                         T.C. Memo. 1996-434



                       UNITED STATES TAX COURT



     ESTATE OF IRENE H. GOVERN, DECEASED, REVOCABLE TRUST OF
     CHARLES L. GOVERN, SR., TRANSFEREE, JUNE G. HALL,
     TRUSTEE AND TRANSFEREE, JUNE G. HALL, TRANSFEREE OF
     TRANSFEREE, MURIEL MCNULTY, TRANSFEREE OF TRANSFEREE,
     AND VIRGINIA YEGEN, TRANSFEREE OF TRANSFEREE,
     Petitioners v. COMMISSIONER OF INTERNAL REVENUE,
     Respondent



     Docket No. 17987-93.                Filed September 24, 1996.



     Sue Ann Nelson and Tracy M. Smith, for petitioners.

     John Schmittdiel, for respondent.



                         MEMORANDUM OPINION


     HAMBLEN, Judge:    Respondent determined that June G. Hall

(petitioner) is liable as trustee and transferee of the revocable

trust of Charles L. Govern, Sr., and as transferee of the estate
                                   - 2 -

of Irene H. Govern for a deficiency in estate tax in the amount

of $285,850 and for an addition to tax under section 6651(a)(1)

in the amount of $71,463.       Respondent, by means of separate

notices of transferee liability, further determined that

petitioner, Virginia Yegen, and Muriel McNulty are liable as

transferees of a transferee regarding the estate of Irene H.

Govern each in the amount of $161,969.88.

       Unless otherwise indicated, all section references are to

the Internal Revenue Code as amended, and all Rule references are

to the Tax Court Rules of Practice and Procedure.

       After concessions,1 the sole issue for decision is whether

petitioner is liable as transferee and trustee under section

6324(a)(2) for unpaid Federal estate tax deficiencies due from

the estate of Irene H. Govern.

                                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.       Petitioner, trustee of the revocable

trust of Charles L. Govern, Sr., resided in Eagan, Minnesota, at

the time the petition was filed in this case.


       1
      Respondent has conceded that petitioners June G. Hall,
Muriel McNulty, and Virginia Yegen are not liable as transferees
of a transferee (or as successive transferees) for any deficiency
in Federal estate tax or addition to tax owed by the estate of
Irene H. Govern.
                               - 3 -

     Irene H. Govern (decedent) died on October 30, 1983,

survived by four adult children:   Petitioner, Muriel McNulty,

Virginia Yegen, and Charles L. Govern II (also known as Charles

L. Govern, Jr.).   Decedent died testate in, and while a resident

of, the State of Illinois.

     Decedent's will provided at paragraph 3 as follows:

     3.   I give all my personal and household effects,
     automobiles and collections, and any insurance policies
     thereon, all real estate, bank accounts, stocks and
     bonds, and all assets whatsoever and wherever situated
     to my son, Charles L. Govern, II. In addition to the
     above, I hold a general power of appointment over the
     principal and undistributed income of the "Marital
     Trust" created by the "Revocable Trust of Charles L.
     Govern, and article 5 of the Last Will of my late
     husband, Charles L. Govern, both of which are dated
     January 9, 1968. I hereby elect to exercise such power
     of appointment and in the exercise thereof direct that
     all property remaining in said "Marital Trust" at the
     time of my death (including any undistributed income)
     shall be paid over and distributed to my son, Charles
     L. Govern, II.

          I have made no provision for my other three
     children, Virginia Govern Yegen, Muriel Govern Cardwell
     McNulty, or June Govern Hall in this Will, and it is my
     intention that they receive no part of my Estate.

          If my son, Charles L. Govern, II does not survive
     me my entire Estate, including any property over which
     I may have power of appointment at my death, I give to
     the decedants [sic] of my son, Charles L. Govern, II,
     per stirpes.


     The revocable trust of Charles L. Govern, Sr. (Revocable

Trust), was established by the trust instrument dated January 9,

1968.   Charles L. Govern, Sr., was decedent's husband and died on

May 4, 1968.   The Revocable Trust provided for the division of
                                      - 4 -

Charles L. Govern, Sr.'s trust estate into two separate trusts,

the Marital Trust and the Family Trust.            The Revocable Trust

instrument provided, in pertinent part, the following directions

with regard to the general power of appointment over the

principal and undistributed income of the Marital Trust:

     10. Concerning the Marital Trust - The Marital Trust
     shall commence at the date of the settlor's death and
     the trust estate thereof shall be held and disposed as
     follows:

                          *   *   *    *   *   *   *

           (b)    Wife's Power of Appointment - The
                  settlor's wife shall have the power to
                  appoint the entire corpus of the trust
                  estate free of this trust by her last
                  will and testament (express reference to
                  the power being requisite to its
                  exercise) in favor of her estate or in
                  favor of any other appointee or
                  appointees whom she may designate, all
                  in such manner and upon such terms as
                  she may designate. Such power shall be
                  exercisable by her alone and in all
                  events.

     Petitioner was the appointed trustee of the Revocable Trust,

and the subsequently created Marital Trust and the Family Trust.

     At the time of Charles Govern, Sr.'s death, the assets held

by the Revocable Trust included 91.36 acres of unimproved land,

subject to various easements, in Eagan, Minnesota (Eagan real

estate).   At the time of decedent's death, the only asset held by

the Marital Trust was a one-half undivided interest in the Eagan

real estate.     The one-half undivided interest had a fair market

value of $412,500.    The Marital Trust has issued promissory notes
                               - 5 -

to the Family Trust equal to $26,702 and to Muriel McNulty equal

to $2,500.

     Upon decedent's death, pursuant to the Marital Trust

agreement, petitioner did not have authority to make

discretionary distributions of the Marital Trust property.    The

Marital Trust agreement provided that in the event that the

settlor's wife did not exercise the above power of appointment,

the Marital Trust property would become part of the Family Trust.

     Charles L. Govern II, decedent's son, was appointed as

executor of decedent's estate, on January 9, 1984.   Petitioner's

legal counsel made at least three requests of Charles L. Govern

II, the executor of decedent's estate, and his attorneys to file

a Federal estate tax return for the estate.   On or about May 30,

1990, petitioner, as "trustee of the Marital Trust under the

Revocable Trust of Charles L. Govern", ultimately filed the

Federal estate tax return for decedent's estate, Form 706, as the

executor "in fact" pursuant to section 2203 and section 20.6018-

2, Estate Tax Regs.   The executor of decedent's estate never

filed a Federal estate tax return.

     Petitioner attached to the estate tax return her affidavit

explaining that despite her request, her brother, Charles L.

Govern II, the appointed executor of decedent's estate, had not,

to her knowledge, filed a Federal estate tax return for the

estate.   Accordingly, she, pursuant to section 20.6018-2, Estate

Tax Regs., was filing the Federal estate tax return as the
                              - 6 -

trustee in possession of the Marital Trust property that was

includable in decedent's gross estate.    The affidavit further

states that decedent pursuant to her last will has exercised her

general testamentary power of appointment over the Marital Trust

by appointing all of the trust assets to Charles L. Govern II.

Petitioner acknowledged that the assets of the Marital Trust,

consisting of the Eagan real estate, had not yet been distributed

to Charles L. Govern and that she continued to hold legal title

thereto in her capacity as trustee.   Petitioner said that she

expected that on or about May 30, 1990, she would be directed by

the District Court of Dakota County, Minnesota, to issue a deed

to Charles L. Govern, Jr., for an undivided one-half interest in

the Eagan real estate.

     The Federal estate tax return filed by petitioner contained

certain appraisal information relating to the Eagan real estate

and identified decedent's power of appointment over the Marital

Trust but did not ascribe a value to the real estate and

expressly disclaimed knowledge of other assets held by decedent's

estate.

     On July 8, 1991, the District Court, County of Dakota, State

of Minnesota issued an order requiring petitioner, as trustee of

the Marital Trust and Family Trust, to:

     execute and deliver to Charles L. Govern, Jr. [sic], a
     deed for an undivided five-eighths interest in the
     subject property [the Eagan real estate], subject to
     mortgages and encumbrances, and shall execute and
     deliver a deed for an undivided one-eighth interest in
                              - 7 -

     the subject property to each of Virginia Yegen, Muriel
     McNulty and June G. Hall, subject to mortgages and
     encumbrances, and shall assign and deliver to Charles
     L. Govern, Jr., any and all other assets of the Marital
     Trust and shall assign and deliver to Charles L.
     Govern, Jr., Virginia Yegen, Muriel McNulty and June G.
     Hall in equal shares, any and all other assets of the
     Family Trust.

The district court order further provided:

          Upon effecting distribution pursuant to this
     order, the Trustee will have properly and fully
     performed all of the duties, obligations, discretions
     and responsibilities placed upon her by the trust
     instrument, by the statutes and laws of the State of
     Minnesota and by orders of this Court with respect to
     the Marital Trust and Family Trust; and she shall
     thereupon be, and she hereby is, without further order
     of this Court, discharged as Trustee in the above-
     entitled matter and released from any further liability
     and responsibility with respect to her administration
     and distribution of the Marital Trust and Family Trust.

     By deed dated February 13, 1992, petitioner as trustee of

the Marital Trust and Family Trust conveyed undivided one-eighth

interests in the Eagan real estate to herself, Muriel McNulty,

and Virginia Yegen, from the Family Trust, and an undivided five-

eighths interest in the Eagan real estate to Charles L. Govern

II, which consisted of an undivided one-half interest in the

Eagan real estate from the Marital Trust and an undivided one-

eighth interest in the Eagan real estate from the Family Trust.

     There is a deficiency in estate tax of $12,321 and an

addition to tax under the provisions of section 6651(a) for

$3,080 due from decedent's estate.2   As of June 14, 1995, no

     2
      In Estate of Govern v. Commissisoner, docket No. 17565-93,
                                                   (continued...)
                                - 8 -

Federal estate tax or addition to tax had been paid by or for the

account of decedent's estate.   Both decedent's estate and the

Marital Trust are insolvent as all assets of decedent's estate,

including the Marital Trust assets, have been distributed to

Charles L. Govern II.

                            Discussion

I. Liability Under Section 6324(a)(2)

     Section 6901(a)3 establishes a procedure for the assessment

and collection by the Commissioner of unpaid Federal income,

estate, or gift tax liability from a transferee.    Section 6901

does not create or define a transferee's substantive tax

liability, and the substantive basis for the assertion of

transferee liability under section 6901 must generally be found

     2
      (...continued)
we entered a stipulated decision on Aug. 1, 1995, that resolved
the amount of the underlying deficiency in estate tax and
addition to tax due from decedent's estate.
     3
      Sec. 6901(a) provides, in pertinent part:

          SEC. 6901(a). Method of Collection.--The amounts
     of the following liabilities shall, except as
     hereinafter in this section provided, be assessed,
     paid, and collected in the same manner and subject to
     the same provisions and limitations as in the case of
     the taxes with respect to which the liabilities were
     incurred:

          (1) Income, estate, and gift taxes.--

                    *   *   *    *      *   *   *

               (ii) of a decedent in the case of a tax
          imposed by chapter 11 (relating to estate taxes),
          or
                                   - 9 -

in applicable State law.       Commissioner v. Stern, 357 U.S. 39, 45

(1958) (interpreting section 311 of the Internal Revenue Code of

1954, a predecessor to section 6901).        However, section 6901(h)

defines the term "transferee" to include a "donee, heir, legatee,

devisee, and distributee, and with respect to estate taxes, also

includes any person who, under section 6324(a)(2), is personally

liable for any part of such tax."       Sec. 6901(h); sec. 301.6901-

1(b), Proced. & Admin. Regs.       The Commissioner has the burden of

proving the elements necessary to establish a taxpayer's

liability as a transferee of property of a decedent's estate, but

the Commissioner does not have the burden to establish the amount

of the liability of the transferor.        Sec. 6902(a);4 Rule 142(d).

If the Commissioner meets the burden of proof, the transferee is

liable for the transferor's estate tax to the extent of the value

of the assets transferred.

       Respondent has conceded that petitioner is not a "donee,

heir, devisee, [or] distributee" of decedent or decedent's

estate, and all the assets of decedent's estate ultimately were

transferred and distributed to Charles L. Govern II, decedent's

son.       Accordingly, to successfully assert transferee liability

       4
        SEC. 6902.    PROVISIONS OF SPECIAL APPLICATION TO
                      TRANSFEREES.

            (a) Burden of Proof.--In proceedings before the
       Tax Court the burden of proof shall be upon the
       Secretary to show that a petitioner is liable as a
       transferee of property of a taxpayer, but not to show
       the taxpayer was liable for the tax.
                              - 10 -

against petitioner, respondent must prove that petitioner is a

"person who, under section 6324(a)(2), is personally liable for

any part of such tax."   Sec. 6901(h); sec. 301.6901-1(b); Proced.

& Admin. Regs.

     Section 6324(a)(2) provides in pertinent part:

          (2) Liability of transferees and others.-- If the
     estate tax imposed by chapter 11 is not paid when due,
     then the spouse, transferee, trustee * * * , surviving
     tenant, person in possession of the property by reason
     of the exercise, nonexercise, or release of a power of
     appointment, or beneficiary, who receives, or has on
     the date of the decedent's death, property included in
     the gross estate under sections 2034 to 2042,
     inclusive, to the extent of the value, at the time of
     the decedent's death, of such property, shall be
     personally liable for such tax. * * * [Emphasis
     added.]

     Petitioner makes the following arguments why section

6324(a)(2) does not impose personal liability upon her:   (1)

Petitioner asserts that the question of whether she "had"

property for purposes of section 6324(a)(2) is properly a

question of State law; (2) petitioner contends that she is not a

transferee because upon decedent's death, the Marital Trust

property passed "free and clear" of such trust; (3) petitioner

maintains that because the Minnesota Court of Appeals in Govern

v. Hall, 430 N.W.2d 874, 877 (Minn. Ct. App. 1988), held that the

Marital Trust "terminated" upon decedent's death, she was never a

person in possession of property included in decedent's estate;

and (4) petitioner claims that because she was bound to

distribute the trust assets according to the Marital Trust
                               - 11 -

agreement, she cannot be held liable for failing to ensure the

payment of applicable Federal estate taxes arising from the

inclusion of the Marital Trust assets in decedent's gross estate.

       The question of whether petitioner, as trustee, "had", at

the time of decedent's death, property included in the gross

estate is not, as petitioner asserts, dependent on State law.

The liability under section 6324(a)(2) for unpaid Federal estate

tax is conditioned on the inclusion of property, the Marital

Trust assets, in decedent's gross estate under sections 2034 to

2041, inclusive.    The parties agree that decedent held a general

power of appointment over the Marital Trust property and,

consequently, the Marital Trust property was includable in

decedent's gross estate under section 2041.    Section 6324(a)(2)

provides for the substantive liability of a trustee and similarly

situated persons and does not depend on the anomalies of State

law.    See Schuster v. Commissioner, 312 F.2d 311, 315 (9th Cir.

1962) (interpreting section 827(b) of the Internal Revenue Code

of 1939, a predecessor to section 6324(a)(2)), affg. 32 T.C. 998,

and revg. First Western Bank & Trust Co. v. Commissioner, 32 T.C.

1017 (1959); Estate of Whittle v. Commissioner, 97 T.C. 362, 367

(1991), affd. 994 F.2d 379 (7th Cir. 1993); Groetzinger v.

Commissioner, 69 T.C. 309, 316 (1977); Magill v. Commissioner,

T.C. Memo. 1982-148, affd. sub nom. Berliant v. Commissioner, 729

F.2d 496 (7th Cir. 1984); Peterson v. Commissioner, T.C. Memo.

1972-65; cf. sec. 6901(h).    The liability imposed by section
                                - 12 -

6324(a)(2) is in the nature of a direct and primary obligation

created by Federal statute.     Groetzinger v. Commissioner, supra

at 314.

     First, petitioner asserts that the Marital Trust assets

"passed free of the trust" when decedent exercised her general

power of appointment.   Second, petitioner asserts that the

Marital Trust was terminated on decedent's death (rather than

created on decedent's death), and petitioner was relieved of

possession (rather than came into possession) of the Marital

Trust property on decedent's death by the exercise of the power

of appointment.

     Decedent's estate's exercise of the power of appointment did

not automatically dissolve the trust or vest the ownership of the

trust property in Charles L. Govern II, the appointee.       A trust

continues for a reasonable period during which the trustee has

the power to perform necessary acts to wind up the affairs of the

trust.    Govern v. Hall, supra at 877 (citing In re McLaughlin's

Trust, 361 N.W.2d 43, 46 (Minn. 1985)); Bogert, Trust & Trustees,

sec. 1010, at 448 (2d ed. 1983).    Petitioner acted in her

capacity as trustee of the Marital Trust property for several

years after decedent's death.    Although decedent died in October

of 1983, petitioner did not execute and deliver a deed conveying

the Marital Trust property to Charles L. Govern II, the

appointee, until February of 1992.       Moreover, petitioner filed

decedent's estate's Federal estate tax return, in which she
                              - 13 -

stated that she was the legal trustee of the Marital Trust and

that she was the trustee in possession of the Marital Trust

property.   As a necessary part of winding up the affairs of the

Marital Trust, petitioner should have paid, or sought permission

from the State court to pay, decedent's estate's unpaid Federal

estate tax liability that resulted from the inclusion of the

Marital Trust property in decedent's gross estate.

     Petitioner's contention that transferee liability under

section 6324(a)(2) cannot apply to her because she did not have

discretionary control or authority over the Marital Trust

property as of the date of decedent's death is unsupported by

both the statutory language and case law interpreting section

6324.   Petitioner acknowledges that she, as trustee, had bare

legal title to the Marital Trust property.   The liability

asserted against petitioner arose while she still held the assets

from which to indemnify herself.   Petitioner cannot deflect the

liability imposed by section 6324(a)(2) by simply claiming that

she no longer controls the assets, having distributed them to the

beneficiary.   Petitioner is not relieved from personal liability

under section 6324(a)(2) because the District Court of Dakota

County, Minnesota, ordered her to distribute the Marital Trust

property to her brother.   See, e.g., King v. United States, 379

U.S. 329, 338-339 (1964) (transferee held liable despite the

distribution of property pursuant to a bankruptcy court order).
                                - 14 -

     We find that respondent has proved that petitioner was the

trustee and person in possession of the Marital Trust property on

the date of decedent's death.    Furthermore, there is a deficiency

in decedent's estate's Federal estate tax for $12,321 and an

addition to tax, under the provisions of section 6651(a), for

$3,080 due from decedent's estate.       Accordingly, pursuant to

section 6324(a)(2), petitioner is personally liable, to the

extent of the value of the Marital Trust property at the date of

decedent's death, for the Federal estate tax, addition to tax,

and interest due from decedent's estate.       Because the value of

the Marital Trust property ($412,500) is far more than the unpaid

estate tax deficiency ($12,321) and addition to tax ($3,080),

petitioner is liable as transferee for the entire unpaid amount.

     Petitioner contends that even if section 6324(a)(2) imposes

personal liability upon her, she should be held liable only for

the deficiency in decedent's estate's Federal estate tax of

$12,321 and not for the addition to tax under the provisions of

section 6651(a) for $3,080.   We disagree.      Once the Commissioner

has established transferee liability, the transferee is liable

for the transferor's taxes due as of the time of the transfer, as

well as interest and any additions to tax, to the extent of the

value of the assets transferred.     Estate of Glass v.

Commissioner, 55 T.C. 543, 575-576 (1970), affd. 453 F.2d 1375

(5th Cir. 1972).
                              - 15 -

II.   Equitable Estoppel

      Petitioner contends that as a matter of equity, and

notwithstanding the provisions of section 6324(a)(2), petitioner

should be relieved from personal liability as a transferee for

the unpaid Federal estate taxes of decedent's estate.    Petitioner

relies upon Schuster v. Commissioner, 312 F.2d 311 (9th Cir.

1962).   In Schuster, a Federal estate tax return was filed for

the decedent's estate, but the return failed to include the value

of the corpus of a trust in the decedent's gross estate.     The

Commissioner audited the estate tax return of the estate and

determined, erroneously, that the trust corpus was not taxable.

The results of the audit were relayed to the trustee, which was a

bank, by the beneficiary under the trust instrument.    The trustee

relied on the Commissioner's mistake that the trust corpus was

not includable in decedent's gross estate, and distributed the

trust corpus to the beneficiary, the trustee believing that no

Federal estate tax was due.   Thereafter, the Commissioner

realized the mistake and asserted transferee liability against

the beneficiary and the trustee for deficiencies in the estate's

Federal estate tax.   The trustee had distributed the trust assets

to the beneficiary and did not retain any trust property which

was the subject of the deficiency.     Accordingly, any liability of

the trustee would have to come out of its own funds and not from

the corpus of the trust.   We held that the trustee was liable

under section 827(b) of the Internal Revenue Code of 1939, the
                              - 16 -

predecessor to section 6324(a)(2), for the unpaid Federal estate

taxes.   The Court of Appeals for the Ninth Circuit did not

dispute this Court's determination that the predecessor to

section 6324(a)(2) imposed transferee liability on the trustee

despite the trustee's having distributed the trust assets;

however, the Court of Appeals concluded that equitable estoppel

prevented the Commissioner from imposing transferee liability

upon the trustee.   The court reasoned that it would be grossly

unfair to hold the trustee liable as transferee under the

predecessor to section 6342(a)(2), especially because it never

enjoyed the use of the trust corpus and merely acted in the

capacity of a trustee.

     Equitable estoppel is to be applied against the government

with the utmost caution and restraint.   Schuster v. Commissioner,

supra at 317.   In Estate of Emerson v. Commissioner, 67 T.C. 612,

617-618 (1977), we described the elements necessary to establish

equitable estoppel as follows:

     1) There must be a false representation or wrongful
     misleading silence; 2) the error must be in a statement
     of fact and not in an opinion or a statement of law; 3)
     the person claiming the benefits of estoppel must be
     ignorant of the true facts; and 4) he must be adversely
     affected by the acts or statement of the person against
     whom an estoppel is claimed * * *.

The facts which supported equitable estoppel in Schuster are not

present in the record before us.   There has been no

misrepresentation or misleading silence by respondent regarding

the Federal estate tax deficiency or petitioner's liability;
                               - 17 -

therefore, respondent has not committed any act on which

petitioner could have detrimentally relied.   Petitioner knew or

should have known that there was a potential Federal estate tax

liability for the estate.   Indeed, petitioner was not ignorant of

the true facts in this case.   Petitioner's affidavit and her

attorney's letters attached to the Federal estate tax return

filed by her demonstrate that she was fully aware of her

liability as the trustee in possession of Marital Trust property

for decedent's estate's unpaid Federal estate tax.

     Section 2204 allows fiduciaries other than the "executor"

(e.g., the trustee) to apply to the Secretary for a determination

as to the amount of the Federal estate taxes for which they may

be personally liable and to seek a discharge therefor.

Petitioner held the Marital trust property for almost 9 years

after decedent's death; however, she never applied to the

Secretary for a determination of her liability or the discharge

thereof.   Moreover, it does not appear from the record that

petitioner brought to the attention of the Minnesota court her

liability for the Federal estate taxes due.
                               - 18 -

III.   Conclusion

       Under section 6324(a)(2) Congress imposed liability for

unpaid Federal estate taxes on a trustee, such as petitioner, who

has at the date of a decedent's death, assets included in the

decedent's gross estate under sections 2034 to 2042, inclusive,--

in this case, under section 2041.    We conclude that respondent

has established that petitioner is personally liable as a trustee

of property of decedent's estate pursuant to section 6324(a)(2)

for decedent's estate's unpaid Federal estate tax and addition to

tax.    We have considered all other arguments made by petitioner

and find them to be without merit.

       To reflect the foregoing and concessions by the parties,


                                     Decision will be entered under

                                Rule 155.
