                         T.C. Memo. 1996-362



                       UNITED STATES TAX COURT



O. D. MCKEE AND ESTATE OF ANNA RUTH MCKEE, DECEASED, R. ELLSWORTH
MCKEE AND JACK C. MCKEE, CO-EXECUTORS, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18824-93.                      Filed August 7, 1996.



     Kirk Snouffer, for petitioners.

     Edsel Ford Holman, Jr., for respondent.



                         MEMORANDUM OPINION


     HAMBLEN, Judge:    Respondent determined deficiencies in O.D.

McKee's gift tax in the amounts of $918,879 and $16,737 for the

periods ending December 31, 1988 and 1990, respectively.

Respondent determined a deficiency in Anna Ruth McKee's

(decedent) gift taxes in the amount of $918,879 for the period
                                - 2 -

ending December 31, 1988.    Respondent further determined a

deficiency in decedent's estate's Federal estate taxes in the

amount of $1,257,057.

       After concessions the sole issue for decision is whether

decedent's estate may claim as a deduction from the gross estate

certain interest expenses under section 2053(a)(2).    Unless

otherwise indicated, all section references are to the Internal

Revenue Code in effect at the time of decedent's death, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

                             Background

       This case was submitted fully stipulated pursuant to Rule

122.    The stipulation of facts and the attached exhibits are

incorporated by this reference, and the facts contained therein

are found accordingly. Decedent died on June 25, 1989.

Decedent’s residence was in Ooltewah, Tennessee in Hamilton

County, Tennessee, on the date of her death.    Decedent’s two

sons, R. Ellsworth McKee and Jack C. McKee, are the executors of

her estate.    Decedent and O.D. McKee (decedent’s surviving

spouse) were married at all times relevant hereto.

       In 1954, decedent and decedent's spouse acquired McKee Foods

Corporation (formally known as McKee Baking Co.) (the Company), a

closely held corporation that sells snack foods nationally under

the "Little Debbie" trade name.    The Company holds a significant
                               - 3 -

percentage of the multipack snack cake market in the United

States.

     In 1984, the Company amended its charter and divided its

10,000 shares of class A voting stock into the following three

classes of voting stock:   2,600 shares of class C voting stock,

2,600 shares of class D voting stock, and 4,800 shares of class E

voting stock.   The number of the Company's voting shares remained

constant through the date of decedent's death, and no voting

shares were ever sold through that date.

     On December 26, 1984, the Company and its shareholders

executed two stock restriction agreements:   A stock restriction

agreement for shareholders who owned class B nonvoting stock

(class B buy-sell agreement), and a stock restriction agreement

for class C shareholders, class D shareholders, and class E

shareholders (voting stock buy-sell agreement).    These stock

restriction agreements, as amended, have been used to set the

maximum sale price for every sale of Company stock since their

execution.

     The stock restriction agreements contain various limitations

on the transferability of the Company's stock.    Article III of

each stock restriction agreement allows a shareholder to transfer

stock in the Company to certain "permitted transferees".    Article

VII of each agreement contains provisions dealing with the

disposition of any of a deceased shareholder’s shares not

distributed to permitted transferees in accordance with article
                               - 4 -

III of each agreement.   While there are slight differences

between article VII of each stock restriction agreement, the

timing and the amount of payment for shares purchased by the

Company upon the death of a shareholder are substantially the

same.

     Under the terms of article VII of each stock restriction

agreement in effect on decedent’s date of death, an executor of

the deceased shareholder whose estate qualified to make a section

6166 election, which allows certain estates to pay all or a

portion of their Federal estate tax in installments, had two

choices with respect to Company stock not transferred in

accordance with article III of the agreements.   If the executor

of the deceased shareholder made a section 6166 election to pay

Federal estate tax in installments, the executor could offer the

shares to the Company at such times as the executor determined.

Under section 7.1(a) of the agreements, an executor who did not

make a section 6166 election was required to offer all Company

shares, other than shares transferred to "permitted transferees",

to the Company within 30 days after the date Federal estate taxes

were due to be paid.

     Regardless of whether a section 6166 election was made, if

an executor offered shares to the Company pursuant to article VII

of either agreement, the Company was required to purchase that

number of shares which could be redeemed under section 303 (i.e.,

based on the amount of State and Federal death taxes and
                                - 5 -

administration expenses).   However, upon the closing of the

initial offer received from an executor, the Company was required

to pay in cash only that portion of the purchase price which did

not exceed the sum of:    (1) Nondeferable Federal estate tax, (2)

one-tenth of the deferred estate tax which could have been paid

in installments pursuant to section 6166, (3) State inheritance

taxes, and (4) administrative expenses incurred as of the closing

date.   The balance of the purchase price, if any, was to be paid

by delivery of a promissory note payable in nine equal annual

installments beginning on the first anniversary of the closing

date.

     On July 31, 1986, the stock restriction agreements were

modified by a document entitled "Amendment to Shareholders'

Agreement and Voting Stock Agreement".   These amendments did not

alter the terms of either the class B buy-sell agreement or the

voting stock buy-sell agreement that dealt with the obligations

of the Company and the stock transfer procedure triggered by the

death of a shareholder.

     On August 23, 1988, the Company redeemed 1,960 shares of

decedent's class B nonvoting stock for $7,340,200 cash.   In

August 1988, the Company also declared a 99 for 1 stock dividend

on class B nonvoting shares.

     On September 27, 1988, decedent executed her last will and

testament, which was drafted by her attorney.   Article IV of

decedent's will set out specific sources of funds for the payment
                               - 6 -

of debts, expenses, and taxes, and a priority for the use of each

source of funds in the payment of decedent's estate obligations.

Specifically, article IV of decedent's will provides that

decedent's assets should be used in the following priority:

(1) Property disclaimed by decedent's spouse, (2) assets that

would have passed to decedent's spouse under articles V and IX of

decedent's will, (3) decedent's class B nonvoting Company shares

(article VIII assets), (4) decedent's limited partnership

interests,1 and (5) decedent's class E voting Company shares

(article VII assets).   Decedent incorporated into paragraph 3.1

of her will the provision of Tenn. Code Ann. sec. 35-50-110,

(repl. vol. 1984), which gave her executors broad powers,

including the power to obtain loans.   Decedent's will does not

mention the stock restriction agreements, nor does it mention

section 6166.

     On January 15 and September 28, 1988, decedent made gifts of

a total of 151,036 shares of class B stock and 1,080 shares of

class E Stock, incurring a gift tax for 1988 of $5,212,646.24.

Decedent's spouse also made gifts of a total of 151,036 shares of

class B stock and 1,080 shares of class E stock on the same

dates.   Decedent's total gift tax liability was increased by her

election to split these gifts with her spouse.


     1
      Article VI of decedent's will addressed decedent's limited
partnership interests, which the parties treated as worthless as
of the date of decedent's death.
                               - 7 -

     At her death, on June 25, 1989, decedent owned 109,450 share

of class B nonvoting common stock of the Company (class B stock),

valued at $4,777,493, and 720 shares of class E voting common

stock of the Company (class E stock), valued at $769,680.    On the

date of decedent’s death, the Company had 10,000 outstanding

shares of voting common stock, divided as follows:   2,600 shares

of class C (all owned by R. Ellsworth McKee), 2,600 shares of

class D (all owned by Jack C. McKee), and 4,800 shares of class E

stock (720 shares owned by decedent).   There were also 8,168,394

shares of class B stock outstanding.

     Both of decedent's executors were officers of the Company.

R. Ellsworth McKee was the president and chief executive officer

of the Company, and Jack C. McKee served as executive vice

president of the Company.

     Decedent’s surviving spouse timely filed a disclaimer of all

interest in items totaling $1,955,577 in value that otherwise

would have passed to him under decedent's will.   Decedent's

estate was allowed a marital deduction for the distribution of

the nondisclaimed items totaling $440,388 to decedent's surviving

spouse.   All of the disclaimed assets (except a reversionary

interest in a trust reported on Schedule F-1 of the estate's

Federal return) were sold and the proceeds were used to help pay

decedent’s estate's Federal estate tax and State death taxes on

March 26, 1990.
                               - 8 -

     Decedent's estate's Federal estate tax return reported a

taxable estate of $12,406,660 including $5,515,327 of gift taxes

paid on gifts made within 3 years of decedent's date of death.

Because decedent's estate's obligations were greater than the

amount of property disclaimed by decedent's surviving spouse, the

parties agree that, according to article IV of decedent's will,

at least a portion of the class B shares would have to be sold to

meet decedent's estate's obligations.

     Decedent's estate was entitled to make, but did not make, an

installment payment election of the Federal estate tax under

section 6166, and approximately 40 percent of decedent’s estate's

Federal estate tax liability could have been deferred.   On the

due date for payment of decedent’s estate's Federal estate tax,

the statutory interest rate applicable for section 6166 deferred

payments was 11 percent.   Because decedent's estate qualified for

section 6166, the provisions of article VII of the class B stock

buy-sell agreement and the voting stock agreement in effect at

decedent's death applied to decedent's estate to the extent that

decedent's class B and class E shares did not pass to "permitted

transferees" under article III of the respective stock

restriction agreements.

     Under the terms of each of the two agreements in effect at

decedent's death, an executor of a deceased shareholder to which

article VII applied had two choices:    First, the executor could

elect under section 6166 to pay Federal estate tax in
                               - 9 -

installments and, thus, maintain discretion as to when and how

many shares were to be offered to the Company at the price

dictated by the agreements at the time of purchase; second, an

executor could choose to offer to the company all of the shares

not transferred to "permitted transferees", and the Company was

obligated to buy the number of the estate's shares necessary to

provide funds equal to the amount of State inheritance and

Federal estate taxes and administration expenses.

     The Company’s available cash and loan sources were strained

at decedent’s death.   The Company’s total cash outlay for stock

redeemed during the fiscal year ending June 30, 1989, was

approximately $38 million.   The Company also made capital

investments of approximately $62 million for expansion of

facilities during the same fiscal year.   The Company anticipated

expenditures of approximately $30 million for the following

fiscal year.

     On March 26, 1990, the due date for payment of decedent’s

estate's Federal estate and State death taxes, the executors

borrowed $5,522,000 from the Company in exchange for an unsecured

demand note bearing interest at 11 percent for a period of 85

days (First Company Loan), which produced an interest expense of

$143,418.61.   All proceeds for the First Company Loan together

with the assets disclaimed by decedent's surviving spouse were

applied towards the payment of decedent's estate's Federal estate

tax of $5,924,933 and decedent's estate's State death taxes of
                              - 10 -

$1,519,191, for a total of $7,444,124.   The executors did not

seek approval from the local probate court with regard to this

loan or any other loan they obtained on behalf of decedent's

estate.

     Prior to obtaining the First Company Loan, the executors

determined that the Company's directors and the other class B

shareholders agreed with a proposed amendment of the class B buy-

sell agreement that would now enable class B shares of a decedent

to be pledged to secure a loan to provide funds to pay a

decedent's debts, expenses and taxes.    The executors intended to

repay the First Company Loan as soon as the class B buy-sell

agreement could be amended to enable pledging of class B shares

in connection with a long-term loan from a source outside the

Company.   Under the class B buy-sell agreement as it existed at

the time of decedent's death, this was not an option available to

the executors.   The Company’s class B and class E shares steadily

appreciated in value from 1984.

     On April 30, 1990, about 1 month after payment of decedent's

estate's Federal estate tax and State death taxes, the executors,

other class B shareholders, and the Company's board of directors

voted to modify the class B buy-sell agreement to permit a pledge

of class B shares to secure a loan to be classified as a

"permitted transfer".

     On June 20, 1990, the executors repaid the First Company

Loan with the proceeds of a loan from Provident National
                               - 11 -

Assurance Co. in the amount of $5,522,000, with an interest rate

of 9.69 percent per annum (Provident Loan).    The executors

pledged decedent's class B shares to secure the Provident Loan.

     On October 3, 1990, respondent received the estate's timely

filed return.    Decedent's estate claimed a deduction of

$289,079.77 for interest, accrued or paid though September 26,

1990, on the First Company Loan and the Provident Loan.     On

October 3, 1991, respondent also received a Form 843, Claim for

Refund and Request for Abatement, in which decedent's estate

claimed a refund for overpayment of estate tax resulting from

administration expenses of $462,251.22, for interest expenses

accrued or paid on the Provident Loan from September 26, 1990,

though September 30, 1991.

     On January 15, 1991, decedent's estate received, in

redemption of 24,100 class B shares, $1,590,600 in cash from the

Company, which was used to pay principal and interest due on the

Provident Loan on January 15, 1991, and income taxes arising out

of the redemption of the class B shares.

     On September 16, 1991, decedent's estate borrowed $75,000

from the Company pursuant to a line of credit note (Second

Company Loan).    Thereafter, decedent's estate repaid the Second

Company Loan together with accrued interest of $1,533.89.

     On December 30, 1991, the Company redeemed 69,994 shares of

class B stock from decedent's estate, paying approximately

$762,000 in cash and delivering a note in the amount of
                               - 12 -

$4,417,617 (1991 Company Note).    The payment schedule and

interest terms of the 1991 Company Note were identical to those

of the Provident Loan.    Accordingly, the interest income received

by decedent's estate from the 1991 Company Note exactly offset

the interest expense that decedent's estate owed on the Provident

Loan.

     Decedent's estate reported on Form 1041, U.S. Fiduciary

Income Tax Return, a capital gain of $2,124,317.90 from the

redemption of the shares of class B stock on December 30, 1991,

of which $765,458.18 was recognized in the fiscal year ending May

31, 1992.   The balance of this capital gain was recognized in the

estate's next fiscal year Form 1041.    The total capital gains tax

paid was $594,809.

     On January 15, 1993, the Company prepaid the 1991 Company

Note to decedent's estate, thus enabling decedent's estate to

repay the Provident Loan.    Decedent's estate paid a total of

$1,053,813.96 in interest on the Provident Loan.    Decedent's

estate was also assessed a prepayment penalty of $22,088 under

the terms of the Provident Loan.

     On June 15, 1993, decedent's estate borrowed $321,000 from

the Company (Third Company Loan).    No principal payments have

been made on this loan.   Interest is payable annually on the

Third Company Loan, and the first interest payment of $17,109.30

was made on June 15, 1994.
                              - 13 -

     Decedent's 720 shares of class E voting stock were

distributed as follows:   222 shares were transferred to R.

Ellsworth McKee, 222 shares were transferred to Jack C. McKee, 78

shares were transferred to an irrevocable trust for the issue of

R. Ellsworth McKee, 78 shares were transferred to an irrevocable

trust for the issue of Jack C. Mckee, and 30 shares were

transferred to each of four individual trusts for the benefit of

four of decedent's grandchildren.   The only assets remaining in

decedent's estate as of January 1, 1995, were 13,506 class B

shares and approximately $32,000 in cash.

     Decedent's estate has paid and now claims a total deduction

for loan interest expense of $1,237,963.60 (including the

Provident prepayment penalty of $22,088), plus any additional

interest expense incurred on the Third Company Loan.
                                 - 14 -

                               Discussion

I. Administration Expenses Under Section 2053(a)(2).

     Generally, section 2053(a)(2)2 authorizes an estate to

deduct administration expenses that are allowable by the law of

the jurisdiction in which the estate is being administered.3

Section 20.2053-3(a), Estate Tax Regs., provides that expenses

actually and necessarily incurred are expenses "in the collection

of assets, payments of debts, and distribution of property to the

persons entitled to it."   As a threshold matter, we will look to

Tennessee law, the State where decedent's estate was

administered, to determine whether the interest expenses claimed

as administration expense deductions are properly deductible.


     2
      Sec. 2053(a)(2) provides, in relevant part, as follows:

          SEC. 2053(a). General Rule.--For purposes of the
     tax imposed by section 2001, the value of the taxable
     estate shall be determined by deducting from the value
     of the gross estate such amounts--

               *    *      *     *    *     *   *

          (2) for administration expenses,

               *    *      *     *    *     *   *

     as are allowable by the laws of the jurisdiction,
     whether within or without the United States, under
     which the estate is being administered.
     3
      A deduction is not allowed to the extent the amount of the
administration expenses (and other expenses deductible pursuant
to sec. 2053(a)) exceeds the value, at the time of decedent's
death, of property subject to claims, except to the extent such
deduction represents amounts paid before the date prescribed for
the filing of the estate tax return. Sec. 2053(c)(2).
                             - 15 -

See Estate of Todd v. Commissioner, 57 T.C. 288, 294-296 (1971).

Decedent's estate bears the burden of proof on this issue.    Rule

142(a); Welch v. Helvering, 290 U.S. 111 (1933).

     Tenn. Code Ann. sec. 35-50-109 (rep. vol. 1984) allows a

testator to incorporate by reference in her will the provision of

Tenn. Code Ann. sec. 35-50-110.   Paragraph 3.1 of decedent’s will

incorporated Tenn. Code Ann. sec. 35-50-110, which provides in

part:

     Without diminution or restriction of the powers vested
     in the fiduciary by law, or elsewhere in this
     instrument, and subject to all other provision of this
     instrument, the fiduciary, without the necessity of
     procuring any judicial authorization therefor, or
     approval thereof, shall be vested with, and in the
     application of such fiduciary’s best judgment and
     discretion in behalf of the beneficiaries of this
     instrument shall be authorized to exercise, the powers
     hereunder specifically enumerated:

               *    *    *    *     *    *   *     *

          (8) In behalf of the estate, borrow money;
     evidence such loans by promissory notes or other
     evidence of indebtedness signed by the fiduciary in the
     fiduciary’s fiduciary capacity, to be binding upon the
     assets of the estate but not upon the fiduciary in the
     fiduciary’s individual capacity; secure such loans by
     assigning or pledging personal property of the estate,
     * * * and repay such loans, including principal and
     interest due thereon.

In Cleveland Bank & Trust Co. v. Olsen, 682 S.W.2d 200 (Tenn.

1984), the Supreme Court of Tennessee faced a situation similar

to the one herein involving the deductibility, for Tennessee

inheritance tax purposes, of interest expenses incurred by an

estate which borrowed funds to pay taxes and other expenses.    The
                               - 16 -

estate’s representative did not seek from a probate or other

court prior approval for the loans, relying instead on the

decedent’s incorporation of Tenn. Code Ann. sec. 35-50-110 into

his will.    We feel that it is useful to consider in some detail

the Tennessee Supreme Court's statements in Cleveland Bank and

Trust Co.:

          In order to fund the cash requirements that were
     necessary to pay the decedent's debts, administration
     expenses, and death taxes * * *, the executor continued
     decedent’s real estate operations even though this
     entailed periodic borrowings to pay the interest, debts
     and taxes. To further alleviate the estate’s cash flow
     problems, the executor paid the death tax in
     installments plus interest. All of the executor’s
     actions had been expressly authorized by the
     incorporation of T.C.A. § 35-50-110 * * * into the
     testator’s will. [Id. at 201.]

The court in Cleveland Bank and Trust Co. noted that Tenn. Code

Ann. sec. 67-8-315(a) provides that in determining the net estate

subject to taxes, expenses of administration are to be taken into

account.    The court further stated:

          Although T.C.A. § 67-8-315(a) does not define
     allowable "expense of administration," the general rule
     is that an executor is entitled to credit his accounts
     for expenses necessarily and properly incurred in good
     faith, in transacting with reasonable care and
     diligence the business of the estate, upon proof of the
     particular items of expense claimed. * * *
          In accord with the general rule, there is ample
     Tennessee authority that supports the proposition that
     a court will credit an executor for interest incurred
     during administration. T.C.A. § 35-50-110(8) * * *,
     for example, specifically authorizes an executor to
     borrow money and pay interest when the decedent
     incorporates this provision into his will, as the
     testator did in this case.
                              - 17 -

          In Coffee v. Ruffin, 44 Tenn. 487 (1867), the
     executor was granted broad powers under the will.
     During the administration of the will, the executor
     borrowed money at usurious rates of interest to prevent
     a sacrificial sale of the real estate. The court
     credited the executor for the usurious interest paid,
     noting the broad discretion conferred upon the executor
     by the will to borrow money, even at usurious rates,
     and to charge the estate with that interest. In Allen
     v. Shanks, 90 Tenn. 359, 16 S.W. 715 (1891), the
     executor borrowed money without express authorization.
     Because the money was used to benefit the estate,
     however, the court credited the executor for legal
     interest paid on the loan, but it refused to credit the
     usurious percentage of the interest.
          As the Coffee and Ruffin [sic Allen] courts
     credited interest as a cost of administration under
     those circumstances, likewise, interest should be a
     proper expense of administration when specifically
     authorized by the terms of the will, as in the present
     case. Interest is simply the cost of using money, and
     there should be no differentiation for purposes of
     deductibility whether the interest is paid on taxes or
     on money borrowed to pay the taxes. Estate of Bahr v.
     Commissioner, 68 T.C. 74 (1974); * * * [Id. at 202;
     emphasis added.]

     Under Tennessee law, the incorporation in a will of the

statutory power set forth in Tenn. Code Ann. sec. 35-50-110(8)

authorizes an executor to borrow funds and provides that a

Tennessee court will credit an executor for interest necessarily

and properly incurred on loans.   Decedent incorporated by

reference the provisions contained in Tenn. Code Ann. sec. 35-50-

110 into her will.

     Respondent would distinguish Cleveland Bank and Trust Co. v.

Olsen, supra, on the grounds that in that case the incorporation

of the statutory power to borrow was not restricted by limiting

language in the will.   In the instant case, the incorporation of
                                - 18 -

Tenn. Code Ann. sec. 35-50-110 in decedent's will was qualified

by the phrase "to the extent applicable, and except as otherwise

amended or modified herein".    Respondent asserts that decedent's

will provided a clear statement of how the estate's debts, taxes,

and expenses were to be paid.    Respondent maintains that

decedent's detailed payment provisions coupled with the buy-sell

agreement in effect on decedent's date of death specifically

prohibited her executors from obtaining loans and that their

action in doing so was unauthorized and should not be charged to

decedent's estate.

     The crux of respondent's argument is that decedent must have

known that her estate could face large potential obligations for

taxes and other liabilities.    Decedent knew that taxes might

arise from the inclusion in her taxable estate of gift taxes on

gifts she made in January and September 1988, if she died within

3 years of the gifts.   Decedent was aware that the buy-sell

agreements provided a means for the sale of her Company stock to

obtain funds to pay the liabilities of her estate.    Respondent

contends that decedent consequently gave her executors an

"indirect instruction" to elect section 6166 installment payment

of the taxes because such an election was necessary to conform

the terms of the buy-sell agreements with the terms of the will

as those terms were understood by decedent.    We disagree.
                                - 19 -

     Under Tennessee law, the basic rule in construing a will is

that the court shall seek to discover the intention of the

testator and will give effect to it unless it contravenes some

rule of law or public policy.    In re Walker, 849 S.W.2d 766

(Tenn. 1993); Daugherty v. Daugherty, 784 S.W.2d 650, 653 (Tenn.

1990); Harris v. Bittikofer, 541 S.W.2d 372, 384 (Tenn. 1976).

The testator's intention is to be ascertained from the particular

words used in the will itself, from the context in which those

words are used, and from the general scope and purposes of the

will, read in the light of the surrounding and attending

circumstances.   Third Natl. Bank v. First American Natl. Bank,

596 S.W.2d 824, 828 (Tenn. 1980); Moore v. Neely, 370 S.W.2d 537,

540 (Tenn. 1963).   In applying this cardinal rule, it is

necessary to look to the entire will, and the testator's intent

must be ascertained from what the testator has written into the

will and not from what some interested party supposes that the

testator intended to do.    Burdick v. Gilpin, 325 S.W.2d 547, 551

(Tenn. 1959); Davis v. Price, 226 S.W.2d 290, 292 (Tenn. 1949).

Where a testator expresses a controlling or predominant purpose,

it is the duty of the court to effectuate that purpose and

construe all subsidiary clauses to bring them into alignment with

that purpose.    Moore v. Neely, supra at 540.   Moreover, a general

intent will prevail over a secondary intent.     Jones v. Jones, 462

S.W.2d 872 (Tenn. 1971).   A will should be so construed to speak
                               - 20 -

as of the date of the testator's death.    Presley v. Hanks, 782

S.W.2d 482, 488 (Tenn. Ct. App. 1989) (citing Tenn. Code Ann.

sec. 32-3-101 (1984)).

     In Tennessee, technical words used in a will drafted by an

attorney are to be given their technical meaning, in the absence

of a finding of a contrary intent on the part of the testator.

Fariss v. Bry-Block Co., 346 S.W.2d 705, 707 (Tenn. 1961).    In

Daugherty v. Daugherty, supra at 653, the Supreme Court of

Tennessee explained the role of a court in examining the language

of a will by stating:

     The basic rule in construing a will is that the court
     shall seek to discover the intention of the testator,
     and will give effect to it unless it contravenes some
     rule of law or public policy. That intention is to be
     ascertained from the particular words used, from the
     context and from the general scope and purpose of the
     instrument. [Citations omitted.]

The duty of the court is to expound, not create.    Id.   "This

Court cannot make a different will for her under the guise of

construing it."    Sands v. Fly, 292 S.W.2d 706, 713 (Tenn. 1956).

Where a testator's intention cannot be given effect because of

public policy or certain rules of law, it must be given effect as

far as possible.   White v. Brown, 559 S.W.2d 938, 939-940 (Tenn.

1977); Bell v. Shannon, 367 S.W.2d 761, 766 (Tenn. 1963);

Hamilton Bank v. Milligan College, 821 S.W.2d 591, 592 (Tenn. Ct.

App. 1991); Merchants & Planters Bank v. Myers, 644 S.W.2d 683,

688 (Tenn. Ct. App. 1982).
                               - 21 -

     Decedent's will was drafted by an attorney and contains many

terms of art.    There is nothing in the wording of decedent's

will, in the context in which it was written, or "in the

surrounding and attending circumstances" that indicates that the

testator intended to limit the power of the executors to borrow

funds without a probate court's approval.    By incorporating the

provisions of Tenn. Code Ann. sec. 35-50-110 into her will,

decedent granted the executors of her estate broad powers

including the power to borrow without the necessity of procuring

judicial authorization therefor, or approval thereof.      Cleveland

Bank and Trust Co. v. Olsen, 682 S.W.2d 200 (Tenn. 1984).

Decedent's will did not require her executors to make a section

6166 election.   Decedent's will does not even mention section

6166.   The only mention of section 6166 is in the buy-sell

agreements.   The buy-sell agreements are not mentioned in

decedent's will, are not incorporated by reference into

decedent's will, and have little or no bearing on the

testamentary intent expressed in the will.   Decedent did not

dictate the manner in which the obligations of her estate were to

be satisfied, apart from giving instructions on the order in

which her assets were to be employed for that purpose.     The

amendment to the class B buy-sell agreement modified the

Company's obligation to purchase stock from a deceased

shareholder's estate.   The Company's obligation was not
                               - 22 -

eliminated.   If shares of class B stock were pledged to secure a

loan that was obtained to pay taxes, the Company was obligated to

purchase sufficient shares of class B stock to permit timely

repayment of the loan.

     We find that the executors have used decedent's assets in

the order she mandated.   Property disclaimed by her surviving

spouse was sold and the proceeds applied within 9 months of the

date of her death to pay taxes and other obligations of

decedent's estate.   Decedent's only other available assets were

the class B stock and the class E stock.      Decedent directed that

class B stock be used first.    Class B stock has been utilized to

satisfy the estate's remaining obligations, first by the pledging

of this stock to obtain loans to provide funds for the payment of

taxes, and then by sale of the stock to the Company in order to

provide funds for the repayment of the loans.

     If a section 6166 election had been made in this case, the

executors would have needed to immediately raise $5,334,320 for

the nondeferable taxes and other debts and expenses.      After

utilizing all available cash and disclaimed assets, the executors

would still have needed $3,445,737 to pay these obligations, and

the only way to obtain funds would have been the immediate sale

of class B stock.    A sale would have given rise to a capital

gain, so additional stock would have had to be sold to provide

for the payment of the income tax.      As a result, the executors
                              - 23 -

determined they would be required to sell 66,692 shares of class

B stock, leaving only 42,758 shares of class B stock worth

$2,351,690 to offset the remaining estate taxes of $2,349,244,

plus interest and estate income taxes.

     The executors determined that a sale of such a large block

of class B stock could jeopardize the estate's subsequent ability

to meet its obligations.   At the time they made their decision,

the executors determined that it was preferable to preserve all

of decedent's stock and to borrow funds at favorable interest

rates, in order to better ensure the estate's ability to pay its

obligations.   The executors knew that the estate would have

incurred substantial interest expenses if it had made a section

6166 election or if it had obtained loans to pay the estate's

obligations.

     In a line of cases going back to 1937, this Court and its

predecessor have recognized that the payment of interest on

estate tax or on money borrowed to pay estate tax is deductible.

See Estate of Bahr v. Commissioner, 68 T.C. 74 (1977); Estate of

Todd v. Commissioner, 57 T.C. 288 (1971); Estate of Huntington v.

Commissioner, 36 B.T.A. 698 (1937); see also Estate of Graegin v.

Commissioner, T.C. Memo. 1988-477; Estate of Sturgis v.

Commissioner, T.C. Memo. 1987-415.

     In Estate of Bahr v. Commissioner, supra, a Court-reviewed

opinion, the estate incurred liability for interest incurred on
                                - 24 -

deferred estate tax, which the estate deducted as an

administration expense on the estate tax return.    The

Commissioner disallowed the deduction on the ground that interest

on a tax was the same as the tax itself, which was not deductible

as an administration expense.    The Court held that the interest

expenses claimed by the estate were deductible as an

administration expenses.    The Court stated:   "It is well settled

that an estate may borrow money from a private lender to satisfy

its Federal estate tax liability and deduct the interest incurred

on the debt as an administration expense under section

2053(a)(2)."   Id. at 82.

     Decedent's estate relies on Estate of Huntington v.

Commissioner, supra, which involved the deductibility of

discounts, expenses, and premiums related to the issuance and

retirement of notes issued by a decedent's estate.    In Estate of

Huntington, the estate was composed of assets that included

closely held business interests and large parcels of real estate.

A short time before the Federal estate tax return was due, the

executors filed a petition with a California court for authority

to issue unsecured 5-year 6-percent notes of the estate in the

face amount of $9,500,000, and to sell these notes for a price of

96 percent of their face value and, further, to redeem them prior

to maturity pursuant to a schedule of premiums set forth in the

petition.   We noted that "The issuance of the notes avoided the
                                - 25 -

necessity of sacrificing the assets of the estate by immediate or

forced sale of the same, or any part thereof, and the

expenditures properly incident thereto were clearly made for the

purposes of preserving and preventing waste of the estate".      Id.

at 726.    Additionally, the estate faced valuation disputes with

the Commissioner.    These claims and disputes showed that the

estate could not have been closed and the loans were warranted.

We held that the discount and redemption premiums that were

authorized by a California court constituted proper

administration expenses of the estate.

     Respondent distinguishes Estate of Huntington, on the ground

that the loans in that case were authorized by a local probate

court.    However, section   20.2053-1(b)(2), Estate Tax Regs.

provides that "a deduction * * * of a reasonable expense of

administration, will not be denied because no court decree has

been entered if the amount would be allowable under local law."

In this regard, we note that the executor in Cleveland Bank and

Trust Co v. Olsen, 682 S.W.2d 200 (Tenn. 1984), did not seek

prior court approval for the loans it obtained.     Nonetheless, the

Tennessee Supreme Court held that the interest charged was a

proper administration expense where the testator had incorporated

the provision of Tenn. Code Ann. sec. 35-50-110 in his will.

     Respondent attempts to bring this case within the scope of

Hibernia Bank v. United States, 581 F.2d 741 (9th Cir. 1978).       In
                              - 26 -

Hibernia Bank, within 18 months after the decedent's death,

virtually all specific bequests and all Federal and State death

taxes had been paid.   The decedent's estate was composed mainly

of a large mansion and shares of Hibernia Bank stock.   Hibernia

Bank served as the executor of the estate.   Rather than

distribute the remaining assets, Hibernia Bank attempted to sell

the mansion as an accommodation to the beneficiaries of the

estate, who preferred to receive distributions of cash instead of

undivided interests in the property.   The estate was held open

for an additional 7 years until the mansion eventually was sold.

There were, apparently, no affairs to be wound up or reasons for

the estate to remain open, other than the sale of the mansion.

In the interim, the executor bank spent approximately $60,000

each year to maintain the mansion and borrowed a total of

$775,000 (approximately 80 percent of which was lent by Hibernia

Bank), rather than selling the publicly traded Hibernia stock to

raise the funds for this purpose.

     In Hibernia Bank, the court ruled that the interest on these

loans did not represent expenses actually and necessarily

incurred in the administration of the estate.   The personal

representative could have distributed undivided interests in the

mansion to the residuary beneficiaries of the estate, rather then

keeping the estate open until the mansion was sold.   The court

determined that the estate administration had been prolonged,
                              - 27 -

not by liquidity problems or valuation disputes, but by the sale

of the mansion, and thus had been unduly prolonged.   See sec.

20.2053-3(d)(1), Estate Tax Regs. (expenses of caring for and

preserving property will not be allowed "for a longer period than

the executor is reasonably required to retain the property").

     The facts in this case are distinguishable from those of

Hibernia Bank.   In this case, the most valuable estate assets

were the shares of class B and class E stock in the Company.     The

Company was neither able nor required to redeem enough of these

shares to provide funds to pay all death taxes and all the

estate's other actual or potential liabilities when due.

Further, the executors believed that the Company stock was likely

to increase in value.   Accordingly, borrowing funds, rather than

selling stock, allowed decedent's estate to more easily meet its

burdens by taking advantage of the increasing value of the stock.

The Company's shares of stock were less marketable than in

Hibernia Bank as they were not publicly traded.   While it is true

that the executors of decedent's estate were also directors of

the Company, this fact alone will not make the loans unauthorized

as the executors have been shown to have acted in the best

interest of decedent's estate.

     Decedent's estate further relies on Estate of Todd v.

Commissioner, 57 T.C. 288 (1971).   In Estate of Todd, the estate

borrowed $300,000 from a private source.   The estate consisted
                              - 28 -

largely of illiquid assets.   If the loans had not been obtained,

the estate would have been required to sell its assets on

unfavorable terms to raise funds for the payment of death taxes.

In Estate of Todd, we held that the estate could deduct interest

on the loans and noted that Texas law specifically authorized an

executor to borrow funds on behalf of an estate.

     Decedent's estate also relies on Rev. Rul. 84-75, 1984-1

C.B. 193, to support its position that the interest expenses

incurred on the loans were actually and necessarily incurred

administration expenses that are deductible under section 2053.

In this ruling, the estate consisted almost entirely of closely

held stock, but the executor did not make the election to defer

taxes under section 6166.   Instead, the estate borrowed funds

from a private source to pay the Federal estate tax obligations.

The ruling states that interest on the private loan was

deductible because the loan was obtained to avoid a forced sale

of assets.   This ruling, although it lacks the force of

precedent, recognizes that there are circumstances in which an

executor may reasonably choose to obtain a private loan on behalf

of an estate, even though the estate could qualify for section

6166 deferral.

     In Estate of Sturgis v. Commissioner, T.C. Memo. 1987-415,

the personal representatives of an estate obtained a $2,669,616

loan from private sources to pay State and Federal death and
                               - 29 -

estate taxes and interest.   Approximately 3 years later, the

personal representatives had paid only $11,000 towards the

principal on the loan; however, the estate held assets with a

market value of $944,448.    The Commissioner disallowed almost all

of the interest expenses claimed on the loan on the ground that

the loan was not necessary for the administration of the estate.

We rejected the Commissioner's argument and held that the

interest expenses were deductible.      We stated that

          Although respondent has suggested the executors
     could have sold more land or timber, and that no
     contingency reserve is appropriate, we are not prepared
     to second guess the judgments of a fiduciary not shown
     to have acted other than in the best interests of the
     estate. * * * the fiduciaries to have been prudent
     indeed to have anticipated contingencies such as an
     increased estate tax liability. [Id.]

Moreover, in Estate of Sturgis, we determined that the value of

the estate's real property was understated by approximately $2

million and noted that the personal representatives turned out to

be very prudent in retaining a contingency reserve.

     In this case, respondent initially sought to impose

approximately $2 million in additional gift and estate taxes on

decedent's estate, plus interest, virtually all of which related

to respondent's attempt to increase the value of the Company

stock.   Respondent has conceded this issue.     We do not think that

the loans in this case were unnecessary, either when made or

because the estate administration has been unduly prolonged,
                              - 30 -

especially in view of respondent's proposed assertion of

increased deficiencies.

      Decedent incorporated the provisions of Tenn. Code Ann. sec.

35-50-110 in her will, thus giving her executors a wide range of

powers, including the power to obtain loans on behalf of the

estate and to pledge assets to secure those loans.   There is

nothing in the will to suggest decedent intended to restrict this

specifically granted authority.   A testator's intent "must be

ascertained from that which he has written into the will, and not

from what some interested party supposes that he intended to do."

Davis v. Price, 226 S.W.2d 290, 292 (Tenn. 1949).    The estate's

interest expenses are deductible as administration expenses under

section 2053(a)(2).

II.   Respondent's Alternative Theory.

      Respondent alternatively argues that decedent's estate is

not entitled to a deduction under section 2053(a)(2) for interest

expense accruing on loans during the period in which a promissory

note from the Company, on which the estate was payee, produced

interest income exactly offsetting the Provident Loan interest

expense.   Decedent's estate sold a substantial block of class B

stock to the Company on December 30, 1991.   In exchange,

decedent's estate received a cash payment and a promissory note,

the terms of which were identical to the terms of the promissory

note which the estate had previously executed in favor of
                                - 31 -

Provident.    The Company repaid its note to decedent's estate on

January 15, 1993, at which time the estate also repaid the

Provident Loan.    Respondent asserts that the elimination of a

claimed expense should also eliminate its deductibility, citing

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

affg. in part and revg. in part T.C. Memo. 1988-553.    We

disagree.

     Respondent contends that the interest incurred on the

Provident Loan during the post mortem period in which the Company

paid the exact amount of interest on its notes to decedent's

estate had no negative impact on the net estate.    Respondent

quotes the following passage from Estate of Street to support her

position:    "'To pay the interest on the deferred taxes out of

income of the estate would neither increase nor decrease the

principal of the estate as it was at the time of decedent's

death.'"     Id. at 727-728 (quoting Estate of Richardson v.

Commissioner, 89 T.C. 1193, 1205 (1987)).    The issue in Estate of

Street was whether the marital deduction has to be reduced by

interest on deferred taxes and other administration expenses that

were paid out of the income generated by the marital share of the

estate.     Explaining the meaning of the Estate of Richardson

decision, the Court of Appeals in Estate of Street stated:

"Therefore, Estate of Richardson stands only for the proposition

that the payment, from income, of interest on inheritance and
                               - 32 -

estate taxes will not reduce the marital deduction."     Estate of

Street v. Commissioner, supra at 728.     The court in Estate of

Street further noted that its holding was mandated by, and

consistent with, section 2056(b)(4) and section 20.2056(b)-4(a),

Estate Tax Regs.   We find that Estate of Street dealt solely with

the calculation of the marital deduction and is not relevant to

the current matter.

     Respondent further relies on Estate of Sachs v.

Commissioner, 856 F.2d 1158, 1160 (8th Cir. 1988), revg. 88 T.C.

769 (1987), as additional support for her argument that the

deduction for interest accruing from December 31, 1991, to

January 15, 1993, should be disallowed.    The issue in Estate of

Sachs was whether an estate was entitled to a deduction for

certain income taxes paid as a result of a net gift made by the

decedent prior to his death.   The U.S. Court of Appeals for the

Eighth Circuit had previously decided in another case that the

payment of gift taxes by the recipient of a gift results in

income to the donor.   This holding was upheld by the U.S. Supreme

Court and the Sachs estate paid the income taxes that were owed

as a result of this decision and also claimed these taxes as an

administration expense.

     The Deficit Reduction Act of 1984, Pub. L. 98-369, 98 Stat.

494, in certain circumstances granted relief from income tax for

donors of net gifts made prior to a specified date.    As a result
                               - 33 -

of this congressional action, the Sachs estate received a full

refund of the taxes it had paid.    Under these facts, the Court of

Appeals for the Eighth Circuit disallowed the claimed deduction

for income tax paid, because the estate's obligation for such

taxes had been eliminated, and the estate had been made whole by

receiving a full refund of those taxes.

       Unlike the income tax in Estate of Sachs, the interest

expenses paid by the estate in this case have not been refunded,

forgiven, or eliminated.    The interest expenses were allowable

under Tennessee law and were paid out of the estate's assets.      We

hold that the interest expenses constitute a deductible

administration expense under section 2053(a)(2).

III.    Conclusion

       Pursuant to section 2053(a) and section 20.2053-1(a)(1),

Estate Tax Regs., an estate generally may deduct an

administration expense that is allowable as a legitimate charge

against the estate under the laws governing decedents' estates in

the State of the probate proceeding.    In this case the estate in

the course of its administration was obliged to incur interest

expenses whether the executors made a section 6166 election or

whether the executors decided to borrow funds from a third party

to pay the estate's Federal and State tax obligations.

Decedent's estate has met its burden of proving that the loans

were necessary costs of administering the estate.    The Company
                               - 34 -

was not required to redeem enough of decedent's shares of class B

stock to provide funds to pay all death taxes and all the

estate's other actual or potential liabilities when due.    It is

not our province, and we are not prepared, to second guess the

business judgments of the executors, for the executors have not

been shown to have acted other than in the best interests of the

estate.   We believe that the executors' decision not to make a

section 6166 election was prudent because, among other reasons,

the estate benefited from increases in value to the Company stock

and, consequently, decedent's estate was in a better situation to

face contingencies such as an increased estate or gift tax

liability.   These loans allowed the estate to pay its Federal

estate obligation in full shortly after decedent's death.

Decedent's estate is entitled to a deduction for the interest

expenses incurred on these loans under section 2053(a)(2).    We

have considered all other arguments made by petitioners and

respondent and find them to be either irrelevant or without

merit.

     Based on the foregoing,

                                    Decision will be entered under

                               Rule 155.
