Estate of Henry A. Lassiter, deceased, Paula Ann Masters Lassiter, administrator, C.T.A. - Page 13

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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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