Estate of Smith v. Commissioner

CHABOT, </., dissenting in part and concurring in part: The majority hold that (1) petitioner’s “adjusted taxable gifts” for estate tax purposes includes amounts which would not be taken into account for gift tax purposes, and (2) petitioner’s “gift taxes payable” is calculated by refer-; ence to the increased amounts of the adjusted taxable gifts. I disagree with the majority’s conclusion as to adjusted taxable gifts; however, given the majority’s conclusion on that point, I agree with their conclusion as to gift taxes payable.

The majority focus on the meaning of section 2504(c). I respectfully suggest that the basic question before us is what section 2001(b)(final flush) means.

Section 2001(b)(final flush) directs us to section 2503. However, it is clear that we are not to ignore the rest of chapter 12. For example, section 2503 is not self-defining. As Judge Wells points out in his dissent, section 2512(a) must be taken into account in applying section 2503. The majority do not dispute this. Yet by refusing to take into account section 2504, the majority require us to pick and choose among the various gift tax provisions. The majority do not direct us to anything in the language or legislative history of section 2001(b)(final flush) that requires us to incorporate some parts of chapter 12 and not other parts.

The simpler interpretation of section 2001(b)(final flush) is that we should take into account, as the amount of adjusted taxable gifts, the same amount that would have been taken into account by decedent as taxable gifts under chapter 12 on the date of his death.

As Judge Wells points out, that simpler rule also has the • virtue of avoiding bizarre results that the Congress surely had not intended when the unified transfer tax provisions were enacted.

However, if the majority are correct in their analysis of adjusted taxable gifts, then section 2001(b)(2) and section 2001(b)(final flush) are based on the term “gifts made by the decedent after December 31, 1976”. If the amount of the adjusted taxable gifts is different from what would have been computed under chapter 12, then the base for the “as if” tax of section 2001(b)(2) must take into account the same difference.

It is true that this conclusion as to gift taxes payable contributes to the bizarre results noted in the appendix to Judge Wells’ dissent. However, this follows from the majority’s apparently erroneous conclusion as to adjusted taxable gifts. Accordingly, although I join Judge Wells’ dissent as to the adjusted taxable gifts issue, I must part company with him as to the gift taxes payable issue.