                        T.C. Memo. 1996-58



                      UNITED STATES TAX COURT



    ESTATE OF PHILIP MERIANO, DECEASED, ANITA PANEPINTO,
ADMINISTRATRIX, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent.



     Docket No. 26622-81.       Filed February 15, 1996.



     James S. Tupitza and Ridgeley A. Scott, for petitioner.

     Joellyn Cattell, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     DAWSON, Judge:   This case was heard by Special Trial Judge

Daniel J. Dinan pursuant to the provisions of section 7443A(b)(4)
                                - 2 -

and Rules 180, 181, and 183.1    The Court agrees with and adopts

the opinion of the Special Trial Judge, which is set forth below.

                  OPINION OF THE SPECIAL TRIAL JUDGE

     DINAN, Special Trial Judge:    Respondent determined a

deficiency in petitioner's Federal estate tax in the amount of

$732,106.81 and an addition to tax of $366,053.41 for fraud

pursuant to section 6653(b).

     Many of the issues have been settled by the parties pursuant

to a Stipulation of Disposition of Issues filed September 3,

1985, and a Second Stipulation of Disposition of Issues filed

November 26, 1993.

     The issues remaining for decision are:    (1) Whether

petitioner is entitled to a theft loss deduction of $274,505.09

for Federal estate tax purposes; and (2) whether petitioner is

entitled to deduct for Federal estate tax purposes legal fees of

$193,004.43 allegedly paid to the law firm of Tupitza and

Marinelli for services performed from August 1990 through

December 1994.2




     1
           All section references are to the Internal Revenue Code
in effect as of November 14, 1977, the date of decedent's death.
All Rule references are to the Tax Court Rules of Practice and
Procedure.
     2
          The invoices for legal fees introduced into evidence at
trial (Exs. 17-Q and 47) show petitioner may have overpaid legal
fees by $3,095.57.
                               - 3 -

                         FINDINGS OF FACT

     Some of the facts have been stipulated.    The stipulations of

fact and accompanying exhibits are incorporated herein by this

reference.

     Philip Meriano (Philip or decedent) died on November 14,

1977.   At the time the petition was filed, Mary Orlando, who was

then administratrix of the Estate of Philip Meriano, resided in

the Commonwealth of Pennsylvania.

     On July 6, 1977, a fire occurred at the residence-office of

decedent that destroyed many of his personal business records.

The Philadelphia Fire Department and the Philadelphia Police

Department determined that the fire was caused by arson.    On

September 1, 1977, Philip told the Philadelphia Police Department

that $2 million in bonds and securities were missing from the

safe in the area of the residence-office that was destroyed by

the fire.

     The Philadelphia Police Department, the Federal Bureau of

Investigation (FBI), and the U.S. Attorney's Office in

Philadelphia commenced an investigation to locate the stolen

bonds and securities but were unsuccessful.    They terminated

their investigation on November 29, 1977, after decedent's death.

     At the time of Philip's death, it was thought that he had

died intestate.   He was survived by his sister, Mary Orlando, and

his brother, James Meriano.   On December 6, 1977, Mary Orlando

filed a petition for letters of administration with the Register
                                - 4 -

of Wills, Philadelphia, seeking to be appointed administratrix of

Philip's estate.   The Register granted letters of administration

to Mary Orlando on or about December 6, 1977.   She served as

administratrix of the estate until August 31, 1982.

     From the time of decedent's death until the middle of 1978,

Anthony Orlando, Mary Orlando's husband, unsuccessfully attempted

to locate the securities stolen from Philip.    Anthony Orlando was

introduced to Edward J. Reardon, Jr. (Reardon), who was a stock

broker with Merrill, Lynch, Pierce, Fenner & Smith.   Anthony

Orlando asked Reardon to conduct an investigation to see if the

stolen securities could be located.

     Reardon began an investigation during which he learned about

John T. Lynch Jr. (Lynch), an attorney and investment banker who

had considerable experience in the municipal bond and finance

field.   He contacted Lynch because he thought Lynch's experience

would be helpful in locating the stolen securities.

     Reardon introduced Lynch to the Orlandos and Connie Kates,

the Orlandos' daughter.   Following negotiations among the

Orlandos, Connie Kates, and Lynch, on August 7, 1978, Lynch and

Mary Orlando, as administratrix of the estate, signed an

agreement, whereby Lynch was hired to locate the stolen

securities.   The agreement provided that Lynch would receive 33-

1/3 percent of the face value of any securities recovered if they

were recovered prior to suit.   Otherwise, Lynch was to receive 40

percent of the face value of any securities recovered if they
                               - 5 -

were recovered after filing suit.   The agreement was witnessed by

Anthony Orlando and Connie Kates.   When Lynch signed the

agreement with the estate, he was working as an investment banker

in New York issuing municipal securities.   An attorney by the

name of Frank Carano was the attorney for the estate.

     Shortly after Lynch signed the agreement with Mary Orlando

on August 7, 1978, Lynch entered into an agreement with Reardon

whereby Reardon agreed to assist Lynch in the investigation to

see if the stolen securities could be recovered.   Reardon was to

be paid 15 percent of the face amount of any securities

recovered.

     Through their diligent investigative efforts, Lynch and

Reardon discovered, in approximately March 1979, that coupons

from securities that they identified as having belonged to

decedent were being cashed at various banking institutions in San

Diego, California.   They traced the securities to an account in

San Diego held in the name of Italia Ballestrucci, the maiden

name of Italia Bossi who had been the housekeeper for Philip when

his residence-office was set afire on July 6, 1977.

     Lynch and Reardon took their evidence to the U.S. Attorney

and the FBI in Philadelphia and persuaded them to reopen their

investigation of the theft of securities from Philip.

     Italia Bossi and her husband were arrested by the FBI at

their home in San Diego on May 1, 1979.   Bearer bonds having a
                               - 6 -

face value of $1,823,0003 were confiscated from the Bossis'

residence at the time of their arrest.     The Bossis were returned

to Philadelphia for trial.

     The trial of the case began in November 1979, before the

Honorable John B. Hannum in the U.S. District Court for the

Eastern District of Pennsylvania.   The jury was unable to reach a

verdict, and Judge Hannum declared a mistrial on November 27,

1979.

     In December 1979, Lynch retained the law firm of Groen,

Smolow and Lynch (the law firm) to act as co-counsel to file any

civil suits that might be necessary to protect the estate in the

event the U.S. Attorney declined to reprosecute the Bossis.    The

"Lynch" in the name of the law firm was Lynch's brother, James E.

Lynch.   In January 1980, Mary Orlando, as administratrix of the

Estate of Philip Meriano, dismissed Frank Carano as general

counsel for the estate.   At that time, the law firm became

general counsel for the estate.

     On January 16, 1980, the U.S. Attorney moved the court for

leave to dismiss the indictment against the Bossis on the ground

that the United States did not believe that further prosecution

was warranted.   The motion was granted.   Immediately thereafter,

the Bossis filed a motion in Federal court asking the court to

order the United States to return to them the $1,823,000 in


     3
           Some of the securities were other than bearer bonds.
                                 - 7 -

bearer bonds seized by the FBI.    Lynch and the law firm then

filed three civil actions in the U.S. District Court for the

Eastern District of Pennsylvania to recover the allegedly stolen

securities.

     In April 1980, the civil litigation for the recovery of the

stolen securities was settled.    Pursuant to the settlement

agreement, the estate was to receive securities in the face

amount of $1,623,000.

     On April 8, 1980, the law firm rented a safety deposit box

at Provident Tradesmens Bank & Trust Co. in Philadelphia.      The

signature card for the safety deposit box was signed by Marcel

Groen, Ronald Smolow, and Lynch.

     The United States Attorney's office inventoried the

securities in the Government's possession that were to be turned

over to the estate pursuant to the settlement of the litigation

between the Bossis and the estate.       The securities were delivered

to Lynch and Anthony Orlando who deposited them in the safety

deposit box at the Provident bank on April 10, 1980.      Also, on

April 10, 1980, Lynch and Reardon signed the following agreement:

              HOLD HARMLESS AND INDEMNITY AGREEMENT

          Dated as of this 10th day of April, 1980, in
     consideration of the disbursement of certain funds
     deemed earned as professional fees pursuant to prior
     agreements with Mary Orlando, in her capacity as the
     duly appointed Administratrix of the Estate of Philip
     Meriano, Edward J. Reardon, Jr. and John T. Lynch Jr.,
     Esquire, agree(s) to INDEMNIFY AND HOLD HARMLESS the
     Estate of Philip Meriano and Mary Orlando, the
     Administratrix of the Estate against any and all claims
                               - 8 -

     and loss, which the Estate and/or the Administratrix
     may hereafter suffer or pay by reason of any claims
     against the Estate or the Administratrix or as a result
     of the disbursement of said funds of the Estate in
     payment of professional fees and hereby agree to repay
     any and all amounts received that are determined by a
     court of proper jurisdiction to be returnable to the
     Estate.

          Edward J. Reardon Jr. and John T. Lynch Jr. do(es)
     hereby further agree(s) to provide legal representation
     or the reasonable cost thereof to defend against any
     claim which may be brought against the Estate or the
     Administratrix as a result of the disbursement of such
     fees including all incidental costs relating thereto.

          IN WITNESS WHEREOF we have hereunto set our hand
     and seal dated as of this 10th day of April, 1980.


                                         /s/
                                Edward J. Reardon, Jr.

                                         /s/
                                John T. Lynch Jr., Esquire


     Sometime prior to April 29, 1980, an account was opened in

the name of the estate at Kidder, Peabody & Co. in Philadelphia.

The securities remaining in the safety deposit box were again

inventoried and transferred to the Kidder, Peabody account.    On

April 29, 1980, Mary Orlando, as administratrix of the estate,

authorized Lynch, as her agent, to buy, sell, and trade in the

securities in the estate's Kidder, Peabody account.

     At about the same time the estate opened its account at

Kidder, Peabody, Lynch and Reardon also opened their own personal

accounts at Kidder, Peabody.   Those accounts were used to
                               - 9 -

liquidate securities transferred to them from the estate's

account as payments for their fees.

     During the time he had control of the bonds, Lynch sold some

of them and used the proceeds to pay Reardon and himself the fees

they earned pursuant to their August 7, 1979, agreement with the

estate.   He also sold securities and used the proceeds to pay the

law firm $95,000--$50,000 for their legal services in the Bossi

litigation and $45,000 for other legal services performed as

general counsel for the estate.   A total of $720,761.19 was

disbursed to Lynch and Reardon.

     In August 1980, Anita Panepinto (Panepinto), a niece of

Philip Meriano's deceased wife, found a will dated November 17,

1973, and a codicil dated December 2, 1973, that had been

executed by Philip.   The will and the codicil named Panepinto and

Elaine Hernardi (Hernardi), another niece of Philip's deceased

wife, as beneficiaries of the entire estate.

     On or about August 30, 1980, Panepinto presented the will

and codicil to the Register of Wills in Philadelphia for probate.

     On December 9, 1980, Mary Orlando, as administratrix of the

estate, filed a petition with the Orphans' Court Division, Court

of Common Pleas of Philadelphia (the Orphans' Court), seeking

approval of the fees paid by the estate to Lynch and Reardon.

Action on the petition was deferred by the Court until the

accounting to be filed by the estate was audited by the court.
                              - 10 -

     On March 24, 1981, Mary Orlando, as administratrix of the

estate, approved the payment of fees by the estate to Lynch in

the amount of $418,250 and to Reardon in the amount of $250,950.

The approval was witnessed by Anthony Orlando and Connie Kates.

     During the latter part of 1981, the relationship between

Lynch and the law firm deteriorated.   The law firm was seeking

additional fees from Lynch for its participation in the

litigation to recover the bonds.   On or about December 10, 1981,

the law firm informed Anthony Orlando that it would no longer

represent the estate.

     On August 31, 1982, the Register of Wills revoked the

letters of administration issued to Mary Orlando on or about

December 6, 1977.   The will presented to the Register of Wills by

Panepinto on August 30, 1980, was admitted to probate.    On

September 1, 1982, Panepinto was appointed Administratrix, c.t.a.

of the Estate of Philip Meriano.   On September 3, 1982, Panepinto

filed a petition with the Orphans' Court seeking possession of

all the estate's assets and documents and demanded an accounting.

     On March 30, 1983, Panepinto filed a petition with the

Orphans' Court for a citation directing Lynch to deposit with the

court the professional fees paid to him by the estate which

Panepinto claimed to be grossly excessive.   Panepinto also filed

a petition for a citation directing Reardon to deposit with the

Court the fees paid to him by the estate which Panepinto also

claimed to be grossly excessive.   Similar petitions for citations
                             - 11 -

were made by Panepinto as to Mary Orlando and Connie Kates.    All

such petitions for citations were denied.

     On July 28, 1983, Mary Orlando, as the prior administratrix

of the estate, and Connie Kates, as Administratrix of the Estate

of James Meriano, the late brother of decedent, filed an appeal

from the decree of the Register of Wills which admitted the will

and codicil of Philip Meriano to probate and which granted

letters of administration to Panepinto.

     Panepinto retained the services of the law firm of Dilworth,

Paxson, Kalish and Kauffman of Philadelphia (the Dilworth law

firm) to represent her in the will contest litigation.   The firm

also became the legal representative for the estate.

     In response to the petition filed on September 3, 1982, by

Panepinto with the Orphans' Court seeking possession of all of

the estate's assets and documents and demanding an accounting by

Mary Orlando, the Orphans' Court issued a citation to show cause

why Mary Orlando should not file an account for the estate.

     On November 4, 1982, the Orphans' Court issued a decree

directing Mary Orlando to file an accounting within 30 days.    In

January 1983, Mary Orlando had still not filed the required

accounting.

     The Insurance Company of North America (INA) was surety on

Mary Orlando's administratrix bond.

     After she was appointed administratrix of the estate on

September 3, 1982, Panepinto filed claims against INA, as surety
                              - 12 -

for Mary Orlando, stating that the estate had illegally

distributed moneys to Mary Orlando and others.   The alleged

illegality was premised on her representation that she was the

lawful beneficiary of the estate.   She also claimed that all fees

paid out to Lynch and Reardon had to be returned to the estate.

     In approximately January 1983, INA retained attorney Robert

Boote (Boote) of the law firm of Wolf, Block, Schorr and Solis-

Cohen, Philadelphia, to prepare and file an account of the estate

with the Orphans' Court for INA in its capacity as surety.

     Boote determined that there were no organized records

maintained by the estate.   Boote assumed that Lynch was the

attorney for Mary Orlando, as administratrix of the estate,

although he never saw any document to confirm that assumption.

He did, however, see the agreement of August 7, 1978, between

Mary Orlando, as administratrix of the estate, and Lynch pursuant

to which Lynch had been hired to recover the stolen securities.

     Boote requested Lynch to provide him with records of the

estate that would enable Boote to prepare an account for the

estate.   Lynch was not forthcoming in providing Boote with estate

records and the records that Boote did obtain from Lynch were

disorganized and not very helpful to Boote in his task of

preparing an account.   Boote's law firm had an estate accounting

department, and he assigned an experienced estate accountant to

request records from their original sources such as brokerage

houses and banks and to work with the estate's accountant at the
                              - 13 -

Dilworth law firm, which was the law firm that represented

Panepinto as administratrix of the estate, to determine from

original records what had come into the estate, what had gone out

of the estate, and where it had gone.

     Boote referred Mary Orlando to an attorney and when the

account was filed with the Orphans' Court, she was represented by

Leonard S. Abrams.

     As of March 30, 1983, Boote had prepared a First and Final

Account of Mary Orlando, Administratrix (the account), covering

the period November 14, 1977, to September 1, 1982, showing a

combined principal and income balance remaining in the estate of

$861,553.73.

     The account, which was filed with the Orphans' Court on

March 31, 1983, listed as disbursements from the estate, fees

paid to Reardon in 1980 of $220,000, and fees paid to Lynch in

1980, 1981, and 1982 of $415,761.   The account further noted that

the status of an asset of the estate, a $50,000 U.S. Treasury

Note, 8 percent due February 15, 1983, was still to be

determined.

     On April 30, 1986, INA as surety, filed an Amendment to the

Account4 showing that the $50,000 U.S. Treasury Note which was

not accounted for in the account filed March 31, 1983, had been

redeemed by Lynch.   The amendment to the account also corrected

     4
          The Amendment to the Account was not made a part of the
record.
                              - 14 -

the account to show that Lynch was to be charged with $15,000 in

Delaware River Bonds, $10,000 in California Toll Bridge Bonds,

and $5,061 of coupons.   A total of $500,761.19 in disbursements

was charged to Lynch.

     It is common practice in the Commonwealth of Pennsylvania

for fiduciaries, personal representatives, executors and/or

administrators to pay money out of an estate for lawyers fees,

distributions to beneficiaries, etc., without court approval in

an accounting but such payments are made "at risk", i.e., one

runs the risk that if the payments are not approved by the court

in an accounting, the payments and/or distributions will have to

be returned to the estate.

     On December 26, 1985, Mary and Anthony Orlando and their

daughter, Connie Kates, individually and as executrix of the

estate of James Meriano, the deceased brother of Philip, executed

a stipulation and family settlement agreement with Panepinto,

individually and as administratrix c.t.a. of the Estate of Philip

Meriano and INA.   Under the terms of the agreement, Panepinto and

Hernadi and the Estate of Philip Meriano relinquished their

rights to file a surcharge action against Mary Orlando and her

surety, INA.5




     5
          The stipulation and family settlement agreement was not
made a part of record.
                              - 15 -

     On December 19, 1986, Mary Orlando and Connie Kates withdrew

their will contest, and the Orphans' Court approved the

stipulation and the family settlement agreement.

     The First and Final Account of Mary Orlando, Administratrix,

As Stated By Insurance Company of North America, Surety and

Amendment to First and Final Account of Mary Orlando,

Administratrix, was called for audit May 2, 1986, to March 24,

1987, inclusive, in the Orphans' Court before Judge Shoyer, the

auditing Judge.

     Stephen J. Mathes and John R. Latourette, Jr. of the

Dilworth law firm represented Panepinto; Leonard S. Abrams

represented Mary and Anthony Orlando, individually, and Connie

Kates as executrix of the estate of James Meriano; Frances

Sullivan represented Lynch; Joseph Moore represented Reardon and

Joseph M. Gindhart represented Marcel Groen and the Groen and

Smolow law firm.

     Judge Shoyer had before him the petition filed by Panepinto

to reduce or deny all fees that had been paid out of the estate

to Lynch and Reardon.   She claimed that the contingent fee

agreement upon which Lynch and Reardon based their claim was

unconscionable as a matter of law and that the fees claimed under

the agreement were excessive and unreasonable as a matter of law.

     On November 10, 1983, Lynch filed with the Orphans' Court a

petition for a citation directed to Marcel Groen and Ronald

Smolow to show cause why they should not deposit with the court
                               - 16 -

the money paid to them by Lynch pending approval of the payments

by the court.

     After 14 hearings during the period May 2, 1986, to March

24, 1987, Judge Shoyer entered an adjudication on September 21,

1988.    Judge Shoyer opined that the method Lynch followed in

removing bonds and coupons from the estate and his failure to

maintain adequate records of such transactions was a breach of

ethical standards.    He stated, however, that the court was not

disposed to penalize Lynch for his several violations of the

ethical rules but would leave the disposition of such ethical

considerations to the Disciplinary Board of the Supreme Court of

Pennsylvania, and he referred the record of the Orphans' Court to

the Disciplinary Board.    There is no evidence in this record that

the Disciplinary Board ever took any action on the referral.

     Judge Shoyer stated that in endeavoring to arrive at a

reasonable and fair fee, he was most conscious of the fact that

had it not been for Lynch and Reardon, there would be nothing for

the parties before him to fight about.    He found that a

reasonable contingent fee for Lynch and Reardon should be based

on a percentage of the fair market value of the recovered stolen

bonds.    He first noted that there was no allegation by Panepinto

of any impropriety by Reardon.

     Reardon admitted that he had received $250,950 from Lynch in

payment of the investigatory work which he had performed.     Judge

Shoyer found that Reardon was entitled to 15 percent of
                              - 17 -

$1,146,446 (the fair market value of the recovered stolen bonds)

or $171,966.90.   He surcharged Reardon the excess of $78,983.10

plus 6 percent interest from the dates he received moneys from

the estate, i.e., $28,033.10 on May 7, 1980, $20,000 on June 17,

1980, and $30,950 on April 15, 1981.   Reardon was to be given

credit for any portion of his surcharge which might be paid by

Lynch on Reardon's behalf and so designated at the time of

payment.

     Judge Shoyer next found that $95,000 had been paid by Lynch

to Groen and Smolow.   There was no controversy about the first

$50,000 which Lynch had said was payable out of his fees in

connection with the litigation to compel recovery of the stolen

bonds from the Bossis.   Controversy still existed, however, as to

the remaining $45,000 which Lynch paid them as an alleged general

obligation of the estate for estate work performed by Smolow.

After reviewing the record, Judge Shoyer surcharged Groen and

Smolow $1,230 plus 6 percent interest from May 14, 1980, when

Lynch withdrew the $45,000 from the estate.   Groen and Smoler

were given credit for any portion of their surcharge which might

be paid by Lynch on their behalf and so designated at the time of

payment.

     Finally, because of Lynch's failure to cooperate with Boote

in the preparation of the surety's account for the estate, Judge

Shoyer reduced his fee from 40 percent to 35 percent of the fair
                                - 18 -

market value of the recovered stolen bonds; i.e., 35 percent of

$1,146,466 or $401,256.10.

     In the Amendment to the Account filed by Boote with the

Court on April 30, 1986,6 a total of $500,761.19 was credited to

Lynch.

     Judge Shoyer surcharged Lynch the difference between

$500,761.19 (the amount retained by Lynch after his payment of

$220,000 to Reardon) and $401,256.10 for a surcharge of

$99,505.09.    He also specifically surcharged Lynch $7,500 which

Lynch had advanced for "costs" on February 16, 1980, because

Lynch never properly accounted for the claimed "costs".

     Panepinto, Lynch, and Reardon took exceptions to Judge

Shoyer's Adjudication of September 21, 1988, and the matter was

heard by the Orphans' Court sitting en banc.

     On August 1, 1989, Judge Pawelec issued the Opinion and

Order of the Orphans' Court, sitting en banc.    The Opinion and

Order provided, inter alia, as follows:

         THE AMOUNT OF THE "SURCHARGES" ENTERED AGAINST LYNCH
          AND REARDON, THE ALLOWANCE OF CREDITS TO LYNCH FOR
          PAYMENTS TO OTHERS, AND THE INTEREST TO BE PAID ON
                           THE "SURCHARGES"

          It is apparent from a review of the briefs and the
     arguments of counsel for the exceptants that they are
     unclear concerning the exact amount of the "surcharges"
     imposed by the auditing judge upon Lynch and Reardon,
     the credits, if any, to be allowed Lynch for his
     payments to others, and the interest to be paid on the
     surcharges by Lynch and Reardon. To allay counsels'

     6
            See supra note 4.
                        - 19 -

confusion, the Court en banc will review certain of the
actions taken by Lynch and restate certain portions of
the adjudication.

     It is undisputed that all of the payments made to
anyone connected with the recovery of the bonds were
made by Lynch. Upon his recovering the bonds, Lynch
took control of them and from the proceeds disbursed a
total of $720,761.19. He made a wire transfer from his
Kidder, Peabody account to Reardon's Kidder account in
the amount of $220,000, leaving Lynch with $500,761.19.
He then paid Reardon an additional $30,950.00, which
made Reardon's total receipts the sum of $250,950.00,
and which left Lynch with $469,811.19.

     From the $469,811.19, Lynch paid the law firm of
Groen & Smolow, Esquires, $95,000, and paid an
additional $7,500 in costs. Of the $95,000 payment to
the law firm, Lynch allocated the payment $45,000 for
general services to the estate on behalf of Orlando and
$50,000 for services to him in connection with the
recovery of the bonds. He does not contend that he
should be allowed a credit for the $50,000 payment and
agrees that it is an expense he must bear from his fee.
He does contend, however, that he should have been
given credit for the payment of $45,000. Deducting the
$45,000 payment and the $7,500 payment, Lynch was left
with a total of $417,311.19.

     Of the payments made after the wire transfer of
$220,000 to Reardon, the auditing judge disallowed him
a credit of $7,500 because he was unable to itemize
those costs. We find no error in that disallowance.
However, the auditing judge did not allow Lynch any
credits for the payment of $45,000 to Groen & Smolow,
which payment the auditing judge found to be a
legitimate estate expense, and for the additional
payment of $30,950 to Reardon. The auditing judge's
failure to allow Lynch credits for those payments was
error and has affected the total amount of the money
which Lynch must refund to the estate.

     In his adjudication, the auditing judge found that
a reasonable fee for Lynch is $401,256.10, or 35% of
the market value of the bonds he recovered. The
auditing judge then "surcharged" Lynch the difference
between $500,761.19 (the amount remaining to Lynch
after the $220,000 transfer to Reardon) and
$401,256.10, for a total surcharge of $99,505.09.
                        - 20 -

However, Lynch should have been given credit for the
payments of $30,950 to Reardon and $45,000 to Groen &
Smolow. After being given credit for those payments,
the amount of the "surcharge" should have been based
upon the difference between $424,811.19 (i.e.,
$500,761.19 less $30,950.00 and less $45,000.00) and
$401,256.10, or $23,559.09. That figure is the amount
of the refund Lynch must make as a result of the
overpayment of his fee.

     Concerning Reardon's fee, the auditing judge
allowed him a fee of 15% of the market value of the
bonds recovered or the sum of $171,966.90. He
therefore "surcharged" Reardon the difference between
the amount paid to him by Lynch, i.e., $250,950.00, and
the fee he found to be reasonable, for a total
"surcharge" of $78,983.10. We find no error in the
auditing judge's finding and dismiss the exception.

     However, the auditing judge was unmindful of the
fact that Reardon had been totally compensated by Lynch
for his services. When Lynch made the two payments to
Reardon, totaling $250,950.00, Reardon had received the
benefit of his bargain with Lynch. That is to say,
Reardon was paid by Lynch in accordance with the terms
of the contract he entered into with Lynch. In fact,
Reardon received somewhat more than 15% of the face
value of the bonds recovered.

     Even after refunding the full amount of the
surcharge, Reardon is left with $171,966.90. His fee,
when added to Lynch's allowed fee of $401,256.10, makes
a total fee for services of $573,223.00. That amount
is exactly 50% of the total market value of the assets
recovered by Lynch and Reardon.

     Although the auditing judge does not expressly
address the issue, it is clear from the amounts of
compensation awarded to Lynch and Reardon that he found
that Lynch was to receive 35% of the market value of
the bonds and that Reardon was to receive 15% of the
market value of the bonds and that each man was
compensated from the gross estate. We are of the
opinion that an allowance of 50% of the market value of
the assets recovered is unreasonable and excessive and
was error for the auditing judge to allow that amount
of compensation.
                             - 21 -

          We are of the opinion that under all of the facts
     and circumstances of this case a fair and reasonable
     fee would be a total of 35% of the market value of the
     bonds recovered, with Lynch to be responsible for the
     payment of Reardon's fee of 15% of the market value of
     the bonds recovered. As a result, Lynch must refund to
     the estate the full amount of the compensation allowed
     by the Court to Reardon. That is, Lynch must refund
     the amount of $171,966.90 to the estate. In addition,
     because Lynch paid Reardon's fee from estate assets
     without any authority and because of our finding that
     the amount of compensation taken by Lynch and Reardon
     and allowed by the auditing judge is unreasonable and
     excessive, Lynch must pay interest on the $171,966.90
     refund at the rate of six percent from the date of
     payment to Reardon until the date of the refund. Lynch
     made the payment at his peril and deprived the estate
     of the opportunity to earn interest on the money. It
     is only fair that he now make the estate whole for the
     estate's loss.

          The $171,966.90 refund is, of course, in addition
     to the refund of $23,559.09 which he must make on
     account of the overpayment of his own fee.

          Concerning the interest to be paid on the
     surcharges imposed by the auditing judge on Lynch and
     Reardon, it is apparent that the auditing judge imposed
     interest on the full amount of the money he found that
     Lynch received without subtracting from that amount the
     amount of the compensation he found to be reasonable.
     It was clearly error for the auditing judge to find
     Lynch liable for the payment of interest on the full
     amount of the money he found Lynch to have received.
     Lynch's obligation for interest runs only on the
     difference between the amount of money he took as his
     fee and the amount of his fee which the auditing judge
     found to be reasonable. That is, he need only pay
     interest on the sum of $23,559.09 at the rate of six
     percent from the time of receipt until the time of
     refund.

     Following the issuance of the Orphans' Court's opinion and

order on August 1, 1989, all parties appealed Judge Pawelec's

order to the Superior Court, which affirmed the order on June 13,

1990.
                               - 22 -

     Lynch then filed a petition for the allowance of an appeal

to the Pennsylvania Supreme Court.      His petition was denied on

January 15, 1991.

     Sometime during the latter part of 1989 or the first part of

1990, Reardon entered into a settlement agreement with the estate

and paid to the estate $25,000 in accordance with the terms of

the settlement.7

     On August 29, 1989, Lynch filed a petition in the U.S.

Bankruptcy Court for the Eastern District of Pennsylvania,

pursuant to chapter 13 of title 11, United States Code.      In his

petition, Lynch acknowledged his indebtedness and listed the

Estate of Philip Meriano as a judgment creditor in the amount of

$225,000.

     When Lynch filed his petition in bankruptcy on August 29,

1989, the estate was still being represented by the Dilworth law

firm.    Marjorie Obod (Obod), an associate with the Dilworth firm,

received an incomplete record of what was filed with the

bankruptcy court by Lynch.

     Obod then filed a proof of claim with the bankruptcy court

for the estate as a judgment creditor of Lynch because of the

surcharge imposed by the Orphans' Court against him.      Shortly

thereafter, the Dilworth firm ceased to represent the estate and

took no further action against Lynch.

     7
            The settlement agreement was not made a part of the
record.
                               - 23 -

     Lynch's bankruptcy petition was dismissed by the bankruptcy

court on August 22, 1990, because of the failure of the

bankruptcy estate to file required schedules.   After the

Pennsylvania Supreme Court denied Lynch's petition for appeal on

January 15, 1991, no one on behalf of the estate again contacted

him about the judgment owed by him to the estate.

     The Dilworth firm first represented Panepinto in the will

contest with Mary Orlando, as the prior administratrix of the

estate, and Connie Kates as administratrix of the Estate of James

Meriano, in about July 1983.   The firm then represented Panepinto

as the administratrix of the Estate of Philip Meriano.

     On October 19, 1983, John R. Latourette, Jr. (Latourette),

of the Dilworth firm filed with this Court an entry of

appearance.   On November 7, 1983, Latourette filed a motion to

substitute Panepinto as administratrix of the estate, and the

motion was granted on November 14, 1983.

     On April 25, 1983, this Court set this case for trial on

September 30, 1985, at Philadelphia.

     On September 3, 1985, Latourette and counsel for respondent

filed with the Court a Stipulation of Disposition of Issues (the

First Stipulation), which provides:

               STIPULATION OF DISPOSITION OF ISSUES

          In order to resolve the issues before this Court
     in the above-captioned case, the below-signed parties
     agree to stipulate the tentative settlement of all
     issues raised in the notice of deficiency upon which
     this case is based, and all issues raised in the
                        - 24 -

Petition, Answer and Reply filed in this case. A final
Decision cannot be filed in the case at this time only
because the resolution of certain issues that have been
stipulated below are dependent upon the final
resolution of certain matters now before the Court of
Common Pleas of Philadelphia County, Pennsylvania,
Orphans' Court Division, Administration No. 2259 of
1978, Estate of Philip Meriano. Once these issues are
resolved, the tentative settlement stipulated below
will be incorporated in a final Decision document to be
filed with this Court.

     In accordance with an agreement reached between
the parties, the parties agree as follows:

     1. A summary of the tentatively agreed
adjustments to the taxable estate is set forth below:

   Tentatively Agreed Adjustments to Taxable Estate

Taxable estate per estate tax return         $527,720.79

Tentatively agreed adjustments to taxable
estate, summarized by schedules of
the return:

     Schedule   A                              28,000.00
     Schedule   B                           1,252,085.61
     Schedule   C                               3,174.62
     Schedule   F                              18,318.26
     Schedule   G                             127,230.75
     Schedule   J                              31,515.02
     Schedule   K                                 243.08

Taxable estate as tentatively agreed        $1,988,288.13

     The individual items comprising these adjustments
are set forth more fully in Exhibit A to this
stipulation.

     2. The taxable estate as tentatively agreed has
been computed without allowance for certain deductions
claimed by the estate for items which cannot be finally
determined at this time, as follows:

     (A) An administratrix's commission of
     $27,500 claimed by Mary Orlando is in dispute
     before the Orphans' Court of Philadelphia
     County, Administration No. 2259 of 1978; Of
                   - 25 -

this amount, $13,626.51 has been deducted by
the estate for income tax purposes on Form
1041, and the balance of $13,873.49 is
claimed for estate tax purposes.

(B) Attorney's fees paid to John T. Lynch,
Jr., in the total amount of $495,700.02, and
investigative fees paid to Edward J. Reardon
in the total amount of $220,000, are
currently in dispute and are the subject of
litigation before the Orphans' Court of
Philadelphia County: Estate of Philip
Meriano, No. 2259 of 1978, Petition of Anita
Panepinto for Decree Directing the Deposit
into Court of Certain Amounts paid from the
Estate. The amount of such fees which are
finally paid and are not claimed on Form
1041, are claimed as deductions for estate
tax purposes.

(C) Attorney's fees have been charged by
Dilworth, Paxson, Kalish & Kauffman in the
aggregate amount of $231,347.50 for services
rendered to Anita Panepinto, Administratrix
c.t.a., through September 30, 1984, and
additional such fees will be charged for
services rendered thereafter. All such fees
will be stated in the account of Anita
Panepinto which will be filed with the
Orphans' Court of Philadelphia, and the
Administratrix will request that the Court
approve the amount of such fees. Such fees
will not include any amount for services
rendered to Anita Panepinto and Elaine
Hernadi in connection with any Orphans' Court
proceeding involving the probate of the will
and codicil of Philip Meriano or the appeal
from that probate. The amount of such fees
which is finally paid and approved by the
Court and is not claimed on Form 1041 is
claimed as a deduction for estate tax
purposes.

(D) The amount of interest due on the
Federal Estate Tax deficiency is dependent on
the amount of such deficiency and the time of
payment, neither of which is known at this
time. The amount of such interest which is
                        - 26 -

    not claimed on Form 1041 is claimed as a
    deduction for estate tax purposes.

    (E) The Estate of Marie Meriano (decedent's
    wife) has a claim against the decedent in the
    amount of $12,021, as a debt owed by decedent
    to that estate, but payment of such amount
    has not yet been made. The amount of such
    claim which is finally paid is claimed as a
    deduction for estate tax purposes.

     3. The taxable estate as tentatively agreed may
be decreased as follows:

    (A) By an amount, not exceeding $13,873.49,
    equal to any allowance of an Administratrix's
    commission of Mary Orlando in excess of
    $13,626.51, determined either under a final
    decree of the Philadelphia Orphans' Court,
    Administration No. 2259 of 1978, and any
    appeal therefrom, or by an agreement between
    Mary Orlando and the estate.

    (B) By an amount, not exceeding $488,200.02,
    equal to any attorney's fees which are paid
    to John T. Lynch, Jr., and are either allowed
    by a final decision of the Philadelphia
    Orphans' Court, Administration No. 2259 of
    1978, or are agreed upon between Lynch and
    the estate, less the amount, if any, which
    has been claimed on Form 1041.

    (C) By an amount not exceeding $220,000,
    equal to any investigative fees which are
    paid to Edward J. Reardon and are either
    allowed by a final decision of the
    Philadelphia Orphans' Court, Administration
    No. 2259 of 1978, or are agreed upon between
    Reardon and the estate, less the amount, if
    any, which has been claimed on Form 1041.

    (D) By the amount of any attorneys' fees
    which are paid to Dilworth, Paxson, Kalish &
    Kaffman for services rendered to Anita
    Panepinto, Administratrix c.t.a. of the
    estate, limited however to the amount of such
    fees allowed by a final decision of the
    Philadelphia Orphans' Court, Administration
    No. 2259 of 1978, and any appeal therefrom
                               - 27 -

            and limited to the extent such fee has not
            been claimed on Form 1041.

            (E) By the amount of any interest paid by the
            estate on the Federal Estate Tax deficiency and
            not claimed on Form 1041.

            (F) By an amount, not exceeding $12,021,
            equal to any payment by the estate to the
            estate of Marie Meriano in respect to the
            claim by that estate against the decedent.

          4. None of the items described in item (3) above
     shall be allowed as a deduction for estate tax purposes
     to the extent that the estate or any other party elects
     to deduct such items for income tax purposes.

          5. It is also hereby stipulated that the addition
     to tax provided by Section 6653(b) of the Internal
     Revenue Code shall be computed as an amount equal to
     18.75% of the underpayment of tax, and not 50%.

          6. It is hereby stipulated that the Pennsylvania
     inheritance tax paid by the estate is $83,290.51.

     On September 16, 1985, the Court ordered that the case be

stricken from the trial calendar in Philadelphia on September 30,

1985.    In its order, the Court stated:

          On September 3, 1985, the parties filed their
     stipulation of disposition of issues in this case. As
     indicated in that stipulation the final decision cannot
     be entered in the case until final resolution of
     certain matters now pending before the Court of Common
     Pleas of Philadelphia County, Pennsylvania, Orphans'
     Court Division, Administration No. 2259 of 1978, Estate
     of Philip Meriano.

     Subsequent to the Court's order of September 16, 1985,

petitioner's counsel, Latourette, filed eight status reports with

the Court8 informing the Court that the case had been settled and

     8
          The dates on which the status reports were filed are:
Nov. 28, 1986; Apr. 13, 1987; Oct. 1, 1987; Feb. 10, 1988; Sept.
                                - 28 -

that a decision would be submitted when the litigation in the

Orphans' Court involving Lynch and Reardon was concluded.

     On March 19, 1990, Latourette filed a status report with the

Court in which he informed the Court:

          As requested in the Order of the Honorable Arthur
     L. Nims, III, dated September 7, 1990, we are
     responding with the current status of the above matter.
     On August 1, 1989, the Philadelphia Orphans' Court en
     banc ruled that John T. Lynch, Jr. was required to
     refund to the Estate of Philip Meriano $195,525.99 plus
     interest to August 1, 1989 of $100,606.03 and Edward J.
     Reardon, Jr. was required to refund to the Estate of
     Philip Meriano $78,983.10 plus interest of $40,638.79.
     John T. Lynch has appealed the decision but we have
     reached a settlement with Edward J. Reardon, Jr.
     Accordingly, we are not as yet in a position to
     finalize the Federal estate tax settlement. * * *

     On February 12, 1990, Ridgely Abbe Scott (Scott) entered his

appearance as counsel for the estate.    Scott is the husband of

Panepinto.   He was in February 1990, and is now, Associate

Professor of Law at Widener University School of Law where he

teaches Corporate Tax I, Federal Income Tax, and Taxation of

Compensation.   He received his LL.M. in taxation in 1978 from New

York University School of Law.    He had a full schedule of courses

to teach in the fall and spring semesters in each year beginning

with the spring term of 1990.    In addition, he taught summer

school classes in 1990 and 1991.

     When he filed his appearance in this case, he was not

associated with any law firm.



28, 1988; Dec. 27, 1988; Mar. 2, 1989; and Sept. 1, 1989.
                                - 29 -

     On June 25, 1990, Scott filed a status report with the Court

which mirrored the status report filed by Latourette on March 19,

1990.

     On August 6, 1990, Latourette withdrew himself and the

Dilworth firm as counsel for the estate.

     On October 31, 1990, James S. Tupitza (Tupitza) entered his

appearance as counsel for the estate.

     In a status report filed with the Court on March 9, 1992,

counsel for respondent informed the Court, inter alia:

          4. Petitioner now wishes to abandon the claims
     she is defending (sic) in state court litigation and be
     allowed a deduction for the entire amounts paid on the
     theory it is unlikely the estate will ever collect the
     monies ordered to be repaid to the estate.

     On November 26, 1993, Tupitza and counsel for respondent

filed with the Court a Second Stipulation of Disposition of

Issues (the Second Stipulation) which provided:

             SECOND STIPULATION OF DISPOSITION OF ISSUES

        In order to resolve the issues before this Court in the
        above-captioned case, the parties agree to stipulate
        the tentative settlement of all issues raised in the
        notice of deficiency upon which this case is based, and
        all issues raised in the Petition, Answer, and Reply
        filed in this case, excepting, however, two issues
        concerning the amounts, if any, of deductions allowable
        for property taken from estate assets by John T. Lynch,
        Jr. and Edward J. Reardon, respectively. Those issues
        are not settled because the parties do not agree on the
        legal characterization of the circumstances of such
        taking.

        The parties agree as follows:
                         - 30 -

     1. Previously Agreed Adjustments to the
     Taxable Estate

     In a Stipulation of Disposition of Issues executed
on behalf of the parties and filed with this Court in
1985, the parties agreed to a taxable estate
tentatively determined as follows:
     Taxable estate per estate tax return    $527,720.79

     Tentatively agreed adjustments to the
taxable estate, as summarized by schedules
of the return:

     Schedule   A                                   28,000.00
     Schedule   B                                1,252,085.61
     Schedule   C                                    3,174.62
     Schedule   F                                   18,318.26
     Schedule   G                                  127,230.75
     Schedule   J                                   31,515.02
     Schedule   K                                      243.08

Taxable estate as tentatively agreed
in 1985                                       $1,988,288.13

     2.   Additional Adjustments Agreed to in Present
           Stipulation Of Disposition of Issues

     The parties tentatively agree on the following
additional adjustments to the taxable estate as
previously agreed in 1985:

Taxable estate as tentatively agreed
in 1985                                      $1,988,288.13

Additional adjustments to the taxable estate,
as summarized by schedules of the return:

     Schedule   J                            (   647,652.44)
     Schedule   K                            (    12,021.00)

Taxable estate as tentatively agreed
in this stipulation
                         $1,328,614.69

     3.   Additional Decrease Which Depends on
              Computation of Interest

     The parties agree that the taxable estate as
tentatively agreed in the amount of $1,328,614.69 may
                        - 31 -

be decreased by the amount of any interest paid on the
Federal Estate Tax deficiency and not claimed on Form
1041.

     4. Additional Decrease Which Depends on
     Decision of the Court

     The parties agree that the taxable estate as
tentatively agreed in the amount of $1,328,614.69 has
been determined without allowance for the following
item which is claimed as a deduction by the petitioner
and has not been allowed by the Commissioner:

     A deduction in the amount of $274,505.09 for
     the value of bonds, interest on bonds, or the
     proceeds of bonds, owned by the estate and
     received from the estate by John T. Lynch,
     Jr.

     The Petitioner claims that such amount is
deductible as a theft loss, under Code section 2054.

     The Respondent argues that this item is
deductible, if at all, only as an expense of
administration, under Code section 2053(a)(2), and as
such is limited to the amount allowable under the laws
of Pennsylvania, where the estate is being
administered, and the amount so allowed has already
been considered in the tentatively agreed Schedule J
adjustments noted earlier.

     5. Additional Decrease Which Depends on
     Substantiation By the Petitioner

     The parties agree that the taxable estate as
tentatively agreed in the amount of $1,328,614.69 has
been determined without allowance for the following
item which is claimed as a deduction by the petitioner
and has not been allowed by the Commissioner:

     A deduction in the amount of $43,516.25 for
     fees billed by the law firm of Tupitza and
     Marinelli.

     The Petitioner claims that such amount is
deductible as attorney fees, as provided in section
20.2053-3(c) of the Estate Tax Regulations.
                             - 32 -

          The Respondent argues that such amount would be
     deductible if the Petitioner furnishes substantiation
     that the amount claimed has been paid or will be paid,
     and has not been claimed on Form 1041. Such
     substantiation may be provided by the use of Form 4421.

          6. Addition to Tax Under Code Section 6653(b)

          In the Stipulation of Disposition of Issues filed
     with this Court in 1985, the parties agreed, and
     continue to agree, that the addition to tax provided by
     Section 6653(b) of the Internal Revenue Code shall be
     computed as an amount equal to 18.75% of the
     underpayment of tax.

The taxable estate as tentatively agreed in The First

Stipulation was $1,988,288.12.   The taxable estate as tentatively

agreed in The Second Stipulation is $1,328,614.69. The decrease

results from (1) an increase in Schedule J of $647,652.44 which

approximates the sum of $401,256.10, the amount of fees allowed

to Lynch and Reardon by the Orphans' Court, and the Dilworth

firm's legal fees of $231,34.50 referred to in paragraph 2(C) of

The First Stipulation, and (2) an increase in Schedule K of

$12,021, which is the amount referred to in paragraph 2(E) in The

First Stipulation.

     This case was tried for 11-1/2 hours from December 5, 1994,

through December 7, 1994.

                             OPINION

Issue 1. Claimed Theft Loss Deduction
                                - 33 -

     Petitioner contends that the estate is entitled to a theft

loss deduction for the amount of "excess fees" paid from the

estate's assets to Lynch and Reardon. To the contrary, respondent

contends that petitioner failed to prove that Lynch and Reardon

stole anything from the estate and has disallowed the claimed

theft loss deduction.

     Petitioner bears the burden of proving that respondent's

determinations are incorrect. Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933); Estate of Gilford v. Commissioner, 88

T.C. 38, 51 (1987).     The general rule is that deductions are

strictly a matter of legislative grace, and a taxpayer has the

burden of establishing entitlement to any deduction claimed on

the return.     New Colonial Ice Co. v. Helverinq, 292 U.S. 435, 440

(1934); Estate of Damon v. Commissioner, 49 T.C. 108, 118 (1967).

     The value of decedent's taxable estate equals the value of

his or her gross estate less certain deductions. Sec. 2051.

Section 2054 allows a deduction from the value of the gross

estate for losses incurred during the settlement of the estate

arising from fires, storms, shipwrecks, or other casualties, or

from theft, when such losses are not compensated for by insurance

or otherwise.

     In Estate of Shlensky v. Commissioner, T.C. Memo. 1977-148,

this Court stated, regarding section 2054:

          While neither this section nor the applicable
     regulations define the term "theft," the section's
     language closely parallels section 165(c)(3), and under
                              - 34 -

     that section the issue as to whether a loss arose from
     theft is to be determined under the applicable State
     law. Weingarten v. Commissioner, 38 T.C. 75, 78 (1962).
     The leading income tax case of Edwards v. Bromberg, 232
     F.2d 107, 110-111 (5th Cir. 1956), broadly defines
     "theft" as used in section 165(c)(3) as follows:

          * * * the word "theft" is not like "larceny,"
          a technical word of art with a narrowly
          defined meaning but is, on the contrary, a
          word of general and broad connotation,
          intended to cover and covering any criminal
          appropriation of another's property to the
          use of the taker, particularly including
          theft by swindling, false pretenses, and any
          other form of guile * * * [I]t has been long
          and well established that whether a loss from
          theft occurs within the purview of Section
          23(e)(3) [the predecessor to section
          165(c)(3)] of the Internal Revenue Code of
          1939 and the corresponding provisions of
          prior acts, depends upon the law of the
          jurisdiction where it was sustained and that
          the exact nature of the crime, whether
          larceny or embezzlement, of obtaining money
          under false pretenses, swindling or other
          wrongful deprivations of the property of
          another, is of little importance so long as
          it amounts to theft. [Fn. ref. omitted.]

     Both parties agree that "theft" is a criminal appropriation

of another's property.   The elements of "theft" under

Pennsylvania law are embodied in the Crimes Code, Act. No. 334,

section 1.6, 1972 Pa. Laws 1482, at 1612-1613.   Under the Crimes

Code, effective June 6, 1973, the intent required is a "thieving

state of mind" (citing 18 Pa. Cons. Stat. Ann., sec. 302 (1973));

Commonwealth v. Kuykendall, 318 Pa. Super. 429, 465 A.2d 29

(1983); Commonwealth v. Shaffer, 279 Pa. Super. 18, 420 A.2d 722

(1980).
                               - 35 -

     Respondent contends that to prove "theft" under Pennsylvania

law "the mind of a thief" is relevant and that it must be shown

that there was a specific criminal intent to permanently deprive

the owner of his or her property.   The existence vel non of

criminal intent in the circumstances of a particular taking is a

question of fact, and one which is peculiarly within the

competence of this Court to decide.     Farcasanu v. Commissioner,

436 F.2d 146, 149 (D.C. Cir. 1970), affg. per curiam 50 T.C. 881

(1968).

     Both parties quote Jones v. Commissioner, 24 T.C. 525, 527

(1955) (quoting Allen v. Commissioner, 16 T.C. 163, 166 (1951))

for guidance as to the burden of proof in a theft case:

          Petitioner has the burden of proof. This includes
     presentation of proof which, absent positive proof,
     reasonably leads us to conclude that the article was
     stolen. If the reasonable inferences from the evidence
     point to theft, the proponent is entitled to prevail.
     If the contrary be true and reasonable inferences point
     to another conclusion, the proponent must fail. If the
     evidence is in equipoise preponderating neither to the
     one nor the other conclusion, petitioner has not
     carried her burden.

     Petitioner attempts to transmute an obvious fee dispute with

respect to Lynch and Reardon into a criminal activity, i.e.,

theft.    Thus, under the rationale of the Allen case, the

threshold question is whether the reasonable inferences from the

evidence point to a fee dispute or a theft.    If it was a fee

dispute, then we need not jump through hoops raised by

petitioner's assertions that Lynch and Reardon committed a theft
                               - 36 -

under various sections of the Pennsylvania Criminal Code, namely,

18 Pa. Cons. Stat. Ann. (1983), sec. 3927 (Theft by failure to

make required disposition of funds received); sec. 4113

(Misapplication of entrusted property and property of government

and financial institutions); sec. 3921 (Theft by unlawful taking

or disposition); sec. 3922 (Theft by deception); or sec. 3925

(Receiving stolen property).

     In our judgment the overwhelming evidence contained in this

record shows that this was nothing more than a fee dispute.    It

simply does not support petitioner's belated and tenuous

assertions of a theft.   Lynch did not steal any money from the

estate.   He was paid for his work in recovering the previously

stolen bonds.   This was done pursuant to four separate agreements

with the estate regarding payment of his fees.    The first is a

contract for the work to be performed that Lynch negotiated with

Mary Orlando, then administratrix of the estate.    The second is

the Hold Harmless agreement signed by Lynch.    Certainly he would

not have signed it if he was trying to hide the full payment of

his fee under the contract.    The third is the Trading

Authorization given to Lynch by Mary Orlando so that he could

dispose of assets necessary to pay his fee.    The fourth is an

agreement signed by Mary Orlando to carry out the terms of the

contract to pay Lynch and Reardon in specified amounts for the

work they had done.   These documents clearly show the intent of

Lynch and Reardon.    To be sure, if the Orphans' Court had
                                - 37 -

enforced the precise terms of the contract between Lynch and the

estate, rather than invoking its equity powers by modifying and

reforming the contract, Lynch would not have been ordered to pay

back any funds to the estate.    He was paid the amount provided

for in the contract.

     All in all, the reasonable inferences to be drawn from these

facts and from the record as a whole are that this was merely a

fee dispute between Lynch and the present administratrix of the

estate.   The facts establish that petitioner never asserted a

theft by Lynch in the Orphans' Court proceedings or in the

appeals; that no criminal action for theft has ever been brought

against Lynch by the district attorney; that no charges of

unprofessional conduct have been filed against Lynch; and that

the administratrix has filed no claim with the Pennsylvania

Lawyers Fund for Client Security charging that Lynch stole or

otherwise defalcated the estate's funds.    We think it is

important to point out that Arthur Littleton, the general counsel

for the Client Security Fund, testified that in circumstances

similar to this case a claim would have been considered a fee

dispute for which the Client Security Fund would not have paid.

     On August 7, 1978, Mary Orlando, then administratrix of the

estate, entered into an agreement with Lynch to locate securities

stolen from Philip Meriano on or about July 6, 1977.    The

agreement provided that Lynch would receive 33-1/3 percent of the
                               - 38 -

face value of any securities recovered if they were recovered

prior to suit.    Otherwise Lynch was to receive 40 percent of the

face value of any securities recovered after filing suit.

     Lynch then entered into an agreement whereby Reardon agreed

to assist Lynch in the investigation to recover the stolen

securities.   Reardon was to be paid 15 percent of the face amount

of any securities recovered.

     Lynch's and Reardon's investigation was successful, and the

estate recovered stolen securities in the face amount of

$1,623,000.   As Judge Shoyer, the auditing judge of the Orphans'

Court, noted in his Adjudication of September 21, 1988:

          In endeavoring to arrive at a reasonable and fair
     fee, the auditing judge is most conscious of the fact
     that had it not been for Reardon and Lynch, there would
     be nothing here for the parties to fight about.

Judge Shoyer noted that:

          Counsel for Panepinto claim that it is "clear that
     any impropriety by Reardon may be subject to the
     sanctions of the court, and compensation should be
     denied." There is, however, no assertion of any so
     called "impropriety" by Reardon.

     At the trial of this case, petitioner called Reardon as a

witness to inquire whether he had paid to the estate the amount

he was surcharged by the Orphans' Court.   Reardon replied that he

had entered into a settlement agreement with the estate.

BY MR. TUPITZA:

          Q You entered into -- what type of settlement
     agreement did you enter into with the estate?
                               - 39 -

          A A negotiated amount less than the charged
          amount.

          Q   And what was the amount of that agreement?

          A   I don't have a copy of it.

          Q Is it your testimony you received a
          release from the estate?

          A   Yes.

                  *   *    *    *    *     *   *

          MR. TUPITZA: I'm somewhat surprised, Your Honor.

          THE COURT: I can see that.

          MR. TUPITZA: I have never heard this before nor
     ever seen any evidence of this in any of the
     documentation.[9]

                  *   *    *    *    *     *   *

BY MR. TUPITZA:

          Q Did you make whatever payment was required to
     be made pursuant to the agreement that you allege you
     had with the estate?

          A   I made an initial payment of $25,000.

          Q   And did you pay the balance?

          A   I did not.   I did not have any more money.

          Q So you did not fully comply with the terms of
     whatever settlement you had reached with the estate?

          A That's correct, and I never got called by
     anybody on the estate, or never received a letter from
     anybody. I believe my attorney communicated with the


     9
          In a status report filed with the Court on March 19,
1990, Latourette informed the Court that the estate had reached a
settlement with Reardon.
                              - 40 -

     Dillworth (sic) firm that I did not have any more
     liquid assets and I never heard anything on that matter
     again in eight years, nine years.

     After the Orphans' Court, sitting en banc, issued its

opinion and order on August 1, 1989, all parties appealed the

order to the Superior Court, which affirmed the order on June 13,

1990.   Lynch then filed a petition for the allowance of an appeal

to the Pennsylvania Supreme Court, which was denied on January

15, 1991.   As to Lynch, therefore, the Orphans' Court litigation

was concluded on January 15, 1991.

     In the meantime, on August 29, 1989, Lynch had filed a

petition in the U.S. Bankruptcy Court for the Eastern District of

Pennsylvania, pursuant to Chapter 13 of Title 11, United States

Code.   In his petition Lynch, acknowledging his debt, listed the

Estate of Philip Meriano as a judgment creditor in the amount of

$225,000.

     On August 22, 1990, Lynch's bankruptcy petition was

dismissed by the bankruptcy court because the bankruptcy estate

failed to file required schedules.

     No further steps were taken by the estate to collect the

judgment debt from Lynch.   In making this finding, we are not

unmindful of Tupitza's testimony at trial that:

          We spent sometime trying to do some collection
     efforts on Lynch and Reardon and at one point, after a
     discussion with Ms. Panepinto, we took those time slips
     and purged them and did not bill for that time.
                                  - 41 -

     For various reasons stated, infra, we do not credit

Tupitza's testimony.       In this instance we think petitioner failed

to pursue any collection activities against Lynch and Reardon to

recover the amounts that the Orphans' Court ordered them to

refund to the estate, after the estate entered into a settlement

agreement with Reardon sometime in late 1989 or early 1990, and

after Lynch's petition in bankruptcy was dismissed on August 22,

1990.

     In eight status reports filed with this Court from November

28, 1986, through September 1, 1989, the estate informed this

Court that this case had been settled and that a final decision

would be submitted when the fee dispute involving Lynch and

Reardon was concluded.      As previously noted, the fee dispute

involving Lynch and Reardon was disposed of on January 15, 1991,

when the Pennsylvania Supreme Court denied Lynch's petition for

the allowance of an appeal.

     In a status report filed with the Court on March 9, 1992,

respondent informed the Court:

          4. Petitioner now wishes to abandon the claims
     which she is defending (sic) in state court litigation
     and be allowed a deduction for the entire amounts paid
     on the theory that it is unlikely the estate will ever
     collect the monies ordered to be repaid to the estate.

               *       *      *    *    *    *    *

          9. This report has been discussed with James
     Tupitza, Esquire, counsel for petitioners (sic).
                              - 42 -

     On March 25, 1993, the Court set this case for an oral

status report at the Motions Session of the Court in Washington,

D.C., on June 23, 1993.   At that hearing on June 23, 1993,

Tupitza informed the Court:

          The bonds that we are talking about are bonds
     that, in our position, were stolen twice. They were
     stolen first by the housekeeper and taken out to
     California, and then, when they were recovered, the
     attorney and his accountant investigator stole them a
     second time. We litigated with that attorney all the
     way to the Pennsylvania Supreme Court. He has been
     disbarred for not returning this money.10 He has
     disappeared.11 I have no idea where the man is. He
     filed for bankruptcy at one point and sought to
     discharge this in bankruptcy, and then that bankruptcy
     was dismissed.

          Our position, at some point, is going to be that
     this is a theft loss to the estate, and that is
     probably going to be the narrow issue that we are going
     to be left with out of hundreds of other issues that we
     started with.

     There is no credible evidence in this record to justify

petitioner's assertion of theft by Lynch and/or Reardon. We

regard the claim as made out of whole cloth.   Whether from bias

toward Lynch or from determined obfuscation to reduce the

estate's tax liability, petitioner had tried, albeit

unsuccessfully, to make its evidence fit a Procrustean bed in its

effort to establish a theft loss.   To support its allegation that



     10
          Lynch has never been disbarred from the practice of law
by any jurisdiction.
     11
          Lynch never "disappeared" or made himself unavailable
to petitioner. In fact, he was subpoenaed by petitioner and
testified at trial.
                               - 43 -

Lynch stole some of the estate's funds, petitioner relies mainly

on fragmentary and confusing evidence that Lynch acted without

lawful authority and converted to his own use assets and funds of

the estate.   This evidence is insufficient, and we reject it.

Moreover, petitioner abandoned all efforts to collect refunds due

the estate from Lynch and Reardon.

     Lynch was an attorney hired by the estate for the particular

task of locating and recovering securities stolen from Philip.

He enlisted Reardon to assist him in accomplishing the task

assigned, and they were successful in doing so.

     Petitioner principally relies upon the proceedings before

the Orphans' Court to support its allegation of theft.    We have

perused the entire record of the Orphans' Court litigation to

find any mention of "theft".   There is none.   Terms such as

"overreaching", "ethical considerations", "failure to keep

adequate records", and "noncooperation" are all indicia of

shortcomings on the part of Lynch, but they fall far short of

establishing the "thieving state of mind" required to establish

the crime of "theft" under Pennsylvania law.

     Petitioner's attempt to convert a fee dispute into a

criminal act of theft in order to reduce its taxable estate is

unpersuasive.   Therefore, we hold that petitioner's claimed theft

loss deduction must be denied.

Issue 2.   Attorney's Fees
                                - 44 -

     Section 2053(a)(2) provides for the deduction from the value

of the gross estate of such amounts for administrative expenses

"as are allowable by the laws of the jurisdiction * * * under

which the estate is being administered".     Administrative fees

include attorney's fees.     The amount claimed must be actually and

necessarily incurred in the administration of the estate and must

be reasonable.     Sec. 20.2053-3, Estate Tax Regs.

     Under Pennsylvania law, the Orphans' Court is the Court that

reviews the validity of and the reasonableness of administrative

fees.     When the fees of counsel are brought before the Orphans

Court for review, it is a function of the court to decide what is

a reasonable and just compensation under all the circumstances.

Crawford's Estate, 307 Pa. 102, 111, 160 A. 585, 588 (1931).

Factors to be considered are the size of the estate, the novelty

and difficulty of the questions involved, the extent of counsel's

labor on the case and the time the labor required, the

responsibility assumed by counsel and his professional standing.

Warden Estate, 348 Pa. 224, 225, 35 A.2d 297, 298 (1944).

        Respondent contends that the attorney's fees that the estate

seeks to deduct for payments made to the Tupitza law firm are

unreasonable.

        The Orphans' Court has not been asked to pass upon the

reasonableness of the Tupitza law firm's attorney's fees, and it

falls upon us to make the determination.
                               - 45 -

     In order to better understand our disposition of this

matter, a brief review of the administration of this estate may

be helpful.

     When Panepinto was appointed administratrix of the estate,

the Orphans' Court ordered the prior administratrix, Mary

Orlando, to submit an accounting of the estate to the court.    The

ordered accounting was not forthcoming, and Boote, the attorney

for INA, prepared and filed with the court an accounting.    Boote

testified at trial that when Panepinto was appointed

administratrix of the estate, on September 1, 1982:

          Ms. Panepinto wanted the money distributed to Mrs.
     Orlando, the money paid out in fees, she wanted
     everything. She wanted it all back in the estate and
     she wanted to be paid as much as she could be paid.

     Panepinto retained the services of the Dilworth law firm as

the legal representative of the estate.    Latourette was one of

the attorneys in the Dilworth firm to whom the estate matter was

assigned.    From 1982 through August 6, 1990, the Dilworth firm

represented the estate.

     On September 3, 1985, Latourette and counsel for respondent

filed with the Court a Stipulation of Disposition of Issues which

resolved all issues pending between the estate and the Internal

Revenue Service, except for:

     (1)    An administratrix's commission of $13,873.49 claimed by

Mary Orlando that was being disputed before the Orphans' Court.
                                - 46 -

     (2)   The amount of fees paid to Lynch and Reardon that were

in dispute before the Orphans' Court.

     (3)   Attorney's fees payable to the Dilworth firm by the

estate in the amount of $231,347.50, for services rendered

through September 30, 1984, and additional fees to be charged for

services rendered thereafter.

     (4)   The amount of interest due on the Federal estate tax

deficiency.12

     (5)   A claim by the Estate of Marie Meriano against Philip

Meriano in the amount of $12,021.

     At trial, Panepinto testified that the Dilworth firm had

presented to the estate a bill for legal services in an amount of

approximately $400,000.   However, we are informed by the Second

Stipulation filed November 26, 1993, that the estate paid the

Dilworth firm only $231,347.50 for legal services rendered until

September 30, 1984.   There is no evidence in the record to

explain why the Dilworth firm was not paid legal fees in a total

amount of approximately $400,000.

     Respondent has agreed to allow the estate a deduction for

legal fees paid to the Dilworth firm in an amount of

approximately $231,000.

     It appears from the record that the issues remaining for

decision as set forth in the First Stipulation filed September 3,



     12
           This is a matter of law.
                               - 47 -

1985, were all resolved, save one, in the Second Stipulation

filed November 26, 1993.    Those were simple, uncomplicated issues

that could not have required a great amount of legal services to

resolve them.

     The only issue that remained for decision on November 26,

1993, was the claimed theft loss deduction first raised by

Tupitza in 1992.

     In the Second Stipulation filed November 26, 1993, the

parties also informed the Court:

          5.    Additional Decrease Which Depends on
                 Substantiation By the Petitioner

     The parties agree that the taxable estate as
     tentatively agreed in the amount of $1,328,614.69 has
     been determined without allowance for the following
     item which is claimed as a deduction by the petitioner
     and has not been allowed by the Commissioner:

          A deduction in the amount of $43,516.25 for
          fees billed by the law firm of Tupitza and
          Marinelli.

     The Petitioner claims that such amount is deductible as
     attorney fees, as provided in section 20.2053-3(c) of
     the Estate Tax Regulations.

     The Respondent argues that such amount would be
     deductible if the Petitioner furnishes substantiation
     that the amount claimed has been paid or will be paid,
     and has not been claimed on Form 1041. Such
     substantiation may be provided by the use of Form 4421.

     From November 1993 to December 1994, the Tupitza firm billed

the estate approximately $149,500 (Total Bill - $193,004.4313 -




     13
          Exh. 47.
                                 - 48 -

43,516.25) for legal services to prepare and try one issue that

took 11 1/2 hours to try.

     Panepinto is a lawyer.      Our review of the record in this

case convinces us that she kept herself fully apprised of the

fees for legal services incurred by the estate during the time

the estate was represented by the Dilworth law firm.

     She testified at the trial of this case as to the

reasonableness of the legal fees charged to the estate by the

Tupitza law firm and, except for the certitude that the fees

charged were "very reasonable," she was a particularly unknowing

witness.   On cross-examination, the following colloquy took place

between counsel for respondent and Panepinto:

          Q Have you discussed the issue of fees with your
     attorney in preparation for today -- with Mr. Tupitza?

           A   He gave me a copy of the fees.

          Q Did you discuss this bill or any other subject
     with respect to your testimony today?

           A   Yes.

           Q   When did you talk to him about it?

           A   I guess this morning.

          Q Do you know the amount of the deduction at
     issue in this case due to the actions of Lynch and
     Reardon?

           A   Yes.

           Q   How much is it?

           A   I think it's approximately $250,000.
                             - 49 -

     Q Do you know how much difference in estate tax
that deduction will make?

     A   Not offhand.

     Q Do you know what the estate tax bracket is now
after the stipulations have been filed with respect to
this issue?

     A   No.    I would have to check with him.

           *      *     *     *    *    *     *

     Q Did you have any understanding with the Tupitza
firm regarding the amount of fees that you would pay
with respect to this issue, the theft loss issue?

     A It was pretty much a situation where I was
trying to resolve it with the IRS and I was paying them
an hourly fee until it could be resolved. That's
basically the problem.

           *      *     *     *    *    *     *

     Q Did you ask them for an estimate of the
remaining fees that would be charged after the second
stipulation of disposition of issues was filed?

     A   No.

     Q Is there a contingency fee agreement with
respect to the theft issue?

     A   No.

     Q   Is there a written contract for services?

     A   Between myself and Mr. Tupitza?

     Q   Yes.

     A   It's an hourly fee he's being paid.

     Q What was your understanding as to how much the
hourly fee would be that was to be paid to Mr. Tupitza?

     A   I'm not sure.      I think it's --
                             - 50 -

          Q Do you know whether that's the amount that you
     were charged on the bill?

               *    *    *    *    *    *    *

          The question is do you know whether the amount
     that you agreed upon with Mr. Tupitza is the amount
     that's reflected on the bill.

          A I would have to review my documents to see what
     I had agreed. I have it written down some place and I
     would have to look it over. I did look it over after I
     looked at this bill and I realized that (sic) it was,
     but I don't remember exactly what it was. I think it
     was approximately $100 but I'm not sure what the hourly
     fee is. [Emphasis added.]

          Q Did you have an understanding with Mr. Scott as
     to the hourly fee that would be paid him for work done
     on the theft loss issue in this case?

          A Well, I had employed Mr. Tupitza and he
     employed Mr. Scott.

               *    *    *    *    *    *    *

          Q Do you know how much Mr. Scott's part of this
     bill is for the litigation of the theft loss issue?

          A I would have to figure it out.   I'm not sure.
     I just received one bill.

          Q Do you know if there is an agreement between
     Mr. Scott and Mr. Tupitza -- I'm sorry. Strike that.

          Did you agree with Mr. Tupitza as to how much Mr.
     Scott would be paid, or did Mr. Tupitza set that fee?

          A. I spoke with Mr. Tupitza originally and he
     told me what he was going to charge and then he
     employed Mr. Scott and they dealt with it. I didn't
     talk to Mr. Scott about this.

     As a witness, Panepinto's forte seems to have been

tergiversation, and we do not credit her testimony.
                              - 51 -

     The next witness called by petitioner to testify as to the

reasonableness of the fees charged to the estate by the Tupitza

law firm was Tupitza.   The direct examination of Tupitza was

conducted by Scott.14

     Tupitza first explained that his firm had a policy of always

discussing fees in the first contact with the client in order to

reach an agreement on fees.   He testified that the Supreme Court

(Pennsylvania) "had dictated that we disclose what the fees are

up front."   In this case the firm agreed to represent the estate

on a fee per hour basis.   He was then asked whether the agreement

was in writing.   He responded:

          We generally have a fee letter that we send to the
     client and ask him to sign it and send it back. I
     don't have it with me here, but I have no reason to
     believe that I would have deviated from our normal
     practice and not had a fee letter with her.

     Tupitza then testified that he agreed with the estate to

bill his services at $225 per hour and Scott's services at $150

per hour.

     We are left with Tupitza's uncorroborated, self-serving

testimony that this Court need not accept.   Geiger v.

Commissioner, 440 F.2d 688 (9th Cir. 1971), affg. T.C. Memo.

1969-159; Niedringhaus v. Commissioner, 99 T.C. 202, 212 (1992);




     14
          The total bill submitted to the estate by the Tupitza
firm approximates $197,000. Of that amount $67,437.50 was billed
for Tupitza's time; $115,535 was billed for Scott's time.
                                - 52 -

Tokarski v. Commissioner, 87 T.C. 74, 77 (1986); Sacks v.

Commissioner, T.C. Memo. 1994-217.

     At trial, Tupitza testified that all of his firm's bills,

for probably 10 years, have been done by computer.   He was asked

by respondent how frequently entries were put into the computer.

Tupitza responded:

          A   Well, I used to have a computer at my desk and
     I would often put my time in each day as I did things
     and then somebody else in the office came along and
     thought mine was faster, so I don't have a computer
     there now.

          I usually gave the time to Felicia on a daily
     basis, or we meet on a daily basis -- Felicia being my
     secretary. We confirm what our notes are for what was
     done on that day and then she enters it in. Many of
     the things she enters in contemporaneously or
     simultaneously with my doing the work.

          Q Did Mrs. Scott ever ask you to cut your bill in
     this case?

          A   Yes, she did.

          Q   When?

          A At a point in time when I reported to her that
     I didn't think we were going to be able to get any
     money out of Lynch and Reardon and she didn't want to
     pay for any time that related to that. We hadn't
     billed for it as yet, but she asked me not to bill her
     for it.

          Q That would be billable time with respect to
     pursuing collection efforts?

          A   That's correct.

          Q Other than that, there would have been no
     reason for you to cut your bill in this case, correct?

          A   Not that I can think of at the moment, no.
                                 - 53 -

     At the commencement of the trial of this case, the parties

filed a Joint Stipulation of Facts.       Attached to the joint

stipulations was, inter alia, Joint Exhibit 17-Q (17-Q).       Tupitza

identified 17-Q as a computerized printout of a bill for legal

services performed by his law firm for Panepinto as

administratrix of the Meriano Estate, covering the period August

20, 1990, through December 9, 1994.       The total bill was for

$197,008.40 and was based, in part, on an hourly fee of $225

attributable to the legal services performed by Tupitza.       It also

showed:

                  Date                       Payment

               8/13/93                       $500.00
              12/10/93                        150.00
              12/15/93                        450.00
                4/4/94                      5,000.00
              10/10/94                      2,000.00
                Total Payments              8,100.00
                Balance Due               188,908.40


A considerable portion of 17-Q was marked through and the Court

instructed petitioner to submit a "clean" copy of the bill

presented to the estate by the Tupitza law firm.

     On December 7, 1994, the third and final day of trial,

petitioner introduced into evidence Exhibit 47, a "clean" copy of

17-Q.     Exhibit 47 did not contain the first three pages of 17-Q.

Exhibit 47 showed some costs in addition to those shown on 17-Q
                               - 54 -

and also showed a payment allegedly made the night before; i.e.,

on December 6, 1994, in the amount of $188,000.15

     Respondent called as a witness Howard Switkay (Switkay), who

is employed as an Appeals officer by the Internal Revenue

Service.   He was assigned as an Appeals officer to handle the

disposition of this case.   He was called as a witness for the

sole purpose of identifying Exhibit T, which respondent

introduced into evidence.

     Exhibit T is a computerized printout of a bill for legal

services performed by the Tupitza law firm for Panepinto as

executrix of the Meriano Estate, covering the period from June 6,

1993, through November 8, 1993, and is dated November 8, 1993.

It was submitted to Switkay by Tupitza during settlement

negotiations, and it was understood between Switkay and Tupitza

that it was documentation in support of charges for legal

services that Tupitza was seeking to deduct on the estate tax

return.    Legal services performed by Tupitza for the estate were

charged at the rate of $150 per hour on Exhibit T.   After Switkay

testified about Exhibit T, Tupitza put himself back on the stand

and was questioned on redirect examination by Scott:

          Q Mr. Tupitza, does the bill just entered into
     evidence by the Internal Revenue Service accurately
     reflect the charges which were submitted to the client?


     15
          No documentary evidence of the alleged $188,000 payment
was introduced into evidence apart from the $188,000 credited to
the account on Exh. 47.
                              - 55 -

          A This particular bill was actually never mailed
     to the client. Mr. Switkay and I were going back and
     forth on some things and I had sent him this bill.

           I had never actually looked at what the billing
     rate was on it. Sometime in -- I think it was probably
     even this summer, we re-ran this same bill and when we
     ran the bill the time frames went considerably beyond
     this. I think the last time slip on this one is
     November of '93. They went into '94 and the '94 time
     slips had the 225 on them, so the discrepancy picked up
     between the two of the time rates, the 225 and 150 an
     hour.

          We then went back in and adjusted the slips that
     had the wrong billable rate on them, and when we
     actually submitted a bill to the client we submitted it
     with the proper billable rate.

          Q   So the document was a mere draft?

          A It was a draft for our discussions with the
     Internal Revenue Service. At that point we were
     talking about a settlement of the entire issue.

          This was a draft and it also had on it some
     notations about projected additional time and things of
     that nature.


     We do not credit Tupitza's testimony.   Having observed him

as a witness and after having thoroughly reviewed all the

evidence, we are convinced that Tupitza agreed to charge the

estate $150 per hour for his legal services, and we so find.

     During the last day of trial, the Court briefly examined

Exhibit 47 and noted that the Tupitza law firm had billed the

estate $115,535 for legal services allegedly performed by Scott.

When the parties informed the Court that they had no further

evidence to submit at trial, the Court called Scott as a witness
                                - 56 -

pursuant to rule 614(a), Federal Rules of Evidence, without

objection from either party.

     Scott is the husband of Panepinto, the administratrix of the

estate.   He entered his appearance in this case in February 1990.

At that time, and through the time of trial, he was an associate

professor of law at Widener University.16   He had a full schedule

to teach in the fall and spring semesters of each year beginning

with the spring term of 1990.    In addition, he taught summer

school classes in 1990 and 1991.    He had 6 hours of classes a

week in the spring and fall semesters during each year.    He

informed the Court that since he had been teaching his tax

courses for so long he only had to spend 2 to 3 hours per week

for class preparation in order to keep current with new

developments in the tax area.

     When he entered his appearance in this case in February

1990, Scott was not associated with any law firm.    He associated

himself with Tupitza in July or August 1990, in connection with

this case.    He testified that the estate is billed $150 an hour

for his legal services and that he is paid at the rate of $150

per hour.    Incredibly, the Tupitza law firm realized no income

from the legal services performed by Scott, a "contract

employee".    (More hereinafter about Scott's billable hours.)




     16
          Scott has an LL.M. in Tax from NYU and teaches
Corporate Tax I, Federal Income Tax and Taxation of Compensation.
                                 - 57 -

     The Court then invited either party to examine Scott and

Tupitza inquired of him:

          TUPITZA Are you in fact paid by the law firm of
     Tupitza and Marinelli?

          (SCOTT)   Yes, I am.

          TUPITZA And do you in fact expect to get a 1099
     for all that you're paid from the firm?

          (SCOTT) Yes, I do. In fact, if I didn't get a
     1099 I would complain to you.[17]


     The following is a summary of Exhibit 47:

                           Hours            Charges

   Scott                   760.70         $115,535.00
   Tupitza                 302.10           67,437.50
                                                        $182,972.50
   Ericsson (Attorney)      16.20           2,025.00
   Paralegal                25.00           1,500.00
                                                           3,525.00

   Projected Trial Time:

   Scott                    10:00            1,500.00
   Tupitza                  10:00            2,250.00
                                                           3,750.00
   Additional charges                                      2,756.93
                                                        $193,004.43



     17
          When Scott was questioning Tupitza on direct
examination, Scott asked: "What year did you first pay fees to
Mr. Scott? And Tupitza answered: "I think the first fees I
actually paid to Mr. Scott or remitted to Mr. Scott were probably
in 1994."

     We note that from the first billing date on Exhibit 17-Q,
August 20, 1990, (Scott billed $2,187.50 for 12-1/2 hours to
"Organize file for Tax Court") until December 6, 1994, when the
estate, during trial, allegedly paid the Tupitza law firm
$188,000, the estate had only paid the law firm a total of
$8,100.
                                - 58 -

     Scott's billings account for 60 percent of the total amount

charged to the estate by the Tupitza law firm and the number of

hours charged by him constitute 68 percent of the total hours

billed by the law firm to the estate.

     The following table is compiled from Exhibit 47 and is

alleged to reflect the hours expended by Scott in rendering legal

services to the estate:

     Date                 Activity       Hours        Amount

  8/7/93 (Sat.)           Research         6           $900
  8/8/93 (Sun.)           Research        10          1,500
  8/9/93                  Research         9          1,350
  8/10/93                 Research         9          1,350
  8/14/93 (Sat.)          Research        10          1,500
  8/15/93 (Sun.)          Research         9          1,350
  11/20/93 (Sat.)         Research         5            750
  11/21/93 (Sun.)         Research         6            900
  11/22/93                Research        10          1,500
  11/23/93                Research         9          1,350
  11/24/93                Research        10          1,500
  11/25/93 (Thanks-
           giving day)    Research        11          1,650
  11/26/93                Research        10          1,500
  11/27/93 (Sat.)         Research         6            900
  11/28/93 (Sun.)         Research         4            600
  11/29/93                Research         9          1,350
  11/30/93                Research        10          1,500
  12/1/93                 Research         2            300
  12/2/93                 Research         7          1,050
  12/3/93                 Research        10          1,500
  12/4/93 (Sat.)          Research         9          1,350
  12/5/93 (Sun.)          Research         9          1,350
  12/6/93                 Research        11          1,650
  12/7/93                 Research         8          1,200
  12/10/93                Research         9          1,350
  12/11/93 (Sat.)         Research        10          1,500
  12/12/93 (Sun.)         Research         8          1,200
  12/13/93                Research         7          1,050
  12/15/93                Research         8          1,200
  12/16/93                Research        10          1,500
  1/29/94 (Sat.)          Research         9          1,350
  1/30/94 (Sun.)          Research         8          1,200
                              - 59 -

  1/31/94              Research           11         1,650
  2/1/94               Research           10         1,500
  2/2/94               Research            5           750
  3/15/94              Research            9         1,350
  3/21/94              Research            9         1,350
  3/22/94              Research            7         1,050
  3/31/94              Research            9         1,350
  4/1/94               Research            4           600


   Date               Activity            Hours       Amount

  9/7/94       Locate Webb Estate18 and    10         1,500
               704 Issues; locate
               addresses, witnesses
  9/8/94         Locate Webb Estate        7         1,050
                 and 704 Research
  9/12/94        Research/Trial Prep.      8         1,200
  9/13/94        Research/Trial Prep.      9         1,350
  9/14/94        Research/Trial Prep.     10         1,500
  9/15/94        Research/Trial Prep.      9         1,350
  9/16/94        Research/Trial Prep.      8         1,200
  9/17/94 (Sat.) Research/Trial Prep.      6           900
  9/19/94        Research/Trial Prep.     10         1,500
  11/1/94        Prep. for Trial          10         1,500
  11/2/94        Prep. for Trial           8         1,200
  11/4/94        Prep. for Trial          10         1,500
  11/5/94 (Sat.) Prep. for Trial           8         1,200
  11/7/94        Prep. for Trial           8         1,200
  11/8/94        Prep. for Trial           5           750
  11/10/94       Prep. for Trial           6           900
  11/11/94       Prep. for Trial          11         1,650
  11/12/94 (Sat.)Prep. for Trial          10         1,500
  11/13/94 (Sun.)Prep. for Trial          10         1,500
  11/14/95       Prep. for Trial           9         1,350
  11/16/94       Prep. for Trial           9         1,350
  11/17/94       Prep. for Trial          10         1,500
  11/18/94       Prep. for Trial           8         1,200
  11/21/94       Prep. for Trial           9         1,350
  11/22/94       Prep. for Trial          10         1,500
  11/23/94       Prep. for Trial           9         1,350
  11/28/94       Prep. for Trial          10         1,500
  11/29/94       Prep. for Trial           9         1,350
  11/30/94       Prep. for Trial          10         1,500
  12/1/94        Prep. for Trial           9         1,350
  12/2/94        Prep. for Trial           8         1,200

     18
          In its opening brief, petitioner cites Estate of John
Webb, Deceased, 138 A.2d 435 (Pa. 1958), a 4-page opinion by the
Supreme Court of Pennsylvania.
                              - 60 -



     Attorney's fees in an estate case must be based on the

reasonable value of the services actually rendered.     Dorsett v.

Hughes, 353 Pa. Super. 129, 509 A.2d 369 (1986).    Attorneys

seeking compensation from an estate have the burden of

establishing facts that show the reasonableness of their fees and

entitlement to the compensation claimed.     In re Estate of

Sonovick, 373 Pa. Super. 396, 400, 541 A.2d 374, 376 (1988).

     The number of hours billed by Scott to the estate in this

case is excessive and unreasonable.    Under these circumstances we

do not accept the self-serving, uncorroborated evidence of

Tupitza, Scott, and Panepinto.   In particular, we have no

credible evidence in the record that details the work allegedly

performed by Scott.

     We are not unmindful of the peculiar circumstances in this

case where $115,535 in legal fees billed to the estate by Scott

would pass from the administratrix and sole beneficiary of the

estate (Scott's wife) to the Tupitza law firm and return to

Scott, to be reported on a joint Federal income return with

Panepinto.   We are left with the uneasy feeling that Scott and

Panepinto, with the concurrence of Tupitza, engaged in a

concerted effort to generate estate tax deductions to minimize

the estate's Federal estate tax liability.

     The proof as to the reasonableness of the legal fees billed

by Scott is unsatisfactory from the standpoint of showing the

nature, character and extent of the services rendered.    To be
                                - 61 -

sure, based on the meager evidence in this record, his claimed

legal fees are excessive and unreasonable.

     Accordingly, we hold that petitioner has failed to prove

that the estate is entitled to deduct as reasonable legal fees to

the Tupitza law firm an amount in excess of the $100,000 conceded

by respondent in her brief.19   The deduction is of course subject

to proof of payment, as required by section 20.2053-3(c)(1),

Estate Tax Regs.

     To reflect the stipulations pertaining to the disposition of

issues and our conclusion with respect to the deduction for legal

fees to the Tupitza law firm,



                                          Decision will be entered

                                     under Rule 155.




     19
          If respondent had not conceded $100,000 as reasonable
legal fees, the Court would have been inclined to allow a lesser
amount in view of the facts and circumstances present in this
case.
