                          T.C. Memo. 2011-255



                      UNITED STATES TAX COURT



 ESTATE OF VINCENT J. DUNCAN, SR., DECEASED, NORTHERN TRUST, NA
    AND VINCENT J. DUNCAN, JR., CO-EXECUTORS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 7549-10.                  Filed October 31, 2011.



     Thomas C. Borders, Carol A. Harrington, and Michael J.

Sorrow, for petitioner.

     H. Barton Thomas, Jr., Tracy Hogan, and James Cascino, for

respondent.



              MEMORANDUM FINDINGS OF FACT AND OPINION


     KROUPA, Judge:   Respondent determined a $4,900,760

deficiency in the Federal estate tax of the Estate of Vincent J.

Duncan, Sr. (the Estate).    After concessions, we are asked to
                                - 2 -

decide three issues.    The first issue is whether the Estate may

deduct interest incurred when a trust, which was the residual

beneficiary of the Estate and the value of whose assets were

included in the value of the gross estate, borrowed funds to

enable the Estate to pay its Federal estate tax as an

administration expense.    We hold that the interest expense is

deductible.   The second issue is whether the Estate may decrease

the gross estate.    We hold that it may not.   The third issue is

whether the Estate may deduct additional administration expenses

that were not claimed on its estate tax return.    We hold that it

may to the extent described below.

                          FINDINGS OF FACT

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

The stipulation of facts and the accompanying exhibits are

incorporated by this reference.    Vincent J. Duncan, Sr.

(Decedent) resided in Denver, Colorado when he died, and the

Estate was admitted to probate in California, Colorado, Texas and

Montana.   Decedent’s son, Vincent J. Duncan, Jr. (Vincent Jr.),

and Northern Trust, NA (NTNA) are co-executors of the Estate.

NTNA and the Northern Trust Company (NTC) are wholly owned

subsidiaries of the Northern Trust Corporation.    When the

petition was filed, Vincent Jr. resided in Denver, Colorado, and

the Northern Trust Corporation’s principal place of business was

Chicago, Illinois.
                                - 3 -

     Decedent’s father, Walter Duncan (Walter), established a

successful oil and gas business.1   At Walter’s death in 1983 his

will divided the business among Decedent and his brothers,

Raymond and Walter Jr., with each receiving his share of the

business in trust.   The trust created for Decedent’s benefit (the

Walter Trust) named Decedent, Decedent’s spouse and Decedent’s

descendants as beneficiaries during Decedent’s lifetime.    The

trust granted Decedent the power to appoint the trust’s remainder

beneficiaries at his death.   Vincent Jr. and NTC have served as

the co-trustees of the Walter Trust since September 2005.

     After inheriting one-third of Walter’s oil and gas business,

Decedent started his own oil and gas business.   Decedent’s oil

and gas business was held through a limited partnership, Club Oil

& Gas, Ltd., LP (Club LP).    At Club LP’s formation Decedent held

a 99-percent limited partner interest.   The remaining 1-percent

general partner interest was held by Club Oil and Gas, Inc. (Club

Inc.), an S corporation wholly owned by Decedent.

     In addition to his ownership of these oil and gas

businesses, Decedent acquired complete ownership of the Durango

Ski Company (DSC) in 1990.    DSC operated a ski resort in Durango,


     1
      Walter also served on the Board of Trustees of the
University of Notre Dame. The Duncan family has a long history
with the university, with three of Walter’s sons and several of
his grandchildren having graduated from the university. Walter’s
son Raymond made a gift to the university that enabled the
construction of a new residence hall, Duncan Hall, which opened
in 2008.
                                 - 4 -

Colorado and owned real property near the resort.   Decedent later

restructured the ownership of the ski resort and nearby land,

with the ski resort continuing to be held by DSC and ownership of

the land being placed in Durango Mountain Land Company LLC (DML).

By December 30, 2005, Decedent had sold portions of his interest

in DSC and DML to a group of investors (the Cobb group).

     Decedent created a revocable trust, the Vincent J. Duncan

2001 Trust (the 2001 Trust).    In June 2004 Decedent amended the

2001 Trust’s trust instrument.    The amended trust instrument (the

Trust Instrument) appointed Vincent Jr. and NTC as co-trustees

and is governed by Illinois law.    Under the Trust Instrument, the

Estate’s obligations and “death” taxes are to be paid by the 2001

Trust after Decedent’s death.    After payment of those obligations

and taxes, the 2001 Trust is to be divided into six trusts, each

named after one of his six children (collectively, the 2001

Subtrusts).   The Trust Instrument designates the child after whom

a 2001 Subtrust is named as the “primary beneficiary” of that

particular trust.   Each “primary beneficiary” and his or her

spouse is the beneficiary during his or her lifetime of the 2001

Subtrust named after him or her.    Each “primary beneficiary” has

the power to appoint at his or her death any person or entity as

the remainder beneficiary of his or her trust.   The 2001 Trust

has not yet been divided into the 2001 Subtrusts.   NTC has
                                - 5 -

received and continues to receive trust management fees for its

role as co-trustee.

     By December 30, 2005, Decedent had transferred his interest

in Club LP to the 2001 Trust.    On December 31, 2005, Decedent

reorganized the ownership structure of the oil and gas

businesses.    As part of the reorganization, the Walter Trust

contributed the oil and gas business that Decedent inherited from

Walter and approximately $2 million in cash to Club LP in

exchange for a 56.6245-percent partnership interest.    Club LP

subsequently converted into Club Oil & Gas Ltd. LLC (Club LLC),

and the 2001 Trust assigned its membership interest in Club LLC

to Club Inc.

     Decedent died on January 14, 2006.    Decedent exercised his

power of appointment over the Walter Trust in his will, which

directed the Walter Trust’s corpus to be distributed pursuant to

the Trust Instrument.    The Trust Instrument required the Walter

Trust to be divided into six trusts, each named after one of

Decedent’s six children (collectively, the Walter Subtrusts).     As

with the 2001 Subtrusts, the Trust Instrument designates the

child after whom a Walter Subtrust is named as the “primary

beneficiary” of that particular trust, and each “primary

beneficiary” and his or her spouse is the beneficiary of the

Walter Subtrust named after him or her during his or her

lifetime.   Unlike with the 2001 Subtrusts, however, each “primary
                                   - 6 -

beneficiary” has a limited power of appointment that allows for

the distribution of the trust corpus only to a descendant of

Decedent or for a charitable purpose.       The Walter Trust was

divided into the Walter Subtrusts in 2009.2

       At his death, Decedent owned residences in Denver, Vail, and

Durango, Colorado, and Rancho Santa Fe, California.       Decedent

also owned vacant lots in Crosby, Texas, and Silesia, Montana.

       The 2001 Trust became irrevocable upon Decedent’s death.       At

the time of Decedent’s death, the 2001 Trust owned 100 percent of

Club Inc. and 45.25 percent of Duncan Mountain, Inc.       The 2001

Trust also had some indirect ownership interest in DSC, DML, and

Club LLC.

       The Estate sold its marketable securities for approximately

$2 million and received a $3.2 million distribution from Club

Inc.       NTC, however, estimated that the Estate’s Federal estate

tax liability would be approximately $11.1 million and determined

that the 2001 Trust also needed to retain a cash reserve to

satisfy the Estate’s other obligations (e.g., ongoing

administration expenses and amounts Decedent owed to his former

spouse under a divorce decree).

       To raise the necessary funds, Vincent Jr. and NTC decided to

borrow money.       They decided the 2001 Trust needed a 15-year term


       2
      For the sake of simplicity, we hereafter refer to the
Walter Subtrusts as the Walter Trust and the 2001 Subtrusts as
the 2001 Trust.
                               - 7 -

on the loan because the volatility of oil and gas prices made

income from the oil and gas businesses difficult to predict.

They accordingly asked the Northern Trust Corporation’s banking

department what the prevailing interest rate for a 15-year bullet

loan (market rate) was and were quoted a rate of 6.7 percent.

     In October 2006 Vincent Jr. and NTC (as co-trustees of both

the 2001 Trust and the Walter Trust) executed a secured

promissory note (the note) reflecting a $6,475,515.97 loan from

the Walter Trust to the 2001 Trust.    The loan called for interest

at a rate of 6.7 percent per annum, compounded annually, with all

interest and principal payable on October 1, 2021 (i.e., in 15

years).   The note expressly prohibited the prepayment of interest

and principal.   When the loan was made, the long-term applicable

Federal rate was 5.02 percent and the prime rate of interest was

8.25 percent.

     The Estate applied for--and ultimately received--an

extension of time to file its Federal estate tax return

(extension request).   The Estate included an $11,075,515 payment

of its estimated Federal estate tax with the extension request.3

     In April 2007 the Estate timely filed its Federal estate tax

return.   The value of the assets of the 2001 Trust was included

in the value of Decedent’s gross estate.   The Estate claimed a



     3
      The record does not explain how the proceeds of the loan
were transferred to the Estate.
                               - 8 -

$10,653,826 deduction for the interest owed to the Walter Trust

(interest expense) and a $750,000 deduction for estate settlement

services paid to Vincent Jr. and NTC as co-trustees of the 2001

Trust.   The Estate reported a Federal estate tax liability of

$8,283,410, which was $2,792,105 less than the amount the Estate

paid with its extension request.   The Government refunded that

difference to the Estate.

     The Estate’s properties in California, Texas and Montana

were distributed to the 2001 Trust in October 2007, October 2008

and June 2010, respectively.

     In December 2009 the Internal Revenue Service issued the

Estate the deficiency notice determining that the Estate’s

interest expense was not deductible.    The Estate filed a timely

petition in response to the notice.

     The Estate later filed an amended petition seeking to

decrease the gross estate by $28,693 and to deduct $1,168,815.31

in expenses not claimed on the Estate’s return.   Respondent has

conceded that of these expenses, the Estate is entitled to deduct

specified amounts for funeral expenses, expenses related to

Decedent’s Denver property, probate filing fees, death

certificate costs and fees paid to the Ryder Scott Company.   The

Estate has conceded that it is not entitled to deduct the cost of

storing Decedent’s personal property.
                                - 9 -

                               OPINION

       We are asked to decide whether the Estate may deduct the

interest on the loan from the Walter Trust to the 2001 Trust.     We

must also decide whether the Estate may reduce the gross estate

and whether the Estate may deduct expenses that were not claimed

on its Federal estate tax return.    We first address the burden of

proof.

I.    Burden of Proof

       The Commissioner’s determinations are generally presumed

correct, and the taxpayer bears the burden of proving that the

Commissioner’s determinations are erroneous.    Rule 142(a);4 Welch

v. Helvering, 290 U.S. 111, 115 (1933).    The Estate does not

argue that the burden of proof shifted to respondent under

section 7491(a).    We therefore find that the burden of proof

remains with the Estate.

II.    Interest Expense

       We now turn to whether the Estate may deduct the interest on

the loan from the Walter Trust as an administration expense under

section 2053.    The value of a decedent’s taxable estate is

determined by deducting from the value of the gross estate

certain amounts including administration expenses allowable by



       4
      All Rule references are to the Tax Court Rules of Practice
and Procedure, and all section references are to the Internal
Revenue Code in effect for the date of Decedent’s death, unless
otherwise indicated.
                              - 10 -

the laws of the jurisdiction where the estate is administered.

Sec. 2053(a)(2).   Expenses incurred in administering non-probate

property are generally deductible to the same extent as they

would be under section 2053(a).   Sec. 2053(b).

     Respondent argues that the Estate is not entitled to deduct

its interest expense because the loan was not a bona fide debt,

the loan was not actually and reasonably necessary to the

administration of the Estate, and the amount of the interest

expense is not ascertainable with reasonable certainty.5    We now

consider each of these arguments in turn.

     A.   Whether the Loan Was a Bona Fide Debt

     An estate administration expense deduction for any

indebtedness is limited to the extent that the indebtedness was

contracted bona fide and for adequate and full consideration in

money or money’s worth.   Sec. 2053(c)(1)(A).

     Respondent’s argument that the loan is not bona fide is

based upon his analysis of 15 factors collectively taken from

prior cases.   See Estate of Rosen v. Commissioner, T.C. Memo.

2006-115; Estate of Graegin v. Commissioner, T.C. Memo. 1988-477.


     5
      The Estate may deduct the 2001 Trust’s interest expense (if
the requirements of sec. 2053(a) are met) because the value of
the 2001 Trust’s assets was included in the gross estate. See
sec. 2053(b); cf. Estate of Lasarzig v. Commissioner, T.C. Memo.
1999-307, (denying an estate an interest expense deduction
because that nexus did not exist). In Estate of Lasarzig, the
borrower was not the QTIP trust that was the residual beneficiary
of the estate but rather the personal family trusts established
by the beneficiaries of that QTIP trust.
                                - 11 -

Respondent contends that the balance of these factors weighs

against finding the loan to be genuine indebtedness.

     The factors taken from Estate of Rosen are irrelevant to the

present case because they were used to decide whether a purported

loan should be classified as equity rather than debt.    Here, the

Walter Trust and the 2001 Trust are not related in a way in which

one can be considered the owner of the other.   The loan therefore

cannot be equity even if it is not bona fide.

     While the factors taken from Estate of Graegin may provide

helpful guidance, they are not exclusive, and no single factor is

determinative.   See Patrick v. Commissioner, T.C. Memo. 1998-30,

affd. without published opinion 181 F.3d 103 (6th Cir. 1999).

The factors are simply objective criteria helpful to the Court in

analyzing all relevant facts and circumstances.    Id.   The

ultimate questions are whether there was a genuine intention to

create a debt with a reasonable expectation of repayment and

whether that intention fits the economic reality of creating a

debtor-creditor relationship.    Litton Bus. Sys., Inc. v.

Commissioner, 61 T.C. 367, 377 (1973).

     Respondent contends that there is no objective indication

that the Walter Trust intended to create a genuine debt and that

the 2001 Trust intended to repay the loan.   Respondent argues

that the loan has no economic consequence because the borrower

and creditor trusts are identical, having the same trustees and
                              - 12 -

beneficiaries.   Respondent apparently sees the two trusts as a

single trust, with the co-trustees free to shuffle money between

these “trusts” as they please.   Respondent argues that the Walter

Trust has no reason to demand repayment because the detriment to

it would be offset by the gain to the 2001 Trust.    Respondent’s

arguments fail because they ignore Federal tax law and State law.

     Vincent Jr. and NTC were compelled to direct the 2001 Trust

to repay the Walter Trust because Illinois State law requires a

trustee of two distinct trusts to maintain the trusts’

individuality.   For example, a trustee may not commingle two

trusts’ assets even when the trusts’ beneficiaries are identical:

“‘That the trustees were or are the same, or that the corpus of

each fund finally is to be paid to the same person, can make no

difference.   Each trust must stand alone, otherwise losses

legitimately to be borne, with corresponding loss of income by

one, could be imposed in part upon the other.’”     Harris Trust &

Sav. Bank v. Wanner, 61 N.E.2d 860, 865 (Ill. App. Ct. 1945)

(quoting Moore v. McKenzie, 92 A. 296, 298 (Me. 1914) (emphasis

added)).   Thus, Vincent Jr. and NTC could not simply ignore the

2001 Trust’s loan obligations because nonpayment of the loan

would improperly impose a loss on the Walter Trust and thereby

effectively shift assets to the 2001 Trust.

     Furthermore, there is no basis in Federal tax law for

treating the 2001 Trust and the Walter Trust as a single trust.
                                - 13 -

The only authorities that allow consolidation of multiple trusts

are an income tax statute and a regulation addressing trusts with

the same or substantially the same grantor.6    See sec. 643(f);

sec. 1.641(a)-0(c), Income Tax Regs.     Neither the statute nor the

regulation is applicable here because this is an estate tax case

and the trusts do not share a common grantor.

     B.     Whether the Loan Was Actually and Reasonably Necessary

     The amount of deductible administration expenses is limited

to those expenses which are actually and necessarily incurred in

the administration of the estate.     Estate of Todd v.

Commissioner, 57 T.C. 288, 296 (1971); sec. 20.2053-3(a), Estate

Tax Regs.

     Respondent argues that the loan was not actually and

reasonably necessary because (1) the 2001 Trust could have

instead sold illiquid assets (e.g., a portion of its interest in

Club LLC) to the Walter Trust and (2) the terms of the loan were

unreasonable.




     6
      We are aware that courts have treated multiple trusts as a
single trust where the “trusts” were actually administered as one
trust. See Sence v. United States, 184 Ct. Cl. 67, 394 F.2d 842
(1968); Boyce v. United States, 190 F. Supp. 950 (W.D. La. 1961).
Respondent does not allege and the record does not suggest,
however, that Vincent Jr. and NTC administered the 2001 Trust and
Walter Trust as a single trust. Furthermore, the “trusts” in
those cases also had common grantors.
                              - 14 -

          1.   Whether the Estate Could Have Met Its Obligations
               By Selling Illiquid Assets to the Walter Trust

     Expenses incurred to prevent financial loss resulting from a

forced sale of an estate’s assets to pay estate taxes are

deductible administration expenses.    Estate of Graegin v.

Commissioner, supra; see also Estate of Todd v. Commissioner,

supra.

     The Estate claims it needed to borrow money because it could

not have otherwise met its obligations without selling illiquid

assets at reduced prices.   The Estate estimated its Federal

estate tax liability to be $11.1 million but had liquid assets of

only $5.2 million at the time the loan was made.

     Respondent does not contest that the Estate had insufficient

liquid assets and that a forced sale of illiquid assets to a

third party would have required a discount.   Respondent instead

argues that the 2001 Trust did not need to borrow money because

it could have sold assets to the Walter Trust at full fair market

value.   Respondent argues that where the beneficiary of an estate

was also the majority partner of a partnership owned by the

estate, we found a loan from the estate to the partnership

unnecessary because the estate could have redeemed its illiquid

partnership interest in exchange for marketable securities held

by the partnership.   See Estate of Black v. Commissioner, 133

T.C. 340 (2009).
                              - 15 -

     There, Mrs. Black’s estate borrowed from the family limited

partnership that it substantially owned.    The income and

distribution history of the partnership indicated that future

distributions would be insufficient to allow the estate to repay

the loan.   Because the loan could not be repaid without selling

stock owned by the partnership (and attributable to the estate’s

partnership interest), the Court held the loan was unnecessary.

We also noted that because the estate’s beneficiary was also the

partnership’s majority partner, he was on both sides of the

transaction and effectively paying interest to himself.      As a

result, those payments had no effect on his net worth aside from

the net tax savings.

     We find this is of no moment here.    Respondent misinterprets

our holding in Estate of Black.   We did not hold that the loan

was unnecessary because the estate could have sold stock.      We

held the loan was unnecessary because the estate would have had

to sell the stock under any circumstance.    The sale of the stock

was inevitable, and the estate therefore could not have entered

into the loan for the purpose of avoiding that sale.

     Furthermore, respondent’s conclusion is incorrect that the

2001 Trust could have sold assets to the Walter Trust at fair

market value.   If other prospective purchasers had insisted on a

discount, Vincent Jr. and NTC (as trustees of the Walter Trust)

would have been required to do the same.    Under Illinois State
                                 - 16 -

law, Vincent Jr. and the NTC could not have directed the Walter

Trust to purchase the 2001 Trust’s illiquid assets at an

unreduced price because they would have improperly shifted the

value of the discount from the Walter Trust to the 2001 Trust.

            2.   Whether the Terms of the Loan Were Reasonable

     Respondent argues that the loan should have carried a

shorter term and a lower interest rate.

                  a.   Whether the 15-Year Term Was Necessary

     Respondent acknowledges that this Court has generally

declined to second guess the judgments of a fiduciary acting in

the best interests of the estate.      McKee v. Commissioner, T.C.

Memo. 1996-362; Estate of Sturgis v. Commissioner, T.C. Memo.

1987-415.    Respondent, however, argues that we did not permit an

estate to deduct its interest expenses beyond the first 15.5

months of a 10-year loan when we found the estate could repay the

loan at that time.      Estate of Gilman v. Commissioner, T.C. Memo.

2004-286.    Respondent contends that, within 3 years after the

Estate entered into the loan, it had generated cash in excess of

$16.4 million that it could have used to repay the loan.

Respondent argues that the Estate’s interest deduction should be

limited to three years to reflect the Estate’s reasonable ability

to have repaid the loan by the end of that period.

     We did not, as respondent apparently suggests, second guess

the Gilman estate’s co-executors in Estate of Gilman.      There, an
                               - 17 -

estate owned stock of a holding company and acquired $143 million

in promissory notes in a subsequent tax-free reorganization of

the holding company.    To pay its Federal estate tax, the estate

obtained a 10-year, $38 million loan from a bank.    Because the

notes the estate held were due approximately 15.5 months later

and there was no indication that the notes’ obligors would fail

to repay, there was no question that the estate could have fully

paid its taxes and administration expenses from the repayment of

the notes.    We therefore held that the estate did not need to

borrow funds past the date the notes were to be repaid and

limited the estate’s interest expense deduction accordingly.

     Here, unlike the co-executors in Estate of Gilman, Vincent

Jr. and NTC were not reasonably certain that the 2001 Trust would

have enough money to fully pay the Estate’s Federal estate tax

and administration expenses within three years (the period to

which respondent proposes to limit the Estate’s interest expense

deduction).   To the contrary, Club Inc.’s accountant, Gregory

Smith, credibly testified that the volatility in the price of oil

and gas made future income difficult to predict.    Although the

Estate may have    generated enough cash to repay the loan after

three years,7 we will not use the benefit of hindsight to second


     7
      The Estate disputes respondent’s contention that the 2001
Trust had generated over $16.4 million in cash by the end of
2009. We find there was no indication at the time the loan was
entered into that the 2001 Trust was expected to generate
                                                    (continued...)
                                - 18 -

guess Vincent Jr.’s and NTC’s judgments when they were acting in

the best interest of the Estate.

                b.    Whether the Interest Rate Was Excessive

     Respondent acknowledges that the interest rate here is less

than the prime rate and that we have previously approved a loan

based on the prime rate.    See Estate of Graegin v. Commissioner,

T.C. Memo. 1988-477.     Respondent, however, seeks to distinguish

this case by arguing that the interest rate in Estate of Graegin

had an actual economic consequence to the estate because the

corporate lender included shareholders outside the Graegin

family.   Respondent suggests that the co-trustees here should

have used the long-term applicable Federal rate instead and that

their selection of a higher interest rate has no economic

consequence because the Walter Trust’s interest income offsets

the 2001 Trust’s interest expense.       Respondent argues that the

loan’s interest rate was not reasonable because there were no

negotiations between the trusts.

     We disagree that the co-trustees should have used the long-

term applicable Federal rate because that rate does not represent

the 2001 Trust’s cost of borrowing.       Interest rates are generally

determined according to the debtor’s rather than the creditor’s

characteristics.     United States v. Camino Real Landscape Maint.


     7
      (...continued)
sufficient cash to repay the loan within three years, and
consequently, we need not resolve this dispute.
                              - 19 -

Contractors, Inc., 818 F.2d 1503, 1506 (9th Cir. 1987).     The

long-term applicable Federal rate is thus inappropriate because

it is based on the yield on Government obligations.   See sec.

1274(d)(1)(C)(i) and (ii).   It therefore reflects the

Government’s cost of borrowing, which is low because Government

obligations are low-risk investments.   See United States v.

Camino Real Landscape Maint. Contractors, Inc., supra at 1506.

Using the long-term applicable Federal rate consequently would

have been unfair to the Walter Trust.

     We reject respondent’s argument that a higher interest rate

is economically inconsequential simply because it is premised

upon his treatment of the Walter Trust and the 2001 Trust as a

single trust.   Again, there is no basis in Federal tax law or

State law for doing so.

     We find perplexing respondent’s argument that the interest

rate was unreasonable since no negotiations had taken place.

Vincent Jr. and NTC asked the Northern Trust Corporation’s

banking department for the market rate of interest.   We do not

understand why or how Vincent Jr. and NTC, as co-trustees of both

trusts, would subsequently sit down and negotiate between

themselves a different figure.   Formal negotiations would have

amounted to nothing more than playacting, and to impose such a

requirement on the co-trustees would be absurd.   Vincent Jr. and

NTC made a good-faith effort to select an interest rate that was
                               - 20 -

fair to both trusts.    Once more, there is no reason to second

guess their judgment.

     C.   Whether the Amount of the Interest Expense Is
          Ascertainable With Reasonable Certainty

     An item may be deducted even if its exact amount is not then

known as long as it is ascertainable with reasonable certainty

and will be paid.   Sec. 20.2053-1(b)(3), Estate Tax Regs.   A

deduction may not be claimed based upon a vague or uncertain

estimate.   Id.

     Respondent argues that the amount of the interest expense is

uncertain because the 2001 Trust could choose to make an early

repayment of the loan.    An early repayment would reduce the total

amount of interest.    Respondent acknowledges that a clause in the

note prohibits prepayment.    Respondent argues, nonetheless, that

because the same trustees and beneficiaries stand on both sides

of the transaction, the 2001 Trust’s reduced interest expense

cancels out the Walter Trust’s lost interest income and there is

thus no economic interest to enforce the prepayment prohibition

clause.

     We disagree with respondent and find prepayment would

definitely not occur.    As discussed above, the Walter Trust and

the 2001 Trust are distinct trusts to be administered separately.

If interest rates rose to the point where the Walter Trust would

benefit from early repayment, Vincent Jr. and NTC would not
                                  - 21 -

direct an early repayment because this would harm the 2001 Trust.

The 2001 Trust would be disadvantaged in this situation because

it would be better off reinvesting the money used to prepay the

loan.       If interest rates did not rise, Vincent Jr. and NTC would

not allow prepayment because that would reduce the Walter Trust’s

interest income.

       D.     Conclusion

       We find that the loan was a bona fide debt, the interest

expense was actually and necessarily incurred in the

administration of the estate, and the amount of interest was

ascertainable with reasonable certainty.       We therefore hold that

the Estate is entitled to deduct the interest expense as an

estate administration expense under section 2053.

III.    Decrease in Gross Estate

       We now turn to whether the Estate may decrease the gross

estate.       In its amended petition, the Estate claimed a $28,693

decrease in Decedent’s gross estate.       The Estate did not raise

the issue at trial or on brief.       We therefore deem the Estate to

have conceded or abandoned this issue.

IV.    Deductions Not Claimed on the Estate’s Return

       We now turn to whether the Estate may deduct expenses not

claimed on its Federal estate tax return.
                                   - 22 -

     A.     Additional Attorney’s Fees

     The Estate claimed $247,611.96 in additional attorney’s

fees.     Respondent has conceded that the Estate is entitled to

deduct reasonable attorney’s fees computed under Rule 155.       The

Estate argues that the reasonableness of the attorney’s fees is a

legal issue that must be decided before Rule 155 computations.

We agree.

     New issues generally may not be raised in a Rule 155

computation.     Rule 155(c); Harris v. Commissioner, 99 T.C. 121,

123 (1992), affd. 16 F.3d 75 (5th Cir. 1994).       Issues considered

under Rule 155 are limited to purely mathematically generated

computational items.     Harris v. Commissioner, supra at 124.

Determining what amount of attorney’s fees is reasonable requires

more than mere mathematical computation and therefore cannot be

done under Rule 155.

     Respondent has not asserted that the $247,611.96 in

additional attorney’s fees claimed by the Estate is unreasonable.

Respondent is therefore deemed to have conceded this issue.

     B.     Real Estate Expenses

     Expenses incurred in preserving and distributing the estate

are deductible, including the cost of storing or maintaining

property of the estate if it is impossible to immediately

distribute to the beneficiaries.       Sec. 20.2053-3(d)(1), Estate

Tax Regs.
                               - 23 -

     Respondent argues that the Estate has failed to explain why

it could not have distributed its real properties to the 2001

Trust before filing its return.    If the Estate could have made

those distributions, then these real estate expenses (incurred

after the return filing) were unnecessary.

     The Estate claims that an executor customarily delays

distributing the property of the estate until the estate tax

liability is finally determined because the executor may become

personally liable if the estate’s assets are insufficient to pay

the taxes.    The Estate contends that the present controversy thus

prevents the immediate distribution of the Estate’s real

property.    The Estate contends that its co-executors can

distribute that property once this litigation concludes and they

no longer face the possibility of personal liability.

     The record belies the Estate’s contention because it shows

that the Estate has already distributed some of the properties to

the 2001 Trust.    The Estate has consequently failed to provide a

valid explanation of why it needed to retain the real properties

and has thus has not shown that the real estate expenses were

necessary.    They therefore cannot be allowed.

     C.   Debts of the Decedent

     The value of the gross estate is determined by deducting

certain amounts including the amount of claims against the estate

allowable by the laws of the jurisdiction under which the estate
                               - 24 -

is being administered.   Sec. 2053(a)(3).     Only claims

representing enforceable, personal obligations of the decedent

existing on the date of the decedent’s death are deductible as

claims against the estate.   Sec. 20.2053-4, Estate Tax Regs.

     The Estate claimed deductions for a $38,583.90 payment to

Medicare and a $60 payment to Quest Diagnostics Lab for services

provided between November and December 2006.      The Estate claims

these payments were in satisfaction of debts the Decedent owed at

the time of his death, but it offered no evidence to support that

claim.    Furthermore, the debt to Quest Diagnostics Lab could not

have belonged to Decedent because the services were provided

almost a year after his death.    The Estate has therefore failed

to meet its burden of proof.

     D.   Trust Management Fees

     Expenses incurred in administering non-probate property are

deductible to the same extent as if incurred in administering

probate property.   Sec. 2053(b).   The deduction is limited,

however, to expenses occasioned 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.     Sec.

20.2053-8(b), Estate Tax Regs.    Expenses incurred on behalf of

the transferees are not deductible.     Id.

     The Estate argues that the monthly trust management fees

were expenses occasioned by Decedent’s death because they were
                              - 25 -

compensation for the services an executor would perform had all

the assets been included in Decedent’s probate estate.

Respondent argues that the trust management fees compensated NTC

and Vincent Jr. for managing the 2001 Trust’s assets rather than

settling or administering the Estate.

     We agree with respondent.     The trust management fees could

not have been compensation for services that an executor would

perform because they will continue to be paid after the Estate

has been closed.   According to Marlene Hersh, a senior asset

manager at NTC and a former administrator in NTC’s estate

settlement services department, the compensation for those

services is the estate settlement fees, which the Estate already

deducted on its return.   The Estate is thus not entitled to

deduct the trust management fees.

     E.   Miscellaneous Expenses

     The Estate claims a deduction for the payment of a $300 bank

fee for opening Decedent’s safety deposit box.    The record

establishes that the Estate did in fact make this payment, and

respondent has offered no reason we should find this expense

unrelated to the administration of the Estate.    The Estate is

thus entitled to deduct this expense.

     The Estate claims deductions for a $989.24 payment for

excess liability coverage and a $1,656.54 payment for auto

insurance.   The Estate generally asserts that all of its
                              - 26 -

miscellaneous administration expenses were paid after proper

review by its co-executors.   The co-executors’ approval of

expenses does not, however, establish their deductibility.     As a

matter of fact, the miscellaneous administration expenses claimed

by the Estate include $14,064 in storage expenses, which the

Estate has since conceded to be nondeductible.    Having failed to

offer any specific explanation and proof that these two insurance

expenses were connected to the administration of the Estate, the

Estate is not entitled to deduct these expenses.

V.   Conclusion

      The Estate’s interest expense is deductible because the loan

was genuine indebtedness, the interest expense was actually and

necessarily incurred in the administration of the Estate, and the

amount of interest was ascertainable with reasonable certainty.

Further, the Estate may not decrease the gross estate.    In

addition, the Estate is entitled to deduct its additional

attorney’s fees and a $300 bank fee.

      In reaching our holdings, we have considered all arguments

made, and to the extent not mentioned, we consider them

irrelevant, moot, or without merit.

      To reflect the foregoing,


                                           Decision will be entered

                                      under Rule 155.
