-38-
21, 1999, the underlying asset value of Schutt I was $65,273,495,
of which the Revocable Trust’s proportionate share was
$29,527,314. The underlying asset value of Schutt II was
$28,504,626, of which the Revocable Trust’s proportionate share
was $13,493,064.
In the notice of deficiency issued on October 11, 2002,
respondent determined that the discounts applied in valuing the
interests in Schutt I and Schutt II were excessive. The estate
timely filed the instant proceeding challenging the statutory
notice. By amendment to answer filed in this case, respondent
then asserted an increased deficiency on the grounds that the
full fair market value of the underlying assets contributed by
the Revocable Trust to Schutt I and Schutt II should be included
in decedent’s gross estate under sections 2036(a) and 2038. The
parties have since stipulated that if the Court rejects
respondent’s position under sections 2036 and 2038, they agree
that the Schutt I and II units held by the Revocable Trust should
be included in decedent’s gross estate at the respective values
of $19,930,937 and $9,107,818.
OPINION
I. Inclusion in the Gross Estate--Sections 2036 and 2038
A. General Rules
As a general rule, the Code imposes a Federal excise tax “on
the transfer of the taxable estate of every decedent who is a
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