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decedent's widow during her life, and upon her death, the
remainder to be distributed to March; (2) 1,000 shares of Savings
stock in trust for each of decedent's four grandchildren; and
(3) the remaining 4,889 shares of Savings stock and 500 shares of
Willits stock to March as part of the residue of the estate. The
will provided that all estate taxes were to be paid from the
residue of the estate.
Pursuant to a court order, March was granted authority to
sell 2,800 shares of Savings stock at $335 per share and 500
shares of Willits stock at $850 per share. March sold the shares
and paid Federal and State of California estate taxes of
$1,008,698 and $200,632, respectively. March, as executrix and
residuary legatee, assumed individual liability for any estate
taxes later found due from petitioner.
Petitioner reported the value of the Savings and Willits
shares as $181.50 and $485, respectively, per share, on its Form
706, United States Estate (and Generation-Skipping Transfer) Tax
Return. Petitioner reported the capital gain from the sales of
the Savings and Willits shares on Schedule D of its 1992 Form
1041, U.S. Fiduciary Income Tax Return, which it filed on or
about April 15, 1993. Petitioner calculated the gain by
subtracting the value of the shares reported on the estate tax
return from the amount received from their sale. Petitioner
reported $429,800 of gain from the sale of the Savings shares and
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