Commissioner v. Estate of Bosch United States Supreme Court, 1967, 387 U.S S. Ct L. Ed. 2d USTC Para. 12, AFTR2d Para. 147, AFTR2d U.S. Lexis 2840 Judge: Clark (opinion) Ric Honsa TAX 8020

Facts Decedent created a revocable trust in 1930 Decedent created a revocable trust in 1930 The spouse (taxpayer) sought to convert the general power of appointment to a special power in 1951, prior to her husband’s death The spouse (taxpayer) sought to convert the general power of appointment to a special power in 1951, prior to her husband’s death Husband dies; the taxpayer took the marital deduction Husband dies; the taxpayer took the marital deduction The commissioner disallowed the marital deduction, ruling that it did not qualify under section 2056(b)(5) The commissioner disallowed the marital deduction, ruling that it did not qualify under section 2056(b)(5) The taxpayer sought relief in the tax court AND filed a petition in the New York Supreme Court (state court), seeking a re-determination of the characterization of the special power (taxpayer wanted the change from general power to special power to be declared void) The taxpayer sought relief in the tax court AND filed a petition in the New York Supreme Court (state court), seeking a re-determination of the characterization of the special power (taxpayer wanted the change from general power to special power to be declared void)

Facts: (continued) Facts: (continued) The Tax Court withheld a decision pending the outcome of the state court The Tax Court withheld a decision pending the outcome of the state court The state court did declare the instrument used to change powers as invalid The state court did declare the instrument used to change powers as invalid The Tax Court recognized the decision of the state court as being “an authoritative exposition of New York law and adjudication of the property rights involved,” and held that the marital deduction was allowable The Tax Court recognized the decision of the state court as being “an authoritative exposition of New York law and adjudication of the property rights involved,” and held that the marital deduction was allowable The Commissioner disagreed and appealed the decision to the Second Circuit; the Second Circuit agreed with the T.C., holding that the state court “had authoritatively determined the rights of the parties,” and therefore, “was not required to delve into the correctness of that state court decree” The Commissioner disagreed and appealed the decision to the Second Circuit; the Second Circuit agreed with the T.C., holding that the state court “had authoritatively determined the rights of the parties,” and therefore, “was not required to delve into the correctness of that state court decree”

Issue Are state court decisions concerning property rights binding upon Federal Courts and agencies? Are state court decisions concerning property rights binding upon Federal Courts and agencies?

Holding No, the decisions of state courts do not necessarily bind the Federal Government, whether Judicial or Agency No, the decisions of state courts do not necessarily bind the Federal Government, whether Judicial or Agency

Reasoning  Justice Clark declared that, “decisions in a state trial court are not attributed the same weight as decisions in the state’s highest court,” especially when the “United States in not made a party to such proceeding.”  Justice Clark opined on the intent of congress and the Senate Finance Committee’s report, which suggested that proper regard should be given state court decisions, not finality  Limitations placed upon allowance of deduction  Justice Clark cited King v. Order of Travellers, 333 U.S. 153: lower state court rulings not highly regarded when state’s highest court has not weighed in  If no ruling by high state court, Federal Court shall give proper regard to other state rulings, in effect, “sitting as a state court”