                          T.C. Memo. 1999-421



                        UNITED STATES TAX COURT



         ESTATE OF FRANK M. DISANTO, DECEASED, ROXANNE DISANTO
            TINNELL, BYRNADETTE DISANTO, AND FRANK DISANTO,
              COEXECUTORS, Petitioners v. COMMISSIONER OF
                      INTERNAL REVENUE, Respondent

         ESTATE OF GRACE J. DISANTO, DECEASED, ROXANNE DISANTO
         TINNELL, BYRNADETTE M. DISANTO, AND FRANK R. DISANTO,
              COEXECUTORS, Petitioners v. COMMISSIONER OF
                      INTERNAL REVENUE, Respondent



     Docket Nos. 10344-97, 21951-97.1    Filed December 27, 1999.



     W. Curtis Elliott, Jr., Paul M. Hattenhauer, and William R.

Culp, Jr., for petitioners.

     James E. Gray and Paul G. Topolka, for respondent.



     1
        We consolidated these cases for trial, briefing, and
opinion over petitioners’ objection. Consolidating these cases
serves judicial economy and does not affect the result in either
case.
                                - 2 -

               MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:    Respondent determined deficiencies in estate

tax of $4,362,142 for the Estate of Frank M. DiSanto (Mr.

DiSanto), and $3,791,104 for the Estate of Grace J. DiSanto (Mrs.

DiSanto).

     Mr. DiSanto owned a controlling block of 186,177 shares

(53.5 percent) of the stock in Morganton Dyeing & Finishing Corp.

(MD&F) when he died on November 26, 1992.     Under his will, Mr.

DiSanto left the residue of his estate to a trust for the benefit

of Mrs. DiSanto and their children.     In May 1993, Mrs. DiSanto

disclaimed part of her interest in Mr. DiSanto's estate which

resulted in her being entitled to receive only a minority block

of MD&F stock.    She died on June 4, 1993, before administration

of Mr. DiSanto's estate was completed.

     After concessions, the issues for decision are:

     1.     Whether the fair market value of a block of 186,177

shares of MD&F stock on November 26, 1992, was $5,585,310 ($30

per share) as respondent contends; $2,263,912 ($12.16 per share)

as petitioners contend; or some other amount.     We hold that it

was $4,375,160 ($23.50 per share).

     2.     Whether the fair market value of the MD&F stock Mrs.

DiSanto was entitled to inherit from Mr. DiSanto’s estate on June

4, 1993, was $1,705,522 ($14 per share) as respondent contends;
                               - 3 -

$270,311 ($2.22 per share) as petitioners contend; or some other

amount.   We hold that it was $1,583,699 ($13 per share).

     3.    Whether Mr. DiSanto's estate may compute the marital

deduction based on the value of the stock (a controlling

interest) he willed to Mrs. DiSanto, as petitioners contend, or

based on the value of the shares she was entitled to receive

after she executed the disclaimer (a minority interest), as

respondent contends.   We hold that it must compute the marital

deduction based on the value of the shares Mrs. DiSanto was

entitled to receive after she executed the disclaimer.

     4.    Whether checks written on Mrs. DiSanto's bank account

that the bank had not paid before she died were completed gifts

when she died.   We hold that they were not and that those amounts

are included in her estate.

     Unless otherwise indicated, section references are to the

Internal Revenue Code in effect when the decedents died.    Rule

references are to the Tax Court Rules of Practice and Procedure.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Mr. and Mrs. DiSanto and Their Children

     Mr. and Mrs. DiSanto lived in Morganton, North Carolina.

Mr. DiSanto died on November 26, 1992.   Mrs. DiSanto had cancer

and was in very poor health when Mr. DiSanto died.   Mrs. DiSanto

died at 4:30 a.m. on Friday, June 4, 1993, before administration
                               - 4 -

of Mr. DiSanto's estate had been completed.     Mr. DiSanto's estate

did not transfer any MD&F stock to Mrs. DiSanto before she died.

     Roxanne DiSanto Tinnell, Byrnadette DiSanto, and Frank R.

DiSanto are the children of Mr. and Mrs. DiSanto and coexecutors

of their parents' estates.   Roxanne DiSanto Tinnell and

Byrnadette DiSanto lived in Los Angeles, California, when their

parents died.2   Alfred (Fred) DiSanto is Mr. DiSanto's younger

brother.

B.   Morganton Dyeing & Finishing Corporation

     1.    Formation and Operations

     Mr. DiSanto and Fred DiSanto founded Morganton Dyeing &

Finishing Corp. (MD&F) (formerly known as Bondsville Dyeing &

Finishing Corp.), in 1954 in Bondsville, Massachusetts.    In 1961,

they moved MD&F to Morganton, North Carolina.

     MD&F dyed and finished fabric for clothing.    It performed

services on commission.   MD&F sent the finished fabric to a

manufacturer which sewed it into garments.

     2.    Ownership and Management

     Rocco DiSanto, Fred DiSanto’s son, left his dentistry

practice and began to work for MD&F in the late 1980's.    Rocco

DiSanto has undergraduate degrees from Duke University in

electrical engineering, mechanical engineering, and biomedical

engineering.

     2
        The record does not indicate where Frank R. DiSanto lived
when his parents died.
                                  - 5 -

     Fred DiSanto’s and Mr. DiSanto’s nephew, Jason Yates, worked

for MD&F after he graduated from business school at the

University of Tennessee.   He worked for MD&F’s financial officer,

H.L. (Bo) Browning.   By 1990, he had become a member of MD&F’s

management.

     On November 26, 1992, the ownership of MD&F’s stock was as

follows:

                           Number of shares   Percentage
     Shareholder             outstanding       of total

     Frank M. DiSanto            186,177        53.50
     Alfred R. DiSanto            86,752        24.93
     Gloria Yates                 13,605         3.91
     Byrnadette DiSanto           12,102         3.48
     Roxanne DiSanto              12,102         3.48
     Frank R. DiSanto             12,102         3.48
     Robert E. Papuga              8,700         2.50
     Rocco DiSanto                 5,484         1.58
     Donna Gooch                   5,484         1.58
     Andrea DiSanto                5,484         1.58
          Total                  347,992          100

     On November 26, 1992, the officers of MD&F were:   Mr.

DiSanto, president and chief executive officer; Fred DiSanto,

vice president; H.L. Browning, secretary-treasurer; Robert E.

Papuga, vice president and plant manager; and Rocco DiSanto,

assistant secretary-treasurer.

     3.    Financial Condition

     MD&F’s net income and losses from 1988 to 1993 were as

follows:
                                 - 6 -

     Year              Year ending       Net income or (loss)
     1988                 3/26                $106,054
     1989                 4/1                  789,455
     1990                 3/31               1,042,548
     1991                 3/30               1,646,3841
     1992                12/26               1,185,2162
     1993                12/25                (585,775)
     1
       In 1991, MD&F switched from a fiscal year ending Mar. 30
to Dec. 26. MD&F’s net income for the 9 months ending Dec. 31,
1991, was $1,362,684.
     2
      Of MD&F’s $1,185,216 net income for 1992, $790,012 was
from a life insurance policy on Mr. DiSanto’s life.

     In 1991 and earlier years, MD&F had net profit margins of 8

to 10 percent.    After 1991, MD&F’s net profit margins were less

than 5 percent.    Some of MD&F’s customers were in financial

trouble in the late 1980's and in 1991 and 1992, in part because

of foreign competition.

     4.     Water Usage

     Water is one of MD&F’s primary raw materials.       MD&F and the

City of Morganton had disputes over water rates since the 1960's.

In the early 1990's, the City of Morganton proposed doubling

MD&F's water rates, which would have increased MD&F's water

expenses by about $750,000 per year.       The proposed increase would

have been almost twice MD&F's operating income for 1992.

     5.     Lawsuits

     Before Mr. and Mrs. DiSanto died, MD&F had sued one of its

customers, Leadertex, for nonpayment of $300,000.       Leadertex then

sued MD&F for damages of more than $2 million for improperly

processing fabric.     The parties settled the lawsuit, apparently
                                 - 7 -

after Mr. and Mrs. DiSanto died.    In the settlement, MD&F agreed

to pay an amount not stated in the record to press the fabric at

issue and to waive the right to receive the $300,000 payment.

C.   Mr. DiSanto’s Estate and Will

     When he died, in addition to owning 186,177 shares of MD&F

stock, Mr. DiSanto also had other probate assets worth $201,395.

     In his will, Mr. DiSanto directed that the residue of his

estate go to a trust for the benefit of his wife and children

(Trust B).   In his will, he directed that the residue include

only assets that qualify for the marital deduction or proceeds

from the sale of those assets, and that any unified credit be

used against the estate tax.   Mr. DiSanto's will gave discretion

to his executor to sell or dispose of any property in his estate.

D.   Mrs. DiSanto’s Disclaimer

     On May 14, 1993, Mrs. DiSanto disclaimed her right to

inherit from her husband $1,325,000 worth of his MD&F stock based

on per share values “as finally determined on the Federal estate

tax return”.   She also disclaimed her right to withdraw the

greater of 5 percent of the value or $5,000 from Trust B.    As a

result of the disclaimer, the only asset in the residuary of Mr.

DiSanto's estate that Mrs. DiSanto could inherit was a minority

interest in MD&F stock.
                                     - 8 -

E.    Checks That Did Not Clear Mrs. DiSanto’s Bank Before She
      Died

      The following checks were written on Mrs. DiSanto’s Wachovia

Bank & Trust account before she died:

Check         Date of         Date
 no.           check          paid           Amount           Payee

792         May 13,   1993   June   4        $2,500   Jon McCallum
796         May 24,   1993   June   4         1,500   Cash
851         June 2,   1993   June   4        10,000   Mary Heitman
852         June 2,   1993   June   4        10,000   Lisa Melchioni
853         June 2,   1993   June   4        10,000   Lewis Dorman, III
854         June 2,   1993   June   4        10,000   Lewis Dorman, IV
855         June 2,   1993   June   4        10,000   Eleanor Dorman
856         June 2,   1993   June   4         2,500   Jean Sain
860         June 3,   1993   June   11        2,500   Cash
861         June 3,   1993   June   11        5,000   William Paul Austin

      Mrs. DiSanto signed check Nos. 792 and 796.         Roxanne DiSanto

Tinnell, who had Mrs. DiSanto's power of attorney, signed the

others.    A payee endorsed each check.         Wachovia Bank & Trust did

not pay any of these checks before Mrs. DiSanto died.

F.    The Estate Tax Returns

      The Valuation Division of the Charlotte, North Carolina,

office of Deloitte & Touche prepared the estate tax returns in

issue.    Clifford Braly III (Braly), reviewed and signed the

estate tax returns as preparer.

      Deloitte & Touche appraised the assets held by Mr. DiSanto's

estate.    Deloitte & Touche concluded that the fair market value

of Mr. DiSanto's 186,177 shares of MD&F stock was $4,803,728

($25.80 per share) as of November 26, 1992.
                                 - 9 -

         Deloitte & Touche also appraised the assets included in

Mrs. DiSanto's estate.     Deloitte & Touche concluded that, as a

result of the disclaimer, Mrs. DiSanto’s estate was entitled to

receive 121,823 shares of MD&F stock from her husband with a fair

market value of $1,891,911 ($15.53 per share) as of June 4,

1993.3

     Petitioners timely filed estate tax returns for the estates

of Mr. and Mrs. DiSanto and amended returns dated June 23, 1995.

Mr. DiSanto's estate reported that his 186,177 shares of MD&F

stock were worth $4,804,000 ($25.80 per share).

     Mr. DiSanto's estate reported on Item 25, Schedule M

(Bequests, etc., to Surviving Spouse) of the estate tax return

that 121,823 shares of MD&F stock passed to Mrs. DiSanto.     Mr.

DiSanto’s estate claimed a marital deduction of $3,143,055

(121,823 shares of MD&F worth $25.80 per share).     Mrs. DiSanto's

estate reported on Item 20 of Schedule B (Stocks and Bonds) of

the estate tax return that her estate had 121,823 shares of MD&F

stock.

G.   MD&F’s Redemption of Mr. DiSanto’s Stock in 1995 and
     Bankruptcy in 1997

     The DiSanto children considered selling Mr. DiSanto’s MD&F

stock to outsiders after their parents died.     In August 1994,

Graham Reginald Pope (Pope), a certified public accountant,


     3
        The record does not indicate how Deloitte & Touche
calculated that number of shares.
                              - 10 -

helped the DiSanto children negotiate the redemption of Mr.

DiSanto’s MD&F stock.   Fred DiSanto represented MD&F in the

negotiations.   The redemption price was $26.81 per share, more

than any of the appraisals at that time.   Other MD&F employees

opposed paying that much to redeem Mr. DiSanto’s stock.   Fred

DiSanto thought this price exceeded fair market value, but agreed

to it to help his brother’s family, his son, Rocco DiSanto, and

his nephew, Jason Yates.   MD&F also agreed to pay each of the

children $315,000 to not compete with MD&F.

     MD&F filed an insolvency petition with the U.S. Bankruptcy

Court on November 4, 1997.

                              OPINION

A.   Fair Market Value of Mr. DiSanto’s MD&F Stock on November
     26, 1992

     1.   Contentions of the Parties

     The parties dispute the value of Mr. DiSanto's 186,177

shares of MD&F stock (a 53.5-percent interest) when he died on

November 26, 1992.

     Petitioners contend that the fair market value of Mr.

DiSanto's MD&F stock was $2,263,912 ($12.16 per share).   This

value is less than respondent’s and petitioners’ expert’s

estimates.   Petitioners contend that petitioners' and

respondent's expert failed to consider (1) that MD&F was not

profitable after 1991, (2) the effect on MD&F of the death of Mr.
                               - 11 -

DiSanto and the lawsuit pending against MD&F, and (3) the

potential for water rate increases.

     Petitioners contend that the appraisals made by Deloitte &

Touche for Mr. DiSanto's estate of $4,803,728 ($25.80 per share)

and by MPI, its expert witness for trial, of $4,375,160 ($23.50

per share) were incorrect.    Petitioners contend that Deloitte &

Touche used earnings projections made by MD&F after Mr. DiSanto

died and while Deloitte & Touche prepared the appraisal of Mr.

DiSanto’s estate, which petitioners contend were too optimistic.

     Petitioners contend that we should not consider the

redemption price of MD&F stock in 1995 in deciding the value of

MD&F stock on November 26, 1992, or on June 4, 1993, because it

was unforeseeable in 1992 and 1993, and because Fred DiSanto paid

more than fair market value for the stock.

     Petitioners point out that respondent's expert critiqued

petitioners' experts' analyses but did not appraise the shares at

issue.

     Respondent contends that the fair market value of the

186,177 shares of MD&F stock owned by Mr. DiSanto was $5,585,310

($30 per share) on November 26, 1992.    Respondent bases this on

the $26.81 redemption price and MD&F’s payment of $315,000 to

each of the DiSanto children not to compete.    Respondent contends

that MD&F's 1997 bankruptcy was unforeseeable on November 26,

1992.    Respondent also contends that petitioners' experts used

guideline companies that were dissimilar to MD&F, improperly
                               - 12 -

weighed MD&F’s earnings, and placed too much emphasis on Mr.

DiSanto's role in MD&F.

     2.   Whether We Consider the 1995 Redemption of MD&F Stock

     Respondent contends that the 1995 redemption is persuasive

evidence of the fair market value of Mr. DiSanto’s MD&F stock

because it resulted from arm’s-length negotiations.   We disagree.

     We believe that Fred DiSanto caused MD&F to pay more than

fair market value to redeem his brother’s stock because he wanted

to provide benefits to his brother’s family and also to continue

to provide employment for other family members.   Fred DiSanto

credibly testified that he caused MD&F to overpay to redeem the

stock in 1995.   Other MD&F employees disagreed with his decision

to redeem the stock for $26.81 per share.   The redemption was

emotional for the DiSanto family.   Emotional factors may preclude

a redemption price from representing fair market value.   See,

e.g., Krapf v. United States, 977 F.2d 1454, 1461 (Fed. Cir.

1992) (intrafamily sale of stock to company founder who would go

to great lengths to secure survival of the distressed company was

not reliable evidence of fair market value).

     Respondent points out that negotiations occurred and that

Pope represented the DiSanto children.   However, those facts do

not negate the emotional factors that, we believe, led Fred

DiSanto to agree to an excessive redemption price.    We give no

weight to the 1995 redemption as evidence of fair market value of

MD&F stock in 1992 and 1993.
                               - 13 -

     Petitioners contend that, if we consider the redemption

price in 1995, then we should also consider the fact that MD&F

filed for bankruptcy protection in 1997.   We need not do so

because we do not consider the 1995 redemption price.

     3.   Expert Witnesses

     Both parties retained experts to testify in these cases.

Petitioners retained Management Planning, Inc. (MPI), to estimate

the value of Mr. DiSanto’s MD&F stock on November 26, 1992, as

part of a control block and minority block, and Mrs. DiSanto’s

“expectancy interest” in Mr. DiSanto’s estate (i.e., how much she

would expect to receive from his estate) on June 4, 1993.

Petitioners also retained William Harper Frazier (Frazier) to

estimate the value of Mrs. DiSanto’s estate’s “expectancy

interest” in Mr. DiSanto’s estate on June 4, 1993.

     Respondent retained Herbert T. Spiro (Spiro), president of

American Valuation Group, Inc., as an expert witness.   Spiro did

not appraise the MD&F stock.   Rather, he critiqued the reports

prepared for petitioners by Deloitte & Touche and MPI and made

adjustments to them based on those critiques.

     The following chart shows the values of a share of MD&F

stock as part of a control or minority block or an expectancy

interest in a share of MD&F stock as reported in the tax returns,

determined by respondent, contended by the parties, estimated by

petitioners’ experts, and adjusted by respondent’s expert in

critiquing petitioners’ experts in these cases:
                                    - 14 -

                                         One Share in–
                 A control       A minority      A minority      An expectancy
                 block on        block on        block on        Interest on
     Source      Nov. 26, 1992   Nov. 26, 1992   June 4, 1993    June 4, 1993


  Deloitte &         $25.80                         $15.53
    Touche
    P's Tax          $25.80                         $15.53
    Returns
   Notice of         $52.50                         $52.50
  Deficiency
      MPI            $23.50         $14.96          $13.00           $9.00
                                                                     1
    Frazier                                         $13.00            $3.67
    Spiro’s          $27.72                         $25.50
  critique of
  Deloitte &
    Touche
    Spiro’s         $26.28 -       $15.03 -        $13.32 -
  critique of        $30.35         $17.36          $14.76
      MPI
 P's posttrial       $12.16                      $2.22 – if it
     brief                                       were 121,823
                                                    shares
 R's posttrial       $30.00         $16.00          $14.00
     brief


     1
        Frazier estimated that the total value of Mrs. DiSanto’s estate’s
interest in Mr. DiSanto’s estate was $447,327. He did not estimate a per
share value based on 121,823 shares as did the other experts. The $3.67
amount represents a per share value based on 121,823 shares with a total value
of $447,323.

     4.       Evaluating the Experts’ Opinions

     We are not bound by the opinion of any expert, and we may

accept or reject expert testimony in the exercise of sound

judgment.      See Phillips Petroleum Co. v. Commissioner, 104 T.C.

256, 302 (1995); Estate of Hall v. Commissioner, 92 T.C. 312, 338

(1989).
                                - 15 -

     MPI concluded that each share in Mr. DiSanto’s estate had a

fair market value of $23.50 when he died.      Spiro testified that,

generally, MPI’s valuation method was reasonable.

     Petitioners contend that none of their experts considered

factors such as business trends, MD&F's financial position,

MD&F's management, the death of Mr. DiSanto, a potential increase

in water rates, and pending litigation.      We disagree.   MPI

considered these items except for the proposed increases in water

costs and pending litigation.    Petitioners offered no evidence

showing whether or to what extent the pending litigation or water

costs affected the value of MD&F stock.      Thus, we do not decrease

MPI’s estimate based on those factors.

     Spiro criticized MPI for (a) not adequately justifying its

conclusions, (b) relying solely on a market approach to value

MD&F stock, (c) comparing MD&F to some companies that he believed

were not similar to MD&F, and (d) applying incorrect weights to

MD&F’s earnings.   We are not persuaded by Spiro’s criticisms.     He

agreed that the market approach was an appropriate method here

and did not apply any other method.      He did not suggest any

companies which he believed were more comparable to MD&F than

those used by MPI.   MPI gave equal weight to MD&F’s earnings for

a 5-year average, 5-year weighted average, and latest year.

Spiro gave 45 percent of the weight to the 5-year average, 45

percent to the 5-year weighted average, and 10 percent to MD&F’s

most recent year’s earnings, despite the fact that MD&F’s
                                - 16 -

earnings were decreasing in 1992 and 1993.   Spiro’s testimony did

not convince us to revise MPI’s estimates.

     MPI's appraisal is reasonable and appears credible.   It is

cogent and persuasive evidence that the $25.80 per share value

reported on Mr. DiSanto’s estate tax return is overstated.4

Respondent offered no evidence of the value of MD&F stock other

than the redemption price in 1995, which we do not consider.    See

paragraph A-2, above.   We conclude that the fair market value of

186,177 shares of MD&F stock on November 26, 1992, was $4,375,160

($23.50 per share).

B.   Value of Mrs. DiSanto’s Interest in Mr. DiSanto’s Estate
     When She Died

     1.   Expectancy Interest

     The parties disagree about the nature of Mrs. DiSanto’s

interest in her husband’s estate.    Respondent contends that her

estate had a right to receive 121,823 shares of MD&F stock.

Petitioners contend that Mrs. DiSanto’s estate had only an

expectancy interest in Mr. DiSanto’s estate, and that the value

of her expectancy interest is less than the fair market value of

the minority block of MD&F stock that she was entitled to inherit

from Mr. DiSanto.   Petitioners contend that Mrs. DiSanto had only

     4
        MPI’s appraisal is more favorable to petitioners than
their position on the estate tax returns of Mr. and Mrs. DiSanto.
Statements in a tax return are admissions unless overcome by
cogent evidence that they are wrong. Waring v. Commissioner, 412
F.2d 800, 801 (3d Cir. 1969), affg. per curiam T.C. Memo.
1968-126; Estate of Hall v. Commissioner, 92 T.C. 312, 337-338
(1989).
                                - 17 -

an expectancy interest in Mr. DiSanto’s estate because (a) no

shares had been transferred while she was alive,(b) Mr. DiSanto’s

estate could have sold some of those shares to pay administration

expenses, and (c) Mr. DiSanto gave her a residuary interest, not

stock.    We disagree.   There is no evidence that Mr. DiSanto’s

estate needed to sell MD&F stock to pay administration expenses.

     2.     Value of MD&F Stock That Mrs. DiSanto Was Entitled To
            Receive Under Mr. DiSanto’s Will After Her 1993
            Disclaimer

     We next decide whether to accept the values for MD&F stock

that Mrs. DiSanto was entitled to receive (which are lower than

those estimated for petitioners by Deloitte & Touche, MPI, and

Frazier) as contended by petitioners, or higher values, as

contended by respondent.

     Petitioners contend that the Deloitte & Touche estimates are

unreliable because Braly was inexperienced and made errors in

Mrs. DiSanto’s estate tax return.     We disagree.   Braly relied on

Deloitte & Touche valuation experts to estimate the values of

assets to use in Mrs. DiSanto’s estate tax return.

     Petitioners contend that Mrs. DiSanto’s estate overestimated

the value of her interest in Mr. DiSanto’s estate.     We disagree.

There is no evidence that Deloitte & Touche made errors in

appraising Mrs. DiSanto’s estate.     Deloitte & Touche’s and MPI’s

estimates are similar.

     MPI used the same general principles to appraise the value

of Mrs. DiSanto's interest in her husband's estate that it used
                               - 18 -

to estimate the value of MD&F stock in her husband's estate when

he died.    MPI considered MD&F’s declining net profits and the

outlook for the fabric processing business between the times when

Mr. and Mrs. DiSanto died.    MPI estimated that each share in a

minority block of 121,823 shares of MD&F stock had a fair market

value of $14.96 on November 26, 1992, and $13 on June 4, 1993.

The $1.96 difference per share multiplied by 121,823 shares

equals $243,646.   Respondent's concession that MD&F stock

declined in value by about $250,000 between the deaths of Mr. and

Mrs. DiSanto approximates MPI's estimate of the decline in value

of a minority interest in MD&F stock during that time.    We

conclude that MPI’s estimate of the decline in value of MD&F

stock between the times Mr. and Mrs. DiSanto died is reasonable.

     Petitioners speculate that the value of MD&F stock is lower

than MPI’s estimates.    Petitioners point out that Mr. DiSanto’s

estate had not transferred MD&F stock certificates to Mrs.

DiSanto’s estate, and contend that it is possible that Mrs.

DiSanto’s estate would never possess MD&F stock.    Petitioners

also speculate a buyer of MD&F stock from Mrs. DiSanto’s estate

might become liable for Mr. or Mrs. DiSanto’s estate taxes.    We

disagree.   There is no credible evidence that these factors may

affect the value of MD&F stock, or otherwise supporting

petitioners' criticism of their expert's appraisals.

     Frazier estimated that Mrs. DiSanto’s interest in Mr.

DiSanto’s estate was worth $447,327 (76,012 shares of MD&F x
                              - 19 -

$5.88 per share).   Frazier used (a) a combination of the net

asset value and market approaches, (b) a combination of the

income and market approaches, and (c) the Black-Scholes method,

and then applied various discounts.

     We reject Frazier's estimate because he used the following

assumptions which are not supported by the record:   (a)

Administrative expenses, estate taxes, and liabilities would

consume all of the liquid assets in Mr. DiSanto’s estate and some

of his MD&F stock; and (b) 45,811 shares of MD&F stock would have

to be sold at $13 per share to satisfy Mr. DiSanto’s estate’s

liabilities.

     3.   Conclusion

     We accept MPI’s estimate that the fair market value of Mrs.

DiSanto’s interest in Mr. DiSanto’s estate, that is, his MD&F

stock, was $13 per share on June 4, 1993.

C.   Marital Deduction for the Estate of Mr. DiSanto

     In computing the amount of the taxable estate, an estate may

deduct the value of interests which pass from a decedent to the

decedent's spouse (marital deduction).   See sec. 2056(a).

Petitioners contend that the marital deduction for Mr. DiSanto’s

estate should be computed based on the value of the controlling

block of 186,177 shares of MD&F stock held by Mr. DiSanto, not

the value of the minority block to which Mrs. DiSanto was

entitled after she executed the disclaimer.
                               - 20 -

     In Rev. Rul. 81-20, 1981-1 C.B. 471, respondent ruled that

an estate may deduct under section 2055 a decedent’s bequest of

the residue of his estate to a charity under certain conditions.

Petitioners contend that, under Rev. Rul. 81-20, 1991-1 C.B. 471,

we must compute the marital deduction for Mr. DiSanto’s estate as

a residuary interest because Mr. DiSanto gave Mrs. DiSanto a

residuary interest in his estate, not stock.     We disagree that

Rev. Rul. 82-20, 1991-1 C.B. 471, applies because it does not

involve a marital deduction.

     Petitioners contend that we must base the marital deduction

on the value of Mr. DiSanto’s controlling interest in MD&F stock.

We disagree.   An estate may deduct "an amount equal to the value

of * * * property which passes or has passed from the decedent to

his surviving spouse".    Sec. 2056(a).   The value of the marital

deduction for a devised interest in stock of a closely held

corporation equals the value of the interest that passes to the

surviving spouse.   See sec. 2056(b)(4); sec. 20.2056(b)-4(a),

Estate Tax Regs.; Estate of Chenoweth v. Commissioner, 88 T.C.

1577, 1588-1589 (1987).    Thus, the marital deduction for Mr.

DiSanto's estate is based on the value of the interest that

passed from Mr. DiSanto's estate to Mrs. DiSanto.

     Mrs. DiSanto's disclaimer reduced the value of her interest

in Mr. DiSanto's estate, and reduced the amount of the marital

deduction for Mr. DiSanto's estate.     See sec. 2518(a).   We have

decided that the fair market value of each share of MD&F stock
                                  - 21 -

that Mrs. DiSanto was entitled to receive from Mr. DiSanto’s

estate after she made the disclaimer was $13 per share when she

died.   See paragraph B-3, above.     Mr. DiSanto’s estate may claim

a marital deduction based on that per share stock value.

     Petitioners contend that we should disregard Mrs. DiSanto’s

disclaimer in deciding the amount of the marital deduction for

Mr. DiSanto’s estate just as we disregard postdeath fluctuations

in the values of assets in estates in deciding marital deduction

amounts.    We disagree.   Petitioners cite Rev. Rul. 90-3, 1990-1

C.B. 174.    In Rev. Rul. 90-3, 1990-1 C.B. 174, respondent ruled

that the value of a residuary bequest to a surviving spouse does

not change even if the value of estate assets fluctuates after

the decedent dies.    Mrs. DiSanto’s disclaimer of $1,325,000 worth

of Mr. DiSanto’s MD&F stock is not a postdeath fluctuation in the

value of his stock.    Thus, Rev. Rul. 90-3, 1990-1 C.B. 174, does

not apply here.

     Petitioners contend that, if a surviving spouse executes a

disclaimer, the marital deduction is merely reduced by the

disclaimed amount, citing Estate of Nix v. Commissioner, T.C.

Memo. 1996-109.    We disagree.    In Estate of Nix, we held that the

disclaimer reduced the surviving spouse’s interest in the

decedent’s estate by the value of disclaimed property.     Unlike

the facts in Estate of Nix, here the qualified disclaimer reduces

Mrs. DiSanto’s interest in Mr. DiSanto’s stock in MD&F from a

controlling interest to a minority interest.
                              - 22 -

     Petitioners cite Estate of Jameson v. Commissioner, T.C.

Memo. 1999-43, for the proposition that respondent may not use

one value for including the MD&F stock in Mr. DiSanto's estate

and a lower value for calculating the marital deduction.    We

disagree.   The decedent in Estate of Jameson bequeathed an amount

to his children and the residuary to his wife.   We held that his

estate may not use a lower per share value of closely held stock

to increase the number of shares to compute the bequest to his

children and a higher per share value of the same stock to

compute the marital deduction.   Estate of Jameson v.

Commissioner, supra, is distinguishable because the decedent's

wife did not disclaim part of her interest as Mrs. DiSanto did

here.

D.   Whether Checks Not Yet Paid by the Bank When Mrs. DiSanto
     Died Are Completed Gifts Not Included in Her Estate

     Petitioners contend that funds from Mrs. DiSanto's bank

account paid by the bank for checks written by her or her

daughter (with a power of attorney from Mrs. DiSanto) to make

noncharitable gifts before Mrs. DiSanto died, are not includable

in her gross estate.   The bank paid those checks later on the day

she died.   Petitioners point out that Mrs. DiSanto died on June 4

at 4:30 a.m., before the bank opened and, thus, she could not

instruct the bank to stop payment on June 4.   Thus, petitioners

contend, the gifts were completed when she died.   We disagree.
                               - 23 -

     A gift by check is completed when the donor no longer has

dominion and control over the funds described in the checks and

no power to change the disposition of the funds.   See Estate of

Newman v. Commissioner, 111 T.C. 81, 85 (1998), affd. per curiam

by unpublished opinion (D.C. Cir. Sept. 15, 1999); Estate of

Metzger v. Commissioner, 100 T.C. 204, 208 (1993), affd. 38 F.3d

118 (4th Cir. 1994); see also Burnet v. Guggenheim, 288 U.S. 280,

286 (1933).   State law controls when a gift is completed.   See

Estate of Newman v. Commissioner, supra; Estate of Dillingham v.

Commissioner, 88 T.C. 1569, 1575 (1987), affd. 903 F.2d 760 (10th

Cir. 1990).

     In North Carolina, a check not paid by the bank before the

donor dies is not a completed gift and is a part of decedent's

probate estate, see Huskins v. Huskins, 517 S.E.2d 146, 150 (N.C.

Ct. App. 1999); Creekmore v. Creekmore, 485 S.E.2d 68, 72 (N.C.

Ct. App. 1997), because, under North Carolina law, the donor can

stop payment on a check until the bank pays the check or the

donor dies, see sec. 25-4-403, N.C. Gen. Stat. (1995).    The

checks which the bank did not pay before Mrs. DiSanto died are

not completed gifts because the bank did not pay the checks

before she died.    See Huskins v. Huskins, supra; Creekmore v.

Creekmore, supra.

     Petitioners contend that we should follow Bacchus v. United

States, 57 AFTR2d 86-1519, 86-1 USTC par. 13,669 (D.N.J. 1985).

In Bacchus v. United States, supra, the U.S. District Court for
                                - 24 -

the District of New Jersey held that, for purposes of the annual

gift tax exclusion, gifts became complete upon payment of checks

by the bank and related back to the time of their delivery to the

donee.    In that case the court relied on Estate of Belcher v.

Commissioner, 83 T.C. 227, 235 (1984), and Estate of Spiegel v.

Commissioner, 12 T.C. 524, 529 (1949), in which we held that the

relation-back doctrine applies to charitable gifts.    As a result,

a charitable gift paid by check relates back to the time (i.e.,

is deemed to be made when) the donor delivered the check to the

donee.    In Estate of Newman v. Commissioner, supra at 87, we

distinguished those cases on grounds that those cases involved

gifts to charitable donees and annual gift tax exclusions rather

than whether the funds are includable in the donor’s gross

estate.    Charitable gifts differ from noncharitable gifts in that

charitable gifts are deductible for income tax purposes.    We have

not extended the relation-back doctrine for estate tax purposes

to noncharitable gifts made by check which were unpaid when the

donor died.    See id.   This result avoids the possibility that

payments deducted for income tax purposes by the donor would be

includable in the donor’s gross estate.    See Estate of Newman v.

Commissioner, supra at 88; Estate of Gagliardi v. Commissioner,

89 T.C. 1207, 1212 (1987).

     In Estate of Metzger v. Commissioner, supra at 214-215, we

held that, for purposes of section 2503(b), gifts of checks that

were written, delivered, and deposited in the donee's bank
                               - 25 -

accounts before January 1, 1986, and were paid on January 2,

1986, related back to the delivery and deposit of those checks in

December 1985.    Petitioners contend that, for estate tax

purposes, we should extend the relation-back doctrine of Estate

of Metzger v. Commissioner, supra, to checks that are

unconditionally delivered and that the drawer bank promptly paid

even though payment occurred after the donor’s death.    We

disagree for reasons stated in Estate of Newman v. Commissioner,

supra at 89-90.

     We conclude that the $64,000 of checks that did not clear

the bank before Mrs. DiSanto died are included in her estate.

     To reflect concessions of the parties and the foregoing,


                                          Decisions will be entered

                                     under Rule 155.
