## Facts

- In 1949, Henrietta R. Allen created an irrevocable inter vivos trust directing the trustee to pay net income to her sister, Rebecca Ross, for life.
- The trust provided that, upon Ross’s death, the corpus would revert to Allen if Allen were then living; otherwise the corpus would pass to others under the trust terms.
- Allen died in 1971, survived by Ross.
- The estate valued Allen’s retained reversionary interest using a method that considered the actual health and physical condition of Allen and Ross immediately before Allen’s death and concluded the reversion was worth less than 5% of the corpus; the estate excluded the reversion from the gross estate.
- The IRS applied Treasury regulations using mortality and actuarial tables, valued the reversion at 34.158% of the corpus, and included in the gross estate the corpus reduced by the value of Ross’s life estate under I.R.C. § 2037; the estate paid the assessed tax and interest and sued for a refund.

## Issues

1. Whether I.R.C. § 2037(b) allows valuation of a decedent’s retained reversionary interest using individualized health-based evidence rather than the mortality and actuarial tables prescribed by Treasury regulations.
2. Whether the Treasury table method under the applicable regulations is the exclusive valuation method for § 2037 reversionary interests.

## Decision

- Judgment for the United States; the refund claim was denied.
- The court held that valuation of a § 2037 reversionary interest must be determined using the mortality tables and actuarial principles specified by Treasury regulations.
- The estate’s method, which adjusted valuation based on the actual health and physical condition of the relevant individuals, was impermissible under the statutory and regulatory scheme.
- The Commissioner’s inclusion of the reversionary interest in the gross estate, valued by the regulatory tables, was upheld.

## Legal Principles

- Under I.R.C. § 2037(b), the value of a reversionary interest immediately before death must be determined “without regard to the fact of death” by usual valuation methods as defined and limited “under regulations” prescribed by the Treasury.
- When Treasury regulations implementing § 2037 prescribe mortality and actuarial tables for valuing reversionary interests, those tables control and are not subject to individualized adjustments based on the parties’ actual health absent regulatory authorization.
- Standardized actuarial valuation serves uniform administration of the estate tax and prevents case-by-case deviations inconsistent with the regulatory method.

## Conclusion

The court held that § 2037(b) requires valuation of a retained reversionary interest according to Treasury-prescribed actuarial tables and does not permit an estate to reduce the includible value by using individualized medical or health-condition evidence.


Estate of Allen v. United States, 558 F.2d 14 (Ct. Cl. 1977)