                 T.C. Memo. 2010-192


                UNITED STATES TAX COURT



           ESTATE OF HENRY H. STICK, DECEASED,
    MARGARET STICK PARISI, EXECUTRIX, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 16383-08.             Filed September 1, 2010.



     D’s trust, the residual beneficiary of his estate,
took out a loan to pay the estate tax liability. The
estate deducted the interest on the loan as an
administration expense under sec. 2053, I.R.C.

     Held: The interest is not deductible because the
estate has not shown that the loan was necessary.



Margaret Stick Parisi, for petitioner.

Terry Serena, for respondent.
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                          MEMORANDUM OPINION


       NIMS, Judge:   Respondent determined a $371,728 deficiency in

the Federal estate tax of the Estate of Henry H. Stick (estate).

After concessions, the sole issue for decision is whether the

estate is entitled to deduct the interest on a loan incurred to

pay its Federal and State estate tax liabilities.

       Unless otherwise indicated, all section references are to

the Internal Revenue Code as in effect on the date of the

decedent’s death, and all Rule references are to the Tax Court

Rules of Practice and Procedure.

                              Background

       This case was submitted fully stipulated pursuant to Rule

122.    The stipulations of the parties, with accompanying

exhibits, are incorporated herein by this reference.    Ms. Parisi

resided in Massachusetts when she filed the petition.

       Henry H. Stick (decedent) died testate on February 12, 2004,

when he was domiciled in Montgomery County, Ohio.     Decedent’s

Last Will and Testament named the Henry H. Stick Trust (trust) as

residual beneficiary of his estate.

       On November 17, 2004, the trust borrowed $1,500,000 from the

Stick Foundation for the purpose of satisfying the estate’s

Federal and State estate tax liabilities (loan).     The principal

of the loan was to be repaid after 10 years with 5.25 percent

interest accruing and to be paid annually.
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     On May 17, 2005, the estate filed a Form 706, United States

Estate (and Generation-Skipping Transfer) Tax Return.     The

estate’s assets included $850,083 in mutual fund investments

(reported on Schedule B, Stocks and Bonds), $18,144 cash in

decedent’s checking account, $3,799 in refunds of decedent’s

Federal income tax, $12,868 in life insurance proceeds, $318,075

in american depository receipts, and $750,648 in additional

mutual fund investments (reported on Schedule F, Other

Miscellaneous Property Not Reportable Under Any Other Schedule).

The estate also held nonliquid assets totaling $1,088,844 which

included real property worth $422,060 and stock in the Henry H.

Stick L.L.C. worth $475,750.   The estate reported funeral and

administration expenses of $818,990, which included $656,250 of

interest on the loan (interest expense).    The estate reported a

Federal estate tax liability of $1,046,600.

     The trust filed Forms 1041, U.S. Income Tax Return for

Estates and Trusts, for 2004, 2005, and 2006 and also claimed

deductions for the interest on the loans to pay the estate tax.

     On April 8, 2008, respondent issued a notice of deficiency

determining an estate tax deficiency.    In the notice respondent

disallowed the interest expense, among other things, and

determined a $371,728 deficiency.     A timely petition was filed

July 3, 2008.
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                             Discussion

     Section 2053(a)(2) provides that the value of a decedent’s

taxable estate shall be determined by deducting from the value of

the gross estate such amounts for administration expenses as are

allowable by the laws of the jurisdiction under which the estate

is being administered.

     Respondent’s first argument is that section 642(g) prohibits

the estate from claiming a deduction under section 2053 for the

interest expense because the trust claimed income tax deductions

for the same expense.    Section 642(g), however, was promulgated

to disallow an income tax deduction to an estate or any other

person (which includes a trust) unless the estate waives its

right to the section 2053 estate tax deduction.   That section was

not intended to address or pertain to the estate’s entitlement to

an estate tax deduction.   See Estate of Keitel v. Commissioner,

T.C. Memo. 1990-416; Rev. Rul. 81-287, 1981-2 C.B. 183, 184.

     Respondent next argues that the estate is not entitled to an

interest deduction under section 2053 because it had sufficient

liquid assets to pay its estate tax liabilities and its funeral

and administration expenses (obligations) without borrowing to

pay those obligations.

     Section 20.2053-3(a), Estate Tax Regs., provides that the

amount of deductible administration expenses is limited to those
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expenses which are actually and necessarily incurred in the

administration of the estate.    See also Estate of Todd v.

Commissioner, 57 T.C. 288 (1971).

     The estate did not present evidence as to the amount of its

State estate tax liability and did not provide a computation of

its Federal estate tax liability without the interest expense

deduction.    There was no showing that it was actually necessary

to borrow in order to meet its obligations.     Having failed to

show the necessity to borrow, the estate has not shown that

respondent’s determination was in error.    See Rule 142; Welch v.

Helvering, 290 U.S. 111, 115 (1933).

     In addition, on the basis of the information available in

the stipulated record, it appears that the estate did have

sufficient liquidity to meet its obligations.    The estate tax

return reported liquid assets totaling $1,953,617.    Excluding the

interest expense, the estate reported funeral and administration

expenses of $162,740 and would have had a Federal estate tax

liability approximating $1,367,861.    Although the amount of the

estate’s State estate tax liability was not established in the

record, on brief, it was indicated that its liability was

$193,198.    Adding these three figures together, the estate would

have had total obligations of only $1,723,799.    Thus, the

estate’s liquid assets appear to have exceeded its obligations by

$229,818.
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     Accordingly, we hold that the estate is not entitled to an

administration expense deduction for interest under section 2053.

     To reflect the foregoing,


                                       Decision will be entered

                                 under Rule 155.
