                           120 T.C. No. 14



                    UNITED STATES TAX COURT



ESTATE OF AVROM A. SILVER, DECEASED, BONNY FERN SILVER, KENNETH
       KIRSH, AND RONALD FAUST, EXECUTORS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 10125-01.                 Filed May 14, 2003.


         D was not a citizen or resident of the United
    States. D’s will provided for charitable bequests to
    Canadian-registered charities. These bequests were
    paid solely out of funds and property located outside
    the United States.

         Held: A charitable deduction on the estate tax
    return larger than that determined by respondent is not
    allowed because the convention between the United
    States and Canada, as amended by the 1995 Protocol,
    requires that the bequests be funded from property
    subject to the U.S. estate tax. Revised Protocol
    Amending the Convention With Respect to Taxes on Income
    and Capital, Mar. 17, 1995, U.S.-Can., S. Treaty Doc.
    104-4 (1995).
                               - 2 -

     Edward C. Northwood, for petitioner.

     Kevin M. Murphy, for respondent.


                              OPINION


     VASQUEZ, Judge:   Respondent determined a deficiency of

$105,3251 in the Federal estate tax of the Estate of Avrom A.

Silver (decedent).   The issue for decision is whether the estate

of decedent, who was not a citizen of the United States and did

not reside in the United States, is entitled to a charitable

contribution deduction on the estate tax return (of more than the

amount allowed by respondent) pursuant to the Revised Protocol

Amending the Convention With Respect to Taxes on Income and

Capital, Mar. 17, 1995, U.S.-Can., S. Treaty Doc. 104-4 (1995)

(1995 Protocol).

Background

     The parties submitted this case fully stipulated pursuant to

Rule 122.2   The stipulation of facts and the attached exhibits

are incorporated herein by this reference.   At the time the

petition was filed, the mailing address for the estate was in

Toronto, Ontario, Canada.




     1
         Amounts are rounded to the nearest dollar.
     2
        All section references are to the Internal Revenue Code,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                 - 3 -

     Decedent, a citizen and resident of Canada, died on October

26, 1997.   The executors of the estate are Bonny Fern Silver,

Kenneth Kirsh, and Ronald Faust, none of whom resides in the

United States.

     Decedent’s will provided for charitable bequests of $312,840

to Canadian-registered charities; these charities are

organizations described in paragraph 1 of article XXI of the

Convention With Respect to Taxes on Income and Capital, Sept. 26,

1980, U.S.-Can., art. XXI, par. 1, T.I.A.S. No. 11087, 1986-2

C.B. 258, 265 (the convention).    The bequests were paid solely

out of funds and property located outside the United States.

     Decedent’s gross estate in the United States consisted of

252,775 shares of Neuromedical Systems, Inc., valued at $516,268

on the alternate valuation date.    See sec. 2104(a).   The value of

decedent’s gross estate outside the United States was over $100

million.

     Upon decedent’s death, the estate filed a Form 706NA, United

States Estate (and Generation Skipping Transfer) Tax Return (tax

return).    The estate claimed a charitable contribution deduction

of $312,840 on the tax return.

     In the notice of deficiency, respondent allowed a charitable

contribution deduction of only $1,615.    Respondent explained:

     The decedent’s will, however, did not direct payment of
     the residuary charitable bequests exclusively from the
     U.S. assets. As a result, the charitable deduction is
                                 - 4 -

     limited to the proportionate part of the U.S. assets
     that passes to the charitable legatees.

Respondent calculated the deduction as follows:     ($516,268/$100

million) x $312,840 = $1,615 (i.e., the value of U.S. assets over

the value of worldwide assets multiplied by the amount of

charitable bequests in issue).

Discussion

     The estate argues that the value of decedent’s charitable

bequests is deductible in full pursuant to article XXIX B of the

convention, as amended by the 1995 Protocol.     Respondent argues

that only a proportional deduction is allowed because there is no

direction in the will regarding which property is to be used to

fund the bequests.

     A decedent who is not a resident or citizen of the United

States is subject to a tax on the transfer of the taxable estate

which is situated in the United States at the time of the

decedent’s death (estate tax).     Secs. 2101, 2103.    Section

2106(a)(2)(A)(ii) allows a deduction from the value of the

decedent’s taxable estate for bequests to a domestic corporation

organized and operated for charitable purposes.3       Further, this


     3
         This section provides, in relevant part:

     SEC. 2106.   TAXABLE ESTATE

          (a) Definition of Taxable Estate.--For purposes
     of the tax imposed by section 2101, the value of the
     taxable estate of every decedent nonresident not a
                                                   (continued...)
                                - 5 -

deduction is limited to “transfers to corporations and

associations created or organized in the United States, and to

trustees for use within the United States”.     Sec. 20.2106-

1(a)(2)(i), Estate Tax Regs.; see sec. 2106(a)(2)(A)(ii).       This

deduction may not exceed the value of the transferred property

required to be included in the gross estate.        Sec. 2106(a)(2)(D).

Decedent did not make a bequest to a corporation or association

created or organized in the United States; decedent made all

relevant bequests to Canadian-registered organizations described

in paragraph 1 of article XXI of the convention.4       We conclude


     3
      (...continued)
     citizen of the United States shall be determined by
     deducting from the value of that part of his gross
     estate which at the time of his death is situated in
     the United States--

                    *   *   *    *      *   *   *

               (2) Transfers for public, charitable, and
          religious uses.--

                     (A) In general.- The amount of all
               bequests, legacies, devises, or transfers
               * * *

                    *   *   *    *      *   *   *

                         (ii) to or for the use of any
                    domestic corporation organized and
                    operated exclusively for religious,
                    charitable, scientific, literary, or
                    educational purposes, * * *.
     4
        We note that the estate did not argue that the bequests,
although made to Canadian-registered organizations, were
ultimately used in the United States. Cf. Estate of McAllister
                                                   (continued...)
                                - 6 -

that the estate is not entitled to a deduction for the charitable

bequests for more than the amount allowed by respondent.5

     The 1995 Protocol added to the convention article XXIX B,

paragraph 1,6 which provides:

          Where the property of an individual who is a
     resident of a Contracting State passes by reason of the
     individual’s death to an organization referred to in
     paragraph 1 of Article XXI (Exempt Organizations), the
     tax consequences in a Contracting State arising out of
     the passing of the property shall apply as if the
     organization were a resident of that State.

In the instant case, this provision takes precedence over the

statute according to the “last-in-time” rule.7   Whitney v.


     4
      (...continued)
v. Commissioner, 54 T.C. 1407, 1415-1416 (1970) (bequest to
Canadian foundation to be used for the benefit of Canadian
students attending college in the United States).
     5
        Further, the regulations direct us to compute the
deduction in the same manner as the one allowed under sec. 2055.
Sec. 20.2106-1(a)(2), Estate Tax Regs. A deduction is allowed
from the gross estate of a decedent under sec. 2055(a) “for the
value of property included in the decedent’s gross estate and
transferred by the decedent during his lifetime or by will”.
Sec. 20.2055-1(a), Estate Tax Regs.
     6
        We note that Canada does not impose an estate tax. At
death, the capital assets of a decedent are deemed to be disposed
of, and any resulting gains generally are subject to Canadian
income tax. This provision in the 1995 Protocol was intended to
coordinate U.S. estate tax provisions with the relevant
provisions in the Canadian income tax. S. Exec. Rept. 104-9, at
9-10 (1995).
     7
        The U.S. Supreme Court generally described the “last-in-
time” rule as follows:

     By the Constitution a treaty is placed on the same
     footing, and made of like obligation, with an act of
                                                   (continued...)
                              - 7 -

Robertson, 124 U.S. 190, 194 (1888); Square D Co. & Subs. v.

Commissioner, 118 T.C. 299, 313 (2002).   The estate argues that

this paragraph in the 1995 Protocol overrides section 2106,

allows the Canadian-registered charities to be treated as U.S.

residents, and allows the estate the full charitable deduction.

Respondent argues that the convention, as amended by the 1995

Protocol, does not change the result from that under section

2106.

     With regard to interpreting the 1995 Protocol, we stated in

N.W. Life Assurance Co. of Can. v. Commissioner, 107 T.C. 363,

378-379 (1996):

          The goal of convention interpretation is to “give
     the specific words of a * * * [convention] a meaning
     consistent with the genuine shared expectations of the
     contracting parties”. Maximov v. United States, 299
     F.2d 565, 568 (2d Cir. 1962), affd. 373 U.S. 49 (1963).
     Courts liberally construe treaties to give effect to
     their purpose. United States v. Stuart, 489 U.S. 353,
     368 (1989); Bacardi Corp. of Am. v. Domenech, 311 U.S.
     150, 163 (1940). * * * “Although not conclusive, the
     meaning attributed to treaty provisions by the


     7
      (...continued)
     legislation. Both are declared by that instrument to
     be the supreme law of the land, and no superior
     efficacy is given to either over the other. When the
     two relate to the same subject, the courts will always
     endeavor to construe them so as to give effect to both,
     if that can be done without violating the language of
     either; but if the two are inconsistent, the one last
     in date will control the other, provided always the
     stipulation of the treaty on the subject is self-
     executing. * * *

Whitney v. Robertson, 124 U.S. 190, 194 (1888).
                              - 8 -

     Government agencies charged with their negotiation and
     enforcement is given great weight”. United States v.
     Stuart, supra at 369 (citing Kolovrat v. Oregon, 366
     U.S. 187, 194 (1961)).

     * * * It is the role of the judiciary to interpret
     international conventions and to enforce domestic
     rights arising from them. See Kolovrat v. Oregon, 366
     U.S. 187 (1961); Perkins v. Elg, 307 U.S. 325 (1939);
     Charlton v. Kelly, 229 U.S. 447 (1913); United States
     v. Rauscher, 119 U.S. 407 (1886). Tax treaties are
     purposive, and, accordingly, we should consider the
     perceived underlying intent or purpose of the treaty
     provision. See, e.g., Estate of Burghardt v.
     Commissioner, * * * [80 T.C. 705, 717 (1983), affd.
     without published opinion 734 F.2d 3 (3d Cir. 1984)]
     (treating a reference to a “specific exemption” in a
     U.S.-Italy estate tax treaty as not limited to an
     exemption as such, but included a subsequently enacted
     unified credit having the same function as an
     exemption); Smith, “Tax Treaty Interpretation by the
     Judiciary”, 49 Tax Law. 845, 858-867 (1996). In
     addressing the issues of this case, we shall keep at
     the forefront our role in the interpretation of
     conventions.

     We examine the underlying intent and purpose of the

provision in the 1995 Protocol to clarify whether the relevant

language of article XXIX B overrides section 2106 in this

instance by treating the Canadian-registered charities at issue

as U.S. residents, even though the bequests were funded by

sources outside the United States.

     The technical explanation accompanying the 1995 Protocol

states:

     Under paragraph 1 of Article XXIX B, a U.S. estate tax
     deduction also will be allowed for a bequest by a
     Canadian resident (as defined under Article IV
     (Residence)) to a qualifying exempt organization that
     is a Canadian corporation. However, paragraph 1 does
     not allow a deduction for U.S. estate tax purposes with
                              - 9 -

     respect to any transfer of property that is not subject
     to U.S. estate tax. [Emphasis added.]

Treasury Department Technical Explanation of the Protocol

Amending the Convention Between the United States of America and

Canada (June 13, 1995), 4 Roberts & Holland, Legislative History

of United States Tax Conventions 1366, 1403 (1996).8

     Further, the Senate report from the Committee on Foreign

Relations states:

          The proposed revised protocol obligates Canada and
     the United States to treat a decedent’s bequest to a
     religious, scientific, literary, educational, or
     charitable organization resident in the other country
     in the same manner as if the organization were a
     resident of the first country. Thus, for U.S. estate
     tax purposes, a deduction generally is allowed for a
     bequest by a Canadian resident to a qualifying exempt
     organization resident in Canada, provided the property
     constituting the bequest is subject to U.S. estate tax.
     [Emphasis added.]

S. Exec. Rept. 104-9, at 10 (1995).9   These explanations clarify

that, to take advantage of article XXIX B of the 1995 Protocol,


     8
        The technical explanation is the “official guide to the
Protocol. It explains policies behind particular provisions, as
well as understandings reached during the negotiations with
respect to the interpretation and application of the Protocol.”
Treasury Department Technical Explanation of the Protocol
Amending the Convention Between the United States of America and
Canada (June 13, 1995), 4 Roberts & Holland, Legislative History
of United States Tax Conventions 1366 (1996).
     9
        We note that the Joint Committee on Taxation explanation
of the 1995 Protocol provides further support that a deduction is
allowed for U.S. estate tax purposes provided the property
constituting the bequest is subject to U.S. estate tax. Joint
Comm. on Taxation, Explanation of Proposed Protocol to the Income
Tax Treaty Between the United States and Canada, at 9 (J. Comm.
Print 1995).
                              - 10 -

the bequest must have been made from property that is subject to

the U.S. estate tax.

     The parties stipulated that the bequests were paid solely

out of funds and property located outside the United States.     The

funds used to pay the bequests were, therefore, not subject to

the estate tax in the United States.   Secs. 2101, 2103.   We

conclude that the convention, as amended by the 1995 Protocol,

does not change the result from that under section 2106 in this

instance.   Accordingly, we sustain respondent’s determination.

     In reaching our holding herein, we have considered all

arguments made, and to the extent not mentioned above, we

conclude them to be moot, irrelevant, or without merit.

     To reflect the foregoing,

                                              Decision will be

                                         entered for respondent.
