                  T.C. Memo. 2000-91



                UNITED STATES TAX COURT



  ESTATE OF LLOYD P. CAVETT, DECEASED, LLOYD PETERSON
    AND KYLE C. BROOKS, CO-EXECUTORS, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket Nos. 21702-96, 21735-96.        Filed March 15, 2000.



     R determined deficiencies in both estate and gift
taxes. Ps claim overpayments of estate tax. We must
determine whether (1) Ps are estopped from denying that
certain inter vivos payments to decedent’s longtime
companion were gifts, (2) assuming there is no
estoppel, the payments were gifts or payments for
services, (3) a bequest to that companion is a
deductible claim against the estate, (4) only one-half
the value of decedent’s residence is includable in the
gross estate, and (5) certain bequests to Masonic and
fraternal organizations are deductible for estate tax
purposes.
     1. Held: Ps are not estopped from denying the
gift character of the inter vivos payments.
     2. Held, further, the inter vivos payments were
gifts.
     3. Held, further, the bequest is not a deductible
claim against the estate.
                               - 2 -

          4. Held, further, all of the value of the
     residence is includable in the gross estate, but no
     portion is includable as an “adjusted taxable gift”.
          5. Held, further, no deduction is allowed for the
     bequests to the Masonic and fraternal organizations,
     since petitioner has failed to prove the exclusive
     charitable purpose of those bequests.



     Kyle C. Brooks, Mark A. Denny, Richard D. Lameier, and

James H. Stethem, for petitioners.

     John E. Budde and John A. Freeman, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION

     HALPERN, Judge:   Respondent has determined deficiencies in

both Federal estate and gift tax liabilities.    Those deficiencies

are a gross deficiency in estate tax of $213,8451 and the

following amounts of gift taxes:

         Taxable (Calendar)
                Year                            Amount
                1964                              $298
                1965                               453
                1966                               731
                1967                             1,370
                1968                             1,484
                1969                               668
                1970                               707
                1971                             1,257
                1972                               970


     1
          Respondent’s notice of deficiency provides for an
additional State death tax credit “not exceeding $62,318.00" for
a “Net Deficiency Determined” of $157,527. We assume that this
computation refers to the additional State death tax that would
accrue if we fully sustain respondent’s determination of a
deficiency in estate tax liability. Apparently, the computation
presents no issue for our determination.
                               - 3 -

                 1973                          1,143
                 1975                            726
                 1976                             59

Petitioners have made two claims for refund of estate taxes in

the amounts of $212,438.06 and $80,984.70 (the first and second

claim for refund, respectively).   Certain adjustments relating to

the estate tax deficiency have been settled and are no longer of

concern to us.

     An issue common to these consolidated cases is whether

certain payments by Lloyd Cavett (decedent) to Rose Bell (Bell)

were gifts.   In connection with that issue, we must determine

whether petitioners are collaterally estopped from denying that

those payments were gifts.   Additionally, we must determine

whether:   (1) Certain bequests to Bell constitute deductible

claims against the estate (the first claim for refund),

(2) petitioners are entitled to reduce the value of decedent's

residence included in the gross estate by 50 percent as a result

of respondent's inclusion of 50 percent of that residence as an

adjustable taxable gift (the second claim for refund), and

(3) petitioners are entitled to a $22,000 deduction for donations

to various Masonic and fraternal organizations.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect, with respect to the estate

tax, at the time of decedent’s death or, with respect to the gift

taxes, for the taxable year during which the particular gifts
                                - 4 -

were made.   All Rule references are to the Tax Court Rules of

Practice and Procedure.

                          FINDINGS OF FACT

     Some facts have been stipulated and are so found.    The

stipulation of facts, with accompanying exhibits, is incorporated

herein by this reference.

Introduction

     At the time the petitions herein were filed, petitioners

Lloyd Peterson and Kyle C. Brooks both resided in Hamilton

County, Ohio.   Decedent died testate on October 27, 1992.

Decedent's Wills

     Between January 17, 1951, and June 4, 1991, decedent

executed six wills and six codicils.    By his will dated June 15,

1981 (the 1981 will), decedent bequeathed the residue of his

estate in trust for the support and care of his invalid adult

daughter.    With respect to the funds to be placed in trust, the

1981 will provided:    “Out of the net income, also, a compensation

shall be paid to Rose A. Bell, for such care, attention and

services as she may be able to render to my said daughter".     The

1981 will also contained a devise and specific bequests to Bell,

including decedent’s residence (with the provision that

decedent’s daughter be allowed to live there until an alternative

residence was made available to her), his personal property,

$100,000, and three grave sites.   By the 1981 will, decedent also
                               - 5 -

made bequests of $10,000 to each of Bell’s children and $2,000 to

her grandson.   The 1981 will contained an “in terrorem” clause,

providing that, if any beneficiary should contest the will, he or

she should receive nothing.   In a codicil to the 1981 will,

executed on December 10, 1982, decedent, among other things, made

an additional bequest to Bell of another $100,000.

     Decedent’s final will is dated June 29, 1990.     It, together

with a trust agreement and codicil (together, the will), disposed

of decedent’s property.   Petitioner Kyle C. Brooks, an attorney,

assisted decedent with estate planning and drafted the will.

     Bell is a principal beneficiary under the will.    Pursuant to

the will, she received the following property, valued as shown:

     Partial interest in a residence
                                          1
      located at 325 Wyoming Ave.           $400,000
     Cash                                    350,000
     Rookwood Collectibles                    14,134
     Cemetery Plots                            3,750
     Automobile                               13,000
     Personal Items                           34,476
        Total                                815,360
                1
                  Value of the entire residence.

     Pursuant to the will, various Masonic and fraternal

organizations received bequests totaling $22,000, as follow:

          Cincinnati Lodge of Elks #5                     $1,000
          Cincinnati Court, Royal Order of Jesters         1,000
          Wyoming Masonic Lodge F&AM #186                 10,000
          Wyoming Chapter #146 Royal Arch Masons           1,000
          Cincinnati Royal & Select Masters #1             1,000
          Cincinnati Commandery #3 Knights Templars        1,000
          Ancient Accepted Scottish Rite                   1,000
          Syrian Temple AAONMS                             1,000
          Cincinnati Chapter Triangle Fraternity           5,000
             Total                                        22,000
                              - 6 -

The will places no limitations or restrictions on how those

organizations may use such bequests.

Agreement To Make Will

     On August 19, 1982, decedent and Bell executed a document

entitled "Agreement to Make Will".    In pertinent part, that

document provides:

          WHEREAS, Cavett has been a widower for twenty
     years and is presently eighty years of age, and

          WHEREAS, Cavett has a daughter now fifty-two years
     of age who has been incapacitated from an accident
     since age nine and,

          WHEREAS, Bell has for many years on a twenty-four
     hour basis, staying overnight, cared for said daughter,
     Cavett and Cavett’s home, supervising the cleaning
     thereof and done the cleaning and washing in the maid’s
     absence:

          NOW THEREFORE, in consideration of Bell’s past
     services and the covenants and agreements herein
     contained, it is agreed by and between the parties
     hereto as follows:

          1. Bell agrees to continue her services in the
     care of Cavett, Cavett’s daughter and Cavett’s home as
     in the past so long as she is physically able to do so.

          2. Cavett agrees that his last Will and Testament
     at his death will contain provisions leaving to Bell no
     less than he has devised and bequeathed to her in his
     present Will, executed on June 15, 1981, a copy of
     which is attached hereto and made a part hereof
     provided, however, Cavett shall have the right to sell
     his residence known as 325 Wyoming Avenue, Cincinnati,
     Ohio 45215, and if he does so, agrees to and shall
     bequeath to Bell an amount equal to the net proceeds of
     sale, in addition to the other bequests contained in
     said Will executed on June 15, 1981.
                               - 7 -

          3. This agreement shall be binding on the heirs,
     legal representatives and assigns of both parties
     hereto.

          4. This agreement may not be altered, changed or
     modified except in writing, signed by both parties
     hereto.

          5. This agreement constitutes the entire
     agreement and understanding of the parties. There are
     no representations or warranties other than those
     expressly herein set forth.

The Relationship

     Decedent and Bell met in 1947.    At that time, they were each

married to other persons.   They developed a close, personal

relationship.

     In 1957, Bell and her husband were divorced, following a

dispute concerning Bell’s relationship with decedent.

     Decedent's wife (Mrs. Cavett) died in 1963.   Decedent and

Mrs. Cavett had one child, who was disabled and resided with

decedent until her death in 1987.

     Following Mrs. Cavett's death, decedent involved Bell fully

in both his personal and social life.   For example, (1) decedent

and Bell resided together, (2) they traveled together as husband

and wife, (3) they used endearments, such as “sweetheart” and

“honey” when referring to each other, (4) Bell had unrestricted

access to decedent's wealth, (5) decedent and Bell had joint bank

accounts, (6) decedent gave Bell gifts including cash, real and

personal property, jewelry and vacations, (7) decedent

transferred his residence into joint ownership with rights of
                                - 8 -

survivorship to Bell and himself, and (8) decedent asked Bell to

serve on a committee that was created to make decisions about his

medical care in the event that he was unable to do so.

     Bell and decedent had a loving relationship.    They never

married.   Decedent also established a close relationship with

Bell's family.    In the will, decedent left cash bequests to

several members of Bell's family.

The Ledgers

     Decedent was a meticulous record keeper who maintained

handwritten journals of his personal expenditures (the ledgers).

In the ledgers, decedent recorded the checks he wrote, showing

the payee and classifying the payment by purpose (e.g., “Cash”

and “Travel exp.”).    One classification is variously labeled

“Rose Exp.”, “RAB Exp.” or something similar, and refers to

payments to or with respect to Bell (the Bell payments).    When

decedent became too old to maintain the ledgers personally,

Bell's daughter-in-law, Carol Bell, maintained them at decedent's

direction.    Bell never made any entries in the ledgers.

The Bell Payments

     The Bell payments commenced in 1986 or earlier and continued

until the time of decedent’s death.     The Bell payments were made

from a checking account of decedent’s (the checking account).

Bell enjoyed a power of attorney to write checks on the checking

account.   During the last 2 years of decedent's life, Bell wrote
                               - 9 -

many checks on the checking account payable to herself.      Bell

used part of those payments to purchase items for decedent's

home.

The Lawsuit

     Following decedent's death, petitioners brought suit in the

Court of Common Pleas, Hamilton County, Ohio (the State court),

alleging that Bell had committed acts of theft, fraud, and breach

of fiduciary duty against decedent.    Among the averments

supporting those allegations, petitioners averred that, from July

1990 through October 1992, Bell wrongfully withdrew approximately

$59,080 from the checking account.     Bell prevailed in the State

court; with respect to petitioners’ allegation that she violated

a fiduciary duty to decedent by withdrawing money from the

checking account, the State court found that she had not and

further found:   "[Bell] has proved by evidence of a clear and

convincing nature that the checks in question were, in fact,

gifts by * * * [decedent] to and for the benefit of * * *

[Bell]."   The Court of Appeals for the First Appellate District

of Ohio, Hamilton County, Ohio, affirmed the decision of the

State court.   The decision of the State court is now final.

Tax Returns

     Petitioners timely made an estate tax return on Form 706,

U.S. Estate (and Generation-Skipping Transfer) Tax Return.
                                 - 10 -

Petitioners claimed no deduction on account of any claim against

the estate by Bell.

     During the years at issue, decedent filed only one gift tax

return.   That return was filed in 1975, and reports a gift of

real property to Bell.

Respondent’s Adjustments on Account of Taxable Gifts

     Respondent examined the ledgers and determined the Bell

payments for each year.      Respondent then subtracted certain

unspecified amounts from each year’s total Bell payments.        The

resulting differences are the amounts determined by respondent as

gifts to Bell for each year.      The Bell payments treated by

respondent as gifts are as follows:

                      Year                Amount
                      1964                $6,610
                      1965                 8,093
                      1966                 9,959
                      1967                13,499
                      1968                12,190
                      1969                 6,790
                      1970                 6,769
                      1971                 9,449
                      1972                 7,610
                      1973                 8,443
                      1975                21,812
                      1976                 3,283
                      1978                 3,436
                      1979                 4,273
                      1981                 5,430
                      1985                82,849
                      1987                57,789
                      1988                27,879
                      1990                32,379
                      1991                18,119
                                - 11 -

Claims For Refund of Estate Taxes

      Petitioners made the first claim for refund on June 25,

1996.     The basis for the claim is that $797,475.50 originally

reported as a bequest to Bell is properly to be reclassified as a

debt of the estate under a contract to make a will.     Petitioners

claim a reduction in estate tax from $212,438.06 to zero.

      Petitioners made the second claim for refund on July 22,

1996.     The basis for that claim is that (1) on account of a prior

gift, only one half of the value of decedent’s residence is

properly includable in his gross estate ($200,000 rather than

$400,000), and (2) the estate incurred additional administrative

expenses of $138,327.86.2    Petitioners claim a reduction in

estate tax of $80,984.70.

                                OPINION

I.   Introduction

      During his life, Lloyd Cavett (decedent) made certain

payments to Rose Bell (Bell and the Bell payments).     We must

decide whether the portion of the Bell payments determined by

respondent to be gifts (the Bell gifts) were gifts, as claimed by

respondent, or (in part) payments for services, as claimed by

petitioners.     We must also decide (1) whether certain bequests to



      2
          On brief, petitioners state their intention to abandon
the claim with respect to the additional administrative expenses.
Therefore, we resolve it against petitioners and will not address
it further.
                                - 12 -

Bell constitute deductible claims against the estate on account

of an agreement to make a will, (2) the value of an interest in a

certain residence included in the gross estate, and (3) the

deductibility of certain charitable bequests.     Before proceeding

to those issues, we must address respondent’s claim that

petitioners are collaterally estopped from denying that the Bell

payments are gifts.

      Petitioners bear the burden of proof.   See Rule 142(a).

II.   Collateral Estoppel

      Following decedent's death, petitioners brought suit in

State court, in Ohio, against Bell, alleging that Bell had

committed acts of theft, fraud, and breach of fiduciary duty

against decedent.     Among other things, petitioners averred that

from July 1990 through October 1992, Bell wrongfully withdrew

approximately $59,080 from a checking account owned by decedent.

Bell prevailed in that suit.     The State court found that she had

not violated a fiduciary duty to decedent with respect to

withdrawing money from his checking account.     The State court

further found that the checks in question were gifts from

decedent to Bell.     On the basis of those findings, respondent

argues that petitioners are collaterally estopped from claiming

that checks totaling $59,080 paid to Bell from decedent’s

checking account during 1990, 1991, and 1992 are other than

gifts.
                             - 13 -

     Recently, we summarized our position with respect to

collateral estoppel as follows:

          The doctrine of issue preclusion, or collateral
     estoppel, provides that, once an issue of fact or law
     is “actually and necessarily determined by a court of
     competent jurisdiction, that determination is
     conclusive in subsequent suits based on a different
     cause of action involving a party to the prior
     litigation.” Montana v. United States, 440 U.S. 147,
     153 (1979) (citing Parklane Hosiery Co. v. Shore, 439
     U.S. 322, 326 n.5 (1979)). Issue preclusion is a
     judicially created equitable doctrine whose purposes
     are to protect parties from unnecessary and redundant
     litigation, to conserve judicial resources, and to
     foster certainty in and reliance on judicial action.
     See, e.g., id. at 153-154; United States v. ITT
     Rayonier, Inc., 627 F.2d 996, 1000 (9th Cir. 1980).
     This Court in Peck v. Commissioner, 90 T.C. 162, 166-
     167 (1988), affd. 904 F.2d 525 (9th Cir. 1990), set
     forth the following five conditions that must be
     satisfied prior to application of issue preclusion in
     the context of a factual dispute (the Peck
     requirements):

       (1) The issue in the second suit must be identical in
     all respects with the one decided in the first suit.

       (2) There must be a final judgment rendered by a court
     of competent jurisdiction.

       (3) Collateral estoppel may be invoked against parties
     and their privies to the prior judgment.

       (4) The parties must actually have litigated the
   issues and the resolution of these issues must have been
   essential to the prior decision.

       (5) The controlling facts and applicable legal rules
   must remain unchanged from those in the prior
   litigation. [Citations omitted.]

     See also Clark v. Bear Stearns & Co., 966 F.2d 1318,
     1320 (9th Cir. 1992)(highlighting conditions (1) and
     (4) above).

Monahan v. Commissioner, 109 T.C. 235, 240 (1997).
                                 - 14 -

       Petitioners’ claim is that the Bell payments were for

services.     The issue in the State court was whether Bell had

committed acts of theft, fraud, and breach of fiduciary duty

against decedent.     The State court found that she had not and,

although the State court found that the payments there in

question were gifts, the State court did not have before it the

question of whether the payments were gifts or, alternatively,

for services.     It was not "essential" for the State court to find

that the payments there in question were gifts for it to find

that Bell had neither stolen anything from decedent nor breached

a fiduciary duty.     Because the issue in this case was not

actually litigated in the State court, collateral estoppel is

inapplicable, and petitioners are not estopped from denying that

the Bell payments were gifts.

III.    The Bell Gifts

       A.    Introduction

       Decedent kept handwritten journals showing his personal

expenditures (the ledgers).      The ledgers show the Bell payments,

and, from the Bell payments, respondent calculated the Bell

gifts.      Petitioners concede that some of the Bell gifts are,

indeed, gifts (i.e., those specifically annotated as birthday

gifts, Valentine’s Day gifts, or gifts for other special

occasions).      Petitioners maintain that the remainder of the Bell

gifts (the contested Bell gifts) are not gifts but reimbursements
                               - 15 -

for amounts paid by Bell for the Cavett family or compensation

for companionship or other specific services.

       The parties agree that the test of whether a transfer

constitutes a gift is whether the transfer proceeds from a

“detached and disinterested generosity * * * out of affection,

respect, admiration, charity or like impulses”.    Commissioner v.

Duberstein, 363 U.S. 278, 285 (1960).    Petitioners do not

challenge the contested Bell gifts on a payment-by-payment basis

but direct our attention to three documents written by or

prepared for decedent, which, petitioners argue, establish that

the contested Bell gifts did not flow from a detached and

disinterested generosity (i.e., are not gifts).    Those documents

are:    (1) An agreement to make a will executed by Bell and

decedent (the Agreement), which, petitioners argue, establishes

the employment relationship between Bell and decedent, (2)

decedent’s 1981 will (the 1981 will), which provides that Bell

shall be compensated for caring for decedent’s invalid adult

daughter, and (3) annotations in the ledgers, which, only in some

cases, specify that the transfer was a gift.    Petitioners

acknowledge that there existed a “close and affectionate

relationship” between Bell and decedent.    Petitioners argue:

“However, the relationship between the decedent and Bell was more

complicated and included an employment relationship between these

two individuals.”
                               - 16 -

     We will analyze the three documents relied upon by

petitioners.   First, however, we wish to state our view of the

relationship between Bell and decedent:   Bell and decedent met in

1947 and developed a close, personal relationship.   Following the

death of decedent’s wife in 1963, they resided together in

decedent’s house.   They had a loving relationship, traveled

together as husband and wife, and, together, cared for decedent’s

invalid daughter.   Bell supervised decedent’s household.

Decedent entrusted Bell with access to his wealth and gave her

power to make decisions with respect to his medical care.    During

the years here in question, their relationship resembled that of

a successful marriage and not an employment relationship.

     B.   The Agreement

     We have set forth the pertinent provisions of the Agreement

in our findings.    Although the Agreement describes both past and

future services and, thus, is consistent with an employment

relationship, we believe that the Agreement signifies decedent’s

desire to protect Bell from a will contest following decedent’s

death.    Petitioner Kyle C. Brooks and other witnesses testified

that decedent was concerned that a will contest would follow his

death.    Decedent told Betty C. Bryan, one of the witnesses to the

Agreement, that he wished to be sure that Bell was taken care of.

Moreover, the past and future services referred to in the

Agreement are consistent with the loving, marriagelike
                                - 17 -

relationship that existed between Bell and decedent.     We believe

that Bell’s willingness to perform those services proceeded from

love and affection and not from any expectation of profit.     We

likewise believe that decedent understood that those services

were performed out of feelings of love and affection, and not in

expectation of any profit.     If the services to decedent sprang

from love and affection, the services themselves are tantamount

to an expression of love and affection, which cannot be reduced

to money or money’s worth.     See sec. 25.2512-8, Gift Tax Regs.

By the Agreement, decedent agrees to leave Bell no less than what

he left to her in his 1981 will.     By the 1981 will, decedent

devised Bell his house and bequeathed to her his personal

property, $100,000, and three grave sites.     Other than decedent’s

daughter, Bell is by far the most favored beneficiary under the

1981 will.   By a codicil executed in December 1982, decedent

increased the cash bequest to Bell by $100,000.     By the 1981

will, decedent also left substantial sums not only to Bell’s

children but also to her grandchild.     We cannot reconcile the

generosity of those provisions with an employment relationship.

See, e.g., Reynolds v. Commissioner, T.C. Memo. 1999-62.

     C.   The 1981 Will

     Petitioners argue that the 1981 will shows that Bell was an

employee of decedent.     By the 1981 will, decedent provided for

the care of his invalid adult daughter.     He also provided that “a
                                 - 18 -

compensation shall be paid to * * * [Bell], for such care,

attention and services as she shall be able to render to my said

daughter” (the compensation provision).     Decedent’s daughter

predeceased him, so the compensation provision in question never

came into effect.    We attach very little weight to the

compensation provision.     Decedent’s daughter was not Bell’s

daughter.   Bell may very well have felt affection for her.

Nevertheless, Bell was not a wealthy woman.     Decedent was

wealthy, and his providing for compensation to be paid to Bell to

encourage her to look after his daughter is natural.     It tells us

very little about decedent’s view of his relationship with Bell

so long as he lived.

     D.   The Ledgers

     Apparently, the ledgers record all of the Bell payments.

Several of the Bell payment entries are annotated "Sal".

Petitioners contend that the term "Sal" is an abbreviation for

the word "salary".      Petitioners argue that the monthly pattern of

these transfers and the identification of some of the transfers

as "Sal" shows that the checks were payment for services.

     While petitioners may have exposed an ambiguity in some of

the Bell payments, no dispositive evidence was presented that

proves the checks were not gifts.     We have found that Bell and

decedent had a close, personal, and loving relationship,

resembling a marriage.     We are unpersuaded by any of the
                              - 19 -

annotations in the ledgers that decedent paid Bell for any

services that were not freely and voluntarily given, out of love

and affection, and received in the same spirit.    This issue in

this case resembles a similar issue in Pascarelli v.

Commissioner, 55 T.C. 1082 (1971).     In Pascarelli, the taxpayer

and a Mr. DeAngelis lived much like decedent and Bell, and we had

to determine whether certain payments by Mr. DeAngelis to the

taxpayer were gifts or compensation for services rendered.     We

concluded:   “These circumstances led us to find that the

petitioner did not perform services for Mr. DeAngelis for the

purpose of obtaining compensation, but rather with the same

spirit of cooperation that would motivate a wife to strive to

help her husband advance in his business.”     Id. at 1091.   We

found that payments in question were gifts from Mr. DeAngelis to

the taxpayer because they “proceeded from disinterested and

detached generosity * * * motivated by sentiments of affection,

respect, and admiration”.   Id. at 1091.    The same is true here.

     E.   Conclusion

     Petitioners have failed to convince us that the contested

Bell gifts were anything other than gifts.    Petitioners have

failed to prove that there was any commercial aspect to

decedent’s relationship with Bell.     To the contrary, we believe

that their relationship was one of love and affection, each

giving freely and voluntarily to the other without any
                                 - 20 -

expectation of gain or profit.      There was no employment

relationship.

IV.   First Claim for Refund

      Petitioners claim an overpayment of estate tax in the amount

of $212,438.06 on account of their failure to deduct $797,475.50

as a claim against the estate.      That amount (the inheritance)

represents the value of substantially all of the assets received

by Bell pursuant to decedent’s last will and the accompanying

trust agreement (together, the will).      Petitioners argue that the

inheritance was paid pursuant to decedent’s obligation to provide

for Bell in his will, which obligation was established by the

Agreement.

      Section 2053(a) provides that the value of the taxable

estate shall be determined by deducting from the value of the

gross estate certain items, including claims against the estate.

See sec. 2053(a)(3).   In pertinent part, section 2053(c)(1)(A)

provides:    “The deduction allowed by this section in the case of

claims against the estate, unpaid mortgages, or any indebtedness

shall, when founded on a promise or agreement, be limited to the

extent that they were contracted bona fide and for an adequate

and full consideration in money or money’s worth”.

      We first note that the Agreement is not mentioned in the

will, and petitioners have failed to show that Bell has made any

claim against the estate.      Petitioner Kyle C. Brooks is
                              - 21 -

decedent’s attorney who assisted him in estate planning and

drafted the will.   He testified that decedent did not mention the

Agreement to him, and he found the Agreement in decedent’s safe

deposit box after his death, among many old wills and other

papers.   Bell received more under the will than she would have

under the 1981 will.   Petitioners have failed to convince us that

decedent did not provide for Bell in his last will independent of

any obligation that he might have had under the Agreement.    In

short, petitioners have failed to prove that the Agreement

motivated decedent to provide for Bell in the will.   We do not

attempt to read decedent’s mind.   Cf. Mahoney v. United States,

831 F.2d 641. 647 (6th Cir. 1987) (counseling against such

practices in applying the estate tax).   Given decedent’s

demonstrated affection for Bell, we hold only that petitioners

have failed to provide a compensatory motive.

     Furthermore, petitioners have failed to prove that any

obligation imposed on decedent by the Agreement was for an

adequate and full consideration in money or money’s worth, which

is required to support a deduction under section 2053(a)(3) and

(c)(1)(A).   The recited consideration includes past services,

without any indication that decedent owed Bell anything with

respect to those services.   The future services called for from

Bell are her care of decedent and decedent’s daughter and

decedent’s home “as long as she is physically able to do so.”
                              - 22 -

Petitioners have failed to place a value on that obligation.

Indeed, given the circumstances of this case, we have found that

those services cannot be reduced to money or money’s worth.    See

supra sec. III.B.

      Petitioners’ alleged claim against the estate being founded

upon an agreement, and petitioners having failed to prove an

adequate and full consideration, petitioners are not entitled to

any deduction under section 2503(a)(3).   The claim of an

overpayment in estate tax resulting from the first claim for

refund is denied.

V.   The Second Claim For Refund

      Petitioners claim an overpayment of estate tax on account of

including in the gross estate 100 percent of the value of

decedent’s residence, 325 Wyoming Ave, Cincinnati, Ohio (the

residence).   Decedent resided in the residence at the time of his

death.   The parties have stipulated that, on or about

September 6, 1985, decedent transferred the residence to himself

and Bell “for their joint lives, remainder to the survivor of

them” (the transfer).   In pertinent part, section 2040 provides:

“The value of the gross estate shall include the value of all

property to the extent of the interest therein held as joint

tenants with right of survivorship by the decedent and any other

person”.   Respondent, therefore, was correct in including the

value of the residence in the gross estate.   Petitioners do not
                              - 23 -

dispute that the value of the residence for estate tax purposes

was $400,000.

     In determining the estate tax deficiency, respondent took

account of the transfer in determining adjusted taxable gifts for

purposes of determining the tentative tax computed pursuant to

section 2001(b)(1).3   Respondent determined that the residence

was worth $150,000 at the time of the transfer and determined a

gift of $75,000, equal to one-half the value of the residence.

Respondent now believes that the gift computation is erroneous.

Respondent further believes that the residence should not be



     3
          Sec. 2001(b) provides:

     Computation of Tax.--The tax imposed by this section
     shall be the amount equal to the excess (if any) of--

          (1) a tentative tax computed under subsection (c)
     on the sum of--

            (A) the amount of the taxable estate, and

            (B) the amount of the adjusted taxable
          gifts, over

          (2) the aggregate amount of tax which would have
     been payable under chapter 12 with respect to gifts
     made by the decedent after December 31, 1976, if the
     provisions of subsection (c) (as in effect at the
     decedent’s death) had been applicable at the time of
     such gifts.

     For purposes of paragraph (1)(B), the term “adjusted
     taxable gifts” means the total amount of the taxable
     gifts (within the meaning of section 2503) made by the
     decedent after December 31, 1976, other than gifts
     which are includible in the gross estate of the
     decedent.
                              - 24 -

included in adjusted taxable gifts for purposes of section

2001(b)(1)(B) on account of the language in section 2001(b)

excluding from “adjusted taxable gifts” gifts includable in the

gross estate.   Petitioners have not objected to that adjustment,

and we accept it as a partial concession of petitioners’ second

claim for refund.

VI.   Deduction for Charitable Donations

      Decedent bequeathed $22,000 to various Masonic and fraternal

organizations (the $22,000 bequest).   On account of the $22,000

bequest, petitioners deducted that amount from the gross estate

in determining the value of the taxable estate (the claimed

charitable deduction).   Respondent denied the claimed charitable

deduction on the following basis:   “because the [bequests] do not

limit the organizations’ usage to [exclusively] religious,

scientific, charitable, educational, or literary purposes.”

      Petitioners assign error to respondent’s denial of the

claimed charitable deduction and, in support of that assignment,

state the following:

           The specific bequests to Fraternal and Masonic
      organizations for $22,000 are deductible by the Estate
      as charitable deductions because Mr. Cavett bequeathed
      the funds to these organizations with the full
      knowledge that the organizations were to use the funds
      for charitable, religious, scientific, literary or
      educational purposes as had been their policy with past
      donations and bequests received. This fact is
      evidenced by letters of intent received from each of
      the organizations attesting to their plans for the use
      of such funds.
                               - 25 -

     Section 2055 allows a deduction in computing the taxable

estate for certain transfers for charitable or similar purposes.

In pertinent part, section 2055(a)(3) allows a deduction for

bequests to:

     a fraternal society, order, or association operating
     under the lodge system, but only if such contributions
     or gifts are to be used * * * exclusively for
     religious, charitable, scientific, literary, or
     educational purposes, or for the prevention of cruelty
     to children or animals [hereafter, without distinction,
     charitable purposes] * * *

     On brief, petitioners argue:   “Since there is no evidence in

the record that these organizations did not use the bequests for

the purposes set forth in the statute the Respondent’s denial of

the charitable deduction taken by the Estate on the federal

estate tax return is without foundation.”

     Clearly petitioners recognized their obligation to prove the

exclusive charitable purposes for which the $22,000 bequests were

to be used.    Petitioners failed to introduce any letter of intent

or other evidence on point and, thus, have failed to carry their

burden.   Cf. First Natl. Bank of Omaha v. United States, 681 F.2d

534, 541-542 (8th Cir. 1982) (Masonic organization cannot be said

to be operated exclusively for charitable purposes); First Natl.

Bank in Dallas v. Commissioner, 45 F.2d 509 (5th Cir. 1930)

(unrestricted bequests to Masonic organizations not organized

exclusively for charitable purposes did not qualify for

charitable deduction); McReynolds v. Commissioner, 1 B.T.A. 815
                              - 26 -

(1925) (similar).   Respondent’s determination of a deficiency in

estate tax on account of denying the claimed charitable deduction

is sustained.


                                         Decisions will be entered

                                    under Rule 155.
