## Facts

- T. J. Babb was a Texas rice producer who, based on past production, held a “rice history acreage” interest under the federal rice acreage allotment program at his death.
- Under the Agricultural Adjustment Act of 1938, annual national rice acreage allotments were apportioned to states and then to producers; Texas used a producer-based method relying on recent production history and other specified factors.
- A producer with qualifying historical production acquired rice history acreage, which entitled the producer to be considered for (and typically receive) annual rice acreage allotments so long as the statutory and regulatory program continued.
- In Texas practice at the time, rice history acreage interests were transferable and devisable and were bought and sold for cash.
- The estate’s executor, First Victoria National Bank, did not include the rice history acreage value in the reported gross estate for federal estate tax purposes.
- The IRS assessed an estate tax deficiency on the ground that the interest was includable “property” under Internal Revenue Code §§ 2031 and 2033; the executor paid and sued for a refund.
- The district court ruled for the estate, concluding the rice history acreage was not includable property; the United States appealed.

## Issues

1. Whether a decedent’s rice history acreage interest under the federal rice allotment system constitutes “property” includable in the gross estate under IRC §§ 2031 and 2033.

## Decision

- The Fifth Circuit reversed the district court.
- The court held that rice history acreage is “property” within the meaning of IRC §§ 2031 and 2033.
- The court concluded the value of the rice history acreage held at death must be included in the decedent’s gross estate for federal estate tax purposes.

## Legal Principles

- For federal estate tax purposes, “property” under IRC §§ 2031 and 2033 is construed broadly to include valuable rights or interests that are legally recognized and capable of transfer, even if they do not fit traditional common-law categories.
- A government-created interest may constitute taxable property if, at the time of death, it is (1) legally recognized, (2) alienable (transferable or devisable), and (3) economically valuable with a measurable market value.
- Contingency on the continuation or potential change of a regulatory program does not, by itself, prevent an interest from being treated as property when existing law confers a marketable, legally protected interest.

## Conclusion

The court held that a rice producer’s rice history acreage under the federal rice allotment program—because it was legally recognized, transferable, and marketable at the time of death—was includable property in the decedent’s gross estate under IRC §§ 2031 and 2033.


First Victoria Nat'l Bank v. United States, 620 F.2d 1096 (5th Cir. 1980)