* * * *

6. Nothing contained in this agreement shall abrogate or diminish such obligations of support and maintenance during coverture as at any given time during coverture may be imposed by applicable law.

Lucile executed a first codicil to her will on April 28, 1977 U.S. Tax Ct. LEXIS 14">*29 1967, which provides in relevant portion:

In the event that * * * Franklin A. Morse shall survive me as my widower, I give and devise to him for and during his natural life, the residential real estate, together with its improvements, commonly known as 901 Sassafras Lane, Niles, Michigan, * * * but if such real estate is hereafter disposed of and I then own other and different real estate, irrespective of where situated, constituting our principal place of family residence, then I give and devise to * * * Morse for and during his natural life such other and different real estate so constituting our then primary place of residence. In addition to the foregoing, I further give and bequeath to * * * Morse the use for and during his natural life or for such shorter interval as he may desire to use the same, of the household furnishings, furniture, fixtures and other items of non-business tangible property normally contained in or upon said premises and conventionally used in conjunction therewith, all in such manner and fashion that for and during his natural life he shall have the usage and benefit of the same as a furnished residential accomodation. * * *

Franklin complied with 1977 U.S. Tax Ct. LEXIS 14">*30 the antenuptial agreement by creating on April 27, 1967, an irrevocable trust and by executing his will on April 28, 1967. The living trust provided that the trustee should pay to Franklin during his natural life all of the net income of the trust. After making reference to Franklin's contemplated marriage to Lucile, the trust provided that after Franklin's death, if she survived him, the trustee should pay to Lucile out of the net income of the trust during her life $ 12,000 per year, any excess thereof to go to his children. Franklin's will, after making provision for payment of debts and taxes, devised the remainder of his estate to the living trust, to be administered in accordance with the terms thereof.

Franklin gave up his apartment in South Bend and after their marriage on April 29, 1967, moved into the Niles residence where he lived until his death on March 16, 1972. After their marriage the couple vacationed at Lucile's Walloon Lake residence for about 6 or 7 weeks every summer.

During their marriage the couple maintained separate checking accounts. Lucile paid the majority of the real estate taxes, 69 T.C. 408">*415 insurance premiums, and other maintenance expenses on the 1977 U.S. Tax Ct. LEXIS 14">*31 Niles and Walloon Lake residences with checks drawn on her separate checking account. She also paid telephone bills relating to these residences from this account. Franklin paid some of the living expenses and also gave money to Lucile at times that was deposited in her account.

The First National Bank of SouthwesternMichigan, administrator of Franklin's estate, deducted on the Federal estate tax return as a debt of the decedent the present value, $ 110,387, of Lucile's right as beneficiary of the trust established by Franklin to receive $ 12,000 annually for the remainder of her life. The stated "consideration for said payments was the forfeiture by decedent's surviving spouse of her rights to income from a different and unrelated trust created by the deceased first husband of said surviving spouse in amounts approximately equivalent to that provided by the decedent under the antenuptial agreement." This deduction was disallowed in the notice of deficiency "since the obligation was not incurred for adequate and full consideration in money or money's worth as required under section 2043 of the Internal Revenue Code."

OPINION

As a threshold matter petitioner argues that respondent's1977 U.S. Tax Ct. LEXIS 14">*32 reliance at trial upon section 2053(a)(3) and (c)(1)(A)⁴1977 U.S. Tax Ct. LEXIS 14">*33 as the basis for denying the deduction instead of section 2043, ⁵ as referred to 69 T.C. 408">*416 in the notice of deficiency, constitutes new matter which operates to shift the burden of proof to respondent on that issue. While a notice of deficiency is presumed correct, and a petitioner has the burden of disproving its correctness, when respondent departs from the grounds relied on in his notice of deficiency to sustain a theory later raised, he has the burden of proving any new matter raised. Tauber v. Commissioner, 24 T.C. 179">24 T.C. 179, 24 T.C. 179">185-186 (1955); Wilson v. Commissioner, 25 T.C. 1058">25 T.C. 1058, 25 T.C. 1058">1066 (1956); Rule 142(a), Tax Court Rules of Practice and Procedure.

However, even though respondent made reference to section 2043 in the notice of deficiency and now relies on section 2053(c)(1)(A)1977 U.S. Tax Ct. LEXIS 14">*34 for disallowance of the claim, the underlying theory upon which disallowance of the claimed deduction is based remains unchanged. In the notice of deficiency the deduction was disallowed because it was not incurred for adequate and full consideration in money or money's worth -- as required in section 2043. Section 2043(a) provides for inclusion in the gross estate of portions of property or rights transferred before death for a consideration but in a transaction that is not a bona fide sale for an adequate consideration in money or money's worth, and section 2043(b) provides that relinquishment of marital rights shall not be considered a consideration in money or money's worth. Section 2053(a)(3) provides for a deduction from the gross estate for claims against the estate but subsection (c)(1)(A) limits the deduction to claims contracted bona fide and for a full and adequate consideration in money or money's worth. Subsection (e) also provides that marital rights shall not be deemed consideration in money or money's worth, making reference to section 2043(b). Since the deficiency resulted from a disallowance of a claim against the estate, section 2053 had to be the section involved1977 U.S. Tax Ct. LEXIS 14">*35 and the reference in the notice of deficiency to section 2043 was simply to the language relating to adequate consideration, which is the same in both sections. Petitioner, as reflected in its petition, was fully 69 T.C. 408">*417 aware that the deduction was disallowed because not incurred for full and adequate consideration in money or money's worth -- regardless of the section reference. Petitioner's argument is therefore without merit. ⁶

We now move to the crucial issue in this case. Because the claim is founded upon a promise or agreement, whether the present value of Lucile's right to receive $ 12,000 per year for the remainder of her life from the trust established by Franklin is deductible by his estate as a claim against it under section 2053(a)(3) is dependent on a determination of whether1977 U.S. Tax Ct. LEXIS 14">*36 Franklin "contracted bona fide and for an adequate full consideration in money or money's worth" for this promise as provided by section 2053(c)(1)(A).

The underlying purpose of this section is to prevent the making of what are in substance tax-free testamentary dispositions through the medium of contractual claims. Estate of Pollard v. Commissioner, 52 T.C. 741">52 T.C. 741, 52 T.C. 741">744 (1969). A tax avoidance motive need not exist; it is the substance of the arrangement as a potential device for defeating the estate tax that is of controlling significance. 52 T.C. 741">Estate of Pollard v. Commissioner, supra at 745.

Apparently recognizing that Lucile's promise to bestow upon Franklin a life estate in the primary residence and its furnishings if she predeceased him is essentially a testamentary disposition and would not qualify as "full and adequate consideration in money or money's worth" under section 2053(c)(1)(A) (see 52 T.C. 741">Estate of Pollard v. Commissioner, supra), petitioner argues that Franklin's "right" to live rent free in Lucile's residences during their marriage without responsibility for maintenance expenses constitutes1977 U.S. Tax Ct. LEXIS 14">*37 sufficient consideration to satisfy the statutory requirement. ⁷

Respondent challenges this assertion on two fronts. He contends that the couple's living arrangements during their marriage were not the subject of a bona fide contract as that phrase has been defined. Furthermore, even if a bona fide 69 T.C. 408">*418 contract with regard to the living arrangements is found, that the asserted consideration does not meet the statute's requirement that it be full and adequate.

Evident from the record is the conclusion that respondent's first contention is correct. It is obvious that a consideration hypothetically full and adequate within1977 U.S. Tax Ct. LEXIS 14">*38 the statutory meaning has no relevance if the asserted consideration was not part of the bargain between the parties. Such is the case here. Petitioner's attempt to skim over the necessity for a bargained and conscious exchange between the couple by referring to subtle, unstated might-have-beens ignores the existence in the statute of the phrase "bona fide contract."

That phrase is defined in section 20.2043-1(a), Estate Tax Regs., referred to by sec. 20.2053-4, Estate Tax Regs., as a sale made in good faith. Judicial decisions refer to it as an arm's-length transaction or a bargained-for exchange. Bank of New York v. United States, 526 F.2d 1012">526 F.2d 1012 (3d Cir. 1975); Estate of Goetchius v. Commissioner, 17 T.C. 495">17 T.C. 495, 17 T.C. 495">503 (1951); Mollenberg's Estate v. Commissioner, 173 F.2d 698">173 F.2d 698, 173 F.2d 698">701 (2d Cir. 1949); see also Commissioner v. Wemyss, 324 U.S. 303">324 U.S. 303 (1945). As explained in 173 F.2d 698">Mollenberg's Estate v. Commissioner, supra, "The word 'sale' means an exchange resulting from a bargain, one in which the beneficiary gives or the grantor receives something1977 U.S. Tax Ct. LEXIS 14">*39 of money value or a binding promise." In intrafamily transactions, the element of bargain is subject to close judicial scrutiny. Estate of Woody v. Commissioner, 36 T.C. 900">36 T.C. 900, 36 T.C. 900">903 (1961). Although obviously not family at the time the antenuptial agreement was executed, the couple's relationship and intentions justify imposition of this standard of examination. Even so, a close relationship should not necessarily preclude a deduction under section 2053.

Even a family agreement, although achieved without apparent bitterness, has been regarded as bargained for when members of the family had interests contrary to those of other members of the family. Where legal rights of family members are in conflict, each member may have to surrender rights he would otherwise keep in order to secure rights that he wishes to obtain. To classify this sort of family arrangement as an arm's length bargain seems within the compass of reasonableness. [526 F.2d 1012">Bank of New York v. United States, supra at 1017. Fn. ref. omitted.]

However, an examination of the facts and circumstances of this case reveals an absence of bargaining between Lucile and 1977 U.S. Tax Ct. LEXIS 14">*40 69 T.C. 408">*419 Franklin for the reciprocal rights asserted by petitioner. Initially, Franklin's promise to reimburse Lucile at his death for the trust income she would lose upon her remarriage was gratuitous. No inference of a quid pro quo for this promise can be drawn from Lucile's offer to use her residence as their home if they married. Her offer was a spontaneous and gratuitous reaction to Franklin's concern that their marriage would uproot Lucile and sever her longstanding personal ties in Niles. Nothing in the record indicates that Franklin's expression of concern was calculated to elicit this offer or to gain the privilege of living without any financial obligations in Lucile's homes. Lucile testified that the question of rent for her offer was neither thought of nor discussed by them.

Furthermore, the record reveals no discussion between the couple regarding responsibility for maintenance expenses on Lucile's residences during their marriage. Assuredly, Franklin did not pay Lucile any rent and perhaps he did not contribute in any significant manner to the upkeep of the two homes. ⁸ However, we cannot infer simply from this negative that Lucile had intended otherwise until1977 U.S. Tax Ct. LEXIS 14">*41 Franklin promised to reimburse her for her lost trust income at his death. Petitioner's argument that hard bargaining as would occur between hostile parties is not an absolute prerequisite to a deduction under section 2053 has validity. But its supposition that proof of a full and adequate consideration renders moot any discussion of a bargained-for exchange is less well taken. Clearly, in many, if not most, instances the elements of bargain and consideration will be undistinguishable. When, however, the asserted consideration was never mentioned as such by the parties in their negotiations nor reflected in the document drafted to implement their reciprocal promises, a definite, and in this case, insurmountable distinction becomes apparent. If a person has never thought of particular rights, it is obvious that she also could not give them to another. Petitioner's repeated references to unstated subtleties in the discussions between the couple and to the probabilities, in petitioner's view, of what Franklin's understanding of Lucile's offer to use her homes during their marriage meant to him economically are insufficient to sustain its burden of 69 T.C. 408">*420 proving that the asserted1977 U.S. Tax Ct. LEXIS 14">*42 consideration was indeed the consideration with which we need be concerned.

As noted, another indication that the asserted consideration was not part of the bargained-for exchange of rights between the couple is its absence from the provisions of the antenuptial agreement. This document, carefully drafted and examined by the couple and their representatives, makes no mention with regard to rental or maintenance obligations on Lucile's homes during their marriage. The only provision from which the inference desired by petitioner is remotely conceivable is the one in which the couple's premarriage property interests are to be maintained as their separate properties post marriage. But if Franklin had bargained for and obtained rights with regard to Lucile's homes, we believe this would have been reflected explicitly in the antenuptial agreement. Consequently, we decline to accept for lack of proof petitioner's argument. In fact, it seems rather obvious that the reason Franklin agreed1977 U.S. Tax Ct. LEXIS 14">*43 to have the trust pay Lucile $ 12,000 per year after his death was to reinstate after his death the flow of income from the Zimmer trust B that she relinquished because of her marriage to Franklin. If this reason is deemed to be the consideration for Franklin's agreement, it is not the type of consideration that would qualify as consideration in money or money's worth under section 2053(c)(1)(A). See 324 U.S. 303">Commissioner v. Wemyss, supra.

Because of our conclusion we need not reach the question whether this asserted consideration is full and adequate as that phrase has been explained by case law. Nor need we examine the admissibility of Lucile's check stubs and summaries under Rule 1006 of the Federal Rules of Evidence.⁹

Moreover, our conclusion obviates any discussion of the issue of partial deductibility under section 2053. The only1977 U.S. Tax Ct. LEXIS 14">*44 remaining elements of consideration for Franklin's promise are Lucile's grant of a life estate in her Niles residence and its furnishings contingent upon her prior death and her waiver of any marital rights otherwise accruing to her in Franklin's property. Clearly, those promises, maturation of which were dependent upon the prior death of the promisor, are nothing more than testamentary dispositions of property. As noted, section 2053(c)(1)(A) is 69 T.C. 408">*421 designed to prevent the avoidance of the estate tax by this sort of arrangement. Lucile's waiver of her marital rights is specifically removed from the category of statutory consideration by sections 2043(b) and 2053(e). From this result it is apparent that the claim against Franklin's estate is unsupported by any consideration recognizable under the estate tax provisions. Consequently, respondent's determination of the deficiency is upheld.

Decision will be entered under Rule 155.