majority relies on general statements in the legislative history of Congress’ intent to preserve family farms and businesses and the apparent need of testators to provide for contingent beneficiaries in the event of failure of qualified heirs. This reasoning is unpersuasive. Generalized statements of broad congressional intent are no substitute for an analysis of the operation of the section and the particular statutory requirement involved here. Indeed, the very complexity of section 2032A, with its numerous, detailed prerequisites to the availability of special use valuation, reveals that Congress was not making the benefit generally available; it placed a number of technical restrictions on the availability of the tax benefit. Moreover, that Congress has since decided to allow the correction of certain defects in the making of the election of special use valuation (sec. 1025, Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat. 494, 1030) in no way suggests that it intended to loosen the substantive requirements for the election; that the substantive restrictions were to remain was made abundantly clear by Congress when it enacted the change. H. Rept. 98-861, supra, 1984-3 C.B. (Vol. 2) at 495 n. 1. Furthermore, testators and their estate planners are not compelled to include nonqualified heirs as contingent beneficiaries; the need for nonqualified takers in the event of default of qualified heirs arises only because the testator has chosen to require that qualified heirs survive some contingency (in this case, the death of the testator’s last surviving child). A testator may qualify his property for special use valuation by devising all interests, including present and future interests, to qualified heirs. The holding of the majority will frustrate the objectives of section 2032A. The section is designed to help families retain property used as a farm or for a small business. The estate tax is reduced, but to qualify for that tax savings, the property must be retained in the family and must be used for one of the specified purposes for the specified period. Thus, section 2032A permits a special use valuation if the property is acquired by or passes to a qualified heir(s) only on condition that “each person in being who has an interest (whether or not in possession) in any property designated in” a written agreement consents “to the application of subsection (c) with respect to such property.” Sec. 2032A(d)(2). Subsection (c) imposes an additional estate tax liability to recapture all or a part of the benefit conferred by the special use valuation “If, within 15 years [now 10 years for estates of decedents dying after December 31, 1981] after the decedent’s death and before the death of the qualified heir,” the qualifying heir makes a disposition of the property other than to a member of his family or ceases to use the property for a qualified use. Sec. 2032A(c)(l); emphasis added. Where the testator does not create any successive interest in the property — for example, where the property is left to the testator’s child outright — the special use valuation benefit is, in essence, recaptured even if the child dies within the statutory period because the property is includable in the child’s gross estate at its fair market value (unless another election is made under section 2032A). However, where the testator creates successive interests in the property — for example, a life estate and a remainder— there will be no recapture of the special use valuation benefit or inclusion of the property in the life tenant’s gross estate upon the life tenant’s death within the statutory period, and unless the remainderman is a qualified heir, all possibility of recapture ceases. It is for this reason that section 20.2032A-8(a)(2), Estate Tax Regs., requires that all successive interests pass to qualified heirs. Under the majority’s holding in this case, there will be no recapture even if the qualified heirs possessing successive interests die within the 15 years. If the majority in Clinard is holding that property qualifies for the special use valuation where the first taker alone is a qualified heir, astute estate planners can easily circumvent the statutory objectives: the property can be devised to an aged qualified heir for life and then to a nonqualified person. Under such circumstances, if the qualified heir dies within a few years, the property passes to the nonqualified person, and there will be no recapture even though the property passes to a nonqualified person within 15 years and even though the nonqualified person uses the property for some non-permitted purpose. Were we drafting section 2032A, we might wish to craft an exception for cases where it is highly unlikely that the property will vest in a nonqualified remainderman. But, we are not Congress, and as the Supreme Court pointed out in United States v. Correll, 389 U.S. 299, 306-307 (1967), the courts: do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing “all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U.S.C. §7805(a). In this area of limitless factual variations “it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments.” Commissioner v. Stidger, 386 U.S. 287, 296 [1967] * * *. The role of the judiciary in cases of this sort begins and ends with assuring that the Commissioner’s regulations fall within his authority to implement the congressional mandate in some reasonable manner. See Bingler v. Johnson, 394 U.S. 741, 749-751 (1969). Thus, it is our responsibility to exercise appropriate judicial restraint and to limit our inquiry to ascertaining whether there is a reasonable basis for the regulations. Here, we have a rare opportunity to view the regulations process: In his article, “Special Use Valuation Nine Years Later: A Farewell to Farms,” 63 Taxes 659, 707-709 (1985), Martin D. Begleiter reviews several of the alternatives that were considered and presents the problems associated with those alternatives. For example, Mr. Begleiter points out that a rule could be written that would make a de minimis exception for interests where an actuarial valuation can be made. However, such an exception could not cover powers of appointment, such as those in Clinard, and there appears no practical way to limit them under the present statute. If an exception is to be made, clearly Congress must legislate and draw the lines circumscribing permitted gifts. Sterrett, Goffe, Chabot, Parker, and Cohen, JJ., agree with this dissent.