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O'MALLEY v. UNITED STATES

August 2, 1963

CHARLES E. O'MALLEY, CLAUDE C. ALEXANDER AND PETER G. FARROW, AS EXECUTORS OF THE WILL OF EDWARD H. FABRICE, DECEASED, PLAINTIFFS,
v.
THE UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Campbell, Chief Judge.

Edward H. Fabrice (hereinafter referred to as "Fabrice") died a resident of Illinois on October 13, 1949. Prior to his death Fabrice had created five irrevocable trusts naming himself and two other persons as co-trustees. The trust instruments were identical except for the names of the beneficiaries and the property transferred. Fabrice's daughter Janet was the beneficiary of two of the trusts, his daughter Lorraine was beneficiary of two others and his wife was to receive the benefit from the fifth trust.

During his lifetime Fabrice orally leased, occupied and paid rent to his daughters for three Wisconsin farms beneficially owned by them. The daughters owned the farms by virtue of conveyances made to them by Fabrice. As a tenant Fabrice erected certain buildings and other improvements on the farms, for which he took depreciation deductions on his federal income tax returns.

After the death of Fabrice and the filing of his federal estate tax return, the Commissioner of Internal Revenue determined his estate tax liability should have been $80,726.36. The estate tax return having showed no such tax due, a deficiency of $80,726.36 was assessed. The items added to Fabrice's gross estate by the Commissioner were as follows:

(a) Janet Fabrice Trust No. 1

      75 shares of Fabart Company stock
      75 shares of Fabart Company stock
         given to the trust by Fabrice
    112 shares of Fabart Company stock
    --- purchased by the trust
    187 shares at $200 each ......... $37,400.00
         Cash .......................     805.29  $38,205.29
                                      ----------

(b) Lorraine Fabrice Trust No. 1

     75 shares of Fabart Company stock
        given to the trust by Fabrice
    112 shares of Fabart Company stock
    --- purchased by the trust
    187 shares at $200 each ......... $37,400.00
        Cash ........................   7,615.95  $45,015.95
                                      ----------

(c) Janet Fabrice Trust No. 2

    101 shares of Fabart Company stock
        given to the trust by Fabrice
    152 shares of Fabart Company stock
    --- purchased by the trust
    253 shares at $200 each ......... $50,600.00
        Cash ........................  12,987.72  $63,587.72

(d) Lorraine Fabrice Trust No. 2

    101 shares of Fabart Company stock
        given to the trust by Fabrice
    152 shares of Fabart Company stock
    --- purchased by the trust
    253 shares at $200 each ......... $50,600.00
        Cash ........................  12,597.35  $63,197.35

(e) Martha G. Fabrice Trust

    101 shares of Fabart Company stock
        given to the trust by Fabrice
    152 shares of Fabart Company stock
    --- purchased by the trust
    253 shares at $200 each ......... $50,600.00
        Cash ........................  16,134.85  $66,734.85
(f) Farm Improvements ...............             $37,000.00
                                                  -----------
                         ...

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