                        T.C. Memo. 1998-50



                      UNITED STATES TAX COURT



    ESTATE OF EDNA PEARCE LOCKETT, DECEASED, DAVID F. LANIER,
       PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER
                  OF INTERNAL REVENUE, Respondent



     Docket No. 6551-95.                     Filed February 9, 1998.



     Merritt A. Gardner, for petitioner.

     William R. McCants, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     BEGHE, Judge:   Respondent determined a deficiency of

$1,523,796 in petitioner's Federal estate tax.    After

concessions, the issues for decision are:    (1) Whether a transfer

of real property by petitioner qualifies for the charitable
                              - 2 -


deduction under section 2055(a);1 and (2) whether expenses paid

by petitioner in the operation of decedent's cattle ranch are

deductible under section 2053 as administration expenses.    We

hold that petitioner's transfer does not qualify for the

charitable deduction and that the expenses of operation of the

cattle ranch are deductible as administration expenses.

                        FINDINGS OF FACT

     Some of the facts have been stipulated and are incorporated

herein by this reference.

     Edna Pearce Lockett (decedent) died testate on May 17, 1991,

and was a resident of Florida at the time of her death.    David

Lanier (Mr. Lanier), the personal representative of decedent's

estate, resided and practiced law in Florida at the time of

filing the petition.

     Decedent died without issue, survived by her nephew Leland

Pearce (Mr. Pearce) and by three nieces, Ruth Pearce Fulton,

Patricia Pearce Durrance, and Clara Evelyn Pearce Johnson.

During her lifetime, decedent served in the Florida Legislature

and owned and managed a cattle ranch.

1.   The Estate

     In February 1992, petitioner filed a Federal estate tax

return, reporting a gross estate of $9,297,421.   The bulk of



     1
       All section references are to the Internal Revenue Code as
in effect as of the date of decedent's death, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
                               - 3 -


decedent's estate consisted of two parcels of land named Fort

Basinger (Basinger) and Fishbranch, the improvements on the two

parcels, and the cattle and other assets of a cattle ranch

located and operated primarily at Fishbranch.   All the estate's

real property is located in south central Florida, in Highlands

County.

     During most of her life, decedent lived on Basinger, a

parcel of land located along the Kissimmee River near U.S.

Highway 98.   Basinger takes its name from an encampment that was

used by General Zachary Taylor as his base of operations in the

Seminole Indian wars during the early 19th century.   The parcel

consists of approximately 1,160 acres and includes the decedent's

120-year-old residence, a family cemetery, a one-room school

house, an Indian burial mound, and other structures and sites.

Decedent regarded the structures at Basinger as imbued with rich

historical significance.

     For decades decedent had operated a cattle ranch on

Fishbranch, a parcel of approximately 7,741 acres, located south

of Lake Istokpoga, approximately 20 miles from Basinger.   The

cattle ranch was a breeding operation that produced calves for

sale to feed lot operators.   Decedent was a strong-minded woman,

who rode the range with the cowhands, and was accustomed to

taking charge and doing things her own way.   Decedent managed and

 directed the operations of the ranch until 1986 when she became

physically and mentally incapacitated.
                               - 4 -


2.   The Will and Amended Revocable Trust

     The disposition of decedent's property upon her death was

governed by her Last Will and Testament (Will), dated August 3,

1983, and by her Amended Revocable Trust Agreement (Trust

Agreement), dated June 3, 1985, providing for the Edna Pearce

Lockett Revocable Trust (Trust).

     After providing small pecuniary bequests to decedent's

former employees and disposing of all clothes, jewelry, books,

and other personal effects to her surviving nephew and nieces,

the Will devised2 the residuary estate to the trustees of the

Trust.   Mr. Lanier, a longtime friend and attorney of the

decedent, is named as the personal representative of the estate.

The Will directs the personal representative to pay all estate

taxes and expenses of administration out of the residuary estate.

The Will and Trust constitute an integrated plan for the

disposition of decedent's assets through the "pour over" of

assets from the probate estate to the Trust.

     The Trust Agreement recites that decedent is the grantor of

the Trust and designates decedent, Mr. Lanier and Mr. Pearce as

cotrustees.   The Trust, established under the laws of Florida,

provides, in pertinent part, as follows:

     ARTICLE III - Dispositive Provisions




     2
       The Florida Probate Code uses "devise" to describe the
transfer at death of both personal property and real property.
Fla. Stat. Ann. sec. 731.201(8) (West 1995).
                                - 5 -


          The Trustee shall hold, manage, invest and
     reinvest the trust property (including any amounts
     which may be added thereto under the Last Will and
     Testament of the "Grantor"[)] and shall collect the
     income thereof and dispose of the net income and
     principal as follows:

            *       *     *     *       *   *    *

          B.    Upon the death of the Grantor:

           (a) The Grantor's home shall, insofar as
     possible, be set aside by the Trustees as a historical
     site. The designation of this site and management
     shall be in the discretion of the Trustees.[3]

          (b) The Trustees shall divide the remaining
     balance of principal and income of the "EDNA PEARCE
     LOCKETT REVOCABLE TRUST" as then constituted into four
     (4) equal shares for the following named beneficiaries:

            I.   Ruth Pearce Fulton
           II.   Patricia Pearce Durrance
          III.   Clara Evelyn Pearce Johnson
           IV.   Leland C. Pearce

     or their lineal descendants.

           Each such trust fund shall be held by the Trustee
     as a separate trust fund, and each fund shall be
     designated by the names of the beneficiaries, or by the
     name of the lineal descendants, as the case may be.
     * * *

            *       *     *     *       *   *    *

          During the lifetime of the beneficiary, the
     Trustee may distribute all or any part of the income of
     the trust hereinabove established to or for the benefit
     of the said beneficiary and the children of the said
     beneficiary, in such amounts, at such times, in such
     manner, and in such proportions * * * as the Trustees
     shall in their discretion deem advisable for the




     3
       The language in subsection (a) of Article III B. is
hereinafter referred to as the "Historic Site Language".
                                 - 6 -


     health, education * * * and support in reasonable
     comfort of the said beneficiary and the children of the
     beneficiary. * * *

            *     *     *     *          *   *   *

          In addition to the income payments provided in
     paragraph above, the Trustees may distribute all or any
     of the principal of the Trust hereinabove created to or
     for the benefit of the said beneficiary and the
     children of the said beneficiary, in such amounts, at
     such times, in such manner, and in such proportions,
     * * * as the Trustees shall in their discretion deem
     advisable for the health, education * * * and support
     in reasonable comfort of the said beneficiary and the
     children of the beneficiary. * * *

            *     *     *     *          *   *   *

          C. The trust shall terminate upon the twentieth
     anniversary of the death of the Grantor. * * *

     Mrs. Lockett composed the Historic Site Language and

directed Mr. Lanier to include it in the Trust Agreement.

Mrs. Lockett also discussed her intentions with respect to the

Historic Site Language with Mr. Lanier.

3.   Disposition of Estate Property

     Prior to the death of decedent, the Trust owned a portion of

Basinger, Fishbranch in its entirety, and the cattle ranch

located at Fishbranch, including livestock, equipment, and

vehicles used in the business.    After decedent's death, pursuant

to the pour over provision of the Will, the Trust became the

owner of the entire Basinger tract.

     At decedent's death, the cattle business was encumbered by

mortgage indebtedness of approximately $200,000.     Shortly

thereafter, petitioner was faced with Federal estate tax
                               - 7 -


liabilities in the amount of $3,402,530, and State estate tax

liabilities in the amount of $888,356.    At the time of decedent's

death, the petitioner and Trust had only approximately $10,000 of

liquid assets and approximately $68,000 in the form of a tax

claim for a refund for the 1988 and 1989 tax years, available to

meet the above liabilities.   Consequently, Messrs. Lanier and

Pearce decided it was necessary to sell the land and cattle held

by the Trust in order to pay the debts of the estate, including

the death tax liabilities, as well the mortgage debt on the

cattle operation.   In a meeting following decedent's funeral, the

beneficiaries of the Trust expressed their agreement with the

trustees’ decision to sell.

     F. Elgin Bayless (Mr. Bayless), a real estate appraiser, was

hired to appraise the personal and real property included in

petitioner's Federal estate tax return.   Messrs. Lanier and

Pearce refrained from marketing the estate property while they

awaited the appraisal report for pricing guidance.   On

December 10, 1991, Mr. Bayless delivered his appraisal report.

The report indicated that the Fishbranch parcel was landlocked

and that the estate had no legal access to the property.   Since

the 1960's, decedent had used the roads along the Kissimmee

canal, which were owned by the South Florida Water Management

District (Water District), to travel back and forth between

Fishbranch and Basinger.   Decedent had never obtained a permit to
                                - 8 -


use these roads.   The landlocked condition of the Fishbranch

parcel impeded the trustees' efforts to sell it.

     a.    Part Gift/Part Sale of Basinger

     Soon after decedent's death, Messrs. Pearce and Lanier

discussed their options as to how to handle the Basinger tract.

Early in 1992, the Water District approached Messrs. Lanier and

Pearce and proposed that the Trust donate the entire Basinger

parcel to the Water District.   The trustees concluded that the

beneficiaries of the Trust would not want to donate so much land.

Instead, Messrs. Lanier and Pearce entered into a contract with

the Water District in their capacity as trustees of the Trust,

pursuant to which they donated a portion of Basinger and sold the

remaining portion of Basinger to the Water District (Gift/Sale

Transaction).   Approximately 615 acres were sold to the Water

District for a price of $1,077,000, and approximately 468 acres

were donated to the Water District.4    The donated portion

included the Lockett family residence, and the other historical

sites.    As part of the Gift/Sale Transaction, Messrs. Lanier and

     4
       Respondent argues that the 468 acres included 44 acres of
land that were only quitclaimed to the Water District, since the
petitioner did not have clear title to those acres. Because we
disallow the charitable deduction claimed by petitioner for the
transfer to the Water District, we need not decide whether these
44 acres were part of the transferred parcel, nor need we value
the transferred parcel or make findings of fact related thereto
resolving Basinger's exact acreage.

     Messrs. Lanier and Pearce intended to dispose of Basinger in
its entirety. But because surveyors overlooked a tract of
approximately 40 acres, the Trust owned approximately 40 acres of
Basinger at the time of trial.
                                 - 9 -


Pearce obtained temporary access rights to the canal roads that

allowed entry into Fishbranch.

     On April 7, 1993, the Circuit Court of Highlands County,

sitting as the probate court with jurisdiction over petitioner,

held a hearing on the proposed Gift/Sale Transaction.    The Court

approved the transaction, on the condition that the Water

District commit in writing to transfer the Lockett residence and

other historical sites at Basinger to a Florida agency that would

preserve the sites and keep them open to the public.    William

Malone (Mr. Malone), an employee of the Water District, who

testified at trial, subsequently wrote a letter of assurance to

the presiding judge, stating that the Water District would

work with the appropriate government agencies to assure the

preservation of the Lockett home as a historic site.    On

August 27, 1993, the Gift/Sale Transaction between the petitioner

and the Water District closed.    At the time of trial, the Water

District was in the process of entering into an agreement,

whereby it would lease portions of Basinger to Highlands County.

Highlands County intends to establish an agricultural museum on

the Lockett family residence and surrounding property.

     b.   The Sale of Fishbranch

     In August 1994, petitioner entered into negotiations to sell

Fishbranch to Willowbrook Coal Co. (Willowbrook).   On April 27,

1995, a portion of Fishbranch, amounting to approximately 3,300

acres, was sold to Willowbrook in a cash sale for a price of
                               - 10 -


$2,802,110.   Willowbrook had also contracted to purchase the

remaining portion of Fishbranch, but the contract was terminated

in April 1996, because Willowbrook had been unable to obtain

permanent access rights to that portion.

     Shortly after the sale of the first portion of Fishbranch,

the cattle, equipment, and vehicles used in the cattle business

were sold.    The remaining portion of Fishbranch was finally sold

on January 31, 1997, to O.L. Daniel for a sale price of

$2,700,000.   The price paid by O.L. Daniel was approximately $150

less per acre than the price paid by Willowbrook, reflecting the

deterioration in the quality of the land following the removal of

the cattle.

4.   Operation of the Cattle Ranch

     In 1986, after decedent had become incapacitated, Messrs.

Lanier and Pearce took over the operation of the cattle ranch in

their capacities as cotrustees of the Trust.   Mr. Pearce, who has

been in the cattle business all his life, undertook the

responsibility of providing overall direction of the cattle ranch

and of providing guidance to a resident manager in the day-to-day

operations.    Mr. Lanier handled the legal and financial matters

relating to the business.   From May 17, 1991, the date of

decedent's death, until April 30, 1996, Messrs. Lanier and Pearce

continued to operate the cattle ranch.   During that period,

petitioner incurred and paid $2,009,040 in expenses relating to

the operation of the cattle ranch.
                               - 11 -


     Messrs. Lanier and Pearce consulted 10 experts concerning

the most prudent method for selling Fishbranch and the ranch

assets.   All the experts advised that cattle should continue to

graze on the land until it was sold.     If not maintained by cattle

grazing, land in the part of Florida in which the Basinger and

Fishbranch tracts are located quickly reverts to its native state

and deteriorates into overgrown muck and swamp, decreasing its

value and making it more difficult to sell.

     On the Federal estate tax return, timely filed on

February 17, 1992, petitioner listed $257,654 as expenses

relating to the operation of the cattle ranch, and deducted that

amount as expenses of administration of the estate.     Petitioner

also noted on the return that additional cattle ranch expenses

would be deducted as incurred, on supplemental filings of the

Federal estate tax return.

     Petitioner elected to pay Federal estate tax in

installments, as provided by section 6166.     Under the election,

the first payment was due on February 17, 1997, 5 years after

February 17, 1992, the date the estate tax return was due.

     On February 3, 1995, respondent issued a notice of

deficiency to petitioner.    Petitioner’s petition, timely filed on

May 1, 1995, alleges, among other things, that expenses relating

to the operation of the cattle ranch are administration expenses

properly deductible from the gross estate in determining

petitioner's estate tax liability.      Petitioner’s Second Amended
                              - 12 -


Petition, filed on October 6, 1995, alleges for the first time

that the trustees' transfer to the Water District of portions of

Basinger without consideration constitutes a charitable transfer

that is eligible for an estate tax deduction.   As of the time of

trial, there had not been any final accounting by Mr. Lanier

before the Circuit Court of Highlands County, Florida, regarding

the probate administration of the estate, nor have Messrs. Lanier

and Pearce accounted for the administration of the Trust during

this period.

                              OPINION

1.   Estate Tax Deduction for Charitable Transfer

     In determining the value of the taxable estate under section

2051, section 2055(a) allows a deduction from the gross estate of

the value of all "bequests, legacies, devises, or transfers" of

property to, or for the use of, a wide range of charitable,

religious, and educational organizations.   However, it does not

necessarily follow that the estate will automatically be entitled

to a deduction under section 2055 simply because property

originally included in the gross estate is transferred by the

estate fiduciaries to a qualifying organization during the period

of estate administration.   See, e.g., Estate of Marine v.

Commissioner, 97 T.C. 368 (1991), affd. 990 F.2d 136 (4th Cir.

1993); Estate of Pickard v. Commissioner, 60 T.C. 618 (1973),

affd. without published opinion 503 F.2d 1404 (6th Cir. 1974).     A

recurring problem is whether the decedent directed the transfer
                              - 13 -


to a qualifying organization or whether the estate fiduciary made

the transfer in the exercise of his discretion; only in the

former case is a deduction generally allowed.    See Estate of

Pickard v. Commissioner, supra at 622 ("the fact that the

designated portion of decedent's estate inevitably inured to the

benefit of the charity did not save the day").

     The Estate Tax Regulations provide guidance in this area:

          (a) Remainders and similar interests. If a trust
     is created or property is transferred for both a
     charitable and a private purpose, deduction may be
     taken of the value of the charitable beneficial
     interest only insofar as that interest is presently
     ascertainable, and hence severable from the
     noncharitable interest. * * *

          (b) Transfers subject to a condition or a power.
     (1) If, as of the date of a decedent's death, a
     transfer for charitable purposes is dependent upon the
     performance of some act or the happening of a precedent
     event in order that it might become effective, no
     deduction is allowable unless the possibility that the
     charitable transfer will not become effective is so
     remote as to be negligible. * * * [Sec. 20.2055-2(a)
     and (b), Estate Tax Regs.]

These two requirements, the "presently ascertainable" and "remote

possibility" requirements, were approved by the Supreme Court in

Commissioner v. Estate of Sternberger, 348 U.S. 187 (1955)

(expressly approving a prior version of these regulations) and by

the Court of Appeals of the Fifth Circuit in Florida Bank v.

United States, 443 F.2d 467, 471 (5th Cir. 1971) (concluding that

the section 20.2055-2, Estate Tax Regs., appropriately implements

section 2055).   The Court of Appeals for the Eleventh Circuit, to

which an appeal in this case would lie, deems itself bound by
                                - 14 -


decisions of the Court of Appeals for the Fifth Circuit issued

prior to October 1, 1981.    Bonner v. City of Prichard, 661 F.2d

1206, 1209 (11th Cir. 1981).

     In Florida Bank v. United States, supra, the decedent's will

directed the trustee to pay the widow $175 per month, pay an

annual $500 scholarship, and divide the balance of remaining

income, by reason of capital gains or otherwise, into three equal

portions for his children for as long as they should live, with

the remainder going to charity.    The Court held that the estate

was not entitled to a section 2055 deduction because there was no

way to determine whether the charitable beneficiaries would

receive their bequest, nor what amount it would be if they were

to receive it.   The amount of the charitable remainder was not

ascertainable because the trustee had the discretion to buy and

sell securities and distribute the capital gains to the

decedent's children.    The trustee could purchase securities, sell

them at a profit, and then distribute the capital gains to the

life beneficiaries.    If the securities in which the trustee

reinvested the principal declined in value, the corpus could be

largely invaded.

     The Court indicated that the trustee's discretion to invade

the corpus by that means was not subject to a readily

ascertainable standard that would preserve the deductibility of

the charitable bequest.     Id. at 468-471; see also Merchants Natl.

Bank v. Commissioner, 320 U.S. 256 (1943).    The Court
                               - 15 -


distinguished cases in which the trustee's discretion was

restricted by an objectively measurable standard.   In such cases,

the charitable bequest may be currently ascertainable and the

possibility that the transfer will not become effective may be so

remote as to be negligible.    See, e.g., Henslee v. Union Planters

Natl. Bank, 335 U.S. 595 (1949); Ithaca Trust Co. v. United

States, 279 U.S. 151 (1929).

     Where a trustee or other fiduciary is given unrestricted

discretion to transfer property to noncharitable beneficiaries,

an eventual transfer of such property to charity does not meet

the requirements of the regulations and therefore is not entitled

to a charitable deduction.    Where a trustee can divert funds or

property to a noncharitable beneficiary, it is generally

impossible to "presently ascertain" the value of the charitable

bequest at the date of decedent's death, because there might not

be a charitable bequest at all.   Similarly, affording discretion

of that sort to a trustee renders more than remote the

possibility that decedent’s intention to make a charitable

transfer will not become effective.

     In Estate of Taylor v. Commissioner, 40 B.T.A. 375 (1939),

the trustees were given discretion that enabled them to

decide between making a transfer to a charitable entity or a

noncharitable entity.   In her will, the decedent bequeathed

$3,000 to her trustees in trust, for the purpose of establishing

a memorial to her parents, and an additional $3,000 for a similar
                                - 16 -


memorial to her late husband.    The trustees eventually paid

$6,000 to Grace Church, an entity operated exclusively for

religious purposes, and claimed a deduction for a charitable

bequest under section 303(a)(3) of the Revenue Act of 1926, ch.

27, 44 Stat. 72, a predecessor of section 2055.    In disallowing

the deduction, the Board of Tax Appeals said:

          There is nothing in the will which restricts the
     trustees in their use of the bequest as to the nature,
     kind or type of "memorial" which they are to establish
     for either the decedent's parents or her husband. The
     word "memorial" does not itself connote any limitation
     within the language of the statute. It means only
     something to perpetuate a memory. Conceivably and
     reasonably a memorial might have been adequately and
     satisfactorily established without any religious,
     charitable, scientific, literary, or educational
     purpose. It happens that the trustees, in their
     discretion, contributed the legacies to a religious
     organization; but this was not by virtue of any
     limiting mandate of the will. Mississippi Valley Trust
     Co. v. Commissioner, 72 Fed. (2d) 197 [8th Cir. 1934],
     affirming 28 B. T. A. 387. * * * [Estate of Taylor v.
     Commissioner, 40 B.T.A. at 376.]

     Paris v. United States, 381 F. Supp. 597 (N.D. Ohio 1974),

quoted the above excerpt from Estate of Taylor v. Commissioner,

supra, and then applied the rule it states to deny a charitable

deduction for a memorial bequest.    Even though the executor used

the funds earmarked for a memorial to establish an educational

scholarship fund for religious students, the lack of directions

and restrictions limiting the executor's discretion in carrying

out the terms of the bequest to a religious, charitable,

literary, scientific, or educational institution was dispositive

in the Court's decision to disallow the deduction.
                               - 17 -


     In the present case, decedent's instructions, as stated in

the Trust Agreement, together with her intentions expressed to

Mr. Lanier at the time the Historic Site Language was drafted,

provided the trustees with wide discretion as to how to handle

the setting aside of her home as a historical site.      The Historic

Site Language states:

     B.    Upon the death of the Grantor:

          (a) The Grantor's home shall, insofar as
     possible, be set aside by the Trustees as a historical
     site. The designation of this site and management
     shall be in the discretion of the Trustees.

We do not read the Historic Site Language as directing or even

appearing to contemplate a transfer of the grantor's home outside

the Trust.    Only when the language is juxtaposed with Mr.

Lanier's testimony at trial is there any indication that the

decedent intended her home to be transferred outside of the

Trust.    Mr. Lanier testified as follows:5

     Q      Now, did Ms. Lockett tell you that she expected
            you and Mr. Pearce to operate this historic site?

     A      However we could do it.   To operate it?   Oh,
            absolutely not.

     Q      What did she expect?

     A      She wanted it to be designated, and the only way
            it could be designated and maintained as an
            historical site is for it to be turned over to



     5
       At trial, respondent objected to admission of Mr. Lanier's
testimony of the decedent's intentions concerning the Historic
Site Language and the preservation of her home. In any event,
Mr. Lanier's testimony does not establish that petitioner is
entitled to a charitable contribution deduction.
                              - 18 -


          some authority that could handle that, certainly
          not a private arrangement.

     Even if the Historic Site Language is read with Mr. Lanier's

testimony as manifesting decedent’s intention to transfer her

home in order to preserve it as a historical site, the latitude

given to the trustees in accomplishing this objective was wide.

First, there is no charitable intent on the part of the decedent

that is discernible from the language of the Trust or even from

Mr. Lanier's testimony.   Second, as respondent points out, there

were various ways to preserve the decedent's home as a historic

site, without transferring it to a qualifying charitable,

educational, literary, or scientific organization.   Specifically,

respondent points out that an arrangement whereby a private party

lived in the house and designated it as a historic landmark would

have complied with the decedent's intentions, as she had

expressed them to Mr. Lanier.6

     Petitioner argues that United States v. Leonhardt, 37 AFTR

2d 76-1589, 76-1 USTC par. 13,138 (M.D. Fla. 1976), supports its

entitlement to an estate tax deduction.   In that case, decedent's

will established a residuary trust, with the net income to be

distributed to three named beneficiaries for life; following

their deaths, the undistributed income and corpus were to be

     6
       The Secretary of the Interior approves the designation
of properties as historical landmarks or their inclusion in the
National Register of Historical Places, including properties that
are privately owned and not owned by qualified charities. See
National Historic Preservation Act, Pub. L. 89-665, sec. 101, 80
Stat. 915 (1966), 16 U.S.C. secs. 470 and 470a (1994).
                                - 19 -


distributed to not more than 10 charitable or educational

institutions, to be selected by the trustee and the County Judge

of Orange County, Florida.   The District Court upheld a

charitable deduction under section 2055.

     United States v. Leonhardt, supra, is distinguishable from

the case at hand.   In Leonhardt, the decedent expressed an intent

to transfer property exclusively to charitable organizations.

The possibility that a charitable contribution would not become

effective was deemed negligible.    In the present case, the

trustees had discretion to transfer the property to an individual

or to a noncharitable entity.    There was a more than merely

negligible possibility that a charitable transfer would never

occur.   The case at hand is more similar to the facts of Estate

of Taylor v. Commissioner, supra, and Paris v. United States,

supra, where the decedent's intentions to memorialize their

relatives could be carried out without the transfer of property

to, or the establishment of, a qualified charitable organization.

     In short, we hold that petitioner is not entitled to a

charitable deduction under section 2055, even though the trustees

eventually transferred portions of the decedent's property to a

qualified organization.   In light of the wide discretion afforded

to the trustees, it was the trustees rather than the decedent who

made the charitable transfer.    Because Messrs. Lanier and Pearce

had the power to set aside decedent's home as a historic site

without making a contribution to a qualifying organization, the
                              - 20 -


value of the transfer to a charitable entity was neither

"presently ascertainable" at the date of decedent's death, nor

was the possibility that the property would not be transferred to

a qualifying organization so remote as to be negligible.7

2.   Deduction of Operating Expenses of the Cattle Ranch

     Section 2053(a) allows a deduction for administration

expenses in determining the value of the taxable estate.    Section

2053(b) allows a deduction for expenses of administering

nonprobate property included in the gross estate if the expenses

are paid prior to the expiration of the period of limitations for

assessment under section 6501, and the expenses would be

allowable under section 2053(a) if the property administered

would have been probate property.   See Burrow Trust v.

Commissioner, 39 T.C. 1080, 1087-1088 (1963), affd. 333 F.2d 66

(10th Cir. 1964).   Generally, the period of limitations for

assessment is 3 years after the return is filed.   Sec. 6501(a).

Where a taxpayer has filed a petition in this Court, the period

of limitations is suspended from the time that the notice of

deficiency is mailed until 60 days after the decision of this

Court becomes final.   Sec. 6503(a)(1).

     The cattle ranch business, which was transferred by decedent

to the Trust during her lifetime, is nonprobate property that is

     7
       Petitioner also alleged in its petition that it was
entitled to a deduct a loss for estate tax purposes on the
portion of Basinger sold to the Water District. Inasmuch as
petitioner failed to address this issue at trial or on brief, we
regard petitioner as having abandoned it.
                              - 21 -


included in the value of the gross estate.    Sec. 2036(a); see

Burrow Trust v. Commissioner, supra at 1087-1088.    Petitioner

filed the estate tax return on February 17, 1992.    Respondent

issued a notice of deficiency on February 3, 1995, and a petition

was timely filed on May 1, 1995, thereby suspending the period of

limitations for assessment.   All expenses of operating the cattle

ranch after decedent's death were therefore paid prior to the

expiration of the period of limitations for assessment under

section 6501.   See Rev. Rul. 61-59, 1961-1 C.B. 418; cf. Gillum

v. Commissioner, T.C. Memo. 1984-631.8   Consequently, the only

question remaining in determining whether the expenses are

deductible under section 2053(b) is whether they satisfy the

requirements of section 2053(a).

     Section 2053(a) requires that the deduction be allowable by

the laws of the jurisdiction under which the estate is being

administered.   The relevant regulations further require that

deductions for administration expenses be "limited to such

expenses as are actually and necessarily incurred in the

administration of the decedent's estate".    Sec. 20.2053-3(a),

Estate Tax Regs.   This Court and the Court of Appeals for the

     8
       Regardless of petitioner's having filed a petition in this
Court, the period of limitations for assessment was also extended
by petitioner's election under sec. 6166 to pay the estate tax in
10 equal installments. Sec. 6503(d). Under the election, the
first installment was due on Feb. 17, 1997. All the expenses of
operating the cattle ranch were incurred between the date of
decedent's death and Apr. 30, 1996. The latter date was prior to
the expiration of the period of limitations for assessment, as
extended by the sec. 6166 election.
                              - 22 -


Eleventh Circuit, have recognized the validity of this regulation

as imposing a Federal standard of necessity over and above the

State requirement of allowability.     See Marcus v. Dewitt, 704

F.2d 1227, 1229-1230 (11th Cir. 1983) (citing Pitner v. United

States, 388 F.2d 651, 659 (5th Cir. 1967)); Estate of Posen v.

Commissioner, 75 T.C. 355, 366 (1980).

     The regulations consider the application of the phrase

"actual and necessary expenses" to particular types of

administration expenses.   Expenses of preserving and distributing

estate property are classified as miscellaneous expenses by

section 20.2053-3(d)(2), Estate Tax Regs., which provides:

“Expenses for selling property of the estate are deductible if

the sale is necessary in order to pay the decedent's debts,

expenses of administration, or taxes, to preserve the estate, or

to effect distribution.”   See Marcus v. Dewitt, supra at 1229;

Estate of Posen v. Commissioner, supra at 366-367, approving and

applying the above regulation.

     Respondent argues that the expenses of operation of the

cattle ranch are not allowable as administration expenses under

Florida law.   The Circuit Court of Highlands County has not ruled

whether the expenses are allowable under Florida law.    Because

Fishbranch and the assets of the cattle ranch were trust assets,

not probate assets, the Circuit Court, in its capacity as a

probate court, will probably never be asked to pass on their

allowability under Florida law.   Respondent acknowledges that
                               - 23 -


whether the expenses are allowable under Florida law requires a

determination similar to the Federal test of necessity.    We

therefore turn to the question of whether the expenses satisfy

the Federal test of necessity to preserve the estate, as provided

by section 20.2053-3(d)(2), Estate Tax Regs.

     In certain circumstances, an estate's expenses of operating

a business are regarded as necessary for the preservation of the

estate and may therefore be deducted on the Federal estate tax

return.    In Estate of Brewer v. Commissioner, a Memorandum

Opinion of the Board of Tax Appeals dated Dec. 26, 1941, the

estate owned a farm that raised cattle and chickens.     The

executors decided that the best way to dispose of the farm was

not to hold an auction sale but to sell the animals from time to

time at the best prices they could obtain.     Judge Sternhagen

relied on Adams v. Commissioner, 110 F.2d 578 (8th Cir. 1940),

vacating and remanding a Memorandum Opinion of the Board of Tax

Appeals dated Jan. 11, 1939, to hold that the expenses of

continuing to operate the farm were necessary for the executors

to make the most advantageous sales of the livestock and poultry.

As such, the expenses were a "necessary incident of liquidation",

and the deductions claimed for farm operations expenses were

allowed.

     In Adams v. Commissioner, supra, the estate consisted of

real estate, mining leases, and mineral properties located in

three different States.   After decedent's death, the estate
                              - 24 -


continued to engage in mining activities.    The Court considered

whether the expenses of carrying on mining activities were

deductible as administration expenses.   Because of the difficulty

in ascertaining the nature of the assets in the estate, and

because of the difficulty in expeditiously disposing of the bulk

of the assets, the Court found that the expenses were incurred in

connection with the protection or preservation of the estate.

     We are convinced that the Trust's continuation of the

ranching business was necessary for the preservation of the

estate and was a necessary step in liquidating the estate's

assets.   The experts consulted by Messrs. Lanier and Pearce

unanimously recommended that, in order to preserve value of the

land, the cattle on the ranch not be sold.   Mr. Malone, an

employee of the Water District, which had no interest in the

outcome of this issue, similarly testified that the Fishbranch

land would be likely to revert to muck and swamp if the cattle

grazing on it were sold.   We also acknowledge the trustee's

difficulty in disposing of Fishbranch after its lack of access

was revealed, which further prevented its expeditious sale, and

the fact that the value of the Fishbranch parcel remaining after

the first Fishbranch sale, when the cattle finally were sold, did

depreciate in value, as compared with the price obtained on the

first Fishbranch sale.   We therefore hold that the expenses
                             - 25 -


incurred in connection with the operation of the cattle ranch are

deductible as administration expenses under section 2053.9

     To reflect the foregoing and concessions,


                                         Decision will be entered

                                         under Rule 155.




     9
       Consistent with respondent's argument that the expenses of
operating the ranch are not deductible, respondent has also
argued that the portion of legal fees and accounting fees paid to
Mr. Lanier and an accounting firm that were attributable to the
operation of the ranch are not deductible as administration
expenses. Respondent's argument explicitly rests on the
assumption that the expenses incurred in the operation of the
cattle ranch, in general, are not deductible as administration
expenses. Because we hold that the expenses incurred in the
operation of the ranch are deductible as administration expenses
under sec. 2053, the legal and accounting fees relating to the
operation of the ranch are likewise deductible as administration
expenses.
