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2053(a)(3) deduction depended on the fair market value of Exxon’s
claim as of decedent’s date of death. Estate of Smith v.
Commissioner, 198 F.3d at 525-526. The Court of Appeals provided
the following explanation concerning the amount of the estate’s
section 2053(a)(3) deduction:
Although we are persuaded that, on these facts,
the Commissioner is not permitted to consider–-much
less rely exclusively on–-the amount of the post-death
settlement of the Exxon claim when valuing Decedent’s
allowable estate tax deduction, we are also persuaded
that the estate is not entitled to deduct the full
amount that was being claimed by Exxon at Decedent’s
death. Rather, for the reasons that follow, we
conclude that the correct analysis requires appraising
the value of Exxon’s claim based on the facts as they
existed as of death. [Id. at 521.]
The Court of Appeals further stated:
The actual value of Exxon’s claim prior to either
settlement or entry of a judgment is inherently
imprecise, yet “even a disputed claim may have a value,
to which lawyers who settle cases every day may well
testify, fully as measurable as the possible future
amounts that may eventually accrue on an uncontested
claim.” [Id. at 525 (quoting Gowetz v. Commissioner,
320 F.2d 874, 876 (1st Cir. 1963)).]
Thus, although Exxon had a claim against decedent at the
time of her death, the amount Exxon was seeking was not the
amount the estate was entitled to deduct under section
2053(a)(3).
In Estate of O’Neal v. United States, 258 F.3d 1265 (11th
Cir. 2001), the Court of Appeals for the Eleventh Circuit
interpreted Estate of Smith v. Commissioner, supra, in a manner
consistent with our view. Faced with a similar situation
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