Brigham v. United States

• Court: Court of Appeals for the First Circuit
• Decided: November 13, 1998
• Docket: 97-2436
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 97-2436



                      PAUL L. BRIGHAM, JR.,

              Executor of the Estate of Anna C. Ham,



                      Plaintiff, Appellant,



                                v.



                    UNITED STATES OF AMERICA,



                       Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



         [Hon. Nathaniel M. Gorton, U.S. District Judge]


Before



                      Selya, Circuit Judge,

                                

           Aldrich and Coffin, Senior Circuit Judges.


Paul M. Stein with whom Malkasian, Hicinbothem & Mollica, Paul

L. Brigham, Jr. and Linette R. LaMountain were on brief for

appellant.

     Ernest J. Brown with whom Jonathan S. Cohen, Joan I.

Oppenheimer, Attorneys, Tax Division, Department of Justice,

Loretta C. Argrett, Assistant Attorney General, and Donald K.

Stern, United States Attorney, were on brief for appellee.


November 12, 1998


ALDRICH, Senior Circuit Judge.  This is an action to

    recover income tax payments that, allegedly, were not due.  On

    cross motions for summary judgment the court ruled for the

    United States.  We affirm.

      In 1988 Kendal Ham died leaving a will with several

    provisions for his wife.  Seasonably she chose, instead, to

    waive her rights under the will and elect the share of his

    estate permitted by the New Hampshire statute, N.H. Rev. Stat.

    Ann.  560:10, in her case a one-third "portion of the estate

    remaining after the payment of debts and expenses of

    administration."  In 1990 and 1991 Mr. Ham's executor made

    payments to Mrs. Ham on account of the principal of her

    elected share.  These payments included amounts equivalent to

    the total income received by Mr. Ham's estate during those two

    years.  His executor classified these inclusions as

    "distributable net income" (DNI) pursuant to 26 U.S.C.

     643(a) and claimed a deduction from the estate's gross

    income pursuant to 26 U.S.C.  661, which the government

    allowed.  Mrs. Ham, in turn, reported and paid an income tax

    on the received DNI pursuant to 26 U.S.C.  662.

      Mrs. Ham's executor, plaintiff Paul Brigham, Jr.,

    Esq., now claims it was inappropriate to apply the tax

    transfer of  661 and 662 to payments in satisfaction of a

    widow's elective share and that the income tax on Mr. Ham's

    estate's 1990 and 1991 earnings should not have been passed

    on.  No income tax was required of Mrs. Ham on the portion of

    the payments that exceeded Mr. Ham's estate's income, see 26

    U.S.C.  662(a), but, obviously, to the extent that payments

    to her were taxable, Mrs. Ham was paid her elected share in

    funds subject to depreciation through taxes.

      Unreasonable and unfair as this might seem, plaintiff

    has an impossible row to hoe here.  If a payee within the 26

    U.S.C.  643(c) definition of "beneficiary" receives DNI

    pursuant to  661 that is an "other amount properly paid,

    credited, or required to be distributed to such beneficiary

    for the taxable year,"  662(a)(2),  then she is bound to pay

    an income tax even if the payment was in satisfaction of a

    principal obligation.

       Sections 661 and 662 are lengthy.  We quote all that

    is relevant to our facts and question:

        661.    DEDUCTIONS FOR ESTATES AND TRUSTS

                 ACCUMULATING INCOME OR DISTRIBUTING

                 CORPUS

    

            (a)  Deduction

    

                 In any taxable year there shall be

            allowed as a deduction in computing the

            taxable income of an estate . . . the

            sum of --

    

      . . . .                   

                                

                                                    (2)  any other amounts

                                               properly paid . . . for such

                                               taxable year; but such deduction

                                               shall not exceed the distributable

                                               net income of the estate . . . .

    

        662.    INCLUSION OF AMOUNTS IN GROSS INCOME OF

                 BENEFICIARIES OF ESTATES AND TRUSTS

                 ACCUMULATING INCOME OR DISTRIBUTING

                 CORPUS

    

            (a)  Inclusion

    

                 [T]here shall be included in the

            gross income of a beneficiary to whom an

            amount specified in section 661(a) is

            paid . . . the sum of the following

            amounts:

    

                 (1)  Amounts required to be

                      distributed currently

                                 

                             . . . .

                                

                                               (2)  Other amounts distributed

    

                      All other amounts properly paid

                 . . . to such beneficiary for the

                 taxable year.

    

    We believe these statutes sufficiently clear as to need no

    history, but we remark that they are the product of the

    difficulty (more indicated by portions we do not quote) of

    tracing the source of distributions from estates with many

    beneficiaries.  See S. Rep. No. 83-1622, at 83 (1954),

    reprinted in 1954 U.S.C.C.A.N. 4621, 4715 ("The approach

    adopted by the bill eliminates the necessity, in determining

    the taxability of distributions, of tracing such distributions

    to the income of the estate or trust for the current taxable

    year.").  While the solution may over-simplify, it has never

    been found beyond the federal taxing power.  Obviously the

    taxpayer must adjust to the government, not the government

    adjust to accommodate him.

       Plaintiff, accordingly, claims that Mrs. Ham, as the

    receiver of a one-third portion of Mr. Ham's estate, was not

    a "beneficiary" within the meaning of  662.  This contention,

    however, fails.  For definition, 26 U.S.C.  643(c) provides

    that "the term 'beneficiary' includes heir, legatee, devisee." 

    The word "elector" (of a spouse's share) does not appear, but

    "includes" is not limiting.  Rather, "[t]he terms 'includes'

    and 'including' . . . shall not be deemed to exclude other

    things otherwise within the meaning of the term defined."  26

    U.S.C.  7701(c).  In light of this we apply the principle

    that a list of terms should be construed to include by

    implication those additional terms of like kind and class as

  the expressly included terms.    Surely the widow has elected

    to be within the group.  In common parlance, is not any person

    who gratuitously receives estate assets a beneficiary?  If

    there is no will, the widow is an heir, and she receives a

    portion of the estate as determined by the legislature.  If

    there is a will, she may be a legatee, or she may waive her

    rights under it and receive a different portion.  But, in all

    cases, on its face, the  661-662 tracing purpose applies

    precisely.

       Plaintiff's remaining argument is that the payments in

    satisfaction of Mrs. Ham's elective share were not  662(a)(2)

    distributions because the elective share is a state law

    interest not subject to the estate income distribution

    provisions in  661 and 662.  He has found in his favor the

    case of Deutsch v. Commissioner of Internal Revenue, 74 T.C.M.

    (CCH) 935 (1997) (holding that the Florida elective share is

    not subject to the entire Subchapter J, 26 U.S.C.  641-692). 

    We disagree fully.

       The Deutsch court would draw comparisons between

    elective shares and the Florida dower.  Assuming that Florida

    dower may be exempt, which we may doubt, this would be because

    it is directly involved with real estate title which, like

    jointly owned property may, in a technical sense, not pass

    through the estate, a claim that plaintiff here cannot make. 

    By definition, Mrs. Ham received "a portion of the estate." 

    Next, standing with one foot on the dower concept, Deutschreasons that in enacting a provision for elective shares the

    state was protecting the interests of its widows.  Passing the

    fact that $800,000 is a good deal of protection, the

    proposition that, simply by fiat, a state may preserve its

    citizens from federal taxes is absurd.  The list of exclusions

    in 26 U.S.C.  663 clearly does not exclude an elective share,

    and we note that the Treasury Regulations expressly deny

  exclusion even to a widow's temporary allowance.  

       Plaintiff's appeal is without merit.