Estate of Gerson v. Comm'r

Holmes J., concurring: The issue before the court is simply this — is the regulation a reasonable interpretation of the statute? I concur with the result that the majority reaches and with their analysis of the disputed regulation’s validity under National Muffler. 1

I write separately because the Sixth Circuit — the circuit to which any appeal of this case is headed — has expressly adopted Chevron 2 deference for tax regulations, like the one here, that are issued under section 7805’s general authority. 3 In Swallows, 4 the Court aired its differences on deference under National Muffler versus deference under Chevron. Swallows is now on appeal, but I recognize that the majority is constrained to use National Muffler review unless there would be a practical certainty of reversal. See Golsen v. Commissioner, 54 T.C. 742 , 757 (1970), affd. 445 F.2d 985 (10th Cir. 1971). That practical certainty isn’t present here because, as is usually the case, whether a regulation is valid doesn’t depend on the standard: the top-to-bottom review we have found required by National Muffler and the two-part test of Chevron will usually lead to the same result. 5

Under both these standards, we start by deciding whether the words of section 1433(b)(2)(A) have a plain meaning. As the Supreme Court described step one of the analysis in Chevron: “If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Chevron, 467 U.S. at 842-843. As I noted in Swallows, 126 T.C. at 164 n.7 (Holmes, J., dissenting), there is a controversy over whether courts should only look to the text and structure of the statute in deciding whether a statute is ambiguous, Natl. R.R. Passenger Corp. v. Boston & Me. Corp., 503 U.S. 407, 417 (1992) (citations omitted), or whether they should also investigate the legislative history in this first step, Chevron, 467 U.S. at 842-843. 6 However, that controversy isn’t relevant to this case: The majority opinion and the carefully drawn concurrences of Judges Swift and Thornton show the ambiguity of the phrase “generation-skipping transfer under a trust,” and Judge Thornton’s shows as well that the legislative history — such as it is— reveals that the overall purpose of the transition provision was to ratify only unavoidable generation-skipping transfers.

There is not, then, an “unambiguously expressed intent” to the contrary. I readily admit that the dissent’s construction, following Bachler and Simpson, is reasonable too. But, as the Sixth Circuit noted in Peoples Federal S&L, “there may be several permissible constructions. If there are gaps left by silence or ambiguity of the statutes in question, agencies may fill the gaps with necessary rules, providing they are reasonable, and courts should not interfere with this process.” 948 F.2d at 300.

And reasonableness is all that’s required in step two of Chevron. In gift and estate tax law, the IRS has for years consistently treated a general power of appointment as equivalent to ownership. See Estate of Kurz v. Commissioner, 101 T.C. 44 (1993), supplemented and reconsideration denied T.C. Memo. 1994-221 , affd. 68 F.3d 1027 (7th Cir. 1995). Because the holder of a general power controls the ultimate disposition of trust property, that property is includable in the gross estate for estate tax purposes, section 2041, and the transfer of property by the exercise or release of the power is deemed a transfer by the person in possession of the power, section 2514(b). In Peterson, 7 moreover, the Second Circuit agreed with us (even in the absence of the regulation at issue today) that it was reasonable to regard the lapse of a general power as a constructive addition to the trust that created it. It is just as reasonable to treat all generation-skipping uses — whether a lapse or transfer or some other exercise — of a general power alike. Doing so eliminates the distinctions created in Simpson and Bachler between the tax-ability of a general power’s exercise, and the taxability of its lapse. It also conforms the transition provision to a commonsense reading of section 1433(b)(2)(A) as protecting generation-skipping transfers only where the tax could not have otherwise been avoided.

Is section 26.2601 — l(b)(l)(i), GST Tax Regs., the best interpretation of the statute? That isn’t for us to decide. Our task is simply to determine if the regulation is a reasonable interpretation of the exemption’s applicability to the holder of a general power under an irrevocable generation-skipping trust. This regulation is.

Swift, J., agrees with this concurring opinion. Natl. Muffler Dealers Assn. v. United States, 440 U.S. 472 (1979).

Chevron U.S.A., Inc., v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984).

See Hosp. Corp. of Am. & Subs. v. Commissioner, 107 T.C. 73 (1996), affd. 348 F.3d 136, 140-141 (6th Cir. 2003); Peoples Fed. Sav. & Loan Assn. v. Commissioner, T.C. Memo. 1990-129 , revd. 948 F.2d 289, 299-300 (6th Cir. 1991).

Swallows Holding, Ltd. v. Commissioner, 126 T.C. 96 , on appeal (3d Cir., filed July 5, 2006).

See Swallows, 126 T.C. at 173-174 (Holmes, J., dissenting).

The Sixth Circuit does look at legislative history in step one. See Hospital Corp., 348 F.3d at 143 ; Peoples Federal S&L, 948 F.2d at 299 .

Peterson Marital Trust v. Commissioner, 102 T.C. 790 (1994), affd. 78 F.3d 795 (2d Cir. 1996).