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Background
The material facts in these cases are not in dispute.
During 1991 and 1992, Frank Armstrong, Jr. (decedent),
transferred a substantial amount of stock in National Fruit
Product Co., Inc., to his children and grandchildren, including
Frank Armstrong III, JoAnne Armstrong-Jones, Gretchen A. Redmond,
and William Armstrong (hereinafter petitioners). Decedent was
nearly insolvent after paying $4,680,283 in Federal gift taxes
attributable to the stock transfers. Decedent died on July 29,
1993--within 3 years of the aforementioned transfers.
Respondent subsequently issued a notice of deficiency to the
Estate of Frank Armstrong (the Armstrong estate) determining a
deficiency in estate tax of $2,350,071. The deficiency is
attributable to respondent's determination that the estate failed
to include in the gross estate the gift taxes that decedent had
paid on the above-described transfers as required under the so-
called gross-up rule prescribed in section 2035(c).3 The estate
3 Sec. 2035(c) provides in pertinent part:
(c) Inclusion of Gift Tax on Certain Gifts Made
During 3 Years Before Decedent's Death.--The amount of
the gross estate (determined without regard to this
subsection) shall be increased by the amount of any tax
paid under chapter 12 by the decedent or his estate on
any gift made by the decedent or his spouse after
December 31, 1976, and during the 3-year period ending
on the date of the decedent's death.
(continued...)
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