Court Opinion

ID: 4472739
Source: CourtListenerOpinion
Date Created: 2020-01-14 19:34:53.100562+00
Date Added: 2024-06-11T12:00:45.908836
License: Public Domain

Halpern, J., dissenting: I cannot join the majority’s opinion for the following reasons. I. Our Obligation as a Court of National Jurisdiction Is To Decide This Case as We Think Is Right Three strikes and you’re out! Is that the new rule? According to the majority: “Suffice it to say that, in- light of the.. reversals of this Court’s decisions by three different circuits, we now decide that we will accede to the result in those appellate decisions”. Majority op. p. 141. Finding it unnecessary “to winnow out the differences in our analyses in our prior cases and those of the Courts of Appeals that have Reversed us”, id., and seeing “no reason in the instant case to adopt either the rationale of the Fifth and Eighth Circuits, on the one hand, or of the Sixth Circuit, on the other”, id., and with no further analysis than that, the majority overrules a result that we reached on three separate occasions and which, by virtue of our role as a trial court of national jurisdiction, governed us in cases appealable to 9 out of the 12 Courts of Appeals. A judge is supposed to reach his or her opinion by a process of “reasoned elaboration”, striving to reach what he (or she) thinks is the right result.1 Because we are a Court of national jurisdiction, we face unique problems in dealing with the opinions of the various Courts of Appeals. In Central Pa. Sav. Association v. Commissioner, 104 T.C. 384, 406 (1995) (Halpern, J., dissenting), I described how we have resolved those problems: We are a Court of national jurisdiction with expertise in the area of Federal taxes. Since appeals from this Court lie to each of the 12 Courts of Appeals, we face unique problems in dealing with the opinions of Circuit Courts. See, e.g., Lawrence v. Commissioner, 27 T.C. 713 (1957), revd. 258 F.2d 562 (9th Cir. 1958); Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971); Lardas v. Commissioner, 99 T.C. 490 (1992). We have, since Lawrence, backed off from the position taken therein, that, while certainly we should seriously consider the reasoning of a Court of Appeals that had reversed one of our decisions, we ought not to follow the Court of Appeals’ decision if we believe it to be incorrect: if still of the opinion that its original result was right, a court of national jurisdiction to avoid confusion should follow its own honest beliefs until the Supreme Court decides the point. The Tax Court early concluded that it should decide all cases as it thought right. [Lawrence v. Commissioner, supra at 716-717; fn. refs. omitted.] We have backed off to the extent that, in Golsen v. Commissioner, supra, we created a narrow exception to the Lawrence doctrine. Where a reversal would appear inevitable, due to the clearly established position of the Court of Appeals to which an appeal would lie, our obligation as a national Court does not require a futile and wasteful insisténce on our view. Golsen v. Commissioner, 54 T.C. 742, 757. Accordingly, in that narrow circumstance, although we still think the result wrong, we will follow that Court of Appeals. Compare Golsen v. Commissioner, supra (Golsen doctrine established), with Lardas v. Commissioner, supra (Golsen doctrine inapplicable). * * * The majority finds the Golsen doctrine inapplicable. Majority op. p. 141. Nevertheless, today we overrule three of our prior decisions with the only apparent justification being that three Courts of Appeals disagree with us. Are we persuaded by the reasoning of one or more of those Courts of Appeals or have we today adopted a new exception to the Lawrence doctrine, that when we have been overruled three times we will throw in the towel? Because we are a trial court of national jurisdiction, we enjoy an autonomy not enjoyed generally by Federal trial courts. Because I am jealous of that autonomy, I would be slow to give it up. As set forth in the next section of this opinion, I think that we reached the right conclusion in Estate of Clayton v. Commissioner, 97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir. 1992), Estate of Robertson v. Commissioner, 98 T.C. 678 (1992), revd. 15 F.3d 779 (8th Cir. 1994), and Estate of Spencer v. Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d 226 (6th Cir. 1995). I would follow those decisions. II. Qualified Terminable Interest Property A. Introduction — Section 2056(b)(7) Is Unambiguous We must determine whether the property passing from the decedent to the marital trust is “qualified terminal interest property”, as that term is used in section 2056(b)(7)(B)(i). If it is not, then such property does not qualify for the marital deduction provided for in section 2056(a). The distinguishing feature of the decedent’s bequest to the marital trust is that it is conditional on the decedent’s personal representative’s electing to have section 2056(b)(7)(A) apply. If no election is made, the marital trust receives nothing. If an election is made, but it is with respect to less than all of the property eligible to pass to the marital trust, then only such lesser portion passes to the marital trust. Property eligible to pass to the marital trust, but with respect to which no election is made, remains in the residue of the estate and funds the family trust. Because the decedent’s wife has no exclusive right for life to any portion of the income of the family trust, she does not have a qualified income interest for life in that trust. Sec. 2056(b)(7)(B)(ii). Thus, property passing to the family trust cannot qualify as qualified terminable interest property under section 2056(bj(7)(B)(i). The authority vested by the decedent in his personal representative to elect whether to have section 2056(b)(7)(A) apply determines more than simply the tax consequences of a predetermined bequest. As between two classes of possible trust beneficiaries — one class being the beneficiaries of the marital trust (principally, the decedent’s wife, with an income interest and a limited right to principal), and the other class being the beneficiaries of the family trust (the decedent’s wife, children, and the children of any deceased children, with rights to both income and principal) — the personal representative has the authority to determine which class immediately will enjoy (i.e., which trust will receive) the property. The personal representative’s authority thus amounts to a power to appoint the property between the two trusts, and the decedent’s wife’s interest in the property is contingent on the personal representative’s exercising the power in her favor. That is a clear violation of section 2056(b)(7)(B)(ii)(II) (with an exception not here relevant, “no person has a power to appoint any part of the property to any person other than the surviving spouse”). The statute is unambiguous. Indeed, section 2056(b)(7)(B)(ii) specifically provides that the prohibition on powers is inapplicable to a power exercisable only at ór after the death of the surviving spouse. By the terms of his will or by a power, a decedent can control the disposition of qualified terminable interest property upon the death of the surviving spouse. By requiring an election, section 2056(b)(7)(B)(i)(III) makes it clear that the executor of the estate or other personal representative of the decedent (hereafter, in either case, personal representative) can choose whether to take tax advantage of an otherwise qualifying bequest or devise of terminable interest property. The decedent cannot, however, empower his personal representative to deprive the spouse of what would be a qualified income interest for life by, for example, appointing the property to a trust in which she does not enjoy all of the income from the property for life. Simply, such a power is prohibited by section 2056(b)(7)(B)(ii)(II). I do not consider section 2056(b)(7) to be ambiguous. Even if one were to consider the section ambiguous, however, so that a search for extrinsic evidence of congressional purpose were appropriate, I am unpersuaded that, in enacting section 2056(b)(7), Congress’ purpose was to exempt from the terminable interest rule a bequest or devise that is uncertain (as to whether the surviving spouse has a qualifying income interest for life) at the time of the decedent’s death. The relevant committee reports are silent, and the general rule of section 2056(b) is to the contrary. On that basis, even assuming ambiguity, I would hold for respondent. B. Committee Reports Are Silent Section 2056(b)(7) was added to the Code by the Economic Recovery Tax Act of 1981 (ERTA), Pub. L. 97 — 34, sec. 403(d), 95 Stat. 172, 302. H. Rept. 97-201 (H. Rept. 97-201), 1981-2 C.B. 352, is the report of the Committee on Ways and Means that accompanied H.R. 4242, 97th Cong., 1st Sess. (1981) (which was enacted as ERTA). In pertinent part, H. Rept. 97-201 details the reasons for an unlimited marital deduction (simplification and the view that an individual should be free to pass his entire estate to a surviving spouse free of tax). It then states: In addition, the committee believes that the present limitations on the nature of interests qualifying for the marital deduction should be liberalized to permit certain transfers of terminable interests to qualify for the marital deduction. Under present law, the marital deduction is available only with respect to property passing outright to the spouse or in specified forms which give the spouse control over the transferred property. Because the surviving spouse must be given control over the property, the decedent cannot insure that the spouse will subsequently pass the property to his children. Because the maximum marital deduction is limited under present law to one-half of the decedent’s adjusted gross estate, a decedent may at least control disposition of one-half of his estate and still maximize current tax benefits. However, unless certain interests which do not grant the spouse total control are eligible for the unlimited marital deduction, a decedent would be forced to choose between surrendering control of the entire estate to avoid imposition of estate tax at his death or reducing his tax benefits at his death to insure inheritance by the children. The committee believes that the tax laws should be neutral and that tax consequences should not control an individual’s disposition of property. Accordingly, the committee believes that a deduction should be permitted for certain terminable interests. [H. Rept. 97-201, supra at 159-160, 1981-2 C.B. at 377-378.] See H. Conf. Rept. 97-215, at 247 (1981), 1981-2 C.B. 481, 507 (conference agreement follows the House bill and Senate amendment). ■’ Thus, Congress enacted section 2056(b)(7) in order to allow a decedent to enjoy the benefits of the marital deduction while, at the same time, exercising the type of control over the disposition of the property upon the termination of the surviving spouse’s interest that would, under prior law, have violated the terminable interest rule. Clearly, by providing for an election, Congress’ purpose also was to allow some post mortem tax planning. I cannot distill from the committee reports, however, any clear indication that Congress’ purpose was any more than to allow the decedent’s personal representative to determine the tax consequence of a disposition that had been predetermined by the decedent. If Congress’ purpose were any more than that, it seems to me that relevant committees would have stated that purpose. For me, the committee reports are silent on the issue before us. C. Internal Consistency Section 2056(b) disallows the marital deduction with respect to certain terminable interests. Section. 2056(b) had its origin in section 361 of the Revenue Act of 1948, ch. 168, 62 Stat. 110, 117. S. Rept. 1013, 80th Cong., 2d Sess. (1948), 1948-1 C.B. 285 (S. Rept. 1013), is the report of the Committee on Finance that accompanied H.R. 4790, 80th Cong., 2d Sess. (1948) (which was enacted as the Revenue Act of 1948). S. Rept. 1013 has the following to say about the operation of the terminable interest rule: [The terminable interest rule] is intended to be all-encompassing with respect to various kinds of contingencies and conditions. Thus, it is immaterial whether the interest passing to the surviving spouse is considered as a vested interest subject to divestment or as a contingent interest. * * * [The terminable interest rule] applies whether the terms of the instrument or the theory of their application are conceived as creating a future interest which may fail to ripen or vest or as creating a present interest which may terminate. * * * [1948-1 C.B. at 336.] The terminable interest rule has been interpreted as follows: Thus a terminable interest obviously may be either a contingent interest (i.e., where vesting is subject to a condition precedent) or a vested interest subject to defeasance (i.e., where a vested interest may he divested by the occurrence of a condition subsequent). The critical factor which defeats the deduction is the defeasibility of an interest which will cause it to pass from the decedent to a third person. * * * [Robertson v. United, States, 199 F. Supp. 78, 80 (N.D. Ala. 1961), revd. 310 F.2d 199 (5th Cir. 1962); emphasis added.] Thus, for example, a specific exception to the terminable interest rule is necessary to allow the decedent to make the interest of the surviving spouse conditional on surviving the decedent by 6 months or surviving a common disaster. See sec. 2056(b)(3). Other conditions of survival violate the terminable interest rule. See, e.g., sec. 20.2056(b)-3(d), Example (4), Estate Tax Regs, (condition of survival to date of distribution of property unacceptable). In Jackson v. United States, 376 U.S. 503 (1964), the Supreme Court found that a State-law widow’s allowance was a prohibited terminable interest. The allowance was subject both to a condition precedent (award by a court) and defeasance (abatement upon the widow’s death). The Court stated that the rule uniformly followed is that qualification for the marital deduction must be determined at the time of death. Id. at 508. Thus, consider the following hypothetical situation: The decedent leaves the residue of his estate to his children, except to the extent that his personal representative lists any portion of the residue on the estate tax return as going to the wife. On the authority of the Jackson case, a deduction under section 2056(a) would fail on account of the terminable interest exception for the portion of the residue going to the wife. The general rule of section 2056(b) is that contingent interests are terminable interests. The determination is made at the time of death. Here, the decedent’s wife’s interest in the marital trust property was contingent at the time of death. Only if the decedent’s personal representative elected to have section 2056(b)(7)(A) apply to property would it pass to the marital trust. To be consistent with the general rule of section 2056(b), any ambiguity in section 2056(b)(7) must be resolved to prevent property in which the surviving spouse has only a contingent income interest from being qualified terminable interest property. I recognize that it might make good policy sense to disregard the contingency here present: If we did so, the property in question would, like any qualified terminable interest property, be deductible in computing the decedent’s taxable estate but be includable in determining the surviving spouse’s gross estate. See secs. 2044, 2056. If I were to consider section 2056(b)(7) in a vacuum (and if I believed that the provision were ambiguous), then I might reach that result. I cannot, however, consider section 2056(b)(7) in a vacuum. The terminable interest rule plays a major role in section 2056. Without a specific direction from Congress to disregard the contingent nature of a surviving spouse’s interest, we are not free to do so. We would be wise to keep in mind what the Supreme Court said in thé Jackson case (involving the widow’s allowance): We are mindful that the general goal of the marital deduction provisions was to achieve uniformity of federal estate tax impact between those States with community property laws and those without them. But the device of the marital deduction which Congress chose to achieve uniformity was knowingly hedged with limitations, including the terminable-interest rule. These provisions may be imperfect devices to achieve the desired end, but they are the means which Congress chose. To the extent, it was thought desirable to modify the rigors of the terminable-interest rule, exceptions to the rule were written into the Code. Courts should hesitate to provide still another exception by straying so far from the statutory language as to allow a marital deduction for the widow’s allowance provided by the California statute. The achievement of the purposes of the marital deduction is dependent to a great degree upon the careful drafting of wills; we have no fear that our decision today will prevent either the full utilization of the marital deduction or the proper support of widows during the pendency of an estate proceeding. [Jackson v. United States, supra at 510 (fn. refs. omitted).] We are not here concerned with the support of widows during the pendency of an estate tax proceeding. In H. Rept. 97-201, supra at 160, 1981-2 C.B. at 377-378, the Committee on Ways and Means expressed the specific concern that, as between the decedent and the spouse, the decedent be able to control the disposition of qualified terminable interest property on the conclusion of the spouse’s life estate. I do not believe that our decisions in Estate of Clayton v. Commissioner, 97 T.C. 327 (1991), Estate of Robertson v. Commissioner, 98 T.C. 678 (1992), and Estate of Spencer v. Commissioner, T.C. Memo. 1992-579, are inconsistent with Congress’ action to deal with that concern. D. The Proposed Regulation Section 20.2056(b)-7(d)(3), Estate Tax Regs., takes a position consistent with the results we reached in the Estate of Clayton, Estate of Robertson, and Estate of Spencer cases. In that respect, section 20.2056(b)-7(d)(3), Estate.. Tax Regs., is effective with respect to decedents dying after March 1, 1994. Sec. 20.2056(b)-10, Estate Tax Regs. The majority “[leaves] for another day the issue of the validity of that regulation.” Majority op. p. 142. What is one to make of that statement? Can the majority possibly believe that section 2056(b)(7) is ambiguous and that both the position we take today and the position we took in the enumerated cases, and that the Commissioner takes in section 20.2056(b)-7(d)(3), Estate Tax Regs., are reasonable interpretations of the statute? Only if the statute is ambiguous is the Commissioner then free to write a regulation adopting any reasonable interpretation. NationsBank v. Variable Annuity Life Ins. Co., 513 U.S. _, _, 115 S. Ct. 810, 813-814 (1995); Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-844 (1984). No court, neither this Court nor any of the Courts of Appeals that have reversed us, has suggested any significant ambiguity in the statute, much less an ambiguity broad enough to tolerate the diametrically opposed readings found in our prior cases and in the case we decide today. Cerr tainly, decedents whose estate tax cases might on appeal go to a Court of Appeals different than the three that have reversed us bear the risk that such court might find section 2056(b)(7) ambiguous. Also certainly, the Supreme Court might find section 2056(b)(7) ambiguous (or unambiguous, as interpreted by section 20.2056(b)-7(d)(3), Estate Tax Regs.). Can we seriously say, however, that there is a substantial risk that we will find the statute ambiguous and, if so, that both the position we take today and the position we today abandon are reasonable interpretations? If there is no such risk, and I believe that there is not, we should say so. As I have said, we are a court of national jurisdiction with expertise in the area of Federal taxes. What we say means something; it makes a difference. We should explain ourselves, and strive to achieve the right result. Parker, J., agrees with this dissent.   Hart & Sacks, The Legal Process: Basic Problems in the Making and Application of Law 143-152, in particular 149-150 C1994); Schauer, “Opinions as Rules”, 62 U. Chi. L. Rev. 1455, 1465(1995).