of the decedent's death were to be paid out of the principal of the residuary estate. The charitable remainder unitrust was to equal eighty percent of the probate estate after deducting debts and administrative expenses, personal effects, the value of the assets in the marital trust, and the amount of all state inheritance taxes attributed to property passing to Mrs. Todd by reason of decedent's death. Mrs. Todd died eighty-one days following her husband's death or on September 23, 1973. In her will, she specifically and expressly did not exercise any power of appointment given to her by her husband's will.
The federal estate tax return of Glenn Todd was filed on April 4, 1974 and a charitable deduction was taken for the total amount of the corpus of the charitable remainder unitrust which was $ 916,497.50. This figure was arrived at by deducting administrative expenses, of $ 130,302.77, personal effects of $ 1,200, marital trust assets of $ 942,253, and Pennsylvania Inheritance Taxes of $ 1,693.70 from the probate estate of $ 2,221,071.50. The total of $ 1,145,621.87 was then multiplied by the eighty percent factor to arrive at the deduction claimed. The Plaintiff did not include any diminutions for Pennsylvania inheritance taxes as to the marital trust property over which Mrs. Todd had a testamentary power of appointment.
The devolution of the property to the charities set forth in the decedent's will did not result in Pennsylvania inheritance tax liability as a charitable bequest is exempted by the applicable state statute, 72 P.S. § 2485-302.
The return was audited by the Internal Revenue Service and on June 20, 1975, a notice was sent to the Plaintiff by the District Director alleging a deficiency of $ 113,294.30. The charitable deduction was disallowed on the basis that the maximum amount of Pennsylvania inheritance tax, fifteen percent, should have been charged against the power of appointment and subtracted from the probate estate prior to valuation of the charitable trust for deduction purposes. That is, that fifteen percent of the marital trust assets, $ 141,337.97, should have reduced the figure utilized in arriving at the charitable deduction.
The taxpayers paid the alleged deficiency of $ 113,294.30 and $ 9,029.40 in interest and filed a claim for refund with the District Director on February 23, 1976 which was denied.
The Defendant moved for partial summary judgment on the issue of Pennsylvania inheritance taxes by motion filed June 8, 1977, and on June 20, 1978 the Plaintiff moved for partial summary judgment on the same issue. The part of the complaint in issue is paragraph 11 which reads in part:
"The Commissioner also erroneously and illegally disallowed a deduction with respect to funds which (a) were bequeathed to charity, (b) vested in charity exempt from Pennsylvania taxes about 80 days after the testator's death by virtue of his wife's death, (c) vested in said charity prior to the filing of estate tax returns for either the testator's estate or that of his wife, and (d) were never utilized for payment of Pennsylvania inheritance taxes. . . ."