t c memo united_states tax_court estate of david a kahanic deceased edward m fiala executor petitioner v commissioner of internal revenue respondent docket no filed date david gerhard strom sharon m buccino and john j morrison for petitioner h barton thomas jr and angela b friedman for respondent memorandum findings_of_fact and opinion vasquez judge respondent determined a dollar_figure deficiency in the federal estate_tax of the estate of david a kahanic estate the issues for decision are whether david a kahanic decedent possessed at his death incidents_of_ownership in a dollar_figure life_insurance_policy thereby making the policy proceeds includible in the value of decedent’s gross_estate under sec_2042 if so whether an agreed order entered by the circuit_court of cook county in effect when decedent died created an indebtedness in respect of the policy proceeds that entitles the estate to a deduction of dollar_figure under sec_2053 whether the estate is entitled to deduct under sec_2053 accrued interest on a loan made by decedent’s ex-wife to the estate to allow the estate to pay its federal and illinois estate_taxes and whether the estate is entitled to deduct under sec_2053 attorney’s and accountant’s fee sec_1 unless otherwise indicated all section references are to the internal_revenue_code in effect for the date of decedent’s death and all rule references are to the tax_court rules_of_practice and procedure respondent concedes that the estate is entitled to deduct dollar_figure of the policy proceeds under sec_2053 thus the parties disagree over whether the estate may deduct the remaining dollar_figure incurred after the estate filed its form_706 united_states estate and generation- skipping transfer_tax return findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and attached exhibits are incorporated by this reference decedent died on date and as of that date he resided in schaumburg illinois on date and pursuant to decedent’s will edward m fiala was appointed executor of the estate mr fiala is the former brother-in-law of decedent and the brother of ms kahanic decedent’s ex-wife decedent and ms kahanic married on date and divorced in they had two children during their marriage decedent a medical doctor was the sole owner of aesthetic eye plastic surgery aeps ms kahanic worked as the office manager at aeps for approximately years ending around or schaumburg illinois is in cook county decedent’s will named susan kahanic his wife at the time he executed his will as executor of the estate and mr fiala as successor executor under illinois law a dissolution of marriage of the testator revokes every legacy interest or power_of_appointment given to the testator’s former spouse in a will executed before the entry of the judgment for dissolution of marriage ill comp stat ann b west decedent executed his will on date and he and ms kahanic divorced in thus ms kahanic could not be executor of the estate and mr fiala was appointed executor upon probate of decedent’s will decedent’s health problems decedent was significantly overweight and suffered from high blood pressure in he became severely ill and had to be admitted to the hospital where he was diagnosed with an enlarged heart decedent was unable to return to work until the end of decedent’s life_insurance policies decedent obtained the following life_insurance policies before being diagnosed with an enlarged heart security-connecticut policy no xxx491r with a death_benefit of dollar_figure security-connecticut policy no xxx013w with a death_benefit of dollar_figure million american general policy no xxxxxx112l with a death_benefit of dollar_figure million aig policy and prudential term life policy no xxxx9322 with a death_benefit of dollar_figure million that he converted to prudential universal life policy no xxxx6899 on date prudential policy following a merger of security-connecticut life_insurance co and reliastar insurance co the security-connecticut policies were reissued to decedent by reliastar as policy no xxxx15856b with a death_benefit of dollar_figure reliastarpolicy or policy at all relevant times the reliastar and prudential although the merger between security-connecticut and reliastar had not been completed at the time of some of the events discussed infra for simplicity we continued policies named ms kahanic the sole beneficiary the policies were in effect when decedent died divorce proceedings and marital settlement agreement on date ms kahanic filed a petition for dissolution of marriage in the circuit_court of cook county illinois circuit_court around that time she learned that decedent had missed a deadline to pay a premium on one of his life_insurance policies this concerned ms kahanic who believed that decedent’s poor health would make it difficult for him to acquire life_insurance if his policies lapsed on date the circuit_court entered a judgment for dissolution of decedent and ms kahanic’s marriage judgment for dissolution that same day the parties entered into a marital settlement agreement msa that was incorporated verbatim into the judgment for dissolution the msa stated inter alia decedent’s child_support and spousal maintenance obligations required decedent to secure his unpaid child_support and spousal maintenance payments with life_insurance_proceeds and included provisions on how decedent would continued will refer to the two security-connecticut life_insurance policies as the reliastar policy throughout the opinion provide proof to ms kahanic that he had secured his unpaid obligations with life_insurance and timely paid the premiums with respect to child_support decedent was obligated under the msa to pay ms kahanic dollar_figure per month and to secure his unpaid future payments with a life_insurance_policy with a minimum death_benefit of dollar_figure as for spousal maintenance the parties agreed that ms kahanic was to receive dollar_figure to be paid in monthly payments of dollar_figure decedent was required to secure payment of his unpaid spousal maintenance by naming ms kahanic an irrevocable beneficiary to dollar_figure of the reliastar policy7 proceeds for a period of years the terms of the msa also required decedent to do the following within days of the entry of the judgment for dissolution provide ms kahanic with a copy of the aig policy notify in writing aig of his obligations under the the aig policy secured decedent’s child_support obligation at some point that is not clear from the record decedent transferred ownership of the aig policy to an irrevocable_life_insurance_trust upon decedent’s death ms kahanic received the dollar_figure million death_benefit as trustee of the irrevocable_life_insurance_trust the parties agree that the taxation of the aig policy is not at issue the msa required decedent to name ms kahanic as an irrevocable beneficiary on a policy enumerated in exhibit a document attached to the msa that listed ms kahanic’s and decedent’s life_insurance policies then in effect because decedent listed only the aig policy which he used to secure his child_support obligation and the reliastar policy decedent hid from ms kahanic the prudential policy the terms of the msa obligated decedent to use the reliastar policy as security for the spousal maintenance obligation msa and provide ms kahanic with a copy of the notice and execute and deliver documents designating ms kahanic as an irrevocable beneficiary to dollar_figure of life_insurance_proceeds to secure his unpaid spousal maintenance payments collectively the insurance requirements the final page of the judgment for dissolution states that this court expressly retains jurisdiction of this cause for the sole and exclusive purpose of enforcing all the terms of this judgment for dissolution of marriage including all the terms of the msa made in writing decedent’s noncompliance with the msa and the date agreed order by date decedent had not complied with the insurance requirements ms kahanic knowing that decedent had missed a life_insurance premium payment in worried increasingly that decedent had not been paying his life_insurance premiums she believed that if decedent let his life_insurance policies lapse and then passed away on account of his illness she might not be able to collect child_support and spousal maintenance maricarol lacy and bernard b rinella ms kahanic’s attorneys attempted to have decedent comply see supra p with the insurance requirements on his own volition but eventually ms kahanic had to seek resolution through the circuit_court on date ms kahanic filed a petition for a rule to show cause for indirect civil contempt motion to compel and for other relief petition to show cause the petition to show cause stated inter alia that decedent had not complied with the insurance requirements ms kahanic requested that the circuit_court find decedent in indirect civil contempt for his refusal to comply with the insurance requirements and upon such finding compel decedent to comply with the insurance requirements ms kahanic also asked the circuit_court to compel decedent to pay her attorney’s fees before the circuit_court acted on ms kahanic’s petition to show cause ms kahanic and decedent reached an agreement with respect to his noncompliance with the insurance requirements ms kahanic agreed to not immediately pursue a finding of indirect civil contempt against decedent for his noncompliance with the insurance requirements in exchange for decedent’s entering into an agreed order stating that ms kahanic and the children remained the sole beneficiaries on the aig and reliastar policies and decedent would not alter the policies until he complied with the insurance requirements ms kahanic’s decision was based in part on her understanding that if decedent died without complying with the insurance requirements she would receive the reliastar policy’s full dollar_figure death_benefit on date ms kahanic filed a motion for entry of agreed order relating to her petition to show cause and her and decedent’s agreement on date the circuit_court entered an agreed order september agreed order which read as follows this matter having come before the court for enforcement and compliance with the marital settlement agreement and judgment for dissolution of marriage it is hereby ordered decedent represents that ms kahanic and the children remain as sole beneficiaries on each of his life_insurance policies as identified specifically in the parties’ executed marital settlement agreement at articles v life_insurance coverage for the children and vi life_insurance coverage to secure maintenance and attached as exhibit to said agreement and that these policies have not been transferred modified altered or encumbered in any way shape or form and no transfers modifications alterations or encumbrances on said policies will occur until decedent complies with the terms of the settlement agreement regarding these policies the attorneys for decedent and ms kahanic signed the september agreed order on their clients’ behalf on date decedent passed away he had not complied with the insurance requirements and the september agreed order had not been vacated reliastar policy the reliastar policy was a universal_life_insurance policy ms kahanic was the reliastar policy’s primary beneficiary when decedent passed away and accordingly she received the dollar_figure death_benefit upon his death as of the date of decedent’s death the reliastar policy had an accumulated value of during the nearly months between the time the circuit_court entered the september agreed order and decedent’s death the circuit_court continued the matter of ms kahanic’s petition to show cause numerous times the circuit_court first continued the matter until date and then did so again until date on date the circuit_court entered an order requiring decedent to inter alia demand copies of his life_insurance policies and setting a status conference for ms kahanic’s petition to show cause for date decedent complied with the circuit court’s order to demand copies of his life_insurance policies but by the status conference he had received information on only one policy the circuit_court then entered an agreed order requiring decedent to continue to gather the life_insurance policies and setting a status conference on ms kahanic’s petition to show cause for date the circuit_court continued the status conference to date and continued it again to date at the date status conference the circuit_court set ms kahanic’s petition to show cause for hearing on date at the date hearing the circuit_court continued the issue as to finalizing life_insurance terms as required by the judgment until date and required decedent to provide ms kahanic with beneficiary information within days dollar_figure10 and a surrender charge of dollar_figuredollar_figure decedent’s premium payments provided him with coverage through date the reliastar policy contained a no-lapse provision the terms of the policy stated that so long as decedent’s total premium payments exceed the cumulative total of the ‘minimum monthly premiums’ in effect from the ‘policy date’ to the end of the current period the reliastar policy would remain in effect regardless of net cash_surrender_value when decedent died he had made premium payments of dollar_figure the policy’s minimum monthly premium was dollar_figure and the cumulative total of the monthly premiums beginning on the policy date date to the end of the current period date was dollar_figure decedent’s will and declaration of trust decedent’s will was admitted to probate by the circuit_court mr fiala was appointed executor of the estate on date and continues to act in that the policy’s accumulated value was calculated by totaling all premium payments made subtracting all monthly fees and expenses_incurred and adding earned interest the policy’s surrender charge was the lesser_of total premium payments made ie dollar_figure or approximately dollar_figure the amount calculated by multiplying the policy’s stated_value of dollar_figure by the policy’s maximum surrender fee per dollar_figure of dollar_figure and dividing by big_number roledollar_figure decedent’s children received certain personal_property under the will and decedent’s will named the declaration of trust of david kahanic declaration of trust the residuary legatee the declaration of trust was never funded and its value was zero on the date of decedent’s death decedent’s children are the beneficiaries of the declaration of trust decedent’s will stated that all federal and illinois estate_taxes were to be paid from the residuary_estate and if the residuary_estate did not contain sufficient assets to cover the tax_liabilities from the declaration of trust the will did not mention how taxes were to be paid if the residuary_estate and the declaration of trust lacked the necessary assets to pay the estate’s taxes both decedent’s will and the declaration of trust waived contribution from third-party transferees toward the payment of the estate’s tax liabilitiesdollar_figure the estate’s tax returns mr fiala hired the accounting firm levine hahn kilcoyne llp levine hahn to handle the estate’s finances and prepare its form_706 and form_700 state of illinois estate generation skipping transfer_tax return the estate’ sec_12 see supra note pursuant to decedent’s will and the declaration of trust mr fiala did not seek contribution from ms kahanic with respect to the estate’s tax_liabilities federal and illinois estate_taxes and tax returns were due on date the estate filed form_4768 application_for extension of time to file a return and or pay u s estate and generation-skipping_transfer taxes requesting an automatic six-month extension to file its form_706 at the same time the estate filed a copy of its form_4768 with the state of illinois and obtained a six-month extension to file its form_700 notwithstanding the automatic six-month extensions the estate was required to pay the taxes owed by date to avoid penalties levine hahn prepared draft returns and determined that the estate should pay federal_estate_taxes of dollar_figure and illinois estate_taxes of dollar_figure these amounts exceeded what levine hahn believed to be the estate’s true tax_liabilities but levine hahn wanted to ensure that if the estate recovered additional assets before it filed its tax returns the estimated_tax payments would cover any additional tax_liabilities and prevent the imposition of penalties collecting the estate’s assets in early date the estate did not have sufficient liquid_assets to pay the dollar_figure in estimated federal and illinois estate_taxes the estate did hold illiquid assets that coupled with the liquid_assets would have allowed the estate to pay the estimated_taxes without borrowing funds when the taxes became due however the illiquid assets were not yet available to pay the estate’s taxesdollar_figure immediately before receiving a loan and paying the estate’s estimated federal and illinois estate_taxes the estate believed that it had the following assets asset values and liabilities assets values dollar_figure big_number big_number big_number liquid_assets cash illiquid assets aeps--net asset value per income_tax refund receivable federal illinois due from aeps unpaid compensation_for shareholder net advances to corporation aeps defined_benefit_plan aeps money_purchase_pension_plan unclaimed property receivable ill federal estate_tax refund receivable illinois estate_tax refund receivable total illiquid assets big_number big_number big_number big_number big_number big_number big_number total assets big_number liabilities federal and illinois estate_tax liabilities estimated big_number federal and illinois income_tax liabilities on income in respect of decedent amount owed to aeps for the estate’s big_number big_number continued the estate’s two most valuable nonliquid assets the net value of aeps and decedent’s unpaid compensation_for were tied up in decedent’s medical practice john argo decedent’s former business adviser advised mr fiala that selling aeps as a going concern would bring the estate the most money by the time the estate needed to pay its tax_liabilities mr fiala had not been able to find a buyer for aeps despite assurances from mr argo that the estate would be able to sell the practice as a going concern additionally mr fiala acting on the advice of levine hahn and mr argo had not disbursed to the estate any of aeps’ available fundsdollar_figure he made this decision in part after learning of two potential medical malpractice claims against decedent although decedent carried medical malpractice insurance mr fiala was not sure at that time whether decedent’s medical malpractice insurance was in continued expenses paid_by aeps accrued accounting and legal fees big_number total liabilities big_number aeps had only dollar_figure in cash its most valuable asset was dollar_figure in accounts_receivable which were in the process of being collected as for significant liabilities aeps owed harris bank dollar_figure on a line of credit and decedent dollar_figure comprising his compensation and a loan he had made to aeps and was aware of two potential medical malpractice lawsuits and the possibility of decedent’s former staff suing the practice mr fiala did not collect decedent’s unpaid compensation the advances that he had made to aeps and the money in decedent’s defined benefit and pension plans until date effect mr fiala also learned that decedent’s former employees were considering a potential lawsuit related to mr fiala’s attempts to sell aeps as a going concern all of this factored into mr fiala’s decision to not disburse to the estate the limited funds aeps had thus with limited cash on hand and desiring to avoid a forced sale of aeps the estate made the decision that it needed to borrow money in order to timely pay its federal and illinois estate_taxes ms kahanic lends the estate dollar_figure levine hahn knowing that ms kahanic had funds available to lend to the estate advised mr fiala to seek a loan from her mr fiala also believed that borrowing money from ms kahanic made sense because the estate was still gathering information as to its assets the estate’s taxes were almost due and borrowing money from a bank or other commercial lender would take time mr fiala thought that borrowing from ms kahanic was the only practical solution the estate had on date ms kahanic agreed to lend the estate dollar_figure at the short term_applicable_federal_rate dollar_figure ms kahanic and mr fiala18 signed a promissory note and security_agreement note containing the terms of the loan the note stated that the loan could be prepaid at any time without penalty and all repayments would be applied first to interest the note also stated that unpaid interest would be added to principal each year and all unpaid interest and principal would be due on date if the loan was not repaid by date the interest rate would be reset to the short term_applicable_federal_rate as of date to secure repayment of the debt the estate granted ms kahanic a security_interest in all of its accounts deposit accounts securities securities accounts investment_property promissory notes payment intangibles general intangibles proceeds of the above and all such collateral hereafter acquired the estate also granted ms kahanic a security_interest in any future federal or illinois estate_tax refunds due to the estate and agreed to immediately transfer any such refund to ms kahanic on date ms kahanic filed a uniform commercial code levine hahn advised mr fiala as to the amount of the loan the estate used the borrowed funds and dollar_figure of its own available cash to timely pay its estimated federal and illinois estate_taxes mr fiala signed the note on the estate’s behalf financing statement with the illinois secretary of state perfecting her security_interest in the collateral stated in the note the estate’s tax returns and respondent’s deficiency determination on date the estate timely filed its form dollar_figure the estate reported on schedule d insurance on the decedent’s life the dollar_figure reliastar policy and included the full amount in calculating the value of the gross_estate the estate also reported the dollar_figure reliastar policy on schedule k debts of the decedent and mortgages and liens and reduced the value of the gross_estate by such amount on the schedule k the estate stated indebtedness in respect of property included in the gross_estate pursuant to sec_2053 sec_2053 sec_2043 and sec_2516 as its reason for entitlement to the deduction respondent determined that the estate was not entitled to deduct any of the dollar_figure that ms kahanic received as beneficiary of the reliastar policy but has since conceded that the estate may deduct the dollar_figure as to which the msa obligated decedent to name ms kahanic irrevocable beneficiary the federal estate_tax_return reported a tax_liability of dollar_figure because the estate had previously paid dollar_figure it requested a refund of dollar_figure which the irs issued to the estate on date the estate also timely filed its illinois return the illinois return indicated that the estate had previously overpaid its taxes by dollar_figure additionally the estate reported on schedule j funeral_expenses and expenses_incurred in administering property_subject_to_claims one year’s worth of interest on the loan dollar_figure and claimed a deduction in that amount under sec_2053dollar_figure the description of the expense states that the loan was necessary to provide cash for payment of federal and illinois estate_taxes respondent determined that the interest on the loan was not an allowable deduction because the loan could be prepaid and the actual amount of interest the estate might pay could not be determined with certainty loan repayment and condition of the estate at time of trial when ms kahanic lent the estate dollar_figure to allow the estate to pay its taxes she expected to be repaid and believed that the estate had sufficient assets to repay the loan in full however the position of the estate has deteriorated significantly since date and as of the date of trial the estate had not made a single payment toward the loandollar_figure specifically the estate was unable to sell the interest was calculated for the period beginning date and ending date six months after the filing of the federal return as of date the accrued interest totaled dollar_figure for months after decedent died decedent’s bank account continued to automatically transfer to ms kahanic’s his dollar_figure monthly maintenace obligation as a result ms kahanic owed the estate dollar_figure when ms kahanic and mr fiala realized the mistake they agreed to reduce the principal_amount of the loan continued aeps as a going concern and instead was forced to liquidate the practice for substantially less money than the estate believed it would receive at the time ms kahanic made the loan additionally the estate owed significant legal and accounting fees that it did not expect to be responsible for when it agreed to the terms of the loandollar_figure ms kahanic has not demanded repayment of the loan continued from dollar_figure to dollar_figure the estate’s assets and liabilities as of date were as follows assets cash illinois estate_tax refund receivable federal_income_tax receivable illinois income_tax refund receivables date date estate_tax benefits estimated of deductible expenses not reported on the estate’s tax returns incurred legal and accounting fees of dollar_figure accrued interest of dollar_figure on loan from ms kahanic values dollar_figure big_number big_number big_number big_number big_number total assets big_number liabilities loan from ms kahanic continued opinion we are asked to decide whether the estate must include in the value of the gross_estate the reliastar policy’s dollar_figure life_insurance_proceeds and if so whether the estate is entitled to deduct the same amount as indebtedness owed to ms kahanicdollar_figure we also must decide whether the estate may deduct the accrued interest on the loan ms kahanic made to the estate and whether the estate may deduct accountant’s and attorney’s fees that the estate incurred after it filed its form_706 i agreed order and the circuit court’s jurisdiction we begin with the standards governing agreed orders and an illinois trial court’s jurisdiction to enter such orders under illinois law an agreed order also termed a consent order or a consent decree is not an adjudication of the continued principal accrued interest due to the child kahanic trust due to the child kahanic trust accrued accounting fees estimated accrued legal fees estimated total liabilities big_number big_number big_number big_number big_number big_number big_number as mentioned supra p respondent concedes that the estate is entitled to deduct under sec_2053 the dollar_figure as to which decedent was obligated under the msa to name ms kahanic irrevocable beneficiary parties’ rights but rather a record of their private contractual agreement once such an order has been entered it is generally binding on the parties in re marriage of rolseth n e 2d ill app ct citations omitted a consent decree reflects the determination of the parties to end their controversy it is like a written contract and should be enforced as written filosa v pecora n e 2d ill app ct a valid consent decree is binding upon the parties and is enforceable as are other judgments comet cas co v schneider n e 2d ill app ct however an agreed order is void if the court lacked jurisdiction over either the subject matter or the parties to a suit filosa n e 2d pincite in in re marriage of adamson n e 2d ill app ct the appellate court of illinois second district discussed a trial court’s jurisdiction in a dissolution proceeding generally a trial_court loses jurisdiction in a dissolution action days after it enters a final order however a trial_court retains jurisdiction to enforce its order past days when the judgment orders or contemplates further performance by the parties in a dissolution action the trial_court retains extraordinary continuing jurisdiction not applicable to civil cases generally citations omitted despite a trial court’s jurisdictional reach to enforce its own orders the court does not have jurisdiction to engraft new obligations onto the divorce decree id however if a party invokes the trial court’s continuing jurisdiction to enforce the terms of the divorce decree for example by petitioning the court for a rule to show cause against the other party and the parties subsequently agree to a modification of the divorce decree that imposes new obligations the trial_court has jurisdiction to enter the modified agreement and enforce it as part of its continuing power to enforce the divorce decree id pincite the parties are in the best position to evaluate their own circumstances and they should be allowed to resolve their dispute by agreement even when the trial_court would not or could not order the same resolution id the estate argues that the september agreed order was an agreement between decedent and ms kahanic that modified the provision in the msa requiring decedent to secure his unpaid spousal maintenance with dollar_figure of life_insurance_proceeds respondent counters that the september agreed order was a civil contempt order or a security_agreement and not a modification of the msa respondent also argues that even if we consider the september agreed order to be a modification of the msa in re marriage of arkin n e 2d ill app ct and in re marriage of hubbard n e 2d ill app ct hold that a court does not have jurisdiction to enter an order modifying the parties’ obligations in a proceeding for enforcement of that decree respondent acknowledges the holding of in re marriage of adamson but contends that the decision by the appellate court second division in that case did not expressly overrule the holdings of in re marriage of arkin and in re marriage of hubbarddollar_figure while we agree with respondent that the september agreed order was intended to force decedent to comply with the insurance requirements as originally stated in the msa we also believe that the september agreed order modified the msa before the circuit_court entered the september agreed order ms kahanic had pursuant to the msa an enforceable claim to receive at most dollar_figure had decedent died before completing his spousal maintenance obligation additionally decedent had the legal right to name someone other than ms kahanic as beneficiary to the remaining policy proceeds however once the circuit_court entered the september agreed order and until decedent complied we find respondent’s reliance on in re marriage of arkin n e 2d ill app ct and in re marriage of hubbard n e 2d ill app ct to be misplaced neither case cited by respondent involved a trial_court entering or enforcing an agreement of the parties see in re marriage of hubbard n e 2d pincite trial court’s order requiring husband to pay a portion of ex- wife’s home repair costs amounted to a modification of the parties’ judgment for dissolution that the trial_court lacked jurisdiction to enter in re marriage of arkin n e 2d pincite trial_court could not modify property settlement to force wife to pay one-half of the mortgage after she vacated the marital residence thus while in re marriage of adamson n e 2d ill app ct may not have expressly overruled either case the facts of the matter before us clearly fall within the framework of in re marriage of adamson accordingly we follow its analysis with the insurance requirements ms kahanic was entitled to receive the full amount of the policy proceeds and decedent had no legal right to amend the reliastar policy in any way viewing the parties’ legal rights before and after the circuit_court entered the september agreed order leads us to conclude that the september agreed order modified the msa we also find that the circuit_court had jurisdiction to enter the september agreed order as a modification of the msa ms kahanic invoked the circuit court’s jurisdiction when she filed the petition to show cause which among other things asked the circuit_court to use its compel powers to force decedent to comply with the insurance requirements stated in the msa see in re marriage of adamson n e 2d pincite respondent invoked the trial court’s continuing jurisdiction to enforce petitioner’s obligation to refinance the home equity loan secured_by the marital residence decedent and ms kahanic then agreed to the terms of the september agreed order and asked the circuit_court to enter the agreement which it did although the september agreed order imposed additional obligations on decedent that the circuit_court lacked jurisdiction to impose on its own the circuit_court had jurisdiction to enter and enforce the september agreed order because the parties agreed to its terms see id thus the circuit_court properly entered the september agreed order as part of its continuing power to enforce the judgment for dissolution and as a modification of the msa see id w hen the parties agree to settle a postdecree dispute by modifying the underlying judgment or martial settlement agreement the trial_court should enforce the new agreement unless it is unconscionable ii whether the estate must include the reliastar policy proceeds in the value of the gross_estate a general rules and sec_2042 sec_2001 imposes a tax on the transfer of the taxable_estate of every decedent who is a citizen or resident_of_the_united_states sec_2051 defines the taxable_estate as the value of the gross_estate less applicable deductions sec_2031 specifies that the gross_estate comprises all property real or personal tangible or intangible wherever situated to the extent provided in sec_2033 through sec_2033 broadly provides the value of the gross_estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death sec_2034 through explicitly mandate the inclusion of several more narrowly defined classes of interests in property among those specific sections is sec_2042 which governs the treatment of life_insurance_proceeds and provides in pertinent part as follows sec_2042 proceeds of life_insurance the value of the gross_estate shall include the value of all property-- receivable by other beneficiaries --to the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents_of_ownership exercisable either alone or in conjunction with any other person for purposes of the preceding sentence the term incident_of_ownership includes a reversionary_interest whether arising by the express terms of the policy or other instrument or by operation of law only if the value of such reversionary_interest exceeded percent of the value of the policy immediately before the death of the decedent as used in this paragraph the term reversionary_interest includes a possibility that the policy or the proceeds of the policy may return to the decedent or his estate or may be subject_to a power of disposition by him the value of a reversionary_interest at any time shall be determined without regard to the fact of the decedent’s death by usual methods of valuation including the use of tables of mortality and actuarial principles pursuant to regulations prescribed by the secretary in determining the value of a possibility that the policy or proceeds thereof may be subject_to a power of disposition by the decedent such possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his estate sec_20_2042-1 estate_tax regs expounds on the term incidents_of_ownership for purposes of this paragraph the term incidents_of_ownership is not limited in its meaning to ownership of the policy in the technical legal sense generally speaking the term has reference to the right of the insured or his estate to the economic benefits of the policy thus it includes the power to change the beneficiary to surrender or cancel the policy to assign the policy to revoke an assignment to pledge the policy for a loan or to obtain from the insurer a loan against the surrender_value of the policy etc thus if decedent possessed at his death any incidents_of_ownership in the reliastar policy the entire dollar_figure death_benefit is includible in the value of the gross_estate pursuant to sec_2042 b parties’ arguments the estate argues that at the time of decedent’s death he did not possess any incidents_of_ownership in the reliastar policy and therefore the proceeds are not includible in the value of the gross_estate see sec the estate reasons that as a result of the september agreed order decedent could not exercise the economic benefits of the policy eg change the beneficiary or cancel the policy and the value of decedent’s reversionary_interest did not exceed of the value of the policy respondent argues that decedent had a reversionary_interest and the estate has not shown that the value of decedent’s reversionary_interest did not exceed of the value of the reliastar policy see id c decedent’s reversionary_interest regardless of the limitations imposed on decedent by the september agreed order if the value of decedent’s reversionary_interest in the reliastar policy exceeded of the policy’s value the policy proceeds are includible in the gross_estate under sec_2042 see supra p the estate concedes that decedent had a reversionary_interest the estate also concedes that if we determine that the reliastar policy had a fair_market_value in excess of zero it has not introduced evidence that would allow us to find that the value of decedent’s reversionary_interest did not exceed of the policy’s valuedollar_figure the estate argues however that the best approximation of the reliastar policy’s value is its net cash-surrender value of zero thus the estate contends that a 5-percent or more reversionary_interest would have no value and decedent’s reversionary_interest would not constitute an incident_of_ownership see 74_tc_603 n since the decedent’s coverage in the group policy had no ascertainable value prior to death a 5-percent or more reversionary_interest would have no value respondent argues that net cash-surrender value is not the fair_market_value of the policy generally the value of every item of property includible in the decedent’s gross_estate is its fair_market_value at the time of the decedent’s death sec_20_2031-1 estate_tax regs the fair_market_value is the price at which the generally taxpayers bear the burden of proving by a preponderance_of_the_evidence that the determinations of the commissioner are incorrect rule a 290_us_111 the estate does not argue that respondent should bear the burden_of_proof property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts id the fair_market_value is not to be determined by a forced sale price id when valuing a life_insurance_policy that has been in force for some time and requires further premium payments to be made the value may be approximated by making adjustments to the interpolated terminal reservedollar_figure see sec_20_2031-8 estate_tax regs sec_25_2512-6 gift_tax regs this method may not be used however if because of the unusual nature of the contract such an approximation is not reasonably close to the full value of the contract sec a estate_tax regs the estate claims that the interpolated_terminal_reserve_value of the policy is essentially the ‘accumulated value’ of the policy as of date the accumulated value of the policy was dollar_figure the estate argues the valuation calls for adding to the interpolated terminal reserve at the date of the decedent’s death the proportionate part of the gross premium last paid before the date of the decedent’s death which covers the period extending beyond that date sec_20_2031-8 estate_tax regs the interpolated terminal reserve ‘is not cash_surrender_value it is the reserve which the insurance_company enters on its books against its liability on the contracts the word interpolated simply indicates adjustment of the reserve to the specific date in question ’ 134_tc_141 n quoting 135_f2d_574 7th cir affg 46_bta_815 however that because decedent’s policy was in force for only months before his death and had a surrender charge of dollar_figure the policy should be valued at its net cash-surrender value of zero and not its accumulated value of dollar_figure respondent argues that net cash-surrender value represents the policy’s forced sale or liquidation value and not the fair_market_value of the policy respondent contends that the policy’s interpolated terminal reserve which the estate claims is the same as the policy’s accumulated value is the proper value for the reliastar policy initially we note that our obligation does not extend to determining the exact value of the reliastar policy but only to deciding whether the reliastar policy was worthless at the time decedent dieddollar_figure we also note that despite the estate’s claim that the reliastar policy’s accumulated value is essentially the interpolated terminal reserve of the policy we find no evidence of this in the terms of the policy or in any of the documents provided to the estate by aig after decedent’s death the policy generally defines accumulated value as the total premium payments made minus all monthly fees and expenses plus earned interest while the accumulated value may approximate the amount which the see supra p company enters on its books against its liability on the contracts neither party has presented evidence that suggests this is the case the estate’s main argument is that if we do not consider the surrender charges in valuing the reliastar policy we will overstate the fair_market_value of the policy in any event the fact that decedent or any other owner had no access to the savings or investment portion of the policy as of the date of his death does not make the policy worthless see 136_tc_120 finding life_insurance policies to have fair market values despite the polices’ net cash- surrender values of zero surrender of a policy represents only one of the rights of the insured albeit a significant one 312_us_254 in 136_tc_120 we were faced with deciding the amounts actually distributed under sec_402 when taxpayers received life_insurance policies from a nonqualified employee-benefit plan that like the life_insurance_policy here had surrender charges in excess of their stated values id pincite the policies in schwab also were similar to the reliastar policy in that the policies were universal_life_insurance policies had been in effect before the date of disposition and required further premium payments id pincite in schwab we first decided that the policies’ fair market values constituted the amounts actually distributed id pincite we then concluded that the only significant value the policies had was the amount of insurance coverage that was attributable to the premium payments previously made by the employer and we determined that the fair market values of the life_insurance policies were dollar_figure and dollar_figure by multiplying the number of remaining days the policies covered the taxpayers as of the date of distribution by the base rates for the guaranteed maximum monthly cost of insurance rates id pincite here decedent’s final premium payment provided him with coverage until date thus as of the date of decedent’s death the reliastar policy would have provided days’ more coverage following our reasoning in schwab the reliastar policy’s fair_market_value as of date would at least be the cost of insuring decedent for days or dollar_figuredollar_figure similar to the situation before us in 136_tc_120 we lacked evidence in the record of the insurer’s policy reserves see id pincite the cost of insuring decedent for days is determined as follows base rate per thousand dollars of coverage for the guaranteed maximum monthly cost of insurance x big_number amount of coverage divided by dollar_figure gives us a monthly benefit of dollar_figure multiplying the monthly benefit by months results in an annual_benefit of dollar_figure we then determine the benefit of insuring decedent for days by taking the annual_benefit and multiplying it by continued moreover unlike the policies in schwab the reliastar policy’s no-lapse provision had not expired or even kicked in at the time of decedent’s death the terms of the reliastar policy stated that so long as decedent’s total premium payments exceed the cumulative total of the ‘minimum monthly premiums’ in effect from the ‘policy date’ to the end of the current period the reliastar policy would remain in effect regardless of net cash_surrender_value when decedent died he had made premium payments of dollar_figure the policy’s minimum monthly premium was dollar_figure and the cumulative total of the minimum monthly premiums beginning on the policy date date to the end of the current period date was dollar_figure thus because of the no-lapse provision and decedent’s total premium payments the reliastar policy would have remained in effect until date--more than two years after decedent continued the fraction of this calculation results in a value of dollar_figure see schwab v commissioner t c pincite n died--without a premium payment being madedollar_figure we believe this adds a significant amount of value to the reliastar policy the estate’s only argument with respect to the value of decedent’s reversionary_interest is that the policy was worthless the estate admits that it did not introduce any evidence that would allow us to conclude that the value of decedent’s reversionary_interest was less than of the value of the reliastar policy thus having determined that the reliastar policy had a fair_market_value in excess of zero it follows that the full amount of the reliastar policy proceeds are includible in the value of the gross_estate under sec_2042 iii whether the estate is entitled to deduct the reliastar policy proceeds under sec_2053 generally sec_2053 allows a deduction from the gross_estate for indebtedness that encumbers property the value of which undiminished by such indebtedness is included in the gross estatedollar_figure in estate of robinson v it would have taken more than months for the cumulative total of the minimum monthly payments to exceed the total premium payments made and cause the reliastar policy to lapse this is shown by dividing dollar_figure total premium payments made of dollar_figure - cumulative total of minimum monthly payments as of date of dollar_figure by dollar_figure the reliastar policy’s minimum monthly premium for a total of months sec_2053 provides in part as follows continued commissioner 63_tc_717 we held that where a property settlement agreement entered into in the context of divorce proceedings obligates one party to name the other party as a beneficiary to life_insurance_proceeds the obligee receives the life_insurance_proceeds upon the death of the obligor and the obligor’s estate includes the life_insurance_proceeds in the value of the gross_estate the obligor’s estate may deduct as indebtedness under sec_2053 the amount of the life_insurance_proceeds the obligor was required to provide under the divorce decree see sec_2053 see also revrul_76_113 1976_1_cb_276 the estate argues that it is entitled to deduct the full amount of the reliastar policy proceeds as indebtedness in respect of property included in the gross_estate see sec_2053 the estate reasons that the september agreed order increased the indebtedness encumbering the policy from dollar_figure to dollar_figure and the estate included the full value of the reliastar policy in the gross_estate continued for purposes of the tax imposed by sec_2001 the value of the taxable_estate shall be determined by deducting from the value of the gross_estate such amounts for any indebtedness in respect of property where the value of the decedent’s interest therein undiminished by such indebtedness is included in the value of the gross_estate as are allowable by the laws of the jurisdiction under which the estate is being administered sec_2053 limits the deduction for indebtedness in respect of property included in the gross_estate when the indebtedness was founded on a promise or agreement in such a situation the deduction under sec_2053 is permitted only to the extent that the indebtedness was contracted bona_fide and for an adequate_and_full_consideration in money or money’s worth sec_2053 an exception to the adequate_and_full_consideration in money or money’s worth requirement exists where the transfer of property occurs pursuant to certain property_settlements sec_2043 sec_2516 sec_2043 provides that for purposes of the deduction provided by sec_2053 a transfer of property that satisfies sec_2516 shall be considered to be made for an adequate_and_full_consideration in money or money’s worth sec_2516 provides in part as follows where a husband and wife enter into a written_agreement relative to their marital and property rights and divorce occurs within the 3-year period beginning on the date year before such agreement is entered into whether or not such agreement is approved by the divorce decree any transfers of property or interests in property made pursuant to such agreement to either spouse in settlement of his or her marital or property rights shall be deemed to be transfers made for a full and adequate_consideration in money or money’s worth the estate argues that the date agreed order constitutes an agreement settling decedent’s and ms kahanic’s marital and property rights entered into within the time frame required by section therefore the estate argues that decedent’s obligation to maintain ms kahanic as the sole beneficiary of the reliastar policy proceeds and subsequent transfer to her of the policy proceeds is deemed to be made for a full and adequate_consideration in money or money’s worth under sec_2043 we agree to begin we believe that the september agreed order is a settlement agreement relative to decedent’s and ms kahanic’s marital and property rightsdollar_figure moreover as discussed supra the september agreed order modified the msa thus regardless of whether we view the transfer of the reliastar policy proceeds to ms kahanic as being made pursuant to the msa as amended by the september agreed order or the september agreed order it would be made pursuant to an agreement in settlement of marital or property rights within the purview of sec_2516 accordingly the exception under sec_2043 is met and the the september agreed order was entered into within the timeframe required by sec_2516 transfer of the reliastar policy proceeds is considered to be made for an adequate_and_full_consideration in money or money’s worthdollar_figure as we have decided that the september agreed order created an indebtedness to ms kahanic in the full amount of the policy proceeds and that the subsequent transfer of the policy proceeds is deemed to satisfy the consideration requirement of sec_2053 it follows that pursuant to our holding in 63_tc_717 the estate is entitled to deduct the full amount of the policy proceeds under sec_2053 iv whether the estate is entitled to deduct accrued interest on the dollar_figure loan from ms kahanic generally sec_2053 authorizes an estate to deduct administration_expenses that are allowable_by_the_law_of_the_jurisdiction in which the estate is being administered subject_to limitations an estate may borrow money to satisfy its federal estate_tax liability and deduct the interest incurred on the debt as an we note that the purpose of the adequate_and_full_consideration requirement is to prevent the depletion of the estate by the use of agreements which would ultimately serve to avoid the estate_tax 526_f2d_1012 3d cir see estate of 402_f2d_592 n 2d cir 62_f2d_952 6th cir there is no evidence that decedent and ms kahanic intended to use the september agreed order as a way to minimize the estate’s federal tax_liability administration expense under sec_2053 68_tc_74 57_tc_288 illinois law provides that all expenses_incurred in connection with the settlement of a decedent’s estate including debts estate_taxes and fees of attorneys and representatives shall be charged against the principal of the estate ill comp stat ann a west illinois law further provides that as long as the executor is acting within the best interests of the estate and consistent with the decedent’s will he or she has the power to borrow money ill comp stat ann b west decedent’s will specifically grants to the executor of his estate the power to borrow money for any purpose at interest rates then prevailing from any individual respondent argues that the estate is not entitled to deduct the accrued interest on the dollar_figure loan from ms kahanic because the loan was not a bona_fide debt and the loan was not actually and reasonably necessary to the administration of the estate respondent also argues that the estate is not entitled to deduct the accrued interest because the estate has not proved that the interest will be paid we consider each of these arguments in turn a whether the loan was a bona_fide debt whether a particular transaction is to be properly characterized as a loan depends on the facts and circumstances 728_f2d_945 7th cir aff’g tcmemo_1983_98 respondent’s argument that the loan made by ms kahanic to the estate is not a bona_fide debt is based upon his analysis of six factors taken from estate of graegin v commissioner tcmemo_1988_477 we recently discussed the significance of the factors mentioned in estate of graegin and what the court looks for in deciding whether a bona_fide debt has been created while the factors taken from estate of graegin may provide helpful guidance they are not exclusive and no single factor is determinative see patrick v commissioner tcmemo_1998_30 affd without published opinion 181_f3d_103 6th cir the factors are simply objective criteria helpful to the court in analyzing all relevant facts and circumstances id the ultimate questions are whether there was a genuine intention to create a debt with a reasonable expectation of repayment and whether that intention fits the economic reality of creating a debtor-creditor relationship 61_tc_367 estate of duncan v commissioner tcmemo_2011_255 respondent contends that there is no indication that ms kahanic intended to create a genuine debt and that the estate intended to repay the loan with respect to the former respondent argues that ms kahanic had no intention of collecting the dollar_figure that she lent the estate as support respondent points out that ms kahanic has not demanded repayment of the loan despite the fact that the note became due in date respondent also argues that ms kahanic benefited from the estate’s timely payment of its federal estate_tax liability respondent reasons that if the estate was unable to pay in full its federal_estate_taxes the irs could have collected a portion of the estate’s tax_liability from ms kahanic see sec_6324 sec_6901 the estate counters that respondent fails to consider the facts known by the estate and ms kahanic when the loan was made in date before receiving the loan in date the estate believed that it had assets valued at dollar_figure dollar_figure of which were in liquid form to pay liabilities of dollar_figure when the estate received the loan and used the proceeds to pay its estate_tax liabilities it believed that it had total assets of dollar_figure to pay off total liabilities including the loan principal of dollar_figure this left the estate with nearly dollar_figure to pay interest on the loan as well as any other liabilities the estate admits that ms kahanic benefited from the estate’s timely paying of its estate_tax liabilities it argues however that ms kahanic’ sec_34 see supra note benefiting from the estate’s payment and her intention to collect the loan are not exclusive of each other we agree ms kahanic credibly testified that mr levine and the other accountants in his group assured her that she would be paid back and that the estate had sufficient assets to repay the loan we believe the facts as of date support mr levine’s assurances to ms kahanic additionally jeffrey smith an accountant with levine hahn who advises clients with respect to lending money credibly testified that as of date the estate had sufficient assets to secure the dollar_figure loan respondent argues that if ms kahanic intended to recover the loan she would have demanded repayment when the loan became due in date while we believe that ms kahanic’s demanding repayment in may have been an indication that she intended to collect the loan we do not think the absence of such a demand shows that when she made the loan in date she did not intend to create a genuine debt ms kahanic did not demand repayment because doing so would have exhausted the estate’s funds thereby preventing the estate from challenging the irs’ deficiency determinations and potentially subjecting her to transferee_liability when the loan was made ms kahanic intended to be repaid in full and was advised by levine hahn that the estate had sufficient assets to repay the principal of the loan and any accrued interest thus we believe that ms kahanic intended to create a genuine debt when she lent the estate dollar_figure respondent also argues that the estate never intended to repay the loan he contends that when the estate agreed to the terms of the loan it knew that it would be unable to repay the loan we disagree the estate believed that it had total assets of dollar_figure to repay the loan plus any interest dollar_figure of the estate’s other liabilities and any additional legal fees and or damages resulting from the defense of potential medical malpractice claims had the assets retained their estimated values and there was no deficiency proceeding brought against the estate the estate would have been able to repay the loan along with any interest we find that neither mr fiala nor levine hahn had any knowledge that the estate’s assets’ values would dissipate in such a way as to make repayment of the loan difficult additionally mr fiala credibly testified that when the loan was made he as executor intended to repay ms kahanic when asked why he had not made any payments on the loan he stated that t he position of the estate has deteriorated significantly since may when the note was executed mr fiala also explained that john argo decedent’s former business adviser assured mr fiala that the estate would be able to sell decedent’s medical practice as a going concern ultimately however t he estate simply was forced to liquidate what was left of the practice for literally pennies for the value of the equipment and furniture within the office finally unexpected legal fees incurred as a result of this deficiency proceeding reduced the estate’s assets even further we find that the estate intended to repay the note and has not done so only because of unforeseen circumstances that have reduced the values of the estate’s assets taking into consideration all of the facts and evidence specifically the testimony of the relevant parties to the loan and the estate’s financial picture as of date we believe that a bona_fide debt was created between ms kahanic and the estate b whether the loan was actually and reasonably necessary the amount of deductible administration_expenses is limited to those expenses which are actually and necessarily incurred in the administration of the estate estate of todd v commissioner t c pincite sec_20_2053-3 estate_tax regs respondent argues that the loan was not actually and reasonably necessary because the estate had the right to recover from ms kahanic a portion of the estate’s tax_liabilities and could have collected and sold nonliquid assets in time to pay its estate_tax liabilities right to contribution from ms kahanic unless the decedent directs otherwise in his will sec_2206 allows for the executor to recover from a beneficiary of life_insurance_proceeds on the decedent’s life the portion of tax paid_by the estate as the proceeds of the policy bear to the taxable estatedollar_figure decedent’s will expressly provides that the estate_tax liabilities are to be paid first out of his residuary_estate and if insufficient out of the declaration of trust decedent’s will also waives any right of reimbursement for recovery_of or contribution toward the payment of taxes respondent argues that the estate had a right to request contribution from ms kahanic notwithstanding decedent’s will because the residuary_estate and the declaration of trust did not contain sufficient assets to pay the estate’s tax liabilitiesdollar_figure we disagree the estate had sufficient assets to pay its estate_tax sec_2206 provides in pertinent part unless the decedent directs otherwise in his will if any part of the gross_estate on which tax has been paid consists of proceeds of policies of insurance on the life of the decedent receivable by a beneficiary other than the executor the executor shall be entitled to recover from such beneficiary such portion of the total_tax paid as the proceeds of such policies bear to the taxable_estate respondent contends that in in re estate of williams n e 2d ill app ct the appellate court of illinois held that in such a scenario the excess tax_liabilities are to be apportioned between the beneficiaries of the continued liabilities when it received the loan proceeds the assets simply were in illiquid formdollar_figure respondent concedes that the estate could not seek contribution from ms kahanic if decedent’s residuary_estate and or declaration of trust had sufficient assets to pay the estate’s tax_liabilities thus the estate had no right seek contribution from ms kahanic when it made the decision to borrow dollar_figure whether the estate’s assets could have been liquidated in time to pay its estate_tax liabilities respondent next argues that the estate could have liquidated its assets before its taxes were due thereby making the loan unnecessarydollar_figure specifically respondent argues that the estate could have recovered more than dollar_figure by liquidating aeps and collecting decedent’s unpaid compensation continued decedent’s probate and nonprobate assets in in re estate of williams the decedent’s will directed that her estate_tax liability was to be paid out of her residuary_estate without apportionment or reimbursement but her will did not mention who would be responsible for the tax_liability if the residuary_estate lacked the assets necessary to pay the liability id pincite the appellate court decided that the tax_liability should be apportioned among those who received probate and nonprobate assets id pincite see supra note we note that this argument is inconsistent with respondent’s position that the estate could have sought contribution from ms kahanic because it did not have sufficient assets to pay its estate_tax liabilities see supra pp expenses_incurred to prevent financial loss to an estate resulting from a forced sale of its assets in order to pay estate_taxes are deductible administrative expenses see 57_tc_288 estate of graegin v commissioner tcmemo_1988_477 instead of liquidating aeps and selling its assets one by one mr fiala acted on the advice of mr argo and attempted to maximize aeps’ value by selling it as a going concern by the time the taxes became due the estate had not sold aeps and needed to borrow money additionally liquidating aeps and selling its individual assets in a forced sale would have resulted in financial loss of aeps’ dollar_figure of total assets dollar_figure were in the form of accounts_receivable if the estate chose to sell the accounts_receivable it likely would have been at a deep discount to reflect the present values of the receivables and possibility of uncollectibility with respect to decedent’s unpaid compensation aeps lacked the cash necessary to pay the estate aeps had only dollar_figure in a harris bank checking account when decedent died and still owed expenses related to the winding up of aeps and dollar_figure on a line of credit with harris bank also mr fiala had to consider the possibility of two medical malpractice lawsuits and a lawsuit brought by decedent’s former employees we do not find it unreasonable that the estate had yet to collect decedent’s unpaid compensation especially considering the large amounts of uncollected accounts_receivable on the facts of this case we are satisfied that the interest on the loan was actually and necessarily incurred as required by sec_20_2053-3 estate_tax regs whether the accrued interest will be paid the remaining issue is whether the estate will pay the accrued interest see sec_20_2053-1 estate_tax regs respondent contends that the estate has not shown that the accrued interest will be paid and therefore the estate is not entitled to deduct the interest the estate counters that if it prevails as to the deductibility of the reliastar policy proceeds it will have the funds necessary to repay the interest as of date the estate’s liabilities dollar_figure exceeded its assets dollar_figure by roughly dollar_figure however when we remove the loan’s principal_amount which will not be paid off until after the accrued interest is satisfied from the estate’s liabilities the estate’s assets exceed its liabilities by see supra note see supra p more than dollar_figure thus the estate has the funds necessary to repay the accrued interest and we believe that the estate has credibly stated that it will do sodollar_figure the estate has shown that a bona_fide debt was created the loan and accrued interest were actually and reasonably necessary to the administration of the estate and the accrued interest will be paid accordingly the estate is entitled to deduct the accrued interest under sec_2053 v deduction for additional accountant’s and attorney’s fees the estate contends that it is entitled to deduct additional reasonable attorney’s fees accountant’s fees and other administrative expenses under rule the parties stipulated that t o the extent that they are reasonably incurred in the administration of d ecedent’s estate and have been or will be paid such additional fees and expenses will be taken into account in the computations to be made pursuant to u s tax_court rule there is nothing in the record to suggest that the foregoing expenses were not reasonably incurred in the as of date the estate’s assets totaled dollar_figure and the estate’s liabilities excluding the loan’s principal_amount totaled dollar_figure we do not find as respondent contends that the estate’s failure to make any payments on the loan as of the date of trial indicates that the estate will not now repay the interest as discussed supra pp the estate failed to repay the loan on account of the unexpected reductions in the values of its assets and the uncertainty stemming from the proceedings before the court administration of decedent’s estate or will not be paid and the parties may take them into consideration in the rule_155_computations in reaching our holdings we have considered all arguments made and to the extent not mentioned we consider them irrelevant moot or without merit to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court john jeter petitioner v commissioner of internal revenue respondent docket no filed date john jeter pro_se david r ferguson for respondent memorandum opinion goldberg special_trial_judge respondent determined a deficiency in petitioner’s federal_income_tax for in the amount of dollar_figure unless otherwise indicated section references are to the internal_revenue_code in effect for the year in issue the issues for decision are whether petitioner is entitled to dependency_exemption deductions and whether petitioner is entitled to the earned_income_credit some of the facts in this case have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference at the time the petition was filed petitioner lived in baltimore maryland during petitioner and his then wife tona l jeter ms jeter were separated and no longer living together they have two children from their marriage a son jerome a jeter born date and a daughter jamie n jeter born date collectively the children at all times relevant to this case the children were minors ms jeter filed for child_support in early and was subsequently divorced in during the period of separation including the year in issue petitioner resided pincite wilder avenue baltimore maryland family home which was the family home prior to separation ms jeter resided in an apartment in the same neighborhood but the actual distance from the family home is unknown the children attended school in the area of the family home during the school year ms jeter took the children to petitioner’s home in the early morning petitioner drove the children to school and the children returned to the family home every day after the completion of the school day ms jeter typically picked up the children around or p m after she finished work ms jeter was employed as an office manager for the department of social services petitioner testified that ms jeter earned approximately dollar_figure during and paid a monthly rent including utilities of dollar_figure petitioner was also employed full time during according to the order for custody from the division of child_support circuit_court for baltimore county petitioner was required to pay monthly child_support petitioner paid a total of dollar_figure in child_support payments during petitioner also made monthly mortgage payments on the family home of approximately dollar_figure during petitioner and ms jeter shared legal custody of the children however according to the order for custody physical custody was awarded to ms jeter according to the order of custody petitioner was entitled to visitation of two nights per week plus every other weekend eight holidays and five consecutive nights during the children’s summer vacation petitioner paid for the children’s school supplies bedroom furniture in the family home some clothes and meals when they stayed at the family home ms ellen j williams ms williams petitioner’s mother lived in a home jointly owned with petitioner in asheville north carolina asheville residence petitioner claimed ms williams as a dependent during the year in issue ms williams wa sec_82 years old during the year in issue and received social_security_benefits of approximately dollar_figure per month petitioner traveled to north carolina about four or five times a year to visit ms williams and to maintain the asheville residence during petitioner painted the asheville residence petitioner testified that he provided financial support to ms williams of approximately dollar_figure per month during on petitioner’s federal_income_tax return he claimed dependency_exemption deductions for the children and for ms williams and an earned_income_credit respondent disallowed the dependency_exemption deductions because petitioner failed to establish that he was entitled to claim them as dependents as a result of the disallowance respondent further disallowed the earned_income_credit dependency_exemption sec_151 allows a taxpayer to deduct an annual exemption_amount for each dependent of the taxpayer a taxpayer’s mother and children qualify as dependents so long as the taxpayer provided more than half of the support to each dependent sec_152 sec_1_152-1 income_tax regs as to the children the support_test in sec_152 e applies if a child receives over half of his support during the calendar_year from his parents the parents live apart at all times during the last months of the calendar_year and such child is in the custody of one or both of his parents for more than one-half of the calendar_year as these requirements are satisfied in the present case the child shall be treated for purposes of subsection a as receiving over half of his support during the calendar_year from the parent having custody for a greater portion of the calendar_year referred to as the ‘custodial parent’ thus allowing the dependency_exemption to be claimed by the custodial_parent sec_152 see sec_1_152-4 income_tax regs custody is determined by the terms of the most recent custody decree if there is one in effect sec_1_152-4 income_tax regs in this case the order of custody dated date ' stated that ms jeter and petitioner were awarded joint legal custody of the children however ms jeter has the primary physical custody of the children after taking into consideration petitioner’s visitation rights under the order of custody it is clear that the children spent more than one- half of with ms jeter therefore ms jeter is the custodial_parent and petitioner is the noncustodial_parent for t for purposes of this case we accept the order for custody from the division of child_support circuit_court for baltimore county dated date as the most recent custody decree no documents from the divorce in were received in the record as the noncustodial_parent petitioner is allowed to claim the children as dependents only if he meets one of three statutory exceptions under sec_152 the noncustodial_parent can claim the dependency_exemption deduction if the custodial_parent releases claim to the exemption for the year a multiple-support agreement is in effect or the decree of divorce was executed prior to the decree expressly provides that the noncustodial_parent is entitled to the deduction and the noncustodial_parent provides at least dollar_figure for the support of the child sec_152 and sec_1_152-4t temporary income_tax regs fed reg date after reviewing the record it is clear that petitioner does not satisfy any of the exceptions under sec_152 therefore we sustain respondent’s determination denying dependency_exemptions as to the children in order to claim ms williams as a dependent petitioner must show by competent evidence the total support provided for the individual claimed and that he provided more than half of such total support the amount of total support may be reasonably inferred from competent evidence see 46_tc_515 however where the amount of total support of an individual during the taxable_year is not shown and cannot be reasonably inferred from competent evidence then it is not possible to conclude that the taxpayer has contributed more than one-half see 56_tc_512 31_tc_1252 total support includes inter alia the cost of food clothing education household utilities or home repair expenses necessary to maintain the household in smith v commissioner tcmemo_1997_544 sec_1_152-1 income_tax regs according to petitioner’s testimony ms williams’s sources of monthly income were a social_security_benefit of approximately dollar_figure and his monthly contribution of approximately dollar_figure petitioner did not offer any other evidence besides his own testimony to establish that he provided more than one-half of ms williams’s total support ms williams did not testify cf oates v commissioner tcmemo_1976_347 without other competent evidence we cannot determine that petitioner provided more than one-half of his mother’s overall support see blanco v commissioner supra pincite accordingly we find that petitioner is not entitled to a dependency_deduction for ms williams respondent is sustained as to the denial of a dependency_exemption for ms williams brarned income credit the relevant parts of sec_32 provide that an individual is eligible for the earned_income_credit if the individual has a qualifying_child a qualifying_child is one who satisfies a relationship_test a residency test an age_test and an identification requirement sec_32 petitioner has met the relationship_test age_test and identification requirement therefore the only factor which needs discussion is the residency test based on the order for custody and petitioner’s testimony petitioner was permitted visitation with the children for approximately days during petitioner contends that because the children stayed with him for part of the day during their school year that time should be included in the children’s residency at the family home we disagree under the residency test a claimed individual’s principal_place_of_abode must be for more than one-half of such taxable_year sec_32 a merely staying in the family home for a few hours of the day does not constitute the children’s principal_place_of_abode because they fail to meet the residency test under sec_32 we find that the children were not qualified children of petitioner respondent is sustained on this issue based on the foregoing decision will be entered for respondent


significant index number department of the treasury internal_revenue_service washington d c tax_exempt_and_government_entities_division ‘jan hit tep ce az re taxpayer dear this letter constitutes notice that approval has been granted for your request for a 5-year automatic_extension for amortizing the unfunded liabilities as of date for the above-named plan which are described in sec_431 and sec_431 of the internal_revenue_code code and sec_304 and sec_304 of the employee_retirement_income_security_act_of_1974 erisa this extension is effective with the plan_year beginning date this extension applies to the eligible amortization charge bases established as of date the extension of the amortization periods of the unfunded liabilities of the plan was granted in accordance with sec_431 of the code sec_431 of the code requires the secretary to extend the period of time required to amortize any unfunded_liability of a plan for a period of time not in excess of years if the plan submits an application meeting the criteria stated in sec_431 the plan has submitted the required information to meet the criteria in sec_431 including a certification from the plan’s actuary that plan's funding status i absent the extension under subparagraph a the plan would have an accumulated_funding_deficiency in the current plan_year or any of the succeeding plan years ii the plan_sponsor has adopted a plan to improve the iii the plan is projected to have sufficient assets to timely pay expected benefits and anticipated expenditures over the amortization period as extended and iv the notice required under paragraph a has been provided we have sent a copy of this letter to the and to the this ruling is directed only to the taxpayer that requested it sec_6110 of the internal_revenue_code provides that it may not be used or cited by others as precedent if you require further assistance in this matter please contact sincerely yours rg david m ziegler manager ep actuarial group


t c memo united_states tax_court robert k k and doris k pang petitioners v commissioner of internal revenue respondent docket no filed date in p-h was involved in a car accident in which he struck a pedestrian who later died in p-h paid the pedestrian’s estate dollar_figure in settlement of a wrongful death lawsuit ps filed a joint federal_income_tax return for on which ps claimed a casualty_loss deduction pursuant to sec_165 for the dollar_figure settlement payment r determined a deficiency in ps’ federal_income_tax for on the basis that the settlement payment did not constitute a casualty_loss under sec_165 ps petitioned this court for a redetermination of the deficiency held p-h’s payment of dollar_figure in settlement of a wrongful death claim stemming from an automobile accident is not a casualty_loss deductible under sec_165 robert k k and doris k pang pro_se david lau for respondent memorandum opinion gustafson judge by a statutory_notice_of_deficiency dated date the internal_revenue_service irs determined a deficiency of dollar_figure in the federal_income_tax of petitioners robert k k and doris k pang the pangs brought this case pursuant to sec_6213 asking this court to redetermine the deficiency the issue for decision is whether the pangs are entitled to a casualty_loss deduction under sec_165 for the dollar_figure that mr pang paid to settle a wrongful death claim stemming from an automobile accident for the reasons explained below we hold that they are not background this case was submitted fully stipulated pursuant to rule the stipulation of facts filed date and the attached exhibits are incorporated herein by this reference at the time that they filed their petition the pangs resided in hawaii 1unless otherwise indicated all citations of sections refer to the internal_revenue_code_of_1986 u s c as amended and in effect for the tax_year at issue and all citations of rules refer to the tax_court rules_of_practice and procedure on date mr pang was involved in an automobile accident in which he hit a pedestrian with his vehicle the pedestrian later died as a result of this accident the pedestrian’s estate filed a claim against mr pang for wrongful death mr pang had a personal automobile insurance_policy with tradewind insurance co ltd the policy had a liability limit of dollar_figure per person for bodily injury death_benefit endorsements of dollar_figure and personal injury protection pip of dollar_figure mr pang’s insurance_company concluded that the proximate cause of the accident rested with mr pang and they tendered to the estate payments that exhausted the policy’s limits--ie dollar_figure for bodily injury plus a death_benefit of dollar_figure plus a pip payment of dollar_figure in order to fully settle its claim against mr pang the estate insisted on a large contribution of funds from mr pang in addition to the insurance funds it had already received following arbitration mr pang agreed to pay dollar_figure to the estate on date mr pang made the agreed dollar_figure settlement payment to the estate by check mr pang was not compensated or reimbursed for this dollar_figure by insurance or otherwise 2the parties stipulate that the policy’s pip coverage was dollar_figure but then state that a payment of dollar_figure exhausted the pip limits we assume that the correct amount is dollar_figure but the discrepancy is not material to the outcome here for the year in which mr pang made the payment ie the pangs filed a joint form_1040 u s individual_income_tax_return to which they attached a form_4684 casualties and thefts on which they listed a casualty_loss of dollar_figure representing the payment made in settlement of the wrongful death suit after application of statutory limitations the pangs claimed a casualty_loss deduction of dollar_figure on their schedule a itemized_deductions the irs disallowed the casualty_loss deduction the pangs claimed on their return on date the irs issued to the pangs a statutory_notice_of_deficiency pursuant to sec_6212 showing a deficiency of dollar_figure in income_tax for tax_year on date the pangs timely petitioned this court for a redetermination of that deficiency the parties jointly moved to submit the case under rule and the case is now before the court for decision without trial the issue for decision is the deductibility under sec_165 of a payment made in settlement of a wrongful death suit arising from an automobile accident discussion generally the irs’s determination_of_a_deficiency is presumed correct and the taxpayer has the burden of proving it incorrect rule a 290_us_111 deductions are a matter of legislative grace and taxpayers bear the burden of proving that they have met all requirements necessary to be entitled to the claimed deductions rule a 503_us_79 moreover deductions are to be narrowly construed and taxpayers bear the burden of proving that the claimed deduction falls within the ambit of the cited statutory provision 308_us_488 292_us_435 sec_165 provides as follows sec_165 losses a general_rule --there shall be allowed as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise c limitation on losses of individuals --in the case of an individual the deduction under subsection a shall be limited to losses of property not connected with a trade_or_business or a transaction entered into for profit if such losses arise from fire storm shipwreck or other_casualty or from theft emphasis added 3thus it is not enough for a taxpayer to argue as the pangs do that the tax code does not say you cannot deduct losses from accidental car death emphasis added rather the taxpayer must show that the code affirmatively allows the deduction they claim sec_165 thus allows non-corporate taxpayers a deduction only for losses of property emphasis added that arise from casualty in 13_tc_897 this court observed that the losses allowable under sec_23 a predecessor to sec_165 are specifically limited to losses of property arising from casualty and damages paid for injuries and wrongful death are plainly without the provisions of the statute emphasis added this court has consistently held that settlement payments which result from automobile accidents do not constitute deductible casualty losses 56_tc_553 20_bta_496 16_bta_1331 10_bta_1129 hall v commissioner tcmemo_1980_485 the pangs maintain however that their dollar_figure settlement payment is deductible under sec_165 as a casualty_loss because webster’s dictionary defines casualty as l osses caused by death wounds and the accident victim’s death in date was certainly a casualty this issue is resolved not by webster’s definition of casualty but by the code’s provisions for casualty_loss quoted above moreover the pangs’ position conflates two distinct things--the victim’s casualty which occurred when he died in and the pangs’ financial loss which occurred when they made their payment in 4--and does not explain how the casualty of the victim results in a deductible casualty_loss for the pangs under sec_165 this court has held that physical damage or destruction of property is an inherent prerequisite in showing a casualty_loss 28_tc_717 affd 252_f2d_425 4th cir the court_of_appeals for the ninth circuit to which an appeal in the present case would lie likewise requires physical damage to the taxpayer’s property as a prerequisite to a casualty_loss deduction see eg 477_f2d_452 9th cir affg tcmemo_1970_352 407_f2d_838 9th cir 4the regulations provide that to be allowable as a deduction under sec_165 a loss must be actually sustained during the taxable_year sec_1_165-1 income_tax regs and that any loss arising from casualty is allowable as a deduction under sec_165 for the taxable_year in which the loss is sustained id sec_1_165-7 the victim’s casualty ie his death was not sustained in the year at issue rather it was the pangs’ loss that was sustained in the focus here must be on the pangs’ loss 5in 477_f2d_452 9th cir affg tcmemo_1970_352 the taxpayers’ neighboring property had suffered a casualty a mudslide that did not damage the taxpayers’ property but reduced its market_value the court_of_appeals for the ninth circuit stated the tax_court ruled that the loss sustained was a nondeductible personal_loss in disposition of residential property and not a casualty_loss that the drop in market_value was not due to physical damage caused by the slide but to ‘buyer resistance’ that casualty_loss is limited to damage directly caused by the casualty we agree id pincite emphasis added affg 48_tc_245 as a result to obtain the deduction the pangs must demonstrate that the claimed casualty_loss is attributable to physical damage to their property eg damage caused to their vehicle during the accident they have not done so--and any damage to their property occurred in not the pangs’ claimed loss is attributable not to property damage but to the monetary settlement of a wrongful death claim to the extent the pangs are arguing that the payment constitutes a loss of their property we find that to be beyond the scope of sec_165 the term losses of property in sec_165 does not include a taxpayer’s monetary payment to a third party or a decrease in the taxpayer’s net_worth see furer v commissioner 33_f3d_58 9th cir loss suffered by taxpayers through a decline in the value of their stock due to a fluctuating market did not constitute a casualty_loss affg tcmemo_1993_165 730_f2d_375 5th cir ‘property’ as used in section c 6the court_of_appeals for the fifth circuit cited 407_f2d_838 9th cir affg 48_tc_245 in 730_f2d_375 5th cir a case in which the taxpayers like the pangs were forced to pay tort damages that exceeded their insurance_policy limits and attempted to claim the payment as a casualty_loss the fifth circuit stated sec_165 c speaks of losses of property we find this language expressive of congressional intent to narrow the types of losses deductible under this subsection t he loss must be a damage or loss to physical property id pincite includes money only if the actual currency or coinage is physically damaged or destroyed by the enumerated or implied casualties as a result although the death of the pedestrian was certainly a casualty in the general sense of the word and although one could say that the pangs suffered a subsequent economic loss when they paid the wrongful death settlement we cannot hold that congress intended such a payment to be a casualty_loss within the meaning of sec_165 as a result we find that the pangs are not entitled to a casualty_loss deduction under sec_165 on their return for the dollar_figure that mr pang paid to settle the wrongful death claim stemming from the automobile accident to reflect the foregoing decision will be entered for respondent