The Ann Jackson Family Foundation v. Commissioner Internal Revenue Service

In this case we are calléd upon to decide whether the Tax Court erred by invalidating a federal income tax regulation on the ground that it was inconsistent with its governing statute. For the reasons which follow, we affirm that decision.

FACTS AND PRIOR PROCEEDINGS

In December 1978 Ann Gavit Jackson (“Jackson”) established The Ann Jackson Family Foundation (“Foundation”), a private, non-operating, tax-exempt entity whose sole function was and is to award grants to charitable organizations. In order to fund the Foundation, Jackson created The Ann Jackson Family Charitable Trust (“Trust”) in February 1979. The Trust, a split-interest charitable lead trust, was funded by an initial contribution from Jackson of $5,000,000, for which donation she took a one-time income tax deduction of $4,164,000. The Trust invested this $5,000,000 from which it distributes to the Foundation an amount equal to 7% of the Trust corpus, or some $350,000, per year. The Foundation in turn annually donates at least 5% of its income to various charities and invests the undonated portion.

This Trash-Foundation arrangement will expire after twenty years, at which time any funds remaining in the Trust will…