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owned by the real estate partnerships and S corporations, and
owned by Lassiter Properties. These leases consist, during each
annual period, of approximately 54 instruments for hunting,
fishing, and recreation. Mrs. Lassiter also makes all final sale
and acquisition decisions relating to the land and timber held
directly and by Lassiter Properties. Similar decisions relating
to properties held by the real estate partnerships and S
corporations are made by both Mrs. Lassiter and the other partner
or shareholder, subject to each other’s approval.
The Estate Tax Return and Notice of Deficiency
On August 8, 1995, a Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return, was timely filed for
Mr. Lassiter’s estate. The return indicates that the Item IV
trust was not funded; rather, all assets covered by the trust
provisions of the 1970 will were treated as passing into the Item
V trust. A marital deduction was then claimed under section
2056(b)(7) with respect to property passing into the Item V
trust. Respondent issued a notice of deficiency on August 6,
1998, disallowing this deduction on the grounds that “the
decedent’s surviving spouse does not have a qualifying income
interest for life in the residuary trust established pursuant to
Item V of the Last Will and Testament of the decedent.”
Respondent, however, permitted a marital deduction equal to one-
half of the adjusted gross estate, in accordance with the terms
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