Estate of Shelfer v. Commissioner of Internal Revenue

United States Court of Appeals,

Eleventh Circuit.

No. 94-5211.

ESTATE OF Lucille P. SHELFER, Deceased, the Quincy State Bank,
Personal Representative, Respondent,

v.

COMMISSIONER OF INTERNAL REVENUE, Petitioner.

July 1, 1996.

Appeal from a Decision of the United States Tax Court. (No. 25389-
92).

Before KRAVITCH, DUBINA and CARNES, Circuit Judges.

KRAVITCH, Circuit Judge:

The Commissioner of the Internal Revenue Service

("Commissioner") appeals the Tax Court's decision in favor of the

estate of Lucille Shelfer. The court held that Lucille's estate

was not liable for a tax deficiency assessed on the value of a

trust from which she had received income during her lifetime. The

estate of Lucille Shelfer's husband, Elbert, previously had taken

a marital deduction for these trust assets, claiming that the trust

met the definition of a qualified terminable interest property

trust ("QTIP") pursuant to 26 U.S.C. § 2056(b)(7).

This case presents an issue of first impression for this

circuit: whether a QTIP trust is established when, under the terms

of the trust, the surviving spouse is neither entitled to, nor

given the power of appointment over, the trust income accumulating

between the date of the last distribution and her death, otherwise

known as the "stub income." The Commissioner interprets the QTIP

statutory provisions to allow such trusts to qualify for the
marital deduction in the decedent's estate; accordingly, the value

of the trust assets must be included in the surviving spouse's

estate. We agree with the Commissioner and REVERSE the Tax Court.

I.

Elbert Shelfer died on September 13, 1986 and was survived by

his wife, Lucille. Elbert's will provided that his estate was to

be divided into two shares, that were to be held in separate

trusts. The income from each trust was to be paid to Lucille in

quarterly installments during her lifetime. The first trust was a

standard marital deduction trust consisting of one-third of the

estate. It is not at issue in this case. The second trust,

comprising the remaining two-thirds of the estate, terminated upon

Lucille's death. The principal and all undistributed income was

payable to Elbert's niece, Betty Ann Shelfer.

Elbert's will designated Quincy State Bank as the personal

representative for his estate, and on June 16, 1987, the bank filed

a tax return on behalf of the estate. The bank elected to claim a

deduction for approximately half of the assets of the second trust

under the QTIP trust provisions of 26 U.S.C. § 2056(b)(7). The IRS

examined the return, allowed the QTIP deduction, and issued Quincy

Bank a closing letter on May 10, 1989. The statute of limitations

for an assessment of deficiency with respect to Elbert's return

expired on June 16, 1990.

On January 18, 1989, Lucille died; Quincy State Bank served

as personal representative for her estate. The bank filed an

estate tax return on October 18, 1989 and did not include the value

of the assets in the trust, even though the assets previously had
been deducted on her husband's estate tax return. The IRS audited

the return and assessed a tax deficiency for the trust assets on

the ground that the trust was a QTIP trust subject to taxation.

Quincy State Bank commenced a proceeding in tax court on behalf of

Lucille's estate, claiming that the trust did not meet the

definition of a QTIP trust because Lucille did not control the stub

income; therefore, the Bank argued, the estate was not liable for

tax on the trust assets under 26 U.S.C. § 2044. The Tax Court

agreed. The Commissioner appeals this decision.

II.

The proper construction of a statutory provision is a purely

legal issue; thus, we apply a de novo standard of review to the

Tax Court's decision. Kirchman v. Commissioner, 862 F.2d 1486,

1490 (11th Cir.1989). As in any case involving the meaning of a

statute, we begin our analysis with the language at issue.

26 U.S.C. 2056(b)(7)(B) provides, in relevant part:

(i) In general.—The term "qualified terminable income
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.1

(emphasis added).

Lucille's estate contends, and the Tax Court held, that the

phrase "all of the income" includes income that has accrued between

the last distribution and the date of the spouse's death, or the

stub income. They argue that "all" refers to every type of income.

Stub income is a kind of income, and thus the surviving spouse must

be entitled to stub income in order for the trust to qualify as a

QTIP trust. They conclude that because Elbert's will did not grant

Lucille control over the stub income, the QTIP election fails.

In contrast, the Commissioner and amicus2 argue that the

statute is satisfied if the surviving spouse controls "all of the

income" that has been distributed. They contend that the

requirement that income be, "payable annually or at more frequent

intervals," limits "all of the income" to distributed income,

namely those payments that have been made to the surviving spouse

during her life. See Estate of Howard v. Commissioner, 910 F.2d

633, 635 (9th Cir.1990) (concluding that "if [the surviving spouse]

has been entitled to regular distributions at least annually, she

has had an income interest for life").

The estate replies that the phrase "payable annually or at

1
This section of the code is complemented by § 2044, which
provides for the inclusion of the QTIP assets in the estate tax
return of the surviving spouse. It states that "[t]he value of
the gross estate shall include the value of any property to which
this section applies in which the decedent had a qualifying
income interest for life." The statute does not further define
"qualifying income interest for life," so we refer back to the
definition given in § 2056 above.
2
The American Bar Association was granted leave to
participate as amicus curiae.
more frequent intervals" is separated from the preceding clause by

commas, and thus is a parenthetical clause. Because parenthetical

clauses are non-restrictive, it contends that the clause is merely

a description of the distribution process and does not in any way

limit the preceding requirement that the spouse must be entitled to

"all of the income."

Both parties insist that their reading of the statute is

"plain." We do not agree. Although the use of commas around the

clause "payable annually or at more frequent intervals" does

indicate a parenthetical clause, we refuse to place inordinate

weight on punctuation and ignore the remainder of the sentence. It

is equally plausible that the next clause is designed to provide a

context from which to define "all of the income."3 Cf. Smiley v.

Citibank, --- U.S. ----, ----, 116 S.Ct. 1730, 1736, --- L.Ed.2d --

-- (1996) ("A word often takes on a more narrow connotation when it

is expressly opposed to another word: "car,' for example, has a

broader meaning by itself than it does in a passage speaking of

"cars and taxis.' "). Nothing in this statutory provision on its

face allows us to choose between these interpretations.

Accordingly, we must look to other sources for guidance.

3
We accept the possibility that the second clause—"payable
annually or at more frequent intervals"—may be an important
context for understanding the first phrase, "all of the income."
See Smith v. United States, 508 U.S. 223, 230-32, 113 S.Ct. 2050,
2055, 124 L.Ed.2d 138 (1993) (noting that surrounding terms may
clarify the meaning of a word). We reject, however, the
Commissioner's assertion that the second clause necessarily
limits the preceding clause. If this clause were indeed a
restrictive clause, then the surviving spouse would only be
entitled to that which had been paid out annually or more
frequently; another person could receive income distributed less
frequently. This result was clearly not intended by Congress.
 The Commissioner contends that the second part of the statute,

subclause (ii)(II), mandates her reading of the statute. This

clause states that no one can have the power to appoint any of the

property to someone other than the surviving spouse. This

prohibition is modified by the language beneath this clause, known

as the "flush language," which states that subclause II expressly

does not apply to a power exercisable only at or after the death of

the surviving spouse. See Estate of Shelfer v. Commissioner, 103

T.C. 10, 21-22, 1994 WL 373509 (1994) (Wells, J., dissenting). The

flush language allows the decedent to appoint the trust property to

another beneficiary after the death of the surviving spouse. The

Commissioner argues that the language also refers to disposition of

the stub income after the spouse's death.

Although the flush language limiting subclause (ii)(II) is

consistent with the Commissioner's argument, it does not directly

apply to the independent requirement in subclause (ii)(I) that the

spouse be entitled to "all of the income," which remains ambiguous.

Thus, the statutory language alone does not resolve the issue

before this court.

Our conclusion is further supported by the lack of consensus

among jurists as to the clear meaning of this statute. In this

case, the Tax Court split on the issue, with ten judges joining the

majority and six judges dissenting. Moreover, in a Ninth Circuit

case involving this same provision, the majority reversed the Tax

Court and concluded that the statute plainly allowed the trust to

qualify. Howard, 910 F.2d at 637. The dissent, however, agreed

with the Tax Court's reading of the statute. Id. (Rymer, J.,
dissenting). See Smiley, at ---, 116 S.Ct. at 1733 (In light of

the disagreement among the courts and judges who have heard the

issue, "it would be difficult indeed to contend that the word ...

is unambiguous....).

Accordingly, we must look beyond the "plain language" of the

statute for guidance. When faced with a similarly ambiguous tax

code provision, the Supreme Court thoroughly examined the history

and purpose of the tax provision at issue, past practices, and the

practical implications of its ruling. Commissioner v. Engle, 464

U.S. 206, 104 S.Ct. 597, 78 L.Ed.2d 420 (1984).4 We follow suit,

beginning with the history and purpose of the marital deduction.

III.

The marital deduction for estate taxes first appeared in §

812(e) of the Internal Revenue Code of 1939, which was enacted by

the Revenue Code of 1948.5 The marital deduction provisions served

the dual purposes of equalizing the tax treatment between persons

in common-law and community property states6 and "codify[ing] the

long-standing notion that marital property belongs to the unitary

4
In both Engle and the case before us, the Commissioner's
interpretation was set forth in a proposed regulation. Id. at
215 n. 11, 104 S.Ct. at 603 n. 11. Without explicitly addressing
the degree of deference to accord proposed, as opposed to final,
regulations, the Court appeared to acknowledge that the
Commissioner's interpretation must be upheld if it implemented
the Congressional intent in some reasonable manner. Id. at 224-
25, 104 S.Ct. at 608. Because we conclude that the history,
purpose, and practical implications of the statute support the
Commissioner's reading of the statute, we need not decide the
appropriate degree of deference to accord her position.
5
United States v. Stapf, 375 U.S. 118, 128, 84 S.Ct. 248,
255, 11 L.Ed.2d 195 (1963).
6
Id.
estate of both spouses...." Shelfer, 103 T.C. at 25 (Beghe, J.,

dissenting).

An essential goal of the marital deduction statutory scheme

"from its very beginning, however, was that any property of the

first spouse to die that passed untaxed to the surviving spouse

should be taxed in the estate of the surviving spouse." Estate of

Clayton v. Commissioner, 976 F.2d 1486, 1491 (5th Cir.1992).7 In

accordance with this intent, the statute proscribed deductions for

terminable property interests. Terminable property interests are

those interests that will terminate upon the occurrence of an

event, the failure of an event to take place, or after a certain

time period.8 Because these interests could terminate prior to the

death of the surviving spouse, they posed a risk that the assets

would escape taxation in the spouse's estate tax return.

The original statute allowed three exceptions to the

terminable property rule for interests that would not escape

taxation in the spouse's estate. Property interests would qualify

for the marital deduction under any of the following conditions:

1) the interest of the spouse was conditional on survival for a

limited period and the spouse survived that period; 2) the spouse

had a life estate in the property with the power of appointment

over the corpus; or 3) the spouse received all life insurance or

annuity payments during her lifetime with the power to appoint all

7
For a detailed description of the legislative history of
the marital deduction, see id. at 1490-93.
8
26 U.S.C. § 2056(b)(1)(A)-(C).
payments under the contract.9 To take advantage of these

exceptions, however, the decedent had to relinquish all control

over the marital property to the surviving spouse.

As divorce and remarriage rates rose, Congress became

increasingly concerned with the difficult choice facing those in

second marriages, who could either provide for their spouse to the

possible detriment of the children of a prior marriage or risk

under-endowing their spouse to provide directly for the children.10

In the Economic Recovery Act of 1981, Congress addressed this

problem by creating the QTIP exception to the terminable property

interest rule. According to the House of Representatives Report,

the QTIP trust was designed to prevent a decedent from being

"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."

H.R.Rep. No. 201, 97th Cong., 1st Sess. 160 (1981). Thus, the

purpose of the QTIP trust provisions was to liberalize the marital

deduction to cover trust instruments that provide ongoing income

support for the surviving spouse while retaining the corpus for the

children or other beneficiaries.

In addition to creating the QTIP trust provisions, the 1981

Act also substantially changed the marital deduction by lifting the

limitations on the amount of the deduction.11 The Senate Report for

9
26 U.S.C. § 2056(b)(3), (5)-(6) (1986).
10
127 Cong.Rec. S345-346 (daily ed. July 24, 1980)
(statement of Sen. Symms).
11
As one tax expert colorfully stated, "Congress flew into
the wild blue yonder in 1981 by exempting all transfers between a
the 1981 Act states the reason for the change: "The committee

believes that a husband and wife should be treated as one economic

unit for purposes of estate and gift taxes, as they generally are

for income tax purposes. Accordingly, no tax should be imposed on

transfers between a husband and wife." S.Rep. No. 144, 97th Cong.,

1st Sess. 127 (1981), reprinted in 1981 U.S.C.C.A.N. 105, 228.

Although the legislative history of the 1981 Act sets forth

Congress's reasons for enacting the statute, it does not directly

address the stub income issue.12 When "neither the statutory

language nor the legislative history are dispositive of the issue,

we guide ourselves generally by the purposes" of the Act and

Congress's intent in enacting it. Rickard v. Auto Publisher, Inc.,

735 F.2d 450, 457 (11th Cir.1984). Accordingly, we must decide

which interpretation of the statute best comports with the two

general goals discussed above: expanding the marital deduction to

provide for the spouse while granting the decedent more control

husband and wife ... subject to rules ... to insure that the
exempted property will be taxed when the surviving spouse
disposes of it." 5 Boris I. Bittker, Federal Taxation of Income,
Estates and Gifts 129 (1984 & Cum.Supp. # 2, 1992). Prior to
1981, an estate marital deduction for the greater of $250,000 or
one-half of the adjusted gross estate was allowed. The Tax
Reform Act of 1976, Pub.L. No. 94-455, § 2002, 90 Stat. 1520,
1854 (1976).
12
The Senate report contains no reference to the QTIP
provisions. S.Rep. No. 144 at 127. The House report uses
language almost identical to the statute and equally unclear:
"First, the spouse must be entitled for a period measured solely
by the spouse's life to all the income from the entire interest,
or all the income from a specific portion thereof, payable
annually or at more frequent intervals." H.R.Rep. No. 201 at
161. This language does not clarify whether "all the income"
refers only to income distributed during the spouse's life or
includes undistributed income. The remainder of the report does
not clarify the issue.
over the ultimate disposition of the property, and treating a

husband and wife as one economic entity for the purposes of estate

taxation.

Under the Commissioner's interpretation of the statute, the

decedent would gain the tax benefit, retain control of the trust

corpus, and provide the spouse with all of the periodic payments

for her personal support. The stub income, which accrues after her

death and is thus not used for her maintenance, could be appointed

to someone else. This result is consistent with the statutory

goals of expanding the deduction while providing for the spouse's

support.13 In contrast, the Tax Court's reading of the statute

would condition the tax benefit for the entire trust corpus on

ceding control over a much smaller amount that is not needed for

the spouse's support.

The statute's second goal, treating a married couple as one

economic entity, was effected in a comprehensive statutory scheme.

In addition to the QTIP provisions of § 2056(b)(7), Congress added

§ 2044, which requires the estate of the surviving spouse to

include all property for which a marital deduction was previously

allowed, and § 2056(b)(7)(B)(v), which states that a QTIP

"election, once made, shall be irrevocable." Taken together, these

13
Moreover, the QTIP provisions are exceptions to the
general terminable interest property rule, which in turn is an
exception to the broad rule of deductibility for marital assets.
Clayton, 976 F.2d at 1498. As we have seen, Congress favored
deferral of taxation for marital assets until the death of the
second spouse. Because the terminable property rule is an
exception to this general public policy, it should be narrowly
construed. The QTIP statute, however, is an exception to this
exception, and in keeping with Congressional intent, it should be
accorded the same liberal construction as the marital deduction.
Id.
sections of the code provide that assets can pass between spouses
14
without being subject to taxation. Upon the death of the

surviving spouse, the spouse's estate will be required to pay tax

on all of the previously deducted marital assets. The

Commissioner's position comports with the statutory scheme because

it compels the surviving spouse to abide by the irrevocable

election of a QTIP trust and to pay taxes on property that had

previously been subject to a deduction.15

The Tax Court opinion in this case reached the opposite

conclusion. In addition to accepting the technical statutory

arguments rejected above, the court relied upon the legislative

history discussed extensively in its opinion in Howard v.

Commissioner, 91 T.C. 329, 1988 WL 86347 (1988). Shelfer, 103 T.C.

at 17. In Howard, the court began by acknowledging that the

legislative history of the QTIP provisions in § 2056(b)(7) does not

directly address the meaning of the clause "all of the income."

Instead of turning to the general purposes of the Act, the court

referred to the legislative history of § 2056(b)(5), a similar

statute, and the accompanying regulations to that statute.

Section 2056(b)(5) allows a deduction for "property passing

14
See Griswold v. United States, 59 F.3d 1571, 1579-80 (11th
Cir.1995) (noting that when this court construes a statute, it
"do[es] not look at one word or provision in isolation, but
rather look[s] to the statutory scheme for clarification and
contextual reference.") (internal citations and quotation marks
omitted).
15
See Shelfer, 103 T.C. 10, 19-20 (Parr, J., dissenting).
In her dissent, Judge Parr also argues that equitable doctrines
such as estoppel are applicable to situations of unjust
enrichment. Because we hold that the Commissioner's position
advances the legislative purpose of treating a couple as one
economic entity, we do not reach the estoppel issue.
from the decedent, if his surviving spouse is entitled for life to

all the income from the entire interest, or all the income from a

specific portion thereof, payable annually or at more frequent

intervals, with power in the surviving spouse to appoint the entire

interest." Unlike the QTIP provisions at issue here, § 2056(b)(5)

requires that the spouse exert control over the trust corpus by

power of appointment.

The Senate Report discussing § 2056(b)(5) lists the conditions

necessary for a power of appointment trust to qualify for the

deduction. The Report lists in separate subheadings the

requirement that the spouse must be entitled to all of the income

for her life, and the prerequisite that the income must be payable

at annual or more frequent intervals. Howard, 91 T.C. at 333

(citing S.Rep. 1013, 80th Cong., 2d Sess., pt. 2, at 16-17 (1948)).

The Tax Court determined that the two subheadings indicated that

"all of the income" should be defined without reference to the

requirement for periodic payments.

We do not read the report as compelling this result. The

listing of two subheadings does not erase the possibility that

Congress intended to define the first requirement by reference to

or within the context of the second.

Additionally, even if we accept the Tax Court's construction

of the Senate report for § 2056(b)(5), we do not reach the same

conclusion with respect to § 2056(b)(7). Although this court

presumes that the same words in different parts of the statute have

the same meaning, such a presumption is rebuttable. Doctors Hosp.,

Inc. of Plantation v. Bowen, 811 F.2d 1448, 1452-53 (11th
Cir.1987). In the instant case, the Commissioner has presented

sufficient evidence to overcome the presumption.

First, the two sections were enacted in entirely different

statutes, separated by a significant time period. The Senate

report for the power of appointment trusts in § 2056(b)(5) was

written over thirty years prior to the 1981 enactment of the QTIP

provisions at issue here. Thus, we give more weight to the

objectives stated in the more recent legislative history of the

QTIP provisions. See Gulf Oil Corp. v. Panama Canal Co., 481 F.2d

561, 570 (5th Cir.1973) (holding that Congress's use of the same

words many years ago "does not tie the law to an interpretation of

those words or phrases fit for the past but now wholly out of

keeping with the present").16

Second, the QTIP provisions were a substantial break with the

past. The whole purpose of § 2056(b)(7) was to eliminate the

requirement that the surviving spouse retain control of all of the

property, as was previously required under § 2056(b)(5). In

furtherance of this goal, Congress added flush language to the QTIP

statute providing that the power to appoint property to someone

other than the surviving spouse is exercisable after the spouse's

death.

Importantly, the Tax Court did not rely solely on the similar

wording of the two statutes in reaching its conclusion. The court

held that although the Shelfer trust did not qualify for a marital

deduction, a trust could qualify for the deduction if the surviving

16
Fifth Circuit cases decided before October 1, 1981, are
binding precedent in this circuit. Bonner v. City of Prichard,
661 F.2d 1206, 1209 (11th Cir.1981) (en banc).
spouse had a power of appointment over the stub income. Shelfer,

103 T.C. at 2 (citing Howard, 91 T.C. at 338). Neither of the

statutes, however, specifically equates "entitled to all of the

income" with "the power of appointment."17 The Senate Report cited

above also does not mention "power of appointment." Thus, the Tax

Court had to go beyond the statutory language and the legislative

history to find a realistic meaning for the critical statutory

terms.

The Tax Court relied primarily upon the regulations

accompanying § 2056(b)(5) for its determination that the spouse's

power of appointment over the stub income would satisfy the

statute. Estate Tax Regulations § 20.2056(b)-5(f). These

regulations are particularly pertinent because they are referenced

in the legislative history of the QTIP provisions of § 2056(b)(7).

Howard, 91 T.C. at 335 (citing H.R.Rep. No. 201 at 161; Staff of

Joint Committee on Taxation, 97th Cong., 1st Sess., General

Explanation of the Economic Recovery Tax Act of 1981 at 435

(Comm.Print 1981)).18 The Tax Court quoted from subsection 5(f)(8)

of the regulations:

[A]s respects the income for the period between the last

17
See J. Scott Lowery, Case Note, Estate of Shelfer v.
Commissioner of Internal Revenue: Is the Tax Court's Position on
QTIPs "Stub"born or Justified?, 48 Ark.L.Rev. 987, 1000-01 (1995)
(noting that the Tax Court's holding with respect to the power to
appoint stub income contradicts its emphasis on the plain
language of the statute).
18
It should be noted that these regulations were not cited
specifically in reference to the stub income issue. Although the
Howard court excerpted the regulations dealing with stub income,
these legislative reports appear to be referencing subsection
20.2056(b)-5(f)(1), a different subsection of the regulation
dealing more broadly with the spouse's rights to income.
 distribution date and the date of the spouse's death, it is
sufficient if that income is subject to the spouse's power to
appoint. Thus, if the trust instrument provides that income
accrued or undistributed on the date of the spouse's death is
to be disposed of as if it had been received after her death,
and if the spouse has a power of appointment over the trust
corpus, the power necessarily extends to the undistributed
income.

The court read this regulation as requiring that the stub income

"must be disposed of as the spouse directs." Howard, 91 T.C. at

333.

We disagree. The regulations must be interpreted in light of

the statutory provisions of § 2056(b)(5), for which it was written.

As previously discussed, § 2056(b)(5) creates an exception to the

terminable property rule for property over which the surviving

spouse has a power of appointment. The property is subject to

taxation upon the spouse's death because the tax code requires an

estate to pay taxes on all property over which the decedent had the

power of appointment.19 To complete the statutory scheme and to

ensure taxation, the regulations require that the stub income be

subject to the spouse's power of appointment or treated as part of

the corpus over which the spouse had power of appointment.

Following the logic of the regulations, the person with the

power to appoint the property in the trust corpus should be

permitted to have the power to appoint the stub income; the stub

income will then be subject to taxation along with the corpus

property. Under the QTIP provisions, that person is the decedent.

The trust corpus and the stub income would be taxable pursuant to

19
Pursuant to 26 U.S.C. § 2041(a)(2), any property over
which the decedent has a general power of appointment should be
included in the decedent's gross estate for taxation purposes.
§ 2044, which requires the spouse to include all previously

deducted property in which she has a qualifying interest for life.20
This comprehensive scheme, like that of the power of appointment

trust, allows an initial deduction and later taxation of the

property.21

Our conclusion that the trust income and the stub income can

be treated the same for taxation purposes is consistent with the

flush language of 2056(b)(7), which provides that any property can

be appointed to someone other than the surviving spouse at or after

the spouse's death. See Shelfer, 103 T.C. at 21-23 (Wells, J.,

20
We acknowledge that § 2044 does not expressly apply to
stub income because it provides that the surviving spouse's
estate must include all property over which the spouse had a
qualifying income interest for life. Although we have already
shown that the trust property can be a qualifying income interest
for life even if the surviving spouse is not given control of the
stub income, we have not determined whether the stub income can
be part of the qualifying income interest for life. The
Commissioner's regulation, now finalized at 26 C.F.R. §
2044(b)(2), clarifies the issue by specifically including the
stub income in the spouse's gross estate. We note that although
the regulation was not finalized at the time of this action, it
is the most consistent interpretation of the statute for the same
reason that the regulations for the power of appointment trust
are reasonable. Both regulations ensure that previously deducted
property is taxed at the death of the surviving spouse.
Moreover, both regulations are faithful to the statutory scheme.
In the power of appointment regulations, the stub income is
rendered subject to the power of appointment and becomes taxable.
In the QTIP provisions, the stub income is included in the
spouse's estate along with the trust corpus, both of which are
not controlled by the spouse.
21
Our reading of the regulation does not disqualify a trust
instrument that provides for the surviving spouse to have the
power of appointment over the stub income or to receive the stub
income as part of her estate. Under those circumstances,
Congressional goals will be served because the stub income will
clearly be taxable and the couple will be considered one economic
unit. We merely hold that the estate planning document at issue
here also qualifies for the deduction because Congress provided a
statutory scheme which will require taxation of the stub income
if it reverts to the trust remainderman.
dissenting). Thus, under the terms of the statute, the trust

corpus and the stub income can both be appointed to someone other

than the surviving spouse after her death without disqualifying the

trust from a marital deduction.

Examining the legislative history of the 1981 Act, we conclude

that Congress intended to liberalize the marital deduction, to

treat a husband and wife as one economic unit, and to allow the

stub income to be treated in the same manner as the trust corpus

for taxation purposes. These goals favor a broad interpretation of
the statute that would allow the QTIP election in this case.

Having assessed the legislative history and purpose of the statute,

we turn to the practical implications of this interpretation.22

IV.

Our construction of the statute has several practical

advantages over the Tax Court's position. First, it would assure

certainty in estate planning. See Jacques T. Schlenger, et al.,

Failure to Pay Stub Income to Estate Defeats QTIP Election, 21

Est.Plan. 368 (1994) (noting that the Tax Court's decision in

22
The parties also refer to the legislative history of the
Technical Corrections Act of 1982, 26 U.S.C. § 2056(b)(7)(B)(ii).
Both the House and Senate Reports for that act specified that a
QTIP marital deduction for a pooled income trust qualifies for
the marital deduction even if neither the spouse nor her estate
receives the stub income. S.Rep. No. 592, 97th Cong., 2d Sess.
20 (1982) U.S.Code Cong. & Admin.News 1982, pp. 4149, 4166, 4167;
H.R.Rep. No. 794, 97th Cong., 2d Sess. 17 (1982). Appellant
claims that these reports clarified the QTIP provisions and
should govern all QTIP trusts, even those that are not pooled.
Appellee argues that Congress discussed the stub income issue
with respect to pooled income trusts because the general rule
required that the spouse retain control of the stub income.
Because both explanations are plausible and because the history
of § 2056(b)(7) reveals Congress's intent in passing the specific
QTIP provisions at issue here, we decline to address these
arguments any further.
Shelfer leaves the "stub income" issue unsettled).23 The status of

trust instruments that were set up in accordance with the

Commissioner's advice will not be in question and the validity of

the Commissioner's final regulation on this matter will be

affirmed.24

Second, our result comports with standard trust practices.

Under the Tax Court's approach, a trust fund that made daily

payments to the surviving spouse would qualify for the deduction

because there would be no undistributed income; in contrast, one

that made quarterly payments would be ineligible. In Howard, the

Ninth Circuit noted that "no trust pays its beneficiaries on a

daily basis. The statute did not impose such an unrealistic

requirement for a trust to become a QTIP." Howard, 910 F.2d at

635.25 Our reading of the statute gives meaning to the statutory

terms requiring annual or more frequent distribution, not daily

disbursements. See Tramel v. Schrader, 505 F.2d 1310, 1314 (5th

Cir.1975) (citing cardinal rule that a statute should be construed

such that no clause shall be superfluous).26

23
See also Jacques T. Schlenger, et al., Trust was QTIP Even
Though Stub Income Was Not Distributed to Spouse's Estate, 17
Est.Plan. 364 (1990) (stating that the Tax Court's decision in
Howard caused practitioners to "scramble" to amend trusts that
did not entitle the surviving spouse to the stub income).
24
The Commissioner's position has been promulgated in a
final regulation, 26 C.F.R. § 20.2044-1(d)(2), which is
substantially the same as the position taken by the Commissioner
here.
25
See also Clayton, 976 F.2d at 1497 (citing Howard with
approval on this issue).
26
Fifth Circuit cases decided before October 1, 1981, are
binding precedent in this circuit. Bonner v. City of Prichard,
661 F.2d 1206, 1209 (11th Cir.1981) (en banc).
 Finally, a broad reading of the marital deduction provisions

benefits the federal Treasury and furthers Congressional intent to

ensure taxation of all previously deducted property. In the

instant case, for example, the corpus of $2,829,610 would be

subject to taxation, for a gain of over $1,000,000 in tax

deficiencies. The Tax Court's opinion would grant similar estates

a substantial windfall, encouraging other executors of wills to

disclaim the previously taken deduction.27

For all of these reasons, we conclude that our interpretation

of the statute will better serve the practical realities of trust

administration and estate taxation.

V.

After determining that the statutory language is ambiguous, we

looked beyond the statute to additional sources of information,

such as the legislative history. Careful consideration of these

documents lead us to discern two purposes for the 1981 Act:

treating the married couple as one economic unit, and expanding the

deduction to include arrangements that divest the surviving spouse

of control over property. These Congressional goals are best

served by allowing the deduction in the decedent's estate and

requiring subsequent inclusion in the surviving spouse's estate

when trust documents do not grant control over the stub income to

the surviving spouse. Accordingly, we REVERSE the Tax Court.

27
See Shelfer, 91 T.C. at 23-24 (Beghe J., dissenting) ("The
majority's decision in this case, if allowed to stand, means
that, for Quincy State Bank and its clients: "The game is done!
I've won, I've won!' ").