Estate of Sansone v. United States

MEMORANDUM **

Mrs. Sansone’s right to $100,000 every year for life is a “qualifying income interest for life” that is treated as “qualified terminable interest property,” 26 U.S.C. § 2056 (b)(7), but the potential cost-of-living increases are not. 26 C.F.R. § 20.2056 (b)-7(e)(2) (although “the annual payment may increase, the increased amount is not taken into account in valuing *604 the deductible interest”). 1 Under this regulation, the estate may deduct only that amount of the corpus that, using the applicable federal interest rate, would produce the $100,000 yearly payments for life: $1,041,719. The estate may not deduct any more of the corpus than this amount.

“We defer to ... regulatory interpretations of the [Internal Revenue] Code so long as they are reasonable.” Sessler v. United States, 7 F.3d 1449 , 1451 n. 2 (9th Cir.1993). The regulation challenged here is reasonable and consistent with the Code. See 26 U.S.C. § 2056 (b)(7)(B)(ii) (“The surviving spouse has a qualifying income interest for life if ... the surviving spouse is entitled to all the income from the property ....”) (emphasis added). Mrs. Sansone is entitled to all the income from $1,041,719 of the corpus;…