                         119 T.C. No. 13



                   UNITED STATES TAX COURT



ESTATE OF FRANK ARMSTRONG, JR., DECEASED, FRANK ARMSTRONG III,
                    EXECUTOR, Petitioner v.
         COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 1118-98.               Filed October 29, 2002.


        In 1991 and 1992, D gave stock to Cs and other
   donees. For gift tax purposes, D valued the stock at
   $100 per share. As a condition of receiving certain of
   these gifts, Cs agreed to pay additional gift taxes
   arising if the gifts of stock were later determined to
   have a fair market value greater than $100 per share.
   In 1993, D died. Subsequently, R determined that D’s
   gifts of stock should be valued at $109 per share,
   resulting in gift tax deficiencies which were paid by a
   trust that D had established. The total gift taxes
   paid on D’s 1991 and 1992 gifts of stock were
   $4,680,284. Cs paid none of these gift taxes.

        D’s estate and the trust sued for refunds of gift
   taxes paid, claiming that Cs’ obligations to pay
   additional gift taxes as a condition of the gifts they
   received reduced the value of the gifts. The U.S.
   Court of Appeals for the Fourth Circuit rejected the
   refund claims, holding that Cs’ obligations to pay
   additional gift taxes were contingent and highly
                                - 2 -

     speculative. Estate of Armstrong v. United States, 277
     F.3d 490 (4th Cir. 2002).

          1. Held: Pursuant to sec. 2035(c), I.R.C., D’s
     gross estate includes the $4,680,284 in gift taxes paid
     by or on behalf of D with respect to his 1991 and 1992
     gifts of stock. Held, further, the amount includable
     in D’s gross estate pursuant to sec. 2035(c), I.R.C.,
     is not reduced to take into account consideration
     allegedly received by D in connection with payment of
     the gift taxes.

          2. Held, further, sec. 2035(c), I.R.C., does not
     violate due process under the Fifth Amendment.

          3. Held, further, sec. 2035(c), I.R.C., does not
     violate equal protection requirements of the Fourteenth
     Amendment as encompassed by the Fifth Amendment.

          4. Held, further, no deduction is allowable under
     sec. 2055(a), I.R.C., with respect to gift taxes
     included in D’s gross estate pursuant to sec. 2035(c),
     I.R.C.


     Aubrey J. Owen and Stephen L. Pettler, Jr., for petitioner.

     Veena Luthra, Deborah C. Stanley, and Cheryl M.D. Rees, for

respondent.

                               OPINION


     THORNTON, Judge:   Respondent determined a $2,350,071 Federal

estate tax deficiency with respect to the Estate of Frank

Armstrong, Jr. (the estate).   This case is before us on

respondent’s motion for partial summary judgment under Rule 121.1



     1
       Unless otherwise indicated, 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.
                               - 3 -

Respondent seeks summary judgment upon the following issues:     (1)

Whether gift taxes of $4,680,284 paid by or on behalf of Frank

Armstrong, Jr. (decedent), on gifts made within 3 years of his

death are includable in his gross estate; (2) whether decedent

received partial consideration for the gifts so as to reduce the

gifts’ value and consequently the gift taxes includable in

decedent’s gross estate; (3) whether section 2035(c) violates the

Due Process Clause of the Fifth Amendment of the U.S.

Constitution; (4) whether section 2035(c) violates the equal

protection requirements of the Fourteenth Amendment, as embodied

in the Fifth Amendment; and (5) whether the estate may deduct

under section 2055 Federal gift taxes paid on gifts that decedent

made in 1991 and 1992.   As discussed in detail below, we will

grant respondent’s motion.

     Summary judgment may be granted under Rule 121(b) if the

moving party shows there is no dispute as to any material fact

and that a decision may be rendered as a matter of law; however,

the factual materials and inferences to be drawn from them must

be viewed most favorably for the party opposing the motion, who

“cannot rest upon mere allegations or denials, but must set forth

specific facts showing there is a genuine issue for trial.”

Brotman v. Commissioner, 105 T.C. 141, 142 (1995).
                               - 4 -

                            Background

     In a memorandum of law in support of its objection to

respondent’s motion for partial summary judgment, the estate

states that it agrees, with limited exceptions, to the statement

of facts contained in respondent’s memorandum of law in support

of the motion for partial summary judgment.   The following

factual summary is based on the undisputed portions of

respondent’s statement of facts, the parties’ stipulations, the

estate’s admissions, the pleadings, and an affidavit produced by

respondent with accompanying documents, to which the estate has

not objected.   This factual summary is set forth solely for

purposes of deciding the motion for partial summary judgment; it

does not constitute findings of fact.    See Sundstrand Corp. v.

Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th

Cir. 1994).

Decedent

     Decedent was president and primary stockholder of National

Fruit Product Co., Inc. (National Fruit), a closely held Virginia

corporation engaged in the manufacture of applesauce, apple

juice, and other fruit products.   On July 29, 1993, decedent

died.   His domicile at death was in Winchester, Virginia.    When

the petition was filed, the executor’s legal residence was in

Winchester, Virginia.
                               - 5 -



Decedent’s Divestiture of National Fruit Stock

     In 1991, at the age of 91, decedent began a program to

divest himself of his National Fruit stock.   Decedent made gifts

of some of his stock; National Fruit redeemed the remainder.

     Decedent’s Gifts of National Fruit Stock

     On December 26, 1991, decedent gave 5,725 shares of National

Fruit common stock to each of four children–-Frank Armstrong III,

William T. Armstrong, JoAnne A. Strader, and Gretchen A. Redmond

(the donee children).   At the same time, decedent gave 100 shares

to each of 11 grandchildren.

     On January 3, 1992, decedent made additional gifts of

National Fruit common stock:   Over 12,000 shares to each of the

donee children (12,732 each to two children, 12,532 shares to

another child, and 12,332 shares to the fourth child); another

100 shares to each of the 11 grandchildren; and 4,878 total

shares to two trusts that he established that same day.

     The Transferee Liability Agreement

     Also on January 3, 1992, decedent and the donee children

executed a transferee liability agreement (the transferee

agreement).   The transferee agreement stated that for gift tax

purposes decedent would report the value of his 1991 and 1992

gifts of National Fruit stock as $100 per share.   The transferee

agreement stated that decedent was making the January 3, 1992,

gifts to the donee children on the condition that they pay the
                               - 6 -

additional gift taxes (along with interest and related costs)

arising “by reason of any proposed adjustment to the amount of

[the] 1991 and 1992 gifts” by decedent of the National Fruit

stock.

     Redemption of Decedent’s Other National Fruit Shares

     On December 26, 1991, National Fruit redeemed all of

decedent’s preferred stock for cash and a private annuity.    On

January 6, 1992, National Fruit redeemed decedent’s remaining

common stock in consideration for a $6,065,300 promissory note

(the note) payable to decedent by National Fruit, with payment

guaranteed by the donee children.   On the same date, decedent

established the Frank Armstrong, Jr. Trust for the Benefit of

Frank Armstrong, Jr. (the trust), naming Frank Armstrong III as

trustee.   Decedent assigned the note to the trust.   The terms of

both the note and the trust provided for the payment of gift and

income tax liabilities and related costs resulting from the 1991

and 1992 gifts and redemptions of decedent’s National Fruit

stock.

1991 and 1992 Gift Taxes

     Decedent’s 1991 and 1992 Gift Tax Returns

     On his 1991 and 1992 Federal gift tax returns, decedent

reported his gifts of National Fruit stock, valued at $100 per

share, resulting in reported gift tax liabilities of $1,229,483

and $3,027,090 for 1991 and 1992, respectively.   With each gift
                                - 7 -

tax return, decedent submitted two checks in payment of the

reported liabilities:   For 1991, he submitted a $1,200,341 check

drawn on the trust’s bank account and a $29,142 check drawn on

his personal bank account; for 1992, he submitted a $3,015,595

check drawn on the trust’s bank account and a $11,495 check drawn

on his personal bank account.

     Respondent’s Gift Tax Determinations

     After decedent’s death in 1993, respondent determined that

decedent’s 1991 and 1992 gifts of National Fruit stock had a

value of $109 per share, rather than $100 per share as reported

on the gift tax returns, resulting in gift tax deficiencies of

$118,801 and $304,910 for 1991 and 1992, respectively.   The

estate consented to the immediate assessment and collection of

these determined gift tax deficiencies.

     Payment of the 1991 and 1992 Assessed Gift Tax Deficiencies

     In December 1995, respondent received payment from the trust

for the 1991 and 1992 assessed gift tax deficiencies and interest

thereon.   As of November 20, 1998, none of the donee children had

paid any of decedent’s gift tax liabilities, gift tax

deficiencies, or interest with respect to decedent’s gifts for

any taxable year.

     Refund Claims for Gift Taxes Paid

     In April 1996, the estate and the trust filed separate,

partially duplicative refund claims with respect to decedent’s
                               - 8 -

1991 and 1992 gift tax liabilities.    The trust sought refunds of

the $118,801 and $304,910 gift tax deficiencies assessed for 1991

and 1992, respectively.   The estate sought refunds of these same

gift tax deficiencies plus the taxes originally paid with

decedent’s 1991 and 1992 gift tax returns.   The premise of each

refund claim was that the donee children’s alleged obligations to

pay additional gift and estate taxes as a condition of the gifts

they received from decedent reduced the gifts’ value and the

resulting gift taxes accordingly.   Respondent disallowed the

refund claims.

     The estate and the trust (collectively, the plaintiffs)

filed a complaint in the U.S. District Court for the Western

District of Virginia seeking a refund of the entire amount of

gift taxes paid in 1991 and 1992.   The District Court granted the

Government’s motion for summary judgment, concluding that the

donee children’s asserted obligations to pay additional gift and

estate taxes were “speculative” and did not reduce the value of

the gifts; moreover, noting that the donee children never in fact

paid the additional gift tax as called for in the transferee

agreement despite the occurrence of the liability-triggering

contingency, the District Court concluded that the donee

children’s asserted gift tax liabilities were “illusory.”

Armstrong ex rel. Armstrong v. United States, 132 F. Supp. 2d

421, 429 (W.D. Va. 2001), affd. sub nom. Estate of Armstrong v.
                                    - 9 -

United States, 277 F.3d 490 (4th Cir. 2002).         (Hereinafter, these

proceedings in the District Court and the U.S. Court of Appeals

for the Fourth Circuit are sometimes referred to collectively as

the refund litigation.)

       Affirming the District Court, the U.S. Court of Appeals for

the Fourth Circuit concluded that the so-called net gift

principle did not apply to reduce the value of the transferred

stock because “the [donee] children’s obligation to pay the

additional gift taxes was both contingent and highly

speculative.”       Estate of Armstrong v. United States, supra at

496.       Furthermore, the Court of Appeals reasoned, even if the

donee children’s obligation to pay the additional gift tax were

assumed not to be speculative, it was nevertheless “illusory”

because the trust in fact paid the additional gift taxes pursuant

to the terms of the trust agreement.2        Id.   For similar reasons,

the Court of Appeals rejected the plaintiffs’ argument that net

gift principles should reduce the value of the gifts by the

amount of estate taxes the donee children were obligated to pay

on the gift taxes.        Id. at 497-498.   The Court of Appeals held

that the plaintiffs were entitled to no refund of the gift taxes

paid.       Id. at 498.


       2
       The U.S. Court of Appeals for the Fourth Circuit rejected,
as being contrary to the undisputed facts, the taxpayers’
argument that the trust’s payment of the gift taxes constituted
payment by decedent’s children. Estate of Armstrong v. United
States, 277 F.3d 490, 497 (4th Cir. 2002).
                              - 10 -

Estate Taxes

     Decedent’s Estate Tax Return

     As previously noted, decedent died in 1993.   On Form 706,

United States Estate (and Generation-Skipping Transfer) Tax

Return, the estate reported no estate tax liability.   The estate

excluded from the gross estate the $4,680,284 of gift taxes that

decedent and the trust had paid on the gifts of National Fruit

stock that decedent had made during the 3 years before his death.

     Respondent’s Determination

     In the notice of deficiency issued October 20, 1997,

respondent determined a $2,350,071 deficiency in the estate’s

taxes.3   In arriving at this determination, respondent increased



     3
       In January 1998, respondent issued separate notices of
transferee liability to each of the donee children. These
notices stated that, as transferees of property (i.e., the 1991
and 1992 gifts of National Fruit Product Co., Inc. (National
Fruit) stock), the donee children were each personally liable
under sec. 6324(c) for decedent’s unpaid Federal estate taxes to
the extent of the value of property received. The donee children
challenged the notices of transferee liability in petitions filed
in this Court (assigned docket Nos. 7267-98, 7269-98, 7270-98,
and 7274-98). In their consolidated cases in this Court, the
donee children moved for partial summary judgment, asserting that
they were not liable as transferees as a matter of law. In
Armstrong v. Commissioner, 114 T.C. 94, 100-102 (2000), this
Court denied the donee children’s motions for partial summary
judgment, concluding that under sec. 2035(d)(3)(C) the value of
the stock that decedent transferred to them was included in his
gross estate for purposes of sec. 6324(a)(2) and that,
consequently, the donee children were liable as transferees for
the estate tax deficiency due from decedent’s estate. In their
consolidated cases in this Court, the donee children continue to
contest the amount of estate tax deficiency due from the estate
and the amount of their personal liability.
                                 - 11 -

decedent’s taxable estate by the amount of gift taxes paid by or

on behalf of decedent on gifts made within 3 years of his death

($4,680,284).      Respondent also increased the amount of decedent’s

adjusted taxable gifts and total gift taxes payable to reflect

his determination that decedent’s 1991 and 1992 gifts of National

Fruit stock should be valued at $109 per share instead of $100

per share, as reported by decedent on the 1991 and 1992 gift tax

returns.      Respondent also disallowed the estate’s claimed

deductions for certain administrative expenses.

                               Discussion

A.   Gift Taxes Includable in Decedent’s Estate

          Respondent seeks summary judgment that under section

2035(c), decedent’s gross estate includes $4,680,284 of gift

taxes paid by or on behalf of decedent with respect to his 1991

and 1992 gifts of National Fruit stock.4

      Section 2035(c) provides, in relevant part, that the gross

estate includes the amount of any Federal gift tax paid “by the

decedent or his estate on any gift made by the decedent or his




      4
       In his motion for partial summary judgment, respondent
seeks summary judgment on these two related issues: (1) The
amount of gift taxes includable in decedent’s estate under sec.
2035(c); and (2) whether the amount of gift taxes includable
under sec. 2035(c) should be reduced by consideration that the
estate alleges decedent received for the gifts or for payment of
the gift taxes. Because the first issue subsumes the second, we
address both issues together.
                              - 12 -

spouse * * * during the 3-year period ending on the date of the

decedent’s death.”

     In a legal memorandum filed with this Court on February 19,

2002, addressing the effect here of the decision of the U.S.

Court of Appeals for the Fourth Circuit in the refund litigation,

the estate concedes that it is “collaterally estopped from taking

a position other than that $4,680,284 is the amount of gift taxes

paid by or on behalf of the decedent for the gifts made in 1991

and 1992.”   On its face, this concession would appear dispositive

in favor of respondent’s motion for summary judgment on this

issue.   The estate contends otherwise.

     The estate contends that the amount of gift taxes includable

in decedent’s gross estate under section 2035(c) should be

reduced to take into account “consideration received by the

decedent in connection with the payment of such gift taxes by him

and on his behalf.”   The premise, as best we understand it, is

that even if decedent received no consideration for the 1991 and

1992 gifts of National Fruit stock, there is nevertheless a

factual issue as to whether decedent (or the estate) received

“consideration” for paying the gift taxes thereon.5   The estate


     5
       As previously discussed, in affirming the U.S. District
Court for the Western District of Virginia, the U.S. Court of
Appeals for the Fourth Circuit expressly concluded that the donee
children’s “obligation to pay additional gift taxes was both
speculative and illusory and did not reduce the value of the
stock transferred to them.” Estate of Armstrong v. United
                                                   (continued...)
                              - 13 -

contends that section 2043(a) requires such “consideration” to be

netted from the gift taxes includable in decedent’s gross estate

under section 2035(c).

     We disagree for several reasons.

     First, the plain language of section 2035(c) requires the

gross estate to be increased by gift taxes “paid * * * by the

decedent or his estate on any gift made by the decedent or his

spouse * * * during the 3-year period ending on the date of the

decedent’s death.”   Section 2035(c) does not provide for the

netting of “consideration” received for the payment of gift

taxes.

     Second, section 2043(a), by its terms, applies to “transfers

* * * described in sections 2035 to 2038, inclusive, and section




     5
      (...continued)
States, 277 F.3d at 497. The Court of Appeals noted that “the
donee children have paid no gift taxes.” Id. at 496. The estate
contends that in reaching these conclusions, the Court of Appeals
did not thereby actually decide that there was no consideration
for decedent’s 1991 and 1992 gifts; rather, the estate asserts,
the Court of Appeals held only that the so-called net gift
doctrine did not apply to reduce the amount of decedent’s
donative transfers. The distinction that the estate seeks to
draw appears based more in semantics than substance. Even if we
were to accept the distinction the estate seeks to draw, however,
the fact would remain, as the estate concedes, that $4,680,284 is
the amount of gift taxes paid by or on behalf of decedent for
gifts that decedent made in 1991 and 1992. As discussed in more
detail in the text above, that concession suffices for purposes
of disposing of respondent’s motion for summary judgment with
respect to the application of sec. 2035(c).
                                  - 14 -

2041”.6    Section 2035(c) (unlike section 2035(a), for example),

does not describe a “transfer” but merely requires that the gross

estate be grossed up by the amount of gift taxes paid on gifts

made within 3 years of the decedent’s death.7

     The estate suggests that even though section 2035(c) does

not explicitly refer to a “transfer”, it nevertheless must be

understood to describe a “transfer” so as to implicate section

2043(a).    After all, the estate observes, the estate tax is a tax

on the privilege of transfer.      Section 2035(c) requires payments

of certain gift taxes to be included in the gross estate, the

estate says.    Therefore, the estate concludes, section 2035(c),

in describing these gift tax payments, must describe “transfers”

within the meaning of section 2043(a).     We disagree.




     6
         Sec. 2043(a) provides:

          SEC. 2043(a). In General.–-If any one of the
     transfers, trusts, interests, rights, or powers
     enumerated and described in sections 2035 to 2038,
     inclusive, and section 2041 is made, created,
     exercised, or relinquished for a consideration in money
     or money’s worth, but is not a bona fide sale for an
     adequate and full consideration in money or money’s
     worth, there shall be included in the gross estate only
     the excess of the fair market value at the time of
     death of the property otherwise to be included on
     account of such transaction, over the value of the
     consideration received therefor by the decedent.
     7
       As discussed in more detail infra, this gross-up rule
functions to eliminate certain disparities in the tax treatment
of deathtime and lifetime transfers.
                              - 15 -

     As the estate observes, the estate tax is sometimes

characterized as a tax on the privilege of transferring property

at death.   See New York Trust Co. v. Eisner, 256 U.S. 345, 348-

349 (1921); Knowlton v. Moore, 178 U.S. 41, 56 (1900) (1898

Federal tax on legacies was constitutional as resting on “the

power to transmit, or the transmission from the dead to the

living”).   As the Supreme Court has made clear, however, this

does not mean that the estate tax may be imposed only on

“transfers”.   See Fernandez v. Wiener, 326 U.S. 340, 352 (1945)

(“It is true that the estate tax as originally devised and

constitutionally supported was a tax upon transfers. * * * But

the power of Congress to impose death taxes is not limited to the

taxation of transfers at death.”); see also Tyler v. United

States, 281 U.S. 497, 502 (1930); Bittker & Lokken, Federal

Taxation of Income, Estates and Gifts, par. 120.1.2, at 120-6 (2d

ed. 1993) (the transfer of property at death is a “sufficient

condition–-but not a necessary one–-for a constitutional tax”).

     Technically, the Code imposes the estate tax on a single

“transfer”–-the “transfer of the taxable estate”.   Sec. 2001(a).

The taxable estate is defined generally as the gross estate less

allowable deductions.   Sec. 2051.   The gross estate includes, to

the extent provided in various Code sections (including section

2035), the value at the time of a decedent’s death of “all

property, real or personal, tangible or intangible, wherever
                               - 16 -

situated.”   Sec. 2031(a).   This does not mean, however, as the

estate implies, that each constituent element of the gross

estate, so defined, necessarily constitutes, depends upon, or

presupposes a separate and distinct “transfer” of property.8

     Third, it is not meaningful to speak of “consideration”

received by decedent (or the estate) for payment of decedent’s

gift tax liabilities.   “‘A consideration in its widest sense is

the reason, motive, or inducement, by which a man is moved to

bind himself by an agreement.’”    Black’s Law Dictionary 301 (7th

ed. 1999) (quoting Salmond, Jurisprudence 359 (10th ed. 1947)).

Decedent’s obligation to pay gift taxes on his 1991 and 1992

gifts arose by operation of law and was unaffected by any

agreement he might have made with the donee children or anyone

else.9   Accordingly, any consideration he might have received in

connection with any such agreement was necessarily for something


     8
       For instance, as apropos of the case at hand and discussed
in greater detail infra, the gross estate includes the amount of
assets required to satisfy the estate tax liability even though
those assets are ultimately unavailable for transfer by the
decedent.
     9
       As the Supreme Court stated in Diedrich v. Commissioner,
457 U.S. 191, 197 (1982) (holding that the donor of a net gift
realizes taxable income to the extent the gift tax paid by the
donee exceeds the donor’s adjusted basis in the property given):

     When a gift is made, the gift tax liability falls on
     the donor under 26 U.S.C. § 2602(d). When a donor
     makes a gift to a donee, a “debt” to the United States
     * * * is incurred by the donor. Those taxes are as
     much the legal obligation of the donor as the donor’s
     income taxes * * * [Fn. ref. omitted.]
                               - 17 -

other than his (or the estate’s) payment of his gift tax

liabilities.10

     Fourth, the parties have stipulated that the donee children

paid none of decedent’s 1991 and 1992 gift tax liabilities–-a

fact specifically noted by the U.S. Court of Appeals for the

Fourth Circuit in the refund litigation.    Estate of Armstrong v.

United States, 277 F.3d at 496 (“the donee children have paid no

gift taxes”).    The donee children’s mere conditional promise to

pay certain additional gift taxes that decedent might be

determined to owe does not reduce the amount of decedent’s gift

taxes included in the gross estate under section 2035(c).

     Fifth, in any event (and unsurprisingly in light of our

previous observations) the estate has set forth no particular

facts to show that decedent or the estate received or was

entitled to receive “consideration” for payment of decedent’s

1991 and 1992 gift taxes; the estate’s mere allegations in this




     10
       If we were to suspend disbelief and assume, for the sake
of argument, that decedent received valuable “consideration” in
exchange for his agreeing to pay his own gift tax liabilities, it
would logically follow that decedent’s gross estate should be
increased to reflect the date-of-death value of this alleged
consideration, thus offsetting the tax benefit that the estate
seeks to obtain by netting this “consideration” against the gift
taxes otherwise includable in the gross estate under sec.
2035(c).
                                - 18 -

regard are insufficient to show that there is a genuine issue for

trial.11   See Brotman v. Commissioner, 105 T.C. at 142.

      Accordingly, we shall grant respondent’s motion for summary

judgment that decedent’s gross estate includes $4,680,284 of gift

taxes paid by or on behalf of decedent with respect to his 1991

and 1992 gifts.

B.   Constitutional Arguments

     1.    Due Process

     The estate contends that section 2035(c) violates due

process under the Fifth Amendment, because its enactment created

“a conclusive presumption regarding motive, in contravention of”

Heiner v. Donnan, 285 U.S. 312 (1932).    The estate’s argument is

without merit.

     Heiner v. Donnan, supra, involved a provision of the Revenue

Act of 1926.     The statute provided that a decedent’s gross estate

included the value of any interest in property that the decedent

had transferred, at any time, in contemplation of death.12


     11
       In a legal memorandum filed with this Court on Mar. 21,
2002, the estate states: “Even if we assume, as respondent would
have us do, that the Refund Suit decided the issue of
‘consideration provided by the donees of the gifts,’ the issue of
consideration to decedent from others than donees has not been
litigated or decided.” The estate has set forth no particular
facts, however, to show that decedent received any consideration
from “others than donees”.
     12
       Under then-existing law, gifts in contemplation of death
were included in the transferor’s gross estate “to reach
substitutes for testamentary dispositions and thus to prevent the
                                                   (continued...)
                               - 19 -

Revenue Act of 1926, ch. 27, sec. 302(c), 44 Stat. 70.     The

statute explicitly created an irrebuttable presumption that

certain transfers made within 2 years of the decedent’s death

were in contemplation of death.   The Supreme Court held that this

irrebuttable presumption violated Fifth Amendment requirements of

due process because it precluded “ascertainment of the truth” as

to whether “the thought of death” was “the impelling cause of the

transfer” so as to satisfy the circumstance upon which the tax

“explicitly is based”.    Heiner v. Donnan, supra at 327-328.

     Subsequently, Congress amended the tax laws to delete the

conclusive presumption.   Until 1976, however, transfers made “in

contemplation of death” continued to be included in the gross

estate.   Certain transfers were presumed to be made “in

contemplation of death” unless the executor could prove

otherwise.   Sec. 2035(a), I.R.C. 1954.

     To eliminate the “considerable litigation” that had ensued

from the prior rule regarding gifts in contemplation of death,

the Tax Reform Act of 1976 (the 1976 Act), Pub. L. 94-455, sec.

2001(a)(5), (d)(1), 90 Stat. 1848, amended section 2035(a) to

require inclusion in the gross estate of all gifts made within 3

years of the decedent’s death, without regard to whether they




     12
      (...continued)
evasion of the estate tax.”    United States v. Wells, 283 U.S.
102, 117 (1931).
                              - 20 -

were made in contemplation of death (hereinafter, this is

sometimes referred to as the 3-year rule).13

     In Estate of Rosenberg v. Commissioner, 86 T.C. 980, 995-999

(1986), affd. without published opinion 812 F.2d 1401 (4th Cir.

1987), this Court rejected a contention that the 3-year rule

violated substantive due process under the Fifth Amendment.     This

Court noted that in Mourning v. Family Publns. Serv., Inc., 411

U.S. 356, 377 (1973), the Supreme Court had stated that Heiner v.

Donnan, supra, was inapplicable to a case involving a provision

“intended as a prophylactic measure” rather than a conclusive

presumption of determinative facts.    Estate of Rosenberg v.

Commissioner, supra at 989.   Thus distinguishing Heiner v.

Donnan, supra, this Court held that section 2035(a) involved a

classification based upon “prophylactic” grounds and that the

classification was constitutionally valid as bearing a rational

relationship to the legitimate legislative goal of discouraging

“the abuse of gift giving aimed at tax avoidance or gifts made as

substitutes for testamentary dispositions”.    Id. at 996.

     Similarly, in Estate of Ekins v. Commissioner, 797 F.2d 481,

485-486 (7th Cir. 1986), the U.S. Court of Appeals for the

Seventh Circuit rejected a Fifth Amendment due process challenge


     13
       In 1981, the 3-year rule of sec. 2035(a) was made
generally inapplicable to estates of decedents dying after
Dec. 31, 1981, except with respect to certain specified types of
transfers. Economic Recovery Tax Act of 1981, Pub. L. 97-34,
sec. 424(c), 95 Stat. 317.
                              - 21 -

to the 3-year rule.   The court questioned whether the

“irrebuttable presumption” doctrine as applied in Heiner v.

Donnan, supra, had “any continued vitality.”    Id. at 486.   The

court stated:   “Even assuming that the doctrine is still good

law, it is inapplicable to section 2035(a) since the statute on

its face does not speak in terms of presumptions of fact,

rebuttable or otherwise.”   Id.   The court held the 1976 amendment

to section 2035(a) “bore a rational relationship to a legitimate

congressional purpose:   eliminating factbound determinations

hinging upon subjective motives.”    Id.

     The 1976 amendment of section 2035(a) was part of a

comprehensive reform of the estate and gift tax system.     Before

1976, the Federal gift tax and estate tax were essentially

separate; gift tax rates were lower than estate tax rates.

Congress concluded that this dual transfer tax system created

unwarranted disparities in the treatment of lifetime and

deathtime transfers of wealth.    See Estate of Sachs v.

Commissioner, 88 T.C. at 774-775.   The 1976 Act reduced these

disparities by adopting unified estate and gift tax rates to be

applied to cumulative lifetime and deathtime transfers.    See

Staff of the Joint Comm. on Taxation, General Explanation of the

Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 1, 538.

     Merely conforming the gift and estate tax rates, however,

did not eliminate all tax incentives for lifetime transfers.     One
                              - 22 -

such incentive results from the fact that the estate tax base is

broader than the gift tax base:   assets that are used to pay gift

taxes (and that are thereby effectively removed from the donor’s

gross estate) are not included in the gift tax base (i.e., gift

taxes are “tax-exclusive”).   Assets used to pay estate taxes, on

the other hand, are included in the estate tax base (i.e., estate

taxes are “tax-inclusive”).   “Thus, even if the applicable

transfer tax rates were the same, the net amount transferred to a

beneficiary from a given pre-tax amount of property was greater

for a lifetime transfer solely because of the difference in the

tax bases.”   Id.

     To reduce this disparity, the 1976 Act required, in new

section 2035(c), that the decedent’s gross estate be grossed up

by the amount of gift tax paid by the decedent or his estate on

gifts made by the decedent or his spouse within 3 years of death

(hereinafter, this is sometimes referred to as the gross-up

rule).   The purpose of this amendment was described as follows:

          Since the gift tax paid on a lifetime transfer
     which is included in a decedent’s gross estate is taken
     into account both as a credit against the estate tax
     and also as a reduction in the estate tax base,
     substantial tax savings can be derived under present
     law by making so-called “deathbed gifts” even though
     the transfer is subject to both taxes. To eliminate
     this tax avoidance technique, the committee believes
     that the gift tax paid on transfers made within 3 years
     of death should in all cases be included in the
     decedent’s gross estate. This “gross-up” rule will
     eliminate any incentive to make deathbed transfers to
     remove an amount equal to the gift taxes from the
     transfer tax base.
                                - 23 -

                 *     *    *    *    *    *    *

          In determining the amount of the gross estate, the
     amount of gift tax paid with respect to transfers made
     within 3 years of death are [sic] to be includable in a
     decedent’s gross estate. This “gross-up” rule for gift
     taxes eliminates any incentive to make deathbed
     transfers to remove an amount equal to the gift taxes
     from the transfer tax base. [H. Rept. 94-1380, at 12,
     14 (1976), 1976-3 C.B. (Vol. 3) 735, 746, 748.]

     Citing this legislative history, the estate argues that the

gross-up rule of section 2035(c) is fundamentally different from

the 3-year rule of section 2035(a), which was held to be

constitutional in Estate of Rosenberg v. Commissioner, supra, and

Estate of Ekins v. Commissioner, supra.     The estate contends

that, unlike the 3-year rule of section 2035(a), the gross-up

rule of section 2035(c) is not “prophylactic” but instead

“[ingrains] an element of motive with respect to gift tax paid on

lifetime transfers”, because “Congress based its enactment of

sec. 2035(c) upon the elimination of a tax avoidance technique by

deathbed gifts.”     The result, the estate contends, is that

section 2035(c) “created a conclusive presumption regarding

motive, leaving taxpayers no opportunity to present evidence to

the contrary.”   Therefore, the estate concludes, section 2035(c)

is unconstitutional under Heiner v. Donnan, 285 U.S. 312 (1932).

We disagree.

     In Estate of Rosenberg v. Commissioner, 86 T.C. at 995-996,

this Court observed:
                             - 24 -

     The approach under which the Supreme Court now reviews
     congressional legislation is “a relatively relaxed
     standard reflecting the Court’s awareness that the
     drawing of lines that create distinctions is peculiarly
     a legislative task and an unavoidable one”. Schweiker
     v. Wilson, 450 U.S. 221, 234 (1981) (reviewing SSI
     program under equal protection component of Fifth
     Amendment). Legislative classifications will be upheld
     so long as they bear a “rational relation to a
     legitimate legislative goal”, Weinberger v. Salfi, 422
     U.S. 749, 772 (1975); “advances legitimate legislative
     goals in a rational fashion”, Schweiker v. Wilson, 450
     U.S. at 234; have “some ‘reasonable basis’”, Dandridge
     v. Williams, 397 U.S. 471, 485 (1970), quoting Lindsley
     v. Natural Carbonic Gas Co., 220 U.S. 61, 78 (1911);
     “have support in considerations of policy and practical
     convenience”, Steward Machine Co. v. Davis, 301 U.S.
     548, 584 (1937); do not achieve their purposes in a
     patently “arbitrary or irrational way”, U.S. Railroad
     Retirement Bd. v. Fritz, 449 U.S. 166, 177 (1980); Duke
     Power Co. v. Carolina Env. Study Group, 438 U.S. 59, 83
     (1978); and do not “manifest a patently arbitrary
     classification utterly lacking in rational
     justification”, Flemming v. Nestor, 363 U.S. 603, 611
     (1960).

See also Reno v. Flores, 507 U.S. 292, 303 (1993) (rejecting a

substantive due process challenge to a regulation that was

“rationally connected to a governmental interest * * * and

* * * not * * * excessive in relation to that valid purpose”);

Leikind v. Schweiker, 671 F.2d 823, 825 (4th Cir. 1982) (“The

standard of review under substantive due process is that the

statute must be upheld if there is any rational basis for the

classification made therein.”) (citing Usery v. Turner Elkhorn

Mining Co., 428 U.S. 1 (1976)).

     Section 2035(c) bears a rational relation to the legitimate

legislative goal of eliminating incentives to make “deathbed
                              - 25 -

transfers” to remove assets used to pay gift taxes from the

transfer tax base.   That some gifts made within 3 years of a

decedent’s death might not have been made from the donor’s

deathbed or with a tax-avoidance motive “does not strip the

legislative scheme of its validity.    This kind of imperfection is

inevitable whenever a line is drawn by the legislature.”     Estate

of Rosenberg v. Commissioner, supra at 996 (citing Mathews v.

Diaz, 426 U.S. 67, 183 (1976)).

     Under the language of section 2035(c), the donor’s motive in

making the gifts that trigger the gross-up rule is immaterial.

Like the 3-year rule, the gross-up rule makes no reference to any

presumption of fact, rebuttable or otherwise.   Like the 3-year

rule, the gross-up rule is a prophylactic rule aimed at tax

avoidance.   Consequently, whatever continued vitality it may

have, Heiner v. Donnan, supra, is inapplicable here, as it was in

Estate of Rosenberg v. Commissioner, 86 T.C. 980 (1986), and

Estate of Ekins v. Commissioner, 797 F.2d 481 (7th Cir. 1986).

     Accordingly, we shall grant respondent’s motion for summary

judgment on this issue.
                               - 26 -

     2.    Equal Protection

     The estate contends that section 2035(c) is unconstitutional

because it violates equal protection requirements of the Fifth

Amendment.14

     On its face, section 2035(c) does not differentiate between

any classes of persons (excepting perhaps the living and the

dead).    The estate contends, however, that section 2035(c)

nevertheless results in unequal treatment for married persons and

single persons.    In support of this argument, the estate focuses

on the following statement of legislative intent with respect to

the enactment of section 2035(c) in the 1976 Act:

     The amount of gift tax subject to this rule [i.e., the
     gross-up rule] would include tax paid by the decedent
     or his estate on any gift made by the decedent or his
     spouse after December 31, 1976. It would not, however,
     include any gift tax paid by the spouse on a gift made
     by the decedent within 3 years of death which is
     treated as made one-half by the spouse, since the
     spouse’s payment of such tax would not reduce the
     decedent’s estate at the time of death. [H. Rept. 98-
     1380, supra at 14, 1976-3 C.B. (Vol. 3) at 748.]

     The estate contends that the effect of this statement of

legislative intent is that–-

     payment of estate tax on gift taxes is avoided if the
     person paying the gift tax is the spouse of the donor,
     elects gift-splitting with the donor, and lives beyond
     three years of when the donor made the gift. The gift-
     splitting election referenced by Congress in the


     14
       The Fifth Amendment, as applied to Federal legislation,
encompasses the equal protection requirements of the Fourteenth
Amendment. Weinberger v. Wiesenfeld, 420 U.S. 636, 638 n.2
(1975); Johnson v. Robison, 415 U.S. 361, 364-365 n.4 (1974).
                                - 27 -

     Committee Reports can be made after death of the donor
     spouse, per I.R.C. § 2513(a)(1) and I.R.C.
     § 2513(b)(2), and the non-donor survivor is jointly and
     severally liable for the gift tax per I.R.C. § 2513(d).
     Thus, a terminally-ill person may intentionally make a
     “deathbed gift” of taxable value to third parties for
     tax avoidance purposes, hoping that his young and
     healthy spouse (and beneficiary of the remainder of his
     estate) will pay the gift taxes and thus effectively
     remove the gift tax from his tax transfer base, and her
     transfer tax base as well if she lives for 3 years from
     the time of his gifts. By basing the inclusion under
     section 2035(c) on the person who pays the gift tax and
     then dies within 3 years, rather than the person who
     makes the gift, Congress intentionally created a
     situation where a single individual does not have
     rights and protection equal to those of a married
     individual.

     We are unimpressed with the estate’s argument, which brings

to mind Justice Holmes’s description of an equal protection claim

as “the usual last resort of constitutional arguments”.     Buck v.

Bell, 274 U.S. 200, 208 (1927).    The committee report quoted

above merely describes the coordination of sections 2035(c) and

2513.     The coordination of these two sections does not, in and of

itself, result in favored treatment to married donors.15    As

previously discussed, the purpose of the gross-up rule is to

reduce disparities in the taxation of lifetime and deathtime

transfers by effectively taxing gifts made within 3 years of

death on a tax-inclusive basis (rather than on the tax-exclusive

basis that normally pertains to gifts), thereby ensuring that

assets used to pay gift taxes on these gifts do not escape the


     15
       The estate does not argue that the gift-splitting
provisions of sec. 2513 are per se unconstitutional.
                              - 28 -

transfer tax base.   If, as the estate suggests, the gross-up rule

results in a smaller increase to the gross estate of a married

donor who used gift-splitting techniques than to the gross estate

of a single donor who made identical gifts but lacked any gift-

splitting option, it is only because the married donor has in

fact paid fewer gift taxes with respect to the gifts.

Consequently, fewer assets having been removed from the married

donor’s transfer tax base, a correspondingly smaller gross-up of

the married donor’s gross estate is required to counteract this

erosion of the married donor’s transfer tax base, consistent with

the legislative purpose of section 2035(c).

     In sum, we are unpersuaded by the estate’s argument that the

coordination of sections 2035(c) and 2513, as described in the

legislative history, results in preferential treatment to married

donors.16




     16
       In any event, if we were to undertake an analysis of the
differing tax treatments that might obtain for married donors and
single donors as the result of interaction of sec. 2035(c) and
other Code provisions, it is not apparent why we should limit
this analysis, as the estate does, to the interaction of secs.
2035(c) and 2513, without considering comprehensively the
possible interactions of sec. 2035(c) and the myriad other Code
sections that differentiate married from unmarried individuals.
Cf. Ingalls v. Commissioner, 40 T.C. 751 (1963) (upholding pre-
1981 version of sec. 2035(a) as constitutional when applied to a
widow whose gift tax exemption, used to reduce gift taxes on a
split gift, was not reinstated–-and therefore effectively
wasted–-when her husband’s portion was included in his gross
estate), affd. 336 F.2d 874 (4th Cir. 1964).
                             - 29 -

     Even if we were to assume, however, for the sake of

argument, that the statute might benefit married donors as the

estate posits, such differential treatment would not violate

constitutional requirements of equal protection.   In FCC v. Beach

Communications, Inc., 508 U.S. 307, 313-314 (1993), the Supreme

Court observed:

          Whether embodied in the Fourteenth Amendment or
     inferred from the Fifth, equal protection is not a
     license for courts to judge the wisdom, fairness, or
     logic of legislative choices. In areas of social and
     economic policy, a statutory classification that
     neither proceeds along suspect lines nor infringes
     fundamental constitutional rights must be upheld
     against equal protection challenge if there is any
     reasonably conceivable state of facts that could
     provide a rational basis for the classification. Where
     there are “plausible reasons” for Congress’ action,
     “our inquiry is at an end.” This standard of review is
     a paradigm of judicial restraint. * * * [Citations
     omitted.]

See also Regan v. Taxation with Representation, 461 U.S. 540, 547

(1983) (statutory classifications are generally valid “if they

bear a rational relation to a legitimate governmental purpose”);

Peterson Marital Trust v. Commissioner, 102 T.C. 790, 808-811

(1994) (imposition of generation-skipping transfer tax does not

violate equal protection), affd. 78 F.3d 795 (2d Cir. 1996).

     The statutory provisions at issue here do not proceed along

suspect lines or infringe upon the right to make marital

decisions or any other fundamental constitutional right.   Cf.

Zablocki v. Redhail, 434 U.S. 374, 383, 386 (1978) (although the

right to marry is “of fundamental importance”, the State may
                              - 30 -

legitimately impose “reasonable regulations that do not

significantly interfere with decisions to enter into the marital

relationship”); Califano v. Jobst, 434 U.S. 47, 58 (1977) (Social

Security classifications that had a tangential impact upon a

marital decision did not violate due process).   As previously

discussed, section 2035(c) is rationally related to a legitimate

governmental purpose.   The estate’s suggestion that the

Constitution requires married persons and single persons to be

taxed identically is refuted by a long line of cases.     See, e.g.,

Ensminger v. Commissioner, 610 F.2d 189 (4th Cir. 1979), affg.

T.C. Memo. 1977-224; Mapes v. United States, 217 Ct. Cl. 115, 576

F.2d 896, 904 (1978) (“there cannot be a ‘marriage neutral’ tax

system”); DeMars v. Commissioner, 79 T.C. 247, 250-251 (1982)

(requiring married persons to combine their adjusted gross

incomes to determine eligibility for disability income exclusion

has a rational basis); Druker v. Commissioner, 77 T.C. 867, 872-

873 (1981) (“the differences in exposure to tax liability between

married and single persons do not rise to the level of an

impermissible interference with the enjoyment of the fundamental

right to marry or remain married”), affd. on this issue and revd.

in part 697 F.2d 46 (2d Cir. 1982); Kellems v. Commissioner, 58

T.C. 556 (1972) (finding that geographic equalization of

taxpayers in community and noncommunity property States, as well

as greater financial burdens of married persons, constitutes a
                                - 31 -

rational basis for classifying and distinguishing taxpayers),

affd. per curiam 474 F.2d 1399 (2d Cir. 1973); Mueller v.

Commissioner, T.C. Memo. 2000-132 (“We have consistently denied

constitutional challenges to marital classifications in the tax

code.”), affd. without published opinion 87 AFTR 2d 2052, 2001-1

USTC par. 50,391 (7th Cir. 2001); Brady v. Commissioner, T.C.

Memo. 1983-163 (“we find no constitutional violation * * * in the

disparate Federal tax treatment of married and single

individuals”), affd. without published opinion 729 F.2d 1445 (3d

Cir. 1984).

      Accordingly, we shall grant respondent’s motion for summary

judgment on this issue.

C.   Claimed Deduction Under Section 2055 for Gift Taxes Paid

      Section 2055(a) permits a deduction from the gross estate

for “the amount of all bequests, legacies, devises, or transfers

* * * to or for the use of the United States * * * for

exclusively public purposes”.    Section 20.2055-1(a), Estate Tax

Regs., provides:

      A deduction is allowed under section 2055(a) from the
      gross estate of a decedent who was a citizen or
      resident of the United States at the time of his death
      for the value of property included in the decedent’s
      gross estate and transferred by the decedent during his
      lifetime or by will--

                (1) To or for the use of the United States,
           any State, Territory, any political subdivision
           thereof, or the District of Columbia, for
           exclusively public purposes;
                              - 32 -

     The estate argues that pursuant to this regulation it is

entitled to deduct the $4,680,284 of Federal gift taxes paid on

account of gifts decedent made in 1991 and 1992.     We disagree.

     As previously indicated, $423,711 of the total $4,680,284 of

gift taxes was paid after decedent’s death pursuant to

respondent’s determination of deficiencies in decedent’s 1991 and

1992 gift taxes.   These postdeath gift tax payments do not

represent amounts “transferred by the decedent during his

lifetime or by will” within the meaning of the regulation, since

they were neither lifetime transfers nor testamentary

dispositions.   Id.; see Taft v. Commissioner, 304 U.S. 351, 358

(1938); Senft v. United States, 319 F.2d 642, 644 (3d Cir. 1963);

Burdick v. Commissioner, 117 F.2d 972, 974 (2d Cir. 1941), affg.

Nicholas v. Commissioner, 40 B.T.A. 1040 (1939); Estate of

Pickard v. Commissioner, 60 T.C. 618, 622 (1973), affd. without

published opinion 503 F.2d 1404 (6th Cir. 1974).17

     More fundamentally, payments of decedent’s gift taxes--

either during his lifetime or after his death–-do not represent

“transfers * * * for exclusively public purposes” within the

meaning of section 2055(a)(1).   The gift tax payments were not



     17
       With respect to respondent’s motion for partial summary
judgment, the parties have not raised and we do not reach any
issue as to whether the $423,711 of postdeath gift tax payments
is deductible as “Unpaid gift taxes on gifts made by a decedent
before his death” as described in sec. 20.2053-6(d), Estate Tax
Regs.
                             - 33 -

“motivated by a philanthropic impulse” or by an intention to

“make a contribution to the United States.”   Markham v.

Commissioner, 39 B.T.A. 465, 471 (1939) (disallowing a charitable

deduction claimed as a contribution for the use of the United

States for moneys the taxpayer expended in obtaining evidence to

be used in a criminal prosecution).   Rather, the gift tax

payments were made for the entirely private purpose of satisfying

decedent’s gift tax liabilities.   Just as “not every payment to

an organization which qualifies as a charity is a charitable

contribution”, Estate of Wood v. Commissioner, 39 T.C. 1, 6

(1962), not every payment to a governmental entity qualifies as a

transfer for exclusively public purposes under section

2055(a)(1), cf. Continental Ill. Natl. Bank & Trust Co. v. United

States, 185 Ct. Cl. 642, 403 F.2d 721 (1968) (“It seems to us

that the word ‘public’ [as used in section 2055(a)(1)] * * *

envisions gifts to domestic governmental bodies”); Osborne v.

Commissioner, 87 T.C. 575 (1986) (disallowing a charitable

deduction for a taxpayer’s transfers to a municipality of certain

drainage facilities, to the extent the facilities improved his

own property).

     The legislative history indicates that Congress intended the

section 2055(a) deduction to apply only to donative transfers.

Section 2055(a) originated in section 403(a)(3) of the Revenue

Act of 1918, ch. 18, 40 Stat. 1098, which allowed a deduction
                               - 34 -

from the gross estate for “all bequests, legacies, devises, or

gifts” to a qualifying recipient.   (Emphasis added.)

     The Revenue Act of 1921, ch. 136, sec. 403(a)(3), 42 Stat.

279, substituted for the word “gifts” the phrase “transfers,

except bona fide sales for a fair consideration in money or

money’s worth, in contemplation of or intended to take effect in

possession or enjoyment at or after the decedent’s death”.    The

purpose of the 1921 amendment was to make “clear that gifts by

decedent during his lifetime for public, religious, charitable,

scientific, literary, educational, or other benevolent purposes

are not deductible where the value of the property given is not

required under the law to be included in * * * [the decedent’s]

gross estate.”   S. Rept. 275, 67th Cong., 1st Sess. (1921), 1939-

1 C.B. (Part 2) 181, 199; see Senft v. United States, supra at

644-645.18   The effect of the 1921 amendment, then, was to


     18
       Before 1924, there was no gift tax. There was an estate
tax, however, and it required inclusion in the gross estate of
transfers “in contemplation of or intended to take effect in
possession or enjoyment at or after * * * [a decedent’s] death
* * *, except in case of a bona fide sale for a fair
consideration in money or money’s worth.” Revenue Act of 1918,
ch. 18, sec. 402(c), 40 Stat. 1097. This provision gave rise to
the wording of the 1921 amendment, as described in the text
above. In hearings before the Senate Committee on Finance,
Dr. T.S. Adams, tax advisor, U.S. Treasury Department, had
recommended the 1921 amendment, explaining its purpose as
follows:

     [The 1918 Act authorizes] deductions on account of
     bequests, legacies, devises, or gifts. That word
     “gift” has been misused * * *; the only gifts which
                                                   (continued...)
                               - 35 -

restrict the types of gifts for which a deduction from the gross

estate was allowed, rather than to allow a deduction for

nondonative transfers.

     Since 1921, all versions of section 2055(a) and its

predecessors have referred to “bequests, legacies, devises, or

transfers”.19   As the Court of Appeals for the Third Circuit has


     18
      (...continued)
     should be affected are gifts in contemplation of death.
     Therefore, the only gifts which should be deducted are
     gifts in contemplation of death. * * *

                *    *    *    *    *    *    *

     The thought is this: Why should you give a man a
     deduction from the gross estate of gifts? What kind of
     gifts do you mean? The only gift that should go in
     there is a gift that is taxable.

                *    *    *    *    *    *    *

     The wording follows the designation of the kind of
     gift, as shown in the statute. You should use the same
     language. [Hearings on H.R. 8245 Before the Senate
     Comm. on Finance, 67th Cong., 1st Sess. 287 (1921)].
     19
       In 1926, the phrase that until then had followed
“transfers”–-namely, “except bona fide sales for a fair
consideration in money or money’s worth, in contemplation of or
intended to take effect in possession or enjoyment at or after
the decedent’s death”–-was deleted. At the same time, a new
limitation was added in the same paragraph, providing: “The
amount of the deduction under this paragraph for any transfer
shall not exceed the value of the transferred property required
to be included in the gross estate”. Revenue Act of 1926, ch.
27, sec. 303(a)(3), 44 Stat. 72. (This limitation survives
almost verbatim in current sec. 2055(d).) These 1926 amendments
were in the nature of conforming amendments occasioned by a
provision of the same act modifying the definition of the gross
estate so as to include all transfers made within 2 years of the
decedent’s death regardless of whether made in contemplation of
                                                   (continued...)
                               - 36 -

observed:    “The word ‘gifts’ as used in the 1918 Act and the word

‘transfers’ used in later revenue acts have been construed in

their setting by the Supreme Court of the United States and given

identical effect.”    Senft v. United States, 319 F.2d at 645

(citing Taft v. Commissioner, 304 U.S. at 358, and YMCA v. Davis,

264 U.S. 47, 50 (1924)).

     Clearly, the payments of decedent’s Federal gift taxes,

either during his lifetime or after his death, do not represent

donative transfers, nor were they for exclusively public

purposes.   Accordingly, the estate is entitled to no deduction

under section 2055(a) for the gift tax payments.

     The estate acknowledges that “allowing a charitable

deduction would frustrate the intent of Congress in enacting

section 2035(c)” by effectively negating the effect of the gross-

up rule.    The estate suggests, however, that Congress must have

intended this peculiar distortion of the statutory framework, as

demonstrated by its failure to make “conforming provisions” to

section 2055(a) when it enacted section 2035(c).   We disagree.

The simpler explanation is that the estate’s interpretation of

section 2055(a) has long been understood to be incorrect.




     19
      (...continued)
death. See H. Rept. 1, 69th Cong., 1st Sess. (1925), 1939-1 C.B.
(Part 2) 315, 325.
                              - 37 -

     Accordingly, we shall grant respondent’s motion for partial

summary judgment.   To reflect the foregoing,


                                         An appropriate order

                                    will be issued.
