                        T.C. Memo. 1998-308



                      UNITED STATES TAX COURT



 ESTATE OF ALBERT FRATINI, DECEASED, MARION FRIEDEBERG, PERSONAL
 REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE,
                            Respondent



     Docket No. 18921-96.                     Filed August 24, 1998.


     Nickolas P. Tooliatos II, for petitioner.

     Allan D. Hill, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:   Respondent determined a deficiency of $443,960

in petitioner's Federal estate tax.   After concessions, the

issues remaining for decision are:    (1) To what extent, if any,

did Ms. Friedeberg contribute toward the purchase of various real

properties, bank accounts, and certificates of deposit that were
                               - 2 -


held in the joint name of decedent and Ms. Friedeberg on the date

of decedent's death; (2) whether decedent's estate is entitled to

reduce the amount required to be included under section 20401 by

claimed fractional interest discounts applied to decedent's

interest in parcels of real property owned in joint tenancy with

Ms. Friedeberg on his date of death; and (3) whether pursuant to

section 2053, the estate is entitled to a deduction for more than

50 percent of the mortgage debt outstanding on jointly owned real

properties includable in the estate.


                         FINDINGS OF FACT


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

The stipulation of facts and supplemental stipulation of facts

are incorporated herein by this reference.

     Albert Fratini (decedent), who was a resident of San

Francisco, California, died on June 2, 1992.   Decedent was not

married when he died.   For 18 years preceding his death, decedent

continuously lived with Marion Friedeberg.   Ms. Friedeberg is the

estate's personal representative and the sole beneficiary under

decedent's holographic will.   At the time she filed the petition

herein, Ms. Friedeberg resided in San Francisco, California.


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect as of the date of decedent's
death, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -


     Before beginning his relationship with Ms. Friedeberg,

decedent was married to Ms. Annemarie Fratini.   Decedent and Ms.

Fratini were married on January 2, 1962.   They separated on June

4, 1974, and their marriage was terminated by a final judgment of

dissolution in the Superior Court of San Francisco County,

California, dated March 8, 1978.

     Ms. Friedeberg was born on April 7, 1933, in Berlin,

Germany.   Between 1943 and 1946, Ms. Friedeberg spent 2-1/2 years

in a concentration camp during World War II.   She moved to the

United States in 1947 and attended school until the 11th grade.

Upon leaving school, Ms. Friedeberg became employed as a filing

clerk until 1950.

     From August 26, 1951, to August 26, 1976, Ms. Friedeberg was

married to Mr. Werner Friedeberg.   They separated on June 2,

1974, and their marriage was terminated on August 26, 1976,

pursuant to a final judgment of dissolution in the Superior Court

of San Francisco County, California.   Mutual friends introduced

decedent and his wife to Ms. Friedeberg and her husband in 1970.

From 1970 to 1974, the couples maintained a casual friendship.

In June 1974, both couples separated and decedent and Ms.

Friedeberg began living together.

     At the time that decedent and Ms. Friedeberg began living

together, decedent was employed as a project engineer for Metal

Tile Co.   Although decedent and Ms. Friedeberg lived in San
                                - 4 -


Francisco, decedent traveled to and worked in Los Angeles 3 to 4

days a week.

     At the time decedent and Ms. Friedeberg began their

relationship in 1974, decedent owned, among other things, several

pieces of real property.   From 1958 until his death, decedent

owned a parcel of real property located at 517 Laidley Street

(Laidley), San Francisco, California.    The Laidley property was

purchased for $12,000.   On March 18, 1977, Ms. Fratini

transferred her interest in Laidley to decedent by quitclaim

deed.   On December 11, 1987, decedent transferred to Ms.

Friedeberg an undivided one-half joint tenancy interest in

Laidley.   The parties agree that the fair market value of Laidley

on the date of decedent's death was $275,000.

     From 1967 until his death, decedent owned a parcel of real

property, including a building thereon, located at 3605 Valencia

Street (Valencia), San Francisco, California.    The building had

20 apartments and 6 commercial spaces.    In 1971, decedent

acquired an adjacent lot for parking.    Hereinafter, we shall

refer to the building and parking lot as Valencia.    The purchase

prices of the building and the parking lot were $185,108 and

$6,000, respectively.    At the time of purchase, the titles to the

building and the parking lot were held in the names of decedent

and Ms. Fratini as joint tenants.   On March 18, 1977, Ms. Fratini

executed a quitclaim deed to Valencia in favor of decedent as
                               - 5 -


part of their marital dissolution proceeding.   By grant deed, on

December 10, 1987, decedent transferred to Ms. Friedeberg an

undivided one-half joint tenancy interest in Valencia.   The

parties agree that the fair market value of Valencia on the date

of decedent's death was $965,000.

     From 1964 until his death, decedent owned a cottage located

at 2437 South Fitch Road (South Fitch), Healdsburg, California.

On August 21, 1964, decedent and Ms. Fratini acquired title to

South Fitch as joint tenants for $9,600.   In 1970, decedent

acquired an adjacent lot at a cost of $2,000.   Hereinafter, we

shall refer to the cottage and the adjacent lot as South Fitch.

On December 10, 1987, decedent transferred to Ms. Friedeberg an

undivided one-half joint tenancy interest in South Fitch.2     The

parties agree that the fair market value of South Fitch on the

date of decedent's death was $29,000.

     From 1965 until his death, decedent owned a 10-unit

apartment building located at 130 Acadia Street (Acadia), San

Francisco, California.   The original purchase price of Acadia was

$128,869.   As a result of his divorce from Ms. Fratini, decedent

ended up with an undivided 10-percent interest in Acadia.    On


     2
      It is unclear whether incident to her divorce Ms. Fratini
deeded her one-half interest in South Fitch to decedent prior to
decedent's transferring a one-half joint tenancy in South Fitch
to Ms. Friedeberg. Because the parties agree on the fair market
value of the South Fitch property, we need not address this
issue.
                                - 6 -


December 10, 1987, decedent transferred to Ms. Friedeberg an

undivided one-half joint tenancy interest in his 10-percent

undivided interest in Acadia.    The fair market value of the 10-

percent undivided interest in Acadia on the date of decedent's

death was $25,000.

     Prior to and during the time Ms. Friedeberg lived with

decedent, she received various payments from the German

Government.    Beginning in 1954, Ms. Friedeberg received payments

under a German restitution law as a result of her internment in a

German concentration camp.    From 1954 to 1966, Ms. Friedeberg

received a total of $8,774.02 in restitution payments.    Beginning

in 1965 and through the date of decedent's death, Ms. Friedeberg

also received monthly payments from the German Government

totaling approximately $64,500.

     After decedent and Ms. Friedeberg began living together, Ms.

Friedeberg received several other amounts.    On August 26, 1976,

pursuant to a marital settlement agreement, Ms. Friedeberg

received $15,000.    On December 8, 1981, Ms. Friedeberg received a

distribution in the amount of $29,177.53 from the estate of

Lucian Lubinski.    On or about November 5, 1983, Ms. Friedeberg

received $7,500 as a preliminary distribution from the estate of

Hirtha Gray.    Ms. Friedeberg also received a final payment on or

about May 13, 1985, from the estate of Hirtha Gray in the amount

of $6,185.46.
                                - 7 -


     Decedent and Ms. Friedeberg jointly obtained interests in

several other properties after they began living together.     On

February 10, 1983, decedent and Ms. Friedeberg acquired property

located at 406 Chenery Street (Chenery), San Francisco,

California, as joint tenants.   The total downpayment for Chenery

of $31,841.50 consisted of $1,000 cash and a check dated March

10, 1983, for $30,841.50.   The cash and the check funds were

drawn from a checking account held at California Federal Savings

Bank, which account was in the joint names of decedent and Ms.

Friedeberg.   The parties agree that the fair market value of

Chenery as of the date of decedent's death was $250,000.

     On September 12, 1984, decedent and Ms. Friedeberg acquired

property located at 941 Dolores Street (Dolores), San Francisco,

California, as joint tenants.   The purchase price of Dolores was

$290,000.   The escrow closing statement for the purchase of

Dolores shows that a downpayment of $59,514.98 was made in the

form of a deposit, and the closing statement names both decedent

and Ms. Friedeberg as the parties making the downpayment.    On

September 13, 1984, as part of the purchase transaction, decedent

and Ms. Friedeberg assumed a previous loan from American Savings

and Loan Association in the amount of $117,218.39 payable to the

previous owners of the property.   Decedent and Ms. Friedeberg

also signed a note secured by a deed of trust in the amount of

$112,781.61 payable to the previous owners.   The parties agree
                                 - 8 -


that the fair market value of Dolores as of the date of

decedent's death was $435,000.    As of June 15, 1992, there was a

mortgage loan balance from American Savings on the Dolores

property of $79,387.24.

     On March 27, 1985, decedent and Ms. Friedeberg acquired

property located at 84 Onondaga Street, San Francisco,

California, as joint tenants for $245,000.    A downpayment of

$47,817.16 was made as part of the Onondaga purchase transaction.

Part of the downpayment consisted of a $100 check signed by Ms.

Friedeberg dated February 15, 1985, drawn from an account held at

Bank of America.3   The remainder of the downpayment was paid with

two checks drawn upon a joint account in the names of decedent

and Ms. Friedeberg with Continental Savings and Loan dated

February 27 and April 25, 1985.    As part of the purchase

transaction, decedent and Ms. Friedeberg signed a promissory note

for $196,000 payable to the World Savings and Loan Association as

lender.   The parties agree that the fair market value of Onondaga

as of the date of decedent's death was $340,000.

     In addition to land and buildings, decedent and Ms.

Friedeberg maintained joint bank accounts and purchased a number

of certificates of deposit with funds drawn from those accounts.

On April 6, 1979, Ms. Friedeberg closed her personal savings

     3
      It is not clear whether the account from which the $100 was
drawn was a joint account; decedent's name appears at the top of
the check, and Ms. Friedeberg signed the check.
                               - 9 -


account with Bank of America by withdrawing the balance of

$4,000.   On the same day, a withdrawal of $16,000 was made from

decedent's and Ms. Friedeberg's joint savings account with Bank

of America, and a $20,000 certificate of deposit (CD) was

purchased in the joint names of decedent and Ms. Friedeberg.

Approximately 6 months later, on October 5, 1979, decedent and

Ms. Friedeberg jointly purchased a CD for $20,000 to mature on or

about April 4, 1980.

     On October 8, 1979, a withdrawal of $10,000 was made from

decedent's and Ms. Friedeberg's joint savings account with Bank

of America.   On the same date, decedent and Ms. Friedeberg

jointly purchased a CD in the amount of $10,000 to mature on or

about April 7, 1980.

     On January 14, 1980, a $10,000 withdrawal was made from

decedent's and Ms. Friedeberg's joint savings account with Bank

of America.   On the same date, decedent and Ms. Friedeberg

jointly purchased a CD in the amount of $10,000 to mature on July

14, 1980.   In addition to the foregoing CD's, decedent and Ms.

Friedeberg jointly owned a number of other CD's, which were

purchased with either funds received from existing CD's that

matured or funds from other sources.

     On or about December 15, 1987, a fire occurred at the

Dolores property.   Decedent and Ms. Friedeberg received a total

of $50,471.61 pursuant to a property claim agreement with State
                              - 10 -


Farm Fire and Casualty Co.   The funds from the fire insurance

settlement were deposited on March 18, 1988, into a joint savings

account held at Continental Bank in decedent's and Ms.

Friedeberg's names.   The Continental account was closed on March

6, 1989, and the closing balance was $100,390.73.     The funds from

the Continental account were invested and reinvested in several

CD's in the joint names of decedent and Ms. Friedeberg held at

Southern California Savings, Gibraltar Savings, and California

Federal Bank.

     On September 17, 1990, decedent and Ms. Friedeberg opened a

joint CD at California Federal Bank.     The balance of this CD, as

of the date of decedent's death, was $100,000.     Decedent and Ms.

Friedeberg also had a balance of $26,244 in a joint checking

account held with Bank of America.     A second joint checking

account was also held at Bank of America, which had a balance of

$3,480 as of the date of decedent's death.     Decedent and Ms.

Friedeberg also had a joint savings account with Bank of America

with a balance of $5,214 as of decedent's date of death.

     In 1988 and 1989, decedent reported on his individual

Federal income tax return rental income and loss from the

Valencia, Chenery, Dolores, Onondaga, and South Fitch properties.

Ms. Friedeberg did not report rental income or loss on her

Federal income tax returns for 1988 and 1989.     For the years 1990

through 1992, decedent and Ms. Friedeberg both reported income
                               - 11 -


and loss from the rental properties.    For the years 1981 through

1992, Ms. Friedeberg reported taxable interest income of

$133,051.   With respect to the $133,051 of interest income

reported, approximately $3,440 was earned from accounts titled in

Ms. Friedeberg's name alone.

     Form 706, United States Estate (and Generation-Skipping

Transfer) Tax Return, was timely filed for decedent's estate on

September 4, 1993.   On Schedule E, Part 2, of the Form 706, 11

items of property, which decedent held in joint tenancy with Ms.

Friedeberg, were reported.   With respect to the 11 items,

decedent's estate reported contribution credits under section

2040 and fractional interest discounts on certain of the 11

items.   The following table sets forth the amounts reflected on

Schedule E, Jointly Owned Property, of Form 706 with respect to

the value of the interests reported upon the date of death before

the section 2040 credit,4 percentage of property included after

taking section 2040 contribution credits, value after taking

section 2040 contribution credits, fractional interest discounts

claimed, and values included in decedent's gross estate after

fractional discounts taken by decedent's estate:



     4
      Although these amounts were not directly listed on Schedule
E, the amounts were calculated and added to the table as a
mathematical computation, using the value on the return divided
by the fractional discount and divided by the sec. 2040
contribution credit rate.
                                     - 12 -


                                        Sec.                  Form 706
                                       2040      Form 706    Fractional
                          Value of    Percent      Value      Interest
                             Fee     Included     Before       Discount   Form 706
                           Simple    Per Form   Fractional   Percentage   Returned
No.   Description         Interest      706      Discount      Claimed      Value
  1   Checking Acct. #1   $26,244     50.00      $13,122         --       $13,122
  2   Savings Acct.         5,214     50.00        2,607         --         2,607
  3   Checking Acct. #2     3,480     50.00        1,740         --         1,740
  4   CD                  100,000     50.00       50,000         --        50,000
  5   Laidley             275,000    100.00      275,000         15       233,750
  6   Valencia            965,000     78.87      761,096         15       646,932
  7   South Fitch          29,000     78.39       22,733         15        19,323
  8   Chenery             250,000     53.68      134,200         15       114,070
  9   Dolores             435,000     53.67      233,465         15       198,444
 10   Onondaga            400,000     55.32      221,280         15       188,088
 11   Acadia               90,000    100.00       90,000         35        58,500



In the notice of deficiency, respondent determined that

decedent's estate was not entitled to claim any credit pursuant

to section 2040 or fractional interest discounts in any amount on

the parcels of real property described as items 5 through 11 on

Schedule E of Form 706.

      On Form 706, Schedule K, Debts of the Decedent, and

Mortgages and Liens, decedent's estate claimed deductions for,

among other things, a portion of the mortgages related to the

Dolores and Onondaga properties.          On Schedule K, decedent's

estate allocated the mortgages on the properties in amounts equal

to the section 2040 inclusion percentages for the respective

pieces of property.       The following table contains amounts related

to the deductions for mortgages on the Dolores and Onondaga

properties, which amounts were reported on Schedule K:
                             - 13 -



                Mortgage      Loan      Percent     Claimed
 Item No.     Description    Balance    Included    Balance

     1          Dolores      $79,387     53.67      $42,607
     2          Onondaga     127,756     55.32       70,969


In the notice of deficiency, respondent determined that

decedent's estate was entitled to deduct one-half of the date-of-

death balances of the mortgages related to the Dolores and

Onondaga properties.


                             OPINION


Section 2040 Contribution Credits


     We must first decide whether the estate is entitled to

contribution credits pursuant to section 2040 regarding the value

of the real properties, bank accounts, and certificates of

deposit that were held in the joint names of decedent and Ms.

Friedeberg on the date of decedent's death.   In the notice of

deficiency, respondent denied the section 2040 contribution

credits claimed by decedent's estate and required the estate to

include 100 percent of the fair market value of the assets held

in joint tenancy with Ms. Friedeberg.
                             - 14 -


     Petitioner5 argues that Ms. Friedeberg contributed money and

money's worth in services with respect to properties owned as

joint tenants by decedent and Ms. Friedeberg.   Petitioner argues

that these contributions of money or money's worth in services

constitute adequate consideration for Ms. Friedeberg's ownership

interest in each of the contested assets.   Petitioner ultimately

argues that due to Ms. Friedeberg's alleged ownership interest,

the estate is entitled to contribution credits under section

2040(a) for 50 percent of the value of each of the contested

assets.

     Respondent argues that decedent's estate has failed to prove

by a tracing of funds or otherwise that Ms. Friedeberg

contributed her separate property or services for her interests

in the jointly owned assets entitling the estate to credits under

section 2040(a).

     Section 2040 governs the value of jointly owned property to

be included in a decedent's estate.   Section 2040(a) provides in

pertinent part:


          (a) General Rule.--The value of the gross estate
     shall include the value of all property to the extent
     of the interest therein held as joint tenants with
     right of survivorship by the decedent and any other
     person, or as tenants by the entirety by decedent and
     spouse, or deposited, with any person carrying on the

     5
      Throughout this opinion, we shall refer to both decedent's
estate and Ms. Friedeberg, in her capacity as personal
representative of the estate, as petitioner.
                              - 15 -


     banking business, in their joint names and payable to
     either or the survivor, except such part thereof as may
     be shown to have originally belonged to such other
     person and never to have been received or acquired by
     the latter from decedent for less than an adequate and
     full consideration in money or money's worth: * * *


Section 2040 establishes a "contribution test", whereby the

estate of the deceased joint tenant must generally include the

value of the entire property less the portion of the property

attributable to the consideration furnished by the surviving

joint tenant.6   Hahn v. Commissioner, 110 T.C. 140, 144 (1998).

If part of the consideration is found to have been contributed in

money or money's worth by the surviving joint tenant, then the

part of the value of the property that is proportionate to such

consideration is not included in decedent's gross estate.     Estate

of Anderson v. Commissioner, T.C. Memo. 1989-643; sec. 20.2040-

1(a)(2), Estate Tax Regs.

     Petitioner first argues that Ms. Friedeberg contributed

consideration in the form of "money" to the value of the assets


     6
      In 1976, subsec. (b) of sec. 2040 was added to the Code by
sec. 2002(c)(1) of the Tax Reform Act of 1976, Pub. L. 94-455, 90
Stat. 1520, 1855. The 1976 amendment created a special rule
where the joint tenants were husband and wife. Hahn v.
Commissioner, 110 T.C. 140, 145 (1998). If the interest were a
"qualified joint interest", only one-half of the value of the
property owned in joint tenancy was includable in decedent's
gross estate, without regard to which spouse furnished the
consideration to acquire the jointly held property. Id.
Decedent and Ms. Friedeberg were never married. Therefore, sec.
2040(b) does not operate to affect the amount includable in
decedent's estate.
                                - 16 -


in decedent's estate.    Petitioner argues that Ms. Friedeberg

contributed her separate funds to jointly held bank accounts and

thereafter, decedent and Ms. Friedeberg invested in various money

market securities and real properties in which they sought to

maximize income and acquire additional real property.

        Section 2040 creates a rebuttable presumption that the

value of the entire property is includable in the deceased joint

tenant's estate, and the burden of showing original ownership or

contribution to the purchase price by the surviving joint tenant

falls upon the estate.     Hahn v. Commissioner, supra at 144;

Estate of Heidt v. Commissioner, 8 T.C. 969 (1947), affd. per

curiam 170 F.2d 1021 (9th Cir. 1948); sec. 20.2040-1(a)(2),

Estate Tax Regs.    Where evidence indicates that the surviving

joint tenant did contribute money or money's worth under section

2040, courts have held that the executor's burden has been met

notwithstanding that the exact amount of the contribution could

not be proven by the taxpayer.     Estate of Carpousis v.

Commissioner, T.C. Memo. 1974-258; Estate of Selecman v.

Commissioner, a Memorandum Opinion of this Court dated Nov. 6,

1950.    In those circumstances, we have applied the rule

enunciated in Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930),

and allowed taxpayers to approximate where amounts were not

definitely determinable.    See, e.g., Estate of Carpousis v.

Commissioner, supra; Estate of Selecman v. Commissioner, supra.
                              - 17 -


     With respect to amounts that Ms. Friedeberg received after

June 1974, the point at which Ms. Friedeberg and decedent began

living together, Ms. Friedeberg claims that she received total

monthly restitution payments of $57,220.15 from the German

Government.   Ms. Friedeberg also received $15,000 in August 1976

as a result of her divorce.   Ms. Friedeberg received a

distribution from the estate of Lucian Lubinski of $29,177.53 on

December 8, 1981.   On November 5, 1983, and May 13, 1985, Ms.

Friedeberg received $7,500 and $6,185.46, respectively, from the

estate of Hirtha Gray.

     From the above-listed amounts, Ms. Friedeberg contributed

$4,000 to the purchase of a jointly owned CD in July of 1979.    In

or around October of 1980, Ms. Friedeberg purchased a CD in the

amount of $10,000 in her name with the money she received as

restitution payments from the German Government.   Upon maturity

of the $10,000 CD, Ms. Friedeberg testified that the proceeds

were ultimately contributed to the purchase of a CD in the joint

names of decedent and Ms. Friedeberg.   Ms. Friedeberg testified

that during 1981 she contributed the $29,177 she received from

the estate of Lucian Lubinski toward the purchase of a CD in the

amount of $30,000 in the joint names of herself and decedent.

     As evidence, Ms. Friedeberg offered a number of items in

support of her testimony.   Ms. Friedeberg offered summary

schedules showing that she received from the German Government a
                                - 18 -


total of $57,220.157 from June 1974 to June 2, 1992, the date of

decedent's death.    Ms. Friedeberg also offered bank statements

dated in early 1981, which indicate that she owned a CD in the

amount of $10,000.    Ms. Friedeberg offered numerous bank

statements that indicated that CD's were later purchased in the

joint names of decedent and herself in amounts corresponding to

the amounts Ms. Friedeberg testified that she and decedent

purchased.   Ms. Friedeberg offered probate documents from the

Superior Court of San Francisco County, California, dated March

2, 1981, indicating that she received a distribution of


     7
      The summary schedule shows the following payments:


                      Year           Amount

                      1974            $989.01
                      1975           1,678.64
                      1976           1,551.11
                      1977           1,809.42
                      1978           2,544.75
                      1979           2,967.07
                      1980           3,152.23
                      1981           2,378.02
                      1982           2,290.68
                      1983           2,509.46
                      1984           2,225.48
                      1985           2,284.25
                      1986           3,147.08
                      1987           3,907.18
                      1988           4,048.30
                      1989           3,851.66
                      1990           7,267.10
                      1991           6,284.71
                      1992           2,334.00

                        Total      $57,220.15
                               - 19 -


$29,177.53 from the estate of Lucian Lubinski.     With respect to

the jointly acquired real properties, Ms. Friedeberg testified

that the downpayments for Chenery, Dolores, and Onondaga were all

paid with funds from bank accounts held in the joint names of

decedent and Ms. Friedeberg.   The downpayments for the Chenery,

Dolores, and Onondaga properties were in the amounts of

$31,841.50, $59,514.98, and $47,817.16, respectively, and totaled

$139,173.64.   The purchases of Chenery, Dolores, and Onondaga

were all completed during the years 1983 through 1985.    From 1974

to 1985, Ms. Friedeberg has shown that she received at least

$71,862.8   One-half of the total downpayments for the properties

would require a contribution of $69,586.82.9    We find Ms.

Friedeberg to be a credible witness, and we accept the veracity

of her testimony.   Thus, notwithstanding the fact that Ms.

Friedeberg was unable to provide every receipt for each bank

deposit, purchase of a CD, and receipts for each reinvestment

into another CD, it is reasonable to conclude that she

contributed one-half toward the total purchase prices of the

Chenery, Dolores, and Onondaga properties.     Cohan v.

Commissioner, supra.


     8
      This amount includes $15,000 from Ms. Friedeberg's divorce,
a $4,000 contribution, $10,000 from the CD purchased with German
restitution funds, $29,177 from the estate of Lucian Lubinski,
and $13,685 from the estate of Hirtha Gray.
     9
      One-half of $139,173.64 equals $69,586.82.
                              - 20 -


     Petitioner also argues that Ms. Friedeberg provided services

in the form of management of the rental properties from 1974

until 1992.   Petitioner argues that these services constitute

adequate consideration contributed in "money's worth" to the

values of the Laidley, Valencia, South Fitch, and Acadia

properties, such that petitioner is entitled to exclude one-half

of the total value of these properties from decedent's estate

under section 2040(a).   Respondent asserts that the services Ms.

Friedeberg performed were minimal and that petitioner has not

established a value for Ms. Friedeberg's services.

     Our determination of whether Ms. Friedeberg provided full

and adequate consideration is necessarily one of fact.   See

Estate of Heidt v. Commissioner, 8 T.C. at 974; Estate of

Anderson v. Commissioner, T.C. Memo. 1989-643.   In determining

the consideration furnished by the surviving joint tenant,

amounts furnished by decedent to the surviving joint tenant for

less than full and adequate consideration are to be ignored.

Estate of Anderson v. Commissioner, supra; sec. 20.2040-1(a)(2),

Estate Tax Regs.   If part of the consideration is found to have

been contributed by the surviving joint tenant, then the part of

the value of the property as is proportionate to such

consideration is not included in decedent's gross estate.    Sec.

20.2040-1(a)(2), Estate Tax Regs.
                              - 21 -


     In the instant case, Ms. Friedeberg testified that for a

number of years she managed the rental properties.    In support of

Ms. Friedeberg's testimony, petitioner offered a number of check

registers indicating that Ms. Friedeberg regularly kept the

financial records regarding income and expenses related to the

rental properties.   Ms. Friedeberg submitted a substantial number

of documents regarding the rental properties from sellers,

insurance companies, mortgage banks, tenants, and title companies

addressed to both decedent and Ms. Friedeberg.    Ms. Friedeberg

submitted many letters from tenants of the rental properties

addressed to her alone.   She had signature authority over the

joint accounts and regularly wrote checks and paid expenses

related to the rental properties.   Ms. Friedeberg maintained the

buildings on the rental properties by providing janitorial

services and maintaining the landscape.   We find that Ms.

Friedeberg did provide various services including management of

the properties, maintenance, and janitorial services.

     Petitioner introduced Mr. Paul Chahin as an expert witness,

and offered his expert report for the purpose of proving the fair

market value of the real estate management and other services

provided by Ms. Friedeberg.   In his report, Mr. Chahin indicated

that his valuation was based on an understanding that Ms.

Friedeberg managed the Valencia property and the properties which

decedent and Ms. Friedeberg jointly acquired.    Mr. Chahin
                               - 22 -


indicated in his report that, based on his experience as a

property manager, the property management, leasing, janitorial

and maintenance services performed by Ms. Friedeberg had an

average fair market value of $24,000 per year.

     Mr. Chahin's report did not distinguish between the amount

of services provided for each of the different properties based

on the number of rental units in each building or otherwise.    Mr.

Chahin's report did not distinguish a difference in value over

the course of 18 years, notwithstanding the fact that more units

were acquired over time.   The report simply states that the fees

charged in general have remained "relatively constant in

California since the early 1980's."     Also, it is unclear from Mr.

Chahin's report which properties the valuation is based on.    Mr.

Chahin's report does not appear to address the Laidley, South

Fitch, or Acadia properties.   Because the value assigned by Mr.

Chahin is arrived at in a conclusory fashion, without taking into

account the changes in the amount of services or the value of the

services over time, Mr. Chahin's report does not persuade us that

the value of Ms. Friedeberg's services was $24,000 per year, and

we are not bound by it.    Parker v. Commissioner, 86 T.C. 547, 561

(1986).

     Even assuming that we accepted a value of $24,000 per year,

petitioner has not offered evidence as to which among the various

rental properties the value should be allocated or in what
                                - 23 -


proportion.    As stated previously, Ms. Friedeberg did credibly

testify that she provided regular and substantial services in

respect to the rental properties including Valencia and South

Fitch.   On Form 706, petitioner reported section 2040

contribution credits related to Valencia and South Fitch of 21.13

percent and 21.61 percent, respectively.     Because petitioner has

not provided us with sufficient evidence in order to make a

specific allocation of Ms. Friedeberg's services amongst the

properties to which the services relate, we find the percentages

listed on the initial Form 706 to be probative in making a

reasonable allocation of the value of Ms. Friedeberg's services.

Using our best judgment under these circumstances, we hold that

petitioner is entitled to section 2040 contribution credits for

Valencia and South Fitch of 21.13 percent and 21.61 percent,

respectively.     Cohan v. Commissioner, supra.

     However, petitioner has not offered any evidence which would

persuade us that Ms. Friedeberg performed substantial services in

connection with the Laidley or Acadia properties.     Petitioner

reported no contribution credits on Form 706 for the Laidley and

Acadia properties.     Although Ms. Friedeberg testified that she

regularly cleaned Laidley, she also resided in Laidley with

decedent for all the years in which she and decedent lived

together.     Laidley was never used as a rental property.   Also,

decedent did not receive any rental income from Acadia subsequent
                                - 24 -


to his divorce from Ms. Fratini.    Therefore, based on

petitioner's initial allocation on Form 706 of 100 percent of the

value of both Laidley and Acadia and because petitioner did not

provide us with sufficient evidence in order to allocate any of

Ms. Friedeberg's services to either the Laidley or Acadia

properties, we find that petitioner has failed to carry the

burden of proving that adequate consideration in money's worth

was contributed by Ms. Friedeberg to the joint interests in the

Laidley or Acadia properties.    Sec. 2040; Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).

     With respect to the remaining assets, petitioner argues that

the estate is entitled to deduct one-half of the date-of-death

value of two checking accounts containing $29,724,10 a savings

account containing $5,214, and a CD valued at $100,000.

     Generally, income produced by property belongs to the person

who owns the property at the time the property produces such

income and does not originate with a donor who has made a

completed gift of that property prior to the production of such

income.   Harvey v. United States, 185 F.2d 463, 467 (7th Cir.

1950); see also Estate of Howard v. Commissioner, 9 T.C. 1192,

1202-1203 (1947); sec. 20.2040-1(c)(5), Estate Tax Regs.    Where a

surviving joint tenant receives property gratuitously from a


     10
      The first checking account contained $26,244, and the
second checking account contained $3,480.
                                 - 25 -


decedent, the property thereafter produces income, and the income

is used as consideration for the acquisition of the jointly held

property, the income from the time of receipt of the gift has

been held to be the surviving joint tenant's income.      Estate of

Goldsborough v. Commissioner, 70 T.C. 1077, 1083 (1978), affd.

without published opinion 673 F.2d 1310 (4th Cir. 1982); see also

Harvey v. United States, supra; Estate of Howard v. Commissioner,

supra.

     As we previously stated, the Dolores, Chenery, and Onondaga

properties were jointly purchased and owned equally by decedent

and Ms. Friedeberg.     On or about December 10, 1987, decedent

transferred an undivided one-half joint tenancy interest in each

of the remaining properties including Laidley, Valencia, South

Fitch, and Acadia to Ms. Friedeberg.      From 1988 through 1991,

decedent and Ms. Friedeberg reported $325,831.6711 of net rental

income from all the jointly held properties.

     Ms. Friedeberg testified that amounts received through

rental of the properties were equally shared and deposited in the


     11
          Net profits from rentals were reported as follows:

                     Year           Amount

                     1988         $46,406.49
                     1989          68,744.73
                     1990          89,085.41
                     1991         121,595.04

                      Total      $325,831.67
                                - 26 -


jointly owned bank accounts and were used regularly to purchase

CD's.     For the time period after December 10, 1987, decedent and

Ms. Friedeberg, as joint owners of the properties, equally shared

the net rentals.     Again, we accept the veracity of Ms.

Friedeberg's testimony and find that the rental income received

and deposited into joint accounts constitutes sufficient

consideration such that Ms. Friedeberg acquired a 50-percent

ownership interest in the bank accounts and CD deposits as of the

date of decedent's death.     Therefore, we hold that petitioner is

due a contribution credit pursuant to section 2040 equal to 50

percent of the joint bank account holdings in the savings,

checking, and CD accounts.


Fractional Interest Discounts


        In determining the amount included in decedent's estate

pursuant to section 2040, petitioner reduced the value of

decedent's interest in several of the jointly held real

properties by fractional interest discounts.     Petitioner argues

that the reported discounted fair market values of the joint

tenancy interests in Laidley, Valencia, South Fitch, Chenery,

Dolores, and Onondaga are valid.     In the notice of deficiency,

respondent disallowed the claimed fractional discounts.

        In our recent opinion in Estate of Young v. Commissioner,

110 T.C. 297 (1998), we addressed the issue of whether, and to
                             - 27 -


what extent, a fractional interest discount or lack of

marketability discount should be applied to a decedent's property

held in joint tenancy with right of survivorship.    In Estate of

Young v. Commissioner, supra at 315-316, we stated:


          Under the scheme of section 2040(a), the amount
     includable in a decedent's gross estate does not depend
     on a valuation of property rights actually transferred
     at death, or on a valuation of the actual interest held
     by the decedent (legal title); instead, decedent's
     gross estate includes the entire value of property held
     in a joint tenancy by him and any other person, except
     to the extent the consideration for the property was
     furnished by such other person. * * * Section 2040(a)
     provides an artificial inclusion of the joint tenancy
     property: the entire value of the property less any
     contribution by the surviving joint tenant. Except for
     the statutory exclusions in section 2040(a), there is
     no further allowance to account for the fact that less
     than the entire interest is being included. [Citation
     and fn. ref. omitted.]


Applying the same reasoning to the instant case, we conclude that

petitioner is not entitled to fractional interest discounts on

any of the properties based on joint ownership with Ms.

Friedeberg.


Section 2053 Deductions for Unpaid Mortgages


     On Schedule K of Form 706, petitioner claimed deductions

related to mortgages on the Dolores and Onondaga properties of

$42,607 and $70,969, respectively.    Petitioner allocated the

mortgages on the properties in amounts equal to the section 2040

inclusion percentages of 53.67 for the Dolores property and 55.32
                              - 28 -


for the Onondaga property.   In the notice of deficiency,

respondent limited the deductions to 50 percent of each of the

outstanding mortgages.

      Section 2053(a)(4) generally provides that a deduction is

allowable for the amount of unpaid mortgage on property where the

value of decedent's interest therein is included in the value of

the gross estate.   Section 20.2053-7, Estate Tax Regs., provides

that a deduction is allowed if the value of the property,

undiminished by the amount of the mortgage or indebtedness, is

included in the value of the gross estate.   Generally, in the

case of joint tenancy real property, the amount deductible from a

decedent's estate is limited to the portion of the mortgage which

the estate is obligated to pay.   Parrott v. Commissioner, 30 F.2d

792 (9th Cir. 1929), affg. 7 B.T.A. 134 (1927).

     Both decedent and Ms. Friedeberg signed the note and deed of

trust securing the note for the Dolores property.   Similarly,

both decedent and Ms. Friedeberg signed the promissory note as

part of the purchase of the Onondaga property.    Petitioner does

not argue that under California law the estate is ultimately

obligated to pay more than one-half of the outstanding date-of-

death mortgage balances upon the Dolores and Onondaga properties.

Therefore, we sustain respondent's determination that petitioner

is entitled to deduct 50 percent of the date-of-death balances of
                             - 29 -


the mortgages related to the Dolores and Onondaga properties.

Parrott v. Commissioner, supra.



                                        Decision will be entered

                                   under Rule 155.
