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OPINION
A. Whether $400,000 Is Deductible Under Section 6653(a)(1) as a
Claim Against Decedent’s Gross Estate Based on the $400,000
Promissory Note
1. Deductibility of Claims Against an Estate
Tax may be imposed on the transfer of the taxable estate of
every decedent who is a citizen or resident of the United States.
Sec. 2001(a). The decedent’s taxable estate is the value of the
decedent’s gross estate reduced by various deductions. Sec.
2051. One of those deductions is for claims against the estate
that are enforceable under State law. Sec. 2053(a)(3); Propstra
v. United States, 680 F.2d 1248, 1254-1255 (9th Cir. 1982).
An estate may deduct the value of a claim based on a
decedent’s promise to pay only if the liability was contracted
bona fide and for full and adequate consideration in money or
money’s worth. Sec. 2053(c)(1)(A); Estate of Scholl v.
Commissioner, 88 T.C. 1265, 1279 (1987); Estate of Davis v.
Commissioner, 57 T.C. 833, 835 (1972). This requirement prevents
an individual from reducing her or his taxable estate through
transactions that are in substance gifts. Commissioner v.
Porter, 92 F.2d 426, 428 (2d Cir. 1937), affg. 34 B.T.A. 798
(1936).
2. The Estate’s Contentions
The estate contends that the estate may deduct $400,000 on
the basis of its obligation to pay the promissory note. The
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Last modified: May 25, 2011