Thomas M. Chastain

[Editor’s Note: This case can also be found under the title Chastain v. Commissioner of Internal Revenue.] Thomas Chastain’s father, Robert, died in 1964 and left Thomas a bequest of $1,000,000, including two mortgages with unrealized gains of $782,909.33. Robert made a few other bequests and directed that all estate taxes be paid from the residue, with the remainder going to a charitable foundation. Robert’s federal estate tax return reported a gross estate of just over $4.5 million, with net estate tax payable of $911,346.85. Meanwhile, Thomas reported a long-term capital gain of $632,402.84 on his 1966 income tax return as income in respect of a decedent for the mortgages, and he claimed a deduction of $439,856.99 for estate taxes attributable to the capital gain. This case regards the manner of calculation of estate tax deduction allowable to Thomas. The parties agreed that a fraction was to be determined, which was the income in respect of a decedent ($632,402.84) received by the taxpayer over all such items ($793,092.06). That fraction was then to be multiplied by the amount of estate tax attributable to the net value for estate purposes of all such items. Thomas argued that he should reduce the gross estate by all of the items of income in respect of a decedent, with a higher residuary gift to charity then calculated. By deducting the income items and increasing the charitable gift, Thomas reduced the estate tax to $359,725.23 and subtracted that from the existing $911,346.85 in estate tax with a resulting $551,621.62 as the estate tax attributable to the items of income in respect of a decedent. That calculation yielded a deduction of $439,856.99. The government disagreed, calculating Thomas’s bequest of $1,000,000 by eliminating those figures of income in respect of a decedent and then removing those same sums from the charitable bequest. This calculation ultimately yielded a taxable estate identical to the actual taxable estate, with no deduction then available.