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value of the Ranch as $2,696,536. Decedent's estate’s tax return
included a Schedule A-1 "Section 2032A Valuation," on which
Executrix made a protective election pursuant to section
20.2032A-8(b), Estate Tax Regs.2 The estate tax return was
subsequently selected for audit. The principal issue on audit
centered on the fair market value of the Ranch. Unable to
resolve the fair market value issue at the audit level,
respondent issued a notice of deficiency to Executrix on June 9,
1994. Respondent's notice makes no mention of Executrix's
protective election under section 2032A and the regulations
thereunder. Nor does the petition filed with this Court by the
Executrix.
The case was set for the trial session in Washington, D.C.,
commencing on June 19, 1995. At the suggestion of the Court, the
parties engaged in negotiations prior to the start of this
session in an attempt to resolve the fair market value of the
Ranch. During these negotiations Executrix never mentioned
2 Enacted by the Tax Reform Act of 1976, Pub. L. 94-455,
sec. 2003, 90 Stat. 1856, primarily to encourage the continued
operation of family farms, sec. 2032A permits qualified real
property to be valued for estate tax purposes by reference to its
use in the farming activity, rather than at its value based on
its highest and best use. Where it is not certain that property
meets the requirements for special use valuation, an estate may
under sec. 20.2032A-8(b), Estate Tax Regs., make a protective
election to specially value qualified real property, contingent
on the property values as finally determined meeting the
requirements of sec. 2032A.
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