United States v. Cartwright

Ethel Bennett owned a number of mutual-fund shares when she died. Under federal law, the type of shares that Bennett held could realistically be exchanged in only one of two ways. First, a fund itself could sell shares to the public. Federal law would require the fund to charge a purchaser the net asset value per share and to charge additional fixed sales fees (called the sales load), which would go to the underwriter of the shares. The net asset value per share plus the sales load was called the shares’ asked price. The second way shares could be exchanged would be for a holder to have the fund redeem her shares. Pursuant to federal law, the fund would have to redeem the shares for the net asset value per share, but the fund would not pay the issuer an amount equal to the sales load. Treasury Regulation § 20.2031-8(b) required that any mutual-fund shares held by a decedent be included in the decedent’s gross estate at a value equal to the shares’ asked price. The executor of Bennett’s estate (plaintiff) included Bennett’s shares in her estate at their redemption price rather than at the asked price. The Internal Revenue Service (IRS) (defendant) issued a deficiency based on the requirement of § 20.2031-8(b). The executor sued the IRS, alleging that § 20.2031-8(b) was invalid. The district court and the court of appeals ruled that the regulation was invalid, and the IRS appealed to the United States Supreme Court.