Estate of Harry Orenstein - Page 4




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               On May 14, 1993, Mr. Orenstein died.  A prepayment of estate           
          taxes in the amount of $1,655,000 was made in March of 1994.  The           
          estate of Mr. Orenstein then filed a U.S. Estate (and Generation-           
          Skipping Transfer) Tax Return, Form 706, on September 7, 1994.              
          The Form 706 reported a total estate tax liability of $1,613,799            
          and did not claim any deduction for debts of the decedent to                
          respondent for the still-pending 1981 and 1982 income tax                   
          liabilities.  Respondent assessed estate taxes of $1,613,799, as            
          reported, and the excess prepayment sum was refunded in February            
          of 1995.                                                                    
               Subsequently, in November of 1998, petitioners and                     
          respondent entered stipulations settling all issues with respect            
          to the income tax deficiency cases except for that regarding                
          petitioners’ assertion of entitlement to equitable recoupment               
          relief.  Pursuant to this settlement, petitioners conceded                  
          liability for income tax deficiencies and increased interest in             
          the amounts determined by respondent.  Respondent conceded that             
          petitioners were not liable for additions to tax under section              
          6653 or 6659.  Petitioners maintained, however, that because the            
          portion of such agreed liabilities owing as of Mr. Orenstein’s              
          date of death had not been deducted for estate tax purposes and             
          refund of estate taxes was time-barred, they were entitled to               










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