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Congress has focused on the fact that an
installment obligation which includes income
in respect of a decedent is subject to estate
tax as part of the gross estate. To the extent
the element of taxable gain included therein
is also subject to the income tax, Congress
has chosen to ameliorate the impact of this
double taxation by allowing an income tax
deduction for the estate tax attributable to
the taxable gain. There is no foundation in
the Code for supplementing this congressional
income tax relief by the estate tax relief
which petitioner here seeks.
We believe this reasoning is applicable to the instant
issue. Section 691(c) provides some relief to the estate from
the potential double income tax.12 Although the estate argues
that there is no legislative history on point, the legislative
intent is clear from the resulting relief from double income
taxation. In Estate of Smith v. United States, 391 F.3d 621 (5th
Cir. 2004), the court noted that Congress has not provided
similar relief in cases of closely held corporate stock with
capital gains potential. In cases involving closely held stock
with built-in capital gains, the capital gains tax potential
survives the transfer of the stock to an unrelated party, and
Congress has not granted any relief from that secondary tax. Id.
at 629. Not only does this observation highlight the fundamental
12We note that the sec. 691(c) deduction does not provide
complete relief against the double taxation that is frequently
encountered by income in respect of a decedent. Because this
section provides a deduction rather than a credit, its value is
limited to the highest marginal income tax bracket of the
recipient. However, such discrepancy was a congressional choice
and is not in our discretion to alter.
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