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2000 (the estate tax return). On Schedule T of the estate tax
return, the estate claimed a deduction under section 2057 of
$675,000. The estate reported qualified family-owned business
interests (QFOBIs) valued at $2,870,933, consisting of decedent’s
interest in Keeton Corrections valued at $1,285,531 and his
interest in NSP valued at $1,585,402. Pursuant to section
2057(b)(1)(B), the executor elected the application of section
2057 and filed the agreement referred to in section 2057(h).
Respondent issued his notice of deficiency on August 26,
2003. In his notice of deficiency, respondent, among other
adjustments, disallowed the family-owned business deduction in
its entirety.
Discussion
I. Section 2057
Section 2057(a) provides an estate tax deduction for QFOBIs
effective for estates of decedents dying after December 31, 1997.
Taxpayer Relief Act of 1997, Pub. L. 105-34, sec. 502(c), 111
Stat. 852. A QFOBI includes an interest as a proprietor in a
business carried on as a proprietorship or an interest in an
entity carrying on a business if at least 50 percent of the
entity is owned, directly or indirectly, by the decedent or a
member of the decedent's family. Sec. 2057(e)(1). If an estate
qualifies for and elects to take the deduction, up to $675,000 of
the adjusted value of QFOBIs may be deducted from the value of a
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