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IV. The Estate Tax Return
The estate filed Form 706, U.S. Estate (and Generation-
Skipping Transfer) Tax Return, on September 7, 1999. The estate
reported the residence, the vacant lot, a checking account,
personal property, a 1-percent general partnership interest in
Crane Properties, and a 2-percent general partnership interest in
KPLP as owned directly by Austin at his death. The estate also
claimed deductions for funeral expenses and debts of the
decedent, adjusted taxable gifts of $600,030 for the 1995 gifts
of KPLP and Crane Properties interests, gross estate tax of
$222,118 subject to the maximum unified credit against estate tax
of $202,050, and tax due of $20,068.
On August 29, 2002, respondent issued a notice of deficiency
addressed to the estate and the living trust. On the same day,
respondent issued a notice of deficiency to the living trust as
transferee of the estate’s liabilities (the notices). In the
notices, respondent determined that the full values of the assets
held by KPLP were includable in the gross estate under sections
2036 and 2038. Respondent also determined that the values of the
assets held by the living trust were includable in the gross
estate under sections 2036 and 2038. Respondent also reduced the
estate’s adjusted taxable gifts from $600,030 to $121,798,
reflecting in part respondent’s exclusion of the 1995 gifts of
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