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repayment of a loan; and (2) is it entitled to deduct more than
$170,000 in administrative and legal expenses?
Discussion
I. Loan Treatment
The main issue in this case is how to treat the $1 million
promissory note issued to Clyde by the Management Trust. The
estate urges us to accept the transaction as what the Hickses and
their lawyers designed it to be--a loan by Clyde of $1 million
from his share of the Conrail settlement. The Commissioner
argues that this “loan” was hardly bona fide and, even it were,
urges us to apply the substance-over-form doctrine and disregard
it as a sham.
We begin with the Code. Section 2053(c)(1)(A) allows a
deduction from the value of an estate for any indebtedness, but
only “to the extent that [it was] contracted bona fide and for an
adequate and full consideration in money or money’s worth * * *.”
(Emphasis added.) The regulation directs us to apply State law
in deciding whether a debt is “payable out of property subject to
claims and * * * allowable by the law of the jurisdiction * * *.”
Sec. 20.2053-1(a)(1), Estate Tax Regs; see also Estate of Lazar
v. Commissioner, 58 T.C. 543, 552 (1972). The Commissioner’s
first attack on the bona fides of the loan is an argument that
Clyde never had control over the $1 million to begin with. He
claims that the settlement really provided Clyde with only
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