                        T.C. Memo. 1997-242




                      UNITED STATES TAX COURT



      ESTATE OF DOROTHY MORGANSON SCHAUERHAMER, Deceased,
      KARL C. DEAN, PERSONAL REPRESENTATIVE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25058-95.              Filed May 28, 1997.



     Owen G. Fiore and John F. Ramsbacher, for petitioner.

     G. Michelle Ferreira and Kimberley J. Peterson, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice of deficiency dated August 31,

1995, respondent determined a $947,049 deficiency in petitioner's

estate tax and a $189,410 accuracy-related penalty for

negligence.   Unless otherwise indicated, all section references
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are to the Internal Revenue Code in effect as of the date of the

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

Rules of Practice and Procedure.

     After concessions, the issues we must decide are as follows:

     1.   Whether, pursuant to section 2036(a)(1), the value of

certain assets transferred to family partnerships is includable

in the decedent's gross estate.    We hold that it is.

     2.   Whether petitioner, pursuant to section 6662(a), is

liable for the accuracy-related penalty for negligence.     We hold

it is not.

                         FINDINGS OF FACT

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

the time of her death, on December 13, 1991, Dorothy Schauerhamer

(decedent) resided in Salt Lake City, Utah.    At the time the

petition was filed, petitioner's personal representative had a

mailing address in Salt Lake City, Utah.

     Decedent and her husband Willard Schauerhamer had three

adult children, David Schauerhamer, Diane Liddiard, and Sandra

Bradshaw, and jointly managed Economy Builders Supply, Inc., a

closely held corporation engaged in the sale of building

materials.   After Willard's death in 1983, decedent took control

of the business.   She also managed several rental properties.

     In late November of 1990, decedent was diagnosed with colon

cancer.   In early December of that year, she retained an

attorney, Travis Bowen, to set her business affairs in order.
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Mr. Bowen, in consultation with decedent, prepared an estate

plan.

     On December 31, 1990, decedent, along with her three

children and their spouses, met with Mr. Bowen at his office.

Mr. Bowen explained that three family limited partnerships would

be formed and that David, Sandra, and Diane would each become a

general partner in a partnership.   He explained that after the

limited partnerships were formed, decedent's business holdings

would be transferred to the partnerships, with each partnership

receiving an undivided one-third interest in the transferred

assets.   He further advised that, after the partnerships were

formed and funded, decedent would transfer limited partnership

interests to her children and their family members.   On December

31, 1990, three substantially identical limited partnership

agreements were executed.   The certificates of limited

partnership were filed with the Utah Department of Commerce on

May 13, 1991.

     The partnership agreements set forth numerous terms and

covenants with respect to the partnerships.   Pursuant to the

partnership agreements, David and decedent were the general

partners in the "DAVID M. SCHAUERHAMER FAMILY LIMITED

PARTNERSHIP", Diane and decedent were the general partners in the

"DIANE KAY LIDDIARD FAMILY LIMITED PARTNERSHIP", and Sandra and

decedent were the general partners in the "SANDRA GAYLE BRADSHAW

FAMILY LIMITED PARTNERSHIP".   Each partnership agreement also
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named decedent as the limited partner.    In addition, decedent was

named the managing partner of each partnership.   The partnership

agreements provided that decedent, in her capacity as managing

partner, had "full power to manage and conduct the Partnership's

business operation in its usual course."   From the time the

partnerships were formed until shortly before decedent's death,

she managed the partnership assets.

      The partnership agreements included provisions relating to:

(1) Capital contributions; (2) allocation of profits and losses;

(3) partnership records; (4) management responsibilities and

powers; (5) admission of new partners; (6) partnership

dissolution and liquidation; and (7) agency relationships among

partners.   The partnership agreements provided that decedent

would contribute $1 for her 1-percent interest as a general

partner and $95 for her 95-percent interest as a limited partner.

Each of decedent's children was required to contribute $4 for a

4-percent general partner interest.

     On December 31, 1990, and on November 5, 1991, decedent

transferred some of her business assets, in undivided one-third

shares, to the partnerships.   The assets included real estate,

partnership interests, and notes receivable.   The assets

transferred and their values (as of the date of decedent's death)

were as follows:

            Assets Transferred 12/31/90               Value

     1.   Ho Ho Gourmet Restaurant building         $176,000
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     2.  Southwick Motor Company building           155,000
     3.  Economy Builders Supply building           265,300
     4.  Cambridge South Subdivision                220,000
     5.  Lot 21, Alpine, Utah                        38,000
     6.  Lot 22, Kern County, California              4,000
     7.  398 East 3300 South property                73,000
     8.  5-percent interest in Economy Land &
         Rentals Partnership                         25,000
     9. 15-percent interest in Redwood Village
         Apartments Partnership                     147,821
     10. 5-percent interest in Schauerhamer
         Family Limited Partnership                  85,700
     11. Note receivable from David Schauerhamer
         and Warren Bradshaw                         64,000
     12. Notes receivable from Economy Builders
         Supply, Inc.                               385,000

            Assets Transferred 11/5/91               Value

     1.   Airport System Refunding Revenue Bond    $289,000
     2.   40 Intermountain Power Agency Supply
          Revenue Bonds                             206,000

     Also on December 31, 1990, decedent executed 33 documents

(i.e., 11 relating to each of the three partnerships) entitled

"ASSIGNMENT OF INTEREST IN LIMITED PARTNERSHIP".   Each assignment

stated that a $10,000 interest in the partnership was being

assigned.   On January 1, 1991, decedent executed an additional 33

assignments of partnership interests (i.e., 11 relating to each

of the three partnerships) in the amount of $10,000 each.     All 66

assignments were made to family members.

     The partnership agreements each required that all income

from the partnership be deposited into a partnership account.

Shortly after the partnerships were formed, each partnership's

initial capital was deposited into partnership bank accounts.

Decedent deposited, into an account jointly held by her and
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David, all partnership income and income from other sources.       She

did not maintain any records to account separately for

partnership and nonpartnership funds.    Decedent utilized the

account as her personal checking account, and from this account

she paid personal and partnership expenses.

     Decedent's executor filed Form 706 (United States Estate

(and Generation-Skipping Transfer) Tax Return) dated September

14, 1992.    On that return, the estate did not include in the

gross estate the value of the 66 $10,000 limited partnership

interests decedent had assigned to family members.    The estate

did, however, include the value of the remaining partnership

interests.   The amounts included were based on advice from

competent tax professionals and a property appraisal company.

     In the notice of deficiency issued to petitioner, respondent

determined a $947,049 deficiency and a $189,410 accuracy-related

penalty for negligence.    The deficiency was based on respondent's

determination that the value of the assets contributed to the

partnerships was includable in decedent's gross estate.    The

deficiency was also based on a determination that petitioner had

undervalued certain assets.    The petition in this case was filed

on November 30, 1995.

                               OPINION

     As a preliminary matter, the parties disagree as to whether

decedent owned, at the time the partnerships were funded, a
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property located at 398 East 3300 South with a stipulated date-

of-death value of $73,000.    Respondent determined that decedent

owned the property, and petitioner therefore bears the burden of

proving otherwise.    Rule 142(a).   The documentation petitioner

has presented is inadequate to satisfy petitioner's burden of

proof.   As a result, we conclude that decedent owned the 398 East

3300 South property at the time the partnerships were funded.

     Respondent contends that the value of the assets transferred

to the purported partnerships is includable in decedent's gross

estate pursuant to section 2033, 2036(a)(1), or 2038.     We

conclude that the value of the assets is includable pursuant to

section 2036(a)(1).    As a result, we do not address sections 2033

and 2038.

     Section 2036(a)(1) provides that a decedent's gross estate

includes the value of all property interests transferred (other

than for full and adequate consideration in money or money's

worth) by a decedent during her life where she has retained for

life the possession or enjoyment of the property, or the right to

the income from the property.    The term "enjoyment" refers to the

economic benefits from the property.     Estate of Gilman v.

Commissioner, 65 T.C. 296, 307 (1975), affd. 547 F.2d 32 (2d Cir.

1976).   Thus, "Enjoyment as used in the death tax statute is not

a term of art, but is synonymous with substantial present

economic benefit."    McNichol's Estate v. Commissioner, 265 F.2d

667, 671 (3d Cir. 1959), affg. 29 T.C. 1179 (1958).
                                 - 8 -

     Retained enjoyment may exist where there is an express or

implied understanding at the time of the transfer that the

transferror will retain the economic benefits of the property.

Guynn v. United States, 437 F.2d 1148, 1150 (4th Cir. 1971);

Estate of Rapelje v. Commissioner, 73 T.C. 82, 86 (1979).     The

understanding need not be legally enforceable to trigger section

2036(a)(1).   Estate of Rapelje v. Commissioner, supra.     The

retention of a property's income stream after the property has

been transferred is "very clear evidence that the decedent did

indeed retain 'possession or enjoyment.'"     Estate of Hendry v.

Commissioner, 62 T.C. 861, 873 (1974).    Whether there was an

implied agreement is a question of fact to be determined with

reference to the facts and circumstances of the transfer and the

subsequent use of the property.     Id. at 872.

     The facts of this case establish that an implied agreement

existed among the partners.   Decedent owned the assets

subsequently transferred to the partnerships and collected the

income these assets generated.    On December 31, 1990, decedent

formed the partnerships and contributed some of her business

holdings.   The partnership agreements required that each

partnership maintain a bank account, and that all income from the

partnerships be deposited into these accounts.    After the

formation of the partnerships, a partnership bank account was

opened in the name of each partnership, and each partnership's

$100 of initial capital was deposited into the account.     As the
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partnerships earned income, however, decedent, in violation of

the partnership agreements, did not deposit the income into the

partnership accounts.   Instead, she deposited the income into the

account she utilized as her personal checking account, where it

was commingled with income from other sources.    Such deposits of

income from transferred property into a personal account are

highly indicative of "possession or enjoyment".    Id.

     Sharlet Schauerhamer (David's wife), Diane, and Sandra

testified at trial that they were aware that decedent was

depositing the funds into her personal, rather than a

partnership, account.   Moreover, they acknowledged that the

formation of the partnerships was merely a way to enable decedent

to assign interests in the partnership assets to members of her

family.   The assets and income would be managed by decedent

exactly as they had been managed in the past.    Where a decedent's

relationship to transferred assets remains the same after as it

was before the transfer, section 2036(a)(1) requires that the

value of the assets be included in the decedent's gross estate.

Guynn v. United States, supra; Estate of Hendry v. Commissioner,

supra at 874.

     Petitioner contends that decedent did not spend any of the

partnership funds for her personal benefit.   Petitioner bases

this contention on bank statements relating to the account and

the testimony of Richard Haynie, decedent's accountant.   Neither
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is adequate to support petitioner's contention.    The bank

statements indicate that, on the date of decedent's death, the

balance in the account exceeded the partnership income that she

had deposited.   There is no evidence, however, to establish that

she did not spend the partnership income and later deposit income

from other sources.   In addition, Mr. Haynie testified that

decedent did not spend partnership funds for her personal

benefit.   His testimony, which was apparently based on his review

of the bank statements and not any personal, independent

knowledge, fails to establish petitioner's contention.

     As a result, the value of the partnership assets is

includable in decedent's gross estate pursuant to section

2036(a)(1).

     Section 6662(a) imposes an accuracy-related penalty in an

amount equal to 20 percent of the portion of any underpayment to

which the section applies.   The section applies to, among other

items, the portion of an underpayment attributable to negligence

or disregard of rules or regulations.    Sec. 6662(b)(1).

Negligence has been defined as the lack of due care or failure to

do what a reasonable and ordinarily prudent person would do under

the circumstances.    Neely v. Commissioner, 85 T.C. 934, 947

(1985).    It includes the failure to make a reasonable attempt to

comply with the Internal Revenue Code.    Sec. 6662(c).

     Respondent contends that petitioner understated the value of

decedent's gross estate.   Petitioner contends that it relied on
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professional accountants, attorneys, and appraisers in preparing

the returns.   In essence, petitioner contends that any

understatements of tax were in good faith and due to reasonable

cause.   See sec. 6664(c).

     The regulations state that whether an underpayment of tax is

made in good faith and due to reasonable cause will depend upon

the facts and circumstances of each case.      Sec. 1.6664-4(b),

Income Tax Regs.   Reliance on the advice of a professional will

constitute good faith and reasonable cause only where such

reliance was reasonable.     Id.    We conclude that petitioner acted

reasonably and in good faith in relying on the advice of tax

professionals and property appraisers.      As a result, petitioner

is not liable for the accuracy-related penalty for negligence.

     We have considered all other arguments made by the parties

and found them to be either irrelevant or without merit.

     To reflect the foregoing,


                                             Decision will be entered

                                        under Rule 155.
