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No.
COMMISSIONER OF INTERNAL REVENUE, PETITIONER v.
on writ of certiorari to the united states court of appeals for the eleventh circuit
[
Justice
The statute and regulation most applicable to the question presented in this case are discussed in today's opinion almost as an afterthought. Instead of relying on the text of 26 U.S.C. § 2056(b)(4)(B) and its interpretive regulation, 26 CFR § 20.2056(b)-4(a) (1996), the plurality hinges its analysis on general principles of valuation which it mistakenly believes to inhere in the estate tax. It thereby creates a tax boondoggle never contemplated by Congress, and announces a test of deductibility virtually impossible for taxpayers and the IRS to apply. In my view, §2056(b)(4)(B) and §20.2056(b)-4(a) provide a straightforward disposition, namely that the marital (and charitable) deductions must be reduced whenever income from property comprising the residuary bequest to the spouse (or charity) is used to satisfy administration expenses. I therefore respectfully dissent.
Section 2056 of the Internal Revenue Code provides for a deduction from gross estate for marital bequests. [n.1] The Code places two limitations on the marital deduction which are relevant to this case. First, as would be expected, the marital deduction is limited to "an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate." 26 U.S.C. § 2056(a). Thus, as the plurality correctly recognizes, and as both parties agree, if any portion of marital bequest principal is used to pay estate administration expenses, then the marital deduction must be reduced commensurately. Second, and more to the point, "where such interest or property [bequeathed to the spouse] is encumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the passing of such interest, such encumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined." §2056(b)(4)(B). Section 2056(b)(4)(B) controls this case and leads to the conclusion that the marital deduction must be reduced when estate income which would otherwise pass to the spouse is used to pay administration expenses of the estate.
As the plurality implicitly recognizes, Mrs. Hubert's interest in the estate was burdened with the obligation of paying administration expenses. The settlement agreement resolving the will contest, like Mr. Hubert's most recent will, provided that the estate's administration expenses would be paid from the residuary trusts, with the discretion given to the executor to apportion expenses between the income and principal of the residue. The marital bequest, which makes up some 52% of the residue, was thus plainly burdened with the obligation of paying 52% of the administration expenses of the estate. (The charitable bequest accounted for the remaining 48% of the residue.)
Our task under §2056(b)(4)(B) is to determine how this obligation would affect the value of the marital bequest were the bequest an inter vivos gift. This seemingly rudimentary question proves difficult to answer. Both parties point to various provisions of the Internal Revenue Code and the Treasury Regulations, but these concern the quite different question whether a gift qualifies for the gift tax marital deduction; none discusses how the actual payment of administration expenses from income will affect the value of the gift tax marital deduction. See, e.g., 26 CFR §§ 25.2523(e)-1(f)(3) and (4) (1996) (inclusion of the power to a trustee to allocate expenses of a trust between income and corpus will not disqualify the gift from the marital deduction so long as the spouse maintains substantial beneficial enjoyment of the income). The plurality seeks to derive some support from Treasury Regulation §25.2523(a)-1(e), see ante, at 5-6, though it must acknowledge that "[t]he question presented here . . . is not controlled by the exact terms of [that regulation or the provisions to which it refers]," ante, at 6. Even going beyond its "exact terms," however, the regulation has no relevance. Like its counterparts in the estate tax provisions, see §§20.2031-1(b), 20.2031-7, it simply provides instruction on how to value the assets comprising the gift. It says nothing about how to take account of administration expenses. Indeed, the gross estate does not include anticipated administration expenses. As I discuss below, infra, at 13-14, the estate tax provisions provide for a deduction from the gross estate for administration expenses actually incurred. See 26 U.S.C. § 2053(a)(2) and 26 CFR § 20.2053-3(a) (1996). Were expected ad ministration expenses taken into account in valuing the assets of the gross estate, as the plurality incorrectly suggests, then the estate tax deduction for actual administration expenses would in effect be a second deduction for the same charge.
Respondent's strongest argument is based on Rev. Rul. 69-56, 1969-1 Cum. Bull. 224, which held that inclusion in a marital trust of the power to charge administration expenses to either income or principal does not run afoul of that provision of the regulations which requires, in order for a life estate trust to qualify for the gift and estate tax marital deductions, that settlor intend the spouse to enjoy "substantially that degree of beneficial enjoyment of the trust property during her life which the principles of the law of trust accord to a person who is unqualifiedly designated as the life beneficiary of a trust." 26 CFR §§2523(e)-1(f)(1), 2056(b)-5(f)(1) (1996). Although the Revenue Ruling was an interpretation of qualification regulations, it also purported to "h[o]ld" that inclusion of the "powe[r]" to allocate expenses between income and principal "does not result in the disallowance or diminution of the marital deduction" (emphasis added). I agree with the Commissioner that this Revenue Ruling is inapposite because it deals with the effect of the mere existence of the power to allocate expenses against income; it speaks not at all to the question of how the actual exercise of that power will affect the valuation of the estate tax marital deduction. If the ruling is construed to mean that exercise of the power does not reduce the marital deduction, then actually using principal to pay the expenses should not reduce the marital deduction, a result which everyone agrees is incorrect, see, e.g., ante, at 9 (plurality opinion); ante, at 2 (O'Connor, J., concurring in the judgment); supra, at 2, and which plainly conflicts with §2056(a). It seems to me obvious that the Commissioner was simply not addressing the issue before us today when she issued Revenue Ruling 69-56, a conclusion confirmed by the fact that the Commissioner's longstanding view--which antedates Revenue Ruling 69-56--is that use of marital bequest income to pay administration expenses requires that the marital deduction be reduced, see, e.g., Brief for Government Appellee, in Ballantine v. Tomlinson, No. 18,736 (CA5 1961), p. 18; Brief for Government Appellee, in Alston v. United States, No. 21,402 (CA5 1965), p. 15.
The Commissioner contends that Treasury Regulation §20.2056(b)-4(a), which interprets §2056(b)(4)(B), mandates the conclusion that payment of administration expenses from marital bequest income reduces the marital deduction. Section 20.2056(b)-4(a) provides:
"The value, for the purpose of the marital deduction, of any deductible interest which passed from the decedent to his surviving spouse is to be determined as of the date of the decedent's death, [unless the executor elects the alternate valuation date]. The marital deduction may be taken only with respect to the net value of any deductible interest which passed from the decedent to his surviving spouse, the same principles being applicable as if the amount of a gift to the spouse were being determined. In determining the value of the interest in property passing to the spouse account must be taken of the effect of any material limitations upon her right to income from the property. An example of a case in which this rule may be applied is a bequest of property in trust for the benefit of the decedent's spouse but the income from the property from the date of decedent's death until distribution of the property to the trustee is to be used to pay expenses incurred in the administration of the estate." (Emphasis added.)
This text was issued pursuant to explicit authority given the Secretary of the Treasury to promulgate the rules and regulations necessary to enforce the Internal Revenue Code. See 26 U.S.C. § 7805(a). As this Court has repeatedly acknowledged, judicial deference to the Secretary's handiwork "helps guarantee that the rules will be written by `masters of the subject.' " National Muffler Dealers Assn., Inc. v. United States, 440 U.S. 472, 477 (1979), quoting United States v. Moore, 95 U.S. 760, 763 (1878). Thus, when a provision of the Internal Revenue Code is ambiguous, as §2056(b)(4)(B) plainly is, this Court has consistently deferred to the Treasury Department's interpretive regulations so long as they " ` "implement the congressional mandate in some reasonable manner." ' " National Muffler Dealers Assn., Inc., supra, at 477, quoting United States v. Cartwright, 411 U.S. 546, 550 (1973), in turn quoting United States v. Correll, 389 U.S. 299, 307 (1967). See also Cottage Savings Assn. v. Commissioner, 499 U.S. 554, 560-561 (1991).
As the courts below recognized, the crucial term of the regulation for present purposes is "material limitations." Curiously enough, however, neither the Commissioner nor the respondents come forward with a definition of this term, the former simply contending that "it is the burden of paying administration expenses itself that constitutes the `material' limitation," Brief for Petitioner 31, and the latter simply contending that that burden is for various reasons not substantial enough to qualify. Today's plurality opinion also takes the latter approach, never defining the term but displaying by its examples that "material" must mean "relatively substantial." If, it says, a spouse's bequest represents a small portion of the overall estate and could be expected to generate little income, the estate's anticipated administration expenses " `may' be material" when compared to the anticipated income. Ante, at 10-11. But, it says, the mere fact that an estate incurs (or as I discuss below, under the plurality's approach, expects to incur) "substantial litigation costs" is insufficient to make a limitation material. Ante, at 12.
The beginning of analysis, it seems to me, is to determine what, in the context of §20.2056(b)-4(a), the word "material" means. In common parlance, the word sometimes bears the meaning evidently assumed by respondents: "substantial," or "serious" or "important." See 1 The New Shorter Oxford English Dictionary 1714 (1993) (def. 3); Webster's New International Dictionary 1514 (2d ed. 1950) (def. 2a). It would surely bear that meaning in a regulation that referred to a "material diminution of the value of the spouse's estate." Relatively small diminutions would not count. But where, as here, the regulation refers to "material limitations upon [the spouse's] right to receive income," it seems to me that the more expansive meaning of "material" is naturally suggested--the meaning that lawyers use when they move that testimony be excluded as "immaterial": Not "insubstantial" or "unimportant," but "irrelevant" or "inconsequential." See American Heritage Dictionary 1109 (3d ed. 1992) (def. 4: defining "material" as "[b]eing both relevant and consequential," and listing "relevant" as a synonym). In the context of §20.2056(b)-4(a), which deals, as its first sentence recites, with "[t]he value, for the purpose of the marital deduction, of any deductible interest which passed from the decedent to his surviving spouse" (emphasis added), a "material limitation" is a limitation that is relevant or consequential to the value of what passes. Many limitations are not--for example, a requirement that the spouse not spend the income for five years, or that the spouse be present at the reading of the will, or that the spouse reconcile with an alienated relative.
That this is the more natural reading of the provision is amply demonstrated by the consequences of the alternative reading, which would leave it to the taxpayer, the Commissioner, and ultimately the courts, to guess whether a particular decrease in value is "material" enough to qualify--without any hint as to what might be a "ballpark" figure, or indeed any hint as to whether there is such a thing as "absolute materiality" (the two million dollars at issue here, for instance) or whether it is all relative to the size of the estate. One should not needlessly impute such a confusing meaning to a regulation which readily bears another interpretation that is more precise. Moreover, the Commissioner's interpretation of her own regulation, so long as it is consistent with the text, is entitled to considerable deference, see National Muffler Dealers Assn., Inc., supra, at 488-489; Cottage Savings Assn., supra, at 560-561.
The concurrence contends that the other (more un natural) reading of "material" must be adopted--and that no deference is to be accorded the Commissioner's longstanding approach of reducing the marital deduction for any payment of administrative expenses out of marital bequest income--because of a recent Revenue Ruling in which the Commissioner acquiesced in lower court holdings that the marital deduction is not reduced by the payment from the marital bequest of interest on deferred estate taxes. Ante, at 8-9 (discussing Rev. Rul. 93-48). The concurrence asserts that interest accruing on estate taxes "is functionally indistinguishable" from administrative expenses, so that Revenue Ruling 93-48 "created a quantitative rule" shielding some financial burdens from affecting the calculation of the marital deduction. Ante, at 8-9. I think not. The Commissioner issued Revenue Ruling 93-48 only after her contention, that §20.2056(b)-4(a) required the marital deduction to be reduced by payment of estate tax interest from the marital bequest, was repeatedly rejected by the Tax Court and the Courts of Appeals. See, e.g., Estate of Street v. Commissioner, 974 F. 2d 723 (CA6 1992); Estate of Whittle v. Commissioner, 994 F. 2d 379 (CA7 1993); Estate of Richardson v. Commissioner, 89 T. C. 1193 (1987). Rather than continuing to expend resources in litigation that seemed likely to bring little or no income to the Treasury, the Commissioner chose, in Revenue Ruling 93-48, to "adopt the result" of then recent court decisions regarding interest on taxes. It is impossible to think that this suggested her view on the proper treatment of administrative expenses had changed. Indeed, the Ruling itself expressly indicates continued adherence to the Commissioner's longstanding position by reaffirming Revenue Ruling 73-98, which held that the charitable deduction must be reduced by the amount of charitable bequest income and principal consumed to pay administrative expenses, modifying it only insofar as it applies to payment of interest on taxes. Moreover, the Courts of Appeals whose results the Commissioner adopted themselves distinguished administrative expenses. In Estate of Street, for example, the court reasoned that while administrative expenses accrue at death interest on taxes accrues after death, and noted that the example in Treasury Regulation §2056(b)-4(a) specifically required a reduction of the marital deduction for payment of administrative ex penses, but was silent as to interest on taxes. 974 F. 2d, at 727, 729. While the concurrence may be correct that the distinctions advanced by the Courts of Appeals are not wholly persuasive (the Commissioner herself argued that to no avail), I hardly think they are so irrational that it was arbitrary or capricious for the Commissioner to maintain her longstanding prior position on administrative expenses once Revenue Ruling 93-48 was issued; and it is utterly impossible to think that Revenue Ruling 93-48 was, or was understood to be, an indication that the Commissioner had changed her prior position on administrative expenses. That eliminates the only two grounds on which Revenue Ruling 93-48 could be relevant.
The concurrence's reading of Revenue Ruling 93-48 suffers from an additional flaw. Revenue Ruling 93-48 is not limited to payment from marital bequest income, but rather extends to payment from marital bequest principal as well. Thus, under the concurrence's view of that Ruling, even substantial administrative expenses paid out of marital bequest principal may not require a reduction of the marital deduction. This result, is, of course, inconsistent with the statute, see 26 U.S.C. § 2056(a), and with what appears to be (as I noted earlier, supra, at 4-5) the concurrence's view, ante, at 2.
Respondents assert that some inquiry into "substantiality" is necessarily implied by the fact that the last sentence of the regulation describes an income to pay administration expenses limitation as "[a]n example of a case in which this rule [of taking account of material limitations] may be applied," 26 CFR § 20.2056(b)-4(a) (1996) (emphasis added). The word "may" implies, the argument goes, that in some circumstances under those same facts the rule would not be applied--namely (the argument posits) when the administration expenses are not "substantial." But the latter is not the only explanation for the "may." Assuming it connotes possibility rather than permissibility (as in, "My boss said that I may go to New York"), the contingency referred to could simply be the contingency that there be some income which is used to pay administration expenses.
The Tax Court (in analysis adopted verbatim by the Eleventh Circuit and seemingly adopted by the concurrence, ante, at 10-11) took yet a third approach to "material limitation," which I must pause to consider. The Tax Court relied on Treas. Reg. §25.2523(e)-1(f)(3), 26 CFR § 25.2523(e)-1(f)(3) (1996), which, it stated, provides that so long as the spouse has substantial beneficial enjoyment of the income of a trust, the bequest will not be disqualified from the marital gift deduction by virtue of a provision allowing the trustee to allocate expenses to income, and the spouse will be deemed to have received all the income from the trust. The Tax Court concluded that: "If Mrs. Hubert is treated as having received all of the income from the trust, there can be no material limitation on her right to receive income." 101 T. C. 314, 325-326 (1993). This reasoning fails for a number of reasons. First, §25.2523(e)-1(f)(3) is a qualification provision; it does not purport to instruct on how to value the bequest. Second, and more fundamentally, the Tax Court's approach renders the "material limitation" phrase in §20.2056(b)-4(a) superfluous. Under that view, a limitation is material only if it deprives the spouse of substantial beneficial enjoyment of the income. However, if the spouse does not have substantial beneficial enjoyment of the income, the trust does not qualify for the marital deduction and whether the limitation is material is irrelevant. That "material limitation" is not synonymous with "substantial beneficial enjoyment" is further suggested by the regulations governing the qualification of trusts for the marital estate tax deduction, which are virtually identical to the gift tax provisions relied upon by the Tax Court. See 26 C.F.R. §20.2056(b)-5(f) (1996). Section 20.2056(b)-5(f)(9) provides that a spouse will not be deemed to lack substantial beneficial enjoyment of the income merely because the spouse is not entitled to the income from the estate assets for the period reasonably required for administration of the estate. However, that section expressly provides: "As to the valuation of the property interest passing to the spouse in trust where the right to income is expressly postponed, see §20.2056(b)-4." Ibid. (emphasis added).
My understanding of §20.2056(b)-4(a) is the only approach consistent with the statutory requirement that the marital deduction be limited to the value of property which passes to the spouse. See 26 U.S.C. § 2056(a). As the plurality and the concurrence acknowledge, one component of an asset's value is its discounted future income. See, e.g., Maass v. Higgins, 312 U.S. 443, 448 (1941); 26 CFR § 20.2031-1(b) (1996). (This explains why postmortem income earned by the estate is not added to the date of death value in computing the gross estate: projected income was already included in the date of death value.) The plurality and the concurrence also properly acknowledge that if residuary principal is used to pay administration expenses, then the marital deduction must be reduced commensurately because the property does not pass to the spouse. See ante, at 9 (plurality opinion); ante, at 2 (O'Connor, J., concurring in the judgment); 26 U.S.C. § 2056(a). The plurality and the concurrence decline, however, to follow this reasoning to its logical conclusion. Since the future stream of income is one part of the value of the assets at the date of death, use of the income to pay administration expenses (which were not included in calculating the assets' values) in effect reduces the value of the interest that passes to the spouse. As succinctly explained by a respected tax commentator:
"Beneficiaries are compensated for the delay in receiving possession by giving them the right to the income that is earned during administration. . . . [I]t is only the combination of the two rights--that to the income and that to possess the property in the future--that gives the beneficiary rights at death that are equal to value of the property at death. If the beneficiary does not get the income, what the beneficiary gets is less than the death time value of the property." Davenport, A Street Through Hubert's Fog, Tax Notes, 1107, 1110 (1996).
If the beneficiary does not receive the income generated by the marital bequest principal, she in effect receives at the date of death less than the value of the property in the estate, in much the same way as she receives less than the value of the property in the estate when principal is used to pay expenses.
Besides giving the word "material" the erroneous meaning of something in excess of "substantial," the plurality's opinion adopts a unique methodology for determining materiality. Consistent with its apparent view that the estate tax provisions prohibit examination of any events following the date of death, the plurality concludes that whether a limitation is material, and the extent of any reduction in the marital deduction, are determined solely on the basis of the information available at the date of death--a position espoused by neither litigant, none of the amici, and none of the courts to have considered this issue since it arose some 35 years ago. The plurality appears to have been misled by its view that the estate tax demands symmetry: Since only anticipated income is included in the gross estate, only anticipated administration expenses can reduce the marital deduction. See ante, at 6-7, 11-13. The provisions of the estate tax clearly reject such a notion of symmetry and do not sharply discriminate between date of death and postmortem events insofar as the allowance of deductions for claims against and obligations of the estate are concerned. In this very case, for example, in calculating the taxable estate the executors deducted $506,989 of actual administration expenses pursuant to 26 U.S.C. § 2053(a)(2). App. to Pet. for Cert. 3a. The regulations governing such deductions provide that "[t]he amounts deductible . . . as `administration expenses' . . . are limited to such expenses as are actually and necessarily, incurred in the administration of the decedent's estate," §20.2053-3(a) (emphasis added), and expressly prohibit taking a deduction "upon the basis of a vague or uncertain estimate," 26 CFR § 20.2053-1(b)(3) (1996). Since such common administration expenses as litigation costs will be impossible to ascertain with any exactitude as of the date of death, the plurality's approach flatly contradicts the provisions of these regulations. [n.2]
The marital deduction itself is calculated on the basis of actual rather than anticipated expenditures from the marital bequest. The regulations governing 26 U.S.C. § 2056(b)(4)(A), the provision requiring the marital deduction to be reduced to take account of the effect of estate and inheritance taxes, make it clear that the actual amounts of those taxes control. See 26 CFR § 20.2056(b)-4(c) (1996). (With respect to the charitable deduction, the requirement that actual amounts be used is apparent on the face of the statute itself, see 26 U.S.C. § 2055(c).) Moreover, the language of §2056(b) (4)(A) is quite similar to the language of the regulation at issue here, §20.2056(b)-4(a), suggesting that the latter, like the former, should be interpreted to require consideration of actual, rather than merely expected, administration expenses. Compare 26 U.S.C. § 2056(b) (4)(A) ("[T]here shall be taken into account the effect which the tax imposed by section 2001, or any estate [tax], has on the net value to the surviving spouse of such interest" (emphasis added)) with 26 CFR § 20.2056(b)-4(a) (1996) ("The marital deduction may be taken only with respect to the net value of any deductible interest which passed from the decedent to his surviving spouse . . . . In determining the value of the interest in property passing to the spouse account must be taken of the effect of any material limitations upon [the spouse's] right to income" (emphasis added)).
In short, the plurality's general theory concerning valuation is contradicted by provisions of both the Code and regulations. It is also plagued by a number of practical problems. Most prominently, the plurality's rule is simply unadministrable. It requires the Internal Revenue Service and courts to engage in a peculiar, nunc pro tunc, three stage investigation into what would have been believed on the date of death of the decedent. This highly speculative inquiry begins, I presume, with an examination of the various possible administration expenditures multiplied by the likelihood that they would actually come into being (for example, estimating the chances that a will contest would develop). Next, one must calculate the expected future income from the bequest. Finally, one must determine if, in light of the expected income, the anticipated expenses are such that a willing buyer would deem them to be a "material [i.e., substantial] limitation" on the right to receive income.
Just how a court, presiding over a tax controversy many years after the decedent's death, is supposed to blind itself to later developed facts, and gauge the expected administration expenses and anticipated income just as they would have been gauged on the date of death, is a mystery to me. In most cases, it is nearly impossible to estimate administration expenses as of the date of death; much less is it feasible to reconstruct such an estimation five or six years later. The plurality's test creates tremendous uncertainty and will undoubtedly produce extensive litigation. We should be very reluctant to attribute to the Code or the Secretary's regulations the intention to require this sort of inherently difficult inquiry, especially when the key regulation is best read to require that account be taken of actual expenses.
The plurality's test also leads to rather peculiar results. One example should suffice: Assume a decedent leaves his entire $30 million estate in trust to his wife and that as of the date of death a hypothetical buyer estimates that the estate will generate administration expenses on the order of $5 million because the decedent's estranged son has publicly stated that he is going to wage a fight over the will. Further, assume that the will provides that either income or principal may be used to satisfy the estate's expenses. Finally, assume that a week after the decedent's death, mother and son put aside their differences and that the money passes to the spouse almost immediately with virtually no administration expenses. Under the plurality's test, since "only anticipated administration expenses payable from income, not the actual ones, affect the date of death value of the marital or charitable bequests," ante, at 13, the marital deduction will be limited to approximately $25 million, and, despite generating almost no income and having very few administration expenses, the estate will be required to pay an estate tax on some five million dollars even though the entire estate passed to the spouse. The plurality's test creates taxable estates where none exist. The proper result under §2056(b) (4)(B) and §20.2056 (b)-4(a) is that the marital deduction is thirty million dollars and the estate pays no estate tax.
I have one final concern with the plurality's approach: It effectively permits an estate to obtain a double deduction from tax for administration expenses, a tax windfall which Congress could never have intended. Title 26 U.S.C. § 642(g) provides that administration expenses, which are allowed as a deduction in computing the taxable estate of a decedent, see §2053, may be deducted from income (provided they fall within an income tax deduction) if the estate files a statement with the Secretary stating that such amounts have not been taken as deductions from the gross estate. Here, respondent elected to deduct some $1.5 million of its administration expenses on its fiduciary income tax returns and was prohibited from taking these expenses as a deduction from the gross estate. Notwithstanding §642(g), however, the plurality's holding effectively permits the respondent to deduct the $1.5 million of administration expenses on the estate tax return under the guise of a marital or charitable deduction. Of course, the estate could have avoided the estate tax by electing to deduct its administration expenses on its estate tax return, but then it would have had no income tax deduction; Congress gave estates a choice, not a road map to a double deduction. I recognize that nothing in §642(g) compels the conclusion that the marital (or charitable) deduction must be reduced whenever an estate elects to deduct expenses from income. However, by enacting §642 to prohibit a double deduction, Congress seemingly anticipated that if an estate elected to deduct administration expenses against income, its potential estate tax liability would increase commensurately. The plurality's holding today defeats this expectation.
The plurality today virtually ignores the controlling authority and instead decides this case based on a novel vision of the estate tax system. Because 26 CFR § 20.2056(b)-4(a) (1996), which is a reasonable interpretation of 26 U.S.C. § 2056(b)(4)(B), squarely controls this case and requires that the marital (and charitable) deductions be reduced whenever marital (or charitable) bequest income is used to pay administration expenses, I would reverse the judgment of the Eleventh Circuit. There is some dispute as to how exactly to calculate the reduction in the marital and charitable deductions. The dissenting judges in the Tax Court, on the one hand, contended that the marital and charitable deductions should be reduced by the date of death value of an annuity charged against the residuary interest which would be sufficient to pay the actual administration expenses charged to income. See 101 T. C., at 348-349 (Beghe, J., dissenting). The Commissioner, on the other hand, contends that the marital and charitable deductions must be reduced on a dollar for dollar basis, reasoning that this is the same way that all claims and obligations of the estate are treated. Since this dispute was not adequately briefed by the parties, nor passed upon by the Eleventh Circuit or the majority of judges in the Tax Court, I would remand the case to allow the lower courts to consider this issue in the first instance.
Notes
1 This case involves both the marital and the charitable deductions. I agree with the plurality's determination that the provisions governing the two should be read in pari materia, ante, at 4-5, and, like the plurality, I focus my attention on the marital deduction.
2 The plurality's reference to Ithaca Trust Co. v. United States, 279 U.S. 151 (1929), is unhelpful. That case holds that date of death valuation is applicable to bequeathed assets, not that it is applicable to claims and obligations that are to be satisfied out of those assets.