                       T.C. Memo. 2006-225



                      UNITED STATES TAX COURT



 ESTATE OF MARGOT STEWART, DECEASED, BRANDON STEWART, EXECUTOR,
                          Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

   ESTATE OF MARGOT STEWART, DECEASED, DONOR, BRANDON STEWART,
                      EXECUTOR, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 5520-05, 5521-05.      Filed October 24, 2006.



     Kirk H. O’Ferrall, Kathleen M. Citera, and Robert Callagy

(specially recognized), for petitioners.

     Shawna A. Early and Lydia A. Branche, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   The issues for decision are whether decedent

made a completed gift of a 49-percent interest in real property,
                               - 2 -

whether the value of that property should be included in

decedent’s estate pursuant to section 2036,1 and whether

decedent’s estate is entitled to deductions relating to property

taxes and claims against the estate.

                         FINDINGS OF FACT

     On July 10, 1989, Margot Stewart (decedent) executed a deed

that transferred to Brandon Stewart, her son, real property

located in East Hampton, New York (the East Hampton property).

As a result of the transfer, decedent and Mr. Stewart owned the

East Hampton property as joint tenants with rights of

survivorship.   Decedent and Mr. Stewart agreed to share the

income and expenses relating to the East Hampton property.

Decedent also owned real property located at 160 East 61st

Street, New York, New York (the 61st Street property).     Decedent

and Mr. Stewart resided on the first two floors of the 61st

Street property.   Beginning on October 1, 1999, decedent leased

the remaining three floors of the 61st Street property to

Financial Solutions, Ltd., an unrelated third party, for $9,000

per month.

     On May 9, 2000, decedent executed a deed that transferred to

Mr. Stewart a 49-percent interest in the 61st Street property.


     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
                                 - 3 -

As a result of the transfer, decedent and Mr. Stewart owned the

property as tenants in common.    On May 10, 2000, Robert Goldie,

Mr. Stewart’s attorney, delivered the deed to Choice Abstract

Corp. (Choice Abstract) for the purpose of recording the deed.

The deed, however, was misplaced by Choice Abstract and was not

recorded until April 4, 2001.

     Decedent, who was a resident of New York, died on November

27, 2000.   After the May 9, 2000, transfer and until the time of

her death, decedent continued to receive all of the rental

payments from Financial Solutions, Ltd.   Prior to her death,

decedent also paid most of the expenses relating to the 61st

Street property (i.e., decedent paid expenses of $21,790.85 while

Mr. Stewart paid $1,963).

     Mr. Stewart and Barbara Weisl were appointed executors of

decedent’s estate.   On August 19, 2001, decedent’s executors

filed a Form 709, United States Gift (and Generation-Skipping

Transfer) Tax Return, relating to the transfer of the 61st Street

property.   On August 27, 2001, Mr. Stewart obtained a mortgage on

the 61st Street property.   On February 23, 2002, decedent’s

executors filed a Form 706, United States Estate (and Generation-

Skipping Transfer) Tax Return, relating to decedent’s estate.

Ms. Weisl died on November 14, 2004, and the estate did not

appoint another executor.
                                - 4 -

     On December 22, 2004, respondent issued separate statutory

notices of deficiency relating to the estate and gift tax

returns.    On March 22, 2005, Mr. Stewart, while residing in New

York, New York, timely filed separate petitions on behalf of the

estate relating to the estate and gift tax returns.

                               OPINION

I.   The Transfer to Mr. Stewart Was A Completed Gift

     The estate contends that the transfer from decedent to Mr.

Stewart of the 49-percent interest in the 61st Street property

was a completed gift.   Pursuant to New York law, a gift is

complete only if donative intent, delivery, and acceptance are

established.    Gruen v. Gruen, 496 N.E.2d 869, 872 (N.Y. 1986).

     The parties agree that decedent intended to transfer the

property and Mr. Stewart accepted the property.    Respondent,

however, contends that there was not a valid delivery of the gift

until April 4, 2001 (i.e., the date the deed was recorded).      We

disagree.    Pursuant to New York law, the recording of a deed is

irrelevant in determining whether there is a completed gift.

N.Y. Real Prop. Law sec. 244 (McKinney 2006); see Whalen v.

Harvey, 653 N.Y.S.2d 159 (App. Div. 1997).   The estate has

established that decedent intended to, and did indeed, relinquish

dominion and control of a 49-percent interest in the 61st Street

property on May 9, 2000.    See Gruen v. Gruen, supra at 872.
                                - 5 -

Thus, the transfer of the interest in the 61st Street property

was a completed gift.2

II.   The Property Is Includable Pursuant to Section 2036

      The estate acknowledges that decedent’s 51-percent interest

in the 61st Street property is includable in her estate but

contends that the remaining 49 percent of the property is owned

by Mr. Stewart (i.e., as a tenant in common).   Respondent

contends that, pursuant to section 2036, 100 percent of the 61st

Street property’s value is includable in the estate because

decedent continued to live there and received all of the rental

income after the May 9, 2000, transfer.

      Section 2036(a)(1) provides that a decedent's gross estate

includes the value of all property interests transferred (other

than for full and adequate consideration in money or money's

worth) by a decedent during her life where she has retained for

life the possession or enjoyment of the property, or the right to

the income from the property.   The term “enjoyment” refers to the

economic benefits from the property.    Estate of Gilman v.

Commissioner, 65 T.C. 296, 307 (1975), affd. 547 F.2d 32 (2d Cir.


      2
        In general, the Commissioner's determinations set forth
in a notice of deficiency are presumed correct, and the taxpayer
bears the burden of showing that the determinations are
erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115
(1933). Our conclusions, however, are based on a preponderance
of the evidence, and thus, the allocation of the burden of proof
is immaterial. See Martin Ice Cream Co. v. Commissioner, 110
T.C. 189, 210 n.16 (1998).
                               - 6 -

1976).   Thus, “Enjoyment as used in the death tax statute is not

a term of art, but is synonymous with substantial present

economic benefit.”   Estate of McNichol v. Commissioner, 265 F.2d

667, 671 (3d Cir. 1959), affg. 29 T.C. 1179 (1958).    Retained

enjoyment may exist where there is an express or implied

understanding at the time of the transfer that the transferor

will retain the economic benefits of the property.     Guynn v.

United States, 437 F.2d 1148, 1150 (4th Cir. 1971); Estate of

Rapelje v. Commissioner, 73 T.C. 82, 86 (1979).

     Decedent’s retention of the property’s income stream after

the property was transferred is “very clear evidence that the

decedent did indeed retain ‘possession or enjoyment.’”     Estate of

Hendry v. Commissioner, 62 T.C. 861, 873 (1974).     Decedent

continued to receive the $9,000 monthly rent payments from

Financial Solutions, Ltd., and enjoy the economic benefits of the

61st Street property.   Mr. Stewart contends that he and decedent

agreed they would share the income and expenses, in a manner

reflective of their ownership interests, relating to the 61st

Street property (i.e., Mr. Stewart would receive 49 percent of

the income and pay 49 percent of the expenses) and the East

Hampton property (i.e., Mr. Stewart would receive 50 percent of

the income and pay 50 percent of the expenses).    At the end of

2000, according to Mr. Stewart, he and decedent intended to

perform a financial reconciliation to ensure that the proper
                                - 7 -

amount of income and expenses was allocated to decedent’s and Mr.

Stewart’s interest in both properties.    The parties did not sign

a written agreement to reconcile the income and expenses, and Mr.

Stewart’s testimony relating to an oral agreement was not

credible.    Indeed, Mr. Stewart’s accountant testified that he did

not recall being informed about an agreement to reconcile the

income and expenses.    We do, however, conclude that Mr. Stewart

and decedent had an implied agreement that decedent would retain

the economic benefits of the 61st Street property.    Decedent

certainly met the terms of that agreement.    Thus, the full value

of the 61st Street property must be included in decedent’s

estate.     Sec. 2036(a); Estate of Hendry v. Commissioner, supra at

873.

III. Property Tax Deduction Is Disallowed

       After decedent’s death, Mr. Stewart paid $10,153 in property

taxes relating to decedent’s 51-percent interest in the 61st

Street property.    The estate contends that the estate is entitled

to a deduction relating to property taxes paid by Mr. Stewart.

At the time of her death, decedent did not have an outstanding

property tax obligation relating to her 51-percent interest in

the 61st Street property.    Pursuant to section 2053(c)(1)(B),

property taxes are not deductible by an estate unless the taxes

are an enforceable obligation of the decedent at the time of her

death.    See also sec. 20.2053-6(b), Estate Tax Regs.
                                  - 8 -

Accordingly, no deduction is allowed.         Sec. 2053(c)(1)(B); sec.

20.2053-6(b), Estate Tax Regs.

IV.   Deduction of Debt Owed to Mr. Stewart Is Not Allowed

      The estate contends that it is entitled, pursuant to section

2053(a)(3), to deduct a debt owed to Mr. Stewart relating to the

purported reconciliation agreement, between Mr. Stewart and

decedent, to share the income and expenses relating to both

properties.   An estate may deduct the value of a claim based on a

decedent’s promise to pay only if the liability was “contracted

bona fide and for adequate and full consideration in money or

money’s worth”.   Sec. 2053(c)(1)(A); See Estate of Scholl v.

Commissioner, 88 T.C. 1265, 1279 (1987).        There was no

reconciliation agreement.   Accordingly, no deduction is allowed.

      Contentions we have not addressed are irrelevant, moot, or

meritless.

      To reflect the foregoing,


                                               Decisions will be entered

                                          under Rule 155.
