Court Opinion

ID: 4484331
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:40.29423+00
Date Added: 2024-06-11T14:54:04.340459
License: Public Domain

Goffe, J., dissenting: I continue to respectfully dissent from the holding of the majority that the regulations are valid. During the 8 years that have elapsed since I dissented on this issue in Estate of Smith v. Commissioner, 57 T.C. 650, 662 (1972), affd. 510 F.2d 479 (2d Cir. 1975), I have been more convinced than ever that we should hold the regulations invalid. In the instant case, the administratrix is the sole beneficiary of the estate, which makes it easy to determine whether her actions benefit the estate or herself. In numerous cases, however, this line is not so clearly drawn. The responsibilities of a legal representative in handling the administration of an estate are mixed. He must not only preserve the assets of the estate but must also respect the rights of the beneficiaries. The regulations place the courts in the uneasy predicament of “second guessing” the legal representative. The regulations require the legal representative to justify in dollars and cents why he sold one asset instead of another in order to deduct the expenses of sale. Congress imposed no such responsibility upon the legal representative; it was created by the Commissioner in his regulations. For reasons which I expressed in my concurring and dissenting opinion in Estate of Smith v. Commissioner, supra, I would hold that the selling expenses paid by the administratrix are deductible. The majority states that section 2053(a) allows only certain categories of expenses which are allowable under State law and concludes that Congress did not intend that State law be the sole controlling factor. Section 2053(a)(2) allows all administration expenses as deductions with the only limitation being State law. It prescribes no categories; it is all-embracing. The Commissioner has not just defined “administration expenses” in section 20.2053-3(a) and (d)(2), Estate Tax Regs.; he has legislated a further requirement for deductibility and has done so without the benefit of any congressional intent. Under such circumstances, we should hold the regulations invalid. Estate of Jenner v. Commissioner, 577 F.2d 1100 (7th Cir. 1978), revg. a Memorandum Opinion of this Court; Estate of Park v. Commissioner, 475 F.2d 673 (6th Cir. 1973), revg. 57 T.C. 705 (1972). In my view, the validity of regulations should not turn upon whether the approach used is to define terms of the statute, to restate the law, or to use examples. BBS Associates v. Commissioner, 74 T.C. 1118 (1980). The Commissioner may not use the vehicle of a Treasury regulation to rewrite a statute simply because he may feel that the scheme created by such statute could be improved upon. United States v. Calamaro, 354 U.S. 351, 357 (1957). The regulatory power of the Commissioner is not the power to make law, but rather is the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. “A regulation which * * * operates to create a rule out of harmony with the statute is a mere nullity.” Manhattan General Equipment Co. v. Commissioner, 297 U.S. 129 (1936). See also Cartwright v. Commissioner, 51 T.C. 869, 872 (1969); Weidenhoff v. Commissioner, 32 T.C. 1222 (1959); Parker Oil Co. v. Commissioner, 58 T.C. 985 (1972); Morris v. Commissioner, 70 T.C. 959 (1978); Matheson v. Commissioner, 74 T.C. 836 (1980); BBS Associates v. Commissioner, supra; Tilford v. Commissioner, 75 T.C. 134 (1980). The majority somehow concludes that Congress could not have intended to allow the integrity of the Federal estate tax to be undermined by the “vagaries of State law,” yet section 2053(a) specifies in no uncertain terms that administration expenses are deductible if allowable by the laws of the jurisdiction under which the estate is being administered. The estate tax law reeks with provisions causing the estate tax liability to vary according to the “vagaries of State law”; e.g., common law States versus community property States, credit for State death taxes, executor’s fees, dower and courtesy interests, joint interests in property, claims against the estate, qualifying marital deduction. Accordingly, it is clear that congressional intent is to the contrary; i.e., the application of State law to the estate tax is inherent and it must be that way because State law varies so greatly and also because State law provides a safeguard to ensure that only the net value of the estate which passes to the beneficiaries is taxed. Because the selling expenses paid by the administratrix herein were allowable under New York law, they should be allowed as deductions in computing the Federal estate tax. Wilbur, J., dissenting: I respectfully dissent. The “necessary” requirement contained in the regulations is contrary to the clear and unequivocal language of section 2053(a) and is unsupported by the legislative history underlying the enactment of section 2053 under the 1954 Code. See H. Rept. 1337, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 91 (1954); S. Rept. 1622, to accompany H.R. 8300 (Pub. L. 591), 83d Cong., 2d Sess. 124^-125 (1954). However, even assuming these regulations are a proper and reasonable interpretation of the statute, I believe that petitioner is entitled to deduct the expenses incurred in selling the cooperative apartment on the grounds that the sale was necessary to pay the decedent’s debts and taxes and to preserve the estate.1  The majority opinion concedes that the estate was in need of approximately $10,000 in additional unrestricted cash on October 23, 1975, in order to pay expenses and taxes. However, the majority denies that the sale of a nonproductive, costly asset that nobody wanted was necessary on the theory that petitioner could have withdrawn principal prematurely from time deposits and, thereby, sustained penalties which would have been less than the selling expenses. This Monday-morning quarterbacking is an unwarranted intrusion into the discretionary powers of a fiduciary administering an estate. The crucial factor is that there was not enough readily available cash on hand to pay the expenses and taxes of the estate. Something had to be liquidated. The choice was between withdrawing principal prematurely from time deposits and forfeiting interest already accrued or selling an unwanted non-income-producing asset, requiring large maintenance payments. Petitioner, as administratrix of the estate, chose to sell the apartment, and the proceeds of the sale were used to pay estate taxes. Clearly, then, the sale was necessarily incurred in administering the estate.2  That the sale also benefited the sole heir should not defeat the deductibility of the selling expenses. A necessary administration expense often produces dual benefits to both the estate and the beneficiaries. See Pitner v. United States, 388 F.2d 651, 660 (5th Cir. 1967); Estate of Park v. Commissioner, 57 T.C. 705, 709, revd. 475 F.2d 673 (6th Cir. 1973). Their interests are not antithetical and mutually exclusive, but generally coincide, for an estate is not administered abstractly, in a vacuum and without purpose, but for the object of the decedent’s bounty — the heirs. After distribution under the procedures followed, the sole heir here ended up with the sale proceeds from the apartment and the other assets. The majority would have proceeded differently: “The additional amount needed could have been obtained by premature withdrawal of some of the funds held in time deposits. Although a penalty would have been incurred, such penalty would have only cost the estate a few hundred dollars.” Under the majority’s approach, the beneficiary would still end up with the sales proceeds of the cooperative, plus the other assets, now diminished by a few hundred dollars. I see no reason why this sacrifice must be incurred for the privilege of paying more Federal estate taxes. This case is readily distinguishable from the Estate of Park v. Commissioner, supra, where, in addition to selling two pieces of real estate at the request of the heirs, the administrator also redeemed approximately $25,000 in savings bonds which, coupled with the cash on hand, was more than enough to pay the expenses and taxes of the estate. Indeed, this Court in Estate of Park v. Commissioner, supra, explicitly rejected the argument that absent the redemption of the savings bonds, the administrator ought to have used certain “cash-like” assets first to pay the obligations of the estate. Rather, the Court reasoned that “An executor should be permitted to sell what he wants to cover expenses. He is subject to the control of the Probate Court and is therefore responsible for his actions.” Estate of Park v. Commissioner, supra at 710 n. 4. The majority makes many suggestions as to what petitioner, as administratrix of her .mother’s estate, could have done to avoid selling the apartment and incurring selling expenses at the estate level. She could have prematurely withdrawn principal from time deposits and forfeited the accrued interest. She could have requested an extension of time to pay taxes and incurred interest charges. She could have distributed the apartment to herself as sole heir to avoid high maintenance costs.3 None of this addresses what I consider to be the crucial consideration, that there simply was insufficient cash to pay the expenses and taxes of the estate, and that the proceeds from the asset the administratrix chose to sell was in fact applied toward the debts of the estate. The holding of the majority sets up a priority as to which assets are to be liquidated dependent upon the relative costs of their disposal which I believe to be an inappropriate interference with fiduciary responsibilities and obligations.4 Therefore, I dissent. Dawson, Goffe, and Hall, JJ., agree with this dissent. Chabot, J., dissenting: I agree with the majority that paragraphs (a) and (d)(2) of section 20.2053-3, Estate Tax Regs., are valid, in that a Federal standard may properly be established in order to determine whether an amount is described in one of the paragraphs of section 2053(a) of the Internal Revenue Code of 1954. However, I agree with Judge Wilbur’s analysis of how these regulations should be applied to the facts of the instant case, and I join in so much of his dissent as would hold that the expenses here in dispute are deductible because they were necessary to pay the decedent’s debts and taxes and to preserve the estate.   The inquiry as to whether expenses from a sale such as this one were necessarily incurred in administering the estate is also relevant in jurisdictions where State law requires an administration expense to be necessary. See 31 Am. Jur. 2d, Executors and Administrators, secs. 524,527 (1967).    Petitioner testified that the restrictions on the time deposits had nothing to do with her feelings about the apartment. The high maintenance payments in addition to other factors made the apartment completely unsuitable for her and assured its sale either by the estate or by the sole heir. However, that petitioner, as sole heir, would have eventually sold the apartment does not mean that the sale was not necessary to administer the estate. When paying off creditors of an estate, the fiduciary acts on behalf of the chosen beneficiaries. If he is faced with a shortage of disposable cash on hand to pay the estate’s expenses, I think it perfectly appropriate that he consider the wishes of the beneficiaries in deciding which assets to dispose of and which to retain.    In stating that petitioner could have distributed that apartment to herself promptly, to avoid the high maintenance costs at the estate level, the majority opinion relies on N.Y. Est., Powers & Trusts Law sec. ll-1.5(a) (McKinney 1967). The relevant part of that section reads as follows: Sec. 11-1.5. Payment of testamentary dispositions or distributive shares (a) Subject to his duty to retain sufficient assets to pay administration and reasonable funeral expenses, debts of the decedent and all taxes for which the estate is liable, a personal representative may, but, except as directed by will or court decree or order, shall not be required to, pay any testamentary disposition or distributive share * * * before the expiration of seven months from the time letters testamentary or of administration are granted. [Emphasis supplied.] In proposing that petitioner ought to have promptly distributed the apartment rather than sell it to preserve the estate, it seems to me that the majority is doing exactly what sec. 11-1.5 explicitly prohibits — requiring a distribution before the expiration of 7 months, the period of time during which claims must be presented in order to hold the fiduciary liable. See N.Y. Surr. Ct. Proc. Act sec. 1802 (McKinney 1967).    I find the implication of the majority’s reasoning disturbing. Suppose a man dies intestate owning primarily two assets: a rare coin collection and his residence. The rare coin collection has a recognized fair market value, is easily marketable, and will involve minimal selling costs, whereas the sale of the house will involve several thousand dollars in brokerage fees. The sole heir has absolutely no desire for the house, but would very much like to keep the coin collection for a special remembrance of his father’s life-long efforts. When the executor needs cash to pay the estate’s creditors, the son requests him to sell the house. Under the majority’s reasoning, if the executor complies with the request, no deduction should be allowed for the selling expenses because the sale was based on the “personal predilections” of the heir rather than being necessarily incurred for the benefit of the estate — the coin collection could have been disposed of much more cheaply. Even a sacrifice sale of the collection might be required if the sacrifice involved — in the words of the majority — “only a few hundred dollars.”