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6651(a)(1) addition to tax in the amount of $216,609.
In the notice of deficiency, respondent determined a
$1,580,432 net increase in the amount of the taxable estate.
This net adjustment, in turn, was based on the following: (1) A
$2,040,249 increase in the value of items included in the gross
estate; (2) a $28,373 reduction in the allowable deductions
claimed on the estate tax return; and (3) the allowance of a
$488,190 deduction for interest accrued on the deferred estate
tax obligation (the interest expense deduction).6
The parties reached an agreement on the correct amount of
the taxable estate, as evidenced by a stipulation of settled
issues (the settlement). Apart from the interest expense
deduction, the settlement resulted in a $332,352 increase in the
taxable estate.7 However, when the $488,190 interest expense
deduction is taken into account, the net adjustment to the
taxable estate is negative. Thus, the settlement produced an
estate tax liability that was lower than that reported on the
6 The estate made an election under sec. 6166 to pay the
estate tax liability on a deferred basis. The estate of a
decedent dying prior to 1998 is entitled to deduct interest
expense on a deferred estate tax obligation as an administrative
expense under sec. 2053(a)(2). See Estate of Bahr v.
Commissioner, 68 T.C. 74 (1977); Rev. Rul. 78-125, 1978-1 C.B.
292. This deduction is expressly disallowed by sec.
2053(c)(1)(D) with respect to estates of decedents dying after
1997.
7 The estate conceded $303,979 of the $2,040,249 valuation
increase sought by respondent, and the estate further conceded
respondent’s $28,373 reduction in allowable deductions claimed on
the return.
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Last modified: May 25, 2011