t c memo united_states tax_court estate of frances c glover a k a frances c cloud deceased kevin holleran and wilmington trust company administrators pro tem petitioner v commissioner of internal revenue respondent docket no filed date mark l tunnell for petitioner gerald a thorpe for respondent memorandum findings_of_fact and opinion jacobs judge pursuant to a statutory_notice_of_deficiency dated date respondent determined a dollar_figure deficiency in the estate_tax of the estate of frances c glover hereinafter frances c glover is referred to as decedent and her estate as decedent’s estate on date the court granted - - respondent’s motion for leave to file amendment to answer and to claim increased deficiency asserting an increased deficiency in estate_tax of dollar_figure in the amendment to answer respondent raised as an issue whether a potential malpractice claim decedent possessed against the law firm of eckell sparks monte auerback moses eckell sparks constituted an interest in property includable in decedent’s gross_estate and if so the value of that claim as detailed infra on date more than years after decedent’s death the administrators pro tem and the residuary beneficiaries of decedent’s estate filed an action against eckell sparks the plaintiffs’ claims in that action included among others a claim related to malpractice committed in handling decedent’s affairs during her life and a claim for a return of attorney’s fees of dollar_figure paid_by the estate for services rendered during the administration of the estate in date the court of common pleas of chester county pennsylvania orphans’ court division the orphans’ court ordered eckell sparks to return the dollar_figure of attorney’s fees paid_by the estate in early date the administrators pro tem the glovers and eckell sparks entered into a settlement agreement pursuant to which eckell sparks agreed to pay the administrators pro tem and the residuary beneficiaries dollar_figure for the release of all their claims against the law firm the parties filed a stipulation of settled issues with this court which they were able to resolve most of their differences ’ in addition in the stipulation of settled issues pursuant to the stipulation of settled issues the parties agreed to the following settlement terms a the value of folly hill farm reported on the estate_tax_return should be reduced by dollar_figure to reflect the cost of an environmental cleanup the value of the woolworth stock reported on the estate_tax_return should be increased by dollar_figure the taxable_estate reported on the estate_tax_return should be increased by dollar_figure to reflect a general_power_of_appointment decedent held in the frances g c glover trust on the date of death the taxable_estate reported on the estate_tax_return should be increased by dollar_figure to reflect the value of a claim decedent had against madelyn m hurley on the date of death the taxable_estate reported on the estate_tax_return should be increased by dollar_figure to reflect the value of a claim decedent had against charles w hurley on the date of death the taxable_estate reported on the estate_tax_return should be increased by dollar_figure to reflect a federal_income_tax refund for to which decedent was entitled on the date of death decedent’s estate will be allowed a deduction for administrator’s commissions and other miscellaneous administrative expenses paid_by decedent’s estate to the extent approved by a final order of the court of common pleas of chester county pennsylvania orphans’ court division the orphans’ court decedent’s estate will be allowed a deduction for attorney’s fees paid_by decedent’s estate excluding attorney’s fees paid to attorneys representing the continued q4e- decedent’s estate and respondent agreed to use the dollar_figure settlement amount as the starting point for determining the value of decedent’s interest in the malpractice claim against eckell sparks the parties further agreed to reduce the dollar_figure settlement proceeds by dollar_figure representing the legal costs incurred in prosecuting the malpractice claim that decedent’s estate had the right to argue that the dollar_figure figure should be further reduced a by dollar_figure representing the claim the estate asserted for the return of attorney’s fees and b for an additional portion of the amount recovered from eckell sparks because it is property belonging to the residuary beneficiaries the glovers and is not property of the estate and that the net value of decedent’s interest in the malpractice claim at the date of settlement after all allowable reductions should be multiplied by to arrive at its present_value as of the date of decedent’s death continued residuary beneficiaries and payment to one of the residuary beneficiaries the deductibility of such fees and payments are at issue in this case to the extent approved by a final order of the orphans’ court decedent’s estate should be allowed a deduction not to exceed dollar_figure million for a charitable_bequest to the university of pennsylvania to the extent paid the actual amount of attorney’s fees ordered returned was dollar_figure - - the issues remaining’ for us to decide are as follows whether any portion of the dollar_figure settlement eckell sparks paid to the administrators pro tem and the residuary beneficiaries of decedent’s estate the glovers should be allocated to a the value of the estate’s claim for the dollar_figure of legal fees that the orphans’ court ordered eckell sparks to return to decedent’s estate and or b to the value of the claims the glovers made against eckell sparks with the consequences that the amount of any such allocation is not included in the value of decedent’s claim against eckell sparks on the date of her death if we determine that no portion of the dollar_figure settlement is allocable to the glovers’ claims then whether that portion percent of the dollar_figure eckell sparks settlement that was distributed to the glovers is a deductible expense in determining decedent’s taxable_estate in its answering brief decedent’s estate a conceded that attorney’s fees of dollar_figure paid to the law firm of eckell sparks monte auerback moses that the orphans’ court ordered be returned to decedent’s estate are not deductible as administrative expenses pursuant to sec_2053 b failed to address and therefore is deemed to have conceded that commission of dollar_figure paid to madelyn m hurley the original executrix of decedent’s estate is not deductible as an administrative expense pursuant to sec_2053 nor deductible as a theft_loss pursuant to sec_2054 - - whether payments made by decedent’s estate to attorneys representing the glovers and payments if any to be made to mr glover one of the residuary beneficiaries for time and money spent in discovering the misappropriation of decedent’s assets by ms hurley and mr ross persons to whom decedent entrusted all of her financial affairs are deductible either as administrative expenses pursuant to sec_2053 or as claims against the estate pursuant to sec_2053 in determining decedent’s taxable_estate ’ findings_of_fact some of the facts have been stipulated and are found accordingly the stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference background on the date of her death date decedent resided in pennsylvania kevin holleran and the wilmington trust co were duly appointed coadministrators pro tem of decedent’s estate at the time the petition in this case was filed mr holleran resided in pennsylvania and the principal_place_of_business of wilmington trust co was in delaware all section references are to the internal_revenue_code as amended and in effect on the date of decedent’s death and all rule references are to the tax_court rules_of_practice and procedure decedent decedent inherited substantial wealth from her parents anda great uncle her lifestyle was not lavish she lived comfortably on the income and dividends from her investments at an unspecified date in the early 1960s decedent met madelyn hurley also known as lynn hurley they thereafter developed a close friendship initially ms hurley began helping decedent by performing secretarial and administrative chores such as sorting mail paying bills and depositing checks she was not compensated for these services at an unspecified date in early decedent engaged richard ross to serve as her financial adviser thereafter mr ross and ms hurley worked together and decedent began compensating ms hurley for her services on date decedent suffered a stroke that left her partially paralyzed after the stroke decedent entrusted all of her financial affairs to mr ross and ms hurley at that time decedent’s assets which consisted primarily of real_estate stocks and bonds were worth more than dollar_figure million mr ross and ms hurley opened three checking accounts into which they deposited decedent’s funds and over which they had signature_authority mr ross and ms hurley also held powers of attorney that allowed them to conduct transactions through decedent’s brokerage accounts - - at an unspecified date in mr ross until his death in and ms hurley began to misappropriate decedent’s funds by the date of decedent’s death in they had misappropriated approximately dollar_figure million mr ross and ms hurley used these funds to pay their personal expenses and to invest in business ventures they retained eckell sparks to represent them in some of these business ventures decedent’s will in date mr ross and ms hurley engaged eckell sparks to draft a new will the will for decedent before this time eckell sparks had not performed legal services for decedent eckell sparks did not send decedent an engagement letter acknowledging their representation of her or specifying the fee arrangement nor did any attorney from eckell sparks meet or communicate with decedent rather in preparing the will for decedent joseph monte of eckell sparks used decedent’s prior will the old will which was provided by mr ross and ms hurley and relied upon information provided by mr ross and ms hurley decedent had a longtime companion edward h cloud whom she married on date she also had one brother rolfe e glover iii who had three children rolfe e glover iv gordon f glover and katherine c glover reference to mr glover is to rolfe e glover iv and reference to the glovers is to the three - children the glovers were the residuary beneficiaries under the old will as well as the will the will provided for certain specific bequests including a beguest of dollar_figure to mr ross and a bequest of dollar_figure million to the university of pennsylvania decedent owned a mobile home valued at approximately dollar_figure which was to be held in trust and rented for dollar_figure per year to mr cloud for so long as he desired she also owned a farm residence known as folly hill which was to be held in trust for the benefit of mr cloud giving him the right to occupy the farm rent free for life upon mr cloud’s death the farm went to a residuary_trust for the benefit of the glovers the will created a residuary_trust from which the trustee was to pay so much of the income and principal as necessary to pay mr cloud’s living_expenses during his life upon mr cloud’s death the assets of the residuary_trust including the farm were to be distributed to the glovers mr ross was named as the executor trustee of the will ms hurley was named as the contingent executrix trustee in the event mr ross failed to qualify or ceased to act the bequest was to establish and perpetuate the frances cheney glover endowment fund to be used for the support of academic development of veterinary staff and teaching of veterinary students mr ross and ms hurley delivered the will to decedent ms hurley penned the following interlineations on the will ms hurley was to receive a dollar_figure bequest and mr cloud’s nieces and nephew the pierces rather than the glovers were to receive the farm upon mr cloud’s death after initialing the aforementioned interlineations decedent signed the will on date present at that time were mr cloud mr ross ms hurley and jayne kirkpatrick a friend of decedent the signed will was then taken by mr ross and ms hurley to ms hurley’s home where ms hurley’s mother nell meding and ms hurley’s secretary karen benner signed the will as witnesses upon obtaining these signatures mr ross and ms hurley delivered the executed will to eckell sparks where the signatures were improperly notarized the will was then placed ina safe at the office of eckell sparks subsequently eckell sparks sent the original and a copy of the will to ms hurley where they remained until decedent’s death on date mr ross died ms hurley was the executrix and sole beneficiary of mr ross’s estate antenuptial agreement in early decedent and mr cloud decided to marry on date ms hurley retained eckell sparks to draft an antenuptial agreement for decedent and mr cloud the antenuptial agreement provided that decedent would leave mr cloud a cash - bequest of dollar_figure million in her will eckell sparks mailed the antenuptial agreement to ms hurley eckell sparks did not recommend to decedent that before the execution of the antenuptial agreement she or independent counsel consult with her accountant george skinner to obtain a statement of her assets on date decedent and mr cloud executed the antenuptial agreement ms hurley kept the executed antenuptial agreement until she sent it to eckell sparks in the spring of revised will on date ms hurley met with a member of eckell sparks to discuss the revision of decedent’s will the revised will was to include the dollar_figure million bequest to mr cloud reduce the bequest to the university of pennsylvania to dollar_figure and eliminate the dollar_figure bequest to ms hurley the revised will was sent to ms hurley on date ms hurley however never gave the revised will to decedent to execute decedent died on date decedent’s estate all of the beneficiaries under the will except mr ross were alive when decedent died since decedent’s death mr cloud and ms kirkpatrick have died on date ms hurley submitted the will to the register of wills of chester county pennsylvania register of wills for probate the register of wills admitted the will with the interlineations to probate and granted letters testamentary to ms hurley ms hurley engaged eckell sparks to represent her as executrix for the estate soon thereafter mr cloud filed a petition with the orphans’ court seeking to enforce the antenuptial agreement without opposition the antenuptial agreement was upheld by the orphans’ court decedent’s income_tax returns shortly after decedent’s death eckell sparks learned that decedent had not filed income_tax returns for the years preceding her death in date eckell sparks obtained from decedent’s accountant mr skinner his files relating to decedent’s affairs those files revealed that mr skinner had filed with the internal_revenue_service requests for extensions of time for filing decedent’s tax returns had partially prepared tax returns for the years in question based upon information available to him from the preparation and filing of previous tax returns for decedent and before mr ross and ms hurley took over as financial advisers had over the 4-year period asked mr ross and ms hurley for information needed to complete the tax returns and was unable to document decedent’s assets or liabilities and resulting net_worth because the information was not available to him mr skinner informed eckell sparks that mr ross and ms hurley as decedent’s financial advisers were responsible for the failure_to_file decedent’s tax returns contested will on date the glovers through their attorneys lamb windle mcerlane lamb windle filed an appeal to the orphans’ court challenging the probate of the will the glovers claimed that after decedent executed the will on date the will had been altered by undated handwritten interlineations and cancellations but had not been republished or properly reexecuted by decedent after a hearing on the matter the orphans’ court held that the register of wills had incorrectly decided that the will had been properly attested to and notarized on date the orphans’ court entered a decree vacating the date probate of the will and remanding the matter to the register of wills on date the glovers filed a caveat with the register of wills claiming that the will was invalid for the following reasons execution of the document was obtained by undue influence exerted by a richard ross and lynn hurley and others who were in a confidential relationship with decedent lynn hurley is unfit to be entrusted with the administration of the estate because of her failure to perform the duties entrusted to her by decedent and mismanagement of decedent’s affairs all of which resulted in financial loss to decedent placing ms hurley in a conflict of interest with the estate of decedent which estate has a cause of action against ms hurley for these breaches of duty and losses the register of wills granted nonsuit against the glovers and denied and dismissed the caveat on date the register of wills again admitted the will to probate and granted letters testamentary to ms hurley on date the glovers filed a petition with the orphans’ court seeking the removal of ms hurley as executrix and the appointment of the glovers as coexecutors of the will in addition the petition requested that ms hurley forfeit her executrix’s commission be prohibited from transferring any of her personal assets outside of the ordinary course of her daily life without the permission of the court and be required to file with the court a schedule listing a all of her personal assets b all transfers from the estate to her mr ross and several entities in which they together had an interest and c any outstanding loans from decedent’s or the estate’s accounts made during the relevant period in the petition the glovers asserted that they had examined several of decedent’s bank and brokerage accounts that were controlled by ms hurley and mr ross and that their examination revealed that large sums of money deposited into those accounts had been used for the personal benefit of ms hurley and mr ross the -- - glovers maintained that even if those transfers were treated as loans as ms hurley contended ms hurley as executrix of the estate had a conflict of interest because she had made no attempt to recoup the funds she took from decedent’s accounts moreover the glovers alleged that ms hurley had actively and fraudulently attempted to conceal the indebtedness in order to further her own interests on date the orphans’ court entered a preliminary decree directing ms hurley to show cause why she should not be removed as executrix of decedent’s estate the court also issued a temporary restraining order against ms hurley enjoining her from participating in all decisions regarding the administration of the estate participating in all decisions regarding the assets of the estate engaging or paying counsel to represent the estate claiming any compensation as executrix doing any other act as executrix and transferring any of her personal assets outside the ordinary course of her daily life without permission of the court the restraining order required ms hurley to file with the court a schedule listing all of her personal assets and an accounting of all transfers of money or property from decedent’s bank accounts or from the estate during the relevant periods on date the orphans’ court entered a decree removing ms hurley as executrix and appointing kevin holleran an attorney - specializing in estate administration and the wilmington trust co as administrators pro tem before ms hurley was removed as executrix she paid herself an executrix’s commission of dollar_figure and a legacy of dollar_figure in addition she paid attorney’s fees totaling dollar_figure to eckell sparks after being appointed by the orphans’ court mr holleran conferred with mr glover and the glovers’ attorneys at the offices of lamb windle mr holleran reviewed lamb windle files relating to decedent’s affairs the lamb windle files revealed that most of decedent’s records had been destroyed shortly after her death mr glover expended time and money investigating decedent’s estate he subpoenaed and obtained records from the financial institutions with which decedent dealt the records were voluminous there were pages of photocopies of checks and statements diagrams and charts it took approximately years from the date of decedent’s death to put together the evidence which was the foundation of the glovers’ petition to have ms hurley removed mr holleran believed that the estate benefited significantly from the information mr glover gathered through the discovery process in the actions brought by the glovers to contest the will and to remove ms hurley on date the administrators pro tem filed a civil_action against ms hurley in the court of common pleas chester - - county pennsylvania the court of common pleas seeking damages for fraudulent conversion count i unjust enrichment count ii and breach of fiduciary duty count iii the complaint alleged that ms hurley and mr ross misappropriated up to dollar_figure million from decedent on date the glovers filed a petition with the orphans’ court appealing the decision of the register of wills to probate the will the glovers argued that the will should not have been probated for the following reasons ms hurley and mr ross fraudulently induced decedent to sign the will ms hurley and mr ross exercised undue influence over decedent in connection with the will because of decedent’s physical and mental state decedent did not have the capacity to understand the provisions of the will and decedent was unaware of several significant facts namely the misappropriation by ms hurley and mr ross which would have changed the dispositions decedent made in her will the civil_action filed by the administrators pro tem and the glovers’ appeal were consolidated for trial and opinion in the orphans’ court division of the court of common pleas on date on date ms hurley filed her account of the estate with the orphans’ court on date the administrators pro tem filed objections to ms hurley’s account the administrators - - pro tem among other things objected to ms hurley’s executrix’s commission dollar_figure and the attorney’s fees paid to eckell sparks dollar_figure further they requested that ms hurley and eckell sparks be surcharged for the dollar_figure they alleged mr glover spent on attorney’s fees while uncovering the acts of concealment obstruction and malfeasance by ms hurley and eckell sparks a hearing on the objections was deferred pending the outcome of the civil_action on date the orphans’ court issued an opinion and decree nisi dismissing the glovers’ appeal the opinion concluded that decedent was of a sound mind and possessed testamentary capacity at the time of the execution of the will and that the will was not the result of undue influence or fraud consequently the court found that the will was valid and properly admitted to probate however the orphans’ court entered a judgment against ms hurley and in favor of the administrators pro tem for dollar_figure dollar_figure for restitution to decedent’s estate for breach of fiduciary duty owed and dollar_figure for interest on income_tax and tax penalties as a consequence of her failure to turn over information to decedent’s accountant needed to file timely tax returns and to make tax_payments on date the glovers filed exceptions to the orphans’ court’s decree requesting that the court change and or modify its decree to find that the will was invalid for -- lack of due execution e it was a product of fraud undue influence and lack of capacity that the interlineations were invalid for lack of due execution that all fiduciary and beneficial provisions in favor of ms hurley were invalid and should be stricken and that the appeal from probate be sustained on date the en_banc court of common pleas of chester county pennsylvania orphans’ court division entered an opinion and order the en_banc court decision rejecting the arguments made in the exceptions filed by the glovers and made its decree final upholding the validity of the will by decedent on date the glovers appealed the en_banc court decision to the superior court of pennsylvania on date the superior court filed its judgment in re estate of glover a 2d pa super ct affirming in part and reversing in part the en_banc court decision the superior court sustained the en bance court decision that the will was valid however it reversed the orphans’ court’s determination with on date ms hurley filed a petition for relief under ch with the u s bankruptcy court for the eastern district of pennsylvania the administrators pro tem filed a motion to dismiss pursuant to u s c sec b against ms hurley citing bad faith after months of litigation the bankruptcy court dismissed ms hurley’s case for cause under u s c sec b ms hurley appealed that decision to the u s district_court for the eastern district of pennsylvania but in date she withdrew her appeal - - respect to the validity of the dollar_figure legacy to ms hurley finding that the legacy was induced by fraud ’ on date the administrators pro tem and ms hurley entered into a settlement agreement which disposed of all claims possessed by the estate for acts committed by ms hurley on or before date on date the orphans’ court entered an opinion and decree dismissing the renewed objections filed by the administrators pro tem with respect to ms hurley’s account of the estate on the ground that those objections were disposed of in the prior proceeding and thus barred under the doctrine_of res_judicata the administrators pro tem then asked the superior court for permission to appeal the orphans’ court’s dismissal of their renewed objections to ms hurley’s first and final account their request was denied on date suit against eckell sparks on date the administrators pro tem and the glovers referred to collectively as the plaintiffs filed an action in the court of commons pleas against eckell sparks seeking damages for the actions and conduct of the law firm over the 4-year period from june of to june of the plaintiffs retained the law firm on date the glovers filed a petition for allowance of appeal with the supreme court of pennsylvania appealing the superior court’s date judgment on date the supreme court denied the glovers’ appeal - of fell spaulding to represent them in the action on a contingency-fee basis in their complaint the plaintiffs sought compensatory_damages in the sum of dollar_figure million together with interest and costs for malpractice committed by eckell sparks in connection with the drafting of the will and the antenuptial agreement count i the sum of dollar_figure together with interest and costs for attorney’s fees incurred by the glovers in contesting the will count ii compensatory_damages in the form of reimbursement of the executrix’s commissions bequests to ms hurley and eckell sparks’s attorney’s fees in the amount of dollar_figure together with interest and costs for malpractice committed by eckell sparks while representing decedent’s estate count iii dollar_figure together with treble_damages costs and reasonable attorney’s fees for conduct by eckell sparks that violated the federal racketeer influenced and corrupt organizations act rico count iv and punitive_damages alleging that eckell sparks’s conduct was outrageous and amounted to a gross and reckless disregard of the probable consequences and the harm being inflicted on the plaintiffs herein count v on date the glovers and the administrators pro tem entered into an agreement to provide a method for allocating any amount recovered from the lawsuit against eckell sparks as well -- - as for allocating expenses in prosecuting the lawsuit the parties agreed that the glovers would receive percent of any recovery and would be responsible for percent of the litigation expenses the estate would receive the remaining percent of any recovery and would be responsible for percent of the litigation expenses on date the court of common pleas entered an order dismissing count i relating to the predeath malpractice claim finding that a the complaint contained insufficient facts to establish that eckell sparks played a role in wrongdoings committed by mr ross and ms hurley and b the glovers lacked standing to assert the predeath malpractice claim set forth in count i of the complaint dismissing count ii with prejudice relating to the recovery_of the attorney’s fees the glovers incurred in the will_contest finding that the glovers lacked standing to assert the claim and that such a claim could not be asserted separately but rather was a component of the damages asserted in the main action 1ie part of the damages resulting from eckell sparks’s malpractice dismissing count iii relating to the postdeath negligence claim finding there were insufficient facts to establish negligence on the part of eckell the agreement recites that the plaintiffs recognized that it would be extremely difficult to accurately and precisely allocate between the interests of the glovers and the estate any moneys received by way of either a jury verdict or settlement in the lawsuit pending - - sparks’ and that the glovers lacked standing to assert a claim for any malpractice that eckell sparks may have committed while handling matters for the estate dismissing with prejudice count iv finding that the administrators pro tem lacked standing since they did not allege conduct covered by rico and that the glovers lacked standing to bring such an action under rico against eckell sparks and dismissing with prejudice count v finding that a claim for punitive_damages was not a separate cause of action and that the plaintiffs had not alleged sufficient facts to support their assertion that eckell sparks’s conduct was outrageous the plaintiffs appealed to the superior court the superior court affirmed the order of the lower court except with regard to the dismissal of the predeath malpractice claim by the administrators pro tem against eckell sparks the superior court reversed and remanded the case for consideration of that claim on date the orphans’ court sua sponte raised the issue of the reasonableness of the compensation paid_by the estate to ms hurley and eckell sparks the orphans’ court entered an opinion and decree requiring ms hurley and eckell sparks to repay the amounts they had received from decedent’s estate the court however granted the administrators pro tem additional time to file an amended complaint to state adequate facts establishing breach of duty and causation in count iii - on date a trial of the eckell sparks case commenced in the court of common pleas in early date the administrators pro tem the glovers and eckell sparks entered into a settlement whereby eckell sparks agreed to pay dollar_figure for the release of all claims asserted in both the civil_action and the will_contest total litigation costs of dollar_figure were incurred in the action resulting in a net recovery_of dollar_figure attorney’s fees in litigation of decedent’s estate the law firm of lamb windle represented the glovers with respect to matters relating to decedent’s estate lamb windle billed the glovers dollar_figure the estate paid the bill of the amount_paid dollar_figure was for services performed before the administrators pro tem were appointed and dollar_figure was for services performed after that appointment the law firm of gawthrop greenwood halsted represented the administrators pro tem on the matters regarding ms hurley and eckell sparks a letter dated date reflects attorney’s fees of dollar_figure related to the hurley matter and dollar_figure related to the eckell sparks matter mr glover was actively involved in all litigation involving the estate he maintained a detailed log on time spent on matters relating to the estate mr glover estimated that he spent big_number hours on estate matters he was not employed by the administrators pro tem or their law firm to assist them with estate matters - - opinion sec_2001 imposes an estate_tax on the taxable_estate of every decedent who is a citizen or resident_of_the_united_states a decedent’s taxable_estate is determined by determining the value of the decedent’s gross_estate and by deducting therefrom those deductions provided for in sec_2053 through sec_2051 the gross_estate of a decedent is determined by including the value at the date of the decedent’s death of the decedent’s interest in all property real or personal tangible or intangible wherever situated sec_2031 sec_2033 in this case one of the issues presented is determining for purposes of determining the value of decedent’s gross_estate the value of an interest which decedent possessed in a malpractice claim against eckell sparks as of the date of her death the parties have fashioned a formula for computing the value of that interest they have agreed that the starting point in determining the value of that interest is a post mortem settlement made almost years after decedent’s death while normally we would not attach such importance if any to an event or transaction occurring almost years after decedent’s death in determining a date-of- death value for an asset owned by a decedent in this case we do so because of the parties’ stipulation essentially the parties have agreed that the dollar_figure settlement represented the gross value as of the date of settlement - - of all claims asserted against eckell sparks accepting the parties’ agreed dollar_figure starting gross valuation for the claims we are asked by the parties to determine whether any portion of the dollar_figure starting point valuation is to be allocated to interests that decedent did not possess at the date of her death specifically we decide whether any part of the dollar_figure should be allocated to the value of the estate’s claim for the return of the dollar_figure' of legal fees paid_by decedent’s estate for services rendered in connection with the administration of decedent’s estate and or claims of the residuary beneficiaries for malpractice and if so the amount thereof we must further decide whether payments made by decedent’s estate to attorneys representing the glovers as the residuary beneficiaries and any possible future payment by the estate to mr glover for his efforts in discovering the misappropriation of decedent’s assets by ms hurley and mr ross are deductible either as administrative expenses pursuant to sec_2053 or as claims against the estate pursuant to sec_2053 we use the dollar_figure amount because as indicated supra note the actual amount of fees paid and ordered returned to the estate was dollar_figure additionally this greater amount is the amount used by both parties in their briefs -- p7 - issue whether portions of the dollar_figure settlement for claims against eckell sparks are attributable to the value of the estate’s claim for the return of attorney’s fees that the orphans’ court ordered returned to decedent’s estate and or attributable to the value of the glovers’ claims against the firm the administrators pro tem and the glovers filed a civil_action against eckell sparks alleging that eckell sparks committed malpractice in connection with the drafting of decedent’s will and antenuptial agreement count i as well as while representing decedent’s estate count iii was liable for the attorney’s fees incurred by the glovers in contesting decedent’s will count ii violated the rico count iv and was liable for punitive_damages count v the lower court dismissed all counts either for lack of standing or for failure to allege sufficient facts to support these claims on appeal the superior court reversed and remanded the lower court’s dismissal of the predeath malpractice claim against eckell sparks by the administrators pro tem the superior court affirmed the order of the lower court in all other respects on date the orphans’ court sua sponte entered an opinion and decree ordering eckell sparks to repay the dollar_figure the law firm had received from decedent’s estate the trial of the civil_action brought by the administrators pro tem against eckell sparks commenced in date in early date the administrators pro tem the glovers and eckell sparks entered into a settlement whereby eckell sparks agreed to pay dollar_figure for - - the release of all claims asserted in both the civil_action and the will_contest which included the liability for the return of the dollar_figure of attorney’s fees total litigation costs of dollar_figure were incurred in the action resulting in a net recovery_of dollar_figure pursuant to the agreement between the estate and the glovers the estate’s percent portion of the net_proceeds would be dollar_figure rounded the estate argues that the glovers’ 60-percent share of the settlement and the dollar_figure of attorney’s fees that the orphans’ court ordered eckell sparks to return to the estate should be excluded from the dollar_figure settlement that the parties stipulated represents the starting point for determining the value of decedent’s interest in the malpractice claim on the date of her death for purposes of determining the value of a decedent’s gross_estate within the purview of sec_2033 the term property encompasses choses in action 346_f2d_213 5th cir 133_f2d_428 9th cir affg in part and revg in part estate of barneson v commissioner a memorandum opinion of this court dated date 74_tc_540 cobb v commissioner tcmemo_1985_208 estate of aldrich vv commissioner tcmemo_1983_543 estate of biagioni vv commissioner tcmemo_1981_660 duffield v united_states - - f_supp e d pa the contingent nature of a claim bears on the question of the value of the claim not on its includability in a decedent’s gross_estate estate of curry v commissioner supra pincite claims arising from events occurring after a decedent’s death are those of the estate have not passed to the estate from the decedent and consequently are not included in the decedent’s gross_estate 465_f2d_760 2d cir property interest arising after the decedent’s death is not property owned at death and not part of the gross_estate under sec_2033 266_f2d_321 2d cir in the case at hand the malpractice action against eckell sparks that related to the law firm’s handling of decedent’s affairs during her life is an interest that decedent possessed as of the date of her death however that part of the malpractice action relating to the return of the fees paid_by the estate to eckell sparks during ms hurley’s administration of the estate is not an interest that decedent possessed on the date of her death because it arose from events occurring and for services rendered after decedent’s death any claim for such wrongdoings belongs to the estate similarly the value of any claim by the glovers against eckell sparks is not included in decedent’s gross_estate -- - because decedent possessed no interest in such a claim as of the date of her death fees of dollar_figure ordered by court to be returned to estate respondent acknowledges that decedent’s gross_estate should not be increased by the return of the dollar_figure of attorney’s fees paid_by the estate to eckell sparks during the administration of the estate as ordered by the orphans’ court respondent contends however that because the settlement agreement among the law firm the administrators pro tem and the glovers failed to allocate the settlement among the estate’s cause of action for the return of the fees the glovers’ claims and decedent’s cause of action for malpractice there is no way of determining what part if any of the dollar_figure settlement represents repayment of the dollar_figure in attorney’s fees we disagree when as in this case a settlement agreement does not allocate the settlement among claims the intent of the payor in making the payment is an important factor in determining the amounts properly allocable to the various claims 349_f2d_610 10th cir affg tcmemo_1964_33 290_f2d_283 2d cir affg per curiam tcmemo_1960_21 88_tc_834 affd without published opinion 845_f2d_1013 3d cir if the payor’s intent cannot be clearly discerned from the settlement agreement the payor’s intent must be - - determined from all the facts and circumstances of the case factors to be considered include the details surrounding the litigation in the underlying proceeding the allegations contained in the payee’s complaint and amended complaint in the underlying proceeding and the arguments made in the underlying proceeding by each party see eg 332_f2d_144 5th cir affg in part and revg in part 37_tc_31 87_tc_1294 affd 848_f2d_81 6th cir 87_tc_236 affd 835_f2d_67 3d cir no single factor is determinative rather in a given case a factor may be ignored or be deemed persuasive threlkeld v commissioner supra pincite with these principles in mind we analyze the eckell sparks settlement agreement first we are mindful that respondent was not a party to the lawsuit that resulted in the order of the orphans’ court requiring eckell sparks to return the dollar_figure in attorney’s fees it received from the estate therefore res_judicata or collateral_estoppel does not apply 387_us_456 second the decision of the orphans’ court requiring eckell sparks to return the fees is not the decision of the state’s highest court consequently the orphans’ court’s determination of pennsylvania law is not per se conclusive for - -- federal estate_tax purposes id pincite but we should and will give proper regard to the orphans’ court’s interpretation of pennsylvania substantive law id we believe that the order of the orphans’ court directing eckell sparks to repay the fees received from the estate had a major bearing on the law firm’s decision to make the dollar_figure settlement payment and that the order should be given significant weight with respect to the apportionment of the settlement proceeds the dollar_figure was intended to settle all claims made against eckell sparks including the estate’s claim for the return of the dollar_figure of fees indeed had eckell sparks failed to repay the entire dollar_figure it would have been in contempt of the order of the orphans’ court the totality of the uncontradicted evidence in this case persuades us that it was the intent of eckell sparks to have dollar_figure of the dollar_figure settlement amount be for and thus dollar_figure should be allocated to the attorney’s fees that the orphans’ court ordered be returned to the estate leaving the balance of the dollar_figure settlement to be allocated among all other claims involved in the proceedings in this regard we are mindful that the dollar_figure paid to eckell sparks by the estate came from funds that had been included in determining decedent’s gross - - estate were we not to make this allocation decedent’s gross_estate would be increased by the repaid fees which in essence would cause the dollar_figure to be taxed twice amount distributed to glovers under plaintiffs’ agreement we now turn our attention to whether any part of the dollar_figure settlement should be allocated to the glovers’ claim which would have the effect of reducing decedent’s interest in the malpractice claim the only claim made in the lawsuit that relates specifically to the glovers rather than to eckell sparks’s malpractice in the preparation of the will or in connection with the administration of the estate is count ii in count ii the plaintiffs claimed that eckell sparks was liable for dollar_figure together with interest and costs for attorney’s fees incurred by the glovers in contesting decedent’s will the trial_court dismissed this claim with prejudice finding that the glovers lacked standing to assert the claim the court additionally found that the claim could not be asserted separately but rather was a component of the damages resulting from the malpractice if any committed by eckell sparks in preparing the will damages resulting in the malpractice if any committed by eckell sparks in preparing decedent’s will i decedent’s estate agrees that attorney’s fees of dollar_figure paid to eckell sparks that the orphans’ court ordered be returned to the estate are not deductible as administrative expenses under sec_2053 - -- constituted a claim that decedent possessed at the date of her death and as noted previously the value of any such claim is included in decedent’s gross_estate but see infra pp for deduction of attorney’s fees as an administration expense under sec_2053 although the decision of the superior court is not the decision of the state’s highest court and hence is not per se conclusive for federal_income_tax purposes we should and will give proper regard to the superior court’s interpretation of pennsylvania substantive law aside from the dollar_figure which the orphans’ court ordered returned to the estate the evidence convinces us that no portion of the dollar_figure settlement amount should be allocated to the value of any matter other than the malpractice claim that decedent possessed at the date of her death we do not believe that the glovers had any meritorious claims against the law firm in their own right to the contrary the dismissal of all claims asserted by the glovers against eckell sparks on the grounds that the glovers lacked standing to bring any claims is strong indication that the value of the glovers’ claims was negligible at best as stated the parties stipulated that the dollar_figure settlement represents the starting point in determining the value of decedent’s interest in the malpractice claim as of the date of decedent’s death we therefore hold that dollar_figure dollar_figure less dollar_figure allocated to the return of fees is the gross value of -- decedent’s interest in the malpractice claim against eckell sparks pursuant to the parties’ agreement this dollar_figure should be reduced by dollar_figure for legal costs in prosecuting the malpractice leaving a net value of dollar_figure pursuant to the parties’ agreement we next must multiply the dollar_figure net amount by the present_value factor leaving dollar_figure rounded as the value of decedent’s interest in the malpractice claim as of the date of death issue whether that portion of the proceeds from the settlement of claims against the law firm of eckell sparks paid to the residuary beneficiaries is a deductible expense in determining decedent’s taxable_estate decedent’s estate argues that if we determine that no portion of the dollar_figure settlement is allocable to the glovers’ claim then the portion percent of the eckell sparks settlement proceeds payable to the glovers pursuant to the plaintiffs’ agreement is deductible in determining decedent’s taxable_estate either as an administration expense within the meaning of sec_2053 and sec_20_2053-3 estate_tax regs or as a claim against the estate within the meaning of sec_2053 and sec_20_2053-1 estate_tax regs we disagree an estate may deduct as claims against the estate only those claims that are enforceable against the decedent’s estate and only those amounts that represent personal obligations of the decedent existing at the time of his death sec_20_2053-4 estate_tax regs the plaintiffs’ agreement was not an obligation - - of decedent existing at the date of her death therefore the percent of the settlement proceeds payable to the glovers under that agreement is not deductible as a claim against the estate within the meaning of sec_2053 moreover when founded on a promise or agreement the deduction for a claim_against_an_estate is allowed only to the extent that the claim was contracted bona_fide and for an adequate_and_full_consideration in money or money’s worth sec_2053 a sec_20_2053-4 estate_tax regs the bona_fide and consideration elements in sec_2053 a are related but separate requirements and if either is missing the deduction fails 88_tc_1265 the requirement of an adequate_and_full_consideration in money or money’s worth may not be predicated solely on the fact that the contract is enforceable under state law 375_us_118 the requirement of consideration in money or money’s worth’ invokes a higher standard of consideration than that required to establish the validity of a contract under state law 84_tc_649 a state trial_court decree having federal estate_tax implications does not automatically bind the commissioner if the commissioner was not a party to the proceeding 387_us_456 54_tc_633 this principle applies specifically to the estate_tax deductibility of items listed in sec_2053 including administrative expenses and claims against the estate 853_f2d_107 2d cir 49_tc_684 sec_20_2053-1 estate_tax regs describes how a court decree affects estate_tax_deductions under sec_2053 the decision of a local court as to the amount and allowability under local law of a claim or administration expense will ordinarily be accepted if the court passes upon the facts upon which deductibility depends if the court does not pass upon those facts its decree will of course not be followed for example if the question before the court is whether a claim should be allowed the decree allowing it will ordinarily be accepted as establishing the validity and amount of the claim however the decree will not necessarily be accepted even though it purports to decide the facts upon which deductibility depends it must appear that the court actually passed upon the merits of the claim this will be presumed in all cases of an active and genuine contest if the result reached appears to be unreasonable this is some evidence that there was not such a contest but it may be rebutted by proof to the contrary if the decree was rendered by consent it will be accepted provided the consent was a bona_fide recognition of the validity of the claim and not a mere cloak for a gift and was accepted by the court as satisfactory evidence upon the merits it will be presumed that the consent was of this character and was so accepted if given by all parties having an interest adverse to the claimant the decree will not be accepted if it is at variance with the law of the state as for example an allowance made to an executor in excess of that prescribed by statute on the other hand a deduction for the amount of a bona_fide indebtedness of the decedent or of a reasonable expense of administration will not be denied because no court -- - decree has been entered if the amount would be allowable under local law clearly if a local court does not adjudicate the merits of a claim which typically would be the case in a nonadversarial proceeding the presumption that the decision of the local court on allowability will ordinarily be accepted does not apply 223_f2d_111 9th cir 117_f2d_127 3d cir affg 40_bta_876 sec_20_2053-1 estate_tax regs to this end in this case a state court has not made an independent review of the proposed allocation of the settlement of the eckell sparks malpractice case as set forth in the plaintiffs’ agreement but the state courts did find that the glovers lacked standing with respect to all claims made against eckell sparks the glovers and the administrators pro tem were not adversaries with respect to the claims against eckell sparks the dollar amount contained in the settlement agreement or the allocation memorialized in the agreement between the glovers and the administrators pro tem decedent’s estate would face additional hurdles even if the record did show that a state court had passed on the merits of the claims and that the highest court of pennsylvania would allow the claims against the estate sec_20_2053-1 estate_tax regs is to be construed in harmony with sec_2053 a which requires claims founded on a promise or agreement to be -- -- contracted bona_fide and for an adequate_and_full_consideration in money or money’s worth as noted heretofore adequate_and_full_consideration for purposes of sec_2053 a is a higher standard of consideration than that required to establish the validity of a contract under state law estate of carli v commissioner supra the record is devoid of any evidence that the glovers’ claim for percent of the settlement proceeds was contracted for an adequate_and_full_consideration in money or money’s worth indeed aside from dubious rico claims and claims for punitive_damages the damages related to the glovers’ claims against eckell sparks attorney’s fees of dollar_figure together with interest and costs are substantially less than the damages related to decedent’s claims and those of the estate eg over dollar_figure million related to the claim of malpractice in preparing the will to be deductible as an administration expense the regulations require that the payment to the glovers must have been essential to the proper settlement of the estate sec_20_2053-3 a estate_tax regs we do not find that the payment to the glovers was essential to the proper settlement of the estate in considering this matter we are mindful that it is the duty_of an administrator to collect and protect assets of the estate there is no indication that the specific bequests in decedent’s will to beneficiaries other than the glovers could not be satisfied with the assets in decedent’s estate if the claims -- - against eckell sparks failed any recovery by the administrators pro tem would devolve to the glovers as the residuary beneficiaries all the claims raised in the suit were claims that belonged to either decedent or the estate the division instead of reflecting the merits of the coplaintiffs’ respective claims was in essence a vehicle for reducing the gross_estate by channeling to the glovers funds that would go to them anyway as residuary beneficiaries we hold therefore that the glovers’ claim for percent of the settlement proceeds is not deductible as a claim against the estate or deductible as an administration expense issue whether payments made by decedent’s estate to attorneys representing the residuary beneficiaries or to be paid to mr glover for his rfforts in discovering the misappropriation of decedent’s assets by ms hurley and mr ross are deductible as administrative expenses pursuant to sec_2053 or as claims against the estate pursuant to sec_2053 decedent’s estate argues that the payments it made to the glovers’ attorneys and any payments it will make to mr glover for his efforts in discovering the misappropriation of decedent’s assets by ms hurley and mr ross constitute administration_expenses within the meaning of sec_2053 and sec_20_2053-3 estate_tax regs for estate_tax purposes the value of the gross_estate is reduced by amounts incurred for administration_expenses that are allowable by the laws of the jurisdiction under which the estate is - al --- being administered sec_2053 43_tc_190 the amounts deductible as administration_expenses are limited to such expenses as are actually and necessarily incurred in the administration of the decedent’s estate sec_20_2053-3 estate_tax regs expenditures not essential to the proper settlement of the estate but incurred for the individual benefit of the heirs legatees or devisees are not allowed as deductions id further attorney’s fees incurred by beneficiaries incident to litigation as to their respective interests are not deductible if the litigation is not essential to the proper settlement of the estate sec_20_2053-3 estate_tax regs respondent concedes that the services provided by mr glover and the glovers’ attorneys led to the discovery of ms hurley’s misappropriation and the eckell sparks malpractice and the removal of ms hurley as executrix respondent also agrees that the services were essential to the proper settlement of the estate respondent argues however that services provided by the attorneys for the glovers’ will_contest and for the attorneys’ involvement in the malpractice litigation were unnecessary to the settlement of the estate and were primarily for the personal benefit of the glovers furthermore respondent contends that the record in this case does not establish the portion of the fees allocable to the - -- various services provided and therefore no portion of the fees should be allowed as a deduction respondent concludes therefore that the fees for those services are not deductible in the case at hand we are satisfied that payment of a portion of the glovers’ attorney’s fees incurred in the will_contest and payment of reasonable_compensation to mr glover for services he provided to the benefit of the estate are permitted under pennsylvania law in considering this matter we are mindful that it is the duty_of an administrator to collect and protect the assets of the estate and that the administrator is justified in employing an attorney or other third parties to assist the administrator in collecting or protecting the assets of the estate under pennsylvania law the exceptant to the account of an administrator ordinarily must pay his own counsel fees in exceptional cases however the exceptant may be allowed counsel fees payable out of estate funds in re estate of lux a 2d pa where the efforts of an exceptant and his counsel result in the substantial benefit to the estate such as requiring an administrator to include in the inventory of the estate valuable assets previously not included it is within the discretion of the orphans’ court to compensate the exceptant and his counsel out of estate funds id see also in re estate of vaughn a 2d pa super ct d enial of compensation_for the exceptant’s attorney’s fees out of estate funds would permit -- - the other heirs who have never filed exceptions to reap the benefits of the efforts of the exceptant’s counsel without having to share in the expense of producing those benefits this would be a manifestly unreasonable and inequitable result in re estate of vaughn supra pincite see also commonwealth ex rel hensel v order of solon a pa where the attorney of one of several parties all equally interested secures a fund which would otherwise have been misappropriated or lost and all share equally in the distribution it is but equitable that all should share in the expense which produced the fund although but one moved in the matter under the circumstances the beneficiary must be allowed reasonable counsel fees out of the estate funds in re estate of vaughn supra pincite we conclude that under pennsylvania law mr glover would be entitled to reasonable_compensation for services he rendered for the benefit of the estate see eg id pincite where the executor a beneficiary of the estate expended extra effort ina role separate and distinct from his role as executor he was entitled to fair and reasonable_compensation for his additional services paying a beneficiary instead of a third party for services rendered is not unfair to the estate id in pennsylvania the test for determining the appropriateness of the fees charged for services rendered in the administration of an estate has always been ‘reasonableness’ estate of phillips a 2d pa super ct citing in re estate of - burch a 2d pa super ct we are of the opinion that a pennsylvania court would uphold the estate’s payment for mr glover’s services if there is sufficient evidence to conclude that the payment was fair and reasonable even though mr glover was a beneficiary of the estate see eg estate of getz a 2d pa super ct in re estate of vaughn supra pincite the services rendered by mr glover and his attorneys resulted in the recovery_of a significant sum for the estate consequently we find it is proper for the administrators pro tem to pay from estate funds the fees for services rendered before the orphans’ court removed ms hurley as executrix and appointed the administrators pro tem see eg estate of bruner a 2d pa super ct in re estate of vaughn supra indeed respondent acknowledges that the amount incurred for services rendered before that time by mr glover’s attorneys is dollar_figure a beneficiary who seeks compensation has the burden of demonstrating that the amount requested is just and reasonable in re estate of salus a 2d pa super ct estate of phillips supra the orphan’s court can fashion an award of just and reasonable_compensation provided there is evidence of the services provided but when the compensation awarded is without support in the record the award cannot stand in re reed estate a 2d pa - - mr glover has asked the estate to compensate him for big_number hours of his services at the rate of dollar_figure per hour for total compensation of dollar_figure he provided time records showing the dates he worked on matters related to the estate and the time he expended on those matters mr holleran testified at the trial in this case that the time mr glover expended in reconstructing decedent’s accounts and tracking the funds misappropriated by ms hurley and mr ross provided substantial benefit to the estate mr holleran’s testimony was uncontroverted mr glover however did not testify at the trial in this case and the time records he provided to mr holleran generally reflect activity commonly associated with the activities of a party to litigation eg meetings and conversations with his attorneys and preparation for and attendance at depositions and hearings upon reviewing mr glover’s time records we are convinced that most of the time for which he seeks compensation was expended in pursuing his challenge of the validity of the will and specifically the bequest resulting from the interlineation that gave the farm to the pierces and the bequest of dollar_figure million to the university of pennsylvania however dollar_figure hours of mr glover’s time detailed as follows is attributable to reconstructing decedent’s accounts and tracking the funds misappropriated by ms hurley and mr ross and we therefore hold that the amount for these services is deductible date description conv w joe monte on estate accts pierce loan back taxes due meet w hurley change_of will unpaid tax ltr to lynn hurley on missing personal items conv w tracy on procedure to object to account endy’s decree fax decree to tracy mtg w monte on margin acct etc hurley jayne k investment of est assets acctg langdon ross skinner ross hurley recordkeeping his work send fax to craig conv w skinner on work tax returns cheltenham bank fcg ross’s business skinner on ross taxes etc langdon hurley ross history conv w jayne on same thomson’s address prep for deposition review langdon info conv w thomson fcg farm ross hurley etc dr morgan fcg health mtg w skinner review records of returns extensions etc bill thomson ross ice cream b records etc review of eckell docs create summary of funds wired from brokerage accts skinner background info fax to craig on wilm trust checks to pierces conv w craig review checks etc review comm fed checks for tabulate a summary of noteworthy checks catalogue checks ltr fax to craig guy on initial results of reviewing fcg’s comm fed acct ltr to gordon katherine explaining that initial review of comm fed checks reveal theft research hours claimed dollar_figure date description conversation w clearwater records summarize wilm trust checks enter comm fed checks from both accts into framework spreadsheets summarize comm fed checks and contrast w hurley deposition finish drafting memo contrasting hurley’s depo to financial records mail to craig further review of comm fed checks ltr to alice bucha on missing cks ltr listing accts involved w ecg review summary w tracy conver w craig send summary of comm fed accts to g k fax to craig listing accts comm fed representative needed to identify meet w craig guy review checks transfer spreadsheet info to excel update summary review cks w craig review cks w craig update spreadsheets on comm fed accts incorporating hurley testimony conv w craig meet w gordon craig in prep for hearing create flow chart for fcg’s comm fed accts meet w craig guy to prepare for hearing finalize flow chart summaries review fidelity checks w craig conv w mark answer mark’s questions on accounts hear estate position conv w craig mark request hurley be dismissed from u p trust include ross in complaint review administrator position copy send mark t brokerage records w summaries begin to tabulate fidelity estate acct checks l hours claimed -25 date description hours claimed tabulate review est acct chks draft list of accts to investigate prepare for will_contest eckell claim dollar_figure ltr to mark t craig on fidelity bank accts dollar_figure review of fidelity cks sent by mark tunnell il1tr to baumeister w copy of adm complaint dollar_figure review of fidelity cks summary ltr to tunnell dollar_figure prepare summary of lynn’s sch of assets fax to mark craig on ms hurley’s sch of assets dollar_figure review merrill cma’s comm accts of hurley friends begin summary ltr dollar_figure finish reviewing accts ltr to tunnell fax bucha dollar_figure review fidelity accts ltr to tunnell review estate acct w d scarlett dollar_figure review del trust statements dollar_figure review fidelity accts com fed accts docs for hurley’s deposition dollar_figure review fidelity accts com fed accts docs for hurley’s deposition dollar_figure summary of ‘85 ‘86 wires create flow chart review acctg ltr to craig copy to mark dollar_figure review info on hurley ross jt acct w craig r iii general review dollar_figure summarize inflows of del trust acct per tunnell’s request conv w mcllivane dollar_figure summarize inflows in letter to tunnell dollar_figure prepare for trial w craig guy dinner w hurley dollar_figure finish fax of revision to brief fax to tracy review hurley accts fax to bucha dollar_figure review hurley accts fax bucha dollar_figure review comm accts summaries prepare for case dollar_figure review courts checks compare to summary amend summary prepare exhibts etc dollar_figure date description review hurley merrill statements fax to craig review w boulden hurley ross’s various co’s mail copies of emper’s notes litigation on same review boulden’s fax rev boulden’s ltr to heckshire fedex info on appeal copy mail hurley test sch of assets to tunnell as requested review boulden’s complaint heckscher ltr begin to review hurley pers accts for lubline copy cks transcript records for lubline copy records showing hurley’s use of funds on re for lubline enter into spreadsheet ltr review complaint answer boulden’s ques review es docs search for del trust cks fax to tunnell hurley questions discuss settlement w hurley jim draper inform tunnell lubline review settlement agree review hurley’s schedules discuss w boulden review w tunnell discuss settlement w hurley draper tunnell rev settlement w lubline request holleran to buy mtge on rd discuss pierce case w tunnell discuss settlement w hurley per boulden’s request review skinner newton enbon notes hurley notes assemble organize docs per boulden’s request for acct eckell suit conv w heckshire’s off cpy pa fed estate local_tax returns and fedex answer ferrone’s qs on orphans ct rept copy joint prop section of estate_tax_return bank accts review orphan’s ct record eckell records fcg’s checking acct fax ferrone hours claimed -25 -25 date description hours claimed review heckshire’s rept answer ferrone’s quest per ferrone reguest copy fcg hurley jt acct estate acct statements dollar_figure per ferrone’s request review date of death brokerage accts to determine how big_number wire was accounted for fax to ferrone dollar_figure per holleran’s request copy mail docs re eckett’s account estate_tax returns dollar_figure find review copy docs to respond to eckell’s interrog review hurley’s financial records dollar_figure finish copying hurley’s financial records take all copies out for reproduction draft answer for interrog dollar_figure conv tunnell on adjudication of acct schedule for civil case dollar_figure per tunnell’s request review the check summaries made for case against will per tunnell’s request get copies of check summaries diagrams etc per farrone’s request review cloud carter’s testimony dollar_figure total dollar_figure - - mr holleran testified that mr glover’s services were comparable in value to the services of a paralegal and that reasonable_compensation for those services is dollar_figure per hour on the basis of the record before us we conclude that it is just and reasonable for the estate to deduct as an administrative expense pursuant to sec_2053 dollar_figure dollar_figure x dollar_figure rounded for services rendered by mr glover provided the payment for that amount or greater is approved by the orphans’ court in _ re estate of salus a 2d pa super ct estate of phillips a 2d pa super ct on the other hand we conclude the estate is not entitled to deduct any amount in excess of dollar_figure for the remainder of mr glover’s time because any excess would be unrelated to the reconstruction of decedent’s accounts or the illegal activities of ms hurley and mr ross conclusion in summary the value of decedent’s interest in her malpractice claim against eckell sparks as of the date of her death is dollar_figure the estate is entitled to deduct dollar_figure of the glovers’ attorney’s fees paid_by the estate and dollar_figure for services of mr glover provided the payments for these items in the aforementioned amounts or greater are approved by the orphans’ court to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number --------------------------- ------------------------------ ------------------------------- --------------------------- ----------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact --------------------- id no ------------- telephone number --------------------- refer reply to cc intl b06 plr-150571-08 date date taxpayer company accounting firm law firm state a legend ------------------------------- ------------------------ ------------------------ --------------------------- ------------------------------------------------------ ------------------- product y --------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------- x year z date date date date date date ----------- ------- -------------------------- -------------------------- ---------------------- --------------------------- --------------------------- --------------------------- plr-150571-08 dear ----------------- this responds to the letter from your authorized representative dated date and subsequent correspondence requesting a ruling that taxpayer be permitted an extension of time under sec_301_9100-3 to file form 4876-a election to be treated as an interest_charge_disc in accordance with temp sec_1_921-1t to be effective as of date the rulings given in this letter are based on facts and representations submitted by taxpayer and accompanied by a penalties of perjury statement this office has not verified any of the materials submitted in support of the request for rulings verification of the information representations and other data may be required as part of the audit process facts taxpayer is a domestic_corporation incorporated in state a on date with articles of correction filed on date both with an effective date of date the shareholders of taxpayer are shareholders or salaried employees of company a domestic_corporation company is a manufacturer of product y accounting firm is a certified public accounting firm that discussed with company during year z the creation of taxpayer as an interest charge domestic_international_sales_corporation disc for export sales of company and taxpayer intended this treatment from the date of inception taxpayer has a calendar_year taxable_year company has a taxable_year that ends on x on date a partner in accounting firm discovered that taxpayer failed to file form 4876-a election to be treated as an interest_charge_disc within days after date after internal discussions accounting firm notified taxpayer on date of the mistake in meeting the required deadline on date taxpayer engaged law firm to request relief pursuant sec_301_9100-1 taxpayer represents that it intended all along to qualify as a disc and reasonably believed that it could operate as a disc the period of limitations on assessment under sec_6501 has not expired for taxpayer’s taxable years for which the election is being made or any taxable years that would have been affected by the election had taxpayer made a timely election taxpayer has requested a ruling that grants an extension of time to file form 4876-a so that the election will be treated as timely filed within days after the beginning of its first taxable_year plr-150571-08 law and analysis sec_992 provides that an election by a corporation to be treated as a disc shall be made by such corporation for a taxable_year at any time during the 90-day period immediately preceding the beginning of the taxable_year except that the secretary may give his consent to the making of an election at such other times as he may designate sec_992 provides that such election shall be made in such manner as the secretary shall prescribe and shall be valid only if all persons who are shareholders in such corporation on such first day of the first taxable_year for which such election is effective consent to such election temp sec_1_921-1t provides in part that a corporation electing disc status must file form 4876-a and that a corporation electing to be treated as a disc for its first taxable_year shall make its election within days after the beginning of that year sec_301_9100-1 provides in part that the commissioner in exercising the commissioner’s discretion may grant a reasonable extension of time under the rules set forth in sec_301_9100-2 and sec_301_9100-3 to make a regulatory election under all subtitles of the code except subtitles e g h and i sec_301_9100-1 provides that a regulatory election is an election whose due_date is prescribed by a regulation published in the federal_register or a revenue_ruling revenue_procedure notice or announcement published in the internal_revenue_bulletin for this purpose an election includes an application_for relief in respect of tax sec_301_9100-3 provides that requests for extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 automatic extensions must be made under the rules of sec_301_9100-3 requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence including affidavits described in sec_301_9100-3 to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and that the grant of relief will not prejudice the interest of the government in the present situation the election described in temp sec_1_921-1t is a regulatory election as defined in sec_301_9100-1 therefore the commissioner has discretionary authority under sec_301_9100-1 to grant taxpayer an extension of time provided that taxpayer satisfies the standards for relief set forth in sec_301_9100-3 based on the facts and representations submitted with taxpayer’s ruling_request we conclude that taxpayer satisfies sec_301_9100-3 accordingly taxpayer is plr-150571-08 granted an extension of time of days from the date of this ruling letter to file form 4876-a required by temp sec_1_921-1t such filing will be treated as a timely election to be treated as a disc for taxpayer’s first taxable_year the granting of an extension in this ruling letter is not a determination that taxpayer is otherwise eligible to make the election or to claim disc status or benefits see sec_301_9100-1 a copy of this letter_ruling should be filed with the form 4876-a this ruling is directed only to the taxpayer that requested it sec_6110 provides that written determinations may not be used or cited as precedent except as expressly provided herein this ruling neither expresses nor implies any opinion concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this ruling letter pursuant to a power_of_attorney on file in this office a copy of this ruling letter is being furnished to your authorized representatives sincerely ________________ christopher j bello chief branch office of associate chief_counsel international enclosure copy for purposes


tax_exempt_and_government_entities_division release number release date uil code department of the treasury internal_revenue_service commerce street mc dal dallas tx date date form tax_year ended december 20xx person to contact identification_number contact telephone number telephone number fax ein dear certified mail - return receipt requested as such you failed to meet the requirements of internal_revenue_code sec_501 and sec_1_501_c_3_-1 in that you failed to establish that you were operated exclusively for an exempt_purpose this is a final_determination that your exempt status under sec_501 of the internal_revenue_code is revoked recognition of your exemption under internal_revenue_code sec_501 is revoked effective january 20xx for the following reason s you did not provide us with the information requested about your financial records and activities necessary to complete our examination therefore you have not demonstrated that you are operated exclusively for exempt purposes within the meaning of internal_revenue_code sec_501 contributions to your organization are no longer deductible under sec_170 of the internal_revenue_code effective january 20xx you are required to file federal_income_tax returns on form_1120 these returns should be filed with the appropriate service_center for the year ending december 20xx and for all subsequent years processing of income_tax returns and assessment of any taxes due will not be delayed should a petition for declaratory_judgment be filed under sec_7428 of the internal_revenue_code if you decide to contest this determination in court you must initiate a suit for declaratory_judgment in the united_states tax_court the united_states claim court or the district_court of the united_states for the district of columbia before the day after the date this determination was mailed to you contact the clerk of the appropriate court for the rules for initiating suits for declaratory_judgment please contact the clerk of the respective court for rules and the appropriate forms regarding filing petitions for declaratory_judgment by referring to the enclosed publication please note that the united_states tax_court is the only one of these courts where a declaratory_judgment action can be pursued without the services of a lawyer you may write to the courts at the following addresses united_states tax_court second street nw washington dc us court of federal claims madison place nw washington dc u s district_court for the district of columbia constitution ave n w washington dc you may call the irs telephone number listed in your local directory an irs employee there may be able to help you but the contact person at the address shown on this letter is most familiar with your case you may also call the internal_revenue_service taxpayer_advocate the taxpayer_advocate_service tas is an independent organization within the irs that can help protect your taxpayer rights we can offer you help if your tax problem is causing a hardship or you've tried but haven't been able to resolve your problem with the irs if you qualify for our assistance which is always free we will do everything possible to help you visit taxpayeradvocate its gov or call if you have any questions please contact the person whose name and telephone number are shown in the heading of this letter sincerely yours margaret von lienen director eo examinations enclosures publication internal_revenue_service tax_exempt_and_government_entities_division exempt_organizations examinations department of the treasury date date taxpayer_identification_number form tax_year s ended december 20xx person to contact id number contact numbers telephone fax manager’s name id number manager’s contact number response due_date march 30xx certified mail - return receipt requested dear why you are receiving this letter we propose to revoke your status as an organization described in sec_501 of the internal_revenue_code code enclosed is our report of examination explaining the proposed action what you need to do if you agree if you agree with our proposal please sign the enclosed form_6018 consent to proposed action - sec_7428 and return it to the contact person at the address listed above unless you have already provided us a signed form we'll issue a final revocation letter determining that you aren’t an organization described in sec_501 after we issue the final revocation letter we'll announce that your organization is no longer eligible for contributions deductible under sec_170 of the code if we don't hear from you if you don’t respond to this proposal within calendar days from the date of this letter we'll issue a final revocation letter failing to respond to this proposal will adversely impact your legal standing to seek a declaratory_judgment because you failed to exhaust your administrative remedies letter rev catalog number 34809f effect of revocation status if you receive a final revocation letter you'll be required to file federal_income_tax returns for the tax_year shown above as well as for subsequent tax years what you need to do if you disagree with the proposed revocation if you disagree with our proposed revocation you may request a meeting or telephone conference with the supervisor of the irs contact identified in the heading of this letter you also may file a protest with the irs appeals_office by submitting a written request to the contact person at the address listed above within calendar days from the date of this letter the appeals_office is independent of the exempt_organizations division and resolves most disputes informally for your protest to be valid it must contain certain specific information including a statement of the facts the applicable law and arguments in support of your position for specific information needed for a valid protest please refer to page one of the enclosed publication how to appeal an irs decision on tax-exempt status and page six of the enclosed publication the examination process publication also includes information on your rights as a taxpayer and the irs collection process please note that fast track mediation referred to in publication generally doesn’t apply after we issue this letter you also may request that we refer this matter for technical_advice as explained in publication please contact the individual identified on the first page of this letter if you are considering requesting technical_advice if we issue a determination_letter to you based on a technical_advice_memorandum issued by the exempt_organizations rulings and agreements office no further irs administrative appeal will be available to you contacting the taxpayer_advocate office is a taxpayer right you have the right to contact the office_of_the_taxpayer_advocate their assistance isn’t a substitute for established irs procedures such as the formal appeals process the taxpayer_advocate can't reverse a legally correct_tax determination or extend the time you have fixed by law to file a petition in a united_states court they can however see that a tax matter that hasn't been resolved through normal channels gets prompt and proper handling you may call toll-free and ask for taxpayer_advocate assistance if you prefer you may contact your local taxpayer_advocate at internal_revenue_service office_of_the_taxpayer_advocate for additional information if you have any questions please call the contact person at the telephone number shown in the heading of this letter if you write please provide a telephone number and the most convenient time to call if we need to contact you letter rev catalog number 34809f thank you for your cooperation enclosures report of examination form_6018 publication publication sincerely paul a marmolejo acting director eo examinations letter rev catalog number 34809f schedule number or exhibit form 886-a rev date name of taxpayer explanations of items tax identification_number year period ended december 20xx december 20xx whether continues to qualify for exemption under sec_501 of the internal_revenue_code issue facts the organization was granted tax-exempt status in november 20xx under internal_revenue_code sec_501 as an organization described in sec_501 according to its articles of incorporation dated april 20xx the purpose of the organization is as follows the exempt_purpose of the organization as stated in the original application_for exemption form is to the organization filed form 990-ez for the year december 20xx on 20xx the originally filed form 990-ez for december 20xx shows the following income contributions investment_income total income dollar_figure xx xxx dollar_figure xx dollar_figure xx xxx net_loss dollar_figure xx xxx dollar_figure xx xxx dollar_figure xxx dollar_figure x xxx dollar_figure xx xxx expenses grants professional fees other total expenses we began an examination on june 20xx we contacted the president various phone numbers found in the case file and on the internet needed to discuss the audit with the vice president and treasurer of the organization we mailed the letter to the organization with the examination date and time in addition to the letter we issued a request for information information_document_request or idr on june 20xx the request was for financial and organizational information for the year under examination the information was due back to us by july 20xx department of the treasury-internal revenue service catalog number 20810w form 886-a stated that he publish no irs gov at page schedule number or exhibit orm 886-a rev date name of taxpayer explanations of items tax identification_number year period ended december 20xx december 20xx on july 20xx the vice president of the organization and rescheduled the initial appointment for august 20xx because of the rescheduling of the examination we issued letter along with a revised idr with a due_date of august 20xx after the meeting on august 20xx we issued idr requesting additional documentation to address potential private benefit inurement and public support issues idr was due on september 20xx the organization provided a response to idr on september 20xx however the response was missing information requested for donors grants and payments made to responded to the l3611 we issued idr on september 20xx with a due_date of october 20xx the idr was issued in an attempt to re-request the documents needed to address the potential private benefit inurement and public support issues identified during the field_examination we did not receive a response to the idr and as a result scheduled a subsequent field visit for december 20xx we updated idr and re-mailed idr with a due_date of december 20xx we met with the vice president of the organization and the designated power_of_attorney on december 20xx and found that the organization failed to provide any of the documentation requested in idr we issued idr with a response due_date of january 20xx in a final effort to obtain the documentation needed to properly develop the potential inurement private benefit and public support issues noted during the examination we received notification from the representative of the organization that it did not intend to provide any of the requested donor or grant information as it would be a violation of the health insurance portability and accountability act hipaa to date we have not received the specific revenue and expense source documents requested to determine the level of private benefit conferred though the organizations operations additionally we have not received the requested documentation to determine whether inurement transactions have occurred or whether the organization passed the public support_test for the year under examination all of which were requested in the information documents requests and law sec_501 of the internal_revenue_code provides an exemption from federal_income_tax for corporations and any community chest fund or foundation organized and operated exclusively for religious charitable scientific testing for public safety literary or educational_purposes or for the prevention of cruelty to children or animals the exemption is available where no part of the net_earnings of which inures to the benefit of any private_shareholder_or_individual no substantial part of the activities of which is carrying on propaganda or otherwise attempting to influence legislation and which does not participate in or intervene in any political campaign on behalf of any candidate for public_office form 886-a catalog number 20810w page publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rev date explanations of items name of taxpayer tax identification_number year period ended december 20xx december 20xx sec_6001 of the internal_revenue_code provides that every person liable for any_tax imposed by the irc or for the collection thereof shall keep adequate_records as the secretary_of_the_treasury or_his_delegate may from time to time prescribe sec_6033 of the internal_revenue_code provides that except as provided in sec_6033 every organization exempt from tax under sec_501 shall file an annual return stating specifically the items of gross_income receipts and disbursements and such other information for the purposes of carrying out the internal revenue laws the secretary may also prescribe by forms or regulations the requirement of every organization to keep such records render under oath such statements make such other returns and comply with such rules and regulations as the secretary may from time to time prescribe sec_1_6001-1 states that every organization exempt from tax under sec_501 shall keep such permanent books of account or records including inventories as are sufficient to show specifically the items of gross_income receipts and disbursements such organizations shall also keep such books_and_records as are required to substantiate the information required by sec_6033 sec_1_6001-1 states that the books_or_records required by this section shall be kept at all times available for inspection by authorized internal_revenue_service officers or employees and shall be retained as long as the contents thereof may be material in the administration of any internal revenue law in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status revrul_59_95 1959_1_cb_627 concerns an exempt_organization asked to produce financial statement and statement of its operations for a certain year however its records were so incomplete that the organization was unable to furnish such statements the internal_revenue_service held that the failure or inability to file the required information_return or otherwise to comply with the provisions of sec_6033 and the regulations which implement it may result in the termination of the exempt status of an organization previously held exempt on the grounds that the organization has not established that it is observing the conditions required for the continuation of exempt status failure to meet the operational_test catalog number 20810w form 886-a page government's position publish no irs gov department of the treasury-internal revenue service schedule number or exhibit form 886-a rew date name of taxpayer explanations of items tax identification_number year period ended december 20xx december 20xx the eo has failed to show us that they meet the operational_test for a sec_501 organization for the year under examination in order to meet the operational_test they must show that they engage primarily in activities which accomplish one or more of such exempt purposes specified in section sec_501 we will not regard an organization as having met this test if more than an insubstantial part of its activities is not in furtherance of an exempt_purpose as evidence of their failure to operate for exempt purposes we reviewed the form_990 filings and found little or no support for exempt operations the originally filed form 990-ez for december 20xx provides that the organization is not publicly supported it shows that the organization spent dollar_figurexx xxx on their exempt_function program services however the eo has failed to provide any documentation showing that the amounts paid in grants were for charitable purposes and not for private benefit accordingly we are proposing revocation because the organization does not operate for exempt purposes failure to provide records the eo has failed to provide records as is required in code sec_6033 and regulation sec_1_6033-1 they failed to provide any organizational or financial information that we requested during the examination we attempted to obtain these records numerous times by mail and phone the organization has failed to provide records to verify that they are operating according to the exempt_purpose for which they were granted exemption our position is that the organization then is not operating for exempt purposes as they have provided no evidence to the contrary in accordance with the above cited provisions of the code and regulations under sec_6001 and sec_6033 organizations recognized as exempt from federal_income_tax must meet certain reporting requirements these requirements relate to the filing of a complete and accurate annual information and other required federal tax forms and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was granted tax-exempt status and to determine its liability for any unrelated_business_income_tax the organization has failed repeatedly to respond to the service’s request for information in contrast to sec_1_6033-1 of the regulations which require an organization to provide such information as requested to allow the service to make a determination of that organization's exempt status it is the service's position that the organization failed to meet the reporting requirements under sec_6001 and sec_6033 to be recognized as exempt from federal_income_tax under sec_501 accordingly we propose that the organization's exempt status be revoked effective january 20xx department of the treasury-internal revenue service taxpayer's position catalog number 20810w form 886-a publish no irs gov page schedule number or exhibit form 886-a rov date name of taxpayer explanations of items tax identification_number the taxpayer's has stated that it is not required to provide the documentation requested with respect to the specific donor and grant transactions of the organization the taxpayer has stated that it is protected from providing this information under the health insurance portability and accountability act year period ended december 20xx december 20xx the taxpayer has also stated that it agrees to revocation of exempt status as it is not able to verify that its activities further its stated exempt purposes under sec_501 of the internal_revenue_code rebuttal to the taxpayer’s position it is the position of the government that the organization is not subject_to hippa laws as it is nota covered_entity health care clearinghouses employer sponsored health_plans health insurers and medical service providers that engage in certain transactions the organization is a grant making organization which makes grants to health care providers but does not operate as one conclusion failure to comply with the code and regulations the organization has jeopardized its exempt status they failed to provide required_documentation thereby failing to be complaint with the code and failing to show any evidence of their exempt_activities we have no reason to believe that the eo is operating for exempt purposes as a result of the examination we have determined that the eo is not operating for exempt purposes as a sec_501 organization they have not provided any information to the contrary accordingly since the organization failed to operate primarily for exempt purposes we are proposing revocation of their tax-exempt status effective january 20xx since the organization will no longer have tax-exempt status beginning january 20xx they are required to file form_1120 u s_corporation income_tax return as of that date it is the services position that the organization does not qualify for exemption from federal_income_tax under sec_501 the proposed date of the revocation is january 20xx catalog number 20810w form 886-a publish no irs gov page department of the treasury-internal revenue service