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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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