## Facts

- Thomas M. Chastain’s father died in 1964, leaving Thomas a $1,000,000 bequest that included two mortgages with substantial unrealized gain.
- The will directed that all estate taxes be paid from the residue, with the remaining residue passing to a charitable foundation.
- The estate reported a gross estate of just over $4.5 million and net federal estate tax payable of $911,346.85.
- The mortgages constituted income in respect of a decedent (IRD); Thomas later reported $632,402.84 as long-term capital gain under I.R.C. § 691(a) on his 1966 return.
- Thomas claimed a § 691(c) deduction of $439,856.99 for estate tax allegedly attributable to the IRD.
- The IRS determined a 1966 income tax deficiency of $162,463.32, disputing the amount of the § 691(c) deduction.
- The parties agreed to allocate estate tax among IRD items using a fraction: IRD received by Thomas ($632,402.84) over total IRD items ($793,092.06), multiplied by the estate tax attributable to all IRD.
- Thomas computed “estate tax attributable to IRD” by recomputing estate tax as if all IRD were removed from the gross estate, which increased the charitable residue and reduced estate tax to $359,725.23; he treated the difference from actual estate tax as attributable to IRD.
- The IRS computed the attributable tax without allowing IRD to increase the charitable deduction, treating IRD as funding the specific bequest so the taxable estate remained the same as actually reported.

## Issues

1. Whether I.R.C. § 691(c) permits a beneficiary to compute “estate tax attributable to” IRD using a hypothetical estate-tax recomputation that increases the charitable residuary deduction and thereby enlarges the § 691(c) deduction.
2. Whether the attributable estate tax must reflect only the portion of the estate tax actually borne by the IRD items under the estate’s actual tax posture.

## Decision

- The Tax Court rejected Thomas’s method and upheld the Commissioner’s method for computing estate tax attributable to IRD under § 691(c).
- The court held that the § 691(c) deduction may not be increased by a hypothetical recomputation that inflates the charitable deduction and reduces estate tax.
- The deficiency was sustained, subject to recomputation under the court’s approach.

## Legal Principles

- The § 691(c) deduction is limited to the portion of estate tax actually attributable to inclusion of the IRD right in the decedent’s gross estate.
- “Attributable to” does not allow reallocation of estate components (including charitable residue effects) through hypothetical computations designed to increase the deduction.
- Where estate tax is paid from the residue passing to charity, IRD cannot be treated as reducing the taxable estate in a manner that artificially increases the charitable deduction for purposes of enlarging the beneficiary’s § 691(c) deduction.
- Agreed allocation fractions among IRD items may be applied only after determining the correct estate tax attributable to IRD based on the actual estate-tax computation.

## Conclusion

The Tax Court held that a § 691(c) deduction must be tied to estate tax actually attributable to IRD, and it disallowed a beneficiary’s attempt to increase the deduction by recomputing estate tax in a way that hypothetically enlarges the charitable residuary deduction.


Chastain v. Comm’r, 59 T.C. 461 (1972)