## Facts

- Daisy Murphy died testate on February 9, 1984; her will left the entire estate equally to her niece, Sylvia M. Buckmaster, and her nephew, Jesse Murphy, who served as executor.
- The estate included mineral interests that generated significant royalty income during administration.
- For the tax year ending January 31, 1985, the executor distributed $437,000 of estate income equally to the two beneficiaries and claimed an income-distribution deduction and related tax deductions on the estate’s income tax return.
- For the next tax year, the estate distributed $155,649.51 to the same beneficiaries and claimed similar deductions.
- The will did not expressly authorize interim distributions, and the executor did not obtain probate-court authorization before making distributions in either year.
- The probate court later closed the estate and approved the final accounting, including approval of the executor’s actions; after an IRS challenge, the probate court also entered a nunc pro tunc order expressly approving the earlier payments.
- The IRS disallowed the deductions and assessed a deficiency, asserting the distributions were not authorized when made and thus were not deductible under I.R.C. § 661.

## Issues

1. Whether an estate may deduct beneficiary distributions under I.R.C. § 661(a) as amounts “properly paid or credited or required to be distributed” when the distributions lacked contemporaneous authority under the will or state probate court, but were later ratified and approved nunc pro tunc by the probate court.

## Decision

- The court affirmed summary judgment for the United States.
- The distributions were not “properly paid or credited” under I.R.C. § 661 at the time they were made because they lacked contemporaneous authorization under governing instruments or state-law authority.
- Later probate approval, including a nunc pro tunc order, did not retroactively satisfy the federal requirements for the § 661 deduction.

## Legal Principles

- State law determines the nature and scope of an executor’s authority and beneficiaries’ rights, but federal law governs whether payments qualify for deductions under I.R.C. § 661.
- For § 661 purposes, “properly paid or credited” requires that distributions be authorized under the governing instrument and applicable law when paid, not merely ratified later.
- Post hoc state-court orders, including nunc pro tunc approvals, generally cannot retroactively alter the federal income-tax characterization of completed transactions to create a deduction that was unavailable when the payments occurred.
- Interpreting § 661 to allow retroactive authorization would undermine Subchapter J’s timing structure coordinating the estate’s deduction with the beneficiary’s corresponding income inclusion.

## Conclusion

The court held that the estate could not deduct distributions to beneficiaries under I.R.C. § 661 because the executor lacked contemporaneous authority to make the payments, and later probate ratification and nunc pro tunc approval did not retroactively make the distributions “properly paid or credited” for federal income-tax purposes.


Buckmaster v. United States, 984 F.2d 379 (10th Cir. 1993)