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Emory Law Journal

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The federal transfer-tax system often makes state law a critical determinant. This is a necessary feature of a system that taxes the transfer of property, a concept that ordinarily derives its meaning from state law. As a matter of federal tax policy, however, it is important that the system neither overemphasize nor under emphasize state law. Part I undertakes a consideration of the role of state law in the transfer-tax system and the negative consequences that occur where the tax law fails to strike the proper balance.

Part II then focuses on the marital deduction, applying the framework developed in Part I. The marital deduction, which exempts transfers between spouses from tax, is central to the system. From its inception, the marital deduction has given state law a pivotal role. In order to qualify for the deduction, the decedent spouse's property must pass to the surviving spouse under state law: the so-called "passing" requirement. In 1948, when the martial deduction was originally created, it had a limited function: to maintain parity between couples residing in common-law and community-property states. And in the context of this limited function, the passing requirement's state law component made sense. However, when the marital deduction was reformulated in 1981, it assumed a broader function. In the context of that broader function, it will be argued, it no longer makes sense to make the marital deduction turn upon whether the property passes under state law. In other words, in light of the 1981 amendment, the passing requirement inappropriately emphasizes state law.

Part I considers how the passing requirement might be modified to cure its overemphasis on state law. Several alternatives are examined, drawing upon a theme implicit in the 1981 reformulation. Two of the more modest alternatives would simply overrule the Supreme Court's decision in Commissioner v. Estate of Bosch, which adopted a construction of the statute that in effect exacerbates its overemphasis on state law. The less modest alternatives would make state law completely irrelevant. Instead, the availability of the deduction would be made to depend upon whether the decedent spouse's property would eventually be subject to tax in the surviving spouse's estate (if not consumed). In short, the focus would no longer be on the method by which the surviving spouse acquired the decedent spouse's property, but rather on whether the property would trigger a tax at the death of the surviving spouse.



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