                        T.C. Memo. 1997-229



                      UNITED STATES TAX COURT



  THEODORE S. PROKOPOV AND GEORGINE O. PROKOPOV, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 8103-95.              Filed May 13, 1997.



     Theodore S. Prokopov and Georgine O. Prokopov, pro se.

     Robert W. Dillard and Stephen R. Takeuchi, for respondent.



                        MEMORANDUM OPINION


     WRIGHT, Judge:   This matter is before the Court on

respondent's motion for summary judgment pursuant to Rule 121.1

Respondent contends that the Court should grant her motion


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                               - 2 -

because this case contains no genuine issue as to any material

fact and that judgment should be issued as a matter of law.

Background

     Respondent determined a deficiency in petitioners' Federal

income tax for taxable year 1992 in the amount of $18,257.      A

notice of deficiency was issued on May 11, 1995.

     Respondent filed her above-referenced motion for summary

judgment (respondent's motion) on July 8, 1996.    On July 12,

1996, the Court ordered (the Court's order) petitioners to show

cause in writing on or before August 19, 1996, as to why

respondent's motion should not be granted.   Petitioners filed

their response (petitioners' response) to the Court's order on

July 29, 1996.

     George T. Ogden died testate on July 13, 1981.    His wife,

Lucile G. Ogden, served as the personal representative of his

estate.   Mr. Ogden's will was prepared by William M. Williams

(Mr. Williams) and was executed on December 24, 1979.    Mr.

Ogden's will was probated, and his estate was distributed

according to its provisions.

     Mr. Ogden's will created a testamentary trust (the trust)

and provided that Mrs. Ogden was to receive the trust's income

during her lifetime.   The will also created two powers with

respect to the trust in favor of Mrs. Ogden.   The first power

provided Mrs. Ogden with a noncumulative annual right to withdraw

the greater of $5,000 or 5 percent of the trust's corpus.      The
                               - 3 -

second power provided Mrs. Ogden with a discretionary "special"

power of appointment, permitting her to appoint the trust's

principal to any of Mr. Ogden's lineal descendants or their

spouses.2

     Shortly after his death on July 13, 1981, Mr. Ogden's estate

transferred certain real property and stock to the trust.    Among

the property transferred was a real property located in North

Myrtle Beach, South Carolina known as the Oak Den Trailer Court

(Oak Den).   Oak Den had a fair market value of $259,000 on the

date of Mr. Ogden's death.   The executor of Mr. Ogden's estate

did not elect the alternate valuation date under section 2032.

     Mrs. Ogden died testate on May 11, 1990.   Her will had been

prepared by Mr. Williams and was executed on May 14, 1982.    Mrs.

Ogden's will was probated, and her estate was distributed

according to its provisions.   Mr. Ogden's will directed that the

trust's corpus at the time of Mrs. Ogden's death was to be

distributed according to Mrs. Ogden's will.3

     2
      Specifically, the provision creating the special power of
appointment reads as follows:

     My wife, Lucille G. Ogden, shall have the power during
     her lifetime * * * to appoint any portion or all of the
     principal sum of the trust to any of my lineal
     descendants or spouses of lineal descendants, in such
     amounts, outright or upon such trust, terms and
     conditions as she shall elect. Under no circumstances
     may my wife exercise this power in favor of herself,
     her creditors, her estate or creditors of her estate.
     3
      Specifically, Mr. Ogden's will reads:
                                                    (continued...)
                               - 4 -

     Mr. Williams, Peter G. Ogden, and petitioner-wife (Mrs.

Prokopov) served as co-executors of Mrs. Ogden's estate.4    At the

time of her death, Mrs. Ogden had not exercised her noncumulative

right to withdraw the greater of $5,000 or 5 percent of the value

of the trust's corpus.   As of May 11, 1990, the date of Mrs.

Ogden's death, Oak Den had a fair market value of $600,000, and

the trust's corpus had a fair market value of $755,759.14.    In

computing her estate tax liability, the executors of Mrs. Ogden's

estate included 5 percent of the fair market value of the trust's

corpus, as of May 11, 1990, in her gross estate.

     In 1992, Oak Den was sold to Ryan's Family Steak House, Inc.

(RFSH) for $600,000.   For purposes of calculating the trust's

gain on the sale of Oak Den, Mr. Williams determined that Oak Den

had an adjusted basis of $276,050.5    Expenses associated with

     3
      (...continued)
          * * * Upon the death of my wife, [], the
          remaining principal or corpus of the said
          trust shall be distributed as my wife shall
          direct in her will by specifically referring
          to and exercising the special power of
          appointment in her last will and testament;
          provided, however, that in no event may she
          exercise this power in favor of herself, her
          creditors, her estate, or the creditors of
          her estate; provided further, however, that
          this power shall be exercisable only in favor
          of my lineal descendants or spouses of lineal
          descendants. * * *
     4
      Mrs. Prokopov is the daughter of Mr. and Mrs. Ogden.
     5
      In deriving this figure, Mr. Williams first reduced Oak
Den's fair market value at the time of Mr. Ogden's death by 5
                                                   (continued...)
                               - 5 -

the sale of Oak Den totaled $64,090.45.6   In light of the

aforementioned adjusted basis and expenses, the trust reported a

gain of $259,859.55 from the sale of Oak Den on its 1992 income

tax return.   The trust also reported interest and rental income

for 1992 in the amounts of $921.13 and $5,085.41, respectively.

After accounting for State income taxes in the amount of

$18,217.50, net taxable income to the trust's beneficiaries for

1992 was $247,648.59.

     Mrs. Prokopov was a 30-percent beneficiary in the trust.

Mr. Williams determined that Mrs. Prokopov's share of trust

income for 1992 was $74,294.57.   He informed her of such amount

on February 25, 1993.   The trust also issued a Schedule K-1 to

Mrs. Prokopov.

     Petitioners reported $1,525.62 as income from the trust on

their 1992 Federal income tax return.   Respondent subsequently




     5
      (...continued)
percent. He then increased the result by 5 percent of Oak Den's
fair market value as of Mrs. Ogden's death. The calculation is
as follows:

     ($259,000 * 95%) + ($600,000 * 5%)= $276,050
     6
      The expenses consisted of attorney's fees of $9,482.45,
commissions of $49,980, cleanup costs of $2,750, surveying costs
of $1,625, deed stamp fees of $240, and miscellaneous costs of
$13.
                               - 6 -

determined that petitioners failed to report $72,768.957 of Mrs.

Prokopov's distributive share of trust income for 1992.

Discussion

     Summary judgment is intended to expedite litigation and

avoid unnecessary and expensive trials.    Florida Peach Corp. v.

Commissioner, 90 T.C. 678, 681 (1988).    It is appropriate if the

pleadings and other materials show that there is no genuine issue

as to any material fact, and a decision may be rendered as a

matter of law.   Rule 121(b); Naftel v. Commissioner, 85 T.C.

527, 529 (1985).   The moving party bears the burden of proving

that summary judgment is appropriate.     Celotex Corp. v. Catrett,

477 U.S. 317, 323 (1986); Espinoza v. Commissioner, 78 T.C. 412,

416 (1982).   When confronted with a motion for summary judgment,

the Court will construe factual inferences in a manner most

favorable to the opposing party.   Dahlstrom v. Commissioner, 85

T.C. 812, 821 (1985).

     The sole issue presented by this case involves Oak Den's

adjusted basis on the date it was sold to RFSH.8    Petitioners

maintain that section 1014(a) and (b) operate to give Oak Den a



     7
      In the notice of deficiency, respondent determined that
petitioners failed to report $77,958 of Mrs. Prokopov's
distributive share of trust income for 1992. Respondent now
concedes that the correct amount is $72,768.95.
     8
      In their response to the Court's order, petitioners
introduce for the first time a contention that a portion of Mrs.
Ogden's estate was subjected to double taxation. We decline to
address this argument as it is not now properly before us.
                                 - 7 -

stepped-up basis of $600,000.     Specifically, it is petitioners'

argument that the trust's corpus, including Oak Den, became

property of Mrs. Ogden's gross estate upon her death, and that in

becoming part of said gross estate obtained a stepped-up basis by

operation of section 1014.     In support of their contention,

petitioners advance two arguments.       With respect to their first

argument, petitioners point to a provision contained in Mr.

Ogden's will and contend that the language of such provision

served to transfer the trust's corpus to Mrs. Ogden's estate on

the date of her death.9    They explain that subparagraph (d) of

the FIFTH paragraph of Mr. Ogden's will provides:

     Upon the death of my wife,[], the remaining principal
     or corpus of the said trust shall be distributed as my
     wife shall direct in her will * * *

Petitioners then explain that Mrs. Ogden's will effectively

distributed the property formerly contained in the trust to the

beneficiaries of her estate.     As support for this explanation,

petitioners point to language contained in the FOURTH paragraph

of Mrs. Ogden's will.     Such paragraph provides:

     All the rest, residue and remainder of my property,
     both real and personal, of whatsoever nature and
     wheresoever situate of which I may die seized or to
     which I may be entitled, or over which at the time of


     9
      In advancing this argument, petitioners maintain that Mr.
Ogden's will contains certain errors that the Court must adjust
before it can analyze properly the interrelationship between Mr.
and Mrs. Ogden's wills. Even if this were the appropriate forum
for petitioners to contest aspects of Mr. Ogden's will, which it
is not, petitioners' argument is seriously flawed and must be
rejected.
                                - 8 -

     my death I may have a power of appointment or disposal,
     I direct my Executor to divide said residuary estate
     * * * as follows * * *

It is the interrelationship of the two provisions cited

immediately above that petitioners rely upon in advancing their

argument that there is "no doubt that [Mrs. Ogden] really

distributed the Trust together with her estate."

     Petitioners also argue10 that the "special" power of

appointment that Mrs. Ogden possessed with respect to the trust

converted to a "general" power of appointment on the date of Mrs.

Ogden's death.11    The implication drawn from this argument is

that section 2041(a) caused the whole of the trust's corpus to be

included in Mrs. Ogden's gross estate.

     Respondent maintains that apart from the 5 percent over

which Mrs. Ogden had a noncumulative right of withdrawal at her

death, Oak Den does not receive a stepped-up basis because it did

not become part of Mrs. Ogden's gross estate.    According to

respondent, Oak Den had an adjusted basis of $276,05012 when it

was sold to RFSH.    We agree with respondent.



     10
      This argument is partially express and partially implied
by the language used in petitioners' response.
     11
      A "special" power of appointment is a power of appointment
other than a "general" power of appointment. A "general" power
of appointment is textually defined infra.
     12
      Petitioners do not dispute the computation of this figure.
Accordingly, we will not address such computation and will decide
whether Oak Den's adjusted basis on the date it was sold to RFSH
was $276,050 or $600,000.
                                - 9 -

     The basis of property in the hands of a person acquiring

such property from a decedent is generally its fair market value

as of the date of the decedent's death.    Sec.   1014(a); Brewster

v. Gage, 280 U.S. 327 (1930).   Moreover, section 2041 provides

generally that a decedent's gross estate shall include the value

of all property subject to a "general" power of appointment.

Sec. 2041(a)(2).   A "general" power of appointment is a power

which is exercisable in favor of the decedent, the decedent's

estate, the creditors of the decedent, or the creditors of the

decedent's estate.13   Sec. 2041(b)(1).   A power of appointment is

not a "general" power of appointment if it is either (1)

exercisable only in favor of one or more designated persons or

classes other than the decedent, the decedent's estate, the

creditors of the decedent, or the creditors of the decedent's

estate, or (2) expressly not exercisable in favor of the

decedent, the decedent's estate, the creditors of the decedent,

or the creditors of the decedent's estate.    Sec. 20.2041-1(c)(1),

Estate Tax Regs.

     When Oak Den was transferred to the trust pursuant to the

terms of Mr. Ogden's will, it obtained a basis of $259,000.

Apart from   Mrs. Ogden's noncumulative power to withdraw 5

percent of the trust's corpus, which resulted in the inclusion of



     13
      Secs. 2041(b)(1)(A), (B), and (C) set forth three
exceptions to this definition, but none applies in the instant
case.
                             - 10 -

such 5 percent in her gross estate, see Estate of Kurz v.

Commissioner, 101 T.C. 44 (1993), affd. 68 F.3d 1027 (7th Cir.

1995), nothing occurred subsequent to that transfer, whether by

the operative instruments identified in this case or by operation

of law, to effect a transfer of the remaining 95 percent of Oak

Den from the trust to Mrs. Ogden's estate.   To be sure, Mrs.

Ogden's "special" power of appointment over the trust's corpus

expressly precluded such a transfer, and petitioners' argument to

the contrary is without merit.   Similarly, petitioners' argument

that Mrs. Ogden's "special" power of appointment was transformed

into a "general" power of appointment on the date of her death is

also without merit.14

     When Mrs. Ogden died, the trust continued to exist and Oak

Den remained as part of its corpus.   Accordingly, petitioners'

argument that Oak Den had an adjusted basis of $600,000 on the

date of its sale must be rejected.

     Respondent has established that this case contains no

genuine issue as to any material fact and that she is entitled to




     14
      It is interesting to note that petitioners advance
inconsistent arguments in their response to the Court's order.
As previously noted, we decline to address a "double taxation"
issue that petitioners advanced in their response because it was
not raised in their petition. With respect to that issue,
however, petitioners maintain in paragraph 5 of their response,
that Oak Den did not enter Mrs. Ogden's estate. Now, with
respect to Oak Den's basis on the date of its sale to RFSH,
petitioners contend that Oak Den had become part of Mrs. Ogden's
estate.
                             - 11 -

summary judgment as a matter of law.   Accordingly, we grant

respondent's motion for summary judgment.

                                   An appropriate order

                              and decision will be entered.
