## Facts

- Leslie L. O’Bryan died in 1970; his will made specific bequests to his widow, created a marital trust, and placed the residue in a residuary trust with income payable to his widow, Faye O’Bryan.
- The estate terminated in 1974 and filed a final fiduciary income tax return reporting gross income of $879,446.55 and deductions of $941,849.96.
- The estate’s deductions included $776,500 of charitable contribution deductions claimed under I.R.C. § 642(c).
- The estate’s final-year deductions exceeded gross income by $62,403.41.
- In 1974, the residuary trust reported gross income of $72,739.59 and claimed a $62,403.41 “excess deduction” under I.R.C. § 642(h)(2), asserting it succeeded to the estate’s unused final-year deductions.
- The Commissioner issued a notice of deficiency disallowing the trust’s claimed $62,403.41 deduction on the ground that the excess was attributable to charitable contributions and therefore not transferable under § 642(h).

## Issues

1. Whether a beneficiary residuary trust may deduct, under I.R.C. § 642(h)(2), an estate’s final-year “excess of deductions over gross income” when the estate’s charitable contribution deductions under § 642(c) alone exceed the amount of the excess.
2. Whether the excess deductions may be characterized as noncharitable expenses to permit pass-through to the successor trust under § 642(h).

## Decision

- The Tax Court held that the $62,403.41 excess deductions were attributable to charitable contribution deductions under I.R.C. § 642(c).
- Because charitable contribution deductions are not transferable to beneficiaries through I.R.C. § 642(h)(2), the residuary trust could not claim the excess deduction.
- The court sustained the Commissioner’s disallowance and the resulting deficiency determination.

## Legal Principles

- I.R.C. § 642(h)(2) permits beneficiaries succeeding to a terminated estate or trust to claim certain unused final-year “excess deductions,” but only to the extent those deductions are of a kind Congress intended to pass through on termination.
- Charitable contribution deductions under I.R.C. § 642(c) are subject to a distinct statutory regime and are not carried over to beneficiaries via § 642(h).
- In determining whether final-year excess deductions are transferable, courts consider the character of the underlying deductions; when the charitable deduction category alone accounts for the excess, the excess is treated as attributable to charitable contributions rather than reallocated to noncharitable expenses.

## Conclusion

The Tax Court ruled that a residuary trust could not use § 642(h)(2) to claim an estate’s final-year excess deductions where the excess was attributable to the estate’s § 642(c) charitable contribution deductions, and it upheld the Commissioner’s deficiency determination.


O’Bryan v. Comm’r, 75 T.C. 304 (1980)