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had a value of $1 to $2 million.
The Estate’s Form 706 and Petitioner’s 1988 Amended Return
On January 11, 1985, the estate timely filed a Form 706, U.S.
Estate Tax Return, reporting $7,333,264 as the estate tax due. At
the time the return was filed, the estate remitted $2,833,264 as a
partial payment. The return was audited, and a notice of
deficiency was issued determining an additional estate tax
liability of $4,802,358 and additions to tax of $607,017. The
estate did not contest the deficiency or additions to tax, and they
were duly assessed.
Between January 21, 1985, and October 18, 1988, a total of
$16,403,665 (including the $2,833,264 partial payment remitted with
the return) was paid toward the balance due (pursuant to the estate
tax return, the deficiency and additions to tax, and the statutory
interest). The trust paid a portion of this balance in 1988,
including $2,357,4933 of interest on the estate’s deficiency.
Mr. Clay treated the trust as a complex (taxable) trust in
preparing and filing the trust’s fiduciary income tax returns.4
Accordingly, the trust’s 1988 Form 1041, U.S. Fiduciary Income Tax
Return, reflected a total $2,724,752 deduction for interest paid,
3 In the parties’ stipulation of facts, the figure for
interest paid is erroneously reflected as $2,357,495. We use the
correct figure reflected on the return.
4 A complex trust is a separate taxpayer subject to the
income tax. See sec. 1(e).
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