Estate of Frank Armstrong, Jr., Deceased, Frank Armstrong III, Executor - Page 1

                                   119 T.C. No. 13                                    

                               UNITED STATES TAX COURT                                

                               EXECUTOR, Petitioner v.                                
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 1118-98.              Filed October 29, 2002.               

                    In 1991 and 1992, D gave stock to Cs and other                    
               donees.  For gift tax purposes, D valued the stock at                  
               $100 per share.  As a condition of receiving certain of                
               these gifts, Cs agreed to pay additional gift taxes                    
               arising if the gifts of stock were later determined to                 
               have a fair market value greater than $100 per share.                  
               In 1993, D died.  Subsequently, R determined that D’s                  
               gifts of stock should be valued at $109 per share,                     
               resulting in gift tax deficiencies which were paid by a                
               trust that D had established.  The total gift taxes                    
               paid on D’s 1991 and 1992 gifts of stock were                          
               $4,680,284.  Cs paid none of these gift taxes.                         
                    D’s estate and the trust sued for refunds of gift                 
               taxes paid, claiming that Cs’ obligations to pay                       
               additional gift taxes as a condition of the gifts they                 
               received reduced the value of the gifts.  The U.S.                     
               Court of Appeals for the Fourth Circuit rejected the                   
               refund claims, holding that Cs’ obligations to pay                     
               additional gift taxes were contingent and highly                       

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