Estate of Algerine Allen Smith, Deceased, James Allen Smith, Executor - Page 2

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               entered into a settlement agreement, which resolved                    
               Exxon's claim for a total amount of $681,839.  R                       
               determined that P's sec. 2053(a)(3), I.R.C., deduction                 
               was limited to $681,839.                                               
                    As a result of paying Exxon an amount that                        
               decedent had previously reported as income, P is                       
               entitled to tax relief pursuant to the provisions of                   
               sec. 1341(a), I.R.C.  R determined that the income tax                 
               benefit derived by P through application of sec.                       
               1341(a), I.R.C., was an asset includable in the gross                  
               estate.                                                                
                    Held:  Exxon's claim against decedent was                         
               uncertain and unenforceable as of the date of                          
               decedent's death.  P's deduction pursuant to sec.                      
               2053(a)(3), I.R.C., is limited to the amount paid in                   
               settlement of the claim.                                               
                    Held, further:  The income tax benefit derived by                 
               P as a result of the application of sec. 1341(a),                      
               I.R.C., is an asset includable in the gross estate.                    
               P's deduction pursuant to sec. 2053(a)(3), I.R.C., of                  
               its liability to Exxon and its sec. 1341(a), I.R.C.,                   
               relief based on payment of that liability are so                       
               inextricably linked that it would be inappropriate to                  
               consider one in the determination of the taxable estate                
               while excluding the other.                                             

               Michael C. Riddle and Harold A. Chamberlain, for petitioner.           
               Carol Bingham McClure, for respondent.                                 

                                       OPINION                                        

               RUWE, Judge:  In docket No. 19200-94, respondent determined            
          an estate tax deficiency of $663,785 and an accuracy-related                
          penalty under section 6662(a)1 in the amount of $132,785.2  In              

               1Unless otherwise indicated, all section references are to             
          the Internal Revenue Code in effect as of the date of decedent's            
          death, and all Rule references are to the Tax Court Rules of                
                                                             (continued...)           




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