On brief, petitioner argues that Exxon's claim was certain and enforceable on the date of decedent's death, thereby entitling petitioner to deduct the entire amount of the claim in determining the value of decedent's taxable estate. Petitioner posits several arguments in support of its position. We shall address each one in turn.

First, petitioner contends that the HFU interest owners' liability for the overcharges was the actual basis for the litigation in Exxon I, which was decided in 1983. Petitioner asserts that Exxon was required1997 U.S. Tax Ct. LEXIS 19">*40 to make restitution only because it was deemed necessary for the effective enforcement of the oil pricing regulations. Thus, petitioner maintains that Exxon's claim was enforceable at the time of decedent's death. We disagree.

The record clearly indicates that the issue in Exxon I was whether Exxon had overcharged its crude oil purchasers for oil produced in the HFU. Contrary to petitioner's argument, Exxon I did not consider whether Exxon had overpaid its royalty and working interest owners in the HFU. While Exxon attempted to join the Jarvis Christian plaintiffs as indispensable parties, its efforts were unsuccessful. Rather, the Jarvis Christian plaintiffs were invited to intervene in Exxon I if they "desired 'an earlier determination' of their claims" that Exxon should continue paying them royalties based on the higher price under the two-tier system. United States v. Exxon Corp., 773 F.2d 1240">773 F.2d at 1271 n.32. In affirming the decision of the District Court in Exxon I, the Temporary Emergency Court of Appeals stated that the decision in no way affected any rights or responsibilities of other interest owners in the HFU. See 773 F.2d 1240">id. at 1271.1997 U.S. Tax Ct. LEXIS 19">*41 In addition, the January 16, 1990, joint motion for summary judgment filed by the defendants in the 108 T.C. 412">*422 Jarvis Christian litigation (and adopted by the Allen parties) recognized as much in stating that "the courts [in Exxon I] explicitly said that Exxon's liability was predicated solely upon its own misconduct and not upon any notion of vicarious liability arising out of obligations owed by other interest owners to the government."

Petitioner argues that "There is no doubt here about the legal enforceability of Exxon's contractual claims for reimbursement of the overpayment of its oil royalties under the provisions of the leases during the price regulation under Texas law." Petitioner's argument represents a dramatic shift from the position taken by the Allen parties in the Jarvis Christian litigation. In count II of its complaint in that litigation, Exxon alleged that the HFU interest owners had breached their contractual obligations to Exxon by refusing to restore the amounts of their overcharges. However, the Allen parties denied any contractual breach on the part of the interest owners and contended that Exxon was not entitled to any recovery from them. The Allen parties also adopted1997 U.S. Tax Ct. LEXIS 19">*42 the January 16, 1990, motion for summary judgment and accompanying memorandum filed by the defendants in the Jarvis Christian litigation, which stated that "Exxon mocks the fundamental equitable principles underlying this proceeding by even asking for restitution" of the HFU overcharges.

When claims under a contract are contested, as were Exxon's in the instant case, the claims are not enforceable within the meaning of section 20.2053-4, Estate Tax Regs., until it is eventually determined whether and to what extent the claims have ripened into enforceable claims deductible pursuant to section 2053(a) (3). See Estate of Van Horne v. Commissioner, 78 T.C. 728">78 T.C. 734; Estate of Taylor v. Commissioner, 39 T.C. 371">39 T.C. 374-375. On February 15, 1991, the District Court in the Jarvis Christian litigation issued an order determining in part that the royalty interest owners were liable to Exxon under Federal common law for restitution of overcharges received by them with respect to the misclassified oil. The District Court then referred the calculation of damages to a special master for determination. On February 10, 1992, Exxon and the1997 U.S. Tax Ct. LEXIS 19">*43 Allen parties entered into a settlement agreement pursuant to which petitioner agreed to pay Exxon $ 681,839.60 in settlement of the litigation.

108 T.C. 412">*423 Prior to the District Court's order on February 15, 1991, it was uncertain whether the royalty interest owners had any liability to Exxon. ¹⁰ Prior to the settlement agreement on February 10, 1992, the amount, if any, of petitioner's liability pursuant to the District Court's order was also uncertain. ¹¹1997 U.S. Tax Ct. LEXIS 19">*44 Prior to the settlement, petitioner did not accept or acknowledge any liability to Exxon under any of Exxon's theories, and petitioner strenuously resisted Exxon's claims in maintaining that it owed Exxon nothing. ¹² Petitioner cannot now switch hats and attempt to show how meritorious Exxon's claims actually were. Instead, the settlement agreement of February 10, 1992, serves as both Exxon's and petitioner's assessment of the value of the now compromised claims.

Petitioner further alleges that certain provisions of the unit and unit operating agreements provided Exxon with an enforceable lien against the Allen parties' interests in the HFU and entitled Exxon to restitution of the overcharges. Cf. Propstra v. United States, 680 F.2d 1248">680 F.2d at 1253-1254. We disagree. The relevant provisions petitioner refers to address the relationship between Exxon, as operator of the HFU, and the other working interest owners in the HFU. Thus, neither provision is applicable to the Allen parties who, in contrast, were royalty interest owners in the HFU. In addition, we note that no provision of the unit operating agreement is applicable to royalty interest owners, as the agreement only addresses the relationship between Exxon and the other working interest owners in the HFU.

We also reject petitioner's attempt to find a lien within the 1997 U.S. Tax Ct. LEXIS 19">*45 Allen parties' oil and gas leases. The relevant provision in the leases stated, in pertinent part:

108 T.C. 412">*424 Lessor hereby warrants and agrees to defend the title to said land and agrees that Lessee at its option may discharge any tax, mortgage or other lien upon said land, either in whole or in part, and if Lessee does so, it shall be subrogated to such lien with right to enforce same and apply rentals and royalties accruing hereunder toward satisfying same. * * *

Finally, petitioner contends that the opinion of the Court of Appeals for the Ninth Circuit in 680 F.2d 1248">Propstra v. United States, supra,1997 U.S. Tax Ct. LEXIS 19">*46 supports its position that it is entitled to a deduction on its Federal estate tax return in the amount claimed. In Propstra, at the time of his death, the decedent's property had been encumbered by liens of the Salt River Valley Water Users Association (Association) for past due assessments and penalties. The Association's bylaws denied it the power to adjust the claims. The estate's executrix deducted decedent's one-half share of the liens on the Federal estate tax return. Twenty-two months later, the Association's bylaws were amended to permit the settlement of outstanding claims for less than the full amount owed. The estate ultimately settled the claim for less than the amount originally sought (and reported by the estate on its return). 680 F.2d 1248">Id. at 1250.

The Court of Appeals for the Ninth Circuit found that the Association's lien claims were certain and enforceable when the decedent died. The Court of Appeals noted that at the time of the decedent's death, the Association lacked the authority to settle claims for less than their full amount. In addition, the estate lacked even a colorable defense against the Association's claims. The Court of Appeals1997 U.S. Tax Ct. LEXIS 19">*47 ruled that "when claims are for sums certain and are legally enforceable as of the date of death, post-death events are not relevant in computing the permissible deduction." 680 F.2d 1248">Id. at 1254. The estate 108 T.C. 412">*425 was entitled, therefore, to a deduction for the claim in the amount reported on its estate tax return.

Petitioner's reliance on Propstra is misplaced. In Propstra, the Court of Appeals explained that the threshold determination to be made under section 2053(a)(3) is whether the claim in question was certain and enforceable at the time of the decedent's death. See 680 F.2d 1248">id. at 1253. The Court of Appeals precluded consideration of postdeath events only where a claim was found to be certain and enforceable on the date of death. 680 F.2d 1248">Id. at 1254; see also Estate of Van Horne v. Commissioner, 720 F.2d at 1116-1117. Moreover, the Court of Appeals acknowledged that "The law is clear that post-death events are relevant when computing the deduction to be taken for disputed or contingent claims." 680 F.2d 1248">Propstra v. United States, supra at 1253.

The1997 U.S. Tax Ct. LEXIS 19">*48 validity and enforceability of Exxon's claim against decedent in the instant case were uncertain as of the date of her death. As a result, we hold that petitioner's section 2053(a)(3) deduction in connection therewith is limited to the amount ultimately paid in settlement of that claim. Thus, we sustain respondent's determination. ¹³

The next issue for decision is whether the income tax benefit derived by petitioner as a result of the application of section 1341(a) is an asset includable in the gross estate. Section 2031(a) provides that "The value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated." Section1997 U.S. Tax Ct. LEXIS 19">*49 2033 provides that "The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death." In the instant case, the parties have stipulated that all HFU royalties paid to decedent from Exxon for the calendar years 1975 through 1980 were reported as income on her Federal income tax returns for those years and that petitioner is entitled to section 1341(a) relief to the extent that these previously taxed royalties were repaid to Exxon in 1992.

108 T.C. 412">*426 Section 1341(a) provides relief to taxpayers who are forced to repay an amount previously taken into income under a claim of right. The reduction in the taxpayer's tax liability attributable to a repayment is the greater of the amounts calculated under two approaches. Pursuant to the first approach, the taxpayer computes his tax liability for the year of repayment after having deducted the amount of the repayment. ¹⁴Sec. 1341(a)(4). Under the second approach, rather than a deduction in the year of repayment, the taxpayer receives a reduction (i.e., a credit) in his tax liability for the year of repayment which is equal to the reduction in tax that would have occurred1997 U.S. Tax Ct. LEXIS 19">*50 for the prior year had the amount received under a claim of right been excluded from income. Sec. 1341(a)(5). If the reduction in tax under the second approach is greater than the taxpayer's income tax liability for the year of repayment, the excess is refundable or credited just as with any overpayment of tax. Sec. 1341(b)(1). ¹⁵

On brief, petitioner contends that the gross estate is not increased by the amount of its section 1341(a) relief, 1997 U.S. Tax Ct. LEXIS 19">*51 because decedent's right to such relief did not exist at the time of her death on November 16, 1990. Petitioner maintains that it was not entitled to any section 1341(a) relief until it repaid Exxon pursuant to the terms of the February 10, 1992, settlement agreement. This agreement was not entered into until almost 15 months after decedent's death. Respondent, on the other hand, argues that petitioner's section 1341(a) relief necessarily augments the gross estate. Neither party has cited, nor have we found, any case law squarely on point.

In support of his position, respondent relies on the decision of the District Court for the Eastern District of Michigan in Estate of Good v. United States, 208 F. Supp. 521">208 F. Supp. 521 (E.D. Mich. 1962). In Estate of Good, the decedent had been overpaid by his employer in salary and expense reimbursements. These amounts were reported by decedent on his income tax returns for the years received. The employer notified the decedent that he would be liable for repayment and filed a 108 T.C. 412">*427 claim against the decedent's estate when the decedent died prior to repayment. After the estate repaid the employer, it claimed a deduction on its1997 U.S. Tax Ct. LEXIS 19">*52 Federal estate tax return, as well as a credit pursuant to section 1341(a)(5) on its fiduciary income tax return. In the Commissioner's view, because the decedent and his estate were separate taxpayers, section 1341(a) relief was unavailable. See Rev. Rul. 67-355, 1967-2 C.B. 296, revoked by Rev. Rul. 77-322, 1977-2 C.B. 314.

The District Court rejected the Commissioner's argument and concluded that section 1341(a) relief was appropriate. The District Court analyzed the estate and income tax consequences that would have resulted had the decedent repaid the amount in issue prior to his death. The District Court explained that the gross estate would have been decreased by the amount repaid and increased by the amount of the section 1341(a) credit to which the estate was entitled. 208 F. Supp. 521">Estate of Good v. United States, supra at 522. Since both parties acknowledged that the section 1341(a) credit, if available, would increase the gross estate, the District Court found that the Government would "not [be] prejudiced in the collection of the estate tax by the estate's claiming both1997 U.S. Tax Ct. LEXIS 19">*53 an estate tax deduction and an income tax credit on the same transaction." 208 F. Supp. 521">Id. at 523.

The District Court in Estate of Good reasoned that the provisions of section 1341(a) should be available to an estate in order to ensure the same income tax consequences regardless of whether a taxpayer repays income prior to his death or the estate makes the restoration after his death. ¹⁶1997 U.S. Tax Ct. LEXIS 19">*54 Similarly, in the instant case, the relevant estate tax consequences should not vary where the estate, rather than decedent, makes the payment upon which section 1341(a) relief is predicated. ¹⁷ The right to section 1341(a) relief clearly would have been includable in the gross estate had Exxon's claim been settled and paid prior to decedent's death. We see no reason why decedent's "contingent" right to 108 T.C. 412">*428 section 1341(a) relief should not be included in her gross estate.¹⁸

1997 U.S. Tax Ct. LEXIS 19">*55 In Estate of Curry v. Commissioner, 74 T.C. 540">74 T.C. 540, 74 T.C. 540">544 (1980), the decedent, who was an attorney, executed an agreement with another attorney, which provided that the decedent would receive a stated percentage of any attorney's fees that might be awarded in a list of docketed cases pending before the Indian Claims Commission (Commission). Any award of attorney's fees in these cases was contingent upon an ultimate recovery on behalf of the plaintiffs and would be measured by the extent of the recovery. At the time of the decedent's death, 13 of the cases remained in various unresolved stages of litigation before the Commission. Following the decedent's death, the estate received attorney's fees in connection with this litigation. The Commissioner determined that the contractual right to share in future attorney's fees was an interest in property includable in the decedent's gross estate.

In 74 T.C. 540">Estate of Curry v. Commissioner, supra at 545, the taxpayer argued that the contingent legal fees were not includable in the gross estate, because the decedent was not entitled to any fees at the time of his death; i.e., any fees1997 U.S. Tax Ct. LEXIS 19">*56 were contingent upon events that had not yet occurred as of the date of death. We explained:

The fact that the legal fees we are concerned with were contingent upon future recovery * * * is a critical consideration in trying to determine what the contract right was worth as of the date of death. However, the contingent nature of the contract right must bear on the factual question of valuation. It cannot, as a matter of law, preclude the inclusion of the 108 T.C. 412">*429 interest in the decedent's gross estate or command that the value be fixed at zero. Although uncertainty as to the value of a contract right may postpone the inclusion of the income until it is actually realized for income tax purposes, for estate tax purposes, the value of an asset must be determined in order to close the estate. * * * [74 T.C. 540">Id. at 546-547.]

The facts giving rise to petitioner's section 2053(a)(3) deduction and its right to section 1341(a) relief are inextricably linked. At the time of decedent's death, Exxon was claiming that decedent was obligated to repay royalties, which decedent had previously reported as taxable income. Therefore, at the time of her death, decedent had statutory rights pursuant to section 1341(a) to receive tax benefits based on whatever amount she ultimately had to pay Exxon. Petitioner is entitled to an estate tax deduction in the amount paid to satisfy Exxon's claim, as well as section 1341(a) relief for payment of the same claim. Exxon's claim decreases the estate's assets while the right to section 1341(a) relief increases the estate's assets. Under these circumstances, it would be inappropriate to consider one in the determination of the taxable estate while excluding the other.

The amount for which a claim is ultimately settled is evidence of its value. See 346 F.2d 213">United States v. Simmons, supra at 2181997 U.S. Tax Ct. LEXIS 19">*58 (finding the amount for which a claim was eventually settled to be "highly indicative" of the value of the claim). In the instant case, there was no evidence introduced to show that the value of the contingent right to section 1341(a) relief at decedent's death was less than the amount that will actually be received. On brief, petitioner confined its argument to whether the contingent right to section 1341(a) relief was or was not an asset includable in the gross estate. Petitioner did not argue that, in the event we find the right to section 1341(a) relief includable in the gross estate, the value of this 108 T.C. 412">*430 right for estate tax purposes is anything less than the amount of the benefit ultimately received.

For the foregoing reasons, we hold that the taxable estate must be increased by the amount of section 1341(a) relief that is attributable to the amount petitioner paid to Exxon in settlement of its claim.

Decision will be entered under Rule 155 in docket No. 19200-94.

Decision will be entered for petitioner in docket No. 3976-95.