Brigham v. United States

             United States Court of Appeals
                 For the First Circuit

No. 97-2436

                  PAUL L. BRIGHAM, JR.,
          Executor of the Estate of Anna C. Ham,

                  Plaintiff, Appellant,

                            v.

                UNITED STATES OF AMERICA,

                   Defendant, Appellee.

       APPEAL FROM THE UNITED STATES DISTRICT COURT

            FOR THE DISTRICT OF MASSACHUSETTS

     [Hon. Nathaniel M. Gorton, U.S. District Judge]

                          Before

                  Selya, Circuit Judge,

       Aldrich and Coffin, Senior Circuit Judges.

 Paul M. Stein with whom Malkasian, Hicinbothem & Mollica, Paul
L. Brigham, Jr. and Linette R. LaMountain were on brief for
appellant.
 Ernest J. Brown with whom Jonathan S. Cohen, Joan I.
Oppenheimer, Attorneys, Tax Division, Department of Justice,
Loretta C. Argrett, Assistant Attorney General, and Donald K.
Stern, United States Attorney, were on brief for appellee.

November 12, 1998

  ALDRICH, Senior Circuit Judge.  This is an action to
recover income tax payments that, allegedly, were not due.  On
cross motions for summary judgment the court ruled for the
United States.  We affirm.
  In 1988 Kendal Ham died leaving a will with several
provisions for his wife.  Seasonably she chose, instead, to
waive her rights under the will and elect the share of his
estate permitted by the New Hampshire statute, N.H. Rev. Stat.
Ann.  560:10, in her case a one-third "portion of the estate
remaining after the payment of debts and expenses of
administration."  In 1990 and 1991 Mr. Ham's executor made
payments to Mrs. Ham on account of the principal of her
elected share.  These payments included amounts equivalent to
the total income received by Mr. Ham's estate during those two
years.  His executor classified these inclusions as
"distributable net income" (DNI) pursuant to 26 U.S.C.
 643(a) and claimed a deduction from the estate's gross
income pursuant to 26 U.S.C.  661, which the government
allowed.  Mrs. Ham, in turn, reported and paid an income tax
on the received DNI pursuant to 26 U.S.C.  662.
  Mrs. Ham's executor, plaintiff Paul Brigham, Jr.,
Esq., now claims it was inappropriate to apply the tax
transfer of  661 and 662 to payments in satisfaction of a
widow's elective share and that the income tax on Mr. Ham's
estate's 1990 and 1991 earnings should not have been passed
on.  No income tax was required of Mrs. Ham on the portion of
the payments that exceeded Mr. Ham's estate's income, see 26
U.S.C.  662(a), but, obviously, to the extent that payments
to her were taxable, Mrs. Ham was paid her elected share in
funds subject to depreciation through taxes.
  Unreasonable and unfair as this might seem, plaintiff
has an impossible row to hoe here.  If a payee within the 26
U.S.C.  643(c) definition of "beneficiary" receives DNI
pursuant to  661 that is an "other amount properly paid,
credited, or required to be distributed to such beneficiary
for the taxable year,"  662(a)(2),  then she is bound to pay
an income tax even if the payment was in satisfaction of a
principal obligation.
   Sections 661 and 662 are lengthy.  We quote all that
is relevant to our facts and question:
    661.    DEDUCTIONS FOR ESTATES AND TRUSTS
             ACCUMULATING INCOME OR DISTRIBUTING
             CORPUS

        (a)  Deduction

             In any taxable year there shall be
        allowed as a deduction in computing the
        taxable income of an estate . . . the
        sum of --

  . . . .                   

                                                (2)  any other amounts
                                           properly paid . . . for such
                                           taxable year; but such deduction
                                           shall not exceed the distributable
                                           net income of the estate . . . .

    662.    INCLUSION OF AMOUNTS IN GROSS INCOME OF
             BENEFICIARIES OF ESTATES AND TRUSTS
             ACCUMULATING INCOME OR DISTRIBUTING
             CORPUS

        (a)  Inclusion

             [T]here shall be included in the
        gross income of a beneficiary to whom an
        amount specified in section 661(a) is
        paid . . . the sum of the following
        amounts:

             (1)  Amounts required to be
                  distributed currently

                         . . . .

                                           (2)  Other amounts distributed

                  All other amounts properly paid
             . . . to such beneficiary for the
             taxable year.

We believe these statutes sufficiently clear as to need no
history, but we remark that they are the product of the
difficulty (more indicated by portions we do not quote) of
tracing the source of distributions from estates with many
beneficiaries.  See S. Rep. No. 83-1622, at 83 (1954),
reprinted in 1954 U.S.C.C.A.N. 4621, 4715 ("The approach
adopted by the bill eliminates the necessity, in determining
the taxability of distributions, of tracing such distributions
to the income of the estate or trust for the current taxable
year.").  While the solution may over-simplify, it has never
been found beyond the federal taxing power.  Obviously the
taxpayer must adjust to the government, not the government
adjust to accommodate him.
   Plaintiff, accordingly, claims that Mrs. Ham, as the
receiver of a one-third portion of Mr. Ham's estate, was not
a "beneficiary" within the meaning of  662.  This contention,
however, fails.  For definition, 26 U.S.C.  643(c) provides
that "the term 'beneficiary' includes heir, legatee, devisee." 
The word "elector" (of a spouse's share) does not appear, but
"includes" is not limiting.  Rather, "[t]he terms 'includes'
and 'including' . . . shall not be deemed to exclude other
things otherwise within the meaning of the term defined."  26
U.S.C.  7701(c).  In light of this we apply the principle
that a list of terms should be construed to include by
implication those additional terms of like kind and class as
the expressly included terms.    Surely the widow has elected
to be within the group.  In common parlance, is not any person
who gratuitously receives estate assets a beneficiary?  If
there is no will, the widow is an heir, and she receives a
portion of the estate as determined by the legislature.  If
there is a will, she may be a legatee, or she may waive her
rights under it and receive a different portion.  But, in all
cases, on its face, the  661-662 tracing purpose applies
precisely.
   Plaintiff's remaining argument is that the payments in
satisfaction of Mrs. Ham's elective share were not  662(a)(2)
distributions because the elective share is a state law
interest not subject to the estate income distribution
provisions in  661 and 662.  He has found in his favor the
case of Deutsch v. Commissioner of Internal Revenue, 74 T.C.M.
(CCH) 935 (1997) (holding that the Florida elective share is
not subject to the entire Subchapter J, 26 U.S.C.  641-692). 
We disagree fully.
   The Deutsch court would draw comparisons between
elective shares and the Florida dower.  Assuming that Florida
dower may be exempt, which we may doubt, this would be because
it is directly involved with real estate title which, like
jointly owned property may, in a technical sense, not pass
through the estate, a claim that plaintiff here cannot make. 
By definition, Mrs. Ham received "a portion of the estate." 
Next, standing with one foot on the dower concept, Deutschreasons that in enacting a provision for elective shares the
state was protecting the interests of its widows.  Passing the
fact that $800,000 is a good deal of protection, the
proposition that, simply by fiat, a state may preserve its
citizens from federal taxes is absurd.  The list of exclusions
in 26 U.S.C.  663 clearly does not exclude an elective share,
and we note that the Treasury Regulations expressly deny
exclusion even to a widow's temporary allowance.  
   Plaintiff's appeal is without merit.