                         T.C. Memo. 1996-307



                       UNITED STATES TAX COURT



         ESTATE OF GORDON B. McLENDON, DECEASED, GORDON B.
         MCLENDON, JR., INDEPENDENT EXECUTOR, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent *

       ESTATE OF GORDON B. MCLENDON, DECEASED, DONOR, GORDON B.
          MCLENDON, JR., INDEPENDENT EXECUTOR, Petitioner v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent


       Docket Nos. 20324-90, 20325-90.           Filed July 8, 1996.




       Anderson Wallace, Jr. and Joseph O. Collins, Jr., for

petitioner.

       James W. Lessis and Henry C. Griego, for respondent.




       *This opinion supplements our opinion in T.C. Memo. 1993-
459.
                                 - 2 -


                    SUPPLEMENTAL MEMORANDUM OPINION

     HAMBLEN, Judge:     This matter is before the Court on remand

from the U.S. Court of Appeals for the Fifth Circuit.     Estate of

McLendon v. Commissioner, 77 F.3d 477 (5th Cir. 1995), revg. in

part and remanding without published opinion T.C. Memo. 1993-459.

All relevant findings of fact set forth in our prior Memorandum

Opinion in this case are incorporated herein by this reference.

(Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect on the date of Gordon B.

McLendon's death.    Rule references are to the Tax Court Rules of

Practice and Procedure.)

Background

     Respondent determined that the Estate of Gordon B. McLendon

is liable for deficiencies in Federal gift and estate taxes

arising from a private annuity agreement that Gordon B. McLendon

(decedent) entered into on March 5, 1986, approximately 6 months

prior to his death from esophageal cancer.    The disputed private

annuity agreement was based on decedent's promise to transfer a

remainder interest in certain of his assets to his son and a

trust created for the benefit of his three daughters (the

obligors) in consideration for the obligors' promise to pay

decedent $250,000 at the time of the execution of the agreement

along with an additional amount to be paid to the decedent in the

form of an annuity.    The details of the private annuity agreement
                               - 3 -


are described in our prior Memorandum Opinion, and we see no need

to recite them here.

     Respondent determined a deficiency in petitioner's Federal

gift tax after concluding that decedent did not receive full and

adequate consideration for the remainder interest that he

transferred pursuant to the private annuity agreement.   In

particular, respondent determined that petitioner: (1)

Understated the value of the assets that were the subject of the

private annuity agreement; and (2) erred in relying on section

25.2512-5(f) (Table A), Gift Tax Regs., to compute the value of

the remainder interest transferred pursuant to the private

annuity agreement.   Consequently, respondent maintains that the

private annuity agreement resulted in a transfer that was in part

a sale and in part a gift.

     After concessions by both parties, the dispute concerning

the value of the assets that were the subject of the private

annuity agreement was narrowed at trial to the question of

whether property interests in two general partnerships that

decedent transferred pursuant to the private annuity agreement

should be valued as general partnership interests or as assignee

interests in the two general partnerships.   An additional

contested issue concerned respondent's determination that

petitioner erred in relying on the actuarial tables found in

section 25.2512-5(f) (Table A), Gift Tax Regs., in computing the
                               - 4 -


value of the remainder interest in question on the ground that

the known facts surrounding decedent's diagnosis and treatment

for esophageal cancer demonstrate that decedent's death was

imminent or predictable on March 5, 1986, thereby justifying a

departure from the actuarial tables (under which decedent's

actuarial life expectancy was 15 years).

     In Estate of McLendon v. Commissioner, T.C. Memo. 1993-459,

66 TCM (CCH) 946, 963, 64 TCM (RIA) 2436, 2455 (slip op. at 51),

we decided that the property interests in question should be

valued as general partnership interests, as opposed to assignee

interests, on the ground that the private annuity agreement

amounted to “a device intended to permit Gordon to transfer his

partnership interests to the natural objects of his bounty for

less than adequate and full consideration.”   In addition, we

sustained respondent's determination that petitioner erred in

relying on section 25.2512-5(f) (Table A), Gift Tax Regs., in

computing the value of the remainder interest that decedent

transferred pursuant to the private annuity agreement in light of

decedent's diminished life expectancy on the date that he entered

into the agreement.   Estate of McLendon v. Commissioner, T.C.

Memo. 1993-459, 66 TCM (CCH) at 968, 64 TCM (RIA) at 2460 (slip

op. at 70).

     Upon review of our Memorandum Opinion, the Court of Appeals

for the Fifth Circuit issued an unpublished opinion reversing in
                               - 5 -


part and remanding the case to this Court.   In particular, the

Court of Appeals reversed our decision that the property

interests transferred by decedent should be valued as partnership

interests after concluding that we failed to characterize the

annuity transaction as a “contrivance to avoid estate taxes” or a

“sham”.   Estate of McLendon v. Commissioner, 77 F.3d 477 (5th

Cir. 1995), revg. in part and remanding without published opinion

T.C. Memo. 1993-459 (slip op. at 17-18).   Further, the Court of

Appeals remanded the case to this Court with instructions to

explain our holding sustaining respondent's determination that

petitioner improperly relied upon the actuarial tables under

section 25.2512-5(f) (Table A), Gift Tax Regs., in computing the

value of the remainder interest that decedent transferred

pursuant to the private annuity agreement.   The Court of Appeals’

opinion states in pertinent part:

          Although the Tax Court purported to compare
     Gordon's health as of March, 1986 with that of parties
     in other cases, e.g. in [Estate of Jennings v.
     Commissioner, 10 T.C. 323 (1948) and Estate of Hoelzel
     v. Commissioner, 28 T.C. 384, 389 (1957)], we are
     unable to discern whether the Tax Court followed
     Revenue Ruling 80-80, [1980-1 C.B. 194] or found reason
     to depart from it. The Tax Court's opinion is both
     ambiguous and ambivalent regarding the revenue ruling,
     as it holds that Gordon had a life expectancy of one
     year, a finding that would suggest to us under the
     express language of the revenue ruling that death was
     not clearly imminent. We must remand for the court to
     clarify its conclusion with regard to the applicability
     of Revenue Ruling 80-80 so that we will have a sounder
     basis for appellate review. [Estate of McLendon v.
     Commissioner, 77 F.3d at 477 (slip. op. at 24).]
                                - 6 -


Discussion

     Section 25.2512-5, Gift Tax Regs., provides actuarial tables

to be used in computing the present value of an annuity, life

estate, remainder, or reversion transferred after November 30,

1983, and before May 1, 1989.

          The actuarial tables referred to above are
     provided as an administrative necessity and their
     general use has been approved by the courts. Simpson
     v. United States, 252 U.S. 547, 550-551 (1920); Estate
     of Fabric v. Commissioner, 83 T.C. 932, 941 (1984).
     The actuarial tables regularly are applied in valuing
     contingent property interests given that they "afford a
     reasonable norm and some degree of certainty in
     ascertaining the value of property and the consequent
     tax liabilities of the beneficiaries thereof." Miami
     Beach First Natl. Bank v. United States, 443 F.2d 116,
     119 (5th Cir. 1971).

          Nonetheless, the courts have long recognized that
     the actuarial tables should not be applied in those
     "exceptional cases" where the result would be
     unreasonable. Id. at 120; Estate of Lion v.
     Commissioner, 438 F.2d 56, 61 (4th Cir. 1971), affg. 52
     T.C. 601 (1969); Weller v. Commissioner, 38 T.C. 790,
     803 (1962). The party seeking to eschew the actuarial
     tables bears the burden of proving that the
     circumstances justify a departure from the norm. Bank
     of California v. United States, 672 F.2d 758, 759-760
     (9th Cir. 1982); Continental Ill. Natl. Bank & Trust
     Co. v. United States, 504 F.2d 586, 594 (7th Cir.
     1974); Weller v. Commissioner, supra. [Estate of
     McLendon v. Commissioner, 66 TCM (CCH) at 964, 64 TCM
     (RIA) at 2456.]

As our survey of the case law in our earlier Memorandum Opinion

reveals, there has been a substantial amount of litigation

involving the question of the circumstances that would justify a

departure from the actuarial tables.
                                - 7 -


     For purposes of the discussion that follows, it is important

to recognize that the parties to this case disagree as to the

proper standard to apply in determining whether a departure from

the actuarial tables is warranted.1     In particular, respondent

relies on Miami Beach First Natl. Bank v. United States, 443 F.2d

116 (5th Cir. 1971), and Estate of Fabric v. Commissioner, 83

T.C. 932 (1984), for the proposition that it is proper to depart

from the actuarial tables where death is either “imminent or

predictable”.    On the other hand, petitioner relies on Rev. Rul.

80-80, 1980-1 C.B. 194, in support of its position that the

controlling standard is whether death is “clearly imminent”.

     Rev. Rul. 80-80, 1980-1 C.B. 194, 195, states in pertinent

part:

          In view of recent case law, the resulting
     principle is as follows: the current actuarial tables
     in the regulations shall be applied if valuation of an
     individual's life interest is required for purposes of
     the federal estate or gift taxes unless the individual
     is known to have been afflicted, at the time of
     transfer, with an incurable physical condition that is
     in such an advanced stage that death is clearly
     imminent. Death is not clearly imminent if there is a
     reasonable possibility of survival for more than a very

     1
        As stated in our earlier Memorandum Opinion:

     The crux of the dispute centers on whether Gordon's
     death was sufficiently certain as of March 5, 1986, as
     to justify a deviation from the actuarial tables. At a
     more fundamental level, the parties disagree with
     respect to the specific legal standard to apply in
     resolving this issue. [Estate of McLendon v.
     Commissioner, T.C. Memo. 1993-459, 66 TCM (CCH) at 964,
     64 TCM (RIA) at 2456 (slip op. at 57).]
                               - 8 -


     brief period. For example, death is not clearly
     imminent if the individual may survive for a year or
     more and if such a possibility is not so remote as to
     be negligible. If the evidence indicates that the
     decedent will survive for less than a year, no
     inference should be drawn that death will be regarded
     as clearly imminent, because this question depends on
     all the facts and circumstances.

     We acknowledge, as the Court of Appeals suggested, that we

did not expressly apply the “clearly imminent” standard

articulated in Rev. Rul. 80-80, supra, in this case, nor, as

explained below, did we feel that we were obliged to do so.

Short of wholly ignoring Rev. Rul. 80-80, supra, however, we

reviewed the ruling and concluded that respondent's position was

not inconsistent with the standard set forth therein.2    Estate of

McLendon v. Commissioner, 66 TCM (CCH) at 965 n.17, 64 TCM (RIA)

at 2456 n.17.

     Ultimately, we applied a standard other than that set forth

in Rev. Rul. 80-80, supra, based upon our survey of the case law

and our understanding of both the revenue ruling and the parties'

respective positions.   Our survey of the case law disclosed that

no court, including the Fifth Circuit, has expressly adopted the

“clearly imminent” standard articulated in the ruling.3   Further,

     2
      As explained in greater detail below, we would nevertheless
sustain respondent's determination that petitioner erred in
relying on sec. 25.2512-5(f) (Table A), Gift Tax Regs., even
assuming that the standard set forth in Rev. Rul. 80-80, 1980-1
C.B. 194, is controlling.
     3
      We note that Miami Beach First Natl. Bank v. United States,
                                                   (continued...)
                               - 9 -


we found the standard articulated in the ruling to be somewhat

vague relative to the approach taken by the courts addressing the

question.   Equally important, we did not feel bound to apply Rev.

Rul. 80-80, supra.   Absent exceptional circumstances, revenue

rulings are viewed as “merely an opinion of a lawyer in the

agency”, they are not considered to have the effect of law, and

they are not binding on the Commissioner or the courts.   See sec.

6110(j)(3); Foil v. Commissioner, 920 F.2d 1196, 1201 (5th Cir.

1990), affg. 92 T.C. 376 (1989); Stubbs, Overbeck & Associates v.

United States, 445 F.2d 1142, 1146-1147 (5th Cir. 1971); Lucky

Stores, Inc. & Subs. v. Commissioner, 105 T.C. 420, 433 (1995);

Gordon v. Commissioner, 88 T.C. 630, 635-636 n.3 (1987); see also

Dickman v. Commissioner, 465 U.S. 330, 343 (1984).   Of course, a

revenue ruling may achieve the force of law when a statute has

been reenacted unchanged after the interpretation of the statute

in the ruling was expressly called to congressional attention.

See Estate of Lang v. Commissioner, 64 T.C. 404, 406-407 n.4

(1975), affd. in part and revd. in part 613 F.2d 770 (9th Cir.

1980).   In addition, the Court of Appeals for the Fifth Circuit

has held that a revenue ruling may be binding on the Commissioner

where a taxpayer relies on the ruling and there is not a statute,


     3
      (...continued)
443 F.2d 116 (5th Cir. 1971), the Court of Appeals for the Fifth
Circuit's most detailed discussion of the issue presented herein,
predated the issuance of Rev. Rul. 80-80, 1980-1 C.B. 194.
                              - 10 -


regulation, or case law on point.   See Silco, Inc. v. United

States, 779 F.2d 282, 286-287 (5th Cir. 1986).   In light of the

plethora of case law involving the issue presented herein, and

given that Rev. Rul. 80-80, supra, is nothing more than an

interpretation of the case law, we do not consider the ruling to

have the force of law. It is worth noting here that petitioner

did not argue that respondent is somehow estopped to deny that

Rev. Rul. 80-80, supra, is controlling,4 nor would petitioner

have been likely to prevail on such an argument.   See Dickman v.

Commissioner, supra at 343.   In this regard, respondent was free

to modify her position vis-a-vis the revenue ruling.

     After reviewing the case law, and particularly the Court of

Appeals for the Fifth Circuit's opinion in Miami Beach First

     4
      Petitioner's reply brief, at 35, states:

     Respondent also ignores her own published Revenue
     Ruling (Rev. Rul. 80-80, 1980-1 C.B. 194) which was
     issued by Respondent to offer guidance to taxpayers
     dealing with the very question we have here for
     decision. Respondent ignores Rev. Rul. 80-80 despite
     written indication from the National Office of the
     Internal Revenue Service that it considers Rev. Rul.
     80-80 the governing authority in this area and that
     further, the Internal Revenue Service follows the
     mandates of Rev. Rul. 80-80 in their litigating
     posture. It would appear that there is a very serious
     lack of coordination between the National Office of the
     Internal Revenue Service and local IRS trial counsel in
     Dallas, Texas. See Estate of Powell, T.C. Memo. 1992-
     367.

We do not view the foregoing as stating a claim that respondent
should be estopped from advocating a legal standard other than
that set forth in Rev. Rul. 80-80, 1980-1 C.B. 194.
                             - 11 -


Natl. Bank v. Commissioner, supra, and the cases cited therein

(including our opinion in Estate of Jennings v. Commissioner, 10

T.C. 323 (1948)), we concluded:

          The common theme of these cases is that the
     actuarial tables generally are to be respected unless
     the established facts show that the result under the
     tables is unrealistic or unreasonable. Consistent with
     the Estate of Jennings line of cases, the proper
     inquiry in this case is whether the life tenant's
     actual life expectancy is so exceptional that a
     departure from the actuarial tables is justified.
     While the term “exceptional” is difficult to define,
     Estate of Jennings and its progeny require proof that
     death is either imminent or predictable to a reasonable
     certainty within 1 year of the valuation date. [Estate
     of McLendon v. Commissioner, 66 TCM (CCH) at 967, 64
     TCM (RIA) at 2459; emphasis added.]

     In applying the foregoing standard to the facts as we found

them, we concluded as follows:

          In sum, the record as a whole paints a picture of
     an increasingly sick man suffering from a virtually
     incurable disease. Although Gordon's physical
     condition fluctuated from day to day, the overall trend
     was one of fairly rapid deterioration. Under the
     circumstances, we conclude that it was evident to all
     involved that Gordon was not likely to survive more
     than 1 year from March 5, 1986.21 In light of Gordon's
     diminished actual life expectancy on the date that the
     private annuity agreement was executed, we hold that it
     was improper for Gordon to compute the value of the
     remainder interest in question under section 25.2512-
     5(f) (Table A), Gift Tax Regs. Rather, the remainder
     interest is properly valued based on Gordon's actual
     life expectancy as of March 5, 1986, which we hold to
     be 1 year. [Estate of McLendon v. Commissioner, 66 TCM
     (CCH) at 968, 64 TCM (RIA) at 2460.]

     _____________
          21
             Given contemporary advances in medicine and the
     ability to sustain life, we recognize that it is
     increasingly difficult to predict actual life
     expectancy with a high degree of certainty. We respect
                               - 12 -


     Dr. Fleischman's candor in admitting that Gordon's
     death could not be predicted with “absolute certainty.”
     However, when a disease has progressed to such an
     extent as was present in the instant case, it becomes
     evident to those familiar with the physical condition
     of the patient that a cure cannot be expected and that
     death will inevitably follow.

The language quoted above was intended to convey our view that,

as of March 5, 1986, decedent's death was predictable within 1

year to a reasonable certainty.   We therefore ruled that it was

improper to value the remainder interest that decedent

transferred pursuant to the private annuity agreement under

section 25.2512-5(f) (Table A), Gift Tax Regs.     Id.

     The foregoing aside, we likewise would sustain respondent's

determination on this point assuming that the “clearly imminent”

standard articulated in Rev. Rul. 80-80, supra, is controlling.

Rev. Rul. 80-80, supra, states that the question of whether death

is clearly imminent generally is to be determined on the facts

and circumstances of the particular case.    Decedent did not

exhibit any clinical signs of imminent death as of March 5, 1986,

nor was he as physically disabled as the individuals described in

Estate of Hoelzel v. Commissioner, 28 T.C. 384 (1957), and Estate

of Jennings v. Commissioner, supra.     Nonetheless, decedent was

terminally ill, and his condition was deteriorating fairly

rapidly as of March 5, 1986.   Estate of McLendon v. Commissioner,

66 TCM (CCH) at 968, 64 TCM (RIA) at 2460.    Considering all of

the facts and circumstances, we find that on March 5, 1986,
                              - 13 -


decedent was afflicted with an incurable physical condition that

was in such an advanced stage that death was clearly imminent.

     We recognize that Rev. Rul. 80-80, supra, states that death

is not clearly imminent if the individual may survive for a year

or more and if such a possibility is not so remote as to be

negligible.   Dr. Freireich (petitioner's expert) declined to

offer an opinion as to decedent's actual life expectancy as of

March 5, 1986.   On the other hand, Dr. Fleischman (respondent's

expert) stated that, from a statistical standpoint, the

likelihood that decedent would live another year was 10 percent

or less.   Considering all of the facts and circumstances, we find

that although decedent's life expectancy may have been as long as

1 year as of March 5, 1986, decedent's continuing deterioration

at that time demonstrates that the possibility of decedent's

survival for a year or more was so remote as to be negligible.

     A final point of clarification is necessary.    While we

indeed held decedent's actual life expectancy as of March 5,

1986, to be 1 year, that statement was not so much intended to

serve as this Court's “Solomon-like” declaration of the precise

number of days decedent would survive, but rather was intended to

give petitioner the benefit of the doubt so far as a

determination of actual life expectancy was necessary in order

for the parties to complete the computations required for entry

of decision in this case.   See Rule 155.   Consistent with Dr.
                                - 14 -


Fleischman's testimony, we continue to believe that the

possibility that decedent would survive a year or more from March

5, 1986, was remote at best.

     To reflect the foregoing,

                               An appropriate order will

                        be issued.
