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1433(b)(2)(A). Holding that the constructive addition principle
embodied in section 26.2601-1(b)(1)(v)(A), Temporary GST Tax
Regs., supra, was a reasonable construction of the statute, the
Court of Appeals rejected the taxpayer’s argument the word
“added” in TRA 1986 section 1433(b)(2)(A) should be interpreted
according to its ordinary, literal meaning (thus requiring an
actual increase in the size of the trust as opposed to a
constructive addition to the trust). Peterson Marital Trust v.
Commissioner, 78 F.3d at 800.
The Court of Appeals also rejected the taxpayer’s argument
the regulation in question was invalid because it did not comport
with the purpose of the effective date provisions. The taxpayer
argued Mrs. Peterson allowed her power of appointment to lapse in
an innocent effort to honor her husband’s wishes and no elaborate
legal maneuvers were employed in carrying out the transfers. The
Court of Appeals responded as follows:
The [effective date] rule was not enacted to allow
taxpayers who, in good faith and without intent to
evade taxes, seek to continue benefitting from a tax
advantage that Congress has eliminated. It was
designed, instead, to protect those taxpayers who, on
the basis of pre-existing rules, made arrangements from
which they could not reasonably escape and which, in
retrospect had become singularly undesirable.6 By
giving Mrs. Peterson a general power of appointment
over the trust, Mr. Peterson created an arrangement
which was desirable under then-existing tax laws and
which could be reworked completely should the laws
change, as they in fact did. There is no reason to
“grandfather” such a mutable arrangement, and Congress
has given no indication that it wished to do so.
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