## Facts

- Alexander F. Chisholm, a Mississippi resident, died in 1974.
- Chisholm’s will made a charitable bequest to the Chisholm Foundation, a tax-exempt organization, equal to 10% of the value of his gross testamentary estate as finally determined in the federal estate-tax proceeding, conditioned on the bequest being deductible for federal estate-tax purposes.
- The 10% charitable bequest was valued at $2,473,719.
- United States Trust Company served as fiduciary for the estate (and related trust interests under the will).
- The estate paid the charitable bequest to the Chisholm Foundation in 1975 and 1976.
- On the federal estate-tax return, the estate claimed an estate-tax charitable deduction for the full bequest amount, and the IRS allowed it.
- On the estate’s fiduciary income-tax return, the estate also claimed an income-tax deduction of $1,240,467 by characterizing part of the cash paid to the Foundation as a deductible distribution to a beneficiary under Subchapter J.
- The IRS disallowed the claimed income-tax distribution deduction, taking the position that the estate could not obtain both the estate-tax charitable deduction for the bequest and an income-tax deduction tied to paying that same bequest to the charitable beneficiary, particularly in light of a Treasury regulation addressing the interaction of these provisions.
- The estate paid the assessed income tax and sued for a refund in federal district court.
- The district court granted summary judgment for the estate, and the United States appealed.

## Issues

1. Whether an estate that has been allowed a federal estate-tax charitable deduction for a testamentary charitable bequest may also claim a fiduciary income-tax deduction for amounts paid to satisfy that bequest by treating the payments as deductible beneficiary distributions under Subchapter J.
2. Whether the Treasury regulation applied by the IRS validly prevents the estate from obtaining an income-tax distribution deduction for the charitable payment in these circumstances.

## Decision

- The Fifth Circuit reversed the district court and remanded with instructions to enter judgment for the IRS.
- The court held the estate was not entitled to the claimed income-tax deduction for distributions to the charitable beneficiary to the extent the distributions represented satisfaction of the charitable bequest already allowed as an estate-tax charitable deduction.
- The court applied and upheld the Treasury regulation relied upon by the IRS as a reasonable implementation of the statutory scheme that avoids duplicative tax benefits for the same charitable transfer.

## Legal Principles

- An estate’s entitlement to a fiduciary income-tax distribution deduction depends on the Internal Revenue Code’s Subchapter J rules and implementing regulations; courts will read those provisions together rather than allowing inconsistent results.
- A charitable bequest that has already reduced federal estate tax under the estate-tax charitable-deduction rules generally cannot be used again to generate an additional fiduciary income-tax deduction as a beneficiary distribution absent clear statutory authorization.
- Treasury regulations coordinating the income-tax treatment of charitable payments and beneficiary distributions are valid when they reasonably carry out the Code’s structure and prevent duplicative deductions that would allow amounts to escape tax without support in the statute.

## Conclusion

United States Trust Co. v. Internal Revenue Service holds that an estate that obtained an estate-tax charitable deduction for a testamentary gift to a tax-exempt foundation could not also claim an income-tax distribution deduction for paying that bequest to the charity; the Fifth Circuit reversed the refund judgment for the estate and directed entry of judgment for the IRS based on the governing Code provisions and Treasury regulation barring the double tax benefit.


United States Trust Co. v. Internal Revenue Service, 803 F.2d 1363 (1986)