*6 Decedent's will gave his surviving spouse an income interest in certain marital trust property but provided that if decedent's coexecutors did not elect to treat the property as "qualified terminable interest property" (QTIP) within the meaning of
Held: The marital trust property is QTIP within the meaning of
*132 WELLS, Judge: **8 Respondent determined a deficiency of $ 2,284,008 in the Federal estate tax of the Estate of Willis Edward Clack (estate). Unless otherwise indicated, all section references are to the Internal Revenue Code in effect on the date of death of Willis Edward Clack (decedent), and all Rule references are to the Tax Court Rules of Practice and Procedure. The issue to be decided in this Opinion is whether the interest of decedent's surviving spouse in certain marital trust property is "qualified terminable interest property" (QTIP) within the meaning of
FINDINGS OF FACT
Some of the facts were stipulated for trial pursuant to Rule 91. The parties' stipulations are incorporated into this Opinion by reference and are found accordingly.
Decedent was born on July 21, 1923, and died testate on July 1, 1987, in Madison, Wisconsin. At the time of his death, decedent was a resident of Benton County, Arkansas. On August 4, 1987, the Benton County Probate Court admitted to probate decedent's last will, dated August 27, 1986 (the will), and issued letters testamentary to Richard E. Clack and the Marshall & Ilsley Trust Co., authorizing them to act as coexecutors of decedent's estate. 2 At that time and at the time of filing the petition in the instant case, the Marshall & Ilsley Trust Co. maintained its*9 principal place of business in the State of Wisconsin, and Richard E. Clack was a resident of the State of Wisconsin.
*133 Decedent was survived by his wife, Alice Clack, his sons, Richard E. Clack and Robert A. Clack, and his daughter, Ann Clack Klimnowicz. During his lifetime, decedent was the owner and operator of a successful plastic extrusion company, Clack Corp. located in Winsor, Wisconsin. At the time decedent executed his will, his sons were active in the company. Richard E. Clack was "the number two person in the company". Robert A. Clack had just started working in the business.
Decedent consulted an attorney in Wisconsin about preparing a will. Decedent was concerned about keeping the control of Clack Corp. in the family. Although decedent wanted his son Robert A. Clack to remain with the company, he wanted his other son Richard E. Clack to have control of the company. Decedent also wanted to minimize his estate*10 taxes and to provide for his wife.
Decedent executed his will on August 27, 1986. The will names decedent's son Richard E. Clack and the Marshall & Ilsley Trust Co. of Milwaukee, Wisconsin, as co-personal representatives of his estate and cotrusteesof the trusts created by the will.
Article I of the will provides for the payment of expenses (paragraph A) and taxes (paragraph B) from the residuary estate. Article II of the will bequeaths to decedent's wife all of decedent's personal effects and his interest in his personal residence. Article III of the will bequeaths to decedent's son Richard E. Clack 12, 689 shares of the common stock of Clack Corp. Such bequest was made to recognize Richard E. Clack's activities in the management and success of Clack Corp. and was intended to ensure that Richard E. Clack retained control of Clack Corp.
Article IV of the will creates a marital trust for the benefit of decedent's wife as follows:
Qualified Terminable Interest Property Marital Trust. If my wife survives me, I give to my Trustee the minimum pecuniary amount which will qualify for the federal estate tax marital deduction and which will result in the smallest federal estate tax*11 being payable by reason of my death. In computing this amount, my Personal Representative shall take into account the unified credit and the credit for state death taxes and deduction (except the marital deduction) available to my estate and all other items included in my gross estate for federal estate tax purposes, whether or not passing under this Will, which qualify for said deduction. My Personal *134 Representative shall assume that all payments and legacies under the preceding Articles of this Will have been fully satisfied and shall take into account the state death tax credit only to the extent that use of the credit does not require an increase in state death taxes payable. I recognize that, depending upon the size of my estate, the year of my death and other factors, no amount may pass to this Marital Trust.
Article IV, paragraph C of the will states:
It is my intention that this bequest shall qualify for the federal estate tax marital deduction to the extent that my Personal Representative elects that any part or all of any amount passing under this Article IV be treated as qualified terminable interest property, and the terms of this Will shall be construed in accordance*12 with such intent. My wife may require my Trustee to convert unproductive property into productive property within a reasonable time.
The will requires the trustee to pay the net income of the marital trust to decedent's wife "in convenient installments at least quarterly". Any undistributed and accrued income at the time of the death of decedent's wife is to be paid to the wife's estate. The trustee is empowered to invade the principal of the marital trust as deemed necessary to provide for decedent's wife in order that she may maintain her standard of living. The marital trust terminates upon the death of decedent's wife. Upon termination of the marital trust, any assets remaining after payment of estate, inheritance, and succession taxes arising from the surviving spouse's death are to be added to the family trust created under Article V of the will (discussed below).
Article IV, paragraph D of the will provides for spousal disclaimer rights as follows:
My wife or her personal representative, by an instrument in writing delivered to my Trustee after my death, may disclaim all or any part of the distribution payable under this Article IV to the Trustee of the Qualified Terminable*13 Interest Property Marital Trust under Paragraph B. Any part so disclaimed shall be held and administered by the Trustee as a separate trust in accordance with the terms of the Family Trust, except my wife shall not receive distributions of principal from this separate trust. If my wife further disclaims her income interest in this separate trust, then it shall be held and administered in accordance with the terms of the Family Trust as if she had predeceased me. Upon my wife's death, any assets segregated pursuant to the terms of this Paragraph shall be merged with other assets being held in the Family Trust.
*135 Article IV, paragraph F of the will provides for an election as follows:
My Personal Representative may elect that any part or all of any amount passing under this Article IV be treated as qualified terminable interest property for the purpose of qualifying for the marital deduction allowable in determining the federal estate tax upon my estate. While I anticipate that the election will be made for all of such property, my Personal Representative shall have the authority not to make the election should no election or a partial election be advantageous for some reason I*14 have not foreseen. Any part of any amount passing under this Article IV with respect to which my Personal Representative does not so elect to be treated as qualified terminable interest property shall continue to be held by my Trustee and administered and distributed pursuant to the terms of the Family Trust hereunder.
Article V of the will provides for "Family Trust Administration", in which the trustee is to receive the residue of decedent's estate in order to fund the family trust. Decedent's wife, children, and the issue of any deceased children constitute the beneficiaries of the family trust. The trustee has sole discretion to distribute income and principal to any one or more of the beneficiaries. Any income not distributed to the beneficiaries is to be added to the principal of the family trust.
Article IX, paragraph A of the will provides that the personal representative "may make such elections under the tax laws applicable to my estate as it determines should be made."
On April 1, 1988, a U.S. Estate Tax Return, Form 706, was timely filed for the estate with the Internal Revenue Service Center in Austin, Texas. On the estate tax return, the coexecutors made the election*15 under
| Probate estate | $ 6,685,474.21 | |
| Add: | 1 Profit sharing plan benefit | 320,327.89 |
| Total | 7,005,802.10 | |
| Less: | Funeral expenses | (3,973.00) |
| Administration expenses | (338,849.06) | |
| Debts | (20,811.95) | |
| Mortgages & liens | (1,365.85) | |
| Less: | Specific bequest to spouse | (42,075.00) |
| Specific bequest to son | (2,436,288.00) | |
| Net amount to marital trust | 4,162,439.24 | |
*136 Thus, the coexecutors treated the payment of expenses under Article I, paragraph A of the will, the bequests of tangible personal property and of the interest in the home to the surviving spouse under Article II, and the bequest of the Clack Corp. stock to Richard E. Clack under Article III as having been fully satisfied before determining the marital trust amount but did not treat the payment of estate taxes under Article I, paragraph B as having been fully satisfied.
The coexecutors claimed a total marital deduction in the amount of $ 4,460,101.18, *16 composed of what they determined to be the value of the marital trust property ($ 4,162,439.24), plus certain joint property ($ 194,263.55), the bequest of tangible personal property and the interest in the home ($ 42,075), life insurance proceeds ($ 46,481.72), and retirement benefits ($ 14,841.67) passing to the surviving spouse. Other than the specific bequest of Clack Corp. stock to Richard E. Clack and a payment of $ 25,953.51 to Robert A. Clack as the beneficiary of a single premium annuity policy, all of the assets of decedent's estate either passed directly to the surviving spouse ($ 297,661.94 by specific bequest or outside of probate) or were treated by the coexecutors as part of the marital trust ($ 4,162,439.24 as QTIP election). The coexecutors did not fund the family trust.
On the estate tax return, the total gross estate was valued at $ 7,287,342.55. The estate tax reported as due on the return was $ 684,589.11.
On November 10, 1988, the Internal Revenue Service (IRS) selected the estate tax return for audit. In January of 1989, the coexecutors and the IRS agreed that the value of each share of the Clack Corp. stock was $ 10 more than reported on the estate tax return. *17 At the time of his death, decedent owned 24,675 shares of Clack Corp. stock, of which 12,689 shares were bequeathed to Richard E. Clack. The remaining 11,986 shares were treated by the coexecutors as part of the marital trust.
*137 On March 28, 1991, respondent issued a statutory notice of deficiency to the estate, determining an estate tax deficiency of $ 2,284,008. The principal adjustment was the disallowance of $ 4,162,439.24 of the marital deduction because of respondent's determination that the "spouse's entire interest in the marital trust was subject to a power in the executors to appoint the corpus to someone other than the surviving spouse."
OPINION
However,
*19 The facts in the instant case fall within this Court's holding in
The Tax Court, in those opinions, held that the surviving spouse did not have a qualifying income interest for life because the passage of an income interest in the property to the surviving spouse was contingent upon the executor's QTIP election as to such property and was therefore subject to the executor's power to appoint the property to someone other than the surviving spouse. Accordingly, the Tax Court concluded that the property did not meet the requirements of
In
An election, by definition, is necessary to insure that the property*21 is qualified terminable interest property. The essence of
In
Preliminarily, this Court stated:
*23
In reversing this Court, the appellate courts focused upon that language and held that one of the three essential elements in the definition of QTIP is that it be property for *140 which an election has been made. Estate of Spencer v. Commissioner, 43 F.3d at 231; Estate of Robertson v. Commissioner, 15 F.3d at 783; Estate of Clayton v. Commissioner, 976 F.2d at 1499.The opinions of the Courts of Appeals, however, diverge in one respect. The Court of Appeals for the Fifth Circuit held that the effect of the QTIP election is retroactive to the instant of the decedent's death. Estate of Clayton v. Commissioner, 976 F.2d at 1495, 1500. The Court of Appeals for the Sixth Circuit rejected what it characterized as the legal fiction of retroactivity created by the Fifth Circuit. Estate of Spencer v. Commissioner, 43 F.3d at 234. Instead, the Sixth Circuit held that the date for determining whether property qualifies for the QTIP election is the date the QTIP election is made.
Jackson is readily distinguishable from this case and not in point. In Jackson, after her husband's death, a widow received a court-ordered temporary allowance for her support and maintenance payable from his estate. The Supreme Court held that because the widow's allowance arose from a right under state law which had not vested in her as of her husband's date of death, it could not be included as part of the marital deduction because it did not meet the definition of any counter-exception to the rule that terminable interests are to be included in the taxable estate. Jackson at 507, 84 S.Ct. at 871-72. In the instant case, the decedent used an estate planning device unknown when Jackson was decided--the QTIP counter-exception to the terminable interest rule. Because the Jackson court ruled on the proper determination date for an interest which is not an exception*25 to the terminal interest rule, and not subject to a later election, we do not think it is dispositive of this issue. [Estate of Spencer v. Commissioner, 43 F.3d at 231.]
Petitioner argues that, because at the time of his death decedent was a resident of the State of Arkansas, the Eighth Circuit would have venue for an appeal of the instant case (absent stipulation to the contrary). Accordingly, petitioner contends that, pursuant to
Respondent argues that, because at the time of filing *141 the petition in the instant case the individual co-executor of decedent's estate was a resident of the State of Wisconsin and the corporate co-executor had its principal place of business in that State, venue for an appeal of the instant case would lie to the Court of Appeals for the Seventh Circuit, which has not addressed the QTIP issue presented in the instant case, and, consequently, *26 that the Tax Court is not bound under the Golsen rule.
The Golsen rule requires a conflict between this Court and the court having venue over an appeal of the case sub judice. Because we decide in the instant case to accede to the decisions of the Courts of Appeals that have reversed our decisions on the issue before us, no such conflict exists, and therefore it is unnecessary to address the parties' arguments concerning the proper venue for an appeal of the instant case.
We also find it unnecessary, at this point, to winnow out the differences in our analyses in our prior cases and those of the Courts of Appeals that have reversed us. Finally, we see 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, as in either case the result is the same: the marital deduction is allowed. 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 and will no longer disallow the marital deduction for interests that are contingent upon the executor's election under
One caveat to our holding is in order. Section 20.2056(b)-7(d)(3), Estate Tax Regs., 5 provides that the marital deduction is not available under the circumstances of the instant case. Because the regulation is effective for estates of *142 decedents dying after March 1, 1994 (see section 20.2056(b)-10, Estate Tax Regs.), it is not applicable to the instant case. Consequently, we leave for another day the issue of the validity of that regulation. Obviously, if the regulation were held to be valid, there might be a different result for estates of decedents dying after March 1, 1994.
*28 To reflect the foregoing,
An appropriate order will be issued.
HAMBLEN, SWIFT, JACOBS, WRIGHT, RUWE, COLVIN, LARO, FOLEY, and VASQUEZ, JJ., agree with this majority opinion.
CHABOT, J., concurring in the result: I do not agree with the majority's determination to overrule this Court's opinions in
However, for the reasons set forth in Judge Gerber's concurrence, I would hold that venue for an appeal would be in the Court of Appeals for the Eighth Circuit. Under the Golsen rule, we would be bound to follow the interpretation of *29 that Court of Appeals. See
SWIFT, J., concurring: I do not disagree with the decision of the majority to accede to the rulings of the three Courts of Appeals that have considered this issue. In light, however, of respondent's self-serving, interpretative, prospective-only regulation on this issue at section 20.2056(b)-7(d)(3), Estate Tax Regs. (promulgated in the midst of the rejection of respondent's position by the Courts of Appeals for the Fifth, *143 Sixth, and Eighth Circuits 1), and in light of the many refund courts that are not bound by our ruling herein, nor by the rulings of the above three Courts of Appeals, further litigation of this issue would appear inevitable.
*30 As an alternative, therefore, to acceding to the extant rulings of the Courts of Appeals, I would go further, and I would reconsider our interpretation of the relevant QTIP provisions of
Having the benefit of the analyses set forth in the above three Courts of Appeals rulings and the benefit of further reflection that continuing litigation provides, I believe that we erred in our prior opinions in
However, the third requirement (namely, whether the QTIP election has been made) obviously cannot be determined until the estate tax return is filed. On that date, one can also determine whether the first two requirements have been satisfied. It therefore seems logical to me to determine whether all three requirements of
In contrast to the technical arguments and hypothetical situations that are being made and raised on this issue, I agree with the refreshingly straightforward and commonsense approach of the
Congress deliberately crafted the broad language of
* * * *
The words of the statute are plain: no property meets the definition of QTIP until the proper election is made, and no QTIP election can be made until the estate tax form is filed.
* * * *
* * * *
The IRS would have us adopt an interpretation that would force property to satisfy every requirement for the QTIP counter-exception on the date of decedent's death except the requirement of election. This would effectively reduce the election requirement to a mere formality, defeat its apparent purpose and its most reasonable interpretation. * * *
* * * *
This decision is in keeping with the overarching purpose of Congress to liberalize the requirements surrounding the marital deduction. The 1981 amendments to
In the QTIP definitional requirements of
Based on the above analysis, I would overrule our prior opinions in
HAMBLEN and WHALEN, JJ., agree with this concurring opinion.
GERBER, J., concurring: I agree with the majority's holding. I am compelled, however, to write separately to address Judge Parker's dissenting view that appellate venue depends on the estate's representative's residence, rather than the domicile of the decedent. The identity of the petitioner 1 in a case involving an estate is a question of some moment and one that this Court has not yet addressed with any particularity.
The dissenting opinion contains the view that an appeal in this case lies in the estate's representative's appellate*36 venue (the Court of Appeals for the Seventh Circuit), and, therefore, we are not bound to follow the holding of the estate's appellate venue (the Court of Appeals for the Eighth Circuit). *146 Were it necessary to reach this question of first impression, 2 I believe the better view is that the estate is the petitioner, and, hence, under section 7482(b)(1)(A) venue for an appeal in this case would be in the place of the estate's probate and/or the decedent's domicile at the time of death (the Court of Appeals for the Eighth Circuit).
*37 The dissent expresses the belief that the estate's representative should be considered the petitioner. As a matter of habit and practice, however, this Court most often refers to and treats a decedent's estate as the petitioner in an estate tax case. See, e.g.,
In addition, by choosing an estate's representative as the petitioner, the dissent would open the way for a profound and deleterious side effect--forum shopping. 3 If the estate is treated*38 as the petitioner, forum shopping is minimized because a decedent's domicile is fixed at death. It is also significant that the law of the decedent's domicile governs an estate's probate and provides for the representative's legal authority and requirements to serve the estate. Similarly, it is the law of the State of the decedent's domicile that is determinative of whether a fiduciary has capacity to represent the estate in this Court. Rule 60(c);
*39 Systemically, it is more logical to treat the estate as the petitioner. Notices of deficiency regarding an estate are concerned only with the estate's tax liability. 4 See
*40 The dissent compares the circumstances in this Court with those in Federal tort claims, Federal diversity jurisdiction, and Federal tax refund cases. 5 The dissent expresses the belief that the U.S. Courts of Appeals for the Seventh and Eighth Circuits would look to these cases and ascertain appellate venue based on the residence of the estate's representative. 6
I respectfully disagree because*41 for venue purposes: (1) We are not dealing with refund, diversity jurisdiction, or tort claims; (2) we are not compelled to follow the rationale of refund, diversity, or Federal tort claims cases; and, significantly, (3) the dissent relies on the diversity cases despite Congress' having enacted legislation that effectively "overrules" them.
Concerning the weight to be afforded to diversity jurisdiction precedent,
*148 Furthermore, there are important differences in a court's focus with respect to questions of appellate venue versus questions of diversity of citizenship in order to qualify for Federal jurisdiction. For diversity jurisdiction purposes, a representative's citizenship may be determinative of the threshold question of whether a party can have access to Federal courts. *42 Prior to the 1988 legislation, by acknowledging the representative's citizenship, courts could ensure that a Federal forum was available to an estate if the representative's citizenship was different from that of any other litigant.
The residence of a fiduciary for purposes of an appeal from this Court is not a threshold question that would otherwise be a prerequisite to Federal court access. The focus of our inquiry involves which Court of Appeals is the most appropriate one to address an estate's appeal from this Court. 7 In making this choice we must consider that circuit's nexus to the subject matter, the court's familiarity with local law of the decedent's domicile, and the general convenience to all parties.
*43 Concerning refund jurisdiction,
The cases cited in the dissent to support the executor's designation as plaintiff in a refund proceeding treat the executor as the party in interest or, in one case, the responsible party. Although there are limited circumstances where the estate's representative may be held personally liable, the assets of an estate are the primary source for satisfaction of the estate's tax liability. Admittedly, an executor must represent the *149 interests of the estate, but that alone, or in conjunction with the possibility that the executor *44 may become personally liable, does not provide a persuasive reason to designate the executor as the "petitioner" in this Court. Even if the rationale of the refund cases cited by the dissent was soundly based, I find it no more persuasive than the reasons already expressed herein for the estate, rather than the executor, to be recognized as the petitioner.
Finally, the dissent's approach conflicts with our cases involving litigation costs. In
"Common sense compels a finding that an estate is a 'party.' It is an entity which can be taxed, which can earn income (which is taxed), which can sue, and which can be sued. * * * In any event, the real party in interest here is the estate which, by way of its personal representative, is challenging the tax levied against it." [Id. (quoting
The U.S. Court of Appeals for the Seventh Circuit recently*45 adhered to this concept in
Notably, the * * * [Equal Access to Justice Act] does not list estates among the parties eligible to recover litigation costs. However, seeing no reason to treat estates differently from individuals, the Tax Court, the Court of Claims, and at least two district courts have concluded that estates should be permitted to recover their costs despite statutory omission. * * * [
In the setting of a case in the U.S. Tax Court, the estate and the decedent are the focus of the proceeding. In that regard, it is likely that Courts of Appeals would treat the Court of Appeals for the Eighth Circuit as the proper appellate venue under section 7482(b).
JACOBS, PARR, COLVIN, FOLEY, and VASQUEZ, JJ., agree with this concurring opinion.
*150 BEGHE, J., concurring: My first reaction to the case at hand was *46 that this Court's prior views, as expressed in our opinions in
On reflection, I think I see a principled justification for changing my position on the merits. As explained in my dissent in Estate of Shelfer, QTIP is an exception to an exception that deserves a liberal construction. *47
*48 Another question raised by the case at hand is whether, in the light of
*50 Where I come out on all this is that the policy underlying the QTIP rules supports petitioner's position in the case at hand, there are reasonable interpretations of
*51
*152 PARKER, J., dissenting: I think this Court was correct in its interpretation of
However, I agree with petitioner*52 that if an appeal in this case would lie to the U.S. Court of Appeals for the Eighth Circuit, this Court would be bound under the Golsen rule to follow the opinion of the Eighth Circuit in
I
QTIP Issue
*53
(ii) Qualifying income interest for life.--The surviving spouse has a qualifying income interest for life if--
(I) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, * * * and
(II) no person has a power to appoint any part of the property to any person other than the surviving spouse.
Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in*55 regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).
We concluded in*56 I see no distinction between the situation in which the executor is given such power during the period prior to the filing of the estate tax return and the situation in which an individual who is not the executor is given such power during that period. The testator's coupling the power with the executor's making of the QTIP election does not diminish the power.
The Court of Appeals for the Fifth Circuit attempts to circumvent the prohibition against the executor's having such a power during the period prior to making the election by applying a relation-back legal fiction. The Fifth Circuit stated:
although the effect of the election is tested as of the instant of the testator's death, the definitional eligibility of the separate terminable interest under examination is tested as though QTIP election had already been made.
The Court of Appeals for the Fifth Circuit likened the QTIP election to a qualified disclaimer by the surviving spouse and stated:
For example, a qualified disclaimer by the Surviving Spouse has precisely the effect of the QTIP election here: Both are volitional acts; both can be made only after the death of the testator; both relate back, ab initio, to the date of death of the testator; and both have the effect of causing estate property which would otherwise pass to the Surviving Spouse to pass instead directly to or for the benefit of other parties. * * *
In the case of qualified disclaimers, moreover, section 2518 specifically provides that
if a person makes a qualified disclaimer with respect to any interest in property, this subtitle shall apply with respect to such interest as if the interest had never been transferred to such person.
Thus, the statute specifically mandates the relation-back effect of a qualified disclaimer. There is no such statutory provision applicable to an executor's power to appoint property away from the surviving spouse coupled with the power to make a QTIP election. Furthermore,The only means of ignoring an executor's power to appoint the property to someone other than the surviving spouse (exercisable by the*59 executor's not making the QTIP election) would be to adopt the test applied by the Court of Appeals for the Sixth Circuit in
However, the holding of the Court of Appeals for the Sixth Circuit, if pursued to its logical conclusion, would prohibit QTIP treatment for any qualifying income interest granted to a surviving spouse if the surviving spouse dies prior to the executor's making the QTIP election. In such a situation, if the date for determining whether property qualifies as QTIP is the date the election is made, then the executor of the first spouse to die cannot make the election to treat any property interest as QTIP. This is because, at the time the executor makes the election, the surviving spouse has died and no longer has any interest in the property; the property has passed to the remainder interest. In that situation, at the time the executor makes the election, the surviving spouse does not have a qualifying income interest for*60 life, and the second essential element for QTIP treatment cannot be met. In such situation, the spouses could lose the benefit of the surviving spouse's unified credit. 1 I do not think that the date of making the election is the proper date for determining whether the surviving spouse has a qualifying income interest for life in the property.
*61 I agree that the election under
The term "property * * * to which an election under this paragraph applies" under
The Court of Appeals for the Fifth Circuit held that the requirement that the property be an interest to which an election under this paragraph applies is satisfied if "the property being tested for eligibility is the same property to which the election made by the * * * [executor] applies."
the Tax Court insist[s] that the "property" here under examination is the entire residue of testator's estate, being the maximum amount of property and interests in property with which * * * [the marital trust] could be funded were a total QTIP election to be made. * * *
Id.2 With all due respect to the Court of Appeals for the Fifth Circuit, I think that statement mischaracterizes the focus of this Court. Contrary*63 to such characterization, this Court applies the standard espoused by the Fifth Circuit; the property being tested for QTIP eligibility is the same property to which the election made by the executor applies.*64 *158 During the period from the testator's death to the time of making the election, the executor possessed the power to appoint the property for which the election was made to someone other than the surviving spouse. The fact that the executor made the election and, thus, did not in fact appoint the property to someone other than the surviving spouse does not negate the fact that, prior to making the election, the executor had the power to appoint the property to someone other than the surviving spouse. With all due respect to the Court of Appeals for the Fifth Circuit, I do not think that this Court's Estate of Clayton opinion turned on the fact that the executor made a partial election as opposed to a full election. This Court's opinions in Estate of Robertson and Estate of Spencer and indeed the present case involve a full election. Nor can policy concerns about eliminating the need for testators to risk predicting the future and providing flexibility and opportunity for post mortem estate planning provide a principled basis for disregarding the language actually used by Congress in
I do not think that, by requiring the executor to make the election*65 for QTIP treatment, Congress intended to permit such expansive post mortem estate planning. Congress intended that the executor have the ability to determine whether property in which the testator grants the surviving spouse a qualifying income interest for life should be taxed in the estate of the first to die or, to the extent not consumed or earlier disposed of by the surviving spouse, in the estate of the surviving spouse. Additionally, Congress provided for a partial election in order to permit the executor to elect to have a portion of such otherwise qualifying property taxed in the estate of each spouse. In the Economic Recovery Tax Act of 1981, Pub. L. 97-34, 95 Stat. 172, Congress had already liberalized the marital deduction provisions, allowing an unlimited estate tax marital deduction and an unlimited gift tax marital deduction. The QTIP provisions for estate tax (
In summary, I think this Court was right in its analysis of the QTIP provisions in its Clayton-Robertson-Spencer opinions; the Court of Appeals opinions are inconsistent as to when the surviving spouse's "qualifying income interest for life" in property is to be determined and whether the surviving spouse must have a qualifying income interest for life in property separate and apart from and independent of the fact that the executor ultimately makes a QTIP election. For these reasons, I think this Court should not, in the majority's words, "accede to the decisions of the Courts of Appeals that have reversed our decisions on the issue before*67 us". Majority op. p. 15. This Court should not so accede, particularly without any analysis of those circuit decisions and without some explanation as to why we are departing from our prior decisions. Although this Court is only a trial court, it is a trial court with national jurisdiction. The tax bar, the Internal Revenue Service, and the taxpayers, particularly those residing in the other nine circuits to which Tax Court decisions can be appealed, are entitled to a reasoned, principled explanation of our change of position. The majority not only declines to address the differences in our analyses in our prior cases and those of the Courts of Appeals that have reversed us, but throws out a hint that the result might be different under the recently published regulations, which are effective for the estates of decedents dying after March 1, 1994. Sec. 20.2056(b)-7(d)(3), Estate Tax Regs. This Court's prior decisions are consistent with and support the validity of those regulations.
II
Venue Issue
This is an appropriate case in which to continue to follow our prior opinions since, under the Tax Court's special venue statute, any appeal would lie to the U.S. Court of Appeals *68 for *160 the Seventh Circuit, which has not yet addressed this particular QTIP issue.
Although the reviewing court will undoubtedly make its own determination, I think it is appropriate for this Court to address the issue of venue.
Section 7482(b)(1) provides with respect to review of decisions of the Tax Court:
SEC. 7482(b). Venue.--
(1) In General.--Except as otherwise provided in paragraphs (2) and (3), such decisions may be reviewed by the United States court of appeals*69 for the circuit in which is located--
(A) in the case of a petitioner seeking redetermination of tax liability other than a corporation, the legal residence of the petitioner,
(B) in the case of a corporation seeking redetermination of tax liability, the principal place of business or principal office or agency of the corporation, or, if it has no principal place of business or principal office or agency in any judicial circuit, then the office to which was made the return of the tax in respect of which the liability arises,
(C) in the case of a person seeking a declaratory decision under section 7476, the principal place of business, or principal office or agency of the employer,
(D) in the case of an organization seeking a declaratory decision under section 7428, the principal office or agency of the organization, or
(E) in the case of a petition under section 6226 or 6228(a), the principal place of business of the partnership.
If for any reason no subparagraph of the preceding sentence applies, then such decisions may be reviewed by the Court of Appeals for the District of Columbia. For purposes of this paragraph, the legal residence, principal place of business, or*70 principal office or agency referred to herein shall be determined as of the time the petition seeking redetermination of tax liability was filed with the Tax Court or as of the time the petition seeking a declaratory decision under section 7428 or 7476, or the petition under section 6226 or 6228(a), was filed with the Tax Court.
Section 7482(b)(1)(A) and (B) is the relevant provision for this venue inquiry.In estate tax cases in the Tax Court, sometimes the estate is referred to as the petitioner and sometimes the executor *161 is referred to as the petitioner. 4*72 However, this Court has never squarely addressed whether the estate or the executor is the petitioner or the real party in interest, or, stated another way, whether the residence (or principal place of business) of the executor at the time the petition is filed, or the residence of the decedent at the time of his death, is determinative for purposes of venue under section 7482(b)(1). That issue does not turn upon how a case is captioned in this Court. 5 Cf.
*73 Petitioner does not dispute that the "legal residences" of the coexecutors determine the proper venue for an appeal in this case. Rather, petitioner argues that because decedent was domiciled in Arkansas at the time of his death, the coexecutors should be deemed to reside in Arkansas. Petitioner suggests that the standard applied for establishing diversity jurisdiction of Federal courts under
(c) For the purposes of this section and
* * * *
(2) the legal representative of the estate of a decedent shall be deemed to be a citizen only*74 of the same State as the decedent, and the legal representative of an infant or incompetent shall be deemed to be a citizen only of the same State as the infant or incompetent.
As acknowledged by petitioner,Proper venue in a Federal tax case is a question of Federal law and is to be determined by examining the Federal venue provisions, any relevant legislative history, and any case law construing them. I have not found any case construing section 7482(b)(1). Accordingly, I look to the various predecessor venue statutes for this Court leading up to the present section 7482(b)(1), the reasons for adoption of section 7482(b)(1), *163 and any cases construing similar provisions in Federal tax refund cases.
The Board of Tax Appeals, the predecessor of this Court, was established*75 in 1924. Revenue Act of 1924, ch. 234, sec. 900, 43 Stat. 253, 336. Two years later the law was expanded to provide appellate review by a Circuit Court of Appeals or the Court of Appeals for the District of Columbia. Revenue Act of 1926, ch. 27, sec. 1001, 44 Stat. 9, 109. Venue for such appeals was set forth in section 1002 of the Revenue Act of 1926. Section 1002(a) of the act provided review for "an individual" by the circuit "whereof he is an inhabitant". Section 1002(b) of the act provided review for "a person (other than an individual)" by the circuit in which is located the office of the collector where the tax return was filed. The term "person (other than an individual)" was defined to include an estate. See
In 1934 the venue provision for the Board of Tax Appeals was changed to make venue depend entirely upon where the tax return was filed. Section 519 of the Revenue Act of 1934, ch. 277, 48 Stat. 680, 760, amended section 1002 of the Revenue Act of 1926 to read as follows:
(a) Except as provided in subdivision (b), such decision may be reviewed*77 by the Circuit Court of Appeals for the circuit in which is located the collector's office to which was made the return of the tax in respect of which the liability arises or, if no return was made, then by the Court of Appeals of the District of Columbia.
(b) Notwithstanding the provisions of subsection (a), such decision may be reviewed by any Circuit Court of Appeals, or the Court of Appeals of *164 the District of Columbia, which may be designated by the Commissioner and the taxpayer by stipulation in writing.
That version of the venue statute making venue, absent a stipulation to the contrary, depend entirely upon where the tax return was filed became section 1141(b) of theIn connection with the Internal Revenue Service's then conversion from manual to automatic data processing of tax returns, *78 the Act of Nov. 2, 1966, provided for tax returns to be filed with Internal Revenue Service Centers rather than with the offices of the collectors. The 1966 Act abolished all tax refund suits against collectors, retaining only tax refund suits against the United States in U.S. District Courts or in the U.S. Court of Claims (later Claims Court and now Court of Federal Claims). The 1966 Act made significant changes in the Tax Court's venue statute. Pub. L. 89-713, sec. 3(c), 80 Stat. 1107, 1109.
As amended in 1966 to its current form, section 7482(b)(1) was part of a change in venue for both criminal tax and Tax Court cases. The general purpose of the change was to better disperse the appeals among the various circuits and to model venue for Tax Court appeals after the provision of existing law prescribing venue for tax refund suits in the U.S. District Courts. S. Rept. 1625, 89th Cong. 2d Sess. (1966),
So what is the proper venue for tax refund suits after which the Tax Court's venue statute is modeled?
*80 Suits for refund of Federal taxes may be brought only against the United States, and if the plaintiff is an individual, venue is proper only in the judicial district where that individual resides.
For a refund of Federal estate taxes, the executor is the proper person to bring the refund suit.
*166 In the Kruskal case the executors of the estate were residents of New York. At the time of the decedent's death, he was a resident of Connecticut. The letters testamentary were issued to the executors by the Probate Court for the District of Roxbury, Connecticut, the district of last residence of the decedent. Without obtaining ancillary letters in New York, the executors sued in the U.S. District Court for the Southern District of New York to recover the Federal estate tax they had paid. The Government moved to dismiss on the ground that venue would be only in the District Court for Connecticut and on the further ground that capacity to sue under
As to the lack of ancillary letters in New York, the Court of Appeals for the Second Circuit held that
the claim of the executors is technically in their own right, for it is to recover monies which they paid and to right an error which they, under governmental compulsion, committed. Wherever the transaction giving rise to a right of recovery occurs after the death of a testator, suit to enforce the right must be brought by the executors as individuals, rather than as representatives. * * *
The Court of Appeals for the Second Circuit also concluded that proper venue was in the Southern District of New York where the executors resided. Citing
Since there is nothing to suggest departure from the usual rule that residence of the individual plaintiffs, rather than the situs*83 of their estate, controls questions of federal jurisdiction,
*167 In summary, I have found few cases addressing venue for tax refund suits and none addressing venue for appeal of a Tax Court decision in an estate tax case. However, the above review of the venue statute, its legislative history, and cases involving tax refund suits leads me to the conclusion that the residence of the executor (or the principal place of business in the case of a corporate executor) is controlling under section 7482(b)(1).
I conclude that an appeal in this case would properly lie to the Court of Appeals for the Seventh Circuit. Therefore, I think this Court is not bound by the Golsen rule to follow the opinion of the Court of Appeals for the Eighth Circuit in
COHEN, J., agrees with this dissent.
HALPERN, J., dissenting: I*84 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. 15. 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 *168 she) thinks is the right result. *85 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
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.,
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. [
We have backed off to the extent that, in
The majority finds the Golsen doctrine inapplicable. Majority op. p. 15. 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 *169 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
II. Qualified Terminable Interest Property
A. Introduction--
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
The authority vested by the decedent in his personal representative to elect whether to have
I do not consider
*171 B. Committee Reports Are Silent
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. *93 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,Thus, Congress enacted
C. Internal Consistency
[The terminable interest rule] is intended to be all-encompassing with respect to various*95 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. * * * [
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 be 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. * * * [Emphasis added.]
In
The general rule of
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
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*99 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.
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. 16. What is one to make of that statement? Can the majority possibly believe that
PARKER, J., agrees with*102 this dissent.
CHIECHI, Judge dissenting: I join in Judge Parker's dissent to the extent it addresses the QTIP issue. However, in light of the majority's interpretation of
Footnotes
*. This case was reassigned to Judge Thomas B. Wells↩ by Order of the Chief Judge.
1. If the interest in such property is QTIP, then an additional issue must be decided, to wit, whether the estate, inheritance, and any other succession taxes are to be paid from the assets passing into the marital trust or from the stock bequeathed to decedent's son. This additional issue will be decided by a separate opinion subsequently to be released.↩
2. The terms "coexecutors" and "co-personal representatives" are used interchangeably in this case.↩
1. The trustees of the marital trust were named as the beneficiaries of the Clack Corp. Profit Sharing Plan.↩
3.
Sec. 2056(b)(7) provides:(A) IN GENERAL. -- In the case of qualified terminable interest property --
(i) for purposes of subsection (a), such property shall be treated as passing to the surviving spouse, and
(ii) for purposes of paragraph (1)(A), no part of such property shall be treated as passing to any person other than the surviving spouse.
(B) Qualified terminable interest property defined. -- For purposes of this paragraph --
(i) IN GENERAL. -- The term "qualified terminable interest property" means property --
(I) which passes from the decedent,
(II) in which the surviving spouse has a qualifying income interest for life, and
(III) to which an election under this paragraph applies.
(ii) Qualifying income interest for life. -- The surviving spouse has a qualifying income interest for life if --
(I) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
(II) no person has a power to appoint any part of the property to any person other than the surviving spouse.
Subclause (II) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).
(iii) Property includes interest therein. -- The term "property" includes an interest in property.
(iv) Specific portion treated as separate property. -- A specific portion of property shall be treated as separate property.
(v) Election. -- An election under this paragraph with respect to any property shall be made by the executor on the return of tax imposed by
section 2001↩ . Such an election, once made, shall be irrevocable.4. Item (3) in the above quotation, however, is an imprecise paraphrase of and not the actual statutory language used in
sec. 2056(b)(7)(B)(i)(III) . InEstate of Robertson v. Commissioner, 98 T.C. 678">98 T.C. 678 (1992), revd.15 F.3d 779">15 F.3d 779 (8th Cir. 1994), this Court addressedsec. 2056(b)(7)(B)(i)(II) , the "qualifying income interest for life" requirement, and did not undertake to construesec. 2056(b)(7)(B)(i)(III)↩ , the election requirement.5. Sec. 20.2056(b)-7(d)(3), Estate Tax Regs., provides as follows:
(3) Contingent income interests. An income interest granted for a term of years, or a life estate subject to termination upon the occurrence of a specified event (e.g., remarriage), is not a qualifying income interest for life. In addition, an income interest (or life estate) that is contingent upon the executor's election under
section 2056(b)(7)(B)(v)↩ is not a qualifying income interest for life, regardless of whether the election is actually made.1. See
T.D. 8522 ,1 C.B. 236">1994-1 C.B. 236↩ , 238, promulgated on Feb. 28, 1994, effective with respect to estates of decedents dying after Mar. 1, 1994.1. Sec. 7482(b) prescribes that appellate venue will be in the Court of Appeals for the circuit in which the legal residence of the petitioner is located.↩
2. The dissent's disagreement with the majority's rationale could have been expressed without discussing or relying on the effect of venue on any possible appeal. Due to the majority's decision to no longer follow our prior position regarding the QTIP issue, this Court would be in agreement with all Courts of Appeals that have addressed this issue, and it would be unnecessary for us to consider whether it would be appropriate to follow the rule of a particular circuit. See
Golsen v. Commissioner, 54 T.C. 742 (1970) , affd.445 F.2d 985">445 F.2d 985↩ (10th Cir. 1971).3. The forum-shopping problem would be further exacerbated where an estate is represented by more than one fiduciary whose residences would offer the possibility of an appeal to different Courts of Appeals.↩
4. Sec. 2203 defines the term "executor" for purposes of the Internal Revenue Code, and sec. 2204 provides for discharge of the fiduciary (executor) from personal liability if certain prescribed procedures are followed. In that connection, sec. 301.6903-1(a), Proced. & Admin. Regs., requires that a fiduciary provide notice of the fiduciary's relationship to a district director. The referenced procedural regulation also indicates that "the tax or liability is ordinarily not collectible from the personal estate of the fiduciary but is collectible from the estate of the taxpayer".↩
5. The Federal tax refund case
Kruskal v. United States, 178 F.2d 738">178 F.2d 738 (2d Cir. 1950), which is heavily relied on in the dissenting opinion, places central focus and substantial reliance onMecom v. Fitzsimmons Drilling Co., 284 U.S. 183">284 U.S. 183↩ (1931), a case involving Federal diversity jurisdiction. It is also noted that these cases are about 45 and 65 years old, respectively, and predate contemporary legislation and thinking on the subject of venue.6. The dissent, however, does not explain why following those principles would cause a better or more feasible result.↩
7. We are not in a position to dictate which Court of Appeals should review our opinions. However, in the process of establishing a rule concerning the identity of the petitioner in our Court and interpreting the appellate venue statute, we should consider the potential procedural effect on the litigation process.↩
1. See Covey, Estate, Gift and Income Taxation--1993 Developments, U. Miami 28th Inst. on Est. Plan. par. 117.1 (1994); id.--1994 Developments par. 116.1 (1995). Covey has warned will drafters of the danger of relying on the Court of Appeals for the Fifth Circuit's approach in
Estate of Clayton v. Commissioner, 976 F.2d 1486 (5th Cir. 1992) , revg.97 T.C. 327">97 T.C. 327↩ (1991). The warning still seems to be sound, particularly in view of the position taken in sec. 20.2056(b)-7(d)(3), Estate Tax Regs.2. The use of private letter rulings in this fashion erodes the statutory prohibition of sec. 6110(j)(3) on the use or citation of private rulings as precedent. I'm concerned that such use will have a stultifying effect on the private rulings process.↩
3. The infrequency with which the Supreme Court has cited
INS v. Cardoza-Fonseca, 480 U.S. 421">480 U.S. 421 (1987), in recent years, especially for the changed-position doctrine, where the Court seems more likely to disregard it, seeStutson v. United States, U.S. , 116 S. Ct. 600">116 S. Ct. 600 (1996);Lawrence v. Chater, U.S. , 116 S. Ct. 604">116 S. Ct. 604 (1996); cf.Thomas Jefferson Univ. v. Shalala, 512 U.S. , ,114 S. Ct. 2381">114 S. Ct. 2381 , 2388 (1994);Good Samaritan Hosp. v. Shalala, 508 U.S. 402">508 U.S. 402 , (1993), 113 S. Ct. 2151">113 S. Ct. 2151, 2161 (1993), would seem to indicate that Cardoza-Fonseca is moribund, except, perhaps, in the immigration area that gave birth to it, seeFranklin v. INS, 72 F.3d 571 (8th Cir. 1995) ;Zhang v. Slattery, 55 F.3d 732">55 F.3d 732↩ (2d Cir. 1995).4. The Courts of Appeals--for the Fifth Circuit in
Estate of Clayton, supra (before the release of the final regulation) and the Eighth Circuit inEstate of Robertson, 15 F.3d 779">15 F.3d 779 (8th Cir. 1994), revg.98 T.C. 678">98 T.C. 678 (1992) (after its release)--found the Commissioner's position to be in violation of the plain language of the statute. Acceptance of this view would derail the inquiry inChevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837">467 U.S. 837 (1984), from getting to the second step that requires deference to the Commissioner's view. It's at this point that I part company from the position stated so categorically by the Court of Appeals for the Fifth Circuit. The contrariety of judicial views on this subject shows that reasonable people can disagree over what the appropriate result should be and whether it turns on the interpretation to be given to one or the other prong ofsec. 2056(b)(7)(i) and(ii)↩ or on the policy argument.1. For example, assume husband is the first to die and leaves wife a qualifying income interest in his entire estate, which estate is valued at $ 1.2 million. Assume further that wife dies 8 months after husband and her income interest in husband's estate is the only property in which she has any interest. If the executor of husband's estate files the estate tax return before wife dies and elects on the return to treat one-half of the property as QTIP, husband's estate will get a marital deduction for $ 600,000 leaving $ 600,000 in his estate. Wife's estate will include the $ 600,000 QTIP property. Neither estate will be subject to tax (sheltered by husband's and wife's respective unified credit). If, on the other hand, husband's executor does not file the estate tax return until after wife's death, no QTIP election may be made, $ 600,000 of husband's estate is taxable, and wife's unified credit is wasted.↩
2. The Court of Appeals for the Fifth Circuit also focused on this Court's language that the executor has the power to direct the assets of Trust B (marital trust) to Trust A (children's trust). The Fifth Circuit stated:
First, the QTIP election cannot vest the executor with control over "trust assets" before they become trust assets! The undivided interests in the * * * [property] for which the election is made are estate assets but they do not become trust assets until the trust is funded, even though the economic effect of funding is retroactive to the instant of death. Assets used to fund each testamentary trust get there by virtue of the provisions of the Will and the administration of the estate. * * *
Estate of Clayton v. Commissioner, 976 F.2d 1486">976 F.2d 1486 , 1499 (5th Cir. 1992), revg.97 T.C. 327">97 T.C. 327↩ (1991). I agree that the assets of the estate are the proper focus of the determination. It is those assets, however, over which the executor had the prohibited power.3. See also
Peat Oil & Gas Associates v. Commissioner, T.C. Memo 1993-130">T.C. Memo. 1993-130 , appeal dismissed without published opinion for improper venue12 F.3d 214">12 F.3d 214↩ (6th Cir. 1993).4. That sec. 7482(b)(1)(A) uses the term "petitioner" rather than "taxpayer" is not particularly relevant to our inquiry. Various provisions of the Internal Revenue Code refer to "the taxpayer" whether in the context of deficiency cases in the Tax Court (sec. 6212--notice of deficiency; sec. 6213--restrictions applicable to deficiencies; petition to Tax Court) or in the context of tax refund cases in the U.S. District Courts (sec. 7422--civil actions for refund). However, when it comes to venue provisions, sec. 7482(b)(1)(A) uses the term "petitioner" for the party filing a deficiency case in the Tax Court, and
28 U.S.C. sec. 1402(a)(1) (1994)↩ uses the term "plaintiff" for the party filing a tax refund suit.5. Rule 23(a)(1) provides that "The name of an estate or trust or other person for whom a fiduciary acts shall precede the fiduciary's name and title, as for example 'Estate of Mary Doe, deceased, Richard Roe, Executor.'"↩
6. Rule 60(c) provides that "The capacity of a fiduciary or other representative to litigate in the Court shall be determined in accordance with the law of the jurisdiction from which such person's authority is derived."↩
7. The Probate Court of Benton County, Arkansas, issued letters testamentary to Richard E. Clack and the Marshall & Isley Trust Co., authorizing them to act as coexecutors of decedent's estate. That Mr. Clack is a resident of Wisconsin and that the Trust Company has its principal place of business in Wisconsin did not disqualify them to be authorized to act as coexecutors of dececent's estate and hence authorized to represent decedent's estate and litigate in this Court.
Under Arkansas law, a nonresident natural person is authorized to act as executor so long as an in-state agent is appointed for service of process.
Ark. Code Ann. secs. 28-48-101(a) ,28-48-101(b)(6) (Michie 1987). Under Arkansas law, a foreign corporation is not disqualified to act as a fiduciary so long as its home jurisdiction (here Wisconsin) grants authorization to Arkansas companies to act in a similar capacity.Ark. Code Ann. secs. 28-48-101(a) ,28-48-101(b)(4) (Michie 1987);Ark. Code Ann. sec. 4-27-203 (Michie 1987). Wisconsin law essentially tracks that of Arkansas in this regard.Wis. Stat. Ann. secs. 856.21 ,856.23↩ (West 1991); sec. 223.12(1), (4) (West 1957 & Supp. 1981).8. The estate income↩ tax return was filed with the office of the collector for the district where the fiduciary resided; the estate tax return was filed in the office of the collector for the district where the decedent resided at the time of his death. Revenue Act of 1924, ch. 234, secs. 225(b), 300, 304, 43 Stat. 253, 280, 303, 307.
9.
28 U.S.C. sec. 1346(a)(1) (1994) provides:(a) The district courts shall have original jurisdiction concurrent with the United States Court of Federal Claims, of:
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been excessive or in any manner wrongfully collected under the internal-revenue laws;↩
10.
28 U.S.C. sec. 1402(a) (1994) provides:(a) Any civil action in a district court against the United States under subsection (a) of
section 1346 of this title may be prosecuted only:(1) Except as provided in paragraph (2), in the judicial district where the plaintiff resides;
(2) In the case of a civil action by a corporation under paragraph (1) of subsection (a) of
We note that the transfer provision of the last sentence ofsection 1346 , in the judicial district in which is located the principal place of business or principal office or agency of the corporation; or if it has no principal place of business or principal office or agency in any judicial district (A) in the judicial district in which is located the office to which was made the return of the tax in respect of which the claim is made, or (B) if no return was made, in the judicial district in which lies the District of Columbia. Notwithstanding the foregoing provisions of this paragraph a district court, for the convenience of the parties and witnesses, in the interest of justice, may transfer any such action to any other district or division.28 U.S.C. sec. 1402(a)(2) applies only to corporations.Caleshu v. Wangelin, 549 F.2d 93">549 F.2d 93 , 95↩ (8th Cir. 1977).1. Hart & Sacks, The Legal Process: Basic Problems in the Making and Application of Law 143-152, in particular 149-150 (1994); Schauer, "Opinions as Rules",
62 U. Chi. L. Rev. 1455">62 U. Chi. L. Rev. 1455 , 1465↩ (1995).