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On November 10, 1988, the Internal Revenue Service (IRS)
selected the estate tax return for audit. In January of 1989,
the coexecutors and the IRS agreed that the value of each share
of the Clack Corp. stock was $10 more than reported on the estate
tax return. At the time of his death, decedent owned 24,675
shares of Clack Corp. stock, of which 12,689 shares were
bequeathed to Richard E. Clack. The remaining 11,986 shares were
treated by the coexecutors as part of the marital trust.
On March 28, 1991, respondent issued a statutory notice of
deficiency to the estate, determining an estate tax deficiency of
$2,284,008. The principal adjustment was the disallowance of
$4,162,439.24 of the marital deduction because of respondent’s
determination that the "spouse's entire interest in the marital
trust was subject to a power in the executors to appoint the
corpus to someone other than the surviving spouse."
OPINION
Section 2001 imposes a tax on the transfer of the taxable
estate of any person who is a citizen or resident of the United
States at the time of death. Section 2056(a) allows a marital
deduction from a decedent's gross estate for the value of
property interests passing from the decedent to the decedent’s
surviving spouse. As a general rule, however, a marital
deduction is denied for a "terminable interest", that is, a
property interest that will terminate or fail "on the lapse of
time, on the occurrence of an event or contingency, or on the
failure of an event or contingency to occur". Sec. 2056(b)(1).
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