Lamkin v. United States

The estate of Elizabeth Clem (plaintiff) held real property that would eventually be passed to a trust, and beneficiaries would receive the income from the property. During the interim, those future beneficiaries were paid income received from the property in question. These income payments were neither mandated nor prohibited by Clem’s will. Meanwhile, the estate took a full depreciation deduction on the property in question. The government (defendant) allocated a pro rata share of that depreciation deduction to the beneficiaries who received the income and then found a deficiency against the estate. The Internal Revenue Code allowed the government’s allocation if the beneficiaries of the yet-to-be established trust were heirs, legatees, or devisees of the estate. The Internal Revenue Code also indicated that the depreciation deduction could be taken by the estate only if the trustee was directed by law or the trust instrument to retain income as a depreciation reserve, which was not a facet of either law or the trust instrument in this case. The estate paid the deficiency and filed suit for a refund. The trial court granted summary judgment in favor of the government, and the estate appealed. The estate argued that the income beneficiaries did not fit the categories of heirs, legatees, or beneficiaries and thus that the estate could take the full depreciation deduction.