Estate of Willis Edward Clack, Marshall & Ilsley Trust Company, Co-Personal Representative, and Richard E. Clack, Co-Personal Representative v. Commissioner

106 T.C. No. 6

• Court: United States Tax Court
• Decided: February 29, 1996
• Docket: 12557-91
• Status: Unknown

Opinion

106 T.C. No. 6

UNITED STATES TAX COURT

ESTATE OF WILLIS EDWARD CLACK, DECEASED, MARSHALL & ILSLEY TRUST COMPANY, CO-PERSONAL REPRESENTATIVE, AND RICHARD E. CLACK, CO-PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12557-91. Filed February 29, 1996.

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 sec. 2056(b)(7), I.R.C., such property would instead be administered under the terms of a nonmarital family trust. Held: The marital trust property is QTIP within the meaning of sec. 2056(b)(7), I.R.C. This Court's opinions in Estate of Robertson v. Commissioner, 98 T.C. 678 (1992), revd. 15 F.3d 779 (8th Cir. 1994); Estate of Clayton v. Commissioner, 97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir. 1992); and Estate of Spencer v. Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d 226 (6th Cir. 1995), are no longer followed.

Robert L. Kamholz, Jr., and John M. Byers, for petitioner. - 2 -

Michael J. Calabrese, for respondent.

WELLS, Judge:* 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 section 2056(b)(7), where the passage to the surviving

spouse of the interest in the property is contingent upon the

coexecutors’ QTIP election as to the property.1

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.

*

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. - 3 -

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 principal place of business in the State of

Wisconsin, and Richard E. Clack was a resident of the State of

Wisconsin.

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

The terms "coexecutors" and "co-personal representatives" are used interchangeably in this case. - 4 -

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 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 cotrustees of 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 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 - 5 -

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 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 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). - 6 -

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 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.

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 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. - 7 -

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 under section 2056(b)(7) for the

entire marital trust amount, which they valued at $4,162,439.24.

The marital trust amount was computed as follows:

Probate estate $6,685,474.21 Add: Profit sharing plan benefit1 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 1 The trustees of the marital trust were named as the beneficiaries of the Clack Corp. Profit Sharing Plan.

Thus, the coexecutors treated the payment of expenses under

Article I, paragraph A of the will, the bequests of tangible - 8 -

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, 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. - 9 -

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. 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.

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

Section 2001 imposes a tax on the transfer of the taxable

estate of any person who is a citizen or resident of the United

States at the time of death. Section 2056(a) allows a marital

deduction from a decedent's gross estate for the value of

property interests passing from the decedent to the decedent’s

surviving spouse. As a general rule, however, a marital

deduction is denied for a "terminable interest", that is, a

property interest that will terminate or fail "on the lapse of

time, on the occurrence of an event or contingency, or on the

failure of an event or contingency to occur". Sec. 2056(b)(1). - 10 -

Accordingly, an interest in the nature of a life estate,

generally, is ineligible for the marital deduction. See Estate

of Nicholson v. Commissioner, 94 T.C. 666, 671 (1990); Estate of

Higgins v. Commissioner, 91 T.C. 61, 66 (1988), affd. 897 F.2d

856 (6th Cir. 1990). However, section 2056(b)(7),3 added by the

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. (continued...) - 11 -

Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec. 403(d), 95

Stat. 172, 302, allows a marital deduction for "qualified

terminable interest property". Section 2056(b)(7) allows a

decedent to pass to the decedent’s surviving spouse an interest

in property for the

surviving spouse's lifetime without the decedent’s losing the

ability to control the disposition of such property upon the

death of the surviving spouse.

The facts in the instant case fall within this Court's

holding in Estate of Clayton v. Commissioner, 97 T.C. 327 (1991),

revd. 976 F.2d 1486 (5th Cir. 1992). After our opinion in Estate

of Clayton was issued, but before it was reversed by the Fifth

Circuit, we decided Estate of Robertson v. Commissioner, 98 T.C.

678 (1992), revd. 15 F.3d 779 (8th Cir. 1994), and Estate of

Spencer v. Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d 226

(6th Cir. 1995), in both of which we followed our holding in

Estate of Clayton. Subsequently, those decisions were reversed,

first by the Fifth Circuit, which reversed our decision in Estate

of Clayton v. Commissioner, supra, then by the Eighth Circuit,

which, following the Fifth Circuit, reversed our decision in

Estate of Robertson v. Commissioner, supra, and finally by the

(...continued) (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. - 12 -

Sixth Circuit, which reversed our decision in Estate of Spencer

v. Commissioner, supra. The Sixth Circuit, however, applied a

rationale somewhat different from that applied by the Fifth

Circuit.

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 section 2056(b)(7)(B)(ii)(II),

that the surviving spouse did not have a "qualifying income

interest for life", and that the property therefore was not QTIP.

Estate of Robertson v. Commissioner, supra; Estate of Clayton v.

Commissioner, supra; Estate of Spencer v. Commissioner, supra.

In Estate of Clayton v. Commissioner, supra, the taxpayer

argued that, by definition, an interest in property is QTIP only

if the election is made, and that, once the election is made, the

surviving spouse has a qualifying income interest for life,

effective as of the date of the decedent's death. In response,

we stated:

An election, by definition, is necessary to insure that the property is qualified terminable interest property. The essence of section 2056(b)(7)(B)(i), however, is that a terminable interest is deductible only if it is an interest in property "in which the - 13 -

surviving spouse has a qualifying income interest for life"; if so, then an applicable election may be made with respect to such property. Compare Estate of Tompkins v. Commissioner, 68 T.C. 912 (1977). Whether the surviving spouse has an income interest for life in the property is independent of, and not dependent upon, the requirement that an election be made with respect to that property. If the surviving spouse does not have an income interest for life in the trust, then the election to treat the trust as a QTIP trust is ineffective. [Id. at 337.]

In Estate of Robertson v. Commissioner, supra at 689, the

taxpayer attempted to distinguish the facts of that case from

those of Estate of Clayton. In Estate of Robertson, the taxpayer

argued that the executor was required to make the QTIP election

and, thus, did not have the power to appoint the property to

anyone other than the surviving spouse. We held to the contrary,

concluding that the executor had the power to appoint the

property to someone other than the surviving spouse and that

Estate of Clayton was controlling.

Preliminarily, this Court stated:

Section 2056(b)(7)(B)(i) defines "qualified terminable interest property" as property (1) which passes from the decedent, (2) in which the surviving spouse has a "qualifying income interest for life", and (3) for which an election has been made. [Estate of Robertson v. Commissioner, supra at 684; emphasis added; fn. ref. omitted.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). In Estate of Robertson v. Commissioner, 98 T.C. 678 (1992), revd. 15 F.3d 779 (8th Cir. 1994), this Court addressed sec. 2056(b)(7)(B)(i)(II), the "qualifying income interest for life" requirement, and did not undertake to construe (continued...) - 14 -

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 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. Id. at 232. In holding that the relevant date for the

determination is the date the QTIP election is made, the Sixth

Circuit rejected the Commissioner’s argument that Jackson v.

United States, 376 U.S. 503 (1964), requires a contrary holding.

The Sixth Circuit stated:

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

(...continued) sec. 2056(b)(7)(B)(i)(III), the election requirement. - 15 -

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 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 Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971), the Eighth Circuit’s

decision in Estate of Robertson v. Commissioner, supra, is

controlling and that we should therefore hold for petitioner.

Respondent argues that, because at the time of filing 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, - 16 -

consequently, 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 section 2056(b)(7)(B)(v), where the

election is actually made under facts similar to those in the

instant case. Accordingly, we hold that the marital trust

property in the instant case qualifies as QTIP under section

2056(b)(7). - 17 -

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 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.

To reflect the foregoing,

An appropriate order

will be issued.

Reviewed by the Court.

HAMBLEN, SWIFT, JACOBS, WRIGHT, RUWE, COLVIN, LARO, FOLEY, and VASQUEZ, JJ., agree with this majority opinion.

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. - 18 -

CHABOT, J., concurring in the result: I do not agree with

the majority's determination to overrule this Court's opinions in

Estate of Robertson v. Commissioner, 98 T.C. 678 (1992), revd. 15

F.3d 779 (8th Cir. 1994); Estate of Clayton v. Commissioner, 97

T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir. 1992); and Estate

of Spencer v. Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d

226 (6th Cir. 1995). See generally Part I (QTIP Issue) of Judge

Parker's dissent, and Judge Halpern's dissent.

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 that

Court of Appeals. See Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971). Because the Golsen

rule leads to the same result that the majority reach in the

instant case, I concur in the result. - 19 -

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,

Sixth, and Eighth Circuits1), 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.

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

section 2056(b)(7)(B), as follows.

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 Estate of Clayton v. Commissioner,

97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir. 1992); Estate

of Robertson v. Commissioner, 98 T.C. 678 (1992), revd. 15 F.3d

779 (8th Cir. 1994); and Estate of Spencer v. Commissioner, T.C.

1 See T.D. 8522, 1994-1 C.B. 236, 238, promulgated on Feb. 28, 1994, effective with respect to estates of decedents dying after Mar. 1, 1994. - 20 -

Memo. 1992-579, revd. 43 F.3d 226 (6th Cir. 1995), and I would so

hold.

Section 2056(b)(7)(B)(i) provides three general definitional

requirements that must be satisfied in order to qualify property

as QTIP property. Arguably, the first two (namely, whether

property passed “from” the decedent and whether the surviving

spouse “has” a qualifying income interest for life) could be

determined on the date of decedent’s death.

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 section 2056(b)(7)(B)(i) have been satisfied on

the date the estate tax return is filed. That is the earliest

date on which one could possibly determine whether all three

requirements have been satisfied. Accordingly, that date ought

to be used to determine whether each of the three requirements

has been satisfied.

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 Court of Appeals for the Sixth Circuit in Estate of Spencer

v. Commissioner, supra. Therein, the Court of Appeals explained

as follows: - 21 -

Congress deliberately crafted the broad language of section 2056(b)(7)(B)(v): “An election under [section 2056(b)(7)] with respect to any property shall be made by the executor on the return of tax imposed by section 2001.” * * * [Emphasis supplied by the Court of Appeals.] Congress did not use the words “any existing qualified terminable interest property” or “any property meeting the above definition as of the date of decedent’s death” or any similar limiting language, and we are not prepared to read such a limitation into this statute. The language “any property” should be given its ordinary meaning. Nowhere in the legislative history of section 2056(b)(7) do we find an indication that Congress intended a different reading of the statute. * * *

* * * * * * *

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. Section 2056(b)(7)(B)(v). Since no property can be QTIP until the election is made, the proper date to determine if property satisfies the requirement of section 2056(b)(7) is on the date of the election.

Section 2056(b)(7) creates a new and different legislative scheme. Under the election provision, no property anywhere can be considered QTIP until an election is made by the executor on Form 706, which can only be done after the date of death. When the Commissioner’s interpretation is carried to its logical extent, no property could ever satisfy the statutory definition of QTIP because the election for the surviving spouse cannot be made until after the date of decedent’s death. This simple fact highlights the major problem with the Commissioner’s interpretation of section 2056(b)(7).

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 - 22 -

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 section 2056 made a number of changes, each of which expanded the scope of the marital deduction. In this spirit, we think an interpretation favoring the allowance of the deduction is in keeping with Congressional intent. It recognizes that wills are often drafted long in advance of death and that family situations and the value of assets may change dramatically. There is no reason to interpret section 2056(b)(7) to require that the will identify QTIP property long in advance of death and thereby deny taxpayers the full advantage of the marital deduction for QTIP property. The election provision is plain enough and seems purposely worded to avoid this estate planning problem. [43 F.3d at 230-233.]

In the QTIP definitional requirements of section

2056(b)(7)(B), because it is the first date on which the claimed

QTIP property could possibly qualify under section 2056(b)(7)(B),

the date on which the estate tax return is filed is the only

directly relevant date. If, on that date, all of the

requirements have been satisfied (namely, the property passed

from the decedent, the surviving spouse then has a qualifying

income interest for life, and the election has been made on the

return), the property should “be treated”, see sec.

2056(b)(7)(A)(i), as fully meeting the definitional requirements

of section 2056(b)(7)(B). - 23 -

Based on the above analysis, I would overrule our prior

opinions in Estate of Clayton v. Commissioner, supra, Estate of

Robertson v. Commissioner, supra, and Estate of Spencer v.

Commissioner, supra, and I would adopt the analysis set forth in

the Court of Appeals for the Sixth Circuit's opinion in Estate of

Spencer v. Commissioner, supra.

HAMBLEN and WHALEN, JJ., agree with this concurring opinion. - 24 -

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 petitioner1 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 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). 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

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 (10th Cir. 1971). - 25 -

decedent’s domicile at the time of death (the Court of Appeals

for the Eighth Circuit).

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., Estate of Bond v. Commissioner, 104 T.C. 652

(1995); Estate of Robertson v. Commissioner, 98 T.C. 678, 679

(1992), revd. on another issue 15 F.3d 779 (8th Cir. 1994);

Belcher v. Commissioner, 83 T.C. 227, 228 (1984); Estate of

McElroy v. Commissioner, 82 T.C. 509, 510 (1984). Consequently,

the fiduciary is commonly referred to as the person by or through

whom an estate acts. See Rule 24(b). Any claim that may be

pursued is not personal to a fiduciary and is intrinsically part

of the rights and assets that compose the estate, which exists

for the benefit of its beneficiaries and creditors.

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 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

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. - 26 -

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); Patz Trust v. Commissioner, 69 T.C. 497, 500

(1977); Fehrs v. Commissioner, 65 T.C. 346, 349 (1975). It

follows that a case dismissed for lack of jurisdiction because of

the representative’s incapacity under the domiciliary State law

would logically proceed to the Court of Appeals serving the

domiciliary State.

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 Estate of

Tarver v. Commissioner, 26 T.C. 490, 498 (1956), affd. in part

and revd. in part on another issue 255 F.2d 913 (4th Cir. 1958).

Appellate venue should, accordingly, be determined with reference

to the estate and not its fiduciary.

The dissent compares the circumstances in this Court with

those in Federal tort claims, Federal diversity jurisdiction, and

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”. - 27 -

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 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, 28 U.S.C. sec. 1332 was amended in 1988

to ensure that the citizenship of represented parties will be

determined according to the citizenship of the represented

party--not the fiduciary. 134 Cong. Rec. 31051 (1988). Congress

was concerned with attorneys using out-of-State fiduciaries

5 The Federal tax refund case Kruskal v. United States, 178 F.2d 738 (2d Cir. 1950), which is heavily relied on in the dissenting opinion, places central focus and substantial reliance on Mecom v. Fitzsimmons Drilling Co., 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. - 28 -

solely to create diversity of citizenship for access to the

Federal courts. Id. at 31055.

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. 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.

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. - 29 -

Concerning refund jurisdiction, 28 U.S.C. sections 1346 and

1402 (1994) fix trial court venue where the plaintiff resides.

That also would fix venue for purposes of an appeal in a refund

proceeding. In this Court, section 7482 provides that it is the

petitioner’s residence which governs appellate venue. The term

“plaintiff” has been defined in refund case law to equate to the

executor in a case involving an estate. Except for litigation

cost recovery cases, the term “petitioner” has not been defined

by this Court in the context of a case involving an estate unless

only by way of analogy. See discussion infra.

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 interests of the estate, but that alone, or in

conjunction with the possibility that the executor 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. - 30 -

Finally, the dissent’s approach conflicts with our cases

involving litigation costs. In Estate of Hubberd v.

Commissioner, 99 T.C. 335, 338 (1992), we held that an estate is

a party eligible to be awarded litigation costs. In doing so, we

expressly recognized that

“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 Boatmen’s First Natl. Bank v. United States, 723 F. Supp. 163, 169 (W.D. Mo. 1989)); emphasis added.]

The U.S. Court of Appeals for the Seventh Circuit recently

adhered to this concept in Estate of Woll by Woll v. United

States, 44 F.3d 464, 467-468 (7th Cir. 1994). In holding that an

estate is a party eligible to recover attorney's fees, the court

stated:

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. * * * [Id. at 467 (citing Estate of Hubberd v. Commissioner, supra at 338-339); emphasis added.]

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 - 31 -

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. - 32 -

BEGHE, J., concurring: My first reaction to the case at

hand was that this Court's prior views, as expressed in our

opinions in Estate of Robertson v. Commissioner, 98 T.C. 678

(1992), revd. 15 F.3d 779 (8th Cir. 1994), Estate of Clayton v.

Commissioner, 97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir.

1992), and Estate of Spencer v. Commissioner, T.C. Memo. 1992-

579, revd. 43 F.3d 226 (6th Cir. 1995), have the better of the

arguments on the literal interpretation of the statutory

language. I also had (and continue to have) reservations about

the views, expressed by three Courts of Appeals, whose adoption

would require us to invalidate section 20.2056(b)-7(d)(3), Estate

Tax Regs., effective for estates of decedents dying after

March 1, 1994. Cf. Estate of Shelfer v. Commissioner, 103 T.C.

10, 28 n.6 (1994) (Beghe, J., dissenting).

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. 103 T.C. at 26. This is

particularly so in the Clayton, Robertson, and Spencer situation,

as in the case at hand, because there is no loophole. Although I

agree with Judge Parker that executors don't need the post mortem

planning flexibility to choose who actually gets the property,

dissenting op. p. 45, I don't think that should be our concern; - 33 -

the QTIP election mechanism assures that the property will be

included in the estate of one spouse or the other.1

Another question raised by the case at hand is whether, in

the light of Central Pa. Sav. Association & Subs. v.

Commissioner, 104 T.C. 384 (1995), we should have stuck to our

guns in the face of reversal by three Courts of Appeals. One

difference between the case at hand and Central is that in

Central the Courts of Appeals upheld a regulation that we had

held invalid. Here, the final regulation, which Judge Parker

would uphold, dissenting op. p. 48--a question properly left open

by the majority opinion--was published just before Estate of

Robertson was reversed. Thus, the reversals in Estate of

Robertson and Estate of Spencer were in the face of Chevron,

U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S.

837, 842-844 (1984). The Court of Appeals for the Sixth Circuit

in Estate of Spencer v. Commissioner, 43 F.3d at 234, tried to

defuse the Chevron argument by citing INS v. Cardoza-Fonseca, 480

U.S. 421 (1987), for the proposition that the Commissioner's

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 (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. - 34 -

position is entitled to less deference because she has changed

her position.2 See Priv. Ltr. Rul. 86-31-005 (Apr. 23, 1986).

The courts have been inconsistent on this point. See, e.g., Bell

Fed. Sav. & Loan Association v. Commissioner, 40 F.3d 224, 229

(7th Cir. 1994) (citing National Muffler Dealers Association v.

United States, 440 U.S. 472 (1979)), for an expression of the

contrary view.3

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 section

2056(b)(7)(B)(i) and (ii) that support petitioner's position, and

the QTIP rules deserve a liberal interpretation that will uphold

that position. We properly leave to another day whether to

uphold the Commissioner's regulation to the contrary, section

20.2056(b)-7(d)(3), Estate Tax Regs. When we face that

question, we should find it a much closer question under Chevron

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 (1987), in recent years, especially for the changed-position doctrine, where the Court seems more likely to disregard it, see Stutson v. United States, U.S. , 116 S. Ct. 600 (1996); Lawrence v. Chater, U.S. , 116 S. Ct. 604 (1996); cf. Thomas Jefferson Univ. v. Shalala, 512 U.S. , , 114 S. Ct. 2381, 2388 (1994); Good Samaritan Hosp. v. Shalala, 508 U.S. 402, (1993), 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, see Franklin v. INS, 72 F.3d 571 (8th Cir. 1995); Zhang v. Slattery, 55 F.3d 732 (2d Cir. 1995). - 35 -

than the Court of Appeals for the Fifth Circuit's opinion in

Clayton might lead one to believe.4

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 in Estate of Robertson, 15 F.3d 779 (8th Cir. 1994), revg. 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 in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 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 of sec. 2056(b)(7)(i) and (ii) or on the policy argument. - 36 -

PARKER, J., dissenting: I think this Court was correct in

its interpretation of section 2056(b)(7) and correctly held that

the surviving spouse does not have a "qualifying income interest

for life" where passage of such income interest in the property

to the surviving spouse is contingent upon the executor's making

the QTIP election as to such property and therefore subject to

the executor's power to appoint the property to someone other

than the surviving spouse. Thus such property is not "qualified

terminable interest property" even though the executor ultimately

makes the QTIP election. Accordingly, I think this Court should

continue to follow its opinions in Estate of Clayton v.

Commissioner, 97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir.

1992); Estate of Robertson v. Commissioner, 98 T.C. 678 (1992),

revd. 15 F.3d 779 (8th Cir. 1994); and Estate of Spencer v.

Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d 226 (6th Cir.

1995).

However, I agree with petitioner 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 Estate of Robertson

v. Commissioner, supra. Golsen v. Commissioner, 54 T.C. 742

(1970), affd. 445 F.2d 985 (10th Cir. 1971). For that reason, I

think this Court must address the venue issue, and under this

Court's special venue statute I would conclude that any appeal in - 37 -

this case would lie to the U.S. Court of Appeals for the Seventh

Circuit, which has not yet spoken on this particular QTIP issue.

I QTIP Issue

Section 2056(b)(7)(A) provides that for purposes of the

marital deduction, in the case of "qualified terminable interest

property", the entire property is treated as passing to the

surviving spouse and no part of the property is treated as

passing to any person other than the surviving spouse. Thus, for

qualified terminable interest property, the decedent's estate may

deduct as a marital deduction the value of the entire property,

not just the surviving spouse's "qualifying income interest for

life" in that property.

Section 2056(b)(7)(B) defines "qualified terminable interest

property". Section 2056(b)(7)(B)(i) sets out the three general

requirements--that it be property (1) which passes from the

decedent, (2) in which the surviving spouse has a qualifying

income interest for life, and (3) to which an election under this

paragraph applies. Section 2056(b)(7)(B)(ii) then defines

"qualifying income interest for life". Section

2056(b)(7)(B)(iii), (iv), and (v) sets out other definitions or

requirements of qualified terminable interest property. I agree

that all of section 2056(b)(7)(B) defines qualified terminable

interest property and must be read as a whole. This Court in its

Clayton-Robertson-Spencer opinions concluded, and I continue to

think properly so, that the election provision of section - 38 -

2056(b)(7)(B)(v), while a critical part of the definition of

"qualified terminable interest property", is not part of the

definition of "qualifying income interest for life" in section

2056(b)(7)(B)(ii). If Congress had intended the election by the

executor to cure all other defects, I think it would have said

so. While an election is necessary for QTIP, I think the

election can only be made as to property in which the surviving

spouse otherwise possesses a "qualifying income interest for

life". The executor can elect whether or not the property in

which the surviving spouse has a qualifying income interest for

life is going to be taxable in the decedent's estate (no QTIP

election) or deducted from his estate and later taxed in the

surviving spouse's estate (QTIP election). An election under

this paragraph cannot apply unless the property is otherwise

qualifying; namely property passing from the decedent and

property in which the surviving spouse has a qualifying income

interest for life.

Section 2056(b)(7)(B)(ii) defines the term "qualifying

income interest for life" as follows:

(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. - 39 -

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).

We concluded in Estate of Clayton v. Commissioner, supra, that,

when the surviving spouse's income interest in the property is

contingent upon the executor's making a QTIP election, the

executor possesses the ability to control and to direct the

assets to someone other than the surviving spouse. We held that

the executor's ability to control and direct the assets was

tantamount to a power to appoint the property to someone other

than the surviving spouse. The statute expressly provides that

no person can have the power to appoint the property to anyone

other than the surviving spouse. Sec. 2056(b)(7)(B)(ii)(II).

The only exception to that prohibition is that it "shall not

apply to a power exercisable only at or after the death of the

surviving spouse." Sec. 2056(b)(7)(B)(ii)(II) (flush language).

Congress did not include within that exception a power

exercisable by the executor or a power exercisable prior to the

executor's making the election on the estate tax return.

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 - 40 -

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.

Estate of Clayton v. Commissioner, 976 F.2d at 1497. "The

question is not when those determinations are made or when those

acts are performed but whether their effects relate back, ab

initio, to the moment of death." Id. at 1498. "[L]ike other

estate tax elections (and other exceptions to the terminable

interest rules), the effect of the QTIP election is retroactive

to the instant of death, irrespective of when it is actually

made." Id. at 1495. Thus, the Fifth Circuit ignores the power

of appointment vested in the executor during the period from the

date of the decedent's death to the date of making of the

election by creating a "relation-back" legal fiction.

The Court of Appeals for the Fifth Circuit likened the QTIP

election to a qualified disclaimer by the surviving spouse and

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 - 41 -

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. * * *

Id. at 1498. However, the point there, and in the present case,

is that, absent the executor's election, the property is not

"estate property which would otherwise pass to the Surviving

Spouse".

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, section 2056(b)(7)(B)(ii)(II) (and flush

language) specifically precludes applying this relation-back

fiction to the power to appoint the property to someone other

than the surviving spouse by specifically prohibiting anyone from

having such a power at any time prior to the death of the

surviving spouse. I think the Court of Appeals for the Fifth

Circuit's judicially created exception is contrary to the express

language of the statute.

The only means of ignoring an executor's power to appoint

the property to someone other than the surviving spouse - 42 -

(exercisable by the executor's not making the QTIP election)

would be to adopt the test applied by the Court of Appeals for

the Sixth Circuit in Estate of Spencer v. Commissioner, 43 F.3d

226 (6th Cir. 1995), revg. T.C. Memo. 1992-579, that the date for

determining whether property qualifies is the date the QTIP

election is made.

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 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

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 (continued...) - 43 -

the proper date for determining whether the surviving spouse has

a qualifying income interest for life in the property.

I agree that the election under section 2056(b)(7)(B)(v),

like any other election that an executor makes under the estate

tax provisions, must be made after the date of death of the

decedent. However, I think the election can be made only as to

an otherwise qualifying income interest in the property and that

the election itself cannot qualify otherwise nonqualifying

property. The definition of an interest in property in section

2056(b)(7)(B)(iii), the definition of a specific portion of

property in section 2056(b)(7)(B)(iv), and the phrase "any

property" in the definition of an election in section

2056(b)(7)(B)(v) do not change that result. Whatever the nature

of the property, whatever the interest in the property, or

whatever the specific portion of the property, the statute

requires the surviving spouse to have a "qualifying income

interest for life" in that "property".

(...continued) 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. - 44 -

The term "property * * * to which an election under this

paragraph applies" under section 2056(b)(7)(B)(i)(III) means

something different from property for which an election "has been

made". I think the term refers to property that meets the two

preceding requirements; namely, property "which passes from the

decedent" (sec. 2056(b)(7)(B)(i)(I)) and property "in which the

surviving spouse has a qualifying income interest for life" (sec.

2056(b)(7)(B)(i)(II)). I think the surviving spouse must first

have a qualifying income interest for life in the property before

the executor can make the QTIP election as to all or any part of

that property.

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." Estate of Clayton v.

Commissioner, 976 F.2d at 1496. In reversing this Court,

however, the Fifth Circuit stated:

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. * * * - 45 -

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 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.

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.

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, 1499 (5th Cir. 1992), revg. 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. - 46 -

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 section 2056(b)(7).

I do not think that, by requiring the executor to make the

election 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 - 47 -

provisions for estate tax (section 2056(b)(7)) and the QTIP

provisions for gift tax (section 2523(f)) were designed to permit

a decedent (or donor spouse) to make a lifetime gift or a

testamentary bequest to his spouse of an income interest for life

in property but still control the disposition of that property at

the death of the surviving spouse or donee spouse. Congress did

not intend to vest the executor with the power to determine the

disposition of the decedent's property; i.e., whether the

surviving spouse would ultimately receive a qualifying income

interest for life in the property or whether some other heir or

heirs would receive that interest. To the contrary, the

legislative history makes clear that "tax consequences should not

control an individual's disposition of property." H. Rept. 97-

201, at 160 (1981), 1981-2 C.B. 352, 378.

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 us". Majority op. p. 16. This - 48 -

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 for

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. Brewin v. Commissioner, 72 T.C. - 49 -

1055, 1059 (1979), revd. and remanded on another issue 639 F.2d

805 (D.C. Cir. 1981).3 This venue issue arises under a specific

Internal Revenue Code provision applicable only to the Tax Court

and appears to be an issue of first impression.

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 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

3 See also Peat Oil & Gas Associates v. Commissioner, T.C. Memo. 1993-130, appeal dismissed without published opinion for improper venue 12 F.3d 214 (6th Cir. 1993). - 50 -

Appeals for the District of Columbia. For purposes of this paragraph, the legal residence, principal place of business, or 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 is

referred to as the petitioner.4 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. Estate of

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, (continued...) - 51 -

Turner v. Helvering, 68 F.2d 759, 760 (D.C. Cir. 1934). That

issue does not turn upon how the capacity of fiduciaries or other

representatives to litigate in this Court is to be determined.6

No issue has been raised in this Court as to the capacity of

Richard E. Clack and the Marshall & Isley Trust Co. to litigate

in this Court. Their capacity to litigate in this Court is to be

determined, and presumably has been determined, under Arkansas

law.7 In any event, their capacity to litigate in the Tax Court

does not mean that the State that appointed them determines the

proper venue for any appeal from a decision of this Court. See

(...continued) 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). - 52 -

Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, 186, 190 (1931)

(venue in Federal diversity case); Buchheit v. United Air Lines,

Inc., 202 F. Supp. 811 (S.D.N.Y. 1962) (venue under Federal Tort

Claims Act). These venue cases suggest that the personal

residence of an executor or administrator is controlling, and

that the residence of the decedent at the time of his death and

the place of appointment of the executor or administrator are

immaterial.

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 28 U.S.C. sec. 1332 (1994) and removal under

28 U.S.C. sec. 1441 (1994) should apply for purposes of

determining venue under section 7482(b)(1). Petitioner argues

that "In the related field of diversity jurisdiction, courts have

demonstrated a willingness to look behind the individual

residence of the executor when determining the citizenship of

parties." The Judicial Improvements and Access to Justice Act

of 1988, Pub. L. 100-702, sec. 202(a), 102 Stat. 4646, added 28

U.S.C. sec. 1332(c), which provides:

(c) For the purposes of this section and section 1441 of this title--

* * * * * * * - 53 -

(2) the legal representative of the estate of a decedent shall be deemed to be a citizen only 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, 28 U.S.C. sec. 1332, by its

express terms, applies only to that section and to 28 U.S.C. sec.

1441. This provision does not mention the Tax Court's venue

statute, which had been in the law for 22 years at that time. I

think that this 1988 provision "overrules" neither the cases on

which I rely nor this Court's specific venue statute.

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), and

any cases construing similar provisions in Federal tax refund

cases.

The Board of Tax Appeals, the predecessor of this Court, was

established 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 - 54 -

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 Ayer v.

Commissioner, 63 F.2d 231 (2d Cir. 1933), dismissing appeal from

26 B.T.A. 9 (1932). Because of the definition of "person (other

than an individual)" to include an estate and confusion as to

where returns were to be filed,8 the cases construing section

1002 of the Revenue Act of 1926 are not on point or particularly

helpful in the present inquiry. See Estate of Turner v.

Helvering, 68 F.2d 759 (D.C. Cir. 1934); Ayer v. Commissioner,

supra; Matheson v. Commissioner, 54 F.2d 537 (2d Cir. 1931),

affg. 18 B.T.A. 674 (1930); Rusk v. Commissioner, 53 F.2d 428

(7th Cir. 1931), affg. 20 B.T.A. 138 (1930).

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:

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. - 55 -

(a) Except as provided in subdivision (b), such decision may be reviewed 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 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 the 1939 Internal

Revenue Code and then substantially unchanged became section 7482

of the 1954 Internal Revenue Code. In the meantime the Board of

Tax Appeals became the Tax Court of the United States and then

the United States Tax Court. That 1934 provision remained the

venue statute for appeal from Tax Court decisions until the

current version of section 7482(b)(1) was enacted in 1966.

In connection with the Internal Revenue Service's then

conversion from manual to automatic data processing of tax

returns, 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. - 56 -

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), 1966-2 C.B. 803, 808.

So what is the proper venue for tax refund suits after which

the Tax Court's venue statute is modeled? Section 1346(a)(1) of

title 28 places original jurisdiction in the U.S. District Courts

or the U.S. Court of Federal Claims for any suit against the

United States for refund of Federal taxes.9 Section 1402(a)(1)

of title 28 provides that proper venue for such a suit is only in

the judicial district in which the individual "plaintiff"

resides.10 Section 1402(a)(2) of title 28 provides that venue

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 (continued...) - 57 -

for a corporate plaintiff is the judicial district in which is

located its principal place of business or principal office or

agency. In the present case the individual executor resides in

Wisconsin, and the corporate executor has its principal place of

business in Wisconsin.

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. Caleshu v. Wangelin, 549 F.2d 93 (8th Cir.

1977); Scott v. United States, 449 F.2d 1291 (8th Cir. 1971);

Noonis v. United States, 539 F. Supp. 404 (S.D. Cal. 1982). And

if the plaintiff is an individual, the venue may not be

transferred to another judicial district, even though the events

(...continued) 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 section 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.

We note that the transfer provision of the last sentence of 28 U.S.C. sec. 1402(a)(2) applies only to corporations. Caleshu v. Wangelin, 549 F.2d 93, 95 (8th Cir. 1977). - 58 -

occurred in another state and even though most of the records are

in the other state. Caleshu v. Wangelin, supra at 95-96 and n.4.

For a refund of Federal estate taxes, the executor is the

proper person to bring the refund suit. Hofheinz v. United

States, 511 F.2d 661 (5th Cir. 1975). The Court of Appeals for

the Fifth Circuit pointed out that the executor actually paid the

estate tax (sec. 2002) and was the proper plaintiff-taxpayer for

purposes of the refund suit. Similarly, the proper venue for a

suit brought by an executor for refund of estate taxes is the

judicial district where the executor resides. Kruskal v. United

States, 178 F.2d 738 (2d Cir. 1950).

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 rule 17(b) of the

Federal Rule of Civil Procedure depended on New York law, and

that New York law did not permit foreign executors to sue in the

courts of New York in a representative capacity. The District - 59 -

Court for the Southern District of New York did not address the

first ground but granted the motion on the basis of the

executors' lack of capacity to sue under New York law. The Court

of Appeals for the Second Circuit reversed the lower court,

upholding venue in New York and disagreeing with the argument as

to the lack of ancillary letters.

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. * * *

Kruskal v. United States, 178 F.2d at 740.

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 28 U.S.C. sec. 1402(a) that refund

suits may be prosecuted only in the judicial district where the

plaintiff resides, the court stated:

Since there is nothing to suggest departure from the usual rule that residence of the individual plaintiffs, rather than the situs of their estate, controls questions of federal jurisdiction, Mecom v. Fitzsimmons Drilling Co., 284 U.S. 183, * * *; Greenough v. Tax Assessors of City of Newport, 331 U.S. 486, 495, * * *, we think the plaintiffs have chosen the correct venue for their action. * * *

Id. at 739. - 60 -

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 Estate

of Robertson v. Commissioner, supra, on the QTIP issue in this

case.

COHEN, J., agrees with this dissent. - 61 -

HALPERN, J., dissenting: I 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. 16. 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 she)

thinks is the right result.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 Central Pa. Sav.

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, 1465 (1995). - 62 -

Association v. Commissioner, 104 T.C. 384, 406 (1995) (Halpern,

J., dissenting), I described how we have resolved those problems:

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., Lawrence v. Commissioner, 27 T.C. 713 (1957), revd. 258 F.2d 562 (9th Cir. 1958); Golsen v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971); Lardas v. Commissioner, 99 T.C. 490 (1992). We have, since Lawrence, backed off from the position taken therein, that, while certainly we should seriously consider the reasoning of a Court of Appeals that had reversed one of our decisions, we ought not to follow the Court of Appeals’ decision if we believe it to be incorrect:

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. [Lawrence v. Commissioner, supra at 716-717; fn. refs. omitted.]

We have backed off to the extent that, in Golsen v. Commissioner, supra, we created a narrow exception to the Lawrence doctrine. Where a reversal would appear inevitable, due to the clearly established position of the Court of Appeals to which an appeal would lie, our obligation as a national Court does not require a futile and wasteful insistence on our view. Golsen v. Commissioner, 54 T.C. 742, 757. Accordingly, in that narrow circumstance, although we still think the result wrong, we will follow that Court of Appeals. Compare Golsen v. Commissioner, supra (Golsen doctrine established), with Lardas v. Commissioner, supra (Golsen doctrine inapplicable). * * *

The majority finds the Golsen doctrine inapplicable.

Majority op. p. 16. Nevertheless, today we overrule three of our

prior decisions with the only apparent justification being that - 63 -

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 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 Estate of Clayton v.

Commissioner, 97 T.C. 327 (1991), revd. 976 F.2d 1486 (5th Cir.

1992), Estate of Robertson v. Commissioner, 98 T.C. 678 (1992),

revd. 15 F.3d 779 (8th Cir. 1994), and Estate of Spencer v.

Commissioner, T.C. Memo. 1992-579, revd. 43 F.3d 226 (6th Cir.

1995). I would follow those decisions.

II. Qualified Terminable Interest Property

A. Introduction--Section 2056(b)(7) Is Unambiguous

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 section 2056(b)(7)(B)(i). If

it is not, then such property does not qualify for the marital

deduction provided for in section 2056(a). The distinguishing

feature of the decedent’s bequest to the marital trust is that it

is conditional on the decedent’s personal representative’s

electing to have section 2056(b)(7)(A) apply. If no election is

made, the marital trust receives nothing. If an election is - 64 -

made, but it is with respect to less than all of the property

eligible to pass to the marital trust, then only such lesser

portion passes to the marital trust. Property eligible to pass

to the marital trust, but with respect to which no election is

made, remains in the residue of the estate and funds the family

trust. Because the decedent’s wife has no exclusive right for

life to any portion of the income of the family trust, she does

not have a qualified income interest for life in that trust.

Sec. 2056(b)(7)(B)(ii). Thus, property passing to the family

trust cannot qualify as qualified terminable interest property

under section 2056(b)(7)(B)(i).

The authority vested by the decedent in his personal

representative to elect whether to have section 2056(b)(7)(A)

apply determines more than simply the tax consequences of a

predetermined bequest. As between two classes of possible trust

beneficiaries--one class being the beneficiaries of the marital

trust (principally, the decedent’s wife, with an income interest

and a limited right to principal), and the other class being the

beneficiaries of the family trust (the decedent’s wife, children,

and the children of any deceased children, with rights to both

income and principal)--the personal representative has the

authority to determine which class immediately will enjoy (i.e.,

which trust will receive) the property. The personal

representative’s authority thus amounts to a power to appoint the

property between the two trusts, and the decedent’s wife’s - 65 -

interest in the property is contingent on the personal

representative exercising the power in her favor. That is a

clear violation of section 2056(b)(7)(B)(ii)(II) (with an

exception not here relevant, “no person has a power to appoint

any part of the property to any person other than the surviving

spouse.”). The statute is unambiguous. Indeed, section

2056(b)(7)(B)(ii) specifically provides that the prohibition on

powers is inapplicable to a power exercisable only at or after

the death of the surviving spouse. By the terms of his will or

by a power, a decedent can control the disposition of qualified

terminable interest property upon the death of the surviving

spouse. By requiring an election, section 2056(b)(7)(B)(i)(III)

makes it clear that the executor of the estate or other personal

representative of the decedent (hereafter, in either case,

personal representative) can choose whether to take tax advantage

of an otherwise qualifying bequest or devise of terminable

interest property. The decedent cannot, however, empower his

personal representative to deprive the spouse of what would be a

qualified income interest for life by, for example, appointing

the property to a trust in which she does not enjoy all of the

income from the property for life. Simply, such a power is

prohibited by section 2056(b)(7)(B)(ii)(II).

I do not consider section 2056(b)(7) to be ambiguous. Even

if one were to consider the section ambiguous, however, so that a

search for extrinsic evidence of congressional purpose were - 66 -

appropriate, I am unpersuaded that, in enacting section

2056(b)(7), Congress’ purpose was to exempt from the terminable

interest rule a bequest or devise that is uncertain (as to

whether the surviving spouse has a qualifying income interest for

life) at the time of the decedent’s death. The relevant

committee reports are silent, and the general rule of section

2056(b) is to the contrary. On that basis, even assuming

ambiguity, I would hold for respondent.

B. Committee Reports Are Silent

Section 2056(b)(7) was added to the Code by the Economic

Recovery Tax Act of 1981 (ERTA), Pub. L. 97-34, sec. 403(d), 95

Stat. 172, 302. H. Rept. 97-201 (H. Rept. 97-201), 1981-2 C.B.

352, is the report of the Committee on Ways and Means that

accompanied H.R. 4242, 97th Cong., 1st Sess. (1981) (which was

enacted as ERTA). In pertinent part, H. Rept. 97-201 details the

reasons for an unlimited marital deduction (simplification and

the view that an individual should be free to pass his entire

estate to a surviving spouse free of tax). It then states:

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 - 67 -

gross estate, a decedent may at least control disposition of one-half of his estate and still maximize current tax benefits. 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, supra at 159-160, 1981-2 C.B. at 377-378; see

H. Conf. Rept. 97-215, at 247 (1981), 1981-2 C.B. 481, 507

(conference agreement follows the House bill and Senate

amendment).

Thus, Congress enacted section 2056(b)(7) in order to allow

a decedent to enjoy the benefits of the marital deduction while,

at the same time, exercising the type of control over the

disposition of the property upon the termination of the surviving

spouse’s interest that would, under prior law, have violated the

terminable interest rule. Clearly, by providing for an election,

Congress’ purpose also was to allow some post mortem tax

planning. I cannot distill from the committee reports, however,

any clear indication that Congress’ purpose was anymore than to

allow the decedent’s personal representative to determine the tax

consequence of a disposition that had been predetermined by the

decedent. If Congress’ purpose were any more than that, it seems

to me that relevant committees would have stated that purpose.

For me, the committee reports are silent on the issue before us. - 68 -

C. Internal Consistency

Section 2056(b) disallows the marital deduction with respect

to certain terminable interests. Section 2056(b) had its origin

in section 361 of the Revenue Act of 1948, ch. 168, 62 Stat. 110,

117. S. Rept. 1013, 80th Cong., 2d Sess. (1948), 1948-1 C.B. 285

(S. Rept. 1013), is the report of the Committee on Finance that

accompanied H.R. 4790, 80th Cong. 2d Sess. (1948) (which was

enacted as the Revenue Act of 1948). S. Rept. 1013 has the

following to say about the operation of the terminable interest

rule:

[The terminable interest rule] is intended to be all-encompassing with respect to various 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. * * * [1948-1 C.B. at 336.]

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.]

Robertson v. United States, 199 F. Supp. 78, 80 (N.D. Ala. 1961),

revd. 310 F.2d 199 (5th Cir. 1962). Thus, for example, a - 69 -

specific exception to the terminable interest rule is necessary

to allow the decedent to make the interest of the surviving

spouse conditional on surviving the decedent by 6 months or

surviving a common disaster. See sec. 2056(b)(3). Other

conditions of survival violate the terminable interest rule.

See, e.g., sec. 20.2056(b)-3(d), Example (4), Estate Tax Regs.

(condition of survival to date of distribution of property

unacceptable).

In Jackson v. United States, 376 U.S. 503 (1964), the

Supreme Court found that a State-law widow’s allowance was a

prohibited terminable interest. The allowance was subject both

to a condition precedent (award by a court) and defeasance

(abatement upon the widow’s death). The Court stated that the

rule uniformly followed is that qualification for the marital

deduction must be determined at the time of death. Id. at 508.

Thus, consider the following hypothetical situation: The

decedent leaves the residue of his estate to his children, except

to the extent that his personal representative lists any portion

of the residue on the estate tax return as going to the wife. On

the authority of the Jackson case, a deduction under section

2056(a) would fail on account of the terminable interest

exception for the portion of the residue going to the wife.

The general rule of section 2056(b) is that contingent

interests are terminable interests. The determination is made at

the time of death. Here, the decedent’s wife’s interest in the - 70 -

marital trust property was contingent at the time of death. Only

if the decedent’s personal representative elected to have section

2056(b)(7)(A) apply to property would it pass to the marital

trust. To be consistent with the general rule of section

2056(b), any ambiguity in section 2056(b)(7) must be resolved to

prevent property in which the surviving spouse has only a

contingent income interest from being qualified terminable

interest property.

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 section 2056(b)(7) in a vacuum (and if I believed that

the provision were ambiguous), then I might reach that result. I

cannot, however, consider section 2056(b)(7) in a vacuum. The

terminable interest rule plays a major role in section 2056.

Without a specific direction from Congress to disregard the

contingent nature of a surviving spouse’s interest, we are not

free to do so. We would be wise to keep in mind what the Supreme

Court said in the Jackson case (involving the widow’s allowance):

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 - 71 -

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 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.

Jackson v. United States, supra at 510 (fn. refs. omitted). We

are not here concerned with the support of widows during the

pendency of an estate tax proceeding. In H. Rept. 97-201, supra

at 160, 1981-2 C.B. at 377-378, the Committee on Ways and Means

expressed the specific concern that, as between the decedent and

the spouse, the decedent be able to control the disposition of

qualified terminable interest property on the conclusion of the

spouse’s life estate. I do not believe that our decisions in

Estate of Clayton v. Commissioner, 97 T.C. 327 (1991), Estate of

Robertson v. Commissioner, 98 T.C. 678 (1992), and Estate of

Spencer v. Commissioner, T.C. Memo. 1992-579, are inconsistent

with Congress’ action to deal with that concern.

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 - 72 -

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 section 2056(b)(7) is

ambiguous and that both the position we take today and the

position we took in the enumerated cases, and that the

Commissioner takes in section 20.2056(b)-7(d)(3), Estate Tax

Regs., are reasonable interpretations of the statute? Only if

the statute is ambiguous is the Commissioner then free to write a

regulation adopting any reasonable interpretation. NationsBank

v. Variable Annuity Life Ins. Co., 513 U.S. ___, ___, 115 S. Ct.

810, 813-814 (1995); Chevron, U.S.A. Inc. v. Natural Resources

Defense Council, Inc., 467 U.S. 837, 842-844 (1984). No court,

neither this Court nor any of the Courts of Appeals that have

reversed us, has suggested any significant ambiguity in the

statute, much less an ambiguity broad enough to tolerate the

diametrically opposed readings found in our prior cases and in

the case we decide today. Certainly, decedents whose estate tax

cases might on appeal go to a Court of Appeals different than the

three that have reversed us bear the risk that such court might

find section 2056(b)(7) ambiguous. Also certainly, the Supreme

Court might find section 2056(b)(7) ambiguous (or unambiguous, as

interpreted by section 20.2056(b)-7(d)(3), Estate Tax Regs.).

Can we seriously say, however, that there is a substantial risk - 73 -

that we will find the statute ambiguous and, if so, that both the

position we take today and the position we today abandon are

reasonable interpretations? If there is no such risk, and I

believe that there is not, we should say so. As I have said, we

are a court of national jurisdiction with expertise in the area

of Federal taxes. What we say means something; it makes a

difference. We should explain ourselves, and strive to achieve

the right result.

PARKER, J., agrees with this dissent. - 74 -

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 section 2056(b)(7), I do not

believe it necessary or appropriate to decide the venue issue

that Judge Parker addresses in her dissent. Accordingly, I do

not join Judge Parker's dissent to the extent it considers that

issue.