## Facts

- Garvice D. Kincaid died in 1975 and left a will dividing the residue into a marital share (a maximum marital deduction formula bequest) and a nonmarital share (the balance).
- Garvice’s estate included a contractual right to future bonus payments from Kentucky Finance Company under an employment agreement.
- The post-death bonus payments were “income in respect of a decedent” (IRD) under I.R.C. § 691 and were allocated to the marital share passing to Garvice’s surviving spouse, Nelle W. Kincaid.
- Kentucky Finance paid Nelle over $150,000 in 1976 and over $230,000 in 1977 attributable to Garvice’s employment.
- Nelle and the IRS later agreed the payments were includible in Nelle’s income under § 691(a) and that § 691(c) allowed a deduction for the portion of federal estate tax attributable to that IRD.
- The dispute concerned the proper computation of the § 691(c) deduction where a maximum-marital formula bequest is used and IRD is allocated to the marital share.
- The Commissioner’s method treated IRD as wholly reducing the marital deduction in the estate tax recomputation, minimizing the estate tax “attributable to” IRD and thus minimizing the § 691(c) deduction.
- The estate’s method treated IRD as effectively apportioned between marital and nonmarital components in measuring the estate tax attributable to IRD, producing a larger § 691(c) deduction.

## Issues

1. How should “the portion of the estate tax … attributable to” IRD be computed under I.R.C. § 691(c) when a decedent’s will uses a maximum marital deduction formula bequest and the IRD is allocated to the marital share?
2. In recomputing the estate tax attributable to IRD for § 691(c), may IRD be treated as wholly absorbed by a reduction in the marital deduction, thereby reducing or eliminating the deduction available to the IRD recipient?

## Decision

- The Tax Court ruled for the estate’s general approach and rejected the Commissioner’s recomputation method.
- The court held that the estate tax “attributable to” IRD for § 691(c) must reflect the estate tax increase caused by including IRD in the gross estate, not an artificial reduction produced by treating the marital deduction formula as a flexible offset.
- The court allowed a larger § 691(c) deduction than the Commissioner had permitted.

## Legal Principles

- I.R.C. § 691(c) provides an income tax deduction intended to mitigate double taxation by allowing the IRD recipient to deduct the portion of federal estate tax attributable to inclusion of the IRD in the decedent’s estate.
- “Attributable to” in § 691(c) requires a substantive causal computation: the deductible estate tax is the estate tax burden generated by including IRD in the taxable estate.
- Where a will uses a maximum marital deduction formula, the marital deduction should not be recomputed for § 691(c) in a manner that treats IRD as wholly reducing the marital deduction if that treatment misstates the estate tax caused by the IRD.
- A § 691(c) computation may not be driven by formalistic reallocation that shifts IRD’s estate tax effect into the marital share solely to minimize the recipient’s deduction.

## Conclusion

The Tax Court held that, when IRD is allocated to a surviving spouse under a maximum marital deduction formula bequest, the § 691(c) deduction must be computed based on the estate tax actually caused by including the IRD in the decedent’s estate, and it may not be minimized by treating the marital deduction as absorbing the IRD’s entire tax effect.


Estate of Kincaid v. Commissioner, 85 T.C. 25 (1985)