Frank Armstrong, III, Transferee, et al. - Page 3




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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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