Buder v. U.S., 92-3723

• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)
• Writing for the Court: Before BOWMAN and MAGILL; BOWMAN
• Citation: 7 F.3d 1382
• Parties: -6758, 93-2 USTC P 60,149 G.A. BUDER, III, Personal representative of the Estates of G.A. Buder, Jr., Deceased; Theodore A. Buder, Personal representative of the Estates of G.A. Buder, Jr., Deceased; Marshall O. Buder, Personal representative of the Estates of G.A. Buder, Jr., Deceased; Boatmen's National Bank, of St. Louis, Personal representative of the Estates of G.A. Buder, Jr., Deceased, Appellees, v. UNITED STATES of America, Appellant.
• Docket Number: No. 92-3723,92-3723
• Decision Date: 29 October 1993

Page 1382

7 F.3d 1382 72 A.F.T.R.2d 93-6758, 93-2 USTC P 60,149 G.A. BUDER, III, Personal representative of the Estates of
G.A. Buder, Jr., Deceased; Theodore A. Buder, Personal
representative of the Estates of G.A. Buder, Jr., Deceased;
Marshall O. Buder, Personal representative of the Estates of
G.A. Buder, Jr., Deceased; Boatmen's National Bank, of St.
Louis, Personal representative of the Estates of G.A. Buder,
Jr., Deceased, Appellees,
v.
UNITED STATES of America, Appellant. No. 92-3723. United States Court of Appeals,
Eighth Circuit. Submitted May 13, 1993.
Decided Oct. 29, 1993.

Page 1383

Bridget M. Rowan, Dept. of Justice, Washington, DC, argued (Gary R. Allen and David E. Carmack, on the brief), for appellant.

Richard D. Lageson, St. Louis, MO, argued, for appellees.

Before BOWMAN and MAGILL, Circuit Judges, and HENDREN, ^* District Judge.

BOWMAN, Circuit Judge.

The United States appeals the judgment of the District Court ¹ awarding the estate of G.A. Buder, Jr. a federal estate tax refund. We affirm.

I.

Buder, a St. Louis business and tax attorney, died in 1984, leaving a will he personally drafted and a substantial estate. Article I of his will provides for the payment of his debts and the expenses associated with his death. Article II explains that he did not make a provision for his daughter because her status as a member of a religious order had changed her "needs and requirements." Article III and Article IV provide bequests for his wife.

The pivotal issue in this case concerns Article V of the will, which states that "twenty-five percent (25%) of my remaining net estate ... shall be divided among and paid to the following charitable, benevolent or educational organizations or entities, or their respective successors[,] in the following proportions." Article V then lists thirteen charitable organizations that were to receive bequests. Pursuant to 26 U.S.C. § 2055(a)(3) (1988), the estate deducted these bequests in

Page 1384

determining its federal estate tax liability. The only deduction challenged by the Government is that of the bequest of Paragraph D (the "Paragraph D Trust"), which provides that

D. Ten per cent (10%) [of the assets disposed of by this Article shall be given to five listed persons], IN TRUST, however, to be used solely and exclusively in fostering and promoting the cause of patriotism, loyalty and fundamental constitutional government in the United States of America, and in combating subversive activities, socialism and communism, including, if deemed advisable, assistance in the teaching of the principles of conservatism in public affairs among college and high school students. The said Trustees and their successors in office are authorized and empowered to use the principal and income of such fund as they may agree to be most advisable and effective for the accomplishment of the objectives mentioned in this paragraph; and may, in their discretion, make contributions to other organizations or specific programs constituted and operated to achieve the purposes herein mentioned....

....

Article VI places the remainder of Buder's estate in trust for his wife and children. Article VI(e) provides that "[d]uring the life of my beloved wife Kathryn M. Buder, my trustees shall pay over and deliver to her monthly any portion or all of the net income of the trust estate as they may in their discretion deem advisable." On its federal estate tax return, the estate treated this residual trust as "qualified terminable interest property" (QTIP) under 26 U.S.C. § 2056(b)(7)(B) (1988) and claimed the marital deduction.

The remaining articles of Buder's will deal with administrative matters. Buder subsequently executed a codicil to his will in which he bequeathed fifty thousand dollars to each of his grandchildren, made several minor changes not relevant here, and otherwise ratified the contents of his will.

Buder's estate timely filed its federal estate tax return in 1986, showing a tax due of $156,648. As the result of an audit, however, the Internal Revenue Service determined in 1988 that the estate had a tax deficiency of $374,180 plus interest. This deficiency was based primarily on the IRS's disallowance of the estate's deduction of the bequest made to the Paragraph D Trust. The IRS did not challenge the estate's QTIP deduction of the portion of the estate passing under Article VI.

Later in 1988, after the IRS's audit but before its assessment of additional taxes against the estate, the trustees of the Paragraph D Trust executed an ancillary Indenture of Trust, by which they agreed that the Trust would make contributions only "to such charitable, scientific, literary or educational organizations whose policies are consistent with the purposes set out under the will of G.A. Buder, Jr. and are qualified as organizations described in Section 501(c)(3) and Section 170(c)(2) of the Internal Revenue Code of 1986." Subsequently, in 1989, the IRS determined that the G.A. Buder, Jr. Charitable Trust (the Paragraph D Trust and its ancillary Indenture of Trust) qualified under 26 U.S.C. § 501(c)(3) (1988) as a tax-exempt organization. Furthermore, the parties have stipulated that substantially all of the donations made from the Paragraph D Trust prior to the execution of this ancillary Indenture of Trust were to tax-exempt organizations.

After paying the deficiency assessed in the 1988 audit, the estate filed an administrative claim for a refund, which the IRS denied. The estate then brought this...