                      115 T.C. No. 10



                UNITED STATES TAX COURT



         ESTATE OF EDWARD H. EDDY, DECEASED,
     NATIONAL CITY BANK, EXECUTOR, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 2735-99.                     Filed August 16, 2000.



     The executor filed the Federal estate tax return
in this case more than 18 months after the time
prescribed by law (including extensions) for filing the
return. The value of all property included in the
gross estate was reported on the return as of the sec.
2032(a), I.R.C., alternate valuation date. R
determined that decedent's gross estate must be valued
as of the date of decedent's death, because the
executor's alternate valuation election was invalid.
Furthermore, R determined that the estate is liable for
the addition to tax under sec. 6651(a), I.R.C., for the
failure to file a timely return.

     Held, the estate must value all property included
in the gross estate as of the date of decedent's death
because the executor made the alternate valuation
election more than 1 year after the time prescribed by
law (including extensions) for filing the Federal
estate tax return. See sec. 2032(d)(2), I.R.C.
                               - 2 -


          Held, further, the estate is liable for the
     addition to tax for the failure to file a timely estate
     tax return.



     Carl Wells, for petitioner.

     Carol A. Szczepanik, for respondent.



                              OPINION


     PARR, Judge:   Respondent determined a deficiency of $421,214

in the estate's Federal estate tax and an addition to tax of

$58,450 for the failure to file the estate tax return timely.

     After concessions,1 the issues for decision are:   (1)

Whether, despite the executor's failure to make the alternate

valuation election pursuant to section 2032 within 1 year after

the time prescribed by law (including extensions) for filing the

Federal estate tax return, the value of the gross estate may be

determined by valuing all the property included in the gross

estate as of the alternate valuation date.2   We hold it may not.

     1
      Petitioner conceded that the adjusted taxable gifts
reported on the estate's Form 706, United States Estate (and
Generation-Skipping Transfer) Tax Return, should be increased by
$56,100; that the taxable estate should be increased by $3,556
for a Federal income tax refund; and that the attorney's fees and
executor's commissions claimed as a deduction on the return
should be reduced from $200,089 to $146,281.
     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the date of decedent's
death, and all Rule references are to the Tax Court Rules of
                                                   (continued...)
                                 - 3 -

(2) Whether the estate is liable for the section 6651 addition to

tax for the failure to file the estate tax return timely.    We

hold it is.

                             Background

     This case was submitted fully stipulated under Rule 122.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.

     Edward H. Eddy (decedent), died testate on April 13, 1993,

in Cuyahoga County, Ohio.   At the time the petition in this case

was filed, Douglas Eddy (Eddy) was the executor of the estate and

resided at Bainbridge, Ohio.3

     At the time of his death, decedent owned 237,352 shares of

stock in Browning-Ferris Industries, Inc. (BFI), which

represented approximately 0.014 percent of the BFI shares

outstanding during 1993.    Shares of BFI are traded on an

established securities market.

     The due date for filing the decedent's Federal estate tax

return was January 13, 1994, 9 months after decedent's death.

The return was not filed then.    Instead, on the day before the


     2
      (...continued)
Practice and Procedure.
     3
      Eddy died on Jan. 18, 2000. Item V, par. A, of decedent's
will provided for the appointment of National City Bank as
executor in the event that Eddy was unable or ceased to serve in
this capacity. National City Bank (the bank) has been appointed
the executor of the estate. The bank's address was Cleveland,
Ohio, at the time of its appointment.
                              - 4 -

return was due, Carl Wells, preparer of the estate's return and

counsel for petitioner herein, signed and submitted a Form 4768,

Application for Extension of Time To File a Return and/or Pay

U.S. Estate (and Generation-Skipping Transfer) Taxes, requesting

an extension for filing to July 13, 1994.   A check for $2 million

was submitted with the application.4

     A note attached to the application stated that the executor

was waiting for a "Major Securities Firm" to complete its

valuation of the estate's "principal asset", and that the $2

million was payment of the estate's tax liability, which was

estimated without regard to that valuation.   The application was

approved; however, the executor did not file the return before

the time provided by the extended due date expired.

     Eddy engaged a brokerage firm to provide its opinion of the


     4
      The parties stipulated that the estate remitted $2 million
"when Exhibit 1-J was filed." Exhibit 1-J is the estate's Form
706, United States Estate (and Generations-Skipping Transfer) Tax
Return, filed on Jan. 19, 1996. However, Exhibit 3-J, which is
the estate's Form 4768, Application for Extension of Time To File
a Return and/or Pay U.S. Estate (and Generation-Skipping
Transfer) Taxes, shows that the estate remitted $2 million with
the application. Furthermore, the Form 706 shows, and respondent
accepts, that the estate remitted $2 million with the Form 4768.
     While stipulations are not to be set aside lightly, we have
broad discretion in determining whether to hold a party to a
stipulation. See Blohm v. Commissioner, 994 F.2d 1542, 1553
(11th Cir. 1993), affg. T.C. Memo. 1991-636. The evidence in the
record demonstrates that the stipulation is simply incorrect. We
are not bound by stipulations of fact that appear contrary to the
facts disclosed by the record. See Rule 91(e); Blohm v.
Commissioner, supra. We, therefore, find as a fact that the
estate remitted $2 million with its Form 4768, not with its later
filed Form 706.
                               - 5 -

value of the estate's BFI shares.   Sometime before the extended

due date, the brokerage firm informed the executor that it would

not complete the valuation on time.    Another firm was engaged,

and it completed the valuation on November 29, 1994.    The firm

opined that to dispose of the estate's block of shares on the

alternate valuation date, October 13, 1993, the estate would have

had to accept 75 cents per share less than that day's mean

trading price (the discount for blockage).5   The firm did not

offer its opinion of the appropriate discount for blockage or the

fair market value of the shares on the date of decedent's death.

     On January 19, 1996, the executor filed the estate tax

return, which reported the alternate value of all the assets

included in the estate.   The estate reported $5,988,440 as the

alternate value of the gross estate and showed $6,604,782 as the

date-of-death value.   The estate reported $5,721,987 as the

alternate value of the taxable estate, including $5,370,089 as

the value of the BFI stock (reflecting the discount for

blockage).

     In the notice of deficiency, respondent allowed the 75-cent-

per-share discount for the estate's BFI stock.    However,

respondent determined that the estate must report the fair market

value of all the assets as of the date of decedent's death,



     5
      The total value of the discount for blockage is $178,014
(75 cent-per-share discount times 237,352 shares).
                               - 6 -

because the executor's election to value the property as of the

alternate valuation date was untimely and therefore invalid.

     Respondent determined that the date-of-death value of the

taxable estate, without consideration of the issues conceded by

petitioner, see supra note 1, is $6,399,230,6 including

$6,052,251 as the value of the BFI stock (reflecting the discount

for blockage).

     Petitioner asserts that Rev. Proc. 92-85, 1992-2 C.B. 490,

and the regulations provide respondent discretionary authority to

allow the executor to make an untimely election to use the

alternate valuation date, and that the estate qualifies for the

relief provided by the revenue procedure.

                            Discussion

Issue 1.   Whether the Executor May Elect Alternate Valuation Date
           Treatment for the Estate

     In general, a decedent's gross estate is valued for Federal

estate tax purposes as of the date of the decedent's death.    See

sec. 2031(a).7   However, if the executor so elects, the value of

the gross estate may be determined by valuing all the property


     6
      Respondent's determination reflects the lower date-of-death
value of the estate's other stocks ($4,919).
     7
      SEC. 2031. DEFINITION OF GROSS ESTATE.

          (a) General.--The value of the gross estate of the
     decedent shall be determined by including to the extent
     provided for in this part, the value at the time of his
     death of all property, real or personal, tangible or
     intangible, wherever situated.
                               - 7 -

included in the gross estate as of an alternate valuation date,

which is the earlier of the date on which the property is

disposed of or the date 6 months after the decedent's death.     See

sec. 2032(a)(1) and (2).8   The election to determine the value of

the property on the alternate date must be made on the estate tax

return, and the election may not be made if the return is filed

more than 1 year after the time prescribed by law (including

extensions) for filing the return.     See sec. 2032(d)(1) and (2).9

     The return in this case was due no later than July 13, 1994,


     8
      SEC. 2032. ALTERNATE VALUATION.

          (a) General.--The value of the gross estate may be
     determined, if the executor so elects, by valuing all
     the property included in the gross estate as follows:

               (1) In the case of property distributed, sold,
          exchanged, or otherwise disposed of, within 6 months
          after the decedent's death such property shall be
          valued as of the date of distribution, sale, exchange,
          or other disposition.

               (2) In the case of property not distributed,
          sold, exchanged, or otherwise disposed of, within
          6 months after the decedent's death such property
          shall be valued as of the date 6 months after the
          decedent's death.
     9
      Sec. 2032(d) provides:

          (1) In general.--The election provided for in this
     section shall be made by the executor on the return of
     the tax imposed by this chapter. Such election, once
     made, shall be irrevocable.

          (2) Exception.--No election may be made under this
     section if such return is filed more than 1 year after
     the time prescribed by law (including extensions) for
     filing such return.
                                 - 8 -

15 months after the date of decedent's death.     See sec. 6075(a)

(estate tax return due 9 months after date of death); sec.

6081(a) (the Secretary may grant a reasonable extension of time

for filing any return; such extension not to exceed 6 months,

except in the case of taxpayers who are abroad); sec. 20.6081-

1(a), Estate Tax Regs. ("unless the executor is abroad, the due

date for filing the return under any extension granted by a

district director or a director of a service center may not be

later than 15 months * * * from the date of the decedent's

death").     The estate tax return was filed on January 19, 1996--

more than 33 months after the date of decedent's death and more

than 18 months after the extended due date to file the return.

     Before the Deficit Reduction Act of 1984 (DEFRA), Pub. L.

98-369, 98 Stat. 494, the election to use the alternate valuation

date had to be exercised on a timely filed estate tax return

(including extensions), or it was lost.10     See, e.g., Estate of

Bradley v. Commissioner, 511 F.2d 527 (6th Cir. 1975), affg. T.C.

Memo. 1974-17; Estate of Ryan v. Commissioner, 62 T.C. 4, 10

(1974); Estate of Downe v. Commissioner, 2 T.C. 967, 970-971

(1943); Estate of Dixon v. Commissioner, T.C. Memo. 1990-17;


     10
          Sec. 2032(c), 1954 I.R.C. (as amended), provided:

          (c) Time of Election.--The election provided for
     in this section shall be exercised by the executor on
     his return if filed within the time prescribed by law
     or before the expiration of any extension of time
     granted pursuant to law for the filing of the return.
                              - 9 -

Estate of Archer v. Commissioner, T.C. Memo. 1984-57.     DEFRA

amended section 2032(d),11 to effect Congress' intent that "an

election may be made on a late-filed return only if the return is

filed within one year of the due date."    H. Conf. Rept. 98-861,

at 497 (1984), 1984-3 C.B. (Vol. 2) 1, 497; see supra note 9; see

also sec. 301.9100-6T(b)(1), Temporary Proced. & Admin. Regs., 49

Fed. Reg. 35489 (Sept. 10, 1984) ("no election shall be allowed

unless made on a return filed within one year of the due date

(including extensions) of such return").

     The opportunity to elect to value property of a decedent's

estate as of a date after the decedent's death is one of

"legislative grace" and therefore must be made in the manner and

the time prescribed by Congress.   Estate of Flinchbaugh v.

Commissioner, 1 T.C. 653, 655 (1943).     It is clear that the

statute, the temporary regulation, and the legislative history

all provide that the alternate valuation election may not be made

later than 1 year after the due date (including extensions) of


     11
      Sec. 1023(a) of the Deficit Reduction Act of 1984 (DEFRA),
Pub. L. 98-369, 98 Stat. 494, 1030, added subsec. (c) to sec.
2032, and former subsec. (c) was redesignated subsec. (d). DEFRA
sec. 1024(a), 98 Stat. 1030, designated the existing text of
redesignated sec. 2032(d) as par. (1) and substituted "shall be
made by the executor on the return of the tax imposed by this
chapter" for "shall be exercised by the executor on his return if
filed within the time prescribed by law or before the expiration
of any extension of time granted pursuant to law for the filing
of the return", added the sentence providing that an election,
once made, is irrevocable, and added par. (2). See supra note 9.
Sec. 2032(d)(2) is effective for the estates of decedents dying
after July 18, 1984. See DEFRA sec. 1024(b)(1), 98 Stat. 1030.
                              - 10 -

the estate tax return.   Petitioner, however, asserts that

respondent has discretionary authority under Rev. Proc. 92-85,

1992-2 C.B. 490,12 to allow the executor to make an untimely

election to use the alternate valuation date.   We disagree.

     Rev. Proc. 92-85, supra, applies, inter alia, "to extensions

of time when a statute provides that an election be made by the

due date of the taxpayer's return or the due date of the

taxpayer's return including extensions."13   However, the date of

expiration of the 1-year period of grace after the "time

prescribed by law (including extensions) for filing * * * [the

estate tax] return" is not the due date of the taxpayer's return

or the due date of the taxpayer's return including extensions.


     12
      Rev. Proc. 92-85, 1992-2 C.B. 490, was amended by Rev.
Proc. 93-28, 1993-2 C.B. 344. These revenue procedures were made
obsolete by secs. 301.9100-1T through 301.9100-3T, Temporary
Proced. & Admin. Regs., 61 Fed. Reg. 33365 (June 27, 1996), which
adopted and revised the standards of granting relief stated in
Rev. Proc. 92-85, supra. See T.D. 8680, 61 Fed. Reg. 33365,
33366 (June 27, 1996) (Explanation of Provisions).
     The temporary regulations were effective for all requests
for relief under consideration by the IRS on June 27, 1996, and
for all requests for relief submitted on or after June 27, 1996.
See sec. 301.9100-1T(h), Temporary Proced. & Admin. Regs., 61
Fed. Reg. 33368 (June 27, 1996). Secs. 301.9100-1 through
301.9100-3, Proced. & Admin. Regs. (the final regulations), apply
to all requests for an extension of time submitted to the IRS on
or after the effective date, Dec. 31, 1997. See sec. 301.9100-
1(e), Proced. & Admin. Regs. The final regulations adopted with
no significant change the provisions of the temporary regulations
(and Rev. Proc. 92-85, supra) relevant to the issue in the
instant case. See id.
     13
      See also sec. 301.9100-1T(d), Temporary Proced. & Admin.
Regs., 61 Fed. Reg. 33367 (June 27, 1996) (same); sec. 301.9100-
1(a), Proced. & Admin. Regs. (same).
                               - 11 -

Thus, Rev. Proc. 92-85, supra, does not apply to the 1-year

period of grace provided by section 2032(d)(2), during which time

the alternate valuation election may be made.

     Accordingly, we find that the executor's failure to make the

alternate valuation election on a Federal estate tax return filed

on or before the date that is 1 year after the time prescribed by

law (including extensions) for filing the return precludes the

election.

Issue 2.    Whether the Estate Is Liable for the Addition to Tax
            for the Failure To File Its Return Timely

     Section 6651(a)(1) imposes an addition to tax for the

failure to file a required return timely unless the failure is

due to reasonable cause and not due to willful neglect.

"Reasonable cause as applied in section 6651 has been defined as

the 'exercise of ordinary business care and prudence.'"     Estate

of Duttenhofer v. Commissioner, 49 T.C. 200, 204 (1967) (quoting

Southeastern Fin. Co. v. Commissioner, 153 F.2d 205 (5th Cir.

1946), affg. 4 T.C. 1069 (1945)), affd. 410 F.2d 302 (6th Cir.

1969); see also sec. 301.6651-1(c)(1), Proced. & Admin. Regs.

("If the taxpayer exercised ordinary business care and prudence

and was nevertheless unable to file the return within the

prescribed time, then the delay is due to a reasonable cause.").

     Whether the failure to file on time was due to reasonable

cause is primarily a question of fact to be decided from all the

circumstances in a particular case.     See Estate of Duttenhofer v.
                                - 12 -

Commissioner, supra.     Petitioner bears the burden of proving that

the failure to file timely was both due to reasonable cause and

not due to willful neglect.    See Rule 142(a); United States v.

Boyle, 469 U.S. 241, 245 (1985).    The fact of submission of a

case fully stipulated under Rule 122(a) does not alter the burden

of proof, or the requirements otherwise applicable with respect

to adducing proof, or the effect of failure of proof.    See Rule

122(b).

     The estate tax return was filed more than 18 months after

the extended due date.    Petitioner has not shown that the

delinquent filing was due to reasonable cause.    Furthermore, we

find the fact that the executor was waiting for an opinion of the

size of the discount for blockage is not reasonable cause for the

failure to file a timely return.    The record shows that both the

value of the gross estate and the estate tax liability were less

on the alternate valuation date than on the date of decedent's

death without consideration of the discount for blockage.     See

sec. 2032(c).   Moreover, the estate tax return was not filed

until more than 1 year after the executor received the firm's

valuation report.

     It is clear that the executor should have filed the estate

tax return on time, electing alternate valuation (and attaching

whatever explanation was appropriate), continued to seek the

necessary information, and then filed a supplemental return with
                              - 13 -

additional information that decreased the estate tax liability.

See Estate of Ryan v. Commissioner, 62 T.C. 4, 10 (1974); Estate

of Archer v. Commissioner, T.C. Memo. 1984-57; sec. 20.6081-1(c),

Estate Tax Regs.   Accordingly, we find the estate is liable for

the section 6651(a)(1) addition to tax as determined by

respondent.

     In reaching our holdings herein, we have considered each

argument made by the parties and, to the extent not discussed

above, find those arguments to be irrelevant or without merit.

     To reflect the foregoing,

                                       Decision will be entered for

                                 respondent.
