                       T.C. Memo. 1996-294



                     UNITED STATES TAX COURT



               ESTATE OF JOHN T. SOBOTA, DECEASED,
      T. J. SOBOTA, PERSONAL REPRESENTATIVE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11158-94.                      Filed June 25, 1996.



     T. J. Sobota, for petitioner.

     J. Paul Knap and Mark J. Miller, for respondent.



                          MEMORANDUM OPINION


     TANNENWALD, Judge:     Respondent determined a deficiency of

$158,064 in petitioner's Federal estate tax.    The sole issue for

decision is whether the amount of the marital deduction under
                                 - 2 -

section 20561 must be reduced to take into account the fee of the

personal representative.

     The facts are fully stipulated.     The stipulation of facts

and attached exhibits are incorporated by this reference.

     Petitioner is the estate of John T. Sobota (decedent).

Decedent died testate on November 1, 1991.     At the time of his

death, decedent was a citizen of the United States and domiciled

in Brown County, Wisconsin.   T. J. Sobota (T. J.) is the duly

appointed and acting personal representative of the estate, who

resided at Madison, Wisconsin, at the time the petition was

filed.   Petitioner timely filed a Federal estate tax return on

July 24, 1992.

     Decedent's will was admitted to probate in Brown County,

Wisconsin.   Under the terms of the will, decedent's wife, having

survived decedent, received the entire estate, including the

residue.   The will further provided:

          All of my funeral expenses, last illness expenses,
     debts, and estate administration expenses shall be paid
     from the residue of my estate * * *

     On September 30, 1992, petitioner paid $62,000 to T.J. as a

personal representative's fee.

     The income of the estate from its inception through

September 30, 1992, exceeded $105,000.


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

     Section 2001 imposes a tax on the transfer of the taxable

estate of all citizen and resident decedents.   Section 2051

defines taxable estate as the gross estate less deductions.

Section 2056(a) provides:

          (a) Allowance of Marital Deduction.--For purposes
     of the tax imposed by section 2001, the value of the
     taxable estate shall, except as limited by subsection
     (b), be determined by deducting from the value of the
     gross estate an amount equal to the value of any
     interest in property which passes or has passed from
     the decedent to his surviving spouse, but only to the
     extent that such interest is included in determining
     the value of the gross estate.

     Section 2056(b)(4) provides:

     In determining for purposes of subsection (a) the value
     of any interest in property passing to the surviving
     spouse for which a deduction is allowed by this
     section--

               (A) there shall be taken into account the
          effect which the tax imposed by section 2001, or
          any estate, succession, legacy, or inheritance
          tax, has on the net value to the surviving spouse
          of such interest; and

               (B) where such interest or property is
          encumbered in any manner, or where the surviving
          spouse incurs any obligation imposed by the
          decedent with respect to the passing of such
          interest, such encumbrance or obligation shall be
          taken into account in the same manner as if the
          amount of a gift to such spouse of such interest
          were being determined.

     Initially, we note that the arguments of both parties focus

on the law of Wisconsin where decedent was domiciled at the time

of his death.   This position is consistent with the established

rule that determination of whether an expenditure is chargeable

to principal or income under State law provides the foundation
                              - 4 -

for deciding the Federal estate tax consequences thereof.

Helvering v. Stuart, 317 U.S. 154, 162 (1942); Greene v. United

States, 476 F.2d 116, 117-118 (7th Cir. 1973); Estate of

Richardson v. Commissioner, 89 T.C. 1193, 1201 (1987).2    We apply

Wisconsin law as announced by the Supreme Court of Wisconsin, or,

if there is no decision by that highest court, we apply what we

conclude that court would decide, giving proper regard to the

decisions of other courts of the State.   Commissioner v. Estate

of Bosch, 387 U.S. 456, 465 (1967).

     Wisconsin Statutes Annotated, section 701.20(5) (West 1981),

provides:

          * * * (a) Unless the will otherwise provides * * *
     administration expenses shall be charged against the
     principal of the estate.

          (b) Unless the will otherwise provides, income
     from the assets of a decedent's estate after the death
     of the decedent and before distribution, including
     income from property used to discharge liabilities,
     legacies and devises, shall be determined in accordance
     with the rules applicable to a trustee under this
     section and distributed as follows:

          1.   To legatees and devisees of specific property
     other than money, the income from the property


2
   There is a suggestion in the opinion of the Court of Appeals
for the Sixth Circuit in Estate of Street v. Commissioner, 974
F.2d 723, 728 (6th Cir. 1992), affg. in part, revg. in part, and
remanding T.C. Memo. 1988-553, that the question of chargeability
of administration expenses is one of Federal not State law, and
that sec. 20.2056(b)-4(a), Estate Tax Regs., controls "regardless
of state law or the dictates of decedent's will". This
suggestion is contrary to the decided cases and particularly to
the view we expressed in Estate of Hubert v. Commissioner, 101
T.C. 314 (1993), affd. 63 F.3d 1083 (11th Cir. 1995), cert.
granted 517 U.S.    , 116 S. Ct. 1564 (1996).
                              - 5 -

     bequeathed or devised to them less the following
     recurrent and other ordinary expenses attributable to
     the specific property: * * * other expenses of
     management and operation of the property.

          2. To all other legatees and devisees, * * * the
     balance of the income, less the balance of the
     recurrent and other ordinary expenses attributable to
     all other property from which the estate is entitled to
     income, the distribution to be in proportion to their
     respective interests in the property at the time of
     distribution and based upon the value of the property
     at the date of death.


     Clearly, our first point of reference is the will.    In

determining what the will provides, we follow the guidelines

established by the Supreme Court of Wisconsin:

          The rules for construction of provisions in a will
     are clearly established in Wisconsin. "The paramount
     object of will construction is the ascertainment of the
     testatrix's intent." The determination of testamentary
     intent is a question of state law. When considering
     the language of the will, the words must be given their
     common and ordinary meaning unless something in the
     will suggests otherwise. Unambiguous language in a
     will must be given effect as it is written without
     regard to the consequences. [In re Will of Cooney, 541
     N.W.2d 467, 471 (Wis. 1995); citations omitted.]

     Further, under Wisconsin law, we should be reluctant to

interpret a will in a manner enlarging the marital deduction

unless there is express indication in the will to do so.     Greene

v. United States, 476 F.2d at 119; see also Commissioner v.

Estate of Bosch, 387 U.S. at 464.

     The parties are in agreement that the will provision

governing administration expenses applies to the personal

representative's fee involved herein (i.e., the equivalent of an
                                - 6 -

executor's or administrator's commission).    That provision states

that "estate administration expenses shall be paid from the

residue of my estate".    See supra p. 2.   In an effort to avoid

the mandate of Wis. Stat. Ann. sec. 701.20(5)(a), that such

expenses "shall be charged against the principal of the estate",

petitioner argues that the "residue" includes not only the

principal of the residuary estate at death but the income earned

on the residuary estate during the period of administration.

Based upon this assertion, petitioner contends that the will is

ambiguous as to whether administration expenses should be charged

to principal or income.    As a consequence, petitioner asserts

that the personal representative's fee is an "ordinary expense"

chargeable to income under Wis. Stat. Ann. sec. 701.20(5)(b).

     Unquestionably, in the absence of a contrary direction in

the will, the income earned on the residuary estate during the

period of administration inures to the residuary legatee.     See

Old Colony Trust Co. v. Forsyth Dental Infirmary, 171 N.E. 734,

736 (Mass. 1930) (language regarding estate at time of death "did

not prevent the whole estate not otherwise disposed of, including

earnings which came in before the residue was paid to the

trustee, from passing under the residuary clause"); 96 C.J.S.,

Wills, sec. 799, at 227 (1957) ("the residuary clause will carry

the income earned by the residue itself"); 80 Am. Jur. 2d, Wills,

sec. 1543, at 603 (1975) ("residuary gifts have been held

effective * * * to carry * * * the earnings of the residuary
                                - 7 -

estate during the period of administration").   But the fact that

the disposition of the income follows the disposition of the

residue does not mean that the income is merged into and becomes

part of the residue.    See Alston v. United States, 349 F.2d 87,

88-89 (5th Cir. 1965); Ballantine v. Tomlinson, 293 F.2d 311, 313

(5th Cir. 1961); see also Estate of Hubert v. Commissioner, 101

T.C. 314, 330 (1993), affd. 63 F.3d 1083 (11th Cir. 1995)

(adopting the opinion of this Court as its own), cert. granted

517 U.S.     , 116 S. Ct. 1564 (1996); Empire Trust Co. v. United

States, 226 F. Supp. 623 (S.D.N.Y. 1963).    In this connection, we

note that sec. 857.03, Wis. Stat. Ann. (West 1991), provides that

the personal representative shall "collect * * * all the

decedent's estate" and "collect all income * * * from decedent's

estate", as well as pay expenses of administration "out of the

estate".   This provision supports the view that the income is

separate and apart from the estate, i.e., principal, particularly

with reference to the payment of administration expenses.

     In view of the foregoing, we reject petitioner's position

that the income during the period of administration should be

treated as principal in order to permit that income to be

considered a proper source for the payment of the personal

representative's fee.   As a result, the personal representative's

fee is chargeable to principal both under the statute and the

will.   This conclusion finds support in Matter of Estate of

Pirsch, 435 N.W.2d 317, 319 (Wis. Ct. App. 1988), holding that,
                               - 8 -

in the absence of a provision "specifically allowing the personal

representatives to act in contravention of" Wis. Stat. Ann. sec.

701.20(5)(a), administration expenses should be charged to

principal.   In so holding, the Wisconsin Court of Appeals cited

with approval In re Enright, 436 N.E.2d 681, 683 (Ill. App. Ct.

1982), wherein the Illinois appellate court reached the same

conclusion in respect of a provision analogous to Wis. Stat. Ann.

sec. 701.20(5)(a) in the Illinois Principal and Income Act, Ill.

Rev. Stat. ch. 30, par. 163 (1979).3

     In view of this conclusion, petitioner's further contention

that the personal representative's fee is an "ordinary expense"

chargeable to income under Wis. Stat. Ann. sec. 701.20(5)(b)

falls by the wayside.   In any event, the specific mandate of Wis.

Stat. Ann. sec. 701.20(5)(a) that administration expenses are to

be charged to principal cannot be modified by general language

dealing with "other ordinary expenses".   Cf. Matter of Estate of

Pirsch, supra at 319, which rejected the contention that section

857.03, Wis. Stat. Ann. (West 1991), which enumerates the powers

and duties of personal representatives, operated as a

modification of the specific mandate of Wis. Stat. Ann. sec.

701.20(5)(a).



3
   See also Estate of Richardson v. Commissioner, 89 T.C. 1193,
1204 (1987), stating "administration expenses * * * are usually
charged against the principal of an estate". We note that the
provisions of the Wisconsin and Illinois Acts are substantially
the same as those of the Uniform Principal and Income Act.
                               - 9 -

     In sum, since the personal representative's fee is to be

paid from the residue, which is principal of the estate, such

payment reduces the marital deduction under section 2056.    See

Estate of Fine v. Commissioner, 90 T.C. 1068 (1988), affd.

without published opinion 885 F.2d 879 (11th Cir. 1989) (marital

deduction is reduced where administration expenses are paid from

the residuary estate under the terms of the will); Estate of

Dawson v. Commissioner, 62 T.C. 315 (1974) (marital deduction is

reduced where administration expenses are paid from the residue

on the basis of state law); Estate of Roney v. Commissioner, 33

T.C. 801 (1960), affd. per curiam 294 F.2d 774 (5th Cir. 1961)

(same); Empire Trust Co. v. United States, supra.

     Petitioner's reliance on Estate of Hubert v. Commissioner,

supra, and Estate of Allen v. Commissioner, 101 T.C. 351 (1993),

is misplaced.   Both those cases involved will and statutory

provisions pursuant to which administration expenses were to be

paid out of income.   By way of contrast, the foundation of our

conclusion herein is that the will and statutory provisions

mandated that such expenses be paid out of principal.   Thus,

Estate of Hubert and Estate of Allen are clearly distinguishable.

Estate of Street v. Commissioner, 974 F.2d 723 (6th Cir. 1992),

affg. in part, revg. in part, and remanding T.C. Memo. 1988-553,
                             - 10 -

cited by respondent, is similarly distinguishable.4    Such being

the case, we have no reason to revisit the arguments advanced in

these cases nor to await the action by the Supreme Court in

Estate of Hubert.

     Since petitioner has not disputed any other adjustments set

forth in the notice of deficiency,

                                          Decision will be entered

                                     for respondent.




4
   We note that in Estate of Hubert v. Commissioner, 101 T.C. 314
(1993), affd. 63 F.3d 1083 (11th Cir. 1995), cert. granted 517
U.S.    , 116 S. Ct. 1564 (1996), we refused to accept the
position of the Court of Appeals for the Sixth Circuit in Estate
of Street, and the Court of Appeals affirmed our action.
