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the mortgage or indebtedness, is included in the value
of the gross estate. If the decedent’s estate is
liable for the amount of the mortgage or indebtedness,
the full value of the property subject to the mortgage
or indebtedness must be included as part of the value
of the gross estate; the amount of the mortgage or
indebtedness being in such case allowed as a deduction.
But if the decedent’s estate is not so liable, only the
value of the equity of redemption (or the value of the
property, less the mortgage or indebtedness) need be
returned as part of the value of the gross estate. * *
* [Sec. 20.2053-7, Estate Tax Regs.]
The validity of this regulation, and its applicability to
the estate of a nonresident alien, has long been established. In
the words of this Court in Estate of Johnstone v. Commissioner,
19 T.C. 44, 46 (1952):
If a particular debt can be collected only from
property mortgaged to secure the debt and not from the
estate generally, the full amount of the debt should be
excluded even in the case of a nonresident alien, but
if it can be collected from the estate generally, and a
part of that estate is not being taxed in the United
States, then it is appropriate to allow only a
proportionate part of the debt to be deducted. * * *
Both parties appeal to the above-quoted regulation in
support of their respective positions. Respondent maintains that
because decedent was personally liable for the indebtedness at
issue by the terms of the promissory note, the full value of his
interest in the Monte Vista property must be returned as part of
the gross estate. The estate, on the other hand, does not
specifically deny that decedent was legally liable for the debt
evidenced by the promissory note. Rather, the estate argues that
“the Petitioner had no realistic personal liability for the debt
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