ANTHONY v. U.S.
520 F.3d 374 (2008)
United States Court of Appeals, Fifth Circuit.
March 4, 2008.
the enactment of a statutory mandate in section 7520 reflects a strong policy in favor of standardized actuarial valuation of these interests which would be largely vitiated by the estate's advocated approach. A necessity to probe in each instance the nuances of a payee's contractual
rights, when those rights neither alter or jeopardize the essential entitlement to a stream of fixed payments, would unjustifiably weaken the law. Gribauskas, 116 T.C. at 163-64.
The Estate at oral argument asserted that there exists a market for structured settlement annuities, a market that it alleges is as predictable and more accurate than the Section 7520 tables. Regardless of the precise details, we accept that there is a market-recognized and discounted value to the right to transfer an income stream. There certainly are individuals who will wish to sell at a discounted price their inherited right to receive a guaranteed amount of money that is paid out over a term of years. What Cook held and what we conclude was unchanged by anything relevant since Cook, is that for tax purposes, the annuity tables are not concerned about the difference in market value between an inherited, non-transferable right to receive periodic payments of this sort and an inherited, transferable right to receive such payments. Only if the successor to the decedent desires to assign the annuity is there a practical difference to what that successor has received. Though markets value assignable and non-assignable annuities differently, we continue to conclude that for purposes of Section 7520, the Tax Code does not.
As interpreted in Cook, Section 7520 demonstrates Congress's intent that current tables govern the valuation of annuities unless the factual assumptions underlying those tables are disproved. Those assumptions hold in this case.
In light of its language, structure, and purpose, we do not read Section 20.7520-3(b) so broadly as to require a non-marketability exception from the annuity tables. To the extent the Estate argues that, notwithstanding Cook, the language of Section 20.7520-3(b) is broad enough to permit this Court to adopt a non-marketability exception, we decline to do so. This exception was rejected by Cook. The principles that guided Cook also guide us even with a new regulation as part of the direction given. Instead, we follow the Tax Court's rationale in Gribauskas, endorsed by Cook, that "a restriction within the meaning of the regulation is one which jeopardizes receipt of the payment stream, not one which merely impacts on the ability of the payee to dispose of his or her right thereto." Gribauskas, 116 T.C. at 165.
We affirm the district court's decision that Bankston's annuities were not "restricted beneficial interests" under Section 20.7520-3(b).
B. Unreasonable and Unrealistic Results
1. The Transamerica annuity (owned by Transamerica Occidental Life Insurance Company) guaranteed Bankston fifteen annual lump sum payments, ranging from $25,000 in 1992 to $150,000 in 2006. The MetLife annuity (owned by MetLife Security Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $9,350 in July 1991 and increasing three percent annually. The Jamestown annuity (owned by Jamestown Life Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $7,000 in July 1991 and increasing 3 percent annually.
2. The Estate estimated that the fair market value of the annuities at the time of Bankston's death was $1,198,900, not the $2,371,409 figure provided under the annuity tables.
3. The regulations note that a "special" Section 7520 annuity factor may be used to value a restricted beneficial interest in some circumstances. Treas. Reg. § 20.7520-3(b)(ii). Under those circumstances, a party may request a special annuity factor from the IRS. Id. The "special" annuity factor is not an issue in this case.
4. The Estate suggests that Cook is distinguishable from the present case because the Cook annuitant was also the owner of the annuity. Cook, 349 F.3d at 851-52. In the present case, other entities owned the Bankston annuities. We do not find this to be a significant distinction. The interest to be valued is the right to receive payments from an annuity, regardless of who owns the annuity. See Treas. Reg. § 20.2039-1. Both here and in Cook, the interest rendered non-transferable by agreement (be it a true ownership interest or merely a contractual right to receive payments) would otherwise be transferable. See 29 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 74.10 (4th ed.2000) ("Generally, all contract rights may be assigned in the absence of clear language expressly prohibiting the assignment. . . . ").
5. A "contingency" is defined as "[a]n event that may or may not occur; a possibility" or "[t]he condition of being dependent on chance; uncertainty." BLACK'S LAW DICTIONARY 338 (8th ed.2004). A "power" is defined as "[t]he legal right or authorization to act or not act; a person's or organization's ability to alter, by an act of will, the rights, duties, liabilities, or other legal relations either of that person or of another." BLACK'S LAW DICTIONARY 1207 (8th ed.2004).
6. The Estate argues it was error for the district court to cite two Technical Advice Memorandums ("TAMs") issued by the IRS; the lower court stated, though, that the TAMs had no precedential value. See 26 U.S.C. § 6110(k)(3). We do not rely on these TAMs.
7. The Second Circuit's reversal of the Tax Court came as the result of that Circuit's expansion of the law under the "unrealistic and unreasonable" standard. Gribauskas, 342 F.3d at 88. The Second Circuit did not interpret Section 20.7520-3(b) and did not criticize the Tax Court's interpretation of that regulation. Id. We find the Tax Court's interpretation of Section 20.7520-3(b) persuasive.
8. The $1,198,900 alternative valuation figure appears to be derived solely from a "fair market value analysis" offered as an exhibit to the Estate's original refund request. This analysis applies a twenty-five percent discount factor when valuing the annuity interest. It is unclear from the record who prepared the analysis or how the preparer arrived at the discount factor. Neither party offered an expert valuation during proceedings before the district court.