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Opinion of Kennedy, J.
tions. One was the marital deduction, under 68A Stat. 392, as amended, 26 U. S. C. § 2056, for qualifying property passing from a decedent to the surviving spouse. The other was the charitable deduction, under § 2055, for qualifying property passing from a decedent to a charity. The Commissioner's notice of deficiency asserted, for reasons not relevant here, that the property passing to Hubert's surviving wife and to charity did not qualify for the marital and charitable deductions. The estate petitioned the United States Tax Court for a redetermination of the deficiency.
Within days of the estate's petition in the Tax Court, much of the other litigation surrounding the estate settled. The settlement agreement divided the estate's residue principal between a marital and a charitable share, which we can assume for purposes of our discussion were worth a total of $26 million on the day Hubert died. The settlement agreement divided the $26 million principal about half to trusts for the surviving spouse and half to a trust for the charities. The Commissioner stipulated that the nature of the trusts did not prevent them from qualifying for the marital and charitable deductions. The stipulation streamlined the Tax Court litigation but did not resolve it.
The settlement agreement provided that the estate would pay its administration expenses either from the principal or from the income of the assets that would comprise the residue and the corpus of the trusts, preserving the discretion Hubert's most recent will had given his executors to apportion administration expenses. The apportionment provisions of the agreement and the will were consistent for all relevant purposes with the law of Georgia, the State where the decedent resided. The estate's administration expenses, including attorney's fees, were on the order of $2 million. The estate paid about $500,000 in expenses from principal and the rest from income.
The estate recalculated its estate tax liability based on the settlement agreement and the payments from principal.
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