Estate of McLendon v. Commissioner

REVISED - March 10, 1998

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_____________________

No. 97-60135
_____________________

Estate of GORDON B. McLENDON, Deceased;
GORDON B. McLENDON, JR., Independent Executor,

Petitioners-Appellants,
versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.

*****************************************************************

Estate of GORDON B. McLENDON, Deceased, Donor;
GORDON B. McLENDON, JR., Independent Executor,

Petitioners-Appellants
versus

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee.
_________________________________________________________________

Appeal from the Decision of the United States Tax Court
_________________________________________________________________
March 9, 1998

Before JOLLY, DUHÉ, and PARKER, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

The only question remaining in this appeal1 is whether

Gordon B. McLendon was sufficiently close to death on March 5,

1986, to require him to depart from the actuarial tables published

1
Earlier, another panel of this court decided all of the other
issues and remanded as to this question. See Estate of McLendon v.
Commissioner of Internal Revenue, No. 94-40584 (5th Cir. Dec. 28,
1995)(unpublished).
by the Commissioner of Internal Revenue (the “Commissioner”) in

valuing a remainder interest and related annuity. The Tax Court

determined that he was, from which final decision McLendon’s Estate

appeals. We reverse.

I

Although this case raises several contentious legal questions,

the underlying facts are not in serious dispute. Through various

partnership interests, McLendon was the principal owner and

director of a vast broadcasting and entertainment empire. His

interests ranged from the 458-station Liberty Broadcasting System

to numerous individual radio stations, television stations, and

movie theaters. Over his life time, McLendon became a very wealthy

man.

Mortality hovers over the castle as well as the cottage,

however, and in May 1985 McLendon was diagnosed with esophageal

cancer. Although his condition initially improved following

radiation therapy, the cancer recurred in September. At this

point, McLendon’s cancer was categorized as “systemic”--the most

severe of three types of cancer growth. There is no dispute that

the cancer was very likely terminal from this point forward, with

a 2-3% overall survival rate. In particular, any remissions

achieved after this point were generally expected by McLendon’s

doctors to be temporary.

Nonetheless, from October 1985 through March 1986, McLendon

received six courses of chemotherapy at M.D. Anderson’s world-

-2-
renowned cancer treatment facility in Houston, Texas. On

December 3, 1985, after three courses of chemotherapy, McLendon’s

doctor wrote on his discharge summary:

The patient had an esophagogastroduodenoscopy
on November 26, 1985, and it showed complete
endoscopic remission confirmed by multiple
biopsies of the affected area.

Despite this upbeat news, on December 5, 1985, McLendon

attempted suicide by shooting himself in the head with a handgun.

A suicide note reflected his belief that he would eventually

succumb to the cancer and his desire not to prolong the suffering

of his family. After being hospitalized for over a month for

treatment of injuries from the failed suicide, McLendon began a

fourth course of chemotherapy. He returned home in late January

1986 and began to receive periodic in-home examinations and

treatment from a Dr. Gruebel. Her impression at the time was that

he was doing well.

In early February, McLendon fell at home and was admitted to

the hospital for treatment of his injuries. On February 14, while

hospitalized, McLendon purportedly dictated2 a letter to Dr.

Freireich, his oncologist, which evidenced a renewed sense of

confidence. McLendon stated that he was feeling much better even

though the chemotherapy was “very, very debilitating.” Stating

that he was “beginning to make plans for the rest of [his] life,”

2
This letter was not signed by McLendon, but did carry the
initials of Billie P. Odom, his personal secretary.

-3-
McLendon inquired specifically about his “total remission” and

prognosis for the future, and asked whether he could “make long

term plans.” Dr. Freireich responded on February 19. Advising

against further surgical procedures, he noted:

The objective evidence that we have has failed
to demonstrate any residual disease. This
includes endoscopy with biopsies of the
esophagus which have proven to be negative on
several occasions and the repeated x-ray
examinations by CT scan which fail to reveal
any evidence of residual malignancy. [By]
clinical and laboratory objective criteria,
the present condition of your illness must be
characterized as “complete remission.” The
word remission is used advisedly, because the
risk of recurrence is still much in the
picture. On the other hand patients who are
cured of their disease are exclusively drawn
from the population of patients who have a
“complete remission.” To state that
positively, you are certainly a candidate for
long term control which fulfills medical and
lay criteria for curability. Unfortunately
the maturity and quantity of our clinical data
does not permit good estimates of the risk of
recurrence in your specific instance. It is
therefore necessary for me as a physician, to
advise you of the risk that the disease might
recur, but to state frankly and without
hesitation that the possibility that your
disease has been permanently eradicated is
definite and significant and in my
professional opinion, should form the basis
for your planning for the future.

At the end of February, McLendon returned home under

twenty-four hour care from a staff of private duty nurses. Notes

taken by these nurses show that during the period from March 2

through March 5, McLendon was able to take short walks and perform

minor tasks, but was at times sick to his stomach, was in constant

-4-
need of pain medication, and was receiving artificial sustenance to

ensure proper caloric intake. McLendon was examined at home on

March 5 by the optimistic Dr. Gruebel. It was her impression at

that time that McLendon was “markedly improved” and in the best

condition since he had come into her care in January. The

Commissioner subsequently presented undisputed expert testimony,

however, that McLendon’s chances of surviving for more than one

year from this date were approximately 10 percent. This estimate

was based principally on the likelihood of recurrence in a case

like McLendon’s.

On March 5, McLendon entered into a private annuity

transaction with his son and the newly minted McLendon Family

Trust. This transaction involved the transfer of remainder

interests in McLendon’s partnership holdings to his son and the

Trust in exchange for $250,000 and an annuity to be paid to

McLendon for life. The amount of the annuity was set such that its

aggregate present value would equal the present value of the

remainder interests. In valuing the remainder interests and the

annuity, the parties referred to the Commissioner’s actuarial

tables for life expectancy then contained in Treas. Reg.

§ 25.2512-5(f). McLendon was sixty-five years old on March 5,

1986, resulting in an actuarial life expectancy of fifteen years

from that date. Based on this figure, the parties ultimately

-5-
determined that the remainder interests had a value of $5,881,695,3

and that the annuity would need to be $865,332 in order to match.

In late March, McLendon completed his final course of

chemotherapy. In May, tests revealed a major recurrence of the

cancer. Treatments were discontinued within a few weeks, and

McLendon died at home on September 14. From the time that he was

first admitted to M.D. Anderson in October 1985 until his death,

McLendon survived longer than 75% of patients diagnosed with

esophageal cancer.

II

McLendon’s estate tax return relied on a presumption that he

had received an adequate and full consideration for the assets

transferred in the private annuity transaction. The Commissioner

disagreed with this presumption, taking issue with both the use of

the actuarial tables and certain substantive aspects of the

valuation of the partnership interests.

With regard to the actuarial tables, the Commissioner took the

position that McLendon’s life expectancy was sufficiently

predictable on March 5, 1986, to make their use unnecessary and

erroneous. Based on the medical evidence, the Commissioner further

found that McLendon’s actual life expectancy on this date was less

than one year. Because this was significantly less than the

fifteen-year figure used by the parties, the Commissioner concluded

3
Based on a value of $18,363,970 for the partnership interests
themselves.

-6-
that the remainder interests had been so undervalued, and the

annuity so overvalued, that the March 5 transfer had not been for

an adequate and full consideration. As such, the Commissioner

declared several million dollars in gift and estate tax

deficiencies based on McLendon’s erroneous use of the actuarial

tables. Additional deficiencies were declared based on the

substantive valuation issues.

McLendon’s Estate took this dispute to the Tax Court, where

the issues were reduced by joint stipulation to six discrete

questions. One of these questions was whether it was proper for

McLendon to apply the actuarial tables to determine his life

expectancy in valuing the remainder interests and annuity. The

rest of the questions concerned the substantive aspects of the

valuation of the partnership interests. On September 30, 1993, the

Tax Court issued its first opinion in this case, generally agreeing

with the Commissioner and imposing $12.5 million in additional gift

and estate taxes. Of significance to the instant appeal, the Tax

Court held that use of the actuarial tables was improper because

McLendon’s life expectancy was reasonably predictable at the time

the private annuity transaction occurred, being approximately one

year.

McLendon’s Estate appealed the Tax Court’s ruling to this

court. Estate of McLendon v. Commissioner of Internal Revenue, No.

94-40584 (5th. Cir. December 28, 1995). In an unpublished opinion,

the panel reversed the Tax Court on the substantive valuation

-7-
questions, but remanded as to use of the actuarial tables. Writing

for the court, Judge Jones stated that:

[W]e are unable to discern whether the Tax Court followed
Revenue Ruling 80-80 or found reason to depart from it
[in resolving the actuarial table question]. The Tax
Court’s opinion is both ambiguous and ambivalent
regarding the revenue ruling, as it holds that Gordon had
a life expectancy of one year, a finding that would
suggest to us under the express language of the revenue
ruling that death was not clearly imminent. We must
remand for the court to clarify its position with regard
to the applicability of Revenue Ruling 80-80 so that we
will have a sounder basis for appellate review.

On July 8, 1996, the Tax Court issued its second opinion. It

held that, although neither party had argued a position

inconsistent with Rev. Rul. 80-80, the court had not felt obliged

to follow that ruling, and had instead applied a standard gleaned

from prior case law. It noted, however, that the result would have

been the same under the ruling anyway. In the light of this

clarification, McLendon’s Estate now continues its appeal of the

Tax Court’s determination that use of the actuarial tables was

improper.

III

We review a decision of the Tax Court applying the same

standards used in reviewing a decision of the district court:

Questions of law are reviewed de novo; findings of fact are

reviewed for clear error. Estate of Hudgins v. Commissioner of

Internal Revenue, 57 F.3d 1393, 1396 (5th Cir. 1995).

IV

-8-
 As the prior panel foresaw, the remainder of this case turns

on the applicability of Rev. Rul. 80-80. Because we hold that the

ruling provides the legal test applicable to McLendon’s situation,

we find that his use of the actuarial tables was proper.

A

The controversy in this case ultimately stems from 26 U.S.C.

§§ 2036(a) and 2512(b). Under § 2036(a), a decedent’s gross estate

for estate tax purposes is defined to include any property

transferred by him in which he retained a life estate, “except in

case of a bona fide sale for an adequate and full consideration in

money or money’s worth.” Similarly, under § 2512(b), a taxable

gift is defined as a transfer of property “for less than an

adequate and full consideration.” Here, the transfer in question

was the March 5 exchange of the partnership remainder interests for

the cash and annuity. As the parties concede, the question whether

that transfer was for “an adequate and full consideration” turns on

the proper valuation of the remainder interests and the annuity.

At the time of the events in this case, Treas. Reg.

§ 25.2512-5 provided that “the fair market value of annuities, life

estates, terms for years, remainders, and reversions transferred

after November 30, 1983, is their present value determined in this

section.” Because the economic present value of these assets is

dependent upon the predicted length of a measuring life, the

regulation goes on to provide actuarial tables for life expectancy

and instructions for using them to arrive at valuations of the

-9-
assets in question. There is no dispute in this case over the

valuation formulas contained in the regulation. The parties

concede that the only question is whether the circumstances of

McLendon’s case allowed him to use a life expectancy figure derived

from the tables of § 25.2512-5, or instead required him to use some

other method to determine his “actual” life expectancy. If use of

the actuarial tables was proper, then the parties agree that the

values calculated by McLendon were correct, and that the cash and

annuity were adequate consideration for the remainder interests.

If, on the other hand, use of the actuarial tables was improper,

then the parties agree that the remainder interests had a much

higher value, and the annuity a much smaller value, such that the

cash and annuity were not adequate consideration. The sole

question before this court, then, is whether McLendon was allowed

to follow the express language of Treas. Reg. § 25.2512-5 and use

its actuarial tables in valuing the remainder interests and

annuity.

B

This question is less straightforward than it might seem.

Despite their apparently clear command, Treas. Reg. § 25.2512-5 and

its predecessors have not always been vigorously enforced by the

courts. In particular, in Miami Beach First National Bank v.

United States, 443 F.2d 116, 119-20 (5th Cir. 1971), this court

held that “where there is sufficient evidence regarding the actual

-10-
life expectancy of a life tenant, the presumptive correctness of

the Treasury tables will be overcome.”4

Based on Miami Beach First National Bank and other cases of

departure,5 the Commissioner issued various revenue rulings over

the years6 that attempted to clarify his position with regard to

4
This tendency of courts to ignore the regulations in certain
cases stems from the somewhat precarious position of the tables in
the statutory framework. In this context, the Internal Revenue
Code seeks only to assign “value” to various things for tax
purposes. As even the Commissioner concedes, the use of actuarial
tables does not result in particularly accurate measurements of
actual value in individual cases. Because of the difficulty of
computing the actual values of future and dependent interests,
however, the Supreme Court recognized long ago that the use of
actuarial tables was a necessary compromise. The Court noted that
inaccuracies would prevail in individual cases, but concluded that
they would cancel out in the aggregate, and that the tables were
simply an administrative necessity. See Ithaca Trust Co. v. United
States, 279 U.S. 151, 155 (1929); Simpson v. United States, 252
U.S. 547, 550 (1920). For this reason, the actuarial tables are
tolerated.
Implicit in this toleration, however, is the idea that the
tables need not be resorted to where the “administrative necessity”
does not exist. In particular, where the facts and circumstances
are such that an actual value can be calculated in a suitably
reliable way, use of the tables would seem to not be required.
This is ultimately the logic underlying Miami Beach First National
Bank and its progeny.
5
Cases, it might be noted, where the courts’ decisions to
allow departure from the harshness of the tables were without
exception favorable to the taxpayers in ultimate result. In
addition to Miami Beach First National Bank, see, e.g., Estate of
Jennings v. Commissioner of Internal Revenue, 10 T.C. 323 (1948)
(larger deduction allowed for the charitable gift of a remainder
interest because the remainder was properly valued according to the
shorter actual expected length of the measuring life rather than
the longer length derived from the tables). Here, of course, the
Commissioner seeks departure at the taxpayer’s expense. This
distinction is not wholly irrelevant, as we shall see.
6
See, e.g., Rev. Rul. 80-80, 1980-1 C.B. 194; Rev. Rul. 66-
307, 1966-2 C.B. 429. Subsequent to the events in this case, the

-11-
use of the tables. At the time of the events in this case, the

effective ruling was Rev. Rul. 80-80. It provides, in relevant

part:

The actuarial tables in the regulations are provided
as an administrative necessity, and their general use has
been readily approved by the courts.
The actuarial tables are not based on data that
exclusively involve persons of “good” or “normal” health.
They reflect the incidence of death by disease and
illness as well as by accident. The actuarial tables are
properly applicable to the vast majority of individual
life interests, even though the health of a particular
individual is obviously better or worse than that of the
“average” person of the same age and sex. Occasionally,
however, the actual facts of an individual’s condition
are so exceptional as to justify departure from the
actuarial tables.
. . .
In view of recent case law, the resulting principle
is as follows: the current actuarial tables in the
regulations shall be applied if valuation of an
individual’s life interest is required for purposes of
the federal estate or gift taxes unless the individual is
known to have been afflicted, at the time of the
transfer, with an incurable physical condition that is in
such an advanced stage that death is clearly imminent.
Death is not clearly imminent if there is a reasonable
possibility of survival for more than a very brief
period. For example, death is not clearly imminent if
the individual may survive for a year or more and if such
a possibility is not so remote as to be negligible.

Rev. Rul. 80-80, 1980-1 C.B. 194 (emphasis added, citations

omitted).

Commissioner abandoned this effort and created regulations to
govern the applicability of the actuarial tables. See Treas. Reg.
§§ 1.7520-3(b)(3) (income tax), 20.7520-3(b)(3) (estate tax), and
25.7520-3(b)(3) (gift tax). Rev. Rul. 80-80, the last of the old
line, was revoked in favor of the new regulations, but only for tax
years after 1995. See Rev. Rul. 96-3, 1996-1 C.B. 348.

-12-
 McLendon’s Estate argues that Rev. Rul. 80-80 clearly allows

his use of the tables. In this regard, the Estate notes that the

undisputed testimony of the Commissioner’s own expert was that

McLendon had a 10 percent chance of surviving for a year or more on

March 5, 1986. As such, the Estate concludes that McLendon’s

possibility of surviving for a year or more from that date was not

so remote as to be negligible, and that he therefore was permitted

and required to use the tables under the clear terms of the ruling.

Although the Commissioner maintains that this court is not

bound to follow Rev. Rul. 80-80, he also purports to take the

position that the ruling does not mandate the result indicated by

the Estate. The Commissioner argues that, although the ruling is

a correct statement of the law, it cannot be taken at face value,

and must be interpreted in the light of Miami Beach First National

Bank. The Commissioner contends that under this reading McLendon’s

use of the tables was inappropriate since there was “sufficient

evidence” of his actual life expectancy on March 5, 1986.

If Rev. Rul. 80-80 does govern this case, we, like the earlier

panel of this court, find it undeniable that it supports the

Estate’s position. The ruling states a clear standard, expressed

in language and example unneedful of further interpretation, and we

are convinced that the 10 percent figure is sufficient to satisfy

it. Whatever “negligible” might mean in a closer case, we are

-13-
certain that it does not refer to a one-in-ten chance.7 As such,

McLendon’s use of the tables was clearly proper under the ruling.

The question, then, is whether Rev. Rul. 80-80 states the

legal test applicable to McLendon’s situation. If it does, then it

is clear that McLendon’s use of the actuarial tables was proper.

The Tax Court ultimately chose not to apply Rev. Rul. 80-80 to this

case.8 This choice was a purely legal decision, and is thus

reviewed de novo.

C

We note at the outset that the Tax Court has long been

fighting a losing battle with the various courts of appeals over

7
Indeed, faced with the clear text of the ruling at oral
argument, the Commissioner was unable to come up with any
definition of “negligible” that would embrace McLendon’s situation.
This silent exclamation underscores the meritless nature of the
Commissioner’s argument under the ruling.
The Commissioner’s silence may have been prompted by the fact
that he has consistently defined the phrase “not so remote as to be
negligible” to mean “less than 5 percent” in other areas of estate
tax. See, e.g., Treas. Reg. §§ 26.2612-1(b)(1)(iii), 26.2612-
1(d)(2)(ii) & 26.2632-1(c)(2)(ii) (generation-skipping transfer
tax); Rev. Rul. 85-23, 1985-1 C.B. 327 (charitable deduction); Rev.
Rul. 78-255, 1978-1 C.B. 294 (same); Rev. Rul. 77-374, 1977-2 C.B.
329 (same); Rev. Rul. 70-452, 1970-2 C.B. 199 (same). Although
this might not be enough to establish that 5 percent is indeed the
correct figure, it would be sufficient to estop the Commissioner
from arguing otherwise in this case, as we shall soon see.
8
The Tax Court’s completely unpersuasive alternative holding
that Rev. Rul. 80-80 also supports its result founders for the same
reasons as the Commissioner’s arguments, and would be reversible
error under any standard of review. For purposes of this opinion,
we need only address the core of the Tax Court’s reasoning, i.e.,
that Miami Beach First National Bank, not Rev. Rul. 80-80, provides
the legal test applicable to McLendon’s case.

-14-
the proper deference to which revenue rulings are due.9 Whereas

virtually every circuit recognizes some form of deference,10 the Tax

Court stands firm in its own position that revenue rulings are

nothing more than the legal contentions of a frequent litigant,

undeserving of any more or less consideration than the conclusory

statements in a party’s brief.11 Although the Supreme Court has not

spoken definitively on the subject, its recent jurisprudence tends

to support the view that the courts owe revenue rulings a bit more

deference than the Tax Court would have us believe.12 Still,

9
See generally Linda Galler, Judicial Deference to Revenue
Rulings: Reconciling Divergent Standards, 56 Ohio St. L. J. 1037,
1059-74 (1995).
10
See, e.g., Amato v. Western Union International, Inc., 773
F.2d 1402, 1411-12 (2d Cir. 1985); Gillis v. Hoechst Celanese
Corp., 4 F.3d 1137, 1145 (3d Cir. 1993); Foil v. Commissioner of
Internal Revenue, 920 F.2d 1196, 1201 (5th Cir. 1990); Threlkeld v.
Commissioner of Internal Revenue, 848 F.2d 81, 84 (6th Cir. 1988);
Walt Disney Inc. v. Commissioner of Internal Revenue, 4 F.3d 735,
740 (9th Cir. 1993). In this circuit, revenue rulings are
generally “‘given weight as expressing the studied view of the
agency whose duty it is to carry out the statute.’” Foil, 920 F.2d
at 1201 (quoting United States Trust Co. v. Internal Revenue
Service, 803 F.2d 1363, 1370 n.9 (5th Cir. 1986)). Of course, any
deference extended to a revenue ruling evaporates in the face of
clear and contrary statutory language. Foil, 920 F.2d at 1201.
11
See, e.g., Pasqualini v. Commissioner of Internal Revenue,
103 T.C. 1, 8 n.8 (1994); Exxon Corp. v. Commissioner of Internal
Revenue, 102 T.C. 721, 726 n.8 (1994); Spiegelman v. Commissioner
of Internal Revenue, 102 T.C. 394, 405 (1994); Rath v. Commissioner
of Internal Revenue, 101 T.C. 196, 205 n.10 (1993).
12
See, e.g., Davis v. United States, 495 U.S. 472 (1990).
Note, however, that the Court in Davis was conspicuously silent as
to the applicability of Chevron deference to revenue rulings. See
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984). Given the context, this omission cautions
against placing too much reliance on revenue rulings as

-15-
revenue rulings are odd creatures unconducive to precise

categorization in the hierarchy of legal authorities. They are

clearly less binding on the courts than treasury regulations or

Code provisions, but probably (and in this circuit certainly) more

so than the mere legal conclusions of the parties. Apart from

that, little can be said with any certainty, and in the absence of

a definitive statement from on high, the Tax Court continues its

crusade to ignore them in toto.

This bit of background explains a great deal with regard to

the posture of this case. In support of its general position on

deference, the Tax Court went to great lengths to avoid applying

Rev. Rul. 80-80 to McLendon’s situation. The earlier panel of this

court noticed this slight, and asked the Tax Court if it really

wanted an open confrontation on the issue. Sticking to its guns,

the Tax Court replied that it did. The result was the instant

appeal.

As it turns out, however, this case does not require us to

step squarely into the fray. Most questions of deference to a

revenue ruling involve an argument by the taxpayer that a

particular ruling is contrary to law. Here, however, the argument

to ignore or minimize the effect of Rev. Rul. 80-80 comes from the

Commissioner, the very party who issued the ruling in the first

administrative legal interpretations, and the position of the Tax
Court is not without some merit.

-16-
place.13 In such a situation, this circuit has a well established

rule that is sufficient to resolve this case without probing the

penumbrae of the general deference question.

In Silco, Inc. v. United States, 779 F.2d 282, 286 (5th Cir.

1986), we held that a taxpayer was entitled to rely on the legal

standard implied by two revenue rulings extant at the time of his

transaction, even though they had been subsequently abrogated. In

reaching this conclusion, we noted that:

Treas. Reg. § 601.601(e) provides that taxpayers may
generally rely on published revenue rulings in
determining the tax treatment of their own transactions,
if the facts and circumstances of their transactions are
substantially the same as those that prompted the ruling.

Id. at 286.14 Because the statute, regulations, and case law were

less than clear at the time of the taxpayer’s transaction, we found

that the rulings “provide[d] the only insight available to [the]

taxpayer at the time of [his] transaction as to the conceptual

13
The Commissioner’s position is not entirely clear in this
case. He purports to maintain that Rev. Rul. 80-80 is an accurate
statement of the law, yet would prefer the court decide the case
based on the rule of Miami Beach First National Bank. This rule,
he implies, is the same as that of Rev. Rul. 80-80. The
Commissioner cannot eat his cake and have it too. As we explained
above, Rev. Rul. 80-80 is unambiguous in its support for the
Estate’s position. To the extent that he argues for a rule
inconsistent with the ruling’s clear language, we construe the
Commissioner’s position to be that the ruling should not apply.
14
Treas. Reg. § 601.601(e) states: “Taxpayers generally may
rely upon Revenue Rulings published in the Bulletin in determining
the tax treatment of their own transactions . . . .” Although not
cited therein, Silco also finds support in Treas. Reg. §
601.601(d), which provides that revenue rulings “are published to
provide precedents to be used in the disposition of other cases.”

-17-
approach the [Commissioner] would use,” and that the Commissioner

acted improperly in subsequently applying a different test to that

taxpayer. Id. at 287.

Silco stands for the proposition that the Commissioner will be

held to his published rulings in areas where the law is unclear,

and may not depart from them in individual cases. Furthermore,

under Silco the Commissioner may not retroactively abrogate a

ruling in an unclear area with respect to any taxpayer who has

relied on it.15

15
This latter portion of Silco might be read to be in conflict
with the Supreme Court’s well established rule that the
Commissioner may retroactively revoke certain revenue rulings, even
where taxpayers may have relied on them to their detriment. See
Automobile Club of Michigan v. Commissioner of Internal Revenue,
353 U.S. 180, 183-84 (1957) (Brennan, J.); Dixon v. United States,
381 U.S. 68, 72-73 (1965) (Brennan, J.). For a number of reasons,
however, we perceive no conflict.
First, the Automobile Club rule applies only where the
Commissioner revokes a prior ruling that is contrary to the
Internal Revenue Code. This was not the case in Silco, nor is it
the case here. The Silco rule is expressly limited to areas where
the Code does not provide a clear answer. Second, Silco is
grounded on the Commissioner’s invitation to taxpayers to rely on
his revenue rulings as set out in Treas. Reg. § 601.601(e), a
factor not present in the Automobile Club or Dixon cases. The
essence of the Silco rule is that traditional notions of equity and
fair play prevent the Commissioner from changing his position after
inviting reliance with his own regulations. Finally, even if there
were some tension between Silco and Automobile Club, we would be
bound in this case by our past circuit precedent. “One panel of
this Court may not overrule another (absent an intervening decision
to the contrary by the Supreme Court or the en banc court . . .).”
Hogue v. Johnson, 131 F.3d 466, 491 (5th Cir. 1997) (Garwood, J.)
(emphasis added). See also United States v. McPhail, 119 F.3d 326,
327 (5th Cir. 1997)(Smith, J., dissenting), and cases cited
therein. Supposed conflicts with prior Supreme Court precedent are
grist for the en banc mill, but not for ad hoc panel revision. See
5th Cir. IOP to Fed. R. App. P. 35. For all of these reasons, we
are content that Silco continues to be good law.

-18-
 Applying Silco to this case, it quickly becomes clear that

Rev. Rul. 80-80 must govern our decision. McLendon went to great

lengths to structure his transaction to comply with applicable

law,16 and the Commissioner does not dispute that in so doing

McLendon expressly relied on Rev. Rul. 80-80’s clarification of the

admittedly murky area of future and dependent interest valuation.

The Commissioner ignored the clear language of his own ruling in

declaring deficiencies, and it is precisely this kind of tactic

that Silco declares to be intolerable. Because McLendon was

entitled to rely on Rev. Rul. 80-80, the Tax Court was not at

liberty to disregard it. Its decision to do so was error, and we

reverse on that basis. Furthermore, because the application of

Rev. Rul. 80-80 clearly sustains the Estate’s position, we need not

remand yet again for further proceedings. Consistent with our

discussion of the application of the ruling above, we render for

McLendon’s Estate.

V

Where the Commissioner has specifically approved a valuation

methodology, like the actuarial tables, in his own revenue ruling,

16
As indeed he should have. “‘Over and over again courts have
said that there is nothing sinister in so arranging one’s affairs
as to keep taxes as low as possible. Everybody does so, rich or
poor; and all do right, for nobody owes any public duty to pay more
than the law demands: taxes are enforced exactions, not voluntary
contributions. To demand more in the name of morals is mere
cant.’” Commissioner of Internal Revenue v. First Security Bank of
Utah, 405 U.S. 394, 398 n.4 (1972) (quoting Learned Hand’s
celebrated dissent in Commissioner of Internal Revenue v. Newman,
159 F.2d 848, 850-51 (2d Cir. 1947)).

-19-
he will not be heard to fault a taxpayer for taking advantage of

the tax minimization opportunities inherent therein. Here, the

Commissioner had no right to ignore Rev. Rul. 80-80 and the Tax

Court was bound to apply it consistent with McLendon’s right of

reliance. The Tax Court’s manifest failure to apply the ruling was

clearly wrong, and, accordingly, we REVERSE its judgment and RENDER

for the Estate.

REVERSED and RENDERED.

-20-