                         T.C. Memo. 2005-128



                       UNITED STATES TAX COURT



ESTATE OF TIMOTHY J. TEHAN, DECEASED, TIMOTHY R. TEHAN, EXECUTOR,
                           Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 17282-03.               Filed May 31, 2005.



     Michael F. Callahan, for petitioner.

     William J. Gregg and Ann Welhaf, for respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined a deficiency of

$132,415 in Federal estate tax (estate tax) with respect to the

estate (estate) of Timothy J. Tehan (decedent).

     The issues remaining for decision are:

     (1)   Is certain property includible in decedent’s gross
                                 - 2 -

estate under section 2036(a)(1)?1    We hold that it is.

     (2)   Is the estate entitled to deduct under section 2053

claimed personal representative’s commissions in excess of the

amount allowed by respondent?    We hold that it is to the extent

stated herein.

                         FINDINGS OF FACT

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

     At the time the petition was filed, Timothy R. Tehan (Mr.

Tehan), the son of decedent and the personal representative of

the estate, resided in Bethesda, Maryland.

     Decedent had eight children, including Mr. Tehan.     Dece-

dent’s other children are:   Ann M. Sanner, Patrick G. Tehan,

Eileen T. Tehan, Daniel J. Tehan, Erin M. Boccia, Maureen R.

Tehan, and William T. Tehan.

     On March 28, 1990, decedent purchased condominium unit

number 610N (decedent’s residence) at 8101 Connecticut Avenue,

Chevy Chase, Montgomery County, Maryland.    The purchase price of

that condominium was $240,000.

     On January 25, 1992, decedent, while residing in decedent’s

residence, executed a declaration of trust under which he placed

$100 and certain life insurance policies into an irrevocable



     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect on the date of decedent’s
death. All Rule references are to the Tax Court Rules of Prac-
tice and Procedure.
                                 - 3 -

trust known as the "Timothy J. Tehan Irrevocable Trust".

     On November 5, 1997, in anticipation of the three deeds

discussed below that decedent executed with respect to decedent’s

residence, decedent and decedent’s children executed an agreement

(November 5, 1997 agreement) concerning that residence, which was

the only agreement with respect to decedent’s use and occupancy

of decedent’s residence into which decedent and decedent’s

children entered.     The November 5, 1997 agreement provided in

pertinent part:

          THIS AGREEMENT, made this ___ day of _______,
     1997,[2] by and between TIMOTHY J. TEHAN and TIMOTHY R.
     TEHAN, ANN M. SANNER, PATRICK G. TEHAN, EILEEN T.
     TEHAN, DANIEL J. TEHAN, ERIN M. BOCCIA, MAUREEN R.
     TEHAN and WILLIAM T. TEHAN (collectively the “Owners”).

         *        *       *       *       *       *       *

          NOW THEREFORE, in consideration of the mutual
     promises, covenants and agreements herein contained,
     the parties agree as follows:

          1.   Occupancy of Property and Payment of Ex-
     penses. Timothy J. Tehan shall have the sole and
     exclusive right to the use and occupancy of the Prop-
     erty for such period of time as he desires. While he
     is occupying the Property, Timothy J. Tehan shall not
     pay any rent, but shall be solely responsible for the
     payment of any mortgage secured against the Property,
     the monthly condominium assessment, the annual real
     estate taxes and insurance premiums for the Property,
     and all costs or expenses in connection with the main-
     tenance and repair of the Property. At such time as
     Timothy J. Tehan ceases to occupy the Property, such
     costs and expenses shall be divided between the owners
     of the Property, in accordance with their percentage


     2
      As we found above, decedent and decedent’s children exe-
cuted the agreement on Nov. 5, 1997.
                            - 4 -

interest in the Property.

     2.   Restrictions on Transfer of Interest. Except
as otherwise provided herein, no owner shall sell,
hypothecate, pledge, assign or otherwise, transfer with
or without consideration any part of his/her interest
in the Property to any other person without first
offering his/her interest first to Timothy J. Tehan,
and secondly, to the other owners, in accordance with
the provisions of this Paragraph 2:

          (A) The owner desiring to sell, encumber or
otherwise dispose of his/her interest in the Property
(the “Selling Owner”) shall submit a written offer to
sell his or her interest to Timothy J. Tehan, setting
forth the price and terms and conditions under which
he/she is willing to sell his/her interest. For a
period of ninety (90) days after receipt of such offer,
Timothy J. Tehan shall have the right to accept said
offer and to purchase the interest of the Selling
Owner.

               In the event Timothy J. Tehan does not
accept the offer, then the other owners shall have the
option, in proportion to their ownership interest, to
purchase said interest by notifying the Selling Owner
within thirty (30) days after the expiration of Timothy
J. Tehan’s option. If the owners accept the offer,
they shall, at the same time, fix a closing date not
more than sixty (60) days after the date of acceptance.

               The purchase price shall be payable in
cash on the closing date, unless the offer provides
otherwise.

               If Timothy J. Tehan and the owners all
fail to accept the offer, then the Selling Owner shall
be free, for a period of thirty (30) days thereafter,
to solicit offers from any bona fide prospective pur-
chasers.

               If the Selling Owner receives a bona
fide offer to purchase his/her interest at a price and
on terms acceptable to the Selling Owner, he/she shall
send a written copy of said offer to Timothy J. Tehan
and the other owners and, for a period of ninety (90)
days after receipt of the offer, Timothy J. Tehan and
the other owners shall have the option to purchase the
                              - 5 -

     interest of the Selling Owner at the same price and on
     the same terms and conditions as set forth in the offer
     of the bona fide prospective purchaser. If Timothy J.
     Tehan or the other owners do not exercise the said
     option, the Selling Owner shall be free to sell his/her
     interest to the bona fide prospective purchaser pro-
     vided: (i) the purchase price and terms and conditions
     of sale shall not be different than set forth in the
     bona fide offer previously sent to Timothy J. Tehan and
     the other owners; (ii) if the sale is not consummated
     within thirty (30) days after the option of Timothy J.
     Tehan and the other owners expire, the interest shall
     once again be subject to the restrictions herein; and
     any transferee of the Selling Owner’s interest shall
     automatically be bound by the terms of this Agreement
     and shall be required to join in, execute, acknowledge
     and deliver a copy of this Agreement, and he/she shall
     thereupon become an owner.

          3.   Sale of Property. At such time as Timothy J.
     Tehan ceases to occupy the Property, the Property shall
     be sold and the net proceeds of sale shall be allocated
     and distributed among the Owners in proportion to their
     percentage of ownership interest. [Reproduced liter-
     ally.]

     On or about November 5, 1997, decedent executed a deed

(first deed), which was recorded.    That deed provided in perti-

nent part:

          Witnesseth, that for no consideration, the Grantor
     [decedent] does hereby grant and convey unto each of
     the Grantees [decedent’s children], in fee simple and
     as tenants in common, an undivided 4.5% interest, in
     and to that piece or parcel of improved land [dece-
     dent’s residence] * * *.

     On or about January 2, 1998, decedent executed a second deed

(second deed), which was recorded.    That deed provided in perti-

nent part:

          Witnesseth, that for no consideration, the Grantor
     [decedent] does hereby grant and convey unto each of
     the Grantees [decedent’s children], in fee simple and
                                - 6 -

     as tenants in common, an undivided 4.5% interest, in
     and to that piece or parcel of improved land [dece-
     dent’s residence] * * *.

         *       *       *          *    *       *       *

          The Grantor does furthermore confirm that, as of
     the date of execution of this instrument, ownership of
     the property hereinabove described is vested in the
     following entities, as tenants in common, with their
     percentage interest opposite each name:

                                         PERCENTAGE
                      NAME                INTEREST
                 TIMOTHY J. TEHAN            28%
                 TIMOTHY R. TEHAN             9%
                 ANN M. SANNER                9%
                 PATRICK G. TEHAN             9%
                 EILEEN T. TEHAN              9%
                 DANIEL J. TEHAN              9%
                 ERIN M. BOCCIA               9%
                 MAUREEN R. TEHAN             9%
                 WILLIAM T. TEHAN             9%

     On or about March 22, 1999, decedent executed a third deed

(third deed).3   That deed provided in pertinent part:

          Witnesseth, that for no consideration, the Grantor
     [decedent] does hereby grant and convey unto each of
     the Grantees [decedent’s children], in fee simple and
     as tenants in common, an undivided 3.5% interest, in
     and to that piece or parcel of improved land [dece-
     dent’s residence] * * *.

         *       *       *          *    *       *       *

          The Grantor does furthermore confirm that, as of
     the date of execution of this instrument, ownership of
     the property hereinabove described is vested in the
     following entities, as tenants in common, with their
     percentage interest opposite each name:




     3
      The record does not disclose whether the third deed was
recorded.
                                   - 7 -

                                             PERCENTAGE
                         NAME                 INTEREST
                    TIMOTHY R. TEHAN            12.5%
                    ANN M. SANNER               12.5%
                    PATRICK G. TEHAN            12.5%
                    EILEEN T. TEHAN             12.5%
                    DANIEL J. TEHAN             12.5%
                    ERIN M. BOCCIA              12.5%
                    MAUREEN R. TEHAN            12.5%
                    WILLIAM T. TEHAN            12.5%

       At all times after decedent and decedent’s children executed

the first deed on November 5, 1997, until decedent died on May

17, 1999, decedent continued to treat decedent’s residence as his

own.       Thus, pursuant to the terms of the November 5, 1997 agree-

ment, until he died decedent continued to (1) use and occupy

decedent’s residence and (2) pay all of the monthly expenses with

respect to that residence (monthly expenses), which totaled about

$900 excluding utility expenses and between $1,000 and $1,100

including utility expenses4 and which included condominium fees,5

real property taxes on decedent’s residence, homeowner’s insur-

ance, and expenses of maintaining that residence.6        At no time


       4
      Decedent’s children would not have required decedent to
vacate decedent’s residence if he had failed to pay the monthly
expenses.
       5
      The record does not disclose the amount(s) of monthly
condominium fees with respect to decedent’s residence that
decedent paid during the period Nov. 5, 1997, to the date of
decedent’s death. However, the record establishes that during
the period Mar. 28, 1990, the date on which decedent purchased
decedent’s residence, until the date of his death, such condomin-
ium fees ranged from $396 to $514.
       6
        There was no mortgage loan with respect to decedent’s
                                                     (continued...)
                                 - 8 -

did decedent need permission from his children in order to have

guests at decedent’s residence or to redecorate it.    At no time

during decedent’s life did any of decedent’s children use or

occupy decedent’s residence or pay any of the monthly expenses

with respect to that residence.    None of decedent’s children

attempted to sell his or her purported interest in decedent’s

residence before decedent died.    After decedent died, decedent’s

children sold that residence.

     On August 17, 1998, decedent executed a last will and

testament (decedent’s will).    Decedent’s will provided in perti-

nent part:

                                ITEM I

          I direct my Personal Representative, hereinafter
     named, to pay the expenses of my last illness and
     funeral as soon after my death as may be practicable in
     such amount as he may deem proper, and without regard
     to any limitation in the applicable local law as to the
     amount of such expenses.

                                ITEM II

         I direct that all inheritance, estate, legacy or
    other taxes which may be imposed with respect to my
    estate, whether or not passing under this will, shall
    be paid out of my residuary estate.

                               ITEM III

         All the rest, residue and remainder of my estate,
    of whatsoever kind and wheresoever situate, I give,


     6
      (...continued)
residence. Thus, decedent made no mortgage loan payments with
respect to that residence during the period Nov. 5, 1997, until
the date of his death.
                         - 9 -

devise and bequeath, absolutely and in fee simple, unto
my children, TIMOTHY R. TEHAN, ANN M. SANNER, PATRICK
G. TEHAN, EILEEN T. TEHAN, DANIEL J. TEHAN, ERIN M.
BOCCIA, MAUREEN R. TEHAN and WILLIAM T. TEHAN, in equal
shares, per stirpes.

                        ITEM IV

     My Personal Representative shall have the powers
and duties accorded to Personal Representatives under
the Estates and Trusts Article of the Annotated Code of
Maryland, Section 7-401, and any amendments thereto.
In addition, and not by way of limitation of any such
powers, my Personal Representative is authorized and
empowered at any time, and from time to time, in his
absolute discretion: (1) to hold and retain all or any
portion of property received from my estate or from any
other source, without regard to any law or will of
court concerning diversification, risk or non-produc-
tivity; (2) to invest and reinvest (or leave tempo-
rarily uninvested) any funds or any other property, of
any kind or nature, without regard to any law or rule
of court prescribing investment obligation of fiducia-
ries; (3) to sell, exchange, partition or otherwise to
deal with property, real or personal, at public or
private sale, for such purposes and upon such terms as
my Personal Representative may deem appropriate; (4) to
borrow money and to secure payment of any amount so
borrowed by mortgage of any real or personal property;
(5) to divide and distribute any property hereunder, in
kind or in money, or in part kind and part money.

                        ITEM V

     I do hereby nominate, constitute and appoint my
son, TIMOTHY R. TEHAN, Personal Representative of this,
my Last Will and Testament. If my said son shall fail
to qualify or cease to act, I appoint my son, PATRICK
G. TEHAN, as Personal Representative in his place and
stead.

      I direct that my Personal Representative not be
required to file a bond or enter other security in any
jurisdiction for the faithful performance of his du-
ties.

On May 17, 1999, decedent died while a resident and domicil-
                                    - 10 -

iary of Maryland.     After decedent’s death, pursuant to the

provisions of decedent’s will, the Circuit Court for Montgomery

County, Maryland, sitting as the Orphans’ Court (Orphans’ Court),

appointed Mr. Tehan as the personal representative of decedent’s

estate.

     On the date of decedent’s death, the fair rental value of

decedent’s residence was between $1,600 and $2,200 per month.           On

the same date, the fair market value of that residence was

$275,000.

     On or about August 17, 2000, Mr. Tehan filed Form 706,

United States Estate (and Generation-Skipping Transfer) Tax

Return (estate tax return), on behalf of the estate.            The estate

tax return listed as part of decedent’s gross estate, inter alia,

the following types of assets and the following date-of-death

values for such types of assets:

                           Assets                       Value
     Schedule   A–-Real Estate                               $0
     Schedule   B–-Stocks and Bonds                     280,334
     Schedule   C–-Mortgages, Notes and Cash            178,974
     Schedule   D–-Insurance on the Decedent’s Life     146,000
     Schedule   E–-Jointly Owned Property                 1,380
     Schedule   F–-Other Miscellaneous Property          29,534
     Schedule   G–-Transfers During Decedent’s Life           0
     Schedule   H–-Powers of Appointment                      0
     Schedule   I–-Annuities                          1,027,210

Decedent’s estate tax return claimed deductions of $79,993 in

Schedule J, Funeral Expenses and Expenses Incurred in Administer-

ing Property Subject to Claims, which included $32,000 of execu-
                              - 11 -

tor’s commissions and $10,000 of attorney’s fees.    Decedent’s

estate tax return did not claim any deductions in Schedule L,

Expenses Incurred in Administering Property Not Subject to

Claims.

     On a date not disclosed by the record between May 5 and June

28, 2001, Mr. Tehan, in his capacity as the personal representa-

tive of the estate, and his attorney filed with the Orphans’

Court a document entitled “Consent Petition for Allowance of

Personal Representative’s Commissions and Attorneys’ Fees”

(consent petition).   All of the beneficiaries of the estate

consented to the granting of the consent petition.    In the

consent petition, the personal representative and his attorney

requested the Orphans’ Court to allow personal representative

commissions of $32,000 and attorney’s fees of $7,500.    In the

consent petition, the personal representative and his attorney

claimed, inter alia, as follows:

          8. Aggregate commissions and attorney[’s] fees in
     excess of the amount authorized by § 7-601 of the
     Estates and Trusts Article [of Maryland] is [sic]
     requested due to the extraordinary amount of time,
     diligence and expertise required of the Personal Repre-
     sentative in administering the substantially larger,
     but non-commissionable, “non-probate” assets of the
     estate of approximately $1.2 million, as opposed to the
     relatively modest amount of “probate assets”. Specifi-
     cally, the personal representative estimates that of
     the more than 350 hours of time expended in administer-
     ing his father’s estate over the last 22 months, ap-
     proximately 50% of this time was expended attending to
     issues arising from or related to the non-
     commissionable portion of the taxable estate.
                              - 12 -

     On June 29, 2001, the Orphans’ Court issued an order (June

29, 2001 order) approving, inter alia, the $32,000 of personal

representative’s commissions that Mr. Tehan requested in the

consent petition.7   Pursuant to that order, on October 15, 2004,

the estate issued a $32,000 check to Mr. Tehan.   Mr. Tehan

deposited that check into his personal savings account on Novem-

ber 9, 2004, three days before the trial was held in this case.

     In the notice of deficiency (notice) that respondent issued

with respect to decedent’s estate, respondent determined, inter

alia, to include in decedent’s gross estate under section

2036(a)(1) decedent’s residence that respondent determined had a

value of $310,000 on the date of decedent’s death.8   In the

notice, respondent also determined, inter alia, to disallow as

deductions (1) $20,822 of the $32,000 claimed as personal repre-

sentative’s commissions and (2) $2,500 of the $10,000 claimed as

attorney’s fees.9


     7
      In the June 29, 2001 order, the Orphans’ Court also ap-
proved the $7,500 of attorney’s fees requested in the consent
petition.
     8
      In the stipulation for trial, respondent stipulated that
the date-of-death value of decedent’s residence was $275,000.
     9
      In the stipulation for trial, the estate conceded, inter
alia, respondent’s determinations to increase decedent’s taxable
estate by the amounts of $10,000 and $1,896, respectively, for a
note receivable and a State income tax refund. As a result of
those concessions, on brief respondent concedes that the amount
of personal representative’s commissions that respondent deter-
mined in the notice to allow as a deduction under sec. 2053
                                                   (continued...)
                                 - 13 -

                                OPINION

     We first address section 7491(a).     The parties agree that

section 7491(a) is applicable in the instant case.     The parties

disagree, however, over whether the burden of proof has shifted

to respondent under section 7491(a) with respect to the issue

presented under section 2036(a)(1).10     We need not and shall not

address that disagreement.     That is because resolution of the

issue presented under section 2036(a)(1) does not depend on who

has the burden of proof.

Section 2036(a)(1)

     The only dispute between the parties under section

2036(a)(1)11 is whether decedent retained for his life the


     9
      (...continued)
should be increased from $11,178 to $11,607. At trial, the
estate conceded respondent’s determination in the notice to
disallow $2,500 of the $10,000 of attorney’s fees that the estate
claimed as a deduction under sec. 2053.
     10
      Petitioner does not claim that the burden of proof has
shifted to respondent under sec. 7491(a) with respect to the
issue presented under sec. 2053.
     11
          Sec. 2036(a)(1) provides:

     SEC. 2036.     TRANSFERS WITH RETAINED LIFE ESTATE.

          (a) General Rule.--The value of the gross estate
     shall include the value of all property to the extent
     of any interest therein of which the decedent has at
     any time made a transfer (except in case of a bona fide
     sale for an adequate and full consideration in money or
     money’s worth), by trust or otherwise, under which he
     has retained for his life or for any period not ascer-
     tainable without reference to his death or for any
                                                   (continued...)
                               - 14 -

possession or enjoyment of decedent’s residence within the

meaning of that section.    It is the estate’s position that he did

not.    It is respondent’s position that he did.

       In support of the estate’s position under section

2036(a)(1), the estate argues:

            Here, the decedent made three transfers. The
       transfers were for less than full consideration. In
       fact they were gratuitous; gifts to his children.
       However, they were not transfers under which he re-
       tained for his life the right to possession or enjoy-
       ment of the property transferred or the income from the
       property.

            The deeds were absolute transfers of fee interests
       in the property without reservation. The decedent did
       not retain under the transfer the right to possession
       or enjoyment of the condominium for his life. Until
       the third conveyance, March 22, 1999, the decedent was
       a tenant in common with his grantees. As a co-tenant
       he had the non-exclusive right to use and enjoy the
       property as did all the other co-tenants. See gener-
       ally 20 Am.Jur.2d-Tenancy and Joint Ownership. Sec. 32,
       41, 42.

            The decedent acquired the right to exclusive
       possession of the condominium by contract, the parties’
       Agreement regarding use and payment of expenses * * *
       (hereinafter “the Agreement”). Generally, all co-
       tenants are obligated to contribute to the expenses and
       upkeep of the property and a tenant who pays more than
       his pro-rata share is entitled to contribution from the
       other tenants. Kline v Kline, 581 A2d 1300, 85 Md. App
       28, 49 (Md. App. 1991) cert. den. 587 A2d 246, 322 Md.
       240. However, here the parties entered into an Agree-
       ment that provided for the decedent’s exclusive use and
       occupancy of the condominium in return for payment of


       11
        (...continued)
       period which does not in fact end before his death--

                 (1) the possession or enjoyment of, or the right
       to the income from, the property * * *
                        - 15 -

all of the expenses of the condominium. The grantees
gave up their right to use and occupancy in return for
the decedent’s agreement to pay all of the expenses and
not look to them for contribution. The Agreement was
intended to cover only the period of time between the
first conveyance and the last conveyance.

   *       *       *       *       *       *       *

     In Guynn v United States, 437 F.2d, 71-1 USTC Par.
12,742 (4th Cir. 1971), the decedent, an eighty year
old woman, conveyed a residence to her daughter but
remained in the residence without an express agreement
that entitled her to do so, paid no rent to the
grantee, and paid for improvements and certain ex-
penses. The decedent’s grantee, her daughter, testi-
fied that the decedent’s remaining in the property was
not discussed because it was understood by all involved
that she would stay in the property until her death.
The Fourth Circuit held that the property was included
in the estate based on an implied agreement for a
retained life estate.

     In [Estate of] Barlow [v. Commissioner, 55 T.C.
666 (1971)], the decedent and wife conveyed farm prop-
erty to their four children, simultaneously leasing the
property back for a share of the crops that was found
to be fair market rental. The property was not in-
cluded in the taxable estate even though for four years
the decedent did not actually pay the rent. The Court
found that the outright transfer of the property to the
children and the lease back were bona fide transac-
tions. The forbearance from collecting rent was due to
circumstances that arose later and were not contem-
plated by the parties at the time of the transaction.

     The difference between Barlow and Guynn is that in
Barlow, as in this case, the decedent really trans-
ferred the entire fee without retaining a life estate.
Barlow, like the decedent here, was contractually
obligated to pay for his continuing use of the prop-
erty, no life estate having been reserved under the
transfer. Guynn simply remained in possession without
paying any quid pro quo because the parties so agreed.
She retained a life estate so Section 2036 applied.
There was no discussion or paperwork because none was
needed. [Reproduced literally.]
                             - 16 -

     In support of respondent’s position under section

2036(a)(1), respondent argues:

          A decedent’s gross estate includes property inter-
     ests with a retained life estate. I.R.C. § 2036(a).
     Inclusion is required where the decedent retained
     “possession or enjoyment” or right to income from
     property transferred for less than full consideration.
     I.R.C. §* * * 2036(a)(1)* * *. Here, the decedent
     retained the necessary “possession or enjoyment” of his
     personal residence–Unit #610N such that its value
     should be included in the decedent’s gross estate.
     Even though the decedent and his eight children exe-
     cuted a series of conveyances transferring legal title
     to Unit #610N, no consideration was paid by the dece-
     dent’s children for the conveyance. The decedent paid
     all of the expenses for Unit #610N before, during, and
     after the series of conveyances. The decedent did not
     pay any rent for the occupancy of Unit #610N before,
     during, and after the series of conveyances. His
     “possession or enjoyment” of Unit #610N was undisturbed
     during and after the series of transfers. He did not
     need the approval of his children to have guests or
     redecorate Unit #610N. It was uncontroverted at trial
     that even if the decedent had not paid expenses to
     maintain Unit #610N during and after the series of
     transfers, his children would not have sought to evict
     him from Unit #610N. Finally, as legal title of the
     decedent’s eight children in Unit #610N increased
     progressively to 36%, then 72% and, finally, 100%, the
     decedent still paid all of the expenses to maintain
     Unit #610N without reflecting any change in ownership.

          When all is said and done, the decedent retained
     complete “possession or enjoyment” over Unit #610N
     before, during, and after the series of transfers. As
     such, Code section 2036 mandates that the value of Unit
     #610N be included in the decedent’s gross estate. * * *

     Section 2036(a)(1) applies if there exists at the time of

the transfer of property an agreement, either express or implied,

that the transferor will retain possession or enjoyment of the

property transferred, even if the transferor has no legally
                              - 17 -

enforceable right to do so.   Guynn v. United States, 437 F.2d

1148, 1150 (4th Cir. 1971); Estate of Rapelje v. Commissioner, 73

T.C. 82, 86 (1979); Estate of Honigman v. Commissioner, 66 T.C.

1080, 1082 (1976); Estate of Barlow v. Commissioner, 55 T.C. 666,

670 (1971).

     In the case of real property, the terms “‘possession’ and

‘enjoyment’ [in section 2036(a)(1)] have been interpreted to mean

‘the lifetime use of the property.’”    Estate of Maxwell v.

Commissioner, 3 F.3d 591, 593 (2d Cir. 1993) (quoting United

States v. Byrum, 408 U.S. 125, 147 (1972)), affg. 98 T.C. 594

(1992).

     In the present case, there was an express agreement, namely

the November 5, 1997 agreement, which was executed on the same

date on which the first deed was executed, under which decedent

continued during his lifetime to (1) use and occupy, i.e.,

possess and enjoy, decedent’s residence, (2) pay all of the

monthly expenses with respect to that residence,12 and (3) other-

wise treat that residence as his own.   At no time did decedent

need permission from his children in order to have guests at

decedent’s residence or to redecorate it.   At no time during

decedent’s life did any of decedent’s children use or occupy

decedent’s residence or pay any of the monthly expenses with


     12
      Decedent’s children would not have required decedent to
vacate decedent’s residence if he had failed to pay the monthly
expenses.
                                 - 18 -

respect to that residence.     None of decedent’s children attempted

to sell his or her purported interest in decedent’s residence

before decedent died.13

     This Court and other courts have found that facts such as

those which we have found in the instant case surrounding the

transfer of property by a decedent demonstrate that the decedent

retained possession and enjoyment of the property transferred

within the meaning of section 2036(a)(1).     See, e.g., Estate of

Maxwell v. Commissioner, supra at 594; Guynn v. United States,

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

Honigman v. Commissioner, supra at 1083; Estate of Kerdolff v.

Commissioner, 57 T.C. 643, 649 (1972).

     The estate’s reliance on Estate of Barlow v. Commissioner,

supra, is misplaced.     In Estate of Barlow, the decedent involved

there and his wife gratuitously transferred a farm to their

children and, under a contemporaneously executed lease, retained

the possession and enjoyment of that farm in return for the

payment by them of a “fair, customary rental”.     Id. at 667, 671.

In the instant case, the November 5, 1997 agreement was not a

lease agreement, and decedent did not agree under that agreement




     13
          After decedent died, decedent’s children sold that resi-
dence.
                              - 19 -

to pay any rent,14 let alone fair rental value, for his posses-

sion and enjoyment of decedent’s residence.15

     Based upon our examination of the entire record before us,

we find that decedent retained a life estate in decedent’s

residence during the period November 5, 1997, until the date of

his death.   On that record, we further find that decedent re-

tained possession and enjoyment of decedent’s residence within

the meaning of section 2036(a)(1).     On the record before us, we

find that the value of decedent’s residence is includible in

decedent’s gross estate under that section.16

Section 2053

     The estate has the burden of establishing its entitlement to

deduct under section 2053 the claimed personal representative’s




     14
      Indeed, the November 5, 1997 agreement provides that
decedent “shall not pay any rent” while occupying decedent’s
residence.
     15
      Despite the purported decrease in decedent’s ownership
interest in decedent’s residence under the first deed, the second
deed, and the third deed, decedent paid all of the monthly
expenses with respect to that residence.
     16
      For the first time on brief, the estate advances an alter-
native argument that “if inclusion [of decedent’s residence] in
the taxable estate were to be based upon the decedent’s remaining
in the property for six weeks when he had no contractual right to
do so, it should be limited to the 28% interest conveyed in
1999.” On the record before us, we reject the estate’s alterna-
tive argument. In finding that decedent retained possession and
enjoyment of decedent’s residence within the meaning of sec.
2036(a)(1), we have not relied only on decedent’s remaining in
that residence during the period starting on the date on which
the third deed was executed until the date of his death.
                                - 20 -

commissions.17

     It is the estate’s position that it is entitled to deduct

under section 2053 personal representative’s commissions of

$32,000.     It is respondent’s position that the estate is entitled

to deduct under section 2053 personal representative’s commis-

sions of $11,607.18

     In support of its position under section 2053, the estate

argues that, under section 20.2053-3(b), Estate Tax Regs.,19 the

June 29, 2001 order of the Orphans’ Court, which allowed $32,000




     17
          See supra note 10.
     18
      The amount of personal representative’s commissions claim-
ed by the estate that remains in dispute is $20,393. See supra
note 9.
     19
      Sec. 20.2053-3(b), Estate Tax Regs., entitled “Executor’s
commissions”, provides in pertinent part:

     The executor * * * may deduct his commissions in such
     an amount as has actually been paid * * *. If the
     amount of the commissions has not been fixed by decree
     of the proper court, the deduction will be allowed
     * * * to the extent that all three of the following
     conditions are satisfied:

          (i) The district director is reasonably satisfied
     that the commissions claimed will be paid;

          (ii) The amount claimed as a deduction is within
     the amount allowable by the laws of the jurisdiction in
     which the estate is being administered; and

          (iii) It is in accordance with the usually ac-
     cepted practice in the jurisdiction to allow such an
     amount in estates of similar size and character.
                              - 21 -

of personal representative’s commissions,20 is dispositive of the

issue presented under section 2053.    According to the estate:

     Section 20.2053-3(b), Estate Tax Regs. appears to
     provide, by negative implication, that a state court
     order is dispositive of the issue of the deductibility
     of personal representative’s commissions. It provides
     that “the executor may deduct has commissions in such
     amount as has actually been paid. If the amount of the
     decree has not been fixed by order of the proper court,
     the deduction will be allowed*** to the extent that all
     three of the following conditions are satisfied....”
     Id. The further requirements are applicable only to
     cases where personal representative’s commissions are
     not approved by court order. [Reproduced literally.]

     In support of respondent’s position under section 2053,

respondent argues that, under section 7-602 of Md. Code Ann.,

Est. & Trusts   (1999) (Md. Code Ann., Est. & Trusts, sec.

7-602),21 the aggregate amount of personal representative’s


     20
      The June 29, 2001 order of the Orphans’ Court also allowed
$7,500 of attorney’s fees.
     21
      Sec. 7-602, Md. Code Ann., Est. & Trusts, provides in
pertinent part:

          (a) General.–-An attorney is entitled to reason-
     able compensation for legal services rendered by him to
     the estate and/or the personal representative.

          (b) Petition.–-Upon the filing of a petition in
     reasonable detail by the personal representative or the
     attorney, the court may allow a counsel fee to an
     attorney employed by the personal representative for
     legal services. The compensation shall be fair and
     reasonable in the light of all the circumstances to be
     considered in fixing the fee of an attorney.

          (c) Considered with commissions.–-If the court
     shall allow a counsel fee to one or more attorneys, it
     shall take into consideration in making its determina-
                                                   (continued...)
                               - 22 -

commissions and attorney’s fees allowable as a deduction is

limited to the amount determined under section 7-601(b) of Md.

Code Ann., Est. & Trusts (1999) (Md. Code Ann., Est. & Trusts,

sec. 7-601(b)) (quoted and discussed below).   Consequently,

according to respondent, the estate is entitled to deduct under

section 2053 only $11,607 of personal representative’s commis-

sions.

     In determining the taxable estate, section 2053(a)(2),

relating to expenses incurred in administering property that is

included in the gross estate and subject to claims, allows a

deduction from the value of the gross estate of “such amounts

* * * for administration expenses * * * as are allowable by the

laws of the jurisdiction * * * under which the estate is being

administered.”    Section 20.2053-3, Estate Tax Regs., provides in

pertinent part:

     (a) In general. The amounts deductible from a dece-
     dent’s gross estate as “administration expenses” of the
     first category (see paragraphs (a) and (c) of §
     20.2053-1) are limited to such expenses as are actually
     and necessarily incurred in the administration of the
     decedent’s estate; that is, in the collection of as-
     sets, payment of debts, and distribution of property to
     the persons entitled to it. * * * Expenditures not
     essential to the proper settlement of the estate, but
     incurred for the individual benefit of the heirs,
     legatees, or devisees, may not be taken as deductions.


     21
      (...continued)
     tion, what would be a fair and reasonable total charge
     for the cost of administering the estate under this
     article, and it shall not allow aggregate compensation
     in excess of that figure.
                             - 23 -

     Administration expenses include (1) executor’s commis-
     sions; (2) attorney’s fees; and (3) miscellaneous
     expenses. * * *

     Section 2053(b) allows deductions of amounts representing

expenses incurred in administering property that is included in

the gross estate and not subject to claims to the same extent

such expenses would be allowable as deductions under section

2053(a)(2) if such property were subject to claims, and such

amounts are paid before the expiration of the period of limita-

tion for assessment provided in section 6501.   Section 20.2053-8,

Estate Tax Regs., provides in pertinent part:

     Usually, these expenses [expenses in administering
     property not subject to claims] are incurred in connec-
     tion with the administration of a trust established by
     a decedent during his lifetime. They may also be
     incurred in connection with the collection of other
     assets or the transfer or clearance of title to other
     property included in a decedent’s gross estate for
     estate tax purposes but not included in his probate
     estate.

          (b) These expenses may be allowed as deductions
     only to the extent that they would be allowed as deduc-
     tions under the first category [of deductions set forth
     in section 20.2053-1(a)(1), Estate Tax Regs.] if the
     property were subject to claims. See § 20.2053-3. The
     only expenses in administering property not subject to
     claims which are allowed as deductions are those occa-
     sioned by the decedent’s death and incurred in settling
     the decedent’s interest in the property or vesting good
     title to the property in the beneficiaries. Expenses
     not coming within the description in the preceding
     sentence but incurred on behalf of the transferees are
     not deductible.

          (c) The principles set forth in paragraphs (b),
     (c), and (d) of § 20.2053-3 (relating to the allowance
     of executor’s commissions, attorney’s fees, and miscel-
     laneous administration expenses of the first category
                              - 24 -

     [of deductions set forth in section 20.2053-1(a)(1),
     Estate Tax Regs.]) are applied in determining the
     extent to which trustee’s commissions, attorney’s and
     accountant’s fees, and miscellaneous administration
     expenses are allowed in connection with the administra-
     tion of property not subject to claims.

     Section 20.2053-1(b)(2), Estate Tax Regs., relating to the

effect of a local court decree on expenses claimed under section

2053(a) and (b) provides in pertinent part:

          (2) Effect of court decree. The decision of a
     local court as to the amount and allowability under
     local law of a claim or administration expense will
     ordinarily be accepted if the court passes upon the
     facts upon which deductibility depends. * * * If the
     decree was rendered by consent, it will be accepted,
     provided the consent was a bona fide recognition of the
     validity of the claim (and not a mere cloak for a gift)
     and was accepted by the court as satisfactory evidence
     upon the merits. It will be presumed that the consent
     was of this character, and was so accepted, if given by
     all parties having an interest adverse to the claimant.
     The decree will not be accepted if it is at variance
     with the law of the State; as, for example, an allow-
     ance made to an executor in excess of that prescribed
     by statute. * * *

     In determining the deductibility of expenses under section

2053, the deductions claimed must be allowable not only by the

State law under which the estate is administered but also by

Federal law.   See Estate of Grant v. Commissioner, 294 F.3d 352,

354 (2d Cir. 2002), affg. T.C. Memo. 1999-396; Estate of Love v.

Commissioner, 923 F.2d 335, 337 (4th Cir. 1991), affg. T.C. Memo.

1989-470; Estate of Posen v. Commissioner, 75 T.C. 355, 367

(1980).

     We reject the estate’s argument that the June 29, 2001 order
                              - 25 -

of the Orphans’ Court is “dispositive of the issue of the deduct-

ibility of personal representative’s commissions.”   The exercise

of the discretion of the Orphans’ Court of Maryland to determine

the amount of commissions allowable to a personal representative

is limited by Maryland statutes to the amounts prescribed in such

statutes.   Am. Jewish Joint Distrib. Comm. v. Eisenberg, 70 A.2d

40, 41 (Md. 1949); Cearfoss v. Snyder, 35 A.2d 235, 237 (Md.

1943).

     Section 7-601(b), Md. Code Ann., Est. & Trusts, prescribes

the computation of the compensation allowable to the personal

representative of an estate as follows:

          (b) Computation of compensation.--Unless the will
     provides a larger measure of compensation, upon peti-
     tion filed in reasonable detail by the personal repre-
     sentative * * * the court may allow the commissions it
     considers appropriate. The commissions may not exceed
     those computed in accordance with the table in this
     subsection.

     If the property subject to           The commission may
     administration is:                       not exceed:
     Not over $20,000.................................... 9%
     Over $20,000 ...................$1,800 plus 3.6% of the
                                         excess over $20,000

Thus, under Md. Code Ann., Est. & Trusts, sec. 7-601(b), the

maximum compensation to which the personal representative of an

estate is entitled in order to compensate such representative for

all of the ordinary work of administering an estate subject to

administration, see Lehman v. Kairys, 142 A.2d 546, 548 (Md.

1958); Talbert v. Reeves, 127 A.2d 533, 538 (Md. 1956), is
                              - 26 -

determined by reference to the amount of property subject to

administration (i.e., probate property).   The parties agree that

the value of decedent’s probate property as of the date of his

death was $500,738.   Under Md. Code Ann., Est. & Trusts, sec.

7-601(b), the maximum amount of commissions allowable to Mr.

Tehan, the estate’s personal representative, was $19,107,22

calculated as follows:

          9% x $20,000         = $1,800
          3.6% x $480,73823    = 17,307
                    Total      = 19,107

     The June 29, 2001 order of the Orphans’ Court allowed the

estate’s personal representative commissions of $32,000.    That

amount exceeds the maximum amount of commissions allowable under

Md. Code Ann., Est. & Trusts, sec. 7-601(b).   We are not required

to accept the June 29, 2001 order of the Orphans’ Court allowing

$32,000 of personal representative’s commissions.   Sec. 20.2053-

1(b), Estate Tax Regs.

     On the record before us, we find that the estate is not

entitled to deduct personal representative’s commissions in

excess of $19,107, the maximum amount of such commissions allow-




     22
      Respondent agrees that the maximum amount of commissions
allowable under Md. Code Ann., Est. & Trusts, sec. 7-601(b) to
Mr. Tehan, the personal representative of the estate, was
$19,107.
     23
      The value of decedent’s probate property reduced by
$20,000 is $480,738.
                              - 27 -

able under Md. Code Ann., Est. & Trusts, sec. 7-601(b).24    Re-

spondent appears to acknowledge that, if attorney’s fees of

$7,500 had not been allowed under Md. Code Ann., Est. & Trusts,

sec. 7-602, the estate would have been entitled to deduct under

section 2053 that maximum amount of commissions.   However, as we

understand respondent’s position, Md. Code Ann., Est. & Trusts,

sec. 7-602(c), requires that the amount of commissions allowable

to a personal representative under Md. Code Ann., Est. & Trusts,

sec. 7-601(b), be reduced by the amount of attorney’s fees

allowed.   Consequently, respondent maintains that the estate is

entitled to deduct under section 2053 only $11,607 of personal

representative’s commissions (i.e., $19,107 (maximum amount of

commissions allowable under Md. Code Ann., Est. & Trusts, sec.

7-601(b)) minus $7,500 (attorney’s fees allowed under Md. Code

Ann., Est. & Trusts, sec. 7-602)).

     We reject respondent’s interpretation of Md. Code Ann., Est.

& Trusts, sec. 7-602(c).   That section provides that if a Mary-

land court determines to allow attorney’s fees, in making that

determination “it shall take into consideration * * * what would

be a fair and reasonable total charge for the cost of administer-

ing the estate * * * and it shall not allow aggregate compensa-



     24
      On the instant record, we find that the estate has failed
to persuade us that the personal representative performed any
extraordinary work of administering decedent’s probate estate (or
nonprobate estate).
                               - 28 -

tion in excess of that figure.”   See Wolfe v. Turner, 299 A.2d

106, 109 (Md. 1973); Wright v. Nuttle, 298 A.2d 389, 391 (Md.

1973).    Section 7-602(c), Md. Code Ann., Est. & Trusts, does not

limit, as respondent appears to argue, the aggregate amount of

the commissions allowable to an estate’s personal representative

and the fees allowable to an estate’s attorney to the maximum

compensation allowable to such personal representative under Md.

Code Ann., Est. & Trusts, sec. 7-601(b).

     Respondent determined to allow the estate a deduction under

section 2053 of $7,500 for attorney’s fees.   Respondent does not

argue, and the record does not establish, that the aggregate

amount of the commissions allowable to the estate’s personal

representative under Md. Code Ann., Est. & Trusts, sec. 7-601(b)

(i.e., $19,107) and the fees allowable to the estate’s attorney

under Md. Code Ann., Est. & Trusts, sec. 7-602, which respondent

allowed the estate to deduct under section 2053 (i.e., $7,500),

is not “a fair and reasonable total charge for the cost of

administering the estate” of decedent under Md. Code Ann., Est.

& Trusts, sec. 7-602(c).25


     25
      In respondent’s reply brief, respondent contends for the
first time that petitioner did not demonstrate “that the attor-
ney’s fees paid by the estate were for other than routine work of
the estate’s personal representative.” We reject respondent’s
contention. Respondent allowed the estate to deduct under sec.
2053 $7,500 of attorney’s fees. Implicit in respondent’s deter-
mination to allow such a deduction is respondent’s acknowledgment
that such attorney’s fees are allowable by both Maryland law and
                                                   (continued...)
                             - 29 -

     Based upon our examination of the entire record before us,

we find that the estate is entitled to deduct under section 2053

personal representative’s commissions of $19,107.

     We have considered all of the contentions and arguments of

the parties that are not discussed herein, and we find them to be

without merit, irrelevant, and/or moot.

     To reflect the foregoing and the concessions of the parties,



                                          Decision will be entered

                                   under Rule 155.




     25
      (...continued)
Federal law. To be allowable by Maryland law, the $7,500 of
attorney’s fees necessarily was for work other than the routine
or ordinary work of an executor or administrator in administering
an estate. See Riddleberger v. Goeller, 282 A.2d 101, 107-108
(Md. 1971); Colley v. Britton, 123 A.2d 296, 302-303 (Md. 1956).
