Court Opinion

ID: 9375450
Source: CourtListenerOpinion
Date Created: 2023-02-27 20:01:30.721439+00
Date Added: 2024-06-11T17:16:58.950351
License: Public Domain

United States Tax Court

                          T.C. Memo. 2023-21

ESTATE OF PEARL B. KALIKOW, DECEASED, EUGENE SHALIK,
EXECUTOR, AND EDWARD M. KALIKOW AND LAURIE K. PLATT,
              LIMITED ADMINISTRATORS,
                       Petitioners

                                    v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                               —————

Docket No. 14436-10.                            Filed February 27, 2023.

                               —————

Thomas J. McGowan, Austin T. Wilkie, Andrew H. Weinstein, Kevin M.
Flynn, and Stephen Marc M. Breitstone, for petitioners.

Erika B. Cormier and Nina P. Ching, for respondent.

                       MEMORANDUM OPINION

      THORNTON, Judge:         By notice of deficiency, respondent
determined a $32,714,684 deficiency in estate tax for the Estate of Pearl
B. Kalikow (estate).

       Pearl B. Kalikow (decedent) was predeceased by her husband,
Sidney Kalikow (decedent’s husband). Decedent’s husband’s will made
decedent the beneficiary of a qualified terminable interest property
(QTIP) trust, known as the SK Trust, which entitled her to income
distributions for life. After decedent’s death, litigation ensued in state
court over whether all the income from the SK Trust property had been
properly distributed to her during her lifetime. This litigation was
eventually settled with an agreement that the SK Trust would pay the
estate $9.2 million (agreed-upon settlement payment). Of that amount,
$6,572,310 was designated for undistributed income claims (agreed-

                            Served 02/27/23
                                            2

[*2] upon undistributed income amount), and the balance was
designated for various commissions and fees.

       The parties having settled all other issues, this case is before the
Court on Cross-Motions for Partial Summary Judgment as to
(1) whether the value of the SK Trust assets included in the value of the
gross estate pursuant to section 2044 is properly reduced by the agreed-
upon undistributed income amount and (2) whether the estate is
entitled to deduct any part of the agreed-upon settlement payment as
administration expenses pursuant to section 2053. 1 Except as relates to
respondent’s concession of the deductibility of a particular commission,
we answer these questions in the negative.

                                     Background

      Decedent resided in New York when she passed away on January
4, 2006. Decedent’s husband predeceased her in 1990.

I.      The SK Trust

       Article Third of decedent’s husband’s will created the SK Trust,
which was funded with the residue of his estate. Decedent’s husband’s
will instructed the trustees of the SK Trust to pay the trust’s net income
to decedent at least quarterly during her lifetime and authorized the
trustees to make discretionary principal distributions to her. Upon
decedent’s death the SK Trust assets were to be paid over to trusts
(known as the Article Fourth Trust and the Article Fifth Trust) for the
benefit of decedent’s husband’s and decedent’s two children, Edward
Kalikow and Lauren Platt (collectively, limited administrators),
respectively, and their issue. The executors of decedent’s husband’s
estate elected to treat the SK Trust as a QTIP trust under section
2056(b)(7).

      The property that passed to the SK Trust on decedent’s husband’s
death consisted primarily of interests in ten income-producing
apartment buildings in New York City. In 1997 the then trustees of the
SK Trust entered into a limited partnership agreement creating the
Kalikow Family Partnership, L.P. (KFLP). The SK Trust transferred

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                          3

[*3] the interests in the apartment buildings to KFLP in exchange for a
98.5% limited partnership interest in KFLP. 2 At the time of decedent’s
death, the KFLP limited partnership interest, along with $835,000 of
cash and marketable securities, constituted the principal property held
in the SK Trust.

       At the time of decedent’s death, the trustees of the SK Trust were
Mr. Kalikow and Eugene Shalik. Shortly after decedent’s death, Ms.
Platt was also made a trustee of the SK Trust.

II.    Decedent’s Will

       Decedent’s last will and testament was executed on July 16, 2003.
Under that will the SK Trust is responsible for its share of the estate
tax arising from the inclusion of the SK Trust property in decedent’s
estate. After the payment of certain bequests and administration
expenses, the residue of decedent’s estate was bequeathed to the
Sunshine Foundation, a charitable organization established by decedent
under the laws of New York. In April 2006 Mr. Shalik and James DeVita
were appointed preliminary executors of the estate. (We will sometimes
refer to Mr. Shalik and Mr. DeVita as the executors.)

III.   Proceedings in the Surrogate’s Court

        On November 9, 2009, one of decedent’s grandchildren petitioned
the Nassau County Surrogate’s Court for the State of New York
(Surrogate’s Court) to compel Mr. Shalik to render an account of his
proceedings as co-trustee of the SK Trust. Mr. Shalik and Mr. Kalikow
filed competing accounts of the SK Trust. In his amended petition to the
Surrogate’s Court, Mr. Shalik alleged that “KFLP had failed to
distribute to the [SK Trust] [its] . . . full share of KFLP distributable
amounts, thereby diminishing Pearl Kalikow’s proper receipt of trust
income by the amount of $16,946,827.” 3 Mr. Shalik requested the
Surrogate’s Court to order the SK Trustees to pay this amount, plus
interest, to the estate, from the SK Trust’s income on hand. By contrast,

       2  The remaining 1.5% interest was held by two unrelated entities: (1) The
Sidney and Pearl Kalikow Foundation, a section 501(c)(3) charitable organization, held
a .5% limited partnership interest in KFLP as a gift from decedent; and (2) Kalikow
Management, Inc., which was formed to act as the general partner of KFLP, held a 1%
limited partnership interest in KFLP.
        3 Mr. Shalik’s amended petition noted that the estate’s counsel had originally

estimated that the amount due to the estate from the SK Trust was $4,632,489 but
after additional analysis had determined that the actual amount was $16,946,827.
                                         4

[*4] the limited administrators’ petition to the Surrogate’s Court
asserted that there had been an overdistribution of $3,267,267.23 from
the SK Trust to decedent.

      The parties litigated this matter in the Surrogate’s Court for
about 10 years. 4 On March 28, 2019, the parties settled and agreed that
the SK Trust would pay the estate $9,200,000. 5 The settlement
agreement states in part:

       The Parties agree that the “Settlement Payment”, as set
       forth in this Paragraph, shall be paid in readily available
       funds by the Article THIRD Trust [i.e., SK Trust], and the
       Article THIRD Trust, the Article FOURTH Trust, the
       Article FIFTH Trust shall be jointly and severally liable for
       the Settlement Payment, which payment shall encompass
       undistributed income for the period from January 1, 2002
       through December 31, 2005, as set forth in Schedule A
       hereof, fiduciary commissions, including paying out
       commissions upon Pearl’s death, accounting fees and
       disbursements solely in connection with the account of the
       fiduciary’s acts and proceedings as trustee for the period
       from December 9, 2002 through January 4, 2006, and legal
       fees and disbursements incurred solely in connection with
       these proceedings. Accordingly, the Settlement Payment
       shall be comprised of the following:
       Undistributed Income             $6,572,310.00 (to Pearl’s Estate)
       Trustee Paying Out Commission    $838,044.00 (to Eugene Shalik)
       Trustee Annual Commission        $24,906.00 (to Eugene Shalik)
       Accounting Fees                  $331,000.00 (to Shalik Morris & Co.)
       Legal Fees                       $1,433,740.00 (to Pearl’s Estate)
       Total                            $9,200,000.00 (“the Settlement Payment”)

       Co-Trustee Kalikow on behalf of the Article THIRD Trust
       shall be responsible for the payment of the fee required
       pursuant to SCPA § 2402 with respect to entry thereof, if
       any. To induce Shalik and DeVita to accept the terms of
       the Settlement Payment set forth herein, Kalikow and
       Platt, as trustees of the Article THIRD, FOURTH and/or

       4  The instant proceedings were placed on report status pending the resolution
of the proceedings in the Surrogate’s Court.
       5 According to the limited administrators’ Memorandum of Law in Support of

Cross-Motion for Partial Summary Judgment, the settlement payment had not yet
been made when that document was filed.
                                     5

[*5]   FIFTH Trusts, represent and warrant that the assets of the
       Article THIRD, FOURTH and/or FIFTH Trusts, exclusive
       of KFLP, are liquid assets (such as marketable securities)
       that are sufficient in value to cover the entire Settlement
       Payment, and they shall maintain said liquid assets as
       security for the Settlement Payment and shall not
       encumber, assign, transfer or invest such assets in a
       manner that is likely to result in the depletion thereof until
       payment in full is made hereunder. In the event of a breach
       of the foregoing, Kalikow and Platt shall fund the Article
       THIRD, FOURTH and/or FIFTH Trusts with assets of
       sufficient value to cover any such encumbrance,
       assignment or transfer of these assets or a decrease in the
       value of these assets (exclusive of KFLP), to the extent
       these assets are not available to fully satisfy the
       Settlement Payment in the event of a default under
       Paragraph (8) of this Article III.

      Schedule A of the settlement agreement (as referenced in the
quoted material above) indicates that the $6,572,310 undistributed
income amount was calculated as the sum of adjustments to various
expenses (for capital improvements, lead paint repairs, refinancing
expenses, legal fees, painting and decorating, repairs and maintenance,
professional fees, management fees, asbestos removal, and mold
removal) incurred by KFLP in connection with the apartment buildings
it owns plus a $360,389 adjustment to “Life Insurance Payments.”

IV.    The Estate Tax Returns

      Pursuant to a decree dated September 18, 2007, the Surrogate’s
Court awarded Mr. Kalikow and Ms. Platt permanent limited letters of
administration “specifically for the purposes of filing, supplementing
and defending any audit and/or any judicial tax proceeding relating to
that portion of Decedent’s estate tax return concerning the SK Trust.”
The decree ordered the limited administrators and the executors to
exchange copies of executed Forms 706, United States Estate (and
Generation-Skipping Transfer) Tax Return.

       In accordance with the Surrogate’s Court’s decree, on April 6,
2007, the executors filed on the estate’s behalf a Form 706 that,
according to an accompanying statement, was made “in respect of all
assets of the estate other than decedent’s interest in the Sidney Kalikow
[SK] Trust.” On Schedule F, Other Miscellaneous Property Not
                                          6

[*6] Reportable Under Any Other Schedule, the executors’ Form 706
reported total “other miscellaneous property” of $31,869,441, including
“UNDISTRIBUTED INCOME DUE FROM THE SIDNEY KALIKOW
[SK] TRUST” of $4,632,489, and, with respect to this item, a “CLAIM
OF DECEDENT’S ESTATE AGAINST TRUSTEES OF THE SIDNEY
KALIKOW [SK] TRUST FOR LOSS OF PROFITS, EXCESS TAXES
PAID, INTEREST AND OTHER DAMAGES” in an amount “TO BE
DETERMINED.”

       The limited administrators prepared on the estate’s behalf a
separate Form 706, filed April 6, 2007, which incorporated the estate’s
assets and deductions as included on the executors’ Form 706 and also
included the SK Trust assets. 6 More particularly, the Schedule F
attached to the limited administrators’ Form 706 incorporated the
$31,869,441 of assets (including the $4,632,489 claim for undistributed
income from the SK Trust) as reported on the executors’ Form 706 and
also reported $43,300,000 of SK Trust assets, made up of a 98.5% limited
partnership interest in KFLP, with a reported value of $42,465,000, and
cash and marketable securities valued at $835,000. 7 In a statement
attached to the Form 706, however, the limited administrators noted
that they disputed any claim by the executors for amounts due from the
SK Trust and its administrators “as those claims have no merit.”

V.     The Notice of Deficiency

       In the notice of deficiency, respondent determined, among other
things, that the value of the SK Trust’s 98.5% limited partnership
interest in KFLP was $105,664,857 instead of $42,465,000 as reported
on the limited administrators’ Form 706. Respondent also reduced the
estate’s Schedule F assets by the $4,632,489 value of the estate’s
pending claim against the SK Trust, as originally reported on the

       6 On neither the executors’ nor the limited administrators’ Form 706 did the
estate elect pursuant to section 2032 to have the gross estate valued as of a date
subsequent to decedent’s death.
       7 The $4,632,489 claim for undistributed income from the SK Trust was

included on line 4 of the limited administrators’ Schedule F as part of the $16,604,991
reported value of “BALANCE OF SCHEDULE F AS PER RETURN FILED BY
PRELIMINARY EXECUTORS.”
                                          7

[*7] executors’ Schedule F and as incorporated in the estate’s assets
reported on the limited administrators’ Schedule F. 8

VI.    Proceedings in This Court

       Mr. Shalik and the limited administrators separately petitioned
this Court on the estate’s behalf. 9 Mr. Shalik’s Petition assigns error to,
among other things, respondent’s decreasing the gross estate by the
$4,632,489 value of the estate’s claim against the SK Trust as reported
on Schedule F of the executors’ Form 706 and asks this Court to include
this asset in the gross estate with a value of $16,946,827, rather than
the smaller amount originally reported on the executors’ Schedule F. 10
Mr. Shalik’s Petition also asserts that the estate will be entitled to an
increased charitable contribution deduction proportionate to such
increases in estate tax value.

       The limited administrators’ Amendment to Petition, like Mr.
Shalik’s Petition, assigns as error respondent’s decreasing the gross
estate by the $4,632,489 value of the estate’s claim against the SK
Trust. 11 The limited administrators’ Amendment to Petition (unlike Mr.

       8  The explanation of adjustments attached to the notice of deficiency states
with regard to this determination: “It is determined that the value of a claim of the
estate pending against the Trustees of the SK Trust is $11,972,502, rather than
$16,604,991 as shown on the return. Accordingly, the taxable estate is decreased by
$4,632,489.” This explanation seems factually incorrect in stating that the estate’s
return showed the value of the estate’s pending claim against the SK Trust trustees
as having a value of $16,604,991. As explained above, the value of this claim as
reported on Schedule F of the executors’ Form 706, and as incorporated into the values
reported on Schedule F of the limited administrators’ Form 706, was only $4,632,489,
with the remaining $11,972,502 representing the balance of various other assets
originally reported on Schedule F of the executors’ Form 706. See supra note 7.
       9 Mr. Shalik’s Petition was assigned docket No. 14436-10.         The limited
administrators’ Petition was assigned docket No. 15678-10. By Order, the Court closed
docket No. 15678-10 on grounds of duplication, and the Petition and Answer in docket
No. 15678-10 were filed as an Amendment to Petition and as the Answer to
Amendment to Petition, respectively, in docket No. 14436-10.
       10 The $16,946,827 value correlates to the value placed on the estate’s claim
against the SK Trust as included in Mr. Shalik’s amended petition to the Surrogate’s
Court. See supra note 3.
        11 The Amendment to Petition assigns as error: “The Commissioner erred in

determining that the value of a claim against the Trustees of the SK Trust is
$11,972,502, rather than $4,632,489 as shown on the return.” As noted, the notice of
deficiency appears to have erroneously described the value of the claim against the SK
Trust trustees as reported on the estate’s returns. See supra note 8.
                                           8

[*8] Shalik’s Petition) goes on to assert that “the value of the SK Trust
should be reduced by the amount of any claim allowed for undistributed
income due the Estate from the SK Trust.”              Furthermore, the
Amendment to Petition states that only the resulting net value should
be included in decedent’s gross estate under section 2044.

       The parties represent that they have settled most of the
outstanding issues. The limited administrators and respondent have
stipulated, among other things, that the value of the SK Trust’s 98.5%
limited partnership interest in KFLP at the date of decedent’s death was
$54,492,712.

       The parties agree that the only outstanding matters to be decided
relate to the agreed-upon settlement payment’s effect, if any, on the
value of the SK Trust assets included in decedent’s gross estate.
Respondent has moved for partial summary judgment that the agreed-
upon settlement payment does not reduce the value of decedent’s gross
estate. In their Cross-Motion for Partial Summary Judgment the
limited administrators assert that (1) the value of the SK Trust assets
included in the estate pursuant to section 2044 is properly reduced by
the agreed-upon undistributed income amount, and (2) the various
components of the agreed-upon settlement payment are deductible from
the gross estate as administration expenses under section 2053. 12

                                     Discussion

I.      Applicable Legal Principles

        A.      Summary Adjudication

       The Court may grant summary judgment when there is no
genuine dispute as to any material fact and a decision may be rendered
as a matter of law. Rule 121(b); Sundstrand Corp. v. Commissioner, 98
T.C. 518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994). Respondent and
the limited administrators have filed Cross-Motions for Partial
Summary Judgment, reflecting their agreement on all questions of basic
fact as relate to the issues presented in the Cross-Motions. We conclude

       12 Attached to the limited administrators’ Cross-Motion for Partial Summary

Judgment is the affidavit of Mr. Shalik, stating that he is “not a party to” the Cross-
Motion for Partial Summary Judgment and “take[s] no position with respect to the
motion or the litigation in [the] [T]ax [C]ourt or with respect to the estate tax taxable
value and associated estate tax of the SK Trust.”
                                     9

[*9] that this case is appropriate for summary adjudication as to these
issues.

      B.     Estate Tax Provisions

       Section 2001 imposes an estate tax determined, in part, by the
value of the taxable estate. § 2001(b). The taxable estate is defined as
the gross estate less deductions. § 2051. The gross estate generally
includes the value of property described in sections 2033 through 2044.
See Treas. Reg. § 20.2031-1(a). Under section 2033, a decedent’s gross
estate includes the value of all property beneficially owned by the
decedent at the time of death. See Treas. Reg. § 20.2033-1(a). The value
of an estate includes, among other things, all choses in action and any
rights to income, acquired before death or because of the decedent’s
death, that remain unpaid at the time of death. Estate of Curry v.
Commissioner, 74 T.C. 540, 545–46 (1980); Estate of Aldrich v.
Commissioner, T.C. Memo. 1983-543.

        The value of property includible in the gross estate is generally
its fair market value at the time of the decedent’s death. See § 2031(a);
Treas. Reg. § 20.2031-1(b). Fair market value is defined as the price
that a willing buyer would pay a willing seller, both persons having
reasonable knowledge of all the relevant facts and neither person being
under a compulsion to buy or sell. United States v. Cartwright, 411 U.S.
546, 551 (1973); Treas. Reg. § 20.2031-1(b).

       Section 2044(a) generally includes in the gross estate the value of
QTIP trust property, i.e., property in which the decedent had a qualified
income interest for life and for which a marital deduction was allowed
to the estate of a predeceased spouse under section 2056(b)(7). “[T]he
QTIP regime employs a fiction that treats QTIP as passing entirely from
the first spouse to die to the surviving spouse.” Estate of Morgens v.
Commissioner, 133 T.C. 402, 412 (2009), aff’d, 678 F.3d 769 (9th Cir.
2012). The QTIP regime generally allows a transfer of QTIP to qualify
for a marital deduction for the first spouse to die and thereby to escape
inclusion in that spouse’s estate, even though only a life interest passes
to the surviving spouse. “[A]t the death of the second spouse, QTIP
property is taxed as part of the surviving spouse’s estate.” Estate of
Mellinger v. Commissioner, 112 T.C. 26, 32 (1999); see also Estate of
Morgens, 133 T.C. at 412 (“Inclusion in the transfer tax base of the
surviving spouse is the quid pro quo for allowing a marital deduction to
the estate of the first spouse to die.”).
                                    10

[*10] Under section 2044 the amount included in the gross estate is
generally “the value of the entire interest in which the decedent had a
qualifying income interest for life, determined as of the date of the
decedent’s death.” Treas. Reg. § 20.2044-1(d)(1). Consequently, where,
as here, the decedent is the beneficiary of a QTIP trust, the decedent’s
gross estate must generally include the fair market value of the trust
assets as of the date of the decedent’s death. See Treas. Reg. § 20.2044-
1(e) (example 1).

II.   Analysis

      A.     Inclusion of the SK Trust Assets in the Estate

       The executors of decedent’s husband’s estate elected to treat the
SK Trust as a QTIP trust under section 2056(b)(7). Consequently, under
section 2044(a) the SK Trust property is included in decedent’s gross
estate at its fair market value as of the date of her death. As of that
date, the SK Trust held a 98.5% partnership interest in KFLP and
$835,000 in cash and marketable securities. The limited administrators
and respondent have stipulated, with respect to the adjustment in the
notice of deficiency as to this item, that the value of the SK Trust’s 98.5%
limited partnership interest in KFLP was $54,492,712. Accordingly,
pursuant to section 2044(a) decedent’s gross estate includes SK Trust
assets of $55,327,712 ($54,492,712 plus $835,000).

       In the Amendment to Petition, the limited administrators
acknowledge that the value of the KFLP limited partnership interest is
“includible in the Decedent’s gross estate under Code section 2044”. The
limited administrators assert, however, that the value of this
partnership interest should be “reduced by any claims with respect to
undistributed income due the Decedent’s estate from the SK Trust.” In
their Memorandum of Law in Support of Cross-Motion for Partial
Summary Judgment, the limited administrators expound upon this
argument: “[T]he settlement payment of $6,572,310 is being made from
the principal of the SK Trust, which represents a portion of the gross
estate, to the Estate, which also represents a portion of the gross estate.
The consequence of the payment is that the value of the SK Trust must
be reduced by $6,572,310, and the value of the Estate must be increased
by the exact same amount.”

      We are unpersuaded. Having stipulated that the relevant value
of the SK Trust’s KFLP partnership interest was $54,492,712, the
limited administrators cannot successfully argue for some lesser value
                                          11

[*11] of this asset on account of the undistributed income payment
liability. 13 In any event, the settlement agreement imposes the liability
for the settlement payment jointly and severally upon the SK Trust, the
Article Fourth Trust, and the Article Fifth Trust (the latter two trusts
having been created by decedent’s husband’s will for the benefit of Mr.
Kalikow and Ms. Platt to receive the residue of the SK Trust after
decedent’s death). The liability for the settlement payment does not run
to KFLP. Consequently, there is no basis to conclude that this liability
would affect the date-of-death fair market value of the SK Trust’s KFLP
partnership interest, i.e., the liability would not affect the price of this
partnership interest as determined between a hypothetical willing
buyer and seller as of the date of decedent’s death. 14 Moreover, the
settlement agreement indicates that the settlement payment was not
expected to be made from the SK Trust’s KFLP partnership interests. 15
Furthermore, according to respondent’s undisputed representations it
appears that the SK Trust would have an offsetting claim against third
parties for the undistributed income payment liability. 16

      The limited administrators assert, and respondent agrees, that
the inclusion of the $6,572,310 agreed-upon undistributed income
amount in decedent’s gross estate will result in an equivalent increased
charitable contribution deduction to the estate under section

       13  Respondent represents, and the limited administrators have not disputed,
that the $6,572,310 undistributed income amount was not included in the stipulated
value of the KFLP partnership interest.
       14 Indeed, the limited administrators did not report any such reduction in value
of the KFLP partnership interest on their Form 706, even though the Schedule F also
included the estate’s $4,632,489 claim for undistributed income from the SK Trust; to
the contrary, in a statement attached to the Form 706 they asserted that the estate’s
claims against the SK Trust for undistributed income “have no merit.”
       15  In the settlement agreement, the limited administrators represented and
warranted that the settlement payment would be made from liquid assets of the SK
Trust, the Article Fourth Trust, and the Article Fifth Trust, and that these liquid
assets, “exclusive of KFLP,” would be sufficient to cover the entire settlement payment.
       16 In respondent’s Response to Cross-Motion for Partial Summary Judgment,

respondent asserts, and the limited administrators have not expressly disputed, that
       [t]he items comprising the undistributed income amount of $6,572,310
       are all amounts that the Kalikow Family Partnership (KF[L]P) paid,
       not to the SK Trust, but to third parties, including Edward Kalikow’s
       company, KMC (and deducted from its income as business expenses)
       . . . . To the extent that these amounts were excessive or wrongfully
       paid, the SK Trust had a claim, at Mrs. Kalikow’s [decedent’s] death,
       against the payees, such as KMC, or KF[L]P’s principal, Edward
       Kalikow. This claim offsets the SK Trust’s liability to the Estate.
                                          12

[*12] 2055. 17 The limited administrators suggest that failure to reduce
the value of the SK Trust assets by this same amount will result in
“double taxation,” stating: “[I]n substance, respondent is asking this
Court to impose an estate tax on a bequest to charity of $6,572,310.”
This argument is without merit. Inclusion of the SK trust assets in
decedent’s gross estate will give rise to neither double taxation nor any
estate tax on any charitable bequest but rather will merely give effect to
the provisions of section 2044(a).

        B.      Deductibility Under Section 2053

       As an alternative to their just-discussed arguments for reducing
the value of the SK Trust assets included in the estate pursuant to
section 2044, the limited administrators assert that “the settlement
payment of $6,572,310 from the SK Trust to the Estate is deductible
under I.R.C. § 2053(b) as an expense incurred in administering property
included in the Decedent’s Estate that is not subject to claims, i.e., the
SK Trust.” Similarly, the limited administrators also argue that the
various other components of the agreed-upon settlement payment,
designated as covering various commissions and fees, are deductible as
administrative expenses pursuant to section 2053. 18 In the Response to

        17 Any such increased charitable deduction ostensibly arises by virtue of that
provision of decedent’s will bequeathing the residue of her estate to the Sunshine
Foundation. The parties have not otherwise expressly addressed, and it is unnecessary
for us to consider in ruling on the Cross-Motions for Partial Summary Judgment, the
extent to which the settlement agreement is properly taken into account in valuing the
estate’s claim against the SK Trust as of the date of decedent’s death. Cf. United
States v. Simmons, 346 F.2d 213, 216 (5th Cir. 1965) (“Applying the willing buyer and
seller test to the claim for income tax refund, we see no reason for concluding that the
amount of the settlement necessarily represents the fair market value of the claim at
the date of death. The amount of the settlement is relevant but not conclusive.”); Estate
of Saunders v. Commissioner, 136 T.C. 406, 419 (2011) (collecting cases addressing the
valuation of claims in favor of an estate and stating that “it is essentially undisputed
that postdeath events are not considered in valuing assets in an estate”), aff’d, 745
F.3d 953 (9th Cir. 2014).
        18 At various places in their Cross-Motion for Partial Summary Judgment and

supporting papers, the limited administrators assert that these various components of
the agreed-upon settlement payment are “deductible by the SK Trust.” In the Reply
to Respondent’s Response to Cross-Motion for Partial Summary Judgment, the limited
administrators appear to clarify that they are seeking deductions for the estate rather
than for the trust. In any event, to be clear, the issue of whether the SK Trust is
entitled to any deductions is not properly before us in these proceedings to redetermine
the estate’s deficiency in estate tax. In general, a trust is taxed as a separate entity
from its beneficiaries with trust income taxed under section 641 and with deductions
                                         13

[*13] Cross-Motion for Partial Summary Judgment respondent
concedes the deductibility of the $838,044 paying out commission but
disagrees that any other components of the agreed-upon settlement
payment are deductible.

       Section 2053(a) allows a deduction for certain amounts, including
administration expenses and claims against the estate, that are
allowable by the laws of the jurisdiction under which the estate is
administered. Section 2053(b) generally provides a deduction for
expenses incurred in administering nonprobate property, to the same
extent as they would be deductible under section 2053(a), i.e., if incurred
in administering probate property. Such expenses must be “actually and
necessarily, incurred in the administration of the decedent’s estate; that
is, in the collection of assets, payment of debts, and distribution of
property to the persons entitled to it.” Treas. Reg. § 20.2053-3(a). “The
only expenses in administering property not subject to claims which are
allowed as deductions are those occasioned by the decedent’s death and
incurred in settling the decedent’s interest in the property or vesting
good title to the property in the beneficiaries.” Treas. Reg. § 20.2053-
8(b).

       The parties devote much of their arguments to the question of
whether the various components of the agreed-upon settlement payment
meet the limitations on deductibility as set forth in Treasury Regulation
§ 20.2053-8(b). These arguments are misdirected. The limitations on
deductibility set forth in these regulations do not apply with respect to
claims in favor of the estate that are includible in the decedent’s gross
estate under section 2031. See Estate of Saunders, 136 T.C. at 418. The
obligation of the SK Trust to make the agreed-upon settlement payment
to the estate does not give rise to any deduction by the estate. Rather,
the estate’s claim against the SK Trust is itself property to be included
in the gross estate. Even if we were to assume, for the sake of argument
and in the absence of any evidence in this regard, that the estate
actually incurred the fees and commissions specified as components of
the agreed-upon settlement payment, reimbursement of these expenses
under the settlement agreement would preclude any deduction by the
estate. See Treas. Reg. § 20.2053-4(d)(3).

allowed under section 642. In the Response to Cross-Motion for Partial Summary
Judgment respondent states that the trustee annual commission, the accounting fees,
and the legal fees as provided for in the settlement agreement “are deductible on the
SK Trust’s Form 1041 when paid.” We express no view on the correctness of this
statement.
                                           14

[*14] For these reasons, we hold that the estate is not entitled to deduct
under section 2053 any part of the agreed-upon settlement payment
other than the $838,044 paying out commission that respondent has
conceded. 19

III.    Conclusion

       We will thus grant respondent’s Motion for Partial Summary
Judgment, except as relates to respondent’s concession of the
deductibility of the paying out commission, and will deny the limited
administrators’ Cross-Motion for Partial Summary Judgment, except as
relates to that same concession.

        An appropriate order will be issued.

        19 Without expressing any view about the legal correctness of respondent’s

concession, we accept it in the interests of judicial economy. See Liljeberg v.
Commissioner, 148 T.C. 83, 97 (2017) (“In practice, the Court will accept concessions
of law in the interest of judicial economy unless justice requires otherwise.”), aff’d, 907
F.3d 623 (D.C. Cir. 2018).