## Facts

- Kendal Ham died in 1988, leaving a will that provided for his wife, Anna C. Ham.
- Anna waived the will and elected a surviving-spouse share under New Hampshire law, equal to one-third of the estate remaining after debts and administration expenses.
- In 1990 and 1991, the estate made payments to Anna on account of the principal of her elected share.
- Those payments included amounts equal to the estate’s income in those years and were treated as distributable net income (DNI) under 26 U.S.C. § 643(a).
- The estate claimed, and the government allowed, a deduction for those distributions under 26 U.S.C. § 661.
- Anna reported the DNI and paid federal income tax on it under 26 U.S.C. § 662.
- After Anna’s death, her executor sought a refund, arguing the DNI rules should not apply to payments satisfying a widow’s elective share.

## Issues

1. Whether a surviving spouse who takes an elective share under state law is a “beneficiary” under 26 U.S.C. § 643(c) for purposes of Subchapter J.
2. Whether amounts of DNI distributed to satisfy a widow’s elective share are includible in the widow’s gross income under 26 U.S.C. § 662(a)(2), even though the payments satisfy a principal obligation.

## Decision

- The First Circuit affirmed summary judgment for the United States.
- The court held that an elective-share spouse falls within § 643(c)’s concept of a “beneficiary” for estate distribution tax rules.
- The court held that DNI distributed to the spouse to satisfy the elective share is taxable to the spouse under § 662(a)(2), notwithstanding that the distribution also satisfies a principal obligation.
- The court rejected the refund claim, leaving the tax treatment of the distributions unchanged.

## Legal Principles

- Subchapter J allocates taxable income between an estate and recipients through linked provisions: an estate’s § 661 deduction for DNI distributions corresponds to a recipient’s § 662 inclusion.
- A recipient’s status as a “beneficiary” under § 643(c) may include persons taking interests in an estate by operation of state law, including a surviving spouse electing a statutory share.
- Under § 662(a)(2), “other amounts properly paid, credited, or required to be distributed” that carry out DNI are taxable to the recipient even when paid in satisfaction of a principal obligation.
- State-law characterization of the spouse’s entitlement (elective share or similar probate right) does not control federal income tax consequences where federal statutes and regulations treat the payment as a DNI distribution.

## Conclusion

The court held that a surviving spouse who elects a statutory share is a beneficiary for Subchapter J, and the DNI portion of estate payments made to satisfy that elective share is taxable to the spouse under § 662 because the estate’s corresponding § 661 deduction shifts taxation to the recipient.


Brigham v. United States, 160 F.3d 759 (1st Cir. 1998)