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SJC-12812

M. CHRISTINE SHAFFER, executrix,1     vs.   COMMISSIONER OF REVENUE.



         Suffolk.       February 10, 2020. - July 10, 2020.

   Present:    Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher,
                           & Kafker, JJ.


Taxation, Estate tax, Trust. Trust, Taxation. Due Process of
     Law, Taxation. Words, "Transfer," "Massachusetts gross
     estate."



    Appeal from a decision of the Appellate Tax Board.

     The Supreme Judicial Court granted an application for
direct appellate review.


     Leo J. Cushing (Jenna R. Wolinetz also present) for the
taxpayer.
     Celine E. de la Foscade-Condon (John J. Connors, Jr., also
present) for Commissioner of Revenue.


    CYPHER, J.      This case concerns whether the intangible

assets in a qualified terminable interest property (QTIP) trust,

which was created by the predeceasing spouse in New York, are




    1   Of the estate of Adelaide P. Chuckrow.
                                                                       2


subject to the Massachusetts estate tax, G. L. c. 65C, § 2A (a),

when the surviving spouse died domiciled in Massachusetts.

Adelaide P. Chuckrow (decedent), the lifetime income beneficiary

of the QTIP trust created in New York by her late husband Robert

Chuckrow (Robert), died domiciled in Massachusetts in 2011.      The

decedent's estate (estate) included the value of the QTIP trust

assets in computing her Federal estate tax return, but not in

computing her Massachusetts estate tax return.   The Commissioner

of Revenue (commissioner) selected the estate's Massachusetts

return for audit and assessed an additional Massachusetts estate

tax of $1,809,141.88, based on the value of the QTIP assets.

The Appellate Tax Board (board) upheld the assessment.    The key

issue before us is whether the intangible assets in a QTIP trust

created by the predeceasing spouse when he was domiciled in a

different State are includable in the gross estate of the

Massachusetts domiciliary decedent for purposes of calculating

the Massachusetts estate tax under § 2A (a).   We affirm the

decision of the board that there is not a constitutional or a

statutory barrier to the assessment of Massachusetts estate tax,

on the value of the QTIP assets.

    Background.   1.   Statutory framework.   We begin with an

overview of the statutory framework, in order to provide context

to the following discussion.
                                                                     3


      a.   Federal estate tax and Massachusetts estate tax.     An

estate tax is a tax on the privilege of transferring property at

death.     See Knowlton v. Moore, 178 U.S. 41, 56 (1900).   Internal

Revenue Code § 2001(a) sets forth the Federal estate tax:       "A

tax is hereby imposed on the transfer of the taxable estate of

every decedent who is a citizen or resident of the United

States."    26 U.S.C. § 2001(a).   General Laws c. 65C, § 2A (a),

sets forth the Massachusetts estate tax.    Following various

versions of the Massachusetts estate tax in response to the

changes in the Internal Revenue Code, in 2002, the Legislature

amended § 2A to use a "sponge tax" calculation2 based upon the

Federal credit for State death taxes that would have been

allowable to a decedent's estate in 2000.     See G. L. c. 65C, §

2A (a); St. 2002, c. 186, §§ 28, 34; St. 2002, c. 364, §§ 10,

23.   See also Department of Revenue, Technical Information

Release 02-18 (Nov. 6, 2002) ("reference point Massachusetts

uses to tie itself to the [Internal Revenue] Code for sponge tax

purposes is a fixed date instead of a reference point that

automatically incorporates any federal changes.    Thus, due to

the decoupling legislation, the Massachusetts sponge tax is now

tied to the [Internal Revenue] Code as in effect on December 31,


      2Under a "sponge tax," the State tax liability is
determined based on the Federal estate death tax credit. See
Ward v. Commissioner of Corps. & Taxation, 369 Mass. 3, 4
(1975).
                                                                    4


2000").   The Massachusetts estate tax imposes a tax "upon the

transfer of the estate of each person dying on or after January

1, 1997 who, at the time of death, was a resident of the

commonwealth."   G. L. c. 65C, § 2A (a).

     b.   Marital deduction.   The marital deduction allows an

estate to deduct from the value of the taxable estate certain

property that passes or has passed from a decedent to the

decedent's surviving spouse.   26 U.S.C. § 2056(a).   In general,

a marital deduction defers the estate tax on the property

subject to the marital deduction until the death of the

surviving spouse; it does not eliminate the tax liability

altogether.   See Estate of Sommers v. Commissioner of Internal

Revenue, 149 T.C. 209, 223 (2017).

     c.   QTIP trust.   An estate generally may not make use of

the marital deduction when conveying terminable interest

property (terminable interest rule).    26 U.S.C. § 2056(b)(1).

However, 26 U.S.C. § 2056(b)(7) provides an exception to the

terminable interest rule for QTIP.     To become QTIP, (1) the

property must pass from the predeceasing spouse, (2) the

surviving spouse must have a qualifying income interest for life3




     3 "The surviving spouse has a qualifying income interest for
life if . . . (I) the surviving spouse is entitled to all the
income from the property, payable annually or at more frequent
intervals, or has a usufruct interest for life in the property,
and (II) no person has a power to appoint any part of the
                                                                      5


in the property, and (3) the executor of the estate of the

predeceasing spouse must elect to designate the property as

QTIP.    26 U.S.C. § 2056(b)(7)(B).   Using a QTIP trust allows for

the deferral of the Federal estate tax on the assets used to

create the QTIP trust until the surviving spouse dies.4    See 26

U.S.C. § 2044.   See also Estate of Clayton v. Commissioner of

Internal Revenue, 976 F.2d 1486, 1491-1493 (5th Cir. 1992)

(explaining history of marital deduction and QTIP).

     2.   Robert's creation of the QTIP trust.    Robert died in

July 1993, while domiciled in New York.5    His last will and

testament established a trust for the decedent's benefit.       The

trust qualified for a QTIP trust election under 26 U.S.C.

§ 2056(b)(7) and under New York law.     At the time of Robert's

death, the trust assets totaled $844,101.27, and consisted

wholly of intangible property, including shares in various

companies and a fifty percent limited partnership interest in

Chuckrow Smith Associates, L.P.




property to any person other than the surviving spouse."     26
U.S.C. § 2056(b)(7)(B)(ii).

     4 Although not relevant to this appeal, the assets in a QTIP
trust would be subject to tax before the surviving spouse's
death if the surviving spouse disposed of all or part of the
qualifying income interest before his or her death. 26 U.S.C.
§ 2519.

     5 At the time of Robert's death, the decedent was also
domiciled in New York.
                                                                      6


     The trustees of the trust were the two adult daughters of

the decedent and Robert.    The decedent did not hold general or

limited powers of appointment over the trust assets.      The

trustees were entitled to the remainder interest of the trust

upon the decedent's death.

     After Robert's death, his estate filed Federal and New York

tax returns.6   In both returns, the estate reported no tax due,

claiming the marital deduction in the full amount of the QTIP

assets.

     3.    Prior proceedings.   The decedent died in August 2011,

while domiciled in Massachusetts.    The estate filed a

Massachusetts estate tax return, reporting a tax due of $100,997

and including a payment in that amount.     The value of the QTIP

assets was not included in the Massachusetts estate tax return,

but it was included in the estate's Federal tax return.7        The

estate did not file a New York estate tax return, nor did it pay

any New York estate tax.

     The commissioner selected the estate's Massachusetts estate

tax return for an audit.    The commissioner sent the estate a

notice of intention to assess and a notice of intention to


     6   Robert's estate did not file a Massachusetts tax return.

     7 The estate's Massachusetts return reported a total gross
estate of $2,382,148, and the estate's Federal return reported a
total gross estate of $15,633,617, the difference being the
value of the QTIP assets.
                                                                     7


assess work papers, showing the commissioner proposed an

additional Massachusetts tax assessment of $1,809,141.88.     The

additional tax assessment was based on the total gross estate

reported on the Federal estate tax return.     The commissioner

assessed the tax as proposed, and sent the estate a notice of

assessment, which included the $1,809,141.88 plus interest.       The

estate paid the amount assessed.

    The estate then filed an abatement application, which the

commissioner denied.   The estate appealed to the board from the

denial of the abatement application.    The parties submitted an

agreed statement of facts along with their arguments in briefs

and oral arguments, and no evidentiary hearing was held.

    4.   The board's decision.     The board issued a decision in

favor of the commissioner and subsequently promulgated its

findings of fact and report.    One of the board's commissioners

dissented.

    The board ruled that the QTIP assets were subject to tax

under G. L. c. 65C, § 2A (a).    It disagreed with the two primary

arguments raised by the estate:     (1) that there was only one

transfer of the QTIP assets, which took place when Robert died

in New York, and therefore the Massachusetts assessment violates

the Fourteenth Amendment to the United States Constitution and

art. 10 of the Massachusetts Declaration of Rights; and (2) that

the QTIP assets were not includable in the decedent's estate
                                                                    8


because "the definition of 'Massachusetts gross estate' in

[G. L. c. 65C, § 1 (f),] excludes QTIP property for which a

Federal, but not a Massachusetts, QTIP election was made."

    In addressing the estate's constitutional argument and

interpreting the term "transfer," the board relied on case law

analogous to the present matter, in which courts gave the term a

broad construction.   See Fernandez v. Wiener, 326 U.S. 340, 352

(1945); Estate of Brooks v. Commissioner of Revenue Servs., 325

Conn. 705, 733 (2017), cert. denied, 138 S. Ct. 1181 (2018).

The board also noted that 26 U.S.C. § 2044(c) provides, in part,

that QTIP property "shall be treated as property passing from"

the surviving spouse, and that other sections of the Internal

Revenue Code treat the surviving spouse as the transferor of the

full value of the QTIP property.   See 26 U.S.C. §§ 2044(c),

2519, 2652(a).   The board accordingly determined that for estate

tax purposes, there are two transfers of QTIP assets.   The first

is "a transfer from the estate of the first-to-die spouse to the

surviving spouse when the QTIP election is made," and the second

is "a transfer from the estate of the surviving spouse to the

designated beneficiaries when the surviving spouse dies."

Applying that reasoning to the QTIP assets at issue, the board

ruled that constitutional principles were not violated because

the second transfer of the QTIP assets occurred in

Massachusetts.
                                                                   9


     In addressing the estate's statutory argument, the board

stated that the "fatal flaw" with the estate's analysis that

G. L. c. 65C, § 1 (f), "provides that only those QTIP assets for

which a Massachusetts deduction was allowed in the estate of the

first-to-die spouse are includable in the Massachusetts gross

estate of the surviving spouse" was that § 1 (f) defines

"Massachusetts gross estate," which is a term "not found in the

operative taxing statute, [G. L. c. 65C,] § 2A."   The board

looked to the Legislature's enactment of § 1 (f), as well as to

its enactment of G. L. c. 65C, § 3A, which addresses the

Massachusetts election of QTIP treatment, and determined that

the § 1 (f), definition of Massachusetts gross estate applies

only when the predeceasing spouse makes a Massachusetts QTIP

election under § 3A.   It therefore concluded that because Robert

did not make a Massachusetts QTIP election and there was not any

Massachusetts QTIP property (as defined in § 3A), §§ 1 (f) and

3A do not pertain to the estate's Massachusetts estate tax

obligation under § 2A (a).8




     8 The board also rejected the estate's argument regarding
potential double taxation and G. L. c. 65C, § 1 (f), concluding,
"The [estate] offered no reasoned basis to interpret a statute
that prevents double taxation of Massachusetts QTIP property
under limited circumstances in a manner that prevents taxation
of the QTIP assets where no double taxation is possible and the
assets are explicitly and exclusively taxable under [G. L. c.
65C,] § 2A."
                                                                    10


    The board therefore ruled that the decedent's estate "is

taxable under the unambiguous terms of [§ 2A (a)]."     The

dissenting commissioner concluded that the only transfer of the

QTIP assets occurred at the time of Robert's death, and that

therefore the commissioner's assessment violated constitutional

principles.

    The estate filed a timely notice of appeal from the board's

decision, and we granted its motion for direct appellate review.

    Discussion.     1.   Standard of review.   In reviewing

decisions of the board, "[w]e review conclusions of law,

including questions of statutory construction, de novo."      Shrine

of Our Lady of La Salette Inc. v. Assessors of Attleboro, 476

Mass. 690, 696 (2017), quoting New England Forestry Found., Inc.

v. Assessors of Hawley, 468 Mass. 138, 149 (2014).     "However,

because the board is an agency charged with administering the

tax law and has expertise in tax matters, we give weight to its

interpretation of tax statutes . . ." (quotation and citation

omitted).    AA Transp. Co. v. Commissioner of Revenue, 454 Mass.

114, 119 (2009).    See Boston Professional Hockey Ass'n v.

Commissioner of Revenue, 443 Mass. 276, 285 (2005) ("We will not

modify or reverse a decision of the board if the decision is

based on both substantial evidence and a correct application of

the law").
                                                                   11


    2.   Constitutionality of the Massachusetts estate tax.       We

first address whether the Massachusetts estate tax, G. L.

c. 65C, § 2A (a), violates the due process clause of the

Fourteenth Amendment and art. 10.   The estate argues that the

Massachusetts estate tax violates constitutional principles

because it includes property wherever situated.     The estate

further contends that the board erred in finding that a transfer

occurred upon the death of the decedent, and that therefore

Massachusetts did not have a constitutional basis to tax the

QTIP trust assets.   The commissioner argues that the

Massachusetts estate tax does not violate constitutional

principles and that a transfer occurred upon the death of the

decedent and, therefore, the decedent's domicil in Massachusetts

provided the constitutional basis for Massachusetts to tax the

trust assets.   We agree with the board that the Massachusetts

estate tax does not violate constitutional principles and that a

transfer occurred upon the death of the decedent.

    States may only impose an estate tax on tangible property,

such as real estate, located within the State's jurisdiction.

See Frick v. Pennsylvania, 268 U.S. 473, 488-492 (1925).     The

analysis, however, differs for a State's imposition of an estate

tax on intangible property, such as the QTIP assets here, with

the decedent's domicil in the State at death forming the

requisite nexus for the State to impose the estate tax.     See
                                                                   12


Curry v. McCanless, 307 U.S. 357, 366 (1939); Page v.

Commissioner of Revenue, 389 Mass. 388, 395 (1983).     See also

Graves v. Schmidlapp, 315 U.S. 657, 660 (1942) ("Intangibles,

which are legal relationships between persons and which in fact

have no geographical location, are so associated with the owner

that they and their transfer at death are taxable at the place

of his domicile . . .").

    In addition, "the estate tax as originally devised and

constitutionally supported was a tax upon transfers."

Fernandez, 326 U.S. at 352.   See G. L. c. 65C, § 2A (a) ("A tax

is hereby imposed upon the transfer of the estate of each person

dying on or after January 1, 1997 who, at the time of death, was

a resident of the commonwealth").   See generally Knowlton, 178

U.S. at 56.   Therefore, because in the present case the QTIP

trust consisted completely of intangible assets, and the

decedent was domiciled in Massachusetts at the time of her death

in 2011 and was therefore subject to the provisions of § 2A (a),

the question presented herein is what constitutes a "transfer"

for estate tax purposes.

    As the board did in interpreting "transfer," we look to

case law analogous to the issue at hand.   In Fernandez, 326 U.S.

at 342, 352, 355, the United States Supreme Court addressed the

scope of what constitutes a transfer in the context of an estate

tax levied on the termination of marital community property and
                                                                     13


noted that the decedent's death enabled the surviving spouse to

have greater rights in the subject property.      The Court stated

that an estate tax is not limited to literal transfers at death,

but "extends to the creation, exercise, acquisition, or

relinquishment of any power or legal privilege which is incident

to the ownership of property."     Id. at 352.   In Estate of

Brooks, 325 Conn. at 733, the Connecticut Supreme Court used the

broad interpretation of the term "transfer" from Fernandez in

addressing the issue of Connecticut's ability to tax the value

of assets in a QTIP trust.     As in the case at hand, in Estate of

Brooks, the trust at issue was created by the predeceasing

spouse while he was a domiciliary of another State, and then the

surviving spouse died as a domiciliary of Connecticut.      Id. at

707-708.   The estate of the surviving spouse challenged the

constitutionality of Connecticut's imposition of an estate tax

on the QTIP assets, arguing, in part, that the only transfer of

the QTIP assets took place in the other State.      Id. at 726.   The

Connecticut Supreme Court determined that a second transfer of

the QTIP assets occurred upon the death of the surviving spouse.

Id. at 730-731.    In reaching this conclusion, the court stated

that "a sovereign may tax the transmutation of legal rights in

property occasioned by death."     Id. at 729, citing Fernandez,

supra at 358.     The Connecticut Supreme Court noted that the

Fernandez Court's practical approach "looked not to whether
                                                                   14


death was the generating source of 'rights,' but rather whether

death was the generating source of 'changes in the legal and

economic relationships to the property taxed.'"    Estate of

Brooks, supra at 733, quoting Fernandez, supra at 356-357.

    In addition, the Federal QTIP rules create fictional

transfers.   Although the surviving spouse receives only a

lifetime income interest from the predeceasing spouse, the

Internal Revenue Code QTIP rules treat property subject to a

QTIP election as passing in full from the predeceasing spouse to

the surviving spouse, with the property then passing from the

surviving spouse.    See 26 U.S.C. §§ 2044(c), 2056(b)(7)(A),

2519(a); Estate of Morgens v. Commissioner of Internal Revenue,

678 F.3d 769, 771 (9th Cir. 2012) ("underlying premise of the

QTIP regime is that the surviving spouse is deemed to receive

and then give the entire QTIP property, rather than just the

income interest.    The purpose of the QTIP regime is to treat the

two spouses as a single economic unit with respect to the QTIP

property while still allowing the first-to-die spouse to control

the eventual disposition of the property").

    In the present case, the decedent's death created a change

in the legal relationship among the QTIP assets, the decedent,

and the beneficiaries.    See Fernandez, 326 U.S. at 355; Estate

of Brooks, 325 Conn. at 733.    Before her death, the decedent had

a lifetime interest in the QTIP assets.    See 26 U.S.C.
                                                                   15


§ 2056(b)(7)(B).     After her death, her daughters, as the

beneficiaries, received a present interest in the QTIP assets.

It is this change in legal relationship that occurred upon the

death of the decedent that constitutes a transfer for estate tax

purposes and brings the QTIP assets within the Massachusetts

taxable estate.    See Fernandez, supra at 355; Estate of Brooks,

supra at 729, 733.

    We therefore agree with the board that two transfers of

QTIP property occur for estate tax purposes, with the first

occurring when the predeceasing spouse makes the QTIP election

and the second occurring upon the death of the surviving spouse.

Therefore, the decedent's domicil in Massachusetts at the time

of her death, and therefore at the time of the second transfer,

provided the connection to the Commonwealth to allow

Massachusetts to impose an estate tax on the QTIP assets.

    3.   Applicability of definition of "Massachusetts gross

estate" in G. L. c. 65C, § 1 (f).    We next address whether the

board correctly determined that G. L. c. 65C, §§ 1 (f) and 3A,

do not bear upon the estate's Massachusetts estate tax

obligation.   The estate argues that the definition of

"Massachusetts gross estate" in § 1 (f) should apply to the

Massachusetts estate tax, and that therefore the value of the

QTIP assets should not be included in the estate.     The

commissioner responds that § 1 (f) is not applicable to G. L. c.
                                                                   16


65C, § 2A, and that the board correctly interpreted and applied

the unambiguous language of § 2A, which requires the inclusion

of all assets reported in the Federal gross estate.   We agree

with the board that § 1 (f) does not apply to the estate's

Massachusetts estate tax obligation under § 2A.

     We look first to the plain meaning of the statute.     See

Thurdin v. SEI Boston, LLC, 452 Mass. 436, 444 (2008) ("where

the language of a statute is plain and unambiguous, it is

conclusive as to legislative intent").    General Laws c. 65C,

§ 1 (f), defines "Massachusetts gross estate."9   See G. L.

c. 65C, § 1 ("When used in this chapter the following words or

terms shall have, unless the context clearly indicated

otherwise, the following meanings . . .").

     The term "Massachusetts gross estate," however, is not used

in G. L. c. 65C, § 2A, which is the statute the estate was

subject to because the decedent died on or after January 1,

1997.    Instead of referring to "Massachusetts gross estate," §




     9 "[T]he federal gross estate . . . plus the value of any
property (i) in which the decedent had at death a qualifying
income interest for life described in [G. L. c. 65C, § 3A (c),]
. . . and (ii) for which a deduction was allowed for
Massachusetts estate tax purposes with respect to the transfer
of such property to the decedent . . . . The Massachusetts
gross estate shall not include the value of any property in
which the decedent had a qualifying income interest for life
which is not otherwise includible in the Massachusetts gross
estate under the first sentence of this paragraph . . . ."
G. L. c. 65C, § 1 (f).
                                                                      17


2A provides for an estate tax equal to the State tax credit

"that would have been allowable to a decedent's estate as

computed under Code section 2011, as in effect on December 31,

2000."    G. L. c. 65C, § 2A (a).   See G. L. c. 65C, § 2A (e)

("all references and provisions in this chapter to the Internal

Revenue Code or Code, unless the context clearly indicates

otherwise, shall be to the Code as in effect on December 31,

2000").

    General Laws c. 65C, § 3A, which covers the Massachusetts

QTIP election by the predeceasing spouse, and is not at issue

here, does utilize the term "Massachusetts gross estate."     G. L.

c. 65C, § 3A (b) (providing requirements to qualify as QTIP for

Massachusetts estate tax purposes, including that subject

property must be "included in the Massachusetts gross estate" of

predeceasing spouse).    The Legislature enacted § 3A in 1985, at

the same time that it amended G. L. c. 65C, § 1 (f), to address

a decedent's qualifying income interest and to refer to § 3A.

See St. 1985, c. 711, §§ 6, 12.     While § 3A provides

requirements for the predeceasing spouse to make a QTIP

election, § 1 (f), in turn, provides that when the surviving

spouse who had a qualifying income interest for life, as

described in § 3A (c), dies, then only property for which the

predeceasing spouse was allowed a Massachusetts deduction will

be included in the taxable estate of the surviving spouse.       In
                                                                 18


other words, the definition of "Massachusetts gross estate" in

§ 1 (f) applies only where the predeceasing spouse makes a

Massachusetts QTIP election for property that is included in the

Massachusetts gross estate of the predeceasing spouse under

§ 3A.

     Because Robert's estate did not make a Massachusetts QTIP

election, nor was there otherwise any Massachusetts QTIP

property as defined in G. L. c. 65C, § 3A, the board did not err

in determining that G. L. c. 65C, §§ 1 (f) and 3A, do not bear

upon the estate's Massachusetts estate tax obligation under

G. L. c. 65C, § 2A.   Therefore, we look to the plain meaning of

§ 2A, which requires the inclusion of all assets that the estate

reported in the Federal gross estate.10   Therefore, the QTIP

assets were includable in the estate for purposes of the

Massachusetts estate tax.

     For the foregoing reasons, we affirm the decision of the

board.

                                   So ordered.




     10In addition, the estate's contention that the current
Massachusetts estate tax does not eliminate the potential of
double taxation is without merit under the present
circumstances. The estate is not subject to double taxation, as
the QTIP assets in Robert's estate were not subject to
Massachusetts or New York tax before the decedent's death.
