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corporation. Initially, they each owned one half of the 300
outstanding shares of C&L Bailey stock.
In 1989, Ethel died. Her 150 shares of C&L Bailey stock
passed to the Ethel C. Bailey Trust (the trust). Pursuant to
section 2056(b)(7), her estate elected to treat 50 of these
shares as QTIP property, giving decedent the right for life to
all income from the 50 shares. Under the trust, each of
decedent’s and Ethel’s six children received a one-sixth residual
interest in the 50 shares of QTIP election property and also in
the other 100 shares of C&L Bailey stock held in the trust.
Between 1985 and 1993, decedent gave some of his C&L Bailey
stock to relatives. The gifts included two shares each to his
son Roger Bailey (Roger), his daughter Frances Jeanette Foster
(Frances), and his daughter-in-law Lillian Bailey (Lillian).
Between 1989 and 1993, C&L Bailey redeemed 100 shares of its
stock at $5,000 per share. These redemptions included all the
stock that decedent had given to relatives and all but 50 of
decedent’s shares of C&L Bailey stock. Consequently, at
decedent’s death, there were outstanding 200 shares of C&L Bailey
stock, 50 shares (25 percent) of which decedent owned outright
and 150 shares (75 percent) of which were held in the trust.
At decedent’s death, C&L Bailey’s principal assets were two
motels that it owned and operated (the motels): (1) An Econo
Lodge Motel in Hot Springs, Arkansas (the Arkansas motel); and
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Last modified: May 25, 2011