TAX COURT OPINION

Case: Estate of Henry H. Stick, Deceased, Margaret Stick Parisi, Executrix
Docket Number: 16383-08
Judge: Nims
Opinion Type: memo
Filed: 09/01/2010
Pages: 6

JM P T .C Memo . 2010-19 2 UNITED STATES TAX COURT ESTATE OF HENRY H . STICK, DECEASED, MARGARET STICK PARISI, EXECUTRIX, Petitioner v . COMMISSIONER OFJINTERNAL REVENUE, Responden t Docket No . 16383-08 . Filed September 1, 2010 . D's trust, the residual beneficiary of his estate, took out a loan to pay the estate tax liability . The estate deducted the interest on the loan as an administration expense under sec . 2053, I .R .C . Held : The interest is not deductible because the estate has not'shown that the loan was necessary . I Margaret Stick Parisi', for petitioner . Terry Serena , for respondent . SERVED Sep 01 2010 -2- MEMORANDUM OPINION NIMS, Judge : Respondent determined a $371,728 deficiency in the Federal estate tax of the Estate of Henry H . Stick (estate) . After concessions, the sole issue for decision is whether the estate is entitled to deduct the interest on a loan incurred t o pay its Federal and State estate tax liabilities . Unless otherwise indicated, all section references are t o 11 the Internal Revenue Code as in effect-on th e date of the decedent's death, and all Rule references ar e to the Tax Cour t Rules of Practice and Procedure . Background This case was submitted fully stipulated! pursuant to Rule 122 . The stipulations of the parties, with ai c~,companying exhibits, are incorporated herein by this reference . Ms . Parisi resided in Massachusetts when she,filed the petition. Henry H . Stick (decedent) died testate oa February 12, 2004, when he was domiciled in Montgomery County, O!hio . Decedent's Last Will and Testament named the Henry H . Stick Trust (trust) as residual beneficiary of his estate. On November 17, 2004, the trust borrowed?$1,500,000 from the Stick Foundation for the purpose of satisfying the estate's Federal and State estate tax liabilities (loan) . The principal of the loan was to be repaid after 10 years With 5 .25 percen t interest accruing and to be paid annually . -3- On May 17, 2005, theiestate filed a Form 706, United State s Estate (and Generation-Skipping Transfer) Tax Return . The estate's assets included $f850,083 in mutual fund investments (reported on Schedule B, Stocks and Bonds), $18,144 cash in decedent's checking account, $3,799 in refunds of decedent's Federal income tax, $12,868 in life insurance proceeds, $318,075 in american depository receipts, and $750,648 in additional mutual fund investments (reported on Schedule F, Other Miscellaneous Property Not" Reportable Under Any Other Schedule) . The estate also held nonlikquid assets totaling $1,088,844 which included real property worth $422,060 and stock in the Henry H . Stick L .L .C . worth $475,75'0 . The estate reported funeral and- - administration expenses o $818,990, which included $656,250 of interest on the loan (interest expense) . The estate reported a Federal estate tax liability of $1,046,600 . The trust filed Forms 1041, U .S . Income ,Tax Return for Estates and Trusts, for 2004, 2005, and 2006'and also claimed deductions for the interest on the loans to . pay the estate tax . On April 8, 2008, respondent issued a notice-of deficiency, determining an estate taxideficiency . In the notice respondent . disallowed the interest expense, among other things, and determined a $371,728 deficiency . A timely petition was filed July 3, 2008 . -4- Discussion . Section 2053(a)(2) provides that the value of a decedent's taxable estate shall be determined by deducting from the value o f the gross estate .such amounts for administration expenses as ar e allowable by, the laws of the jurisdiction under which the estat e is being administered . Respondent's first argument is that section 642(g) prohibit s the estate from claiming a deduction under section 2053 for the . interest expense because the trust claimed,in'come tax deduction s for the same expense . Section 642(g), however, was promulgated to disallow an income tax deduction to an estate or any other I person (which includes a trust) unless the estate waives it s right to the section 2053 estate tax deduction . That section was not intended to address or pertain to the estate's entitlement to 11 an estate tax deduction . See Estate of Keitel v . Commissioner , T .C . Memo . 1990-416 ; Rev ._Rul . 81-287, 1981-2 1jC .B . 183, 184 ., li Respondent next argues that the estate is not entitled to a n interest deduction under section 2053 because it had sufficien t liquid assets to pay its estate tax liabilities and its funeral 71 and administration expenses ( obligations ) without borrowing t o pay those obligations . Section 20 .2053-3(a), Estate Tax Regs ., provides that the , amount of deductible administration expenses is limited to those J -5- expenses which are actually and necessarily incurred in the administration of the estate . ' See also Estate . of Todd v . Commissioner , 57 T .C . 288 (1971) . The estate did not present evidence as to the amount of its State estate tax liability and did not provide a computation of its Federal estate tax liability without the interest expens e deduction . There was no showing that it was actually necessary to borrow in order to meet its obligations . Having failed t o show the necessity to borrow, the estate has not shown tha t respondent's determination was in error . See Rule 142 ; Welch v . Helvering , 290 U .S . 111, 115 (1933) . In addition, on the basis of the' information available in 1 the stipulated record, it1appears that the estate did have sufficient liquidity to meet its obligations . The estate tax return reported liquid assets totaling $1,953,617 . Excluding the interest expense, the estate reported funeral and administration expenses of $162,740 and would have had a Federal estate ta x liability approximating $1,367, 861 . Although the amount of th e estate's State estate tax liability was not established in th e record, on brief , it was indicated that its liability was $193,198 . Adding these three figures together, the estate would have had total obligations of only $1,723 , 799 . Thus, the estate's liquid assets appear to have . exceeded its obligations b y $229,818 . -6- Accordingly, we hold that the estate is not entitled to a n administration expense deduction for .interestl~under section 2053 . Ij To reflect the foregoing, II Decision will be entere d under Rule 155 . 1i h1