Court Opinion

ID: 4474650
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:04.644601+00
Date Added: 2024-06-11T12:25:56.570194
License: Public Domain

Swift, J., concurring: The majority opinion is too circumspect in discussing the erroneous interpretations of section 1433(b)(2)(A) of the Tax Reform Act of 1986 (TRA 1986), Pub. L. 99-514, 100 Stat. 2731, by the Courts of Appeals in Simpson v. United States, 183 F.3d 812 (8th Cir. 1999), and in Bachler v. United States, 281 F.3d 1078 (9th Cir. 2002). In the above opinions, the Courts of Appeals for the Eighth and Ninth Circuits make at least two serious mistakes: (1) They merge and confuse the relevant transfers that are to be considered under the grandfather exception of section 1433(b)(2)(A); and (2) they improperly distinguish and limit Peterson Marital Trust v. Commissioner, 78 F.3d 795 (2d Cir. 1996), affg. 102 T.C. 790 (1994). 1. The Relevant Transfers The Court of Appeals for the Eighth Circuit in Simpson v. United States, supra at 813, begins its analysis by correctly stating that the general rule [of section 1433] * * * would apply [the GST tax] to any transfer taking place after the enactment of the statute * * *. In the very next paragraph of its opinion, however, the Court of Appeals merges the transfer that took place in that case after September 25, 1985, with the earlier transfer that took place therein in 1966 when the trust was created and the corpus was transferred to the trust. The opinion states— The power of appointment that made the [post-September 25, 1985] transfer possible was created by the trust. Language has to mean something, and the argument that [the post-September 25, 1985, transfer] * * * was not “under” [the trust] * * * is simply untenable. [Id. at 814.] Certainly, in Simpson the creation of the trust in 1966 made “possible” the later, actual transfer that occurred in 1993. But the “possibility” in 1966 of a later transfer and the “fact” of the transfer in 1993 are two different things. In their analyses, the Courts of Appeals for the Eighth and Ninth Circuits seem erroneously to merge the creation of the possibility of a transfer to grandchildren (via a transfer to a surviving spouse of a general power of appointment) with the fact of a later, actual transfer to grandchildren, as if they constituted the same transfer. In both Simpson and in Bachler the surviving spouse’s testamentary exercise of a general power of appointment, and thereby the post-September 25, 1985, skip transfers to grandchildren, were “made possible under” the trusts, but the skip transfers did not “occur under” the trusts. They occurred under the general power of appointment given to the surviving spouse by the trust creator, the predeceased husband. Under that general power of appointment, the surviving spouse need not have made skip transfers and could have transferred the property to anyone she wished. The only relevant transfer of property that occurred “under” the trust was effectively made to the surviving spouse upon creation of the trust and the grant to her of a general power of appointment. Thereafter, the surviving spouse made a separate, independent, discretionary, and subsequent skip transfer of property to grandchildren, which transfer was made and occurred under the general power of appointment, not under the trust. Under a proper understanding of TRA 1986 section 1433(b)(2)(A) of the general power of appointment transferred to Mrs. Gerson, and of the property transfer that occurred when Mrs. Gerson exercised her general power of appointment, the result reached by the majority herein is correct and should be reached even if the regulations at issue had never been promulgated. 2. The Second Circuit’s Opinion in Peterson Marital Trust In Peterson Marital Trust v. Commissioner, supra, the Court of Appeals for the Second Circuit held that the mere lapse of a general power of appointment held by a surviving spouse and the resulting transfer of property to a skip generation triggered a post-September 25, 1985, taxable generation-skipping transfer. If the mere lapse of a general power of appointment triggers a taxable generation-skipping transfer of property, certainly it should follow that the affirmative exercise of a general power of appointment in favor of a skip generation triggers a taxable generation-skipping transfer of property. Rather than distinguishable, as the Courts of Appeals for the Eighth and Ninth Circuits concluded, see Simpson v. United States, 183 F.3d at 815; Bachler v. United States, 281 F.3d at 1080, the post-September 25, 1985, exercise of general powers of appointment that were involved in Simpson and in Bachler are more egregious, or rather, are more obvious post-September 25, 1985, independent and discretionary transfers of property subject to the GST tax than was the deemed transfer involved in Peterson Marital Trust v. Commissioner, 78 F.3d 795 (2d Cir. 1996). Accordingly, the transfer that occurred in this case (and in Simpson and in Bachler) would appear to be a clearer case for application of the GST tax than the transfer in Peterson Marital Trust, since the surviving spouse herein affirmatively made a generation-skipping transfer, while the spouse in Peterson Marital Trust did so only by default. See Harrington & Acker, Estates, Gifts, and Trusts: Generation Skipping Tax, 850 Tax Mgmt. (BNA) A-73 (2002). The interpretations of TRA 1986 section 1433(b)(2)(A) that are reflected in the Peterson Marital Trust opinions of this Court and of the U.S. Court of Appeals for the Second Circuit, that are reflected in the various versions of Treasury regulations that have been promulgated over the years, and also the interpretation reflected in the majority opinion herein, are consistent and uniform. Under those interpretations, post-September 25, 1985, exercises of general powers of appointment in favor of skip donees do not qualify for the TRA 1986 section 1433(b)(2)(A) grandfather provision, and they trigger the GST tax. Peterson Marital Trust is not distinguishable and supports the majority’s opinion herein. Respectfully, in the above two respects the U.S. Courts of Appeals for the Eighth and the Ninth Circuits in Simpson and in Bachler erred in their analyses of TRA 1986 section 1433(b)(2)(A). A few concluding comments are appropriate. It has been recently suggested that the Secretary and respondent are misusing their administrative regulatory authority to “bootstrap” (Judge Laro’s dissent, infra p. 169 note 1) or overcome a “failed litigating position” (Swallows Holding v. Commissioner, 126 T.C. 96, 148 (2006)). In my opinion, these suggestions are inappropriate and incorrect. Under section 7805(a), Congress has given the Secretary and respondent important authority and responsibility to assist in the administration of our Federal income tax laws through the promulgation of regulations. The suggestion that the Secretary and respondent are somehow misusing this authority and responsibility undermines their important role in this regard. Also, the suggestion calling into question the Secretary’s and respondent’s motive in promulgating the particular regulation involved herein is inaccurate, as was the similar suggestion in Swallows Holding v. Commissioner, supra at 136, 138, 147-148. Section 26.2601 — l(b)(l)(i), GST Tax Regs., was promulgated in 2000, T.D. 8912, 2001-1 C.B. 452, after respondent’s interpretation of the statutory transition rule of section 1433(b)(2)(A) had been accepted by the Court of Appeals for the Second Circuit in Peterson Marital Trust v. Commissioner, 78 F.3d 795 (1996), by two District Courts in Bachler v. United States, 126 F. Supp. 2d 1279 (N.D. Cal. 2000), and Simpson v. United States, 17 F. Supp. 2d 972 (W.D. Mo. 1998), and by this Court in Peterson Marital Trust v. Commissioner, 102 T.C. 790 (1994). By December of 2000, when the regulation at issue herein was promulgated, respondent’s interpretation of the statutory transition rule of TRA 1986 section 1433(b)(2)(A) had been rejected by the Court of Appeals for the Eighth Circuit in Simpson v. United States, 183 F.3d 812 (8th Cir. 1999). However, in light of the above four Federal court opinions that had adopted respondent’s statutory interpretation, it is an overstatement and simply not correct to suggest that the Secretary’s regulation bootstrapped a failed litigating position. With the responsibility for tax administration and with the authority and responsibility under section 7805(a) to provide rules and regulations relating to our Federal tax laws, what are the Secretary and respondent supposed to do? When the Federal courts disagree as to the proper interpretation of tax law, is the regulatory authority placed on hold? Must the public and the tax administrator await an ultimate resolution of the issue by the courts? What if the Federal courts remain in conflict, without an ultimate resolution of an issue? Is the tax law, in such a situation, to be interpreted differently in different judicial districts? Are txayers to be treated differently?1  The Supreme Court recently addressed these concerns in Natl. Cable & Telecomm. Association v. Brand X Internet Servs., 545 U.S. 967, 125 S. Ct. 2688 (2005). Therein, the Supreme Court made it clear that the regulatory authority of Federal agencies remains viable and in play even in the face of pending litigation and decided court cases. The Supreme Court explained: Yet allowing a judicial precedent to foreclose an agency from interpreting an ambiguous statute * * * would allow a court’s interpretation to override an agency’s. Chevron’s premise is that it is for agencies, not courts, to fill statutory gaps. * * * Only a judicial precedent holding that the statute unambiguously forecloses the agency’s interpretation, and therefore contains no gap for the agency to fill, displaces a conflicting agency construction. ***** * * Yet whether Congress has delegated to an agency the authority to interpret a statute does not depend on the order in which the judicial and administrative constructions occur. The Court of Appeals’ rule [holding that stare decisis required a court to apply a judicial construction rather than a previously existing agency construction], moreover, would “lead to the ossification of large portions of our statutory law,” by precluding agencies from revising unwise judicial constructions of ambiguous statutes. Neither Chevron nor the doctrine of stare decisis requires these haphazard results. [Id. at_, 125 S. Ct. at 2701-2702; citation omitted.] For the reasons stated, I respectfully concur. Wells and Holmes, JJ., agree with this concurring opinion.   Court conflicts over the proper interpretation of statutory language provide perhaps the best evidence that the statutory language subject to the conflicting interpretations is ambiguous.