Internal Revenue Bulletin 1997-32 (PDF rendition): IRS Revenue Rulings

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INCOME TAX
Rev. Rul. 97–31, page 4.
International operation of ships and aircraft; income
exempt from tax.Those countries that currently provide
exemptions from tax to U.S. persons for income from the
international operation of ships and aircraft through income
tax conventions, diplomatic notes, or the country’s domestic
law are listed. Rev. Rul. 89–42 supplemented.
EMPLOYEE PLANS
REG–107644–97, page 24.
Proposed regulations under section 411 of the Code permit
an amendment to a qualified plan that eliminates certain pre-
retirement optional forms of benefit.
EXEMPT ORGANIZATIONS
Announcement 97–76, page 28.
A list is given of organizations now classified as private foun-
dations.
ESTATE TAX
Ct.D. 2062, page 8.
Marital or charitable bequests.A taxpayer does not have
to reduce the estate tax deduction for marital or charitable
bequests by the amount of the administration expenses that
were paid from income generated during administration by
assets allocated to those bequests. Commissioner v.
Estate of Hubert.
ADMINISTRATIVE
Announcement 97–75, page 28.
The version of Rev. Rul. 97–31 released for advance publi-
cation on July 22, 1997, has been corrected. The corrected
version of is on page 4 of this Bulletin.
Internal Revenue
bbuulllleettiinn
Bulletin No. 1997–32
August 11, 1997
Finding Lists begin on page 31.
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
Department of the Treasury
Internal Revenue Service

Mission of the Service
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, effi-
ciency, and fairness.
2
Statement of Principles
of Internal Revenue
Tax Administration
The function of the Internal Revenue Service is to adminis-
ter the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provi-
sions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protect-
ing the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesi-
tate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, howev-
er, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.

The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing offi-
cial rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consoli-
dated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of in-
ternal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying pub-
lished rulings and procedures, the effect of subsequent leg-
islation, regulations, court decisions, rulings, and proce-
dures must be considered, and Service personnel and oth-
ers concerned are cautioned against reaching the same con-
clusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Sub-
parts. Also included in this part are Bank Secrecy Act Admin-
istrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumu-
lative Bulletins.
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for the matters published during the preceding months.
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succeeding quarterly and semiannual period, respectively.
3
Introduction
The contents of this publication are not copyrighted and may be reprinted freely.A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.

August 11, 199741997–32 I.R.B.
Section 872. — Gross Income
(Also Section 883; 1.883–1; 894.)
International operation of ships
and aircraft; income exempt from
tax. Those countries that currently pro-
vide exemptions from tax to U.S. persons
for income from the internaitonal opera-
tion of ships and aircraft through income
tax conventions, diplomatic notes, or the
country’s domestic law are listed. Rev.
Rul. 89–42 supplemented.
Rev. Rul. 97–31
PURPOSE
The purpose of this revenue ruling is to
supplement Rev. Rul. 89–42, 1989–1
C.B. 234, by providing a current list of
countries that grant United States persons
equivalent exemptions from tax for in-
come from the international operation of
ships and aircraft for purposes of section
872(b) of the Internal Revenue Code, sec-
tion 883 of the Code, and the shipping
and air transport articles in United States
income tax conventins.
Aforeign country may grant an equiva-
lent exemption from tax through an in-
come tax convention or exchange of
diplomatic notes, by not imposing a tax,
or by a decree or specific statutory ex-
emption if a tax is generally imposed. The
following Table includes a current list of
such countries and summarizes the types
of income that qualify for examption.
Part I of the Table summarizes equiva-
lent exemptions under shipping and air-
craft articles and capital gains articles of
income tax conventions to which the
United States is a party. Part I includes a
summary of the requirements for the ex-
emption, such as whether the exemption is
based solely on residence or has an addi-
tional requirement of documentation or
registration. Part I generally does not set
forth other benefities that may be provided
under articles covering business profits,
rentals and royalties, and other income.
Part II of the Table summarizes exemp-
tions available in countries that have ex-
changed diplomatic notes with the United
States that cover shipping and aircraft in-
come.
Finally, Part III of the Table provides a
list of the countries for which the Service
has determined, upon examination of
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
their laws, that an equivalent exemption is
granted by statute or decree, or by not im-
posing a tax on such income.
This determination is made on a coun-
try by country basis and relies upon infor-
mation submitted to the Internal Revenue
Service by the foreign country regarding
the foreign law in effect at the time of the
submission. The date of the Service’s re-
view is reflected in the first column of
Part III of the Table. Since its initial re-
view, the Service has not attempted to de-
termine whether any of the foreign laws of
the countreis listed in Part III have been
amended or repealed. Therefore, taxpay-
ers should independently verify the accu-
racy of the information in Part III of the
Table at such time that a determination is
relevant.
In addition, this list does not represent
an exclusive list of countries whose do-
mestic law provides an equivalent exemp-
tion. Other countries that have not submit-
ted the information necessary for the
Service to make a determination also may
grant an exemption. In those cases, a cor-
poration organized in, or an individual
resident of, such a soreign country may
qualify for an exemption even though the
Internal Revenue Service has not yet
made a determination to include the coun-
try in Part III of the Table.
The Table is intended only as a sum-
mary. The full text of any relevant income
tax convention, diplomatic note, or for-
eign law should be consulted. It may be
necessary to consult the technical expla-
nation of an income tax convention, a pro-
tocol, or a diplomatic note accompanying
a convention to determine the items of in-
come exempted. Income tax conventions
and diplomatic notes are published in the
Cumulative Bulletin. The Table will be
updated periodically.
CHANGES TO REV. RUL. 89–42
The changes to the Table published in
Rev. Rul. 89–42 are summarized as fol-
lows. In Part I, the following countries
have been added to the list of countries
that provide an exemption under an in-
come tax convention: Czech Republic,
India, Indonesia, Israel, Mexico, Portugal,
the Russian Federation, the Slovak Re-
public, Spain, Sweden, and Tunisia. The
following countries have entered into new
income tax conventions with the United
States that supersede prior income tax
conventions reported in Rev. Rul. 89–42;
Finland, France, Germany, Kazakhstan,
and the Netherlands. The Income tax con-
ventions between the United States and
the Netherlands, as extended to the
Netherlands Antilles and Aruba, and be-
tween the United States and Malta have
been terminated, in relevant part, effec-
tive January 1, 1988, and January 1,
1997, respectively, and have been deleted
from the list.
In Part II, new diplomatic notes have
been exchanged with Chile, Hong Kong,
India, Isle of Man, Japan, Luxembourg,
Malaysia, Malta, Marshall Islands, Nor-
way, Pakistan, Peru, and St. Vincent and
the Grenadines. After the publication of
Rev. Rul. 89–42, Mexico entered into a
diplomatic note with the United States
effective retroactively to January 1,
1987.
1
This note, however, terminated on
January 1, 1994, the general effective
date of the new U.S. — Mexico Income
Tax Convention. In addition, the Russian
Federation entered into a diplomatic note
effective retroactivity to January 1,
1991.
2
This note also terminated on Janu-
ary 1, 1994, the general effective date of
the New U.S. — Russian Federation In-
come Tax Convention. Although a diplo-
matic not was signed with Boliva, that
note has never entered into force. There-
fore Boliva has been removed from the
list.
In Part III, Antigua and Barbuda, Bar-
bados, Ecuador (shipping only), Israel,
Qata (aircraft only), Turks and Caicos,
and the U.S. Virgin Islands have been
added to the list of countries whose do-
mestic law has been determined to pro-
vide an equivalent exemption.
Consistent with past practice, the Ser-
vice will entertain a request from a for-
eign government to make a determination
that the domestic law of the country pro-
vides an equivalent exemption. However,
the Service will not accept requests from
individual taxpayers; instead, taxpayers
should seek to have the relevant foreign
government request a determination that
the particular country qualifies as an
equivalent exemption jurisdiction.
1
This note is published at 1990–2 C.B. 322.
2
This note is published at 1996–36 I.R.B. 6.

1997–32 I.R.B.5August 11, 1997
Taxpayers claiming an exemption
under the terms of an income tax conven-
tion, or under section 872(b) or section
883 of the Code, must file a return on
Form 1040NR (U.S. Nonresident Alien
Income Tax Return) or Form 1120F (U.S.
Income Tax Return of a Foreign Corpora-
tion) and comply with the provisions of
section 8 of Rev. Proc. 91–12, 1991–1
C.B. 473.
EFFECTON OTHER REVENUE
RULINGS
Rev. Rul. 89–42 is supplemented.
DRAFTING INFORMATION
The principal author of this revneue
ruling is Patricia C. Bray of the Office of
Associate Chief Counsel (International).
For information regarding this revneuw
ruling contact Ms. Bray on (202)
622–3880 (not a toll-free call).
TABLE
Countries Currently Granting Equivalent Exemptions for Income From the International Operation of Ships and Aircraft
Basis for ExemptionTYPES OF SHIPPING AND AIRCRAFTINCOME EXEMPTED
2
Resi-Resi-Resi-Full
dencedencedenceRental
CountriesBased& Flag& FlagOpera-(Time orBare-Con-
andNoReci-Uni-tingvoyageBoattainerCapital
TerritoriesFlagprocallateralIncomecharter)RentalRentalGains
PARTI TREATIES
1
AustraliaXXX
4
X
27
X
27
X
5/6
AustriaXX
3
————
BarbadosXXX
15
X
15
XX
BelgiumX
7
XX
5
X
5
X
5
X
5
CanadaXXXXXX
China
29
(Peoples Republic)XXX
15
X
15
XX
CyprusXXX
15
X
15
XX
Czech RepublicXXXX
5
XX
DenmarkXX
3
————
EgyptXXX
5
X
5
X
5
—
Finland
22
XXX
5
X
5
X
28
X
FranceXXXX
15
X
5
X
5
Germany
22/24
XXX—XX
GreeceXX
3
————
HungaryXXX
5
X
5
XX
IcelandX
8
XX
5
X
5
X
5
X
India
22
XXX
5
X
5
XX
5/9
Indonesia
22
XXXX
10
X
5
X
IrelandXX
3
————
IsraelXXX
5
X
5
X
5
X
5
Italy
11
X
8
XX
21
X
5
XX
5
JamaicaXXX
15
X
15
XX
5
Japan
11
X
12
XX
5
X
5
X
5
X
5
KazakhstanXXXX
15
XX
KoreaXXX
13
—X
5
—
LuxembourgXX
3
————
Mexico
22
XXXX
28
XX
MoroccoX
7
X
3
———X
5
Netherlands
22
XXX
5
X
5
—X
New ZealandXXXX
5
X
5
X
6
Norway
11
XXX
13
X
5
X
5
X
Pakistan
14
XX
3
————

August 11, 199761997–32 I.R.B.
TABLE—CONTINUED
Basis for ExemptionTYPES OF SHIPPING AND AIRCRAFTINCOME EXEMPTED
2
Resi-Resi-Resi-Full
dencedencedenceRental
CountriesBased& Flag& FlagOpera-(Time orBare-Con-
andNoReci-Uni-tingvoyageBoattainerCapital
TerritoriesFlagprocallateralIncomecharter)RentalRentalGains
PARTI TREATIES
1
Philippines
16
X————X
5
PolandX
8
XX
5
X
5
X
5
X
Portugal
22
XXXX
5
—X
RomaniaXXX
5
X
5
X
5
X
Russian
22
FederationXXXX
15
XX
Slovak Republic
22
XXXX
5
XX
Spain
22
XXXX
5
XX
Sweden
22
XXXX
5
XX
SwitzerlandXX
3
————
Trinidad & TobagoX
8
XX
5
X
5
—X
Tunisia
22
XXX
15
X
15
X
5
X
USSR
25
XX
3
———X
5
U.K.X
8
XXX
5
XX
5
Cumulative Bulletin CitationTYPES OF SHIPPING AND AIRCRAFTINCOME EXEMPTED
2
Full
Rental
CountriesOperat-(Time orBare-IncidentalIncidental
andingvoyageBoatContainerCapital
TerritoriesIncomecharter)RentalRentalGains
PARTII EXCHANGE OF NOTES
23
Argentina1988–1 C.B. 456XXXXX
Bahamas1988–1 C.B. 458XXXX—
Belgium1988–1 C.B. 459XX—X—
Chile
14
1991–1 C.B. 304XXX
5
X—
Colombia1988–1 C.B. 461XXXX—
Cyprus1989–2 C.B. 332XXXX—
Denmark1988–1 C.B. 462XXXX—
El Salvador
14
1988–1 C.B. 463XXXXX
Fiji1996–40 I.R.B. 8XXXXX
Finland1989–2 C.B. 334XXXX—
Greece1988–2 C.B. 366XXXX—
Hong Hong
16/31
1995–1 C.B. 228XXXXX
India1990–2 C.B. 316XXX
5
XX
Isle of Man
16
1990–2 C.B. 317XXXXX
Japan1990–2 C.B. 318XXXX—
Jordan1996–50 I.R.B. 8XXXX—
Liberia1988–1 C.B. 463XXXXX
Luxembourg1996–28 I.R.B. 36XXXX—
Malaysia1990–2 C.B. 319XXX
5
XX
Malta1997–17 I.R.B. 5XXXXX
Marshall Islands1990–2 C.B. 321XXXXX
Norway1991–1 C.B. 304XXXXX
Pakistan
16
1991–1 C.B. 305X
3
————

1997–32 I.R.B.7August 11, 1997
TABLE—CONTINUED
Cumulative Bulletin CitationTYPES OF SHIPPING AND AIRCRAFTINCOME EXEMPTED
2
Full
Rental
CountriesOperat-(Time orBare-IncidentalIncidental
andingvoyageBoatContainerCapital
TerritoriesIncomecharter)RentalRentalGains
PARTII EXCHANGE OF NOTES
23
Panama1988–2 C.B. 366XXXX—
Peru
16
1989–2 C.B. 335XXX
5
X—
St. Vincent &
Grenadines1989–2 C.B. 336XXXX—
Singapore1990–2 C.B. 323XX—
30
X—
Sweden1988–1 C.B. 466XXX
5
X—
Taiwan1989–2 C.B. 337XXXX—
Venezuela1988–1 C.B. 467XXX
5
XX
TYPES OF SHIPPING AND AIRCRAFTINCOME EXEMPTED
2
Full
DateRental
CountriesForeignOperat-(Time orBare-IncidentalIncidental
andLawingvoyageBoatContainerCapital
TerritoriesReviewedIncomecharter)RentalRentalGains
PARTIII DOMESTIC LAW
Antigua & Barbuda
16
NOV1991XXXXX
BarbadosOCT1989XXXXX
BermudaNOV1988XXXXX
Brazil
18
DEC 1988XXX
5
X—
Bulgaria— 1989XXXXX
Cayman Islands
26
JAN 1987XXXXX
Chile
16
OCT1988XXXXX
Ecuador
16/17
DEC 1989XXX
5
XX
IsraelFEB 1991XXXXX
NetherlandsOCT1988XXX
5
X—
Netherlands AntillesMAY1988XXXXX
Portugal
14
shipsJUNE 1989XXX——
aircraftFEB 1989
Qatar
14
AUG 1994X
3
————
Spain
19
DEC 1988XX—X—
Turkey
20
JAN 1987X——X—
Turks & Caicos
26
FEB 1990XXXXX
U.S. Virgin IslandsOCT1988XXXXX
VanuatuMAY1987XXXXX
1
Areciprocal exemption based on treaty relief is limited to the circumstances in which the treaty itself would be available. In such cases the exemption is based on
section 894 and the treaty itself, rather than on section 872(b) or section 883.
2
Unless otherwise footnoted, an X indicates full exemption whether or not there is a permanent establishment.
3
Operating income is not defined.
4
Lessor must either regularly lease ships or aircraft on a full basis or operate them in international traffic.
5
The U.S. tax exemption is available only if the income is incidental to operating income.
6
Except to the extent depreciation has been allowed in the other country.
7
In the case of aircraft only, the registration may be in the country of residence or in any country with a treaty providing for such exemption between such country
and the country of residence.
8
Documentation or registration required for ships or aircraft of United States residents only.
9
This treaty exempts gains derived by an enterprise of a Contracting State if the ships, aircraft or containers are owned and operated by the enterprise and the income
from them is taxable only in that State.

August 11, 199781997–32 I.R.B.
10
Income from the bareboat rental of aircraft used in international traffic is exempt. Income from the bareboat rental of ships is also exempt if the ship is operated in
international traffic and if the lessee is not a resident of, or does not have a permanent establishment in, the other Contracting State.
11
See also the diplomatic notes or protocol accompanying this treaty.
12
With regard to residents of Japan, the ships or aircraft need not be registered in Japan if the ships or aircraft are leased by such a resident.
13
As a result of correspondence, it was clarified that income from the international operation of ships or aircraft includes this category of income.
14
This exemption applies to aircraft only.
15
This exemption applies if the ships or aircraft are operated in international traffic by the lessee, or the rental income is incidental to the operation of ships or aircraft
in international traffic by the lessor.
16
This exemption applies to shipping only.
17
This exemption is generally effective for all open years beginning on or after January 1, 1987.
18
Brazilian and Portuguese laws exempt only companies.
19
The Spanish statute exempts only corporations.
20
See Rev. Rul. 87–18, 1987–1 C.B. 178.
21
This exemption applies if the ship or aircraft is operated in international traffic or if the rental income is incidential to income from such international operation.
22
The following income tax treaties were ratified after the publication of Rev. Rul. 89–42 and were generally effective on the following dates:
Czech Republic . . . . . . . . . . . . .January 1, 1993
Finland . . . . . . . . . . . . . . . . . . .January 1, 1991
France . . . . . . . . . . . . . . . . . . . .January 1, 1996
Germany . . . . . . . . . . . . . . . . . .January 1, 1990
India . . . . . . . . . . . . . . . . . . . . .January 1, 1991
Indonesia . . . . . . . . . . . . . . . . . .January 1, 1990
Israel . . . . . . . . . . . . . . . . . . . . .January 1, 1995
Kazakhstan . . . . . . . . . . . . . . . .January 1, 1996
Mexico . . . . . . . . . . . . . . . . . . .January 1, 1994
Netherlands . . . . . . . . . . . . . . . .January 1, 1994
Portugal . . . . . . . . . . . . . . . . . . .January 1, 1996
Russian Federation . . . . . . . . . . .January 1, 1994
Slovak Republic . . . . . . . . . . . . .January 1, 1993
Spain . . . . . . . . . . . . . . . . . . . . .January 1, 1991
Sweden . . . . . . . . . . . . . . . . . . .January 1, 1996
Tunisia . . . . . . . . . . . . . . . . . . . .January 1, 1990
23
Notes signed prior to the Technical and Miscellaneous Revenue Act of 1988, will be interpreted in accordance with Technical Corrections.
24
This treaty is effective for the eastern States of Germany (the former East Germany) from January 1, 1991.
25
The U.S. — U.S.S.R. income tax treaty signed June 20, 1973, continues to apply to the countries of Armenia, Azerbaijan, Belarus, Georgia, Kyrgyzstan, Moldova,
Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
26
The country generally imposes no income tax.
27
This exemption applies if the ships or aircraft are operated in international traffic by the lessee, and the rental income is incidental to the operation of ships or air-
craft in international traffic by the lessor.
28
The exemption applies except where the containers are used solely between places within the other Contracting State.
29
Pursuant to Notice 97–40, 1997–28 I.R.B. 6 dated July 14, 1997, the treaty between the United States and the People’s Republic of China (China) will continue to
apply only to China and will not apply to the Hong Kong Special Administrative Region of the People’s Republic of China.
30
Adialogue is currently taking place between the Government of the United States and Singapore concerning the scope of the reciprocal exemption.
31
This diplomatic note applies to Hong Kong before July 1, 1997, and pursuant to Notice 97–40, 1997–28 I.R.B. 6 dated July 14, 1997, to the Hong Kong Special
Administrative Region of the People’s Republic of China on or after July 1, 1997. The note does not apply with respect to the People’s Republic of China, which will
continue to be treated as a separate country for purposes of the Internal Revenue Code.
Section 2056.—Bequests, Etc.,
to Surviving Spouse
Ct.D. 2062
SUPREME COURT
OF THE UNITED STATES
No. 95-1402
COMMISSIONER OF INTERNAL
REVENUE v. ESTATE OF HUBERT,
DECEASED, C & S SOVRAN TRUST
CO. (GEORGIA) N.A., CO-EXECUTOR
520 U.S
CERTIORARI TO THE UNITED
STATES COURTOF APPEALS FOR
THE ELEVENTH CIRCUIT
March 18, 1997
Syllabus
The executors of decedent Hubert’s sub-
stantial estate filed a federal estate tax
return about a year after his death. Sub-
sequently, petitioner Commissioner of
Internal Revenue issued a notice of de-
ficiency, claiming underreporting of
federal estate tax liability caused by the
estate’s asserted entitlement to marital
and charitable deductions. While the
estate’s redetermination petition was
pending in the Tax Court, interested
parties settled much of the litigation
surrounding the estate that had begun
after Hubert’s death. The agreement di-
vided the estate’s residue principal, as-
sumed to be worth $26 million on the
date of death, about equally between
marital trusts and a charitable trust. It
also provided that the estate would pay
its administration expenses either from
the principal or the income of the assets
that would comprise the residue and the
corpus of the trusts, preserving the ex-
ecutors’discretion to apportion such
expenses. The estate paid about
$500,000 of its nearly $2 million of ad-
ministration expenses from principal
and the rest from income. It then
recalculated its tax liability, reducing
the marital and charitable deductions
by the amount of principal, but not the
amount of income, used to pay the ex-
penses. The Commissioner concluded
that using income for expenses re-
quired a dollar-for-dollar reduction of
the deductions. The Tax Court dis-
agreed, finding that no reduction was
required by reason of the executors’
power, or the exercise of their power, to
pay administration expenses from in-
come. The Court of Appeals affirmed.
Held: The judgment is affirmed.

1997–32 I.R.B.9August 11, 1997
63 F. 3d 1083, affirmed.
JUSTICEKENNEDY,joined by THECHIEF
JUSTICE, JUSTICESTEVENS,and JUSTICE
GINSBURG, concluded that a taxpayer does
not have to reduce the estate tax deduc-
tion for marital or charitable bequests by
the amount of the administration expenses
that were paid from income generated
during administration by assets allocated
to those bequests. Pp. 4–16.
(a) Hubert’s executors used the standard
date-of-death valuation to determine the
value of property included in the gross es-
tate for estate tax purposes. The parties
agree that, for purposes of the question
presented, the charitable, 26 U. S. C.
§2055, and marital, §2056, deduction
statutes should be read to require the same
answer, notwithstanding differences in
their language. Since the marital deduc-
tion statute and regulation speak in more
specific terms on this question than the
charitable deduction statute, this plurality
concentrates on the marital provisions,
but the holding here applies to both de-
ductions. Pp. 4–5.
(b) The marital deduction statute al-
lows deduction for qualifying property
only to the extent of the property’s
“value.” So when the executors use date
of death valuation for gross estate pur-
poses, the deduction’s value will be lim-
ited by that value. Marital deduction
“value” is “net value,” determined by the
same principles as if the bequest were a
gift to the spouse, 26 CFR §20.2056(b)–
4(a), i.e.,present value as of the control-
ling valuation date, §25.2523(a)–1(e); see
also §§20.2056(b)–4(d), 20.2055–2(f)(1).
Although the question presented is not
controlled by these provisions’exact
terms, it is natural to apply the
present-value principle here. Thus, as-
suming it were necessary for valuation
purposes to take into account that income,
this would be done by subtracting from
the value of the bequest, computed as if
the income were not subject to adminis-
tration expense charges, the present value
(as of the controlling valuation date) of
the income expected to be used to pay ad-
ministration expenses. Cf. Ithaca Trust
Co. v. United States,279 U. S. 151. There
is no dispute the entire interests trans-
ferred in trust here qualify for the marital
and charitable deductions; the question
before the Court is one of valuation. Pp.
5–9.
(c) Only material limitations on the
right to receive income are taken into ac-
count when valuing the property interest
passing to the surviving spouse. 26 CFR
§20.2056(b)–4(a). Aprovision requiring
or allowing administration expenses to be
paid from income “may” be deemed a
“marterial limitation” on the spouse’s
right to income. For example, where the
amount of the corpus, and the expected
income from it, are small, the amount of
the estate’s anticipated administration ex-
penses chargeable to income may be ma-
terial as compared with the anticipated in-
come used to determine the assets’
date-of-death value. Whether a limitation
is material will also depend in part on the
nature of the spouse’s interest in the assets
generating income. An obligation to pay
administration expenses from income is
more likely to be material where the value
of the trust to the spouse is derived solely
from income, but is less likely to be mate-
rial where, as here, the marital property is
valued as being equivalent to a transfer of
the fee. Pp. 10–12.
(d) The Tax Court found that, on the
facts presented, the trustee’s discretion to
pay administration expenses out of in-
come was not a material limitation on the
right to receive income. There is no rea-
son to reverse for the Tax Court’s failure
to specify the facts it considered relevant
to the materiality inquiry. The anticipated
expenses could have been thought imma-
terial in light of the income the trust cor-
pus could have been expected to generate.
P. 12.
(e) This approach to the valuation ques-
tion is consistent with the language of 26
U. S. C. §2056(b), as interpreted in
United Statesv. Stapf,375 U. S. 118, 126,
in which the Court held that the marital
deduction should not exceed the “net eco-
nomic interest received by the surviving
spouse.” There is no basis here for the
Commissioner’s argument that the reduc-
tion she seeks is necessary to avoid a
“double deduction” for administration ex-
penses in violation of 26 U. S. C. §642(g).
Moreover, assuming that the marital de-
duction statute’s legislative history would
have relevance here, it does not support
the Commissioner’s position. Pp. 13–16.
J
USTICEO’CONNOR,joined by JUSTICE
SOUTERand JUSTICETHOMAS, concluded
that the relevant sources point to a test of
quantitative materiality to determine
whether allocation of administrative ex-
penses to postmortem income reduces
marital and charitable deductions, and
that test is not met by the unusual factual
record in this case. Pp. 1–12.
(a) Neither the Tax Code itself nor its
legislative history supplies guidance on
the question whether allocation of admin-
istrative expenses to postmortem income
reduces the marital deduction always,
sometimes, or not at all. However, the
Commissioner’s regulations and revenue
rulings can be relied on to decide this
issue. Title 26 CFR §20.2056(b)–(4)(a) di-
rects the reader to ask whether the execu-
tor’s right to allocate administrative ex-
penses to the marital bequest’s
postmortem income is a “material limita-
tion” upon the spouse’s “right to income
from the property,” such that “account
must be taken of its effect.” Because the
executor’s power is undeniably a “limita-
tion” on the spouse’s right to income, the
case hinges on whether that limitation is
“material.” In Revenue Ruling 93–48, the
Commissioner ruled that §20.2056(b)–
4(a)’s marital deduction is not “ordinarily”
reduced when an executor allocates inter-
est payments on deferred federal estate
taxes to the spousal bequest’s postmortem
income. Such interest and the administra-
tive expenses at issue here are so similar
that they should be treated the same under
§20.2056(b)–4(a). The Commissioner’s
treatment of interest in the Revenue Rul-
ing also indicates that some, but not all,
financial obligations will reduce the
marital deduction. Thus, by virtue of the
Ruling, the Commissioner has created a
quantitative materiality rule for
§20.2056(b)–4(a). This rule is consistent
with the example set forth in
§20.2056(b)–4(a), and the Commis-
sioner’s expressed preference for such a
construction is entitled to deference. Pp.
2–10.
(b) The proper measure of materiality
has yet to be decided by the Commis-
sioner. In the absence of guidance from
the Commissioner, the Tax Court’s ap-
proach is as consistent with the Code as
any other test, and provides no basis for
reversal. Here, the Commissioner’s litiga-
tion strategy effectively preempted the
Tax Court from finding the $1.5 million
diminution in postmortem income mater-
ial under a quantitative materiality test,
for she argued that anydiversion of post-

August 11, 1997101997–32 I.R.B.
mortem income was material and never
presented any evidence or argued that this
diminution was quantitatively material.
Her failure to offer proof of materiality
left the Tax Court with little choice but to
reach its carefully crafted conclusion that
the amount was not quantitatively mater-
ial on the facts before it. Pp. 10-12.
K
ENNEDY,J., announced the judgment
of the Court and delivered an opinion, in
whichR
EHNQUIST,C.J., and STEVENSand
G
INSBURG,J.J., joined. O’CONNOR, J.,
filed an opinion concurring in the judg-
ment, in which S
OUTERand THOMAS, JJ.,
joined. SCALIA, J., filed a dissenting opin-
ion, in which B
REYER,J., joined. BREYER,
J., filed a dissenting opinion.
SUPREME COURTOF THE
UNITED STATES
No. 95–1402
COMMISSIONER OF INTERNAL
REVENUE, PETITIONER v.ESTATEOF
OTIS C. HUBERT, DECEASED, C & S
SOVRAN TRUSTCOMPANY
(GEORGIA) N.A., CO-EXECUTOR
ON WRITOF CERTIORARI TO THE
UNITED STATES COURTOF
APPEALS FOR THE ELEVENTH
CIRCUIT
[March 18, 1997]
JUSTICEKENNEDYannounced the judg-
ment of the Court and delivered an opin-
ion, in which the CHIEFJUSTICE, JUSTICE
STEVENS, and JUSTICEGINSBURGjoin.
In consequence of life’s two certainties
a decedent’s estate faced federal estate tax
deficiencies, giving rise to this case. The
issue is whether the amount of the estate
tax deduction for marital or charitable be-
quests must be reduced to the extent ad-
ministration expenses were paid from in-
come generated during administration by
assets allocated to those bequests.
I
The estate of Otis C. Hubert was sub-
stantial, valued at more than $30 million
when he died. Considerable probate and
civil litigation ensued soon after his
death. The parties to the various proceed-
ings included his wife and children; his
nephew; one of the estate’s coexecutors,
Citizens and Southern Trust Company
(Georgia), N. A., the predecessor of re-
spondent C & S Sovran Trust Company
(Georgia), N. A.; the district attorney for
Cobb County, Georgia, on behalf of cer-
tain charitable beneficiaries; and the
Georgia State Revenue Commission. Hu-
bert had made various wills and codicils,
and the legal disputes for the most part
concerned the distribution of estate assets;
but they were not confined to this. In ad-
dition to will contests alleging fraud and
undue influence, there were satellite civil
suits including claims of slander and
abuse of process. The principal proceed-
ings were in the Probate and the Superior
Courts of Cobb County, Georgia.
The estate attracted the attention of pe-
titioner, the Commissioner of Internal
Revenue. The executors filed the federal
estate tax return in 1987, about a year
after Hubert died. In 1990, the Commis-
sioner issued a notice of deficiency,
claiming underreporting of federal estate
tax liability by some $14 million. The
Commissioner’s major challenge then
was to the estate’s claimed entitlement to
two deductions. One was the marital de-
duction, under 68AStat. 392, as amended,
26 U. S. C. §2056, for qualifying property
passing from a decedent to the surviving
spouse. The other was the charitable
deduction, under §2055, for qualifying
property passing from a decedent to a
charity. The Commissioner’s notice of de-
ficiency asserted, for reasons not relevant
here, that the property passing to Hubert’s
surviving wife and to charity did not qual-
ify for the marital and charitable deduc-
tions. The estate petitioned the United
States Tax Court for a redetermination of
the deficiency.
Within days of the estate’s petition in
the Tax Court, much of the other litigation
surrounding the estate settled. The settle-
ment agreement divided the estate’s
residue principal between a marital and a
charitable share, which we can assume for
purposes of our discussion were worth a
total of $26 million on the day Hubert
died. The settlement agreement divided
the $26 million principal about half to
trusts for the surviving spouse and half to
a trust for the charities. The Commis-
sioner stipulated that the nature of the
trusts did not prevent them from qualify-
ing for the marital and charitable deduc-
tions. The stipulation streamlined the Tax
Court litigation but did not resolve it.
The settlement agreement provided that
the estate would pay its administration ex-
penses either from the principal or the in-
come of the assets that would comprise
the residue and the corpus of the trusts,
preserving the discretion Hubert’s most
recent will had given his executors to ap-
portion administration expenses. The ap-
portionment provisions of the agreement
and the will were consistent for all rele-
vant purposes with the law of Georgia,
the State where the decedent resided. The
estate’s administration expenses, includ-
ing attorney’s fees, were on the order of
$2 million. The estate paid about
$500,000 in expenses from principal and
the rest from income.
The estate recalculated its estate tax lia-
bility based on the settlement agreement
and the payments from principal. The es-
tate did not include in its marital and char-
itable deductions the amount of residue
principal used to pay administration ex-
penses. The parties here have agreed
throughout that the marital or charitable
deductions could not include those
amounts. The estate, however, did not re-
duce its marital or charitable deductions
by the amount of the income used to pay
the balance of the administration ex-
penses. The Commissioner disagreed and
contended that use of income for this pur-
pose required a dollar-for-dollar reduction
of the amounts of the marital and charita-
ble deductions.
In a reviewed opinion, the Tax Court,
with two judges concurring in part and
dissenting in part, rejected the Commis-
sioner’s position. 101 T. C. 314 (1993).
The court noted it had resolved the same
issue against the Commissioner in Estate
of Streetv. Commissioner,T. C. Mem.
1988–553, 1988 WL128662 (T. C. 1988).
The Court of Appeals for the Sixth Circuit
had reversed this aspect of Estate
of Street, see 974 F. 2d 723, 727–729
(1992), but in the instant case the Tax
Court adhered to its view and said, given
all the circumstances here, no reduction
was required by reason of the executors’
power, or the exercise of their power, to
pay administration expenses from in-
come. The Court of Appeals for the
Eleventh Circuit affirmed the Tax Court,
adopting the latter’s opinion and noting
the resulting conflict with the Sixth Cir-
cuit’s decision in Streetand with the

1997–32 I.R.B.11August 11, 1997
Court of Appeals for the Federal Circuit’s
decision in Burkev. United States, 994 F.
2d 1576, cert. denied, 510 U. S. 990
(1993). See 63 F. 3d 1083, 1084–1085
(CA11 1995). We granted certiorari, 517
U. S.
—
(1996), and, in agreement with the
Tax Court and the Court of Appeals for
the Eleventh Circuit, we now affirm the
judgment.
II
Anecessary first step in calculating the
taxable estate for federal estate tax pur-
poses is to determine the property in-
cluded in the gross estate, and its value.
Though an alternative valuation date is
authorized, the executors of the Hubert
estate used the standard date-of death val-
uation. See 26 U. S. C. §§2031(a), 2051.
Alater step is to compute any claimed
charitable or marital deductions. See
§§2055 (charitable), 2056 (marital). Our
inquiry here involves the relationship be-
tween valuation principles and those com-
putations. The language of the charitable
and marital deduction sections differs. For
instance, §2056 requires consideration, in
valuing a marital bequest, of obligations
or encumbrances the decedent imposes on
the bequest, “in the same manner as if the
amount of a gift to such spouse of such in-
terest were being determined.” §2056(b)-
(4). Section 2055 has no similar language.
Treasury Regulation §20.2056(b)–4(a),
26 CFR §20.2056 (b)–4(a) (1996), more-
over, has amplified aspects of the marital
deduction statute, as we discuss. There is
no similar regulation for the charitable de-
duction statute. These differences not-
withstanding, the Commissioner and re-
spondents agree that, for purposes of the
question presented, the two deduction
statutes should be read to require the same
answer. We adopt this approach. For the
issue we decide, the marital deduction
statute and regulation speak in more spe-
cific terms than the charitable deduction
statute, so we concentrate on the marital
provisions. Our holding in the case ap-
plies to both deductions.
We begin with the language of the mar-
ital deduction statute. It allows an estate
to deduct for federal estate tax purposes
“an amount equal to the value of any in-
terest in property which passes or has
passed from the decedent to his surviving
spouse, but only to the extent that such in-
terest is included in determining the value
of the gross estate.” 26 U. S. C. §2056(a).
The statute allows deduction for quali-
fying property only to the extent of the
property’s “value.” So when the executors
value the property for gross estate pur-
poses as of the date of death, the value of
the marital deduction will be limited by its
date-of-death value. This is directed by the
statutory language capping the deduction
at “the value of any interest . . . included in
determining the value of the gross estate.”
It is made explicit by Treas. Reg.
§20.2056(b)–4(a), 26 CFR §20.2056(b)–
4(a) (1996), which says “value, for the
purpose of the marital deduction . . . is to
be determined as of the date of the dece-
dent’s death [unless the estate uses the al-
ternative valuation date].”
Regulation §20.2056(b)–4(a) provides
that “value” for marital deduction pur-
poses is “net value,” determined by ap-
plying “the same principles . . . as if the
amount of a gift to the spouse were being
determined.” Regulation §25.2523(a)–1,
entitled “Gift to spouse; in general,” in-
cludes a subsection (e), entitled “Valua-
tion,” which parallels §20.2056(b)–4(d);
see also §20.2055–2(f)(1). It provides:
“If the income from property is made
payable to the donor or another individ-
ual for life or for a term of years, with
remainder to the donor’s spouse . . . the
marital deduction is computed . . . with
respect to the present value of the re-
mainder, determined under [26 U. S. C.
§] 7520. The present value of the re-
mainder (that is, its value as of the date
of gift) is to be determined in accord-
ance with the rules stated in
§25.2512–5 or, for certain prior peri-
ods, §25.2512–5A.”
Section 7520, in turn, refers to
present-value tables located in regulation
§20.2031–7. The question presented here,
involving date-of-death valuation of prop-
erty or a principal amount, some of the in-
come from which may be used to pay ad-
ministration expenses, is not controlled
by the exact terms of these provisions.
For that reason, we do not attempt to
force it into their detailed mold. It is nat-
ural, however, to apply the present-value
principle to the question at hand, as we
are directed to do by §20.2056(b)–4(a). In
other words, assuming it were necessary
for valuation purposes to take into ac-
count that income, see infra,at 10–12
(discussing materiality), this would be
done by subtracting from the value of the
bequest, computed as if the income were
not subject to administration expense
charges, the present value (as of the con-
trolling valuation date) of the income ex-
pected to be used to pay administration
expenses.
Our application of the present-value
principle to the issue here is further sup-
ported by Justice Holmes’explanation of
valuation theory in his opinion for the
Court in Ithaca Trust Co.v. United States,
279 U. S. 151 (1929). The decedent there
bequeathed the residue of his estate in
trust to charity, subject to a particular life
interest in his wife. After holding that the
charitable bequest qualified for the chari-
table deduction under the law as it stood
in 1929, the Court considered how to
value the bequest. The Government ar-
gued the value should be reduced to re-
flect the wife’s probable life expectancy
as of the date the decedent died. The es-
tate argued for a smaller reduction than
the Government, because by the time of
the litigation it was known that the wife
had, in fact, lived for only six months
after the decedent died. Justice Holmes
wrote:
“The first impression is that it is absurd
to resort to statistical probabilities
when you know the fact. But this is due
to inaccurate thinking. . . . [Value] de-
pends largely on more or less certain
prophecies of the future; and the value
is no less real at that time if later the
prophecy turns out false than when it
comes out true. . . . Tempting as it is to
correct uncertain probabilities by the
now certain fact, we are of opinion that
it cannot be done. . . . Our opinion is
not changed by the necessary excep-
tions to the general rule specifically
made by the Act.” Id.,at 155.
So the charitable deduction had to be val-
ued based on the wife’s probable life ex-
pectancy as of the date of death rather
than the known fact that she died only six
months after her husband.
It is suggested that regulation
§20.2056(b)–4(a)’s direction to value the
marital deduction as a spousal gift refers
to a gift-tax qualification regulation,
§25.2523(e)– l(f), and a revenue ruling in-
terpreting it, Rev. Rul. 69–56, 1969–1
Cum. Bul. 224. Post,at 5–6 (O’C
ONNOR,
J., concurring in judgment). The sugges-

August 11, 1997121997–32 I.R.B.
tion misunderstands the regulations and
the revenue ruling. Regulation
§20.2056(b)–4(a) concerns how to deter-
mine the “value, for the purpose of the
marital deduction, of any deductible inter-
est.” Before determining an interest’s
value under §20.2056(b)–4(a), one must
decide the extent to which the interest
qualifies as deductible.
There is a structural problem with in-
terpreting §20.2056(b)–4(a) as directing
reference to §25.2523(e)–1(f) for valua-
tion purposes. Qualification and valuation
are different steps. Regulation
§25.2523(e)–1(f) prescribes conditions
under which an interest transferred in
trust qualifies for a marital deduction
under the gift tax. It tracks the language
of regulation §20.2056(b)–5(f), which
prescribes the same conditions for deter-
mining whether an interest transferred in
trust qualifies for a marital deduction
under the estate tax. Any interest to which
§25.2523(e)–1(f) would apply, were its
principles understood to be incorporated
into §20.2056(b)–4(a), would, of neces-
sity, already have been analyzed under the
same principles at the earlier, qualifica-
tion stage of the estate-tax marital-deduc-
tion inquiry under §20.2056(b)–5(f). So
under the suggested interpretation,
whether or not an interest passed the qual-
ification test, there would never be a need
to value it. If it failed, there would be
nothing to value; if it passed, its value
would never be reduced at the valuation
stage. The qualification step of the es-
tate-tax marital-deduction inquiry would
render the valuation step superfluous.
We do not think the Commissioner
adopted this view of the regulations in
Revenue Ruling 69–56. The revenue rul-
ing held that a trustee’s power to:
“charge to income or principal, execu-
tor’s or trustee’s commissions, legal
and accounting fees, custodian fees,
and similar administration expenses . . .
[does] not result in the disallowance or
diminution of the marital deduction for
estate and gift tax purposes unless the
execution of such directions would, or
the exercise of such powers could,
cause the spouse to have less than sub-
stantially full beneficial enjoyment of
the particular interest transferred.” Rev.
Rul. 69–56, 1969–1 Cum. Bul. 224.
The revenue ruling cites for this proposi-
tion §20.2056(b)–5(f)(1) and §25.2523(e)–
1(f)(1), parts of the estate-and gift-tax
qualification regulations discussed above.
The qualification regulations provide that
an interest may qualify as deductible only
in part. Where that happens, the deduction
need not be disallowed but it must be di-
minished. See, e.g.,§20.2056(b)–5(b);
§25.2523(e)–1(b); see also 26 U. S. C.
§§2056(b)(5), 2523(e). It is in this qualifi-
cation context that the revenue ruling
speaks of “diminution” of the marital de-
duction. There is no dispute the entire in-
terests transferred in trust here qualify for
the estate-tax marital and charitable
deductions, respectively. The question be-
fore us is one of valuation. Regulations
25.2523(e)–1(f) and 20.2056(b)–5(f) and
Revenue Ruling 69–56 do not bear on our
inquiry.
The parties here agree that the marital
and charitable deductions had to be re-
duced by the amount of marital and chari-
table residue principal used to pay admini-
stration expenses. The Commissioner
contends that the estate must reduce its
marital and charitable deductions by the
amount of administration expenses paid
not only from principal but also, and in all
events, from income and by a dollar-
for-dollar amount. The Commissioner cites
the controlling regulation in support of her
position. The regulation says:
“The value, for the purpose of the
marital deduction, of any deductible in-
terest which passed from the decedent
to his surviving spouse is to be deter-
mined as of the date of the decedent’s
death [unless the estate uses the alter-
native valuation date]. The marital de-
duction may be taken only with respect
to the net value of any deductible inter-
est which passed from the decedent to
his surviving spouse, the same princi-
ples being applicable as if the amount
of a gift to the spouse were being deter-
mined. In determining the value of the
interest in property passing to the
spouse account must be taken of the ef-
fect of any material limitations upon
her right to income from the property.
An example of a case in which this rule
may be applied is a bequest of property
in trust for the benefit of the decedent’s
spouse but the income from the prop-
erty from the date of the decedent’s
death until distribution of the property
to the trustee is to be used to pay ex-
penses incurred in the administration of
the estate.” 26 CFR §20.2056(b)–4(a)
(1996).
The regulation does not help the Commis-
sioner. It says a limitation providing that
income “is to be used” throughout the ad-
ministration period to pay administration
expenses “may” be material in a given
case and, if it is, account must be taken of
it for valuation purposes as if it were a gift
to the spouse, as we have discussed, see
supra,at 5–6. The Tax Court was quite
accurate in its description of the regula-
tion when it said:
“That section is merely a valuation pro-
vision which requires material limita-
tions on the right to receive income to
be taken into account when valuing the
property interest passing to the surviv-
ing spouse. The fact that income from
property is to be used to pay expenses
during the administration of the estate
is not necessarily a material limitation
on the right to receive income that
would have a significant effect on the
date-of-death value of the property of
the estate.” 101 T. C., at 324–325.
There is no indication in the case before
us that the executor’s power to charge ad-
ministration expenses to income is equiva-
lent to an express postponement of the
spouse’s right to income beyond a reason-
able period of administration. Cf. 26 CFR
§20.2056(b)–5(f)(9) (1996) (requiring val-
uation of express postponements of the
spouse’s right to income beyond a reason-
able period of administration). By contrast,
we have no difficulty conceiving of situa-
tions where a provision requiring or allow-
ing administration expenses to be paid
from income could be deemed a “material
limitation” on the spouse’s right to income.
Suppose the decedent’s other bequests ac-
count for most of the estate’s property or
that most of its assets are nonincome pro-
ducing, so that the corpus of the surviving
spouse’s bequest, and the income she could
expect to receive from it, would be quite
small. In these circumstances, the amount
of the estate’s anticipated administration
expenses chargeable to income may be
material as compared with the anticipated
income used to determine the assets’
date-of-death value. If so, a provision re-
quiring or allowing administration ex-
penses to be charged to income would be a
material limitation on the spouse’s right to
income, reducing the marital bequest’s

date-of-death value and the allowable mar-
ital deduction.
Whether a limitation is “material” will
also depend in part on the nature of the
spouse’s interest in the assets generating
income. This analysis finds strong support
in the text of regulation 20.2056(b)–4(a).
The regulation gives an example of where
a limitation on the right to income “may”
be material—bequests “in trust” for the
benefit of a decedent’s spouse. The exam-
ple suggests a significant difference be-
tween a bequest of income and an outright
gift of the fee interest in the income-
producing property. Afee in the same in-
terest will almost always be worth much
more. Where the value of the trust to the
beneficiaries is derived solely from in-
come, an obligation to pay administration
expenses from that income is more likely
to be “material.” In the case of a specific
bequest of income, for example, valued
only for its future income stream, a diver-
sion of that income would be more signif-
icant. The marital property in this case,
however, comprising trusts involving ei-
ther a general power of appointment (the
GPAtrust) or an irrevocable election (the
QTIPtrust), was valued as being equiva-
lent to a transfer of the fee. See Brief for
Petitioner 8–9, n. 1 (“[T]he corpus of both
trusts is includable in the estate of the sur-
viving spouse”). As a result, the limitation
on the right to income here is less likely to
be material. The inquiry into the value of
the estate’s anticipated administration ex-
penses should be just as administrable, if
not more so, than valuing property inter-
ests like going-concern businesses, see,
e.g.,§20.2031–3, involving much greater
complexity and uncertainty.
The Tax Court concluded here: “On the
facts before us, we find that the trustee’s
discretion to pay administration expenses
out of income is not a material limitation
on the right to receive income.” 101 T. C.,
at 325. The Tax Court did not specify the
facts it considered relevant to the materi-
ality inquiry. As we have explained, how-
ever, the Commissioner does not contend
the estate failed to give adequate consid-
eration to expected future administration
expenses as of the date-of-death in deter-
mining the amount of the marital deduc-
tion. We have no basis to reverse for the
Tax Court’s failure to elaborate. Here,
given the size and complexity of the es-
tate, one might have expected it to incur
substantial litigation costs. But the antici-
pated expenses could nonetheless have
been thought immaterial in light of the in-
come the trust corpus could have been ex-
pected to generate.
The major disagreement in principle
between the Tax Court majority and dis-
senters involved the distinction between
expected and actual income and expenses.
Judge Halpern’s opinion, joined by Judge
Beghe, explained:
“I believe the majority is undone by its
view that income earned on estate
property is not included in the gross es-
tate. Once it is accepted that income
earned on estate property (as antici-
pated at the appropriate valuation date)
isincluded in the gross estate, the next
question is whether, but for the use of
such income to pay administration ex-
penses, it would be received by the sur-
viving spouse or charitable beneficiary.
If the answer is yes, then it follows eas-
ily that, when such income is used for
administration expenses, rather than re-
ceived by the surviving spouse or char-
itable beneficiary, the value of the in-
terest passing from the decedent to the
surviving spouse or charitable benefi-
ciary is decreased.” Id.,at 342–343
(opinion concurring in part and dissent-
ing in part).
The Tax Court dissenters recognized that
only anticipated, not actual, income is in-
cluded in the gross estate, as the gross es-
tate is based on date-of-death value. See
also id.,at 342, n. 5 (opinion of Halpern,
J.) (“It is true, of course, that income actu-
ally earned on . . . property [included in
valuing the gross estate] during the period
of administration is not included in the
gross estate. The gross estate, however,
does include the discounted value of post-
mortem income expected to be earned
during estate administration”) (emphasis
deleted). The dissenters failed to recog-
nize that following their own logic, as a
general rule, assuming compliance with
regulation §20.2056(b)–4(a)’s limitation
to relevant facts on the controlling valua-
tion date, only anticipated administration
expenses payable from income, not the
actual ones, affect the date-of-death value
of the marital or charitable bequests. The
dissenters were, in a sense, a step closer to
§25.2523(a)–l(e)’s present-value ap-
proach than the Commissioner, for they
would have required the estate to reduce
the marital or charitable deduction by
only the discounted value of the actual
administration expenses, whereas the
Commissioner insists on a dollar-for-dol-
lar reduction. The dissenters’wait-and-
see approach to the valuation inquiry,
however, is still at odds with the valuation
inquiry required by the regulations: What
is the net value of the marital or charitable
bequest on the controlling valuation date,
determined as if it were a gift to the
spouse?
The Commissioner directs us to the
language of §2056(b)(4), which says:
“In determining . . . the value of any
interest in property passing to the sur-
viving spouse for which a deduction is
allowed by this section—
. . . . .
“(B) where such interest or property
is encumbered in any manner, or where
the surviving spouse incurs any obliga-
tion imposed by the decedent with re-
spect to the passing of such interest,
such encumbrance or obligation shall
be taken into account in the same man-
ner as if the amount of a gift to such
spouse of such interest were being de-
termined.”
We interpreted this language in United
States v. Stapf, 375 U. S. 118 (1963). The
husband’s will there gave property to his
wife, conditioned on her relinquishing
other property she owned to the couple’s
children. We held that the husband’s es-
tate was entitled to a marital deduction
only to the extent the value of the prop-
erty the husband gave his wife exceeded
the value of the property she relinquished
to receive it. The marital deduction, we
explained, should not exceed the “net
economic interest received by the surviv-
ing spouse.” Id.,at 126. The statutory lan-
guage, as we interpreted it in Stapf,is
consistent with our analysis here. Where
the will requires or allows the estate to
pay administration expenses from income
that would otherwise go to the surviving
spouse, our analysis requires that the mar-
ital deduction reflect the date-of-death
value of the expected future administra-
tion expenses chargeable to income if
they are material as compared with the
date-of-death value of the expected future
income. Using this approach to valuation,
the estate will arrive at the “net economic
1997–32 I.R.B.13August 11, 1997

August 11, 1997141997–32 I.R.B.
interest received by the surviving
spouse.” Ibid.
For the first time at oral argument, the
Commissioner suggested that the reduc-
tion she seeks is necessary to avoid a
“double deduction” in violation of 26
U. S. C. §642(g). Under §642(g), an es-
tate may take an estate tax deduction for
administration expenses under §2053(a)-
(2), or it may take them, if deductible, off
its taxable income, but it may not do both.
The so-called double deduction argument
is rhetorical, not statutory. As our col-
leagues in dissent recognize, “nothing in
§642(g) compelsthe conclusion that the
marital (or charitable) deduction must be
reduced whenever an estate elects to
deduct expenses from income.” Post,at
12–13 (Scalia, J., dissenting) (emphasis in
original). The Commissioner nevertheless
suggests that, unless we reduce the es-
tate’s marital deduction by the amount of
administration expenses paid from in-
come and deducted on its income tax, the
estate will receive a deduction for them
on its income tax as well as a deduction
for them on its estate tax in the form of in-
flated marital and charitable deductions.
See Tr. of Oral Arg. 12, 15. The marital
and charitable estate tax deductions do
not include income, however. When in-
come is used, consistent with state law
and the will, to pay administration ex-
penses, this does not require that the es-
tate tax deductions be diminished. The de-
ductions include asset values determined
with reference to expected income, but
under our analysis the values must also be
reduced to reflect material expected ad-
ministration expense charges to which
that income may be subjected. As noted
above, the Commissioner has not con-
tended the estate’s marital and charitable
deductions fail to reflect such expected
payments. So there is no basis for the
double deduction argument. Our analysis
is consistent with the design of the statute.
The Commissioner also invites our at-
tention to the legislative history of the
marital deduction statute. Assuming for
the sake of argument it would have rele-
vance here, it does not support her posi-
tion. The Senate Report accompanying
the statute says:
“The interest passing to the surviv-
ing spouse from the decedent is only
such interest as the decedent can give.
If the decedent by his will leaves the
residue of his estate to the surviving
spouse and she pays, or if the estate in-
come is used to pay, claims against the
estate so as to increase the residue,
such increase in the residue is acquired
by purchase and not by bequest. Ac-
cordingly, the value of any additional
part of the residue passing to the sur-
viving spouse cannot be included in the
amount of the marital deduction.” S.
Rep. No. 1013, 80th Cong., 2d Sess.,
pt. 2, p. 6 (1948).
The Report supports our analysis. It un-
derscores that valuation for marital de-
duction purposes occurs on the date of
death.
The Commissioner’s position is incon-
sistent with the controlling regulations.
The Tax Court and the Court of Appeals
were correct in finding for the taxpayer on
these facts, and we affirm the judgment.
It is so ordered.
JUSTICEO’CONNOR, with whom JUS-
TICESOUTERand JUSTICETHOMASjoin,
concurring in the judgment.
“Logic and taxation are not always the
best of friends.” Sonneborn Brothersv.
Cureton,262 U. S. 506, 522 (1923)
(McReynolds, J., concurring). In cases
like the one before us today, they can be
complete strangers. That our tax laws can
at times be in such disarray is a discom-
forting thought. I can understand why the
plurality attempts to extrapolate a general-
ized estate tax valuation theory from one
regulation and then to apply that theory to
resolve this case, perhaps with the hope of
making sense out of the applicable law.
But where the applicability—not to men-
tion the validity—of that theory is far from
clear, the temptation to make order out of
chaos at any cost should be resisted, espe-
cially when the question presented can be
resolved—albeit imperfectly—by refer-
ence to more directly applicable sources.
While J
USTICESCALIA, JUSTICEBREYER,
and I agree on this point, we disagree on
the result ultimately dictated by these
sources. I therefore write separately to ex-
plain why in my view the plurality’s re-
sult, though not its reasoning, is correct.
I
When a citizen or resident of the
United States dies, the Federal Govern-
ment imposes a tax on “all [of his] prop-
erty, real or personal, tangible or intangi-
ble, wherever situated.” 26 U. S. C.
§§2001(a), 2031(a). Specifically excluded
from taxation, however, is certain prop-
erty devised to the decedent’s spouse or to
charity. Such testamentary gifts may qual-
ify for the marital deduction, §2056(a), or
the charitable deduction, §2055(a). If they
do, they are removed from the decedent’s
“gross estate” and exempted from the es-
tate tax. §2051. Calculating the estate tax,
however, takes time, as does marshaling
the decedent’s property and distributing it
to the ultimate beneficiaries. During this
process, the assets in the estate often earn
income and the estate itself incurs admin-
istrative expenses. To deal with this even-
tuality, the Tax Code permits an estate ad-
ministrator to choose between allocating
these expenses to the assets in the estate at
the time of death (the estate principal), or
to the postmortem income earned by
those assets. §642(g). Everyone agrees
that when these expenses are charged
against a portion of estate’s principal de-
vised to the spouse or charity, that portion
of the principal is diverted from the
spouse or charity and the marital and
charitable deductions are accordingly “re-
duced” by the actual amount of expenses
incurred. See ante,at 9 (plurality opin-
ion); post,at 2 (S
CALIA, J., dissenting);
Brief for Petitioner 19; Brief for Respon-
dent 6. The question presented here is
what becomes of these deductions when
the estate chooses the second option
under §642(g) and allocates administra-
tive expenses to the postmortem income
generated by the property in the spousal
or charitable devise.
The Tax Code itself supplies no guid-
ance. Accord, post,at 6 (S
CALIA,J., dis-
senting). The statute most relevant to this
case, 26 U. S. C. §2056(b)(4)(B), provides:
“where [any interest in property other-
wise qualifying for the marital deduc-
tion] is encumbered in any manner, or
where the surviving spouse incurs any
obligation imposed by the decedent
with respect to the passing of such in-
terest, such encumbrance or obligation
shall be taken into account in the same
manner as if the amount of a gift to
such spouse of such interest were being
determined.”
Although an executor’s power to burden
the postmortem income of the marital be-

1997–32 I.R.B.15August 11, 1997
quest with the estate’s administrative ex-
penses is arguably an “encumbrance” or
an “obligation imposed by the decedent
with respect to the passing of such inter-
est,” the statute itself says only that the
“encumbrance or obligation shall be taken
into account.” It does not explain how this
should be done, however. In my view, it is
not possible to tell from §2056(b)(4)(B)
whether allocation of administrative ex-
penses to postmortem income reduces the
marital deduction always, sometimes, or
not at all.
Nor does the Code’s legislative history
give shape to its otherwise ambiguous
language. The discussion in the Senate
Report of §2056(b)(4)(B)’s predecessor
statute reads:
“The interest passing to the surviving
spouse from the decedent is only such
interest as the decedent can give. If the
decedent by his will leaves the residue
of his estate to the surviving spouse and
she pays, or if the estate income is used
to pay, claims against the estate so as
to increase the residue, such increase
in the residue is acquired by purchase
and not by bequest. Accordingly, the
value of any such additional part of the
residue passing to the surviving spouse
cannot be included in the amount of the
marital deduction.” S. Rep. No. 1013,
80th Cong., 2d Sess., pt. 2, p. 6 (1948)
(emphasis added).
This italicized passage might be helpful if
it explicitly referred to “administrative
expenses” instead of”claims against the
estate.” But it is not at all clear from the
Senate Report whether the latter term in-
cludes the former: The Report nowhere
defines the term “claims against the es-
tate,” and the immediately preceding
paragraph discusses §2056(b)(4)(B)’s lan-
guage with reference to mortgages. Ibid.
Because mortgages differ from adminis-
trative expenses in many ways (e.g.,
mortgages pre-exist the decedent’s death
and are fixed in amount at that time),
there is a reasonable argument that ad-
ministrative expenses are not “claims
against the estate.” In sum, the Code’s
legislative history is not illuminating.
II
All that remains in this statutory vac-
uum are the Commissioner’s regulations
and revenue rulings, and it is on these
sources that I would decide this issue. The
key regulation is 26 CFR §20.2056(b)–
4(a) (1996):
“The value, for the purpose of the mari-
tal deduction, of any deductible interest
which passed from the decedent to his
surviving spouse is to be determined as
of the date of the decedent’s death....
The marital deduction may be taken
only with respect to the net value of
any deductible interest which passed
from the decedent to his surviving
spouse, the same principles being ap-
plicable as if the amount of a gift to the
spouse were being determined. In de-
termining the value of the interest in
property passing to the spouse account
must be taken of the effect of any mate-
rial limitations upon her right to in-
come from the property.”
The text of the regulation leaves no doubt
that, only the “net value” of the spousal
gift may be deducted. There is also little
doubt that, in assessing this “net value,”
one should examine how the spousal de-
vise would have been treated if it were in-
stead an inter vivosgift. See also 26 U. S.
C. §2056(b)(4)(A) (also referring to treat-
ment of gifts).
The plurality latches onto 26 CFR
§25.2523(a)–1(e) (1996), and to the
statutes and regulations to which it refers.
Ante,at 5–6 (referring to 26 U. S. C.
§7520; 26 CFR §20.2031–7 (1996)). In
the plurality’s view, these regulations de-
fine how to “tak[e] [account] of the effect
of any material limitations upon [a
spouse’s] right to income from the prop-
erty.” 26 CFR §20.2056(b)–4(a) (1996).
The plurality frankly admits that these
regulations do not speak directly to the
antecedent inquiry—when an executor’s
right to allocate administrative expenses
to income constitutes a “material limita-
tion.” Ante,at 6. The plurality neverthe-
less believes that these regulations bear
indirectlyon this inquiry by implying an
underlying estate tax valuation theory
that, in the plurality’s view, dovetails
nicely with our decision in Ithaca Trust
Co.v. United States,279 U. S. 151
(1929). Ante,at 6–7, 13. It is on the basis
of this valuation theory that the plurality
is able to conclude that the Tax Court’s
analysis was wrong because that analysis
did not, consistent with the plurality’s the-
ory, focus solely on anticipatedadminis-
trative expenses and anticipatedincome.
Ante,at 12–13. But, as J
USTICESCALIA
points out, the plurality’s valuation theory
is not universally applicable and, in fact,
conflicts with the Commissioner’s treat-
ment of some other expenses. See 26 CFR
§20.2056(b)–4(c) (1996); post,at 13–15.
Because §25.2523(a)–1(e) and its accom-
panying provisions do no more than sug-
gest an estate tax valuation theory that it-
self has questionable value in this context,
these provisions do not in my view pro-
vide any meaningful guidance in this
case.
The Tax Court, on the other hand, ze-
roed in on 26 CFR §§25.2523(e)–1(f)(3)
and (4) (1996), the gift tax regulations
which, read together, provide that a
trustee’s power to allocate the “trustees’
commissions . . . and other charges” to the
trust’s income will not disqualify the trust
from gift tax spousal deduction as long as
the donee spouse receives “substantial
beneficial enjoyment” of the trust prop-
erty. 101 T. C. 314, 325 (1993); see also
26 CFR §20.2056(b)–5(f) (1996) (track-
ing language of §25.2523(e)–l(f)). The
Commissioner interpreted this language
in Revenue Ruling 69–56, and held that a
trustee’s power to
“charge to income or principal, execu-
tor’s or trustee’s commissions, legal
and accounting fees, custodian fees,
and similar administration expenses . . .
[does] not result in the disallowance or
diminution of the marital deduction for
estateand gift tax purposesunless the
execution of such directions would or
the exercise of such powers could,
cause the spouse to have less than sub-
stantially full beneficial enjoyment of
the particular interest transferred.” Rev.
Rul. 69–56, 1969–1 Cum. Bul. 224
(emphasis added).
Both the plurality and J
USTICESCALIA
argue that these gift regulations and rul-
ings are inapposite because they address
how the power to allocate expenses af-
fects a trust’s qualificationfor the marital
deduction, and not how it affects the
trust’s value. Ante,at 7–9; post,at 4–5,
11–12. They further contend that the “ma-
terial limitation” language in 26 CFR
§20.2056(b)–4(a) (1996) would be ren-
dered superfluous if a “material limita-
tion” on the spouse’s right to receive in-
come existed only when that spouse
lacked “substantial beneficial enjoyment”
of the income. 101 T. C., at 325–326

(adopting this argument). Under this read-
ing, there could be no such thing as a trust
that qualified for the marital deduction
but imposed a material limitation on the
right to income because any trust failing
the “substantial beneficial enjoyment”
test would not qualify for the deduction at
all. Ante,at 8; post,at 11. These are potent
criticisms. But no matter how poorly
drafted or ill conceived the Revenue Rul-
ing might be, the fact remains that the
Commissioner issued it and its plain lan-
guage is hard to ignore. In the end, the
conclusion one draws regarding how the
marital and charitable trusts would be
treated if they were inter vivosgifts de-
pends on whether one takes the Commis-
sioner at her word: If one does, the gift
tax provisions, Revenue Ruling 69–56 in
particular, favor respondents’position; if
one does not, one is left with no guidance
at all. Neither result is wholly satisfying.
Fortunately, §20.2056(b)–4(a) further
directs the reader to consider a second
method of determining the amount of the
marital deduction:
“In determining the value of the inter-
est in property passing to the spouse ac-
count must be taken of the effect of any
material limitations upon her right to
income from the property.”
From this we ask whether the executor’s
right to allocate administrative expenses
to the postmortem income of the marital
bequest is a material limitation upon the
spouse’s “right to income from the prop-
erty,” such that “account must be taken of
the effect.” Because the executor’s power
is undeniably a “limitation” on the
spouse’s right to income, the case hinges
on whether that limitation is “material.”
Accord, post,at 7 (S
CALIA,J., dissenting)
(“The beginning of analysis . . . is to de-
termine what, in the context of
§20.2056(b)–4(a), the word ‘material’
means”).
We can quibble over which definition
of “material”—“substantial” or “rele-
vant”—precedes the other in the dictio-
nary, see ibid.; The American Heritage
Dictionary 772 (2d ed. 1985) (“substan-
tial” precedes “relevant”), but this debate
is beside the point. The Commissioner
has already interpreted the language in
§20.2056(b)–4(a). In Revenue Ruling
93–48, the Commissioner ruled that the
marital deduction is not “ordinarily” re-
duced when an executor allocates interest
payments on deferred federal estate taxes
to the postmortem income of the spousal
bequest. Rev. Rul. 93–48, 1993–2 Cum.
Bul. 270 (“[T]he value of a residuary
charitable [or marital] bequest is [not] re-
duced by the amount of [interest] ex-
penses payable from the income of the
residuary property”). J
USTICESCALIAcon-
tends that Revenue Ruling 93–48 should
be disregarded because it was promul-
gated by the Commissioner only after her
attempts to prevail on the contrary posi-
tion in federal court repeatedly failed.
Post,at 9. To be sure, the Commissioner
may not have whole-heartedly embraced
Revenue Ruling 93–48, but the Ruling
nevertheless issued and we may not to-
tally ignore the plain language of a regu-
lation or ruling because the entity promul-
gating it did not reallywant to have to
adopt it. See Connecticut Nat. Bankv.
Germain,503 U. S. 249, 253–254 (1992)
(“We have stated time and time again that
courts must presume that a legislature
says in a statute what it means and means
in a statute what it says there”); West Vir-
ginia Univ. Hospitals, Inc.v. Casey,499
U. S. 83, 98 (1991) (rejecting argument
that “the congressional purpose in enact-
ing [a statute] must prevail over the ordi-
nary meaning of statutory terms”).
It is, as an initial matter, difficult to rec-
oncile the Commissioner’s treatment of
interest under Revenue Ruling 93–48
with her position in this case. For all in-
tents and purposes, interest accruing on
estate taxes is functionally indistinguish-
able from the administrative expenses at
issue here. By definition, neither of these
expenses can exist prior to the decedent’s
death; before that time, there is no estate
to administer and no estate tax liability to
defer. Yet both types of expenses are in-
evitable once the estate is open because it
is virtually impossible to close an estate in
a day so as to avoid the deferral of estate
tax payments or the incursion of some ad-
ministration expenses. Although both can
theoretically be avoided if an executor do-
nates his time or pays up front what he es-
timates the estate tax to be, this will not
often occur. Both types of expenses are,
moreover, of uncertain amount on the
date of death. Because these two types of
expenses are so similar in relevant ways,
in my view they should be treated the
same under §20.2056(b)–4(a) and Ruling
93–48, despite the Commissioner’s limi-
tation on the applicability of Revenue
Ruling 93–48 to interest on deferred es-
tate taxes.
But more important, the Commis-
sioner’s treatment of interest on deferred
estate taxes in Revenue Ruling 93–48 in-
dicates her rejection of the notion that
everyfinancial burden on a marital be-
quest’s postmortem income is a material
limitation warranting a reduction in the
marital deduction. That the Ruling pur-
ports to apply not only to incomebut also
to principal,and may therefore deviate
from the accepted rule regarding payment
of expenses from principal, see, supra,at
2, does not undercut the relevance of the
Ruling’s implications as to income.Post,
at 10 (S
CALIA, J., dissenting). Thus, some
financial burdens on the spouse’s right to
postmortem income will reduce the mari-
tal deduction; others will not. The line be-
tween the two does not, as JUSTICESCALIA
contends, depend upon the relevance of
the limitation on the spouse’s right to in-
come to the value of the marital bequest,
post,at 7–8, since interest on deferred es-
tate taxes surely reduces, and is therefore
relevant to, “the value of what passes.”
Ibid.(emphasis deleted). By virtue of
Revenue Ruling 93–48, the Commis-
sioner has instead created a quantitative
rule for §20.2056(b)–4(a). That a limita-
tion affects the marital deduction only
upon reaching a certain quantum of sub-
stantiality is not a concept alien to the law
of taxation; such rules are quite common.
See, e.g.,Rev. Rul. 75–298, 1975–2 Cum.
Bul. 290 (exempting from income tax the
income of qualifying banks owned by for-
eign governments, as long as their partici-
pation in domestic commercial activity is
de minimis); Rev. Rul. 90–60, 1990–2
Cum. Bul. 3 (establishing de minimisrule
so that taxpayers who give up less than
33.3% of their partnership interest need
not post a bond to enable them to defer
payment of credit recapture taxes for low-
income housing).
The Commissioner’s quantitative mate-
riality rule is consistent with the example
set forth in 26 CFR §20.2056(b)–4(a)
(1996):
“An example of a case in which [the
material limitation] rule may be applied
is a bequest of property in trust for the
benefit of the decedent’s spouse but the
income from the property from the date
of the decedent’s death until distribu-
August 11, 1997161997–32 I.R.B.

tion of the property to the trustee is to
be used to pay expenses incurred in the
administration of the estate.”
Even assuming that JUSTICESCALIAis
correct that the word “may” connotes
“possibility rather than permissibility,”
post,at 10, the example still does not
specify whether it applies when all the in-
come, some of the income, or any of the
income “from the property . . . is to be
used to pay expenses incurred in the ad-
ministration of the estate.” Any of these
constructions of the example’s language
is plausible, and the Commissioner’s ex-
pressed preference for the second one is
worthy of deference. National Muffler
Dealers Assn., Inc.v. United States, 440
U. S. 472, 476 (1979).
That said, the proper measure of mate-
riality has yet to be decided by the Com-
missioner. The Tax Court below com-
pared the actual amount spent on
administration expenses to its estimate of
the income to be generated by the marital
bequest during the spouse’s lifetime. 101
T. C., at 325. One amicussuggests a com-
parison of the discounted present value of
the projected income stream from the
marital bequest when the actual adminis-
trative expenses are allocated to income
with the projected income stream when
the expenses are allocated to principal.
App. to Brief American College of Trust
and Estate Counsel as AmicusCuriae
1–2. The plurality, drawing upon its valu-
ation theory, supra,at 5, looks to whether
the “date-of-death value of the expected
future administration expenses chargeable
to income . . . [is] material as compared
with the date-of-death value of the ex-
pected future income.” Ante,at 14. None
of these tests specifies with any particu-
larity when the threshold of materiality is
crossed. Cf. 26 U. S. C. §2503(b) (setting
$10,000 annual minimum before gift tax
liability attaches). The proliferation of
possible tests only underscores the need
for the Commissioner’s guidance. In its
absence, the Tax Court’s approach is as
consistent with the Code as any of the
others, and provides no basis for reversal.
I share J
USTICESCALIA’s reluctance to
find a $1.5 million diminution in post-
mortem income immaterial under any
standard. Post,at 8. Were this Court con-
sidering the question of quantitative mate-
riality in the first instance, I would be
hard pressed not to find this amount “ma-
terial” given the size of Mr. Hubert’s es-
tate. But the Tax Court in this case was ef-
fectively preempted from making such a
finding by the Commissioner’s litigation
strategy. It appears from the record that
the Commissioner elected to marshal all
her resources behind the proposition that
anydiversion of postmortem income was
material, and never presented any evi-
dence or argued that $1.5 million was
quantitatively material. See App. 58 (Stip-
ulation of Agreed Issues) (setting forth
Commissioner’s argument); Brief for Re-
spondent 47. Because she bore the burden
of proving materiality (since her chal-
lenge to administrative expenses was
omitted from the original Notice of Defi-
ciency), Tax Court Rule 142(a), her fail-
ure of proof left the Tax Court with little
choice but to reach its carefully crafted
conclusion that $1.5 million was not
quantitatively material on “the facts be-
fore [it].” 101 T. C., at 325. I would resist
the temptation to correct the seemingly
counterintuitive result in this case by pro-
tecting the Commissioner from her own
litigation strategy, especially when she
continues to adhere to that strategy and
does not, even now, ask us to reconsider
the Tax Court’s finding on this issue.
This complex case has spawned four
separate opinions from this Court. The
question presented is simple and its an-
swer should have been equally straight-
forward. Yet we are confronted with a
maze of regulations and rulings that lead
at times in opposite directions. There is
no reason why this labyrinth should exist,
especially when the Commissioner is em-
powered to promulgate new regulations
and make the answer clear. Indeed, noth-
ing prevents the Commissioner from an-
nouncing by regulation the very position
she advances in this litigation. Until that
time, however, the relevant sources point
to a test of quantitative materiality, one
that is not met by the unusual factual
record in this case. I would, accordingly,
affirm the judgment of the Tax Court.
JUSTICESCALIAwith whom JUSTICE
BREYERjoins, dissenting.
The statute and regulation most applic-
able to the question presented in this case
are discussed in today’s opinion almost as
an afterthought. Instead of relying on the
text of 26 U. S. C. §2056(b)(4)(B) and its
interpretive regulation, 26 CFR
§20.2056(b)–4(a) (1996), the plurality
hinges its analysis on general principles
of valuation which it mistakenly believes
to inhere in the estate tax. It thereby cre-
ates a tax boondoggle never contemplated
by Congress, and announces a test of de-
ductibility virtually impossible for tax-
payers and the IRS to apply. In my view,
§2056(b)(4)(B) and §20.2056(b)–4(a)
provide a straightforward disposition,
namely that the marital (and charitable)
deductions must be reduced whenever in-
come from property comprising the resid-
uary bequest to the spouse (or charity) is
used to satisfy administration expenses. I
therefore respectfully dissent.
I
Section 2056 of the Internal Revenue
Code provides for a deduction from gross
estate for marital bequests.
1
The Code
places two limitations on the marital de-
duction which are relevant to this case.
First, as would be expected, the marital
deduction is limited to “an amount equal
to the value of any interest in property
which passes or has passed from the dece-
dent to his surviving spouse, but only to
the extent that such interest is included in
determining the value of the gross estate.”
26 U. S. C. §2056(a). Thus, as the plural-
ity correctly recognizes, and as both par-
ties agree, if any portion of marital be-
quest principal is used to pay estate
administration expenses, then the marital
deduction must be reduced commensu-
rately. Second, and more to the point,
“where such interest or property [be-
queathed to the spouse] is encumbered in
any manner, or where the surviving
spouse incurs any obligation imposed by
the decedent with respect to the passing of
such interest, such encumbrance or oblig-
ation shall be taken into account in the
same manner as if the amount of a gift to
such spouse of such interest were being
determined.” §2056(b)(4)(B). Section
2056(b)(4)(B) controls this case and leads
to the conclusion that the marital deduc-
tion must be reduced when estate income
which would otherwise pass to the spouse
is used to pay administration expenses of
the estate.
1997–32 I.R.B.17August 11, 1997
1
This case involves both the marital and the char-
itable deductions. I agree with the plurality’s deter-
mination that the provisions governing the two
should be read in pari materia, ante,at 4–5, and,
like the plurality, I focus my attention on the marital
deduction.

August 11, 1997181997–32 I.R.B.
A
As the plurality implicitly recognizes,
Mrs. Hubert’s interest in the estate was
burdened with the obligation of paying
administration expenses. The settlement
agreement resolving the will contest, like
Mr. Hubert’s most recent will, provided
that the estate’s administration expenses
would be paid from the residuary trusts,
with the discretion given to the executor
to apportion expenses between the in-
come and principal of the residue. The
marital bequest, which makes up some
52% of the residue, was thus plainly bur-
dened with the obligation of paying 52%
of the administration expenses of the es-
tate. (The charitable bequest accounted
for the remaining 48% of the residue.)
Our task under §2056(b)(4)(B) is to de-
termine how this obligation would affect
the value of the marital bequest were the
bequest an inter vivosgift. This seemingly
rudimentary question proves difficult to
answer. Both parties point to various pro-
visions of the Internal Revenue Code and
the Treasury Regulations, but these con-
cern the quite different question whether a
gift qualifiesfor the gift tax marital de-
duction; none discusses how the actual
payment of administration expenses from
income will affect the valueof the gift tax
marital deduction. See, e.g.,26 CFR
§25.2523(e)–1(f)(3) and (4) (1996) (in-
clusion of the power to a trustee to allo-
cate expenses of a trust between income
and corpus will not disqualifythe gift
from the marital deduction so long as the
spouse maintains substantial beneficial
enjoyment of the income). The plurality
seeks to derive some support from Trea-
sury Regulation §25.2523(a)–1(e), see
ante,at 5–6, though it must acknowledge
that “[t]he question presented here . . . is
not controlled by the exact terms of [that
regulation or the provisions to which it
refers],” ante,at 6. Even going beyond its
“exact terms,” however, the regulation
has no relevance. Like its counterparts in
the estate tax provisions, see
§§20.2031–1(b), 20.2031–7, it simply
provides instruction on how to value the
assetscomprising the gift. It says nothing
about how to take account of administra-
tion expenses. Indeed, the gross estate
does not include anticipated administra-
tion expenses. As I discuss below, infra,
at 13–14, the estate tax provisions provide
for a deduction from the gross estate for
administration expenses actually in-
curred. See 26 U.S.C. §2053(a)(2) and 26
CFR §20.2053–3(a) (1996). Were ex-
pected administration expenses taken into
account in valuing the assets of the gross
estate, as the plurality incorrectly sug-
gests, then the estate tax deduction for ac-
tual administration expenses would in ef-
fect be a second deduction for the same
charge.
Respondent’s strongest argument is
based on Rev. Rul. 69–56, 1969–1 Cum.
Bul. 224, which held that inclusion in a
marital trust of the power to charge ad-
ministration expenses to either income or
principal does not run afoul of that provi-
sion of the regulations which requires, in
order for a life-estate trust to qualifyfor
the gift and estate tax marital deductions,
that settlor intend the spouse to enjoy
“substantially that degree of beneficial
enjoyment of the trust property during her
life which the principles of the law of
trust accord to a person who is unquali-
fiedly designated as the life beneficiary of
a trust.” 26 CFR §§2523(e)–1(f)(1),
2056(b)–5(f)(1) (1996). Although the
Revenue Ruling was an interpretation of
qualification regulations, it also purported
to “h[o]ld” that inclusion of the “powe[r]”
to allocate expenses between income and
principal “does not result in the disal-
lowance or diminutionof the marital de-
duction” (emphasis added). I agree with
the Commissioner that this Revenue Rul-
ing is inapposite because it deals with the
effect of the mere existence of the power
to allocate expenses against income; it
speaks not at all to the question of how
the actual exerciseof that power will af-
fect the valuation of the estate tax marital
deduction. If the ruling is construed to
mean that exerciseof the power does not
reduce the marital deduction, then actu-
ally using principal to pay the expenses
should not reduce the marital deduction, a
result which everyone agrees is incorrect,
see, e.g., ante,at 9 (plurality opinion);
ante,at 2 (O’C
ONNOR, J., concurring in
the judgment), supra,at 2, and which
plainly conflicts with §2056(a). It seems
to me obvious that the Commissioner was
simply not addressing the issue before us
today when she issued Revenue Ruling
69–56, a conclusion confirmed by the fact
that the Commissioner’s longstanding
view—which antedates Revenue Ruling
69–56—is that use of marital bequest in-
come to pay administration expenses re-
quires that the marital deduction be re-
duced, see, e.g.,Brief for Government
Appellee, in Ballantinev. Tomlinson,No.
18,736 (CA5 1961), p. 18; Brief for Gov-
ernment Appellee, in Alstonv. United
States,No. 21,402 (CA5 1965), p. 15.
B
The Commissioner contends that Trea-
sury Regulation §20.2056(b)–4(a), which
interprets §2056(b)(4)(B), mandates the
conclusion that payment of administration
expenses from marital bequest income re-
duces the marital deduction. Section
20.2056(b)–4(a) provides:
“The value, for the purpose of the mari-
tal deduction, of any deductible interest
which passed from the decedent to his
surviving spouse is to be determined as
of the date of the decedent’s death, [un-
less the executor elects the alternate
valuation date]. The marital deduction
may be taken only with respect to the
net value of any deductible interest
which passed from the decedent to his
surviving spouse, the same principles
being applicable as if the amount of a
gift to the spouse were being deter-
mined. In determining the value of the
interest in property passing to the
spouse account must be taken of the ef-
fect of any material limitations upon
her right to income from the property.
An example of a case in which this rule
may be applied is a bequest of property
in trust for the benefit of the decedent’s
spouse but the income from the prop-
erty from the date of decedent’s death
until distribution of the property to the
trustee is to be used to pay expenses in-
curred in the administration of the es-
tate.” (Emphasis added.)
This text was issued pursuant to explicit
authority given the Secretary of the Trea-
sury to promulgate the rules and regula-
tions necessary to enforce the Internal
Revenue Code. See 26 U. S. C. §7805(a).
As this Court has repeatedly acknowl-
edged, judicial deference to the Secre-
tary’s handiwork “helps guarantee that the
rules will be written by ‘masters of the
subject.’” National Muffler Dealers
Assn., Inc. v. United States,440 U. S. 472,
477 (1979), quoting United States v.
Moore, 95 U. S. 760, 763 (1878). Thus,
when a provision of the Internal Revenue

1997–32 I.R.B.19August 11, 1997
Code is ambiguous, as §2056(b)(4)(B)
plainly is, this Court has consistently de-
ferred to the Treasury Department’s inter-
pretive regulations so long as they “‘“im-
plement the congressional mandate in
some reasonable manner.”’” National
Muffler Dealers Assn., Inc., supra,at 477,
quoting United Statesv. Cartwright,411
U. S. 546, 550 (1973), in turn quoting
United States v. Correll, 389 U. S. 299,
307 (1967). See also Cottage Savings
Assn. v. Commissioner,499 U. S. 554,
560–561 (1991).
As the courts below recognized, the
crucial term of the regulation for present
purposes is “material limitations.” Curi-
ously enough, however, neither the Com-
missioner nor the respondents come for-
ward with a definition of this term, the
former simply contending that “it is the
burden of paying administration expenses
itselfthat constitutes the ‘material’limita-
tion,” Brief for Petitioner 31, and the lat-
ter simply contending that that burden is
for various reasons not substantial enough
to qualify. Today’s plurality opinion also
takes the latter approach, never defining
the term but displaying by its examples
that “material” must mean “relatively
substantial.” If, it says, a spouse’s bequest
represents a small portion of the overall
estate and could be expected to generate
little income, the estate’s anticipated ad-
ministration expenses “‘may’be material”
when compared to the anticipated in-
come. Ante,at 10–11. But, it says, the
mere fact that an estate incurs (or as I dis-
cuss below, under the plurality’s ap-
proach, expects to incur) “substantial liti-
gation costs” is insufficient to make a
limitation material. Ante,at 12.
The beginning of analysis, it seems to
me, is to determine what, in the context of
§20.2056(b)–4(a), the word “material”
means. In common parlance, the word
sometimes bears the meaning evidently
assumed by respondents: “substantial,” or
“serious” or “important.” See 1 The New
Shorter Oxford English Dictionary 1714
(1993) (def. 3); Webster’s New Interna-
tional Dictionary 1514 (2d ed. 1950) (def.
2a). It would surely bear that meaning in a
regulation that referred to a “material
diminution of the value of the spouse’s es-
tate.” Relatively small diminutions would
not count. But where, as here, the regula-
tion refers to “material limitations upon
[the spouse’s] right to receive income,” it
seems to me that the more expansive
meaning of “material” is naturally sug-
gested—the meaning that lawyers use
when they move that testimony be ex-
cluded as “immaterial”: Not “insubstan-
tial” or “unimportant,” but “irrelevant” or
“inconsequential.” See American Her-
itage Dictionary 1109 (3d ed. 1992) (def.
4: defining “material” as “[b]eing both
relevant and consequential,” and listing
“relevant” as a synonym). In the context
of §20.2056(b)–4(a), which deals, as its
first sentence recites, with “[t]he value,
for the purpose of the marital deduction,
of any deductible interest which passed
from the decedent to his surviving
spouse” (emphasis added), a “material
limitation” is a limitation that is relevant
or consequential to the valueof what
passes. Many limitations are not—for ex-
ample, a requirement that the spouse not
spend the income for five years, or that
the spouse be present at the reading of the
will, or that the spouse reconcile with an
alienated relative.
That this is the more natural reading of
the provision is amply demonstrated by
the consequences of the alternative read-
ing, which would leave it to the taxpayer,
the Commissioner, and ultimately the
courts, to guess whether a particular de-
crease in value is “material” enough to
qualify—without any hint as to what
might be a “ballpark” figure, or indeed
any hint as to whether there is such a
thing as “absolute materiality” (the two
million dollars at issue here, for instance)
or whether it is all relative to the size of
the estate. One should not needlessly im-
pute such a confusing meaning to a regu-
lation which readily bears another inter-
pretation that is more precise. Moreover,
the Commissioner’s interpretation of her
own regulation, so long as it is consistent
with the text, is entitled to considerable
deference, see National Muffler Dealers
Assn., Inc., supra,at 488–489; Cottage
Savings Assn., supra,at 560–561.
The concurrence contends that the
other (more unnatural) reading of “mater-
ial” must be adopted—and that no defer-
ence is to be accorded the Commis-
sioner’s longstanding approach of
reducing the marital deduction for any
payment of administrative expenses out
of marital-bequest income—because of a
recent Revenue Ruling in which the Com-
missioner acquiesced in lower court hold-
ings that the marital deduction is not re-
duced by the payment from the marital
bequest of interest on deferred estate
taxes. Ante,at 8–9 (discussing Rev. Rul.
93–48). The concurrence asserts that in-
terest accruing on estate taxes “is func-
tionally indistinguishable” from adminis-
trative expenses, so that Revenue Ruling
93–48 “created a quantitative rule”
shielding some financial burdens from af-
fecting the calculation of the marital de-
duction. Ante,at 8–9. I think not. The
Commissioner issued Revenue Ruling
93–48 only after her contention, that
§20.2056(b)–4(a) required the marital de-
duction to be reduced by payment of es-
tate-tax interest from the marital bequest,
was repeatedly rejected by the Tax Court
and the Courts of Appeals. See, e.g., Es-
tate of Streetv. Commissioner,974 F. 2d
723 (CA6 1992); Estate of Whittlev.
Commissioner,994 F. 2d 379 (CA7
1993); Estate of Richardsonv. Commis-
sioner,89 T. C. 1193 (1987). Rather than
continuing to expend resources in litiga-
tion that seemed likely to bring little or no
income to the Treasury, the Commis-
sioner chose, in Revenue Ruling 93–48,
to “adopt the result” of thenrecent court
decisions regarding interest on taxes. It is
impossible to think that this suggested her
view on the proper treatment of adminis-
trative expenses had changed. Indeed, the
Ruling itself expressly indicates contin-
ued adherence to the Commissioner’s
longstanding position by reaffirming Rev-
enue Ruling 73–98, which held that the
charitable deduction must be reduced by
the amount of charitable bequest income
and principal consumed to pay adminis-
trative expenses, modifying it only inso-
far as it applies to payment of interest on
taxes. Moreover, the Courts of Appeals
whose results the Commissioner adopted
themselves distinguishedadministrative
expenses. In Estate of Street,for example,
the court reasoned that while administra-
tive expenses accrue at death interest on
taxes accrues after death, and noted that
the example in Treasury Regulation
§2056(b)–4(a) specifically required a re-
duction of the marital deduction for pay-
ment of administrative expenses, but was
silent as to interest on taxes. 974 F. 2d, at
727, 729. While the concurrence may be
correct that the distinctions advanced by
the Courts of Appeals are not wholly per-
suasive (the Commissioner herself argued

that to no avail), I hardly think they are so
irrational that it was arbitrary or capri-
cious for the Commissioner to maintain
her longstanding prior position on admin-
istrative expenses once Revenue Ruling
93–48 was issued; and it is utterly impos-
sible to think that Revenue Ruling 93–48
was, or was understood to be, an indica-
tion that the Commissioner had changed
her prior position on administrative ex-
penses. That eliminates the only two
grounds on which Revenue Ruling 93–48
could be relevant.
The concurrence’s reading of Revenue
Ruling 93–48 suffers from an additional
flaw. Revenue Ruling 93–48 is not lim-
ited to payment from marital bequest in-
come, but rather extends to payment from
marital bequest principalas well. Thus,
under the concurrence’s view of that Rul-
ing, even substantial administrative ex-
penses paid out of marital bequest princi-
pal may not require a reduction of the
marital deduction. This result, is, of
course, inconsistent with the statute, see
26 U. S. C. §2056(a), and with what ap-
pears to be (as I noted earlier, supra,at
4–5) the concurrence’s view, ante,at 2.
Respondents assert that some inquiry
into “substantiality” is necessarily im-
plied by the fact that the last sentence of
the regulation describes an income-to-
pay-administration-expenses limitation as
“[a]n example of a case in which this rule
[of taking account of material limitations]
maybe applied,” 26 CFR §20.2056(b)–
4(a) (1996) (emphasis added). The word
“may” implies, the argument goes, that in
some circumstances under those same
facts the rule would notbe applied—
namely (the argument posits) when the
administration expenses are not “substan-
tial.” But the latter is not the only expla-
nation for the “may.” Assuming it con-
notes possibility rather than permissibility
(as in, “My boss said that I may go to
New York”), the contingency referred to
could simply be the contingency that
there be some income which is used to
pay administration expenses.
The Tax Court (in analysis adopted ver-
batim by the Eleventh Circuit and seem-
ingly adopted by the concurrence, ante,at
10–11) took yet a third approach to “ma-
terial limitation,” which I must pause to
consider. The Tax Court relied on Treas.
Reg. §25.2523(e)–1(f)(3), 26 CFR
§25.2523(e)–1(f)(3) (1996), which, it
stated, provides that so long as the spouse
has substantial beneficial enjoyment of
the income of a trust, the bequest will not
be disqualified from the marital gift de-
duction by virtue of a provision allowing
the trustee to allocate expenses to income,
and the spouse will be deemed to have re-
ceived all the income from the trust. The
Tax Court concluded that: “If Mrs. Hubert
is treated as having received all of the in-
come from the trust, there can be no mate-
rial limitation on her right to receive in-
come.” 101 T. C. 314, 325–326 (1993).
This reasoning fails for a number of rea-
sons. First, §25.2523(e)–1(f)(3) is a quali-
fication provision; it does not purport to
instruct on how to value the bequest. Sec-
ond, and more fundamentally, the Tax
Court’s approach renders the “material
limitation” phrase in §20.2056(b)–4(a)
superfluous. Under that view, a limitation
is material only if it deprives the spouse
of substantial beneficial enjoyment of the
income. However, if the spouse does not
have substantial beneficial enjoyment of
the income, the trust does not qualify for
the marital deduction and whether the
limitation is material is irrelevant. That
“material limitation” is not synonymous
with “substantial beneficial enjoyment” is
further suggested by the regulations gov-
erning the qualification of trusts for the
marital estate tax deduction, which are
virtually identical to the gift tax provi-
sions relied upon by the Tax Court. See 26
C.F.R. §20.2056(b)–5(f) (1996). Section
20.2056(b)–5(f)(9) provides that a spouse
will not be deemed to lack substantial
beneficial enjoyment of the income
merely because the spouse is not entitled
to the income from the estate assets for
the period reasonably required for admin-
istration of the estate. However, that sec-
tion expressly provides: “As to the valua-
tion of the property interest passing to the
spouse in trust where the right to income
is expressly postponed, see §20.2056(b)–
4.” Ibid. (emphasis added).
C
My understanding of §20.2056(b)–4(a)
is the only approach consistent with the
statutory requirement that the marital de-
duction be limited to the value of property
which passes to the spouse. See 26 U. S. C.
§2056(a). As the plurality and the concur-
rence acknowledge, one component of an
asset’s value is its discounted future in-
come. See, e.g., Maassv. Higgins,312
U. S. 443, 448 (1941); 26 CFR §20.2031–
l(b) (1996). (This explains why post-
mortem income earned by the estate is not
added to the date-of-death value in com-
puting the gross estate: projected income
was already included in the date-of-death
value.) The plurality and the concurrence
also properly acknowledge that if resid-
uary principal is used to pay administra-
tion expenses, then the marital deduction
must be reduced commensurately because
the property does not pass to the spouse.
See ante,at 9 (plurality opinion); ante,at
2 (O’C
ONNOR, J., concurring in the judg-
ment); 26 U. S. C. §2056(a). The plurality
and the concurrence decline, however, to
follow this reasoning to its logical conclu-
sion. Since the future stream of income is
one part of the value of the assets at the
date of death, use of the income to pay ad-
ministration expenses (which were not in-
cluded in calculating the assets’values) in
effect reduces the value of the interest that
passes to the spouse. As succinctly ex-
plained by a respected tax commentator:
“Beneficiaries are compensated for the
delay in receiving possession by giving
them the right to the income that is
earned during administration. . . . [I]t is
only the combination of the two
rights—that to the income and that to
possess the property in the future—that
gives the beneficiary rights at death
that are equal to value of the property at
death. If the beneficiary does not get
the income, what the beneficiary gets is
less than the deathtime value of the
property.” Davenport, AStreetThrough
Hubert’s Fog, Tax Notes, 1107, 1110
(1996).
If the beneficiary does not receive the in-
come generated by the marital bequest
principal, she in effect receives at the date
of death less than the value of the prop-
erty in the estate, in much the same way
as she receives less than the value of the
property in the estate when principal is
used to pay expenses.
II
Besides giving the word “material” the
erroneous meaning of something in ex-
cess of “substantial,” the plurality’s opin-
ion adopts a unique methodology for de-
termining materiality. Consistent with its
apparent view that the estate tax provi-
August 11, 1997201997–32 I.R.B.

sions prohibit examination of any events
following the date of death, the plurality
concludes that whether a limitation is ma-
terial, and the extent of any reduction in
the marital deduction, are determined
solely on the basis of the information
available at the date of death—a position
espoused by neither litigant, none of the
amici,and none of the courts to have con-
sidered this issue since it arose some 35
years ago. The plurality appears to have
been misled by its view that the estate tax
demands symmetry: Since only antici-
pated income is included in the gross es-
tate, only anticipated administration ex-
penses can reduce the marital deduction.
See ante,at 6–7, 11–13. The provisions of
the estate tax clearly reject such a notion
of symmetry and do not sharply discrimi-
nate between date-of-death and post-
mortem events insofar as the allowance of
deductions for claims against and obliga-
tions of the estate are concerned. In this
very case, for example, in calculating the
taxable estate the executors deducted
$506,989 of actual administration ex-
penses pursuant to 26 U. S. C. §2053(a)-
(2). App. to Pet. for Cert. 3a. The regula-
tions governing such deductions provide
that “[t]he amounts deductible . . . as ‘ad-
ministration expenses’. . . are limited to
such expenses as are actuallyand neces-
sarily, incurred in the administration of
the decedent’s estate,” §20.2053–3(a)
(emphasis added), and expressly prohibit
taking a deduction “upon the basis of a
vague or uncertain estimate,” 26 CFR
§20.2053–1(b)(3) (1996). Since such com-
mon administration expenses as litigation
costs will be impossible to ascertain with
any exactitude as of the date of death, the
plurality’s approach flatly contradicts the
provisions of these regulations.
2
The marital deduction itself is calcu-
lated on the basis of actual rather than an-
ticipated expenditures from the marital
bequest. The regulations governing 26
U. S. C. §2056(b)(4)(A), the provision re-
quiring the marital deduction to be re-
duced to take account of the effect of es-
tate and inheritance taxes, make it clear
that the actualamounts of those taxes
control. See 26 CFR §20.2056(b)–4(c)
(1996). (With respect to the charitable de-
duction, the requirement that actual
amounts be used is apparent on the face of
the statute itself, see 26 U. S. C. §2055(c).)
Moreover, the language of §2056(b) (4)(A)
is quite similar to the language of the reg-
ulation at issue here, §20.2056(b)–4(a),
suggesting that the latter, like the former,
should be interpreted to require consider-
ation of actual, rather than merely ex-
pected, administration expenses. Com-
pare 26 U. S. C. §2056(b) (4)(A) (“[T]here
shall be taken into account the effect
which the tax imposed by section 2001, or
any estate [tax], has on the netvalue to
the surviving spouse of such interest”
(emphasis added)) with 26 CFR
§20.2056(b)–4(a) (1996) (“The marital
deduction may be taken only with respect
to the netvalue of any deductible interest
which passed from the decedent to his
surviving spouse . . . . In determining the
value of the interest in property passing to
the spouse account must be taken of the
effectofany material limitations upon
[the spouse’s] right to income” (emphasis
added)).
In short, the plurality’s general theory
concerning valuation is contradicted by
provisions of both the Code and regula-
tions. It is also plagued by a number of
practical problems. Most prominently, the
plurality’s rule is simply unadministrable.
It requires the Internal Revenue Service
and courts to engage in a peculiar, nunc
pro tunc,three-stage investigation into
what would have been believed on the
date of death of the decedent. This highly
speculative inquiry begins, I presume,
with an examination of the various possi-
ble administration expenditures multi-
plied by the likelihood that they would ac-
tually come into being (for example,
estimating the chances that a will contest
would develop). Next, one must calculate
the expected future income from the be-
quest. Finally, one must determine if, in
light of the expected income, the antici-
pated expenses are such that a willing
buyer would deem them to be a “material
[i.e.,substantial] limitation” on the right
to receive income.
Just how a court, presiding over a tax
controversy many years after the dece-
dent’s death, is supposed to blind itself to
later-developed facts, and gauge the ex-
pected administration expenses and antic-
ipated income just as they would have
been gauged on the date of death, is a
mystery to me. In most cases, it is nearly
impossible to estimate administration ex-
penses as of the date of death; much less
is it feasible to reconstruct such an esti-
mation five or six years later. The plural-
ity’s test creates tremendous uncertainty
and will undoubtedly produce extensive
litigation. We should be very reluctant to
attribute to the Code or the Secretary’s
regulations the intention to require this
sort of inherently difficult inquiry, espe-
cially when the key regulation is best read
to require that account be taken of actual
expenses.
The plurality’s test also leads to rather
peculiar results. One example should suf-
fice: Assume a decedent leaves his entire
$30 million estate in trust to his wife and
that as of the date of death a hypothetical
buyer estimates that the estate will gener-
ate administration expenses on the order
of $5 million because the decedent’s es-
tranged son has publicly stated that he is
going to wage a fight over the will. Fur-
ther, assume that the will provides that ei-
ther income or principal may be used to
satisfy the estate’s expenses. Finally, as-
sume that a week after the decedent’s
death, mother and son put aside their dif-
ferences and that the money passes to the
spouse almost immediately with virtually
no administration expenses. Under the
plurality’s test, since “only anticipated ad-
ministration expenses payable from in-
come, not the actual ones, affect the date-
of-death value of the marital or charitable
bequests,” ante,at 13, the marital deduc-
tion will be limited to approximately $25
million, and, despite generating almost no
income and having very few administra-
tion expenses, the estate will be required
to pay an estate tax on some five million
dollars even though the entire estate
passed to the spouse. The plurality’s test
creates taxable estates where none exist.
The proper result under §2056(b)(4)(B)
and §20.2056 (b)–4(a) is that the marital
deduction is thirty million dollars and the
estate pays no estate tax.
I have one final concern with the plu-
rality’s approach: It effectively permits an
estate to obtain a double deduction from
tax for administration expenses, a tax
windfall which Congress could never
have intended. Title 26 U. S. C. §642(g)
provides that administration expenses,
which are allowed as a deduction in com-
1997–32 I.R.B.21August 11, 1997
2
The plurality’s reference to Ithaca Trust Co. v.
United States,279 U. S. 151 (1929), is unhelpful.
That case holds that date-of-death valuation is ap-
plicable to bequeathed assets, not that it is applicable
to claims and obligations that are to be satisfied out
of those assets.

puting the taxable estate of a decedent,
see §2053, may be deducted from income
(provided they fall within an income tax
deduction) if the estate files a statement
with the Secretary stating that such
amounts have not been taken as deduc-
tions from the gross estate. Here, respon-
dent elected to deduct some $1.5 million
of its administration expenses on its fidu-
ciary income tax returns and was prohib-
ited from taking these expenses as a
deduction from the gross estate. Not-
withstanding §642(g), however, the plu-
rality’s holding effectively permits the re-
spondent to deduct the $1.5 million of
administration expenses on the estate tax
return under the guise of a marital or char-
itable deduction. Of course, the estate
could have avoided the estate tax by elect-
ing to deduct its administration expenses
on its estate tax return, but then it would
have had no income-tax deduction; Con-
gress gave estates a choice, not a road
map to a double deduction. I recognize
that nothing in §642(g) compelsthe con-
clusion that the marital (or charitable) de-
duction must be reduced whenever an es-
tate elects to deduct expenses from
income. However, by enacting §642 to
prohibit a double deduction, Congress
seemingly anticipated that if an estate
elected to deduct administration expenses
against income, its potential estate tax lia-
bility would increase commensurately.
The plurality’s holding today defeats this
expectation.
III
The plurality today virtually ignores
the controlling authority and instead de-
cides this case based on a novel vision of
the estate tax system. Because 26 CFR
§20.2056(b)–4(a) (1996), which is a rea-
sonable interpretation of 26 U. S. C.
§2056(b)(4)(B), squarely controls this
case and requires that the marital (and
charitable) deductions be reduced when-
ever marital (or charitable) bequest in-
come is used to pay administration ex-
penses, I would reverse the judgment of
the Eleventh Circuit. There is some dis-
pute as to how exactly to calculate the re-
duction in the marital and charitable de-
ductions. The dissenting judges in the Tax
Court, on the one hand, contended that the
marital and charitable deductions should
be reduced by the date-of-death value of
an annuity charged against the residuary
interest which would be sufficient to pay
the actual administration expenses
charged to income. See 101 T. C., at
348–349 (Beghe, J., dissenting). The
Commissioner, on the other hand, con-
tends that the marital and charitable de-
ductions must be reduced on a dollar-for-
dollar basis, reasoning that this is the
same way that all claims and obligations
of the estate are treated. Since this dispute
was not adequately briefed by the parties,
nor passed upon by the Eleventh Circuit
or the majority of judges in the Tax Court,
I would remand the case to allow the
lower courts to consider this issue in the
first instance.
*****
J
USTICEBREYER, dissenting.
I join JUSTICESCALIA’s dissent. This
case turns on whether a payment of ad-
ministration expenses out of income gen-
erated by estate assets constitutes a “ma-
terial limitation” on the right to receive
income from those assets. 26 CFR
§20.2056(b)–4(a) (1996). The Commis-
sioner has long, and consistently, argued
that such a payment does reduce the value
of the marital deduction. See, e.g., Bal-
lantine v. Tomlinson,293 F. 2d 311 (CA5
1961); Alstonv. United States, 349 F. 2d
87 (CA5 1965); Estate of Streetv. Com-
missioner of Internal Revenue, 974 F. 2d
723 (CA6 1992); Estate of Roney,33 T. C.
801 (1960), aff’d per curiam, 294 F. 2d
774 (CA5 1961); Reply Brief for United
States 15. J
USTICESCALIAexplains why
the Commissioner’s interpretation is con-
sistent with the regulation’s language and
the statute it interprets. I add a brief ex-
planation as to why I believe that it is con-
sistent with basic statutory and regulatory
tax law objectives as well.
The regulation, which speaks of the
“net value” of what passes to the spouse,
requires a realistic valuation of the inter-
est left to the spouse as of the date of the
decedent’s death. Assume, for example,
that a decedent leaves his entire estate to
his wife in trust, with the proviso that the
administrator pay 25% of the income
earned by the estate assets during the pe-
riod of administration to the decedent’s
son. Assume that the period of adminis-
tration lasts several years and that the es-
tate generates several million dollars in
income during that time. On these as-
sumptions, the son will have received an
important asset (included in the estate’s
date-of-death value) that the surviving
spouse did not receive, namely, the right
to a portion of the estate’s income over a
period of several years. Were estate tax
law to fail to take account of this fact (that
the son, not the wife, received that asset),
it would permit a valuable asset (the right
to that income) to pass to the son without
estate tax. But estate tax law does seem
realistically to appraise the “net value” of
what passes to the wife in such circum-
stances. See 26 CFR §§20.2056(b)–
5(f)(9), 20.2056(b)–4(a) (1996); 4 A. Cas-
ner & J. Pennell, Estate Planning §13.11,
pp. 138–139, and §13.14.6, n. 18 (5th ed.
1988); cf. Estate of Friedberg,63 TCM
3080 (1992), ¶92, 310 P–H Memo TC
(delay in payment of a specific bequest to
a surviving spouse reduces its marital de-
duction value). And that being so, why
would it not take account of the similar
limitation on the right to income at issue
here? The fact that the administrator uses
estate income to pay administration ex-
penses, rather than to make a bequest to
the son, makes no difference from a mari-
tal deduction perspective, for, as the regu-
lations state, the marital deduction fo-
cuses upon the “net value” of the “interest
which passed from the decedent to his
surviving spouse.” §20.2056(b)–4(a)
(1996); see United Statesv. Stapf,375
U. S. 118, 125 (1963).
The Commissioner’s position also
treats economic equals as equal. The time
when the administrator writes the relevant
checks, and not the account to which he
debits them, determines economic impact.
Thus $100,000 in administration ex-
penses incurred by a $1 million estate
open for one year, paid by check on the
year’s last day will (assuming 10% simple
interest and assuming away here-irrele-
vant complexities) leave $1 million for
the spouse at year’s end, whether the ad-
ministrator pays the expenses out of estate
principal or from income. On these same
assumptions, a commitment to pay, say,
$100,000 in administration expenses out
of income will reduce the value of princi-
pal by an amount identical to the reduc-
tion in value that would flow from a com-
mitment to pay a similar amount out of
principal. This economic similarity argues
for similar estate tax treatment.
I recognize that the statute permits es-
tates to deduct administration and certain
other expenses either from the estate tax
August 11, 1997221997–32 I.R.B.

or from the estate’s income tax. 26 U. S.
C. 642(g); cf. ante,at 2 (O’CONNOR, J.,
concurring in judgment). But I do not
read that statute as allowing a spouse to
escape payment both of the estate tax
(through a greater marital deduction) and
also of income tax (through the deduction
of the administration expenses from in-
come). One can easily read the provi-
sion’s language as simply granting the es-
tate the advantage of whichever of the
two tax rates is the more favorable, while
continuing to require the estate to pay at
least one of the two potential taxes. To
read the “election” provision in this way
makes of it a less dramatic departure from
a Tax Code that otherwise sees what
passes to heirs not as the full value of
what the testator left, but, rather, as that
value minus a set of permitted deductions.
26 U. S. C. §2053(a) (specifying deduc-
tions).
Although respondents argue that the
Commissioner’s interpretation will some-
times produce an unjustified “shrinking”
of the marital deduction, I do not see how
that is so. I concede that unfairness could
occur were the Commissioner to readjust
the marital deduction every time the ad-
ministrator deducted from the estate’s in-
come tax everyexpense necessary to pro-
duce that income. But regulations guard
against her doing so. Those regulations
distinguish between (a) “expenditures . . .
essential to the proper settlement of the
estate,” and (b) expenses “incurred for the
individual benefit of the heirs, legatees, or
devisees.” 26 CFR §20.2053–3(a) (1996).
The former are “administration ex-
penses;” the latter are not. Deducting ex-
penses in the latter category from the es-
tate’s income tax should not affect the
marital deduction; and, as long as that is
so, the Commissioner’s interpretation will
simply permit estates to use their adminis-
tration expense deductions to best tax ad-
vantage. It will not lead to a marital de-
duction that to the spouse’s overall
disadvantage somehow shrinks, or disap-
pears.
The Commissioner’s insistence upon
reducing the date of death value of the
trust dollar-for-dollar poses a more seri-
ous problem. Payment of $100,000 in ad-
ministration expenses from future income
should reduce the date of death value of
assets left to a wife in trust not by
$100,000, but by $100,000 discounted to
reflect the fact that the $100,000 will be
paid in the future, earning interest in the
meantime. (Assuming a 10% interest rate
and payment one year after death, the re-
duction in value would be about $91,000,
not $100,000.) Nonetheless, the Comm-
nissioner’s practice of reducing the mari-
tal deduction dollar-for-dollar might re-
flect the simplifying assumption that dis-
count calculations do not make a suffi-
ciently large difference sufficiently often
to warrant the administrative burden of
authorizing them. Or it might reflect the
fact that when administration expenses
are taken as a deduction against the estate
tax, their value is not discounted. Were
the Commissioner to defend the dollar-
for-dollar position in some such way, her
approach might prove reasonable. And
this Court will defer to longstanding inter-
pretations of the Code and Treasury Reg-
ulations, see supra,at 1, that reasonably
“implement the congressional mandate.”
United Statesv. Correll, 389 U. S. 299,
307 (1967); see National Muffler Dealers
Assn., Inc.v. United States,440 U. S. 472,
488 (1979). Regardless, I would not de-
cide this matter now, for it has not been
argued to us.
Finally, although I agree with much
that J
USTICEO’CONNORhas written, I can-
not agree that the amount at issue—
almost $1.5 million of administration ex-
penses deducted from income—is in-
significant hence immaterial; and I can
find no concession to that effect in the
courts below.
For these reasons and those set forth by
JUSTICESCALIA, I would reverse the Court
of Appeals.
1997–32 I.R.B.23August 11, 1997

August 11, 1997241997–32 I.R.B.
Notice of Proposed Rulemaking
and Notice of Public Hearing
Permitted Elimination of
Preretirement Optional
Forms of Benefit
REG–107644–97
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
SUMMARY: This document contains
proposed regulations that would permit an
amendment to a qualified plan that elimi-
nates certain preretirement optional forms
of benefit. These regulations affect em-
ployers that maintain qualified plans, plan
administrators of qualified plans and par-
ticipants in qualified plans. This docu-
ment provides notice of a public hearing
on these proposed regulations.
DATES: Written comments and outlines
of the topics to be discussed at the public
hearing must be received by September
30, 1997. Apublic hearing is scheduled
for October 28, 1997.
ADDRESSES: Send submissions to
CC:DOM:CORP:R (REG–107644–97),
Room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Wash-
ington, DC 20044. Submissions may be
hand delivered between the hours of 8
a.m. and 5 p.m. to CC:DOM:CORP:R
(REG–107644–97), Courier’s Desk, In-
ternal Revenue Service, 1111 Constitution
Avenue, NW, Washington, DC. Alterna-
tively, taxpayers may submit comments
electronically via the Internet by selecting
the “Tax Regs” option on the IRS Home
Page, or by submitting comments directly
to the IRS Internet site at http://www.irs.
ustreas.gov/prod/tax
–
regs/comments.html.
Apublic hearing is scheduled to be held in
the Auditorium, Internal Revenue Building,
111 Constitution Avenue, NW, Washington,
DC.
FOR FURTHER INFORMATION CON-
TACT: Thomas Foley, (202) 622-6050 (not
a toll-free number).
SUPPLEMENTARYINFORMATION:
Paperwork Reduction Act
The collection of information con-
tained in this notice of proposed rulemak-
ing has been submitted to the Office of
Management and Budget for review in ac-
cordance with the Paperwork Reduction
Act of 1995 (44 U.S.C. 3507(d)). Com-
ments on the collection of information
should be sent to the
Office of Manage-
ment and Budget,Attn: Desk Officer for
the Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, with copies to
the Internal Revenue Service,Attn: IRS
Reports Clearance Officer, T:FP, Wash-
ington, DC 20224. Comments on the col-
lection of information should be received
by September 2, 1997. Comments are
specifically requested concerning:
Whether the proposed collection of in-
formation is necessary for the proper per-
formance of the functions of the Internal
Revenue Service,including whether the
information will have practical utility;
The accuracy of the estimated burden
associated with the proposed collection of
information (see below);
How the quality, utility, and clarity of
the information to be collected may be en-
hanced;
How the burden of complying with the
proposed collectin of information may be
minimized, including through the applica-
tion of automated collection techniques or
other forms of information technology;
and
Estimates of capital or start-up costs
and costs of operation, maintenance, and
purchase of service to provide informa-
tion.
The collection of information in this
proposed regulation is in §1.411(d)–4.
This information is required for a tax-
payer who wants to amend a qualified
plan to eliminate certain preretirement op-
tional forms of benefit. This information
will be used to determine whether taxpay-
ers have amended a qualified plan. The
collection of information is voluntary to
obtain a benefit. The likely recordkeepers
are businesses or other for-profit organi-
zations and non-profit institutions.
Estimated total recordkeeping burden:
48,800 hours.
Estimated average burden per record-
keeper: For Master and Prototype Plan
Employers: 10 minutes. For Master and
Prototype Plan Sponsors: 30 minutes. For
Employers with Individually Designed
Plans: 30 minutes.
Estimated number of recordkeepers:
135,000.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless it dis-
plays a valid control number assigned by
the Office of Management and Budget.
Books or records relating to a collec-
tion of information must be retained as
long as their contents may become mater-
ial in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
Background
This notice contains proposed amend-
ments to the income tax regulations (26
CFR Part 1) under section 411(d) of the
Internal Revenue Code of 1986.
Section 411(d)(6) generally provides
that a plan will not be treated as satisfying
the requirements of section 411 if the ac-
crued benefit of a participant is decreased
by a plan amendment. Under section
411(d)(6)(B), a plan amendment that
eliminates an optional form of benefit will
be treated as reducing accrued benefits to
the extent that the amendment applies to
benefits accrued as of the later of the
adoption date or the effective date of the
amendment. However, section 411(d)(6)-
(B) also permits the Secretary to provide
in regulations that this rule will not apply
to an amendment that eliminates an op-
tional form of benefit.
Section 401(a)(9) provides that, in
order for a plan to be qualified under sec-
tion 401(a), distributions from the plan
must commence no later than the “re-
quired beginning date.” Prior to 1997,
section 401(a)(9)(C) generally provided
that the required beginning date is April 1
following the calendar year in which the
employee attains age 70
1
⁄
2
. Consequently,
in order to satisfy section 401(a)(9), qual-
ified plans, other than certain church and
governmental plans, have provided for
distributions to commence no later than
April 1 following the calendar year that
Part III. Administrative, Procedural, and Miscellaneous

an employee attains age 70
1
⁄
2
. These dis-
tributions commence without regard to
whether the employee has retired from
employment with the employer maintain-
ing the plan.
Section 1404 of the Small Business Job
Protection Act of 1996, Public Law
104–188 (SBJPA), amended the defini-
tion of required beginning date that ap-
plies to an employee who is not a 5-per-
cent owner. Section 401(a)(9)(C)(i), as
amended, provides that, in the case of
such an employee, the required beginning
date is April 1 of the calendar year follow-
ing the later of the calendar year in which
the employee attains age 70
1
⁄
2
or the cal-
endar year in which the employee retires.
Accordingly, except for 5-percent owners,
a plan is no longer required to provide for
distributions that commence prior to re-
tirement in order to satisfy section
401(a)(9).
The right to commence benefit distrib-
utions in any form at a particular time is
an optional form of benefit within the
meaning of section 411(d)(6)(B) and
§1.411(d)–4 Q&A–1(b). In enacting sec-
tion 1404 of the SBJPA, Congress did not
alter the application of section 411(d)(6).
Thus, except to the extent authorized by
regulations, a plan amendment that elimi-
nates the right to commence preretirement
benefit distributions in a plan after age
70
1
⁄
2
(or restricts the right by adding an
additional condition) violates section
411(d)(6) if the amendment applies to
benefits accrued as of the later of the
adoption or effective date of the amend-
ment.
Notice 96–67 (1996–53 I.R.B. 12) pro-
vided questions and answers addressing
certain issues relating to the amendment
of section 401(a)(9)(C) by the SBJPAand
requested comments concerning the ex-
tent to which relief from section 411(d)(6)
would be appropriate for plan amend-
ments that eliminate preretirement distrib-
utions after age 70
1
⁄
2
(e.g., by limiting sec-
tion 411(d)(6) protection to employees
above a certain age).
Overview
1.Permitted Elimination of
Preretirement Distributions
After Age 701⁄2
The legislative history to section 1404
of the SBJPAindicates that the reason for
amending the definition of required be-
ginning date was that it is inappropriate to
require all participants to commence dis-
tributions by age 70
1
⁄
2
without regard to
whether the participant is still employed
by the employer. Because section 1404
did not alter the application of section
411(d)(6) to plan provisions allowing or
requiring preretirement distributions after
age 70
1
⁄
2
, an employer’s choices for
amending its plan to implement the
SBJPAchange to the definition of re-
quired beginning date are limited unless
the IRS and Treasury grant relief from
section 411(d)(6).
As one choice, in accordance with the
guidance in Announcement 97–24
(1997–11 I.R.B. 24) March 13, 1997, the
employer may give employees the option
of commencing distributions at age 70
1
⁄
2
or deferring commencement until after re-
tirement. As a second alternative, the em-
ployer may amend the plan to eliminate
the right to preretirement distributions
solely with respect to future accruals.
However, under this second approach,
each current participant would retain the
right to receive preretirement distribu-
tions after age 70
1
⁄
2
with respect to a por-
tion of his or her accrued benefit.
The IRS and Treasury recognize the
potential complexity of administering
plans (particularly defined benefit plans)
that adopt either of these choices. In addi-
tion, an employer may not have voluntar-
ily chosen to offer preretirement distribu-
tions to employees who have attained age
70
1
⁄
2
but instead may have included these
provisions in its plan solely to comply
with section 401(a)(9) prior to its amend-
ment by the SBJPA. Therefore, after con-
sideration of the comments received in re-
sponse to Notice 96–67 and subject to the
conditions described below, the proposed
regulations would provide relief from sec-
tion 411(d)(6) for certain plan amend-
ments that eliminate preretirement distrib-
utions commencing at age 70
1
⁄
2
.
2.Conditions on the Relief From
Section 411(d)(6)
a.Protection for Employees Who Are
Near Age70
1
⁄
2
Under the proposed regulation, an
amendment to eliminate a preretirement
age 70
1
⁄
2
distribution option may apply
only to benefits with respect to employees
who attain age 70
1
⁄
2
in or after a calendar
year, specified in the amendment, that be-
gins after the later of December 31, 1998,
or the adoption date of the amendment.
The relief from section 411(d)(6) is lim-
ited to distributions to employees who at-
tain age 70
1
⁄
2
after calendar year 1998 be-
cause employees who were near age 70
1
⁄
2
at the time of enactment of the SBJPA
may have had an expectation of receiving
preretirement distributions in the near fu-
ture and may have made plans that took
into account these expected distributions.
b.Optional Forms of Benefit for
Participants Retiring After Age 70
1
⁄
2
Aplan using this relief generally may
not preclude an employee who retires
after the calendar year in which the em-
ployee attains age 70
1
⁄
2
from receiving an
optional form of benefit that would have
been available if the employee had retired
in the calendar year in which the em-
ployee attained age 70
1
⁄
2
.
c.Timing of Plan Amendment
An amendment to eliminate a preretire-
ment age 70
1
⁄
2
distribution option may be
adopted no later than the last day of any
remedial amendment period that applies
to the plan for changes under the SBJPA.
However, in no event will the deadline for
adopting such a plan amendment be be-
fore December 31, 1998. The relief pro-
vided is available only to employers that
adopt the amendment within this speci-
fied time period because the relief is
being provided to simplify the implemen-
tation of section 401(a)(9), as amended by
the SBJPA, for employers that do not vol-
untarily provide preretirement distribu-
tions for an extended period after the en-
actment of the SBJPA.
3.Circumstances Under Which No
Relief Is Required
Many employers do not need relief
under section 411(d)(6) in order to imple-
ment the SBJPAchange in the definition
of required beginning date in their plans.
The regulation includes an example of
such a plan, a profit-sharing plan that per-
mits an employee to elect distribution
after age 59
1
⁄
2
at any time and in any
amount. The example illustrates that this
plan may be amended to implement the
SBJPAchange in the definition of re-
1997–32 I.R.B.25August 11, 1997

quired beginning date without violating
section 411(d)(6). In this example, the
section 411(d)(6) relief proposed in this
regulation is not required because the op-
tional forms of benefit in the plan that re-
flect the pre-SBJPAmandatory distribu-
tion requirements of section 401(a)(9) are
encompassed by the optional forms of
benefit provided under the general elec-
tive distribution provisions. The right to
commence distributions at age 70
1
⁄
2
con-
tinues to be available under the plan even
after the plan is amended to implement
the SBJPAchange in the required begin-
ning date.
Effective Date
The guidance in these proposed regula-
tions will only be effective after the date
that final regulations are adopted and will
only apply to amendments adopted and
effective after that date. In order to pro-
vide employers with ample time to craft
the appropriate plan amendment to imple-
ment the relief from section 411(d)(6) that
would be provided when these regulations
are finalized, the IRS and the Treasury in-
tend to finalize these regulations on an ex-
pedited schedule after consideration of
the comments received.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a signifi-
cant regulatory action as defined in EO
12866. Therefore, a regulatory assess-
ment is not required. It also has been de-
termined that section 553(b) of the Ad-
ministrative Procedure Act (5 U.S.C.
chapter 5) does not apply to these regula-
tions. Further, it is hereby certified, pur-
suant to sections 603(a) and 605(b) of the
Regulatory Flexibility Act, that the col-
lection of information in these regulations
will not have a significant economic im-
pact on a substantial number of small en-
tities. The burden imposed by the collec-
tion of information is the burden of
amending a plan to modify the provisions
reflecting section 401(a)(9). The cost of
the amendment varies depending upon
whether the small entity involved main-
tains an individually designed plan or
uses a master or prototype plan. For an in-
dividually designed plan, the small entity
maintaining the plan will be responsible
for arranging to have the amendment
made. Most small entities with individu-
ally designed plans will have the amend-
ment done by a skilled outside service
provider, such as a consulting firm or law
firm. The time required to make such an
amendment is estimated at 30 minutes,
which is not a significant economic im-
pact, even for a very small entity. More-
over, most very small entities that main-
tain a qualified plan use a master or
prototype plan. For master and prototype
plans, the plan sponsor drafts a single
amendment for all of the employers par-
ticipating in the plan. The average time
required for the amendment per employer
participating in a master or prototype plan
is estimated to be 10 minutes, which cer-
tainly is not a substantial economic im-
pact. Therefore, a regulatory flexibility
analysis under the Regulatory Flexibility
Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed
rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Busi-
ness Administration for comment on its
impact on small business.
Comments and Requests for a
Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written com-
ments (preferably a signed original and
eight (8) copies) that are submitted timely
to the IRS. All comments will be avail-
able for public inspection and copying.
Apublic hearing has been scheduled
for October 28, 1997, at 10 a.m. in the
Auditorium, Internal Revenue Building,
1111 Constitution Avenue, NW., Wash-
ington, DC. Because of access restric-
tions, visitors will not be admitted beyond
the building lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral argu-
ments at the hearing must submit written
comments and an outline of the topics to
be discussed at the time devoted to each
topic by September 30, 1997.
Aperiod of 10 minutes will be allotted
to each person for making comments.
An agenda showing the scheduling of
speakers will be prepared after deadline
for receiving outlines has passed. Copies
of the agenda will be available free of
charge at the hearing.
Drafting Information
The principal author of these regula-
tions is Cheryl Press, Office of the Asso-
ciate Chief Counsel (Employee Benefits
and Exempt Organizations), IRS. How-
ever, other personnel from the IRS and
Treasury Department participated in their
development.
*****
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is pro-
posed to be amended as follows:
PART1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by revising the entry for
§1.411(d)–4 to read as folows:
Authority: 26 U.S.C. 7805. * * *
§1.411(d)–4 also issued under 26
U.S.C. 411(d)(6).***
Par. 2. Section 1.411(d)–4 is amended
by adding Q&A–10 to read as follows:
§1.411(d)–4 Section 411(d)(6) protected
benefits.
*****
Q–10. If a plan provides for an age 70
1
⁄
2
distribution option that commences prior
to retirement from employment with the
employer maintaining the plan, to what
extent may the plan be amended to elimi-
nate this distribution provision?
A–10. (a) In general. The right to com-
mence benefit distributions in a particular
form and at a particular time prior to re-
tirement from employment with the em-
ployer maintaining the plan is a separate
optional form of benefit within the mean-
ing of section 411(d)(6)(B) and Q&A–1
of this section, even if the plan provision
creating this right was included in the
plan solely to comply with section
401(a)(9), as in effect for years before
January 1, 1997. Therefore, except as oth-
erwise provided in paragraph (b) of this
A–10, a plan amendment violates section
411(d)(6) if it eliminates an age 70
1
⁄
2
dis-
tribution option (within the meaning of
paragraph (c) of this A–10) to the extent
that it applies to benefits accrued as of the
later of the adoption date or effective date
of the amendment.
(b) Permitted elimination of optional
form.An amendment of a plan will not vi-
olate the requiremnts of section 411(d)(6)
August 11, 1997261997–32 I.R.B.

merely because the amendment elimi-
nates an age 70
1
⁄
2
distribution option to the
extent that the option provides for distrib-
ution to an employee prior to retirement
from employment with the employer
maintaining the plan, provided that—
(1) The amendment eliminating this
optional form of benefit applies only to
benefits with respect to employees who
attain age 70
1
⁄
2
in or after a calendar year,
specified in the amendment, that begins
after the later of—
(i) December 31, 1998; or
(ii) The adoption date of the amend-
ment;
(2) The plan does not, except to the ex-
tent required by section 401(a)(9), pre-
clude an employee who retires after the
calendar year in which the employee at-
tains age 70
1
⁄
2
from receiving benefits in
any of the same optional forms of benefit
(except for the difference in the timing of
the commencement of payments) that
would have been available had the em-
ployee retired in the calendar year in
which the employee attained age 70
1
⁄
2
;
and
(3) The amendment is adopted no later
than the last day of any remedial amend-
ment period that applies to the plan for
changes under the Small Business Job
Protection Act of 1996 (110 Stat. 1755)
(but in no event will the adoption of the
amendment be required before December
31, 1998).
(c) Age 70
1
⁄
2
distribution option.For
purposes of this Q&A–10, an age 70
1
⁄
2
distribution option is an optional form of
benefit under which benefits payable in a
particular distribution form (including
any modifications that may be elected
after benefit commencement) commence
at a time during the period that begins on
or after January 1 of the calendar year in
which an employee attains age 70
1
⁄
2
and
ends April 1 of the immediately following
calendar year.
(d) Examples.The provisions of this
section are illustrated by the following ex-
amples:
Example 1.Plan A, a defined benefit plan, pro-
vides each participant with a qualified joint and sur-
vivor annuity (QJSA) that is available at any time
after the later of age 65 or retirement. However, in
accordance with section 401(a)(9) as in effect prior
to January 1, 1997, Plan Aprovides that if an em-
ployee does not retire by the end of the calendar year
in which the employee attains age 70
1
⁄
2
, then the
QJSAcommences on the following April 1. On Oc-
tober 1, 1998, Plan Ais amended to provide that, for
an employee who is not a 5-percent owner and who
attains age 70
1
⁄
2
after 1998, benefits may not com-
mence before the employee retires but must com-
mence no later than the April 1 following the later of
the calendar year in which the employee retires or
the calendar year in which the employee attains age
70
1
⁄
2
. This amendment satisfies this Q&A–10 and
does not violate section 411(d)(6).
Example 2.Plan B, a money purchase pension
plan, provides each participant with a choice of a
QJSAor a single sum distribution commencing at
any time after the later of age 65 or retirement. In
addition, in accordance with section 401(a)(9) as in
effect prior to January 1, 1997, Plan B provides that
benefits will commence in the form of a QJSAon
April 1 following the calendar year in which the em-
ployee attains age 70
1
⁄
2
, except that, with spousal
consent, a participant may elect to receive annual in-
stallment payments equal to the minimum amount
necessary to satisfy section 401(a)(9) (calculated in
accordance with a method specified in the plan)
until retirement, at which time a participant may
choose between a QJSAand a single sum distribu-
tion (with spousal consent). On June 30, 1998, Plan
B is amended to provide that, for an employee who
is not a 5-percent owner and who attains age 70
1
⁄
2
after 1998, benefits may not commence prior to re-
tirement but benefits must commence no later than
April 1 after the later of the calendar year in which
the employee retires or the calendar year in which
the employee attains age 70
1
⁄
2
. The amendment fur-
ther provides that the option described above to re-
ceive annual installment payments prior to retire-
ment will not be available under the plan to an
employee who is not a 5-percent owner and who at-
tains age 70
1
⁄
2
after 1998. This amendment satisfies
this Q&A–10 and does not violate section 411(d)(6).
Example 3.Plan C, a profit-sharing plan, con-
tains two distribution provisions. Under the first pro-
vision, in any year after an employee attains age
59
1
⁄
2
, the employee may elect a distribution of any
specified amount not exceeding the balance of the
employee’s account. In addition, the plan provides a
secion 401(a)(9) override provision under which, if,
during any year following the year that the em-
ployee attains age 70
1
⁄
2
, the employee does not elect
an amount at least equal to the minimum amount
necessary to satisfy section 401(a)(9) (calculated in
accordance with a method specified in the plan),
Plan C will distribute the difference by December 31
of that year (or for the year the employee attains age
70
1
⁄
2
, by April 1 of the following year). On Decem-
ber 31, 1996, Plan C is amended to provide that, for
an employee other than an employee who is a 5-per-
cent owner in the year that the employee attains age
70
1
⁄
2
, in applying the section 401(a)(9) override pro-
vision, the later of the year of retirement, or year of
attainment of age 70
1
⁄
2
, is substituted for the year that
the employee attains age 70
1
⁄
2
. After the amendment,
Plan C still permits each employee to elect to re-
ceive the same amount as was available before the
amendment. Because this amendment does not elim-
inate an optional form of benefit, the amendment
does not violate section 411(d)(6). Accordingly, the
amendment is not required to satisfy the conditions
of paragraph (b) of this A–10.
(e) This Q&A–10 applies to amend-
ments adopted and effective after the pub-
lication of final regulations in the Federal
Register.
Michael P. Dolan,
Acting Commissioner of
Internal Revenue.
(Filed by the Office of the Federal Register on July
1, 1997, 8:45 a.m., and published in the issue of
the Federal Register for July 2, 1997, 62 F.R.
35752)
1997–32 I.R.B.27August 11, 1997

August 11, 1997281997–32 I.R.B.
Corrections to Rev. Rul. 97–31:
International Operation of Ships
and Aircraft; Income Exempt
From Tax
Announcement 97–75
Rev. Rul. 97–31, which was “dropped”
on July 22, 1997, omitted Kazakhstan
from Part I of the Table. Part I of the
Table provides a list of countries that have
an income tax convention in effect with
the United States containing an exemp-
tion for income of United States persons
that are engaged in the international oper-
ation of ships or aircraft.
The corrected version of Rev. Rul.
97–31 includes Kazakhstan in Part I of
the Table and adds Kazakhstan to foot-
note 22 and removes it from footnote 25.
Rev. Rul. 97–31 as corrected is published
in this Bulletin, I.R.B. 1997–32 dated Au-
gust 11, 1997.
Contacts
For further information or assistance
regarding this announcement, please con-
tact Patricia Bray, Office of the Associate
Chief Counsel (International) at (202)
622-3880 (not a toll-free call) or FAX
(202) 622-4408.
Foundations Status of Certain
Organizations
Announcement 97–76
The following organizations have
failed to establish or have been unable to
maintain their status as public charities or
as operating foundations. Accordingly,
grantors and contributors may not, after
this date, rely on previous rulings or des-
ignations in the Cumulative List of Orga-
nizations (Publication 78), or on the pre-
sumption arising from the filing of notices
under section 508(b) of the Code. This
listing does
notindicate that the organiza-
tions have lost their status as organiza-
tions described in section 501(c)(3), eligi-
ble to receive deductible contributions.
Former Public Charities.The following
organizations (which have been treated as
organizations that are not private founda-
tions described in section 509(a) of the
Code) are now classified as private founda-
tions:
Aztec Educational Foundation, Shawnee,
KS
Baby Safe Haven Inc., Philadelphia, PA
Barga County Chip, Lanse, MI
Cardiovascular Pharmacotherapy
Symposium, Minneapolis, MN
C & M Development Association, Joliet,
IL
Coalition for a National Memorial to
Mahatma Gandhi, Potomac, MD
Community Valley Community Outreach
Corp., Bryn Athon, PA
Comunidad en Accion, Inc., New Britain,
CT
CTC Swan Medical Fund Inc., Columbus,
OH
Dudley Ministries Inc, Milwaukee, WI
Evergreen Living Foundation, Inc.,
Detroit, MI
Evy Lessin Fund for Ovarian Cancer
Research, Gladwynne, PA
Friends of the Homeless Corp., Bayonne,
NJ
Hardy County Extension Service
Foundation, Inc., Moorefield, WV
Health Commons Institute, Falmouth, ME
Heyoka Foundation, Inchellium, WA
Hidden Talents Therapeutic Riding Inc.,
Fredonia, WI
Horse Lovers United Inc., Salisbury, MD
Hospice of Wythe Bland Inc., Wytheville,
VA
Houston Trial Lawyers Foundation,
Houston, TX
Jaga Learning Center, Little Rock, AR
Josh Gottheil Memorial Fund for
Lymphoma Research, Urbana, IL
Joshua Richwine Memorial Fund,
Norwood, MA
Karl Pilsl Ministries Inc., Tulsa, OK
Laulima Kokua Okamanawa, Hilo, HI
Levitical Ministries Inc., Brunswick, TN
Licking Valley Family “Y” Association,
Cynthiana, KY
Lily Fields Inc., Knoxville, TN
Little Feet Child Care Center Inc.,
Farmington, NM
Little People Place, Blytheville, AR
Longmeadow Diamond Club, Springfield,
MA
Love Horizons, Inc., Country Club Hills,
IL
Lowndes County Public Schools
Foundation, Hayneville, AL
Macks Loving Day Care Center Inc.,
Baltimore, MD
Maryland Foundation for Research and
Economic Education Inc., Baltimore,
MD
Melody Foundation ANew Jersey
Non-Profit Corporation, Princeton, NJ
Metaphysical Alternative Group Inc.,
Royal Oak, MI
Metropolitan Police Education
Foundation, Inc., Nashville, TN
Michelle McLean Children Trust, Inc.,
Washington, DC
Midwest Funding Corporation, Overland
Park, KS
Midwest Missouri Youth Sports
Association Inc., Raytown, MO
Ministry of El Shaddai, Enterprise, AL
Minnesota Agri-Growth Foundation, Inc.,
Bloomington, MN
Minnesota Blades Hockey Club, Wayzata,
MN
Mt. Olive Development Corporation,
Buffalo, NY
AMuseum in the Hudson Valley at
Newburgh, Newburgh, NY
Mutual Housing Group of Yonkers,
Yonkers, NY
NDI Management Corporation, Bronx,
NY
NEDP, Inc., Tupper Lake, NY
New Choreographers Forum, Inc.,
Arlington, MA
New Ebony Community Association, Inc.,
New York, NY
New England Council for Middle East
Studies, Inc., Providence, RI
New Era Alternative Treatment Center
Inc., Highland Park, MI
Neworks Theatre, Inc., Haverhill, MA
New York Charities, New York, NY
Ninas Gymnastics Foundation, Inc.,
Queens, NY
Nine Lives Productions, Inc., Flushing,
NY
North Country Christian Radio Inc.,
Bemidiji, MN
Northeastern Native American
Association, Inc., Jamaica, NY
Northeast Resources, Inc., Minneapolis,
MN
Novak-Cullen Athletic Club, Omaha, NE
NYGulf War Fund, New York, NY
Odyssey Dance Co., Inc., Astoria, NY
Oekos AFoundation for Education, Inc.,
Harvard, MA
Operation Eagle, Inc., Shrewsbury, MA
Parents for a Better Playground, Derby,
CT
Part IV. Items of General Interest

1997–32 I.R.B.29August 11, 1997
Partners in Prevention, Inc., Weston, MA
Pastoral Counseling Center of the
Dover-Rochester Area, Rochester, NH
Pen Club Vietnamese Writers of the
Southern States of United States,
Houston, TX
Picture Project, Inc., New York, NY
Playground Planners of Milton, Inc.,
Milton, MA
Polish Childrens Relief Fund, Inc., New
York, NY
Princeton Task Force on Ethics in
Business Government and the
Professions, Princeton, NJ
Project Yad, Inc., Brookline, MA
Renaissance Development Enterprises
Incorporated, Chicago, IL
Rancho Santa Fe Youth Soccer, Rancho
Santa Fe, CA
Seniors Helping Seniors, Inc., Milford,
OH
Webster City Community Foundation,
Inc., Webster City, IA
Working Institute of Service Enfranchise-
ment WISE, Harvey, LA
If an organization listed above submits
information that warrants the renewal of its
classification as a public charity or as a pri-
vate operating foundation, the Internal
Revenue Service will issue a ruling or de-
termination letter with the revised classifi-
cation as to foundation status. Grantors and
contributors may thereafter rely upon such
ruling or determination letter as provided
in section 1.509(a)–7 of the Income Tax
Regulations. It is not the practice of the
Service to announce such revised classifi-
cation of foundation status in the Internal
Revenue Bulletin.

August 11, 1997301997–32 I.R.B.
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the
effect:
Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus,
if an earlier ruling held that a principle
applied to A, and the new ruling holds
that the same principle also applies to B,
the earlier ruling is amplified. (Compare
with modified, below).
Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously
published ruling and points out an essen-
tial difference between them.
Modified is used where the substance
of a previously published position is
being changed. Thus, if a prior ruling
held that a principle applied to Abut not
to B, and the new ruling holds that it ap-
plies to both Aand B, the prior ruling is
modified because it corrects a published
position. (Compare with amplified and
clarified, above).
Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used
in a ruling that lists previously published
rulings that are obsoleted because of
changes in law or regulations. Aruling
may also be obsoleted because the sub-
stance has been included in regulations
subsequently adopted.
Revoked describes situations where the
position in the previously published rul-
ing is not correct and the correct position
is being stated in the new ruling.
Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the
new ruling does more than restate the
substance of a prior ruling, a combination
of terms is used. For example, modified
and superseded describes a situation
where the substance of a previously pub-
lished ruling is being changed in part and
is continued without change in part and it
is desired to restate the valid portion of
the previously published ruling in a new
ruling that is self contained. In this case
the previously published ruling is first
modified and then, as modified, is super-
seded.
Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and
that list is expanded by adding further
names in subsequent rulings. After the
original ruling has been supplemented
several times, a new ruling may be pub-
lished that includes the list in the original
ruling and the additions, and supersedes
all prior rulings in the series.
Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.
Abbreviations
The following abbreviations in current use and for-
merly used will appear in material published in the
Bulletin.
A—Individual.
Acq.—Acquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank.
B.T.A.—Board of Tax Appeals.
C.—Individual.
C.B.—Cumulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Cooperative.
Ct.D.—Court Decision.
CY—County.
D—Decedent.
DC—Dummy Corporation.
DE—Donee.
Del. Order—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Employer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduciary.
FC—Foreign Country.
FICA—Federal Insurance Contribution Act.
FISC—Foreign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Federal Unemployment Tax Act.
FX—Foreign Corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grantee.
GP—General Partner.
GR—Grantor.
IC—Insurance Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited Partner.
LR—Lessor.
M—Minor.
Nonacq.—Nonacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Personal Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Partnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Real Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsidiary.
S.P.R.—Statements of Procedral Rules.
Stat.—Statutes at Large.
T—Target Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Transferee.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpayer.
TR—Trust.
TT—Trustee.
U.S.C.—United States Code.
X—Corporation.
Y—Corporation.
Z—Corporation.
Definition of Terms

1997–32 I.R.B.31August 11, 1997
Numerical Finding List
1
Bulletins 1997–27 through 1997–31
Announcements:
97–61, 1997–29 I.R.B. 13
97–67, 1997–27 I.R.B. 37
97–68, 1997–28 I.R.B. 13
97–69, 1997–28 I.R.B. 13
97–70, 1997–29 I.R.B. 14
97–71, 1997–29 I.R.B. 15
97–72, 1997–29 I.R.B. 15
97–73, 1997–30 I.R.B. 86
97–74, 1997–31 I.R.B.16
Court Decisions:
2061, 1997–31 I.R.B. 5
Delegation Orders:
172 (Rev. 5), 1997–28 I.R.B. 6
Notices:
97–37, 1997–27 I.R.B. 4
97–38, 1997–27 I.R.B. 8
97–39, 1997–27 I.R.B. 8
97–40, 1997–28 I.R.B. 6
97–41, 1997–28 I.R.B. 6
97–42, 1997–29 I.R.B. 12
97–43, 1997–30 I.R.B. 9
97–44, 1997–31 I.R.B. 15
Railroad Retirement Quarterly Rate:
1997–28 I.R.B. 5
Proposed Regulations:
REG–104893–97, 1997–29 I.R.B. 13
Revenue Procedures:
97–32, 1997–27 I.R.B. 9
97–33, 1997–30 I.R.B. 10
97–34, 1997–30 I.R.B.14
Revenue Rulings:
97–27, 1997–27 I.R.B. 4
97–28, 1997–28 I.R.B. 4
97–29, 1997–28 I.R.B. 4
97–30, 1997–31 I.R.B.12
Treasury Decisions:
8722, 1997–29 I.R.B. 4
8723, 1997–30 I.R.B. 4
1
Acumulative list of all revenue rulings, revenue
procedures, Treasury decisions, etc., published in
Internal Revenue Bulletins 1997–1 through 1997–26
will be found in Internal Revenue Bulletin 1997–27,
dated July 7, 1997.

August 11, 1997321997–32 I.R.B.
Finding List of Current Action on
Previously Published Items
1
Bulletins 1997–27 through 1997–31
*Denotes entry since last publication
Revenue Procedures:
96–36
Superseded by
97–34, 1997–30 I.R.B. 14
96–42
Superseded by
97–27, 1997–27 I.R.B. 9
1
Acumulative finding list for previously published
items mentioned in Internal Revenue Bulletins
1997–1 through 1997–26 will be found in Internal
Revenue Bulletin 1997–27, dated July 7, 1997.

Notes
1997–32 I.R.B.33August 11, 1997

Notes
August 11, 1997341997–32 I.R.B.

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.
Internal Revenue Service
Washington, DC 20224
Official Business
Penalty for Private Use, $300
First Class Mail
Postage and Fees Paid
IRS
Permit No. G–48

INTERNAL REVENUE BULLETIN
The Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold
on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent of
Documents when their subscriptions must be renewed.
CUMULATIVE BULLETINS
The contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are
sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-
ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of print
and are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from the
Superintendent of Documents.
HOW TO ORDER
Check the publications and/or subscription(s) desired on the reverse, complete the order blank, enclose the proper remittance,
detach entire page, and mail to the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402. Please
allow two to six weeks, plus mailing time, for delivery.
WE WELCOME COMMENTS ABOUT THE
INTERNAL REVENUE BULLETIN
If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can e-mail us your suggestions or comments through the IRS Internet Home Page
(www.irs.ustreas.gov) or write to the IRS Bulletin Unit, T:FP:F:CD, Room 5560, 1111 Constitution Avenue NW, Washington, DC
20224. You can also leave a recorded message 24 hours a day, 7 days a week at 1–800–829–9043.
Superintendent of Documents
U.S. Government Printing Office
Washington, DC 20402
Official Business
Penalty for Private Use, $300
First Class Mail
Postage and Fees Paid
GPO
Permit No. G–26

August 4, 1997381997–31 I.R.B.