Estate of Hon Hing Fung, Deceased, Bernard Fung, Executor - Page 1















                                   117 T.C. No. 21                                    


                               UNITED STATES TAX COURT                                


             ESTATE OF HON HING FUNG, DECEASED, BERNARD FUNG, EXECUTOR,               
                                    Petitioner v.                                     
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      


               Docket No. 2173-00.                 Filed December 10, 2001.           

                    D, a nonresident alien for U.S. tax purposes,                     
               possessed at the time of his death interests in certain                
               properties located in the State of California.  D’s                    
               interests in two of these parcels, one of which was                    
               subject to a promissory note secured by a deed of                      
               trust, were contained in his residuary estate.  D’s                    
               will provided for his surviving spouse to receive a                    
               three-eighths fractional interest in his residuary                     
               estate, with the remaining five-eighths going to his                   
               sons.  In accordance with an agreement executed by the                 
               residuary beneficiaries, the two California properties                 
               were distributed to D’s surviving spouse while the                     
               foreign residuary assets were distributed to D’s sons.                 
                    Held:  The full value of D’s interest in the                      
               encumbered residuary property, rather than the net                     
               equity value thereof, must be included in his gross                    
               estate.                                                                








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