Shriners Hospitals for Crippled Children (hereinafter “Shriners”) appeals the judgment of the United States Claims Court,
We reverse the decision of the Claims Court.
Background
By will of Ernest C. Hudson, who died on February 15, 1979, half of his estate, amounting to $169,569.88, was placed in trust for the benefit of Mrs. Ben Downey during her lifetime, with the remainder to be paid to Shriners on her death. Mrs. Downey died on August 23, 1979, having received $4,675 in income from the testamentary trust. The remainder was then paid to Shriners. The estate filed its final federal tax return on December 15, 1979, claiming a charitable deduction for the entire trust amount.
In September 1980 the Internаl Revenue Service (“IRS”) disallowed the entire deduction because the testamentary split-interest trust as established in the will did not meet the requirements of 26 U.S.C. § 2055(e)(2), 1 and assessed a tax deficiency of $38,788.85. Interest was assessed in the amount of about $4,300 for late payment of this tax, measured by the period between the date the return was due and the date the deficiency was paid. The estate paid these amounts, and did not challenge the correctness of the decision, under the law then in effect, within the statutory limitations рeriod.
By the Deficit Reduction Act of 1984 (“DEFRA”), Pub. L. No. 98-369, 98 Stat. 494, the law affecting split-interest charitable remainder trusts was amended, inter alia as codified at 26 U.S.C. § 2055(e)(3)(F), to provide that if the income bеneficiary dies before the estate tax is due the will is deemed reformed as of the date of death, see 26 U.S.C. § 2055(e)(3)(C) regarding “reformable interest”, to create a gift passing direсtly to the charity.
By DEFRA § 1022 this provision was made retroactive to include the period affecting the estate here at issue, and such taxpayers were authorized to obtain estate tax refunds that would otherwise be barred by the statute of limitations. Shriners, remainderman under the testamentary trust and successor in interest (by state court action) to the tаx refund claim, duly claimed refund of the tax and interest paid. After six months had passed without IRS action, Shriners filed suit in the Claims Court. The government conceded the estate's entitlement tо refund of the tax paid. The Claims Court upheld the government’s denial of refund of the interest assessed upon late payment of the tax.
Discussion
A
It is undisputed that the requirements are met of 26 U.S.C. § 2055(e)(3)(F), which provides that “a deduction shall be allowed for such reformable interest as if it had met the requirements of [section 2055(e)(2)] on the date of the decedent’s death.” Shriners asserts that the interest paid by the taxpayer, on a tax that was retroactively expunged by law, should be refunded to the taxpayer. Shriners states that Section 2055(e)(3) itself, its legislative history, the Treasury Regulations, and judicial authority, require that the Section 2055(e)(3) reformation of the will be effective “for all purposes”, including not only liability for the estate tax but also interest on any underpayment thereof.
The government relies on the provision of DEFRA § 1022(e)(3)(B) [not codified, appearing as a note to 26 U.S.C. § 2055] prohibiting the gоvernment from paying interest on refunded taxes under § 2055(e)(3), when the refund is available (as here) only because of the retroactive waiver of the period of limitations:
(B) No interеst where statute [of limitations] closed on date of enactment. — In any case where the making of the credit or refund of the overpayment described in subparagraрh (A) is barred on the date of the enactment of this Act, *1563 no interest shall be allowed with respect to such overpayment (or any related adjustment) for the period befоre the date 180 days after the date on which the Secretary of the Treasury (or his delegate) is notified that the reformation has occurred.
Thus Congress, providing that such tax overpayment shall be refunded, relieved the government of its obligation, under the general rule of 26 U.S.C. § 6611(a), to pay interest on refunds of overpayments.
See Broum & Williamson, Ltd. v. United States,
Tax and interest payments are creatures of statute, and such statutory provisions are to be given their plainest reasonable meaning, in implementation of the discemable intent of Congress. 2 Thе intent of Congress to achieve a retroactive statute “for all purposes” is stated in the legislative history. See, e.g., 130 Cong. Rec. H7108 (daily ed. June 27, 1984), statement of the 1984 amendment’s sponsоr, Rep. Gibbons:
[The bill’s] fundamental premise is that an unqualified trust, if amended or conformed ... whether effectuated through judicial proceeding or agreement among all interested parties, is treated for tax purposes as if the amended trust was actually in the will ... as of the date of the decedent’s death. The amended trust is to be treated as a qualified charitable remainder trust not merely for deduction purposes but for all purposes____
See also Senate Finance Comm., Deficit Reduction Act of 1984, Explanation of Provisions Approved by the Finance Committee on May 21, 1984, S. Rep. 169, 98th Cong., 2d Sess., 734 (Comm. Print 1984).
The Court of Claims in
First Nat’l Bank of Oregon v. United States,
We conclude that § 1022(e)(3)(B), which refers solely to interest paid by the government to the taxpayer, has no applicability to interest paid to the government, and that the сongressional intent of reformation for all purposes requires treatment “as if the amended trust was actually in the will”, in Rep. Gibbons words, supra. The effect of this provision is as if the tax wеre never due. If no tax was due, there can not have been a deficiency assessed, or interest for late payment thereof.
Such recovery of interest paid on a tax that, by retroactive reformation of the will, was not owed, fulfills the conditions explained in
United States v. Hoppers Co.,
[T]he taxpayer must sustain the proposition that the tax relief granted undеr [the tax-abating statute] is necessarily retroactive, extinguishing the deficiency as of the original due date of the tax and thus eliminating the interest charges for the corresрonding period.
In
Hoppers Co.
the taxpayer sought refund of the interest assessed on a deficiency under a wartime excess profits tax, when the deficiency was later relieved by statute. The Supreme Court held that the statute did not retroactively forgive the prior years’ taxes, although the tax itself was abated, and thus that the interest
*1564
could not be recovered by the taxpayer. The Court held that the abatement was not retroactive to the “original due dates of the taxes abated”.
Id.
at 255-56,
In contrast, 26 U.S.C. § 2055(e)(3) eliminated the basis of the tax obligation. By reformation of the will, it was as if no tax had ever been due. It would contravene Congress’ intent to give retroactive effect to this provision for all purposes, to assess interest on late or underpayment of a tax that was not owed.
Accord Oxford Orphanage, Inc. v. United States,
REVERSED.
Notes
. The complexity of this statute, which was designed to prevent possible abuse of split-interest charitable remainder trusts,
see Crafts v. Commissioner,
.
See, e.g., Beneficial Corp. and Subsidiaries v. United States,
. Shriners cites this decision as a basis for collateral estoppel against the United States. In view of our decision on the merits, we pretermit the question of estoppel.