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the foundation), testified that the estate borrowed funds because
it and the Gilman businesses were illiquid.
Respondent contends that the executors’ decision to transfer
most of the estate’s assets to HG and its subsidiaries on January
14, 1999, caused the estate’s illiquidity. We disagree. The
executors’ decision to restructure did not cause the estate’s
illiquidity; the estate was illiquid both before and after the
executors transferred estate assets to HG and its subsidiaries.
5. Whether the Estate May Deduct Interest on a Loan That
Could Have Been Avoided If the Estate Had Sold Illiquid
Assets To Pay Its Taxes and Expenses
Respondent contends that the interest on the Farm Credit
loan was not incurred out of necessity within the meaning of
section 20.2053-3(a), Estate Tax Regs., because the executors
could have avoided borrowing the funds by selling enough assets
to pay the estate taxes and administration expenses. We
disagree.
The executors acted reasonably in transferring property to
HG and its subsidiaries on the basis of advice they had received
that the restructuring would save the estate $160 million in tax.
See Beard v. Commissioner, 4 T.C. 756, 758 (1945); Hobby v.
Commissioner, 2 T.C. 980, 985 (1943); Tully Trust v.
Commissioner, 1 T.C. 611, 620 (1943) (taxpayer’s bona fide sales
to third persons for sole purpose of reducing his or her tax
liability was for legitimate business purpose; taxpayer was
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