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Northeastern Pa. Nat'l Bank v. United States, 387 U.S. 213 (1967)

Northeastern Pennsylvania National Bank & Trust. Co. v.

United States

No. 637

Argued March 20, 1967

Decided May 22, 1967

387 U.S. 213


Decedent's will established a bequest in trust to provide for monthly payments of $300 to his widow. If the trust income were insufficient, the corpus could be invaded to make the specified payments, excess income was to be accumulated, and the widow was given power to appoint the entire corpus by will. On decedent's estate tax return, his executor claimed the marital deduction of one-half the gross estate, including therein the value of the trust corpus. The Commissioner of Internal Revenue determined that the trust did not qualify for the deduction because the widow's right to income was not expressed as a "fractional or percentile share" of the total trust income, as required by Treas.Reg. § 20.2056(b)5(c), which interprets 26 U.S.C. § 2056(b)(5). That provision, inter alia, qualifies for the deduction an interest where the surviving spouse is entitled for life to all the income from a "specific portion" of the trust corpus, with power in the surviving spouse to appoint such specific portion. The executor sued for a refund which the District Court granted on the basis that the "specific portion" of the trust whose income would amount to $300 per month could be computed and a deduction allowed for that amount, notwithstanding the Regulation. The Court of Appeals reversed.


1. "Resolution of the question in this case, whether a qualifying "specific portion" can be computed from the monthly stipend specified in a decedent's will, is essentially a matter of discovering the intent of Congress." In the legislative history of the marital deduction,

"There is no indication whatsoever that Congress intended the deduction only to be available [where the 'specific portion' is expressed as a 'fractional or percentile share'], nor is there any apparent connection between the purposes of the deduction and such a limitation on its availability."

Pp. 387 U. S. 219-222.


"The Court of Appeals concluded . . . that the computation [of a 'specific portion' from the monthly stipend] could

Page 387 U. S. 214

not be made because '[t]he market conditions for purposes of investment are unknown' and, therefore, there are no constant investment factors to use in computing the maximum possible monthly income of the whole corpus."

However, while

"perfect prediction of realistic future rates of return is not possible, . . . the use of projected rates of return in the administration of the federal tax laws is hardly an innovation. . . . It should not be a difficult matter to settle on a rate of return available to a trustee under reasonable investment conditions. . . ."

Pp. 387 U. S. 223-224.

3. Such computation of a "specific portion" as to which a right to income is given "will not result in any of the combined marital estate escaping ultimate taxation in either the decedent's or the surviving spouse's estate." The possibly different situation in the case of a power of appointment is not involved here. Pp. 387 U. S. 224-225.

4. The "specific portion" must be determined on the basis of

"the amount of the corpus required to produce the fixed monthly stipend, not . . . the present value of the right to monthly payments over an actuarially computed life expectancy."

Since the latter method was used by the District Court, the case is remanded for further proceedings. P. 387 U. S. 225.

363 F.2d 476, reversed and remanded.

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