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OPINION
A. Whether the Estate May Deduct Interest and Closing Costs
Paid on the Farm Credit Loan
1. Contentions of the Parties and Background
The estate contends that all of the Farm Credit loan
proceeds were borrowed for the purpose of paying estate taxes and
deductible administration expenses of the estate including (a)
Bergreen’s compensation of $19,470,525;8 (b) Davis’s compensation
of $5 million; and (c) miscellaneous administration expenses of
$816,175.
Respondent contends that none of the interest paid on the
Farm Credit loan is deductible under section 2053. Respondent
contends that the loan was unnecessary because the estate had
enough liquid assets when it borrowed about $38 million from Farm
Credit to pay its taxes and administration expenses. Respondent
alternatively contends that, if the estate was illiquid when it
obtained the Farm Credit loan, the loan was unnecessary because:
(a) Some of the estate’s planned uses of the loan proceeds (e.g.,
compensation for Bergreen and Davis) are expenses of HG and are
not administration expenses of the estate; (b) the estate has not
substantiated miscellaneous administration expenses of $816,175;
(c) the executors caused the estate’s illiquidity by distributing
8 The estate concedes that $2.4 million to be paid to
Bergreen as compensation for 1996 and 1997 is not an
administration expense.
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