UNITED STATES TAX COURT



         ESTATE OF WAYNE-CHI YOUNG, DECEASED,
     TSAI-HSIU HSU YANG, EXECUTRIX, Petitioner v.
     COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 20139-94.                      Filed May 11, 1998.



     Decedent and his wife Yang owned real property in
California, a community property State. Decedent's Federal
Estate Tax Return reported 50 percent of the date of death
value of the property as decedent's interest therein under
sec. 2033, I.R.C., and then claimed a 15-percent fractional
interest discount under Propstra v. United States, 

(9th Cir. 1982). After filing the estate tax return, P
obtained a State trial court decree which adjudicated
decedent's interest in certain property. R was not a party
to the State court proceeding. R determined that decedent
and Yang held the property as joint tenants with right of
survivorship, as stated in the deeds. Therefore, R
determined that decedent's gross estate included half the
value of the property under sec. 2040, I.R.C., and
disallowed the 15-percent fractional interest discount.
     Held: The State trial court's decree does not bind
this Court for Federal estate tax purposes. Further, P has
failed to overcome the presumption of joint tenancy with
                                - 2 -


     right of survivorship created by the deeds under California
     law.
          Held, further: To deal with the inherent
     characteristics of joint tenancy with right of survivorship,
     sec. 2031, I.R.C., and sec. 2040, I.R.C., provide an
     explicit approach to valuing joint tenancy. Fractional
     interest discounts and lack of marketability discounts are
     inapplicable to the valuation of joint tenancy under sec.
     2040(a), I.R.C.
          Held, further: P is liable for the addition to tax for
     late filing under sec. 6651(a), I.R.C.


     Lance M. Weagant and Randall D. Fowler, for petitioner.

     Dwight M. Montgomery, for respondent.



     WRIGHT, Judge:    Respondent determined a deficiency of

$154,545 in petitioner's Federal estate tax and an addition to

tax under section 6651(a)1 in the amount of $38,636.    After

concessions by the parties, the issues remaining are:

     (1)    Whether decedent's property interest in the Young

Property was an interest in joint tenancy or in community

property.    We hold that decedent held the property in joint

tenancy.

     (2)    Whether a fractional interest discount or a lack of

marketability discount is applicable to the Young Property.       We

hold that a discount is inapplicable.



     1
        All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                                - 3 -


     (3)   Whether petitioner is liable for an addition to tax for

late filing under section 6651(a).      We hold that petitioner is

liable.

                         FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated by this reference.   Tsai-Hsiu Hsu Yang (Yang), also

known as Tsai-Hsiu Hsu Young, is executrix of the estate

(petitioner) of Wayne-Chi Young, deceased (decedent).      Yang was

decedent's wife (collectively the Youngs).      At all material

times, Yang and decedent were residents of the State of

California, a community property State.      At all times relevant to

this case, neither decedent nor Yang was a citizen of the United

States, but they were residents of the United States.

     Decedent died on June 28, 1989.      At the time of decedent's

death, the executrix Yang knew that the assets of the estate

exceeded $1,200,000.   On March 21, 1990, petitioner filed Form

4768, Application for Extension of Time To File a Return and/or

Pay U.S. Estate (and Generation-Skipping Transfer) Taxes,

requesting an extension of time to file the return and to pay the

estate tax to March 28, 1991.   On April 11, 1990, respondent

approved petitioner's application for extension of time to file

and pay.   Before March 28, 1991, petitioner filed a second Form

4768, requesting an additional extension to file the return and
                               - 4 -


to pay the estate tax to March 28, 1992.   On April 4, 1991,

respondent denied petitioner's application for extension of time

to file, but approved the application for extension to pay.    On

September 6, 1991, petitioner filed the estate's Form 706, United

States Estate (and Generation-Skipping Transfer) Tax Return.

Wang, a certified public accountant, helped in petitioner's

filing of the return.

     At the time of decedent's death, decedent and Yang owned the

following five real properties (collectively the Young Property),

each of which they had acquired by deed as husband and wife, as

joint tenants: (1) The Bixby Knolls Motel, located at 4045 Long

Beach Boulevard in Long Beach, California, which was purchased by

decedent and Yang on May 19, 1983; (2) a condominium located at

111 North Moore Avenue, #A, in Monterey Park, California, which

was purchased by decedent and Yang on February 18, 1986; (3) the

Oak Tree Inn located at 788 West Huntington Drive in Monrovia,

California, which was purchased by decedent and Yang on August

25, 1987; (4) a condominium located at 3507 Birkdale in El Monte,

California, which was purchased by decedent and Yang on September

2, 1988; and (5) a house located at 1635 Vallecito Drive in

Hacienda Heights, California, which was purchased by decedent and

Yang on March 13, 1989.   At no time prior to decedent's death did

decedent or Yang execute a writing to change their legal title,

as husband and wife as joint tenants, in the properties.
                                - 5 -


     On decedent's estate tax return, petitioner excluded one-

half of the value of the Young Property, claiming decedent's

property interest in the Young Property was in the nature of

community property.    Petitioner also claimed a fractional

interest discount of 15 percent on the Young Property, citing

Propstra v. United States, 

(9th Cir. 1982).

Respondent determined that petitioner was not entitled to the

fractional interest discount.    The following table shows the

value of each Young property less the proportion of value

excluded from the gross estate as stated by petitioner and as

determined by respondent.

  PROPERTY       Petitioner's              Respondent's
                 Calculations              Determination
                 Value of Property         Value of Property
  (1)Bixby        $565,000                   $508,500
  Knolls Hotel
  (2) Condo-          193,000                 193,000
  Monterey
  Park
  (3) Oak Tree   3,300,000                  3,300,000
  Inn
  (4) Condo-          160,000                 160,000
  El Monte
  (5) House in        555,000                 570,000
  Hacienda
  Heights
  Less:          1/2 Community Interest    1/2 Interest
  Less:          Propstra Discount of      None
                 15%
                                 - 6 -


       Petitioner filed a spousal property petition in the Superior

Court of California, County of Los Angeles, alleging that the

Young Property was community property.    After a hearing, the

Superior Court of California, County of Los Angeles, in a spousal

property order dated October 8, 1991, found that the Young

Property was "community property or quasi-community property

belonging one-half (1/2) to each spouse and passing one hundred

percent (100%) to TSAI-HSIU HSU YOUNG, the surviving spouse."

                                OPINION

Issue 1:    Joint Tenancy or Community Property

       It has been established that what constitutes an interest in

property held by a person within a State is a matter of State

law.    Fernandez v. Wiener, 

, 355-357 (1945); Poe v.

Seaborn, 

(1930).    In Commissioner v. Estate of

Bosch, 

(1967), the Supreme Court held that State law

as announced by the highest court of the State is to be followed.

"If there [is] no decision by that court then federal authorities

must apply what they find to be the state law after giving

'proper regard' to relevant rulings of other courts of the State.

In this respect, it may be said to be, in effect, sitting as a

state court."    

(citing Bernhard v. Polygraphic Co. of

Am., Inc., 

(1956)).    On the other hand, once

property rights are determined under State law, Federal law is

utilized to decide the tax consequences.    Aquilino v. United
                                 - 7 -


States, 

, 512-513 (1960); Morgan v. Commissioner, 

(1940).

     In this case with the Young Property being situated in

California, California property law determines the nature of

decedent's interest in the Young Property.    Under California law,

a husband and wife may hold property as joint tenants,2 tenants

in common, or as community property.3    Cal. Civ. Code sec. 5104

(West 1984).    However, property cannot be both joint tenancy and

community property, as these two types of interests are mutually

exclusive.     Sandrini v. Ambrosetti, 

, 750 (Cal. Dist.

Ct. App. 1952); Schindler v. Schindler, 

, 568 (Cal.

Dist. Ct. App. 1954).




     2
         Joint Tenancy is defined as:

     [a] joint interest owned by two or more persons in equal
     shares, by a title created by a single will or transfer,
     when expressly declared in the will or transfer to be a
     joint tenancy, or by transfer from a sole owner to himself
     or herself and others, or from tenants in common or joint
     tenants to themselves or some of them, or to themselves or
     any of them and others, or from a husband and wife, when
     holding title as community property or otherwise to
     themselves or to themselves and others or to one of them and
     to another or others, when expressly declared in the
     transfer to be a joint tenancy, or when granted or devised
     to executors or trustees as joint tenants.
Cal. Civ. Code sec. 683 (West 1984).
     3
        Community property is defined as "property acquired by
husband and wife, or either, during marriage, when not acquired
as the separate property of either." Cal. Civ. Code sec. 687
(West 1982).
                               - 8 -


     Under California law, property acquired by spouses during

wedlock is statutorily presumed to be community property.     Cal.

Civ. Code sec. 5110 (West 1986).   However, where a husband and

wife take property by deed as joint tenants, the presumption of

community property is rebutted.    Schindler v. Schindler, supra at

568; Siberell v. Siberell, 7 P.2d. 1003, 1005 (Cal. 1932).

Property held by husband and wife in joint tenancy form is

subject to a rebuttable presumption that the character of the

property is as set forth in the deed.   Schindler v. Schindler,

supra at 568.   The presumption created by the deed may be

rebutted by evidence that the character of the property was

changed or affected by an agreement or common understanding, or

inferred from the conduct and declarations of the spouses.

Estate of Herzog v. Commissioner, T.C. Memo. 1992-193 (citing

Estate of Blair v. Blair, 

, 

(1988); Estate of Levine v. Levine, 

, 

(1981); Estate of Wilson, 

, 

(1976)).   Parol evidence may be admitted to

establish that the real property was intended to be community

property though title was taken by husband and wife as joint

tenants.   United States v. Pierotti, 

, 762 (9th Cir.

1946).   However, there must be a mutual intent of the spouses to

transmute their interests in the land into community property.

Petersen v. Commissioner, 

, 967 (1961).   When evidence
                                - 9 -


is introduced indicating an intent to hold the property as

community property, we must decide whether petitioner's evidence

overcomes the presumption created by the form in which title was

taken.   

case, each deed of the Young Property stated that

decedent and Yang took title as husband and wife, as joint

tenants.   According to California law, this creates a rebuttable

presumption that the Young property was joint tenancy as stated

in the deeds.    To rebut this presumption, petitioner relies on

the Superior Court of California's determination that the Young

Property was community property and on the surviving spouse's

testimony regarding the intent of the parties.



Superior Court Decree:

     Following decedent's death, petitioner filed a spousal

property petition in the Superior Court of California, County of

Los Angeles.    In the spousal order, the court found that the

Young Property was "community property or quasi-community

property belonging one-half (1/2) to each spouse and passing one

hundred percent (100%) to TSAI-HSIU HSU YOUNG, the surviving

spouse."   Petitioner argues that the Spousal Property Order

entered by the Superior Court of the State of California

precludes respondent from arguing that the Young Property was

joint tenancy under California law.
                                 - 10 -


     In determining the binding or persuasive effect of State

court decrees on Federal courts, interpreting the application of

State law, the Supreme Court has acknowledged that where State

law governs the ownership of property (as here), the State's

highest court is the best authority on its own law.      Commissioner

v. Estate of Bosch, 

, 465 (1967) (citing Erie R. Co.

v. Tompkins, 

(1938)).     A Federal court in a Federal

estate tax controversy is not conclusively bound by a State trial

court's adjudication.     

of an intermediate

appellate State court is not to be disregarded by a Federal court

unless it is considered that the State's highest court would

decide otherwise.   

is no decision by the State's

highest court, the Federal court must do the best it can to

discern what such State's highest court would decide.      Id.;

Estate of Rowan v. Commissioner, 

, 636-639 (1970).

     While a hearing occurred in regard to the petition, only the

final order was submitted into evidence in regard to the

California Superior Court's basis for its determination.        Without

other evidence, we cannot rule out that respondent, if present at

the California Court, would have prevailed in opposing

petitioner's petition that the property was community property.

See Estate of Rowan v. Commissioner, supra at 638.      The evidence

before us does not show that the proceeding in the Superior Court

was a bona fide, adversarial litigation.     Therefore, we conclude
                              - 11 -


that we are not bound by the Superior Court of California's

determination.

Intent of Parties:

     Evidence is admissible to show that a husband and wife, who

took property as joint tenants, actually intended it to be

community property.   Sears v. Rule, 

, 449 (Cal.

1945); Tomaier v. Tomaier, 

, 906 (Cal. 1944).

Separate property may be converted to community property by oral

agreement, proven by the acts and conduct of the parties in

dealing with the property; however, the evidence must be

sufficient to support a finding, adverse to record title.

Bernatas v. Honnert (In re Bernatas' Estate), 

, 541

(Cal. Dist. Ct. App. 1958).   A mistaken belief about the nature

of the property, or intent communicated to the other spouse about

converting the property from one form to another, without more,

will not rebut the presumption raised by the form of deed by

which such property was acquired by husband and wife.     Edwards v.

Dietrich, 

, 754 (Cal. Dist. Ct. App. 1953).

     Petitioner primarily relies upon Yang's testimony.    In her

written statement, Yang stated that she and decedent always

viewed the marital accumulations as "community property."

According to Yang, the Youngs thought the property was community

property.
                              - 12 -


     At trial, Yang stated that her understanding was that the

ownership of the property was such that "each one gets half."

Upon divorce, "each one gets a half."    If Yang predeceased

decedent, then "he will become the executrix[or] or I could will

to him or to the children."   In regard to managing the Oak Tree

Inn, Yang and decedent would hire a manager.

     The Youngs were informed by real estate brokers that title

should be taken as joint tenancy in order to avoid probate.

However, at trial, Yang testified that she believed she relied on

the broker's advice, but in regard to the Bixby Knolls Hotel,

Yang could not remember whether the real estate broker told the

Youngs to hold title in joint tenancy.    Yang testified that they

did not consult an attorney regarding title to the Young

Property.   In regard to title, she "[figured] it's -- belong to

both of us."

     Petitioner asserts that Yang's testimony at trial is

consistent with her written statements regarding the mutual

understanding and further asserts that no contrary evidence was

presented by respondent.   First, we note it is petitioner's

burden to show that the Young Property was held other than as

stated in the deed.   We are presented with Yang's statement that

"each one gets half."   Petitioner did not present any other

testimony to support Yang's statements.    In evaluating her

statements which were translated, we understand the language
                              - 13 -


barrier created because Yang cannot read, write, or speak

English.   However, we are not satisfied that Yang understood the

distinctions between community property and joint tenancy.

Considering the record, we do not find a mutual understanding

that decedent and Yang took title other than as stated in the

deed.

Transmutation Into Community Property:

     In California, the law is settled that a husband and wife

may agree with respect to the character of the property which

they hold and may transmute their property from one status to

another by agreement.   Estate of Brockway v. Commissioner, 

, 496 (1952)(citing In re Watkins Estate, 

,

797, 

(1940)), affd. 

(9th. Cir. 1954);

Tompkins v. Bishop, 

(Cal. Dist. Ct. App. 1949).     See

Cal. Civ. Code sec. 5110.710 (West 1983).4   To be valid, any such

transmutation of real property occurring after December 31, 1984,

must be made in writing by an express declaration and satisfy the

other requirements in California Civil Code section 5110.730

(West 1984).5   See Orr v. Petersen (Estate of Petersen), 

        California Civil Code sec. 5110.710 (West 1983) was later
repealed in 1993, but it was continued in California Family Code
sec. 850(b) (West 1994).
     5
        California Civil Code sec. 5110.730 was repealed and
continued without substantive change in California Family Code
sec. 852 (West 1994). California Family Code secs. 850 and 852
were operative January 1, 1994. Because decedent died in 1989,
                                                   (continued...)
                               - 14 -


Rptr. 2d 449, 455 (Cal. Ct. App. 1994).     An express declaration

requires "language which expressly states that the

characterization or ownership of the property is being changed."

Bolton v. MacDonald (In re Estate of MacDonald), 

,

918 (Cal. 1990).    On the other hand, transmutations occurring

before January 1, 1985, do not need to be written.     Prior to

January 1, 1985, there was little in the way of requisite

formalities; all that was required was substantial credible and

relevant evidence.    Weaver v. Weaver (In re Marriage of Weaver),

, 699 (Cal. Ct. App. 1990) (citations omitted).

     Out of the five properties constituting the Young Property,

only the Bixby Knolls Motel was purchased prior to January 1,

1985.    Therefore, in regard to the other four properties, in

order for a transmutation to be valid, it must be made in a

writing by an express declaration.      Petitioner admitted that at

no time prior to decedent's death in June of 1989, did decedent

or Yang execute a writing to change their legal title, as husband

and wife as joint tenants, in the properties.     Further,

petitioner did not present any other writing which would satisfy

the express declaration requirement.     We find that there was no

valid transmutation for the following parcels of the Young

Property, which were acquired after December 31, 1984:       (1) Condo

     5
      (...continued)
California Civil Code secs. 5110.710 and 5110.730 are the
applicable sections.
                                - 15 -


at Monterrey Park; (2) Oak Tree Inn; (3) condo in El Monte; and

(4) house in Hacienda Heights.

     We reject petitioner's argument that the language in

decedent's will transmuted the property from joint tenancy into

community property.   Petitioner points to the fact that

decedent's will makes no mention of joint tenancy property, but

refers to community property.    Decedent's will was executed on

July 18, 1985.   As of that date, only one of the five properties

making up the Young Property was owned by decedent and his wife.

Further, the language in the will does not meet the standard of

an "express declaration" to change characterization or ownership

of property.   The will merely provides that all of decedent's

properties, both real and personal, be devised to Yang.    This

provision and the provision referring to decedent's one-half

interest in the community property have no impact on decedent's

interest held in joint tenancy property.    We find decedent's

failure to mention "joint tenancy"6 in his will to be of little

significance because under the law, joint tenancy cannot be

devised.



     6
        We note that decedent provided that inheritance, estate,
or other death taxes attributable to the probate estate and to
"any property or transfer of property outside my probate estate"
be paid. The language "property outside my probate estate"
implies that decedent's property might pass outside the probate
estate, which would cover joint tenancy with right of
survivorship.
                               - 16 -


     In regard to the Bixby Knolls Motel, which was purchased on

May 19, 1983, there was no evidence presented to establish that

decedent and Yang transmuted the Bixby Knolls Motel into

community property by an agreement, oral or written, prior to

January 1, 1985.   There was no evidence presented to support a

finding that decedent and/or Yang intended to transmute the Bixby

Knolls Motel into community property.

     Therefore, we find that the Youngs did not effectively

transmute the Young Property from joint tenancy into community

property.

Conclusion:

     From the record, we conclude that the evidence presented by

petitioner has not overcome the presumption of joint tenancy.

Therefore, decedent and Yang held the Young Property as joint

tenants with the right of survivorship.

Issue 2:    Discount Issue

     Having determined that the Young Property was held in joint

tenancy under State law, we now turn to the Federal estate tax

aspects of the case.    In determining an estate's tax liability,

the gross estate must be defined.   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

[sections 2031-2046], the value at the time of his death of all

property, real or personal, tangible or intangible, wherever
                                - 17 -


situated."   It provides that the time of valuation is at the date

of decedent's death (or the alternate valuation date as provided

by section 2032).

     Value is "the price at which the property would change hands

between a willing buyer and a willing seller, neither being under

any compulsion to buy or to sell and both having reasonable

knowledge of relevant facts."    United States v. Cartwright, 

, 551 (1973); Estate of Hall v. Commissioner, 

, 335 (1989); Estate of Heckscher v. Commissioner, 

, 490 (1975); sec. 20.2031-1(b), Estate Tax Regs.        The willing

seller and the willing buyer are hypothetical rather than

specific individuals or entities.    Estate of Bright v. United

States, 

, 1005-1006 (5th Cir. 1981).      The

determination of value is to be made as of the valuation date,

and knowledge of unforeseeable future events that may have

affected the value cannot be attributed to the hypothetical buyer

or seller.   Sec. 20.2031-1(b), Estate Tax Regs.

     Real estate valuation is a question of fact to be resolved

on the basis of the entire record.       Ahmanson Found. v. United

States, 

, 769 (9th Cir. 1981); Estate of Fawcett v.

Commissioner, 

, 898 (1975).      After determining the

gross value of the property, there may be adjustments upward or

downward for such factors affecting value as minority discounts,

discounts for lack of marketability, control premiums, and
                              - 18 -


fractional interest discounts.7   See Estate of Andrews v.

Commissioner, 

(1982) (discussing a minority

discount); Estate of Piper v. Commissioner, 

, 1084-

1086 (1979) (discussing a discount for lack of marketability for

stock); Estate of O'Keeffe v. Commissioner, T.C. Memo. 1992-210

(discussing blockage discounts for works of art); Estate of

Salsbury v. Commissioner, T.C. Memo. 1975-333 (discussing control

premiums).   Petitioner bears the burden to show that respondent

was incorrect in disallowing the fractional interest discount for

the Young Property.   Rule 142(a).

     Section 2031 directs attention to other sections to

determine what property, and to what extent, is included in the

gross estate.   Section 2033 provides that there shall be included

in the value of the gross estate the value of all property to the

extent of the decedent's interest therein at the time of his

death.   Because at death the decedent does not own an interest in

joint tenancy, section 2033 is inapplicable to joint tenancy.

Section 2040(a) provides in relevant part that the value of the

gross estate shall include the value of all property to the

extent of the interest therein held as joint tenants with the


     7
        Minority discount normally applies with respect to the
ownership of stock comprising less than 50 percent of the voting
stock of a closely held corporation, so the owner does not have
significant control over the operations. On the other hand, a
control premium may be applicable when the block of stock
represents control of the corporation.
                              - 19 -


right of survivorship by the decedent and any other person,

except such part of the value that is attributable to the amount

of consideration in money or money's worth furnished by the

surviving joint tenant.   Sec. 2040(a); sec. 20.2040-1(a), Estate

Tax Regs.   In applying that exception, the entire value of

jointly held property is included in a decedent's gross estate

unless the executor submits facts sufficient to show that

property was not acquired entirely with consideration furnished

by the decedent, or was acquired by the decedent and the other

joint owner or owners by gift, bequest, devise, or inheritance.

Wilson v. Commissioner, 

, 586 (1971); sec.

20.2040-1(a)(2), Estate Tax Regs.   If part of the consideration

is found to have been contributed by the surviving joint tenant,

then the part of the value of the property as is proportionate to

such consideration is excluded from the decedent's gross estate.

Sec. 20.2040-1, Estate Tax Regs.

     Notwithstanding section 2040(a), section 2040(b) provides

that in the case of any qualified joint interest, the value

included in the gross estate is one-half of the value of the

qualified joint interest.   Section 2040(b)(2)(B) defines

qualified joint interest to include property held by the decedent

and the decedent's spouse as joint tenants with right of

survivorship, but only if the decedent and the spouse of the

decedent are the only joint tenants.   However, section
                               - 20 -


2056(d)(1)(B) provides that if the surviving spouse of the

decedent is not a citizen of the United States, section 2040(b)

shall not apply.

     Having determined that the Young Property was held in joint

tenancy, section 2040, along with section 2031, is applicable.

Yang, the surviving spouse of decedent, held the Young property

in joint tenancy with decedent.   Because Yang is not a citizen of

the United States, section 2056(d)(1)(B) applies, making section

2040(b) inapplicable.   Instead, section 2040(a) is applicable.

     During trial and respondent's opening brief, respondent

relied on the application of section 2040(b).    In the reply

brief, respondent noted the mistake of relying on section 2040(b)

and stated that section 2040(a) is applicable.    In order to avoid

prejudice to petitioner, respondent concedes the value of the

joint tenancy included in the gross estate to be one-half of the

entire value of the Young Property, not the full value.8

     Normally, section 2040(a) starts with the full inclusion of

the value of the joint tenancy in the gross estate of the first

joint tenant to die.    In order to reduce this inclusion, there is

a strict tracing of contributions by the surviving joint tenant.

Because petitioner and respondent were relying at trial upon the

application of section 2040(b), the record that they presented

     8
        While respondent noted the mistake on reply brief, during
opening statement at trial, petitioner's counsel acknowledged the
interplay of sec. 2040(b) and sec. 2056(d)(1)(B).
                              - 21 -


does not enable us to determine the contributions of the spouses

as contemplated under section 2040(a).   In light of respondent's

concession that the valuation of the joint tenancy in decedent's

gross estate is to be one-half, we shall assume that Yang, the

surviving spouse, traced one-half of the contributions for the

Young Property.

     Both parties have agreed on the value of each entire parcel

included in the Young Property:   (1) Bixby Knolls Hotel $508,500;

(2) Condo - Monterey Park $193,000; (3) Oak Tree Inn $2,750,000;

(4) Condo - El Monte $160,000; and (5) House - Hacienda Heights

$555,000.   The dispute between the parties that we must resolve

is whether, and to what extent, a fractional interest discount or

a lack of marketability discount, which has been allowed in

regard to tenancy in common and community property, should be

applied to decedent's property held in joint tenancy with right

of survivorship.

     Petitioner argues that section 2040 is an includability

section, determining the interest in the gross estate, not a

valuation section.   Petitioner notes that section 2040, like

section 2033, contains the language "to the extent of the

interest therein".   After determining the inclusion of property

under section 2033 or 2040, petitioner argues that sections 2031,

2032, and 2032A determine the value.   Therefore, with the same

goal in sections 2033 and 2040, petitioner argues that the
                             - 22 -


language of section 2040 cannot be construed to prohibit

fractional interest discounts and lack of marketability

discounts, while such valuation discounts have been allowed under

section 2033.

     In cases dealing with section 2033, the rationale for a

fractional interest discount is based on the rights of the

tenants in common under local law, arising from the unity of

interest and unity of possession.    A fractional interest discount

may be appropriate when a partial interest in property would sell

for less than its proportionate share.    Estate of Iacono v.

Commissioner, T.C. Memo. 1980-520.    For example, decedent owns

Real Property A with X as tenants in common.   While decedent has

an undivided one-half interest in the property, a willing buyer

may discount the value of decedent's interest in Property A due

to the fact that a buyer of such interest would own the property

concurrently with the other tenant in common, and as such, there

is the inconvenience of dealing with several owners, partition

suits, and potential disagreements among the owners.   See Estate

of Barclay v. Commissioner, 

(1925); Estate of Youle

v. Commissioner, T.C. Memo. 1989-138.    Discounts for lack of

marketability arise from the inherent difficulty in the sale of

the asset.

     In arguing for the application of fractional interest

discounts and/or lack of marketability discounts in the context
                               - 23 -


of section 2040, petitioner primarily relies on the Court of

Appeals for the Ninth Circuit's decision in Propstra v. United

States, 

(9th Cir. 1982), where a fractional

interest discount was allowed for community property under

section 2033.

     In Propstra, the Ninth Circuit upheld a 15-percent discount

in the value of the decedent's undivided one-half interest in

real property held as community property.     

  The

court noted that the Federal estate tax is an excise tax, levied

on the privilege of transferring property at death.     

(citing Estate of Bright, 

, 1001 (5th Cir. 1981)).

The amount to be taxed is valued by the property actually

transferred, rather than what is owned by the decedent before

death, or the interest held by the legatee after death.      

argued that under a unity of ownership theory, a

fractional interest discount was inapplicable because "one can

reasonably assume that the interest held by the estate will

ultimately be sold with the other undivided interest and that

interest's proportionate share of the market value of the whole

will thereby be realized."    

  After considering the

language of section 2031 and section 2033, the court was

unwilling to impute "unity of ownership" principles for valuation

purposes.   

court looked at the "willing seller"
                              - 24 -


as a hypothetical seller, rather the estate or any of decedent's

beneficiaries.   

     In Propstra, the court allowed a fractional interest

discount for community property.     Contrary to petitioner's

arguments, we find the situation presented in Propstra is not

analogous to the current situation involving joint tenancy.

     First, Propstra dealt with section 2033, which provides that

the value of the gross estate shall include the value of all

property to the extent of the interest therein held by the

decedent at the time of his death, and not section 2040, the

relevant provision in our case.    Section 2033 looks to the

interest held by the decedent at his death.     With community

property, each spouse owns a present vested one-half interest in

the community property.   Their respective interests in such

property are individually wholly owned (that is, separate

property), so that the decedent has no interest, title or

ownership, marital or otherwise, in the other's interest in the

community property.   As a result under section 2033, one-half of

the value of property held as community property (that being the

decedent's interest in the property) is includable in a

decedent's gross estate, and the surviving spouse's one-half of

the value is excluded from decedent's gross estate.     In light of

this, Propstra v. United 

, looked at the undivided

one-half interest held by the decedent at his death.
                                - 25 -


     On the other hand, joint tenancy is a distinct property

interest from tenancy in common and community property.9    The

right of survivorship is the chief characteristic that

distinguishes a joint tenancy from other interests in property.

United States v. Jacobs, 

, 370 (1939); Zeigler v.

Bonnell, 

, 120 (Cal. Dist. Ct. App. 1942).     While a

joint tenancy may be severed by mutual agreement or by a

conveyance by one of the joint tenants during the lives of the

joint tenants, the decedent cannot devise property held by the

decedent and another in joint tenancy.     Estate of Sullivan v.

Commissioner, 

(9th Cir. 1949), revg. 

(1948).    Joint tenancy has been characterized as a specialized

form of a life estate, with what amounts to a contingent

remainder in the fee, the contingency being dependent upon which

joint tenant survives.    

joint tenant does not

secure that right from the deceased joint tenant, but from the

devise or conveyance by which the joint tenancy was first

created.   At the time of decedent's death, decedent's interest in

the property is extinguished, with the joint tenancy

automatically passing to the surviving joint tenant by the

operation of law, avoiding the need for probate.


     9
        For example, tenants in common own an undivided fraction
of the whole property held as tenancy in common. On the other
hand, joint tenants own the whole property subject to the rights
of the others.
                                - 26 -


     In order to include property held by a decedent in joint

tenancy in the decedent's gross estate, Congress enacted section

202(c) in the Revenue Act of 1916, ch. 463, 39 Stat. 756,10 the

predecessor of the current section 2040.11   The enactment of the

     10
        Sec. 202(c) of the Revenue Act of 1916, ch. 463, 39
Stat. 756, 778, provided that the gross estate included:

     SEC. 202(c). To the extent of the interest therein held
     jointly or as tenants in the entirety by the decedent and
     any other person, or deposited in banks or other
     institutions in their joint names and payable to either or
     the survivor, except such part thereof as may be shown to
     have originally belonged to such other person and never to
     have belonged to the decedent.
          For the purpose of this title stock in a domestic
     corporation owned and held by a nonresident decedent shall
     be deemed property within the United States, and any
     property of which the decedent has made a transfer or with
     respect to which he has created a trust, within the meaning
     of subdivision (b) of this section, shall be deemed to be
     situated in the United States, if so situated either at the
     time of the transfer or the creation of the trust, or at the
     time of the decedent's death.

     11
          Sec. 2040(a) reads as follows:

     SEC. 2040(a). General Rule.--The value of the gross estate
     shall include the value of all property to the extent of the
     interest therein held as joint tenants with right of
     survivorship by the decedent and any other person, or as
     tenants by the entirety by the decedent and spouse, or
     deposited, with any person carrying on the banking business,
     in their joint names and payable to either or the survivor,
     except such part thereof as may be shown to have originally
     belonged to such other person and never to have been
     received or acquired by the latter from the decedent for
     less than an adequate and full consideration in money or
     money's worth: Provided, That where such property or any
     part thereof, or part of the consideration with which such
     property was acquired, is shown to have been at any time
     acquired by such other person from the decedent for less
                                                   (continued...)
                             - 27 -


Federal estate tax was part of the Revenue Act of 1916, ch. 463,

39 Stat. 756; the act's main purpose was to raise revenue.   Since

its origin in 1916, the provision including joint tenancy in the

gross estate, now incorporated in section 2040(a), has remained

substantially unchanged.12

     11
      (...continued)
     than an adequate and full consideration in money or money's
     worth, there shall be excepted only such part of the value
     of such property as is proportionate to the consideration
     furnished by such other person: Provided further, That where
     any property has been acquired by gift, bequest, devise, or
     inheritance, as a tenancy by the entirety by the decedent
     and spouse, then to the extent of one-half of the value
     thereof, or, where so acquired by the decedent and any other
     person as joint tenants with right of survivorship and their
     interests are not otherwise specified or fixed by law, then
     to the extent of the value of a fractional part to be
     determined by dividing the value of the property by the
     number of joints tenants with right of survivorship.
     12
        In 1919, sec. 202(c) was renumbered sec. 402(d), and the
second paragraph dealing with stock in a domestic corporation was
deleted. In the Revenue Act of 1921, ch. 134, sec. 402(d), 42
Stat. 227, 278, sec. 402(d) read as follows:

     SEC. 402(d). To the extent of the interest therein held
     jointly or as tenants in the entirety by the decedent and
     any other person, or deposited in banks or other
     institutions in their joint names and payable to either or
     the survivor, except such part thereof as may be shown to
     have originally belonged to such other person and never to
     have been received or acquired by the latter from the
     decedent for less than a fair consideration in money or
     money's worth: Provided, That where such property or any
     part thereof, or part of the consideration with which such
     property was acquired, is shown to have been at any time
     acquired by such other person from the decedent for less
     than a fair consideration in money or money's worth, there
     shall be excepted only such part of the value of such
     property as is proportionate to the consideration furnished
     by such other person: Provided, further, That where any
                                                   (continued...)
                              - 28 -


     The constitutionality of the inclusion of the full value of

a joint tenancy in decedent's gross estate has been addressed by

the Supreme Court.   In holding that the full value of a joint

tenancy and a tenancy in the entirety may constitutionally be

included in decedent's gross estate, the Supreme Court said:

          The question * * * is, not whether there has been, in
     the strict sense of that word, a "transfer" of the property
     by the death of the decedent, or a receipt of it by right of
     succession, but whether the death has brought into being or
     ripened for the survivor, property rights of such character
     as to make appropriate the imposition of a tax upon that
     result (which Congress may call a transfer tax, a death duty
     or anything else it sees fit), to be measured, in whole or
     in part, by the value of such rights.
          *     *   *    *    *    *    *
     At * * * [the joint tenant's] death, however, and because of
     it, * * * [the survivor], for the first time, became
     entitled to exclusive possession, use and enjoyment; she
     ceased to hold the property subject to qualifications
     imposed by the law * * *. Thus the death of one of the
     parties to the tenancy became the "generating source" of
     important and definite accession to the property rights of
     the other.

     12
      (...continued)
     property has been acquired by gift, bequest, devise, or
     inheritance, as a tenancy in the entirety by the decedent
     and spouse, or where so acquired by the decedent and any
     other person as joint tenants and their interests are not
     otherwise specified or fixed by law, then to the extent of
     one-half of the value thereof; * * * [Emphasis added to show
     the added language by the Revenue Act of 1921]

The purpose of the added language was to "remove uncertainties in
the existing law relating to the interests held jointly or as
tenants in the entirety." S. Rept. 275, 67th Cong., 1st Sess.
(1921), 1939-1 C.B. (Part 2) 181, 198.
     In 1924, the provision was renumbered sec. 302(e), and it
was "reworded to secure greater clarity." S. Rept. 398, 68th
Cong., 1st Sess. (1924), 1939-1 C.B. (Part 2) 266, 290. In the
1939 Code, the provision became sec. 811(e)(1). Then in 1954,
the provision became sec. 2040(a).
                               - 29 -


Tyler v. United States, 

, 503-504 (1930).     The

possession by the decedent of the right of survivorship justifies

the inclusion in the decedent's gross estate due to its

"generating source."

     Congress has the power to levy a tax upon the occasion of a

joint tenant's acquiring the status of survivor at the death of

the other joint tenant.    United States v. Jacobs, 

,

367 (1939).

     [The] termination of a joint tenancy marked by a change in
     the nature of ownership of property was designated by
     Congress as an appropriate occasion for the imposition of a
     tax. * * * It is immaterial that Congress chose to measure
     the amount of the tax by a percentage of the total value of
     the property, rather than by a part, or by a set sum for
     each such change. The wisdom both of the tax and of its
     measurement was for Congress to determine.

     In arguing that section 2040 is a mere includability

section, petitioner focuses on the language in "to the extent of

the interest therein."    According to petitioner, section 2040

merely determines the interest to be included in decedent's gross

estate.   In light of similar language in section 2033, petitioner

argues that discounts should be available to joint tenancy under

the valuation provision of section 2031.

     We think petitioner's focus is incomplete.    In addition to

the cited language, section 2040(a) also provides the following

introductory language:    "The value of the gross estate shall

include the value of all property to the extent of the interest
                              - 30 -


therein held as joint tenants with right of survivorship by the

decedent and any other person". (Emphasis added.)   While

petitioner categorizes section 2031 as the only section to

determine value and section 2040 as a mere inclusion section, we

conclude that determining value is dependent on examining both

section 2031 and section 2040.

     Section 2031 provides the starting point, but it is very

broad.   In section 2031's accompanying regulations, we learn that

value is determined by looking at the willing buyer and the

willing seller, which then needs to be considered in conjunction

with sections 2033 through 2044.   Sec. 20.2031-1(b), Estate Tax

Regs.

     In light of this definition of value, (i.e., the willing

buyer and the willing seller), we go to section 2040.    In section

2040, Congress provided an explicit approach to valuing joint

tenancy to be included in the decedent's gross estate.   Unlike

section 2033 which looks to the actual interest held by the

decedent alone (i.e., one-half, one-third, or one-fourth

interest), section 2040(a) starts with the inclusion of the

entire value of the joint tenancy property held by the decedent

and any other person in the gross estate of the first joint

tenant to die, and the amount to be excluded from the decedent's

gross estate is proportionate to the consideration furnished by

the surviving joint tenant.   If part of the value of the property
                                 - 31 -


is shown to be attributable to consideration furnished by the

survivor, the amount to be excluded from the gross estate is that

portion of the entire date-of-death value of the property which

the consideration furnished by the survivor bears to the total

cost of acquisition and capital additions.        Sec. 2040(a); sec.

20.2040-1(a), Estate Tax Regs. (stating for section 2040

purposes, "it makes no difference that the survivor takes the

entire interest in the property by right of survivorship and that

no interest therein forms a part of the decedent's estate for

purposes of administration.     The section [2040] has no

application to property held by the decedent and any other person

(or persons) as tenants in common".).       The exclusion for the

"consideration furnished" by the other joint tenant can be

expressed mathematically as follows:

Entire value of Property    TIMES Survivor's consideration    = Amount
(on the date of death or          Entire Consideration Paid     Excluded
alternate valuation date)

Estate of Goldsborough v. Commissioner, 

, 1082

(1978), affd. without published opinion 

(4th Cir.

1982).

     Under the scheme of section 2040(a), the amount includable

in a decedent's gross estate does not depend on a valuation of

property rights actually transferred at death, or on a valuation

of the actual interest held by the decedent (legal title);

instead, decedent's gross estate includes the entire value of
                                - 32 -


property held in a joint tenancy by him and any other person,

except to the extent the consideration for the property was

furnished by such other person.    See Estate of Peters v.

Commissioner, 

, 407 (4th Cir. 1967), affg. 

(1966).   Contrary to petitioner's argument, the statute does

not inquire how much a willing buyer would pay to purchase the

decedent's interest in the joint tenancy at the date of his

death, because, at the moment of death, decedent no longer holds

any interest in the property.    The property passes by right of

survivorship, unlike property governed by section 2033 which

passes under a decedent's will or by intestate succession.    Even

if prior to death, decedent sold his interest in the joint

tenancy (and by doing so severed the joint tenancy with right of

survivorship), the value that a willing buyer would pay does not

necessarily compare to the approach taken by Congress in section

2040.13   Section 2040(a) provides an artificial inclusion of the

joint tenancy property:   the entire value of the property less

any contribution by the surviving joint tenant.    Except for the

statutory exclusions in section 2040(a), there is no further




     13
        For example, A and B held Property X as joint tenants.
The property was purchased with funds provided solely by A.
During A's life, A could sell his interest for roughly one-half
of the entire value. However, if A predeceases B, the inclusion
in A's gross estate would be 100 percent.
                                - 33 -


allowance to account for the fact that less than the entire

interest is being included.14

     As a result of this artificial inclusion, we conclude that

section 2040 is not concerned with quantifying the value of the

fractional interest held by the decedent (as would be the case

under section 2033).   The fractional interest discount, as

applied in section 2033, is based on the notion that the interest

is worth less than its proportionate share, due in part to the

problems of concurrent ownership.    These problems are created by

the unity of interest and unity of possession.   However, at the

moment of death, the co-ownership in joint tenancy is severed,

thus alleviating the problems associated with co-ownership.   We




     14
        Similarly, sec. 2040(b) also provides its own rules. It
provides that the value included in the gross estate is "one-half
of the value of such qualified joint interest." Once the parties
have determined the value of the qualified joint interest, then
this is merely divided in half to determine the amount included
in decedent's gross estate.
     Under sec. 2040(b), an estate would not argue that a market
discount applied due to the interplay of the marital deduction
and the step-up in basis. While one-half of the value of the
joint tenancy is included in the gross estate, there is an
accompanying marital deduction in the same amount. The marital
deduction sec. 2056 provides that in determining the value of
decedent's gross estate, there is allowed a deduction for the
value of any interest that is included in gross estate and that
passes from the decedent to the surviving spouse. Under sec.
1014, the surviving spouse has a step-up in basis for the portion
of the joint tenancy included in decedent's gross estate. On the
other hand, the marital deduction is inapplicable when the
surviving spouse is not a citizen of the United States. At the
same time, sec. 2040(b) is inapplicable in that situation.
                               - 34 -


conclude that the Young Property is not entitled to a fractional

interest discount.

     Similarly, a lack of marketability discount arises from an

inherent difficulty in the sale of the asset.     It has been

applied in determining the value of works of art and the value of

restricted securities.   See, e.g., Estate of O'Keeffe v.

Commissioner, T.C. Memo. 1992-210.      In regard to the Young

Property, there is no inherent difficulty in its sale.     We

conclude that a lack of marketability discount is not applicable

to the Young Property.

     Petitioner argues that respondent's position is based on the

unity of ownership theory; i.e., the theory that because the

surviving joint tenant succeeds to the interest of the deceased

joint tenant, there can be nothing to apply a fractional interest

discount against.    We note that the unity of ownership theory has

been rejected by the courts, as in Propstra v. United States, 

(9th Cir. 1982), but we do not characterize

respondent's position as relying on the unity of ownership

theory.   Instead, we are looking at the inherent property

characteristics of joint tenancy and the approach taken by

Congress to value the property under section 2040 and section

2031.

     We conclude that a fractional interest discount and a lack

of marketability discount are inapplicable to the Young Property.
                                - 35 -


Issue 3:   Section 6651(a)

     Section 6651(a)(1) imposes an addition to tax for the

failure to file an estate tax return within the time prescribed

by law, including any approved extension.    The rate of the

addition to tax is 5 percent of the amount of tax required to be

shown on the return for each month or fraction thereof that the

return is late, not to exceed 25 percent in the aggregate.

However, if the delinquency is due to reasonable cause and not

due to willful neglect, the addition to tax is not imposed.    As

the legal standard for reasonable cause, the regulations call on

taxpayers to show that they used "ordinary business care and

prudence".   Sec. 301.6651-1(c)(1) and (2), Proced. & Admin. Regs.

Willful neglect is defined to mean a conscious, intentional

failure or reckless indifference.     United States v. Boyle, 

, 245 (1985).   Whether petitioner acted with reasonable

cause and not due to willful neglect is a question of fact.

Estate of Cavenaugh v. Commissioner, 

, 425 (1993),

affd. in part and revd. in part 

(5th Cir. 1995).

Petitioner bears the burden of showing that (1) that the failure

did not result from willful neglect and (2) that the failure was

due to reasonable cause.     Rule 142(a); United States v. Boyle,

supra at 245 (1985).

     Section 6018(a) provides that an estate tax return shall be

made if "the gross estate at the death of a citizen or resident
                               - 36 -


exceeds $600,000".    Section 6075(a) provides that the estate tax

return shall be filed within 9 months after the date of the

decedent's death.    Generally, an extension to file cannot exceed

6 months.    Sec. 6081(a).

       Decedent died on June 28, 1989.   Petitioner was granted an

extension to file the estate tax return until March 28, 1991;

however, petitioner did not file the return until September 6,

1991.    As a result of filing the estate tax return more than 5

months late, petitioner is subject to a 25-percent addition to

tax, unless the delinquency was due to reasonable cause and not

due to willful neglect.

       In order to avoid the penalty, petitioner's argument is

based on Yang's claim that she relied on the accountant Wang's

advice.    According to Yang, Wang stated that the estate tax

return might be required, depending on the value of the Oak Tree

Inn.    With litigation pending in regard to the Oak Tree Inn, Wang

in 1990 suggested that an extension to file be submitted, which

was ultimately granted, extending the filing date until March 28,

1991.    Later, in the summer of 1990, Wang told Yang that no

Estate Tax Return would be due.    Then according to Yang, "[b]ased

upon Mr. Wang's advice that the Estate Tax Return would probably

not be required, I did not ask him again about the matter.       I

felt that I could rely on Mr. Wang's advice because of his
                                - 37 -


education, apparent competency, and our longstanding and mutually

productive relationship."

     Petitioner contends that respondent did not present any

evidence to contradict that she reasonably relied upon her

accountant's advice.   However, as we have noted, the burden of

proof is on petitioner to establish (1) that the failure did not

result from willful neglect and (2) that the failure was due to

reasonable cause.   In light of this burden, we note that

petitioner did not call the accountant to testify to corroborate

Yang's testimony.   See Wichita Terminal Elevator Co. v.

Commissioner, 

, 1165 (1946), affd. 

(10th

Cir. 1947).   In light of Yang's uncorroborated testimony, we

consider the following facts to evaluate whether petitioner has

met the burden of proving that Yang reasonably relied upon the

accountant's advice.

     The executrix Yang admitted that she knew that decedent's

assets totaled more than $1,200,000 at his death.    This clearly

meets the filing threshold as required by law.    Petitioner

contends that the executrix relied upon the accountant's

statement that "the Estate Tax Return would probably not be

required."

     To support its position, petitioner relies on United States

v. Boyle, supra at 250.     In Boyle, the executor argued that the

failure to file the return was due to reasonable cause, reliance
                                   - 38 -


on his attorney.     

   The Supreme Court noted that

engaging an attorney to assist in the probate proceedings is

plainly an exercise of the ordinary business care and prudence as

described by the regulations.        

  The Court continued

to say:

           When an accountant or attorney advises a taxpayer on a
     matter of tax law, such as whether a liability exists, it is
     reasonable for the taxpayer to rely on that advice. Most
     taxpayers are not competent to discern error in the
     substantive advice of an accountant or attorney.
     * * *
           By contrast, one does not have to be a tax expert to
     know that tax returns have fixed filing dates and that taxes
     must be paid when they are due. In short, tax returns imply
     deadlines. Reliance by a lay person on a lawyer is of
     course common; but that reliance cannot function as a
     substitute for compliance with an unambiguous statute. * * *

  The Court held that reliance on an agent was not

reasonable cause for failing to perform a nondelegable duty of

filing the return.     

     When a taxpayer shows that he reasonably relied on the

"advice" of an accountant or attorney, even when such advice

turned out to be mistaken, courts have frequently held that such

reliance constitutes reasonable cause if the executor did not

merely assign the nondelegable duty to file to the attorney or

accountant.   Estate of La Meres v. Commissioner, 

, 314

(1992).   To support its position of reliance on Wang's erroneous

advice, petitioner cites the following cases: Estate of La Meres

v. Commissioner, supra; Housden v. Commissioner, T.C. Memo. 1992-

91; and Estate of DiPalma v. Commissioner, 

(1978).
                               - 39 -


In all three cases, the Court found that the taxpayer's good

faith reliance on the attorney's erroneous advice constituted

reasonable cause.   These cases were distinguishable from Boyle

and other cases in which the taxpayer simply delegated all

responsibility for filing to an agent.      Estate of La Meres, supra

at 319.    In Estate of DiPalma, the attorney for the estate led

the executrix to believe that pending litigation justified

delaying the filing of the estate tax return.      Petitioner

compares this to the present situation, where Wang advised

petitioner that no estate tax return would be due because of the

Oak Tree Inn litigation.

     The inquiry is whether petitioner relied in good faith on

the accountant's advice with respect to the filing requirement.

The principal difficulty which we have with petitioner's

arguments is that the objective evidence does not necessarily

lead us to the conclusion that Yang was unaware that the return

was due.   See Estate of La Meres, supra at 316-317.     Examining

the chronology of events, we note that decedent died on June 28,

1989.   On March 21, 1990, petitioner filed for an extension of

time to file and to pay the estate tax to March 28, 1991.       On

April 11, 1990, respondent approved the Estate's application for

extension of time to file and pay.      According to Yang, in the

summer of 1990, Wang told Yang that a return would not be due,

and as a result of this statement, Yang did not ask Wang about
                               - 40 -


the matter again.   However, this contradicts the events that

transpired in 1991.    Prior to the lapse of the first extension

(before March 28, 1991), Yang as the executrix filed an

application for a second extension of time to file the return to

March 28, 1992, but respondent denied the extension of time to

file on April 4, 1991.   As a result, the executrix knew that the

second request was denied, resulting in the return being due by

March 28, 1991.   This is distinct from the facts presented in

Estate of La Meres, where the respondent did not notify

petitioner about the denial of the second extension until the

audit.   

  We think a prudent taxpayer upon

notification that the second extension was denied would have

inquired further and would not have relied upon Wang's statement

that a return would not be due.

     Further, while in Yang's affidavit she stated that she

relied on Wang's advice "because of his education, apparent

competency, and our longstanding and mutually productive

relationship," her testimony at trial was less persuasive.

During trial, Yang testified that Wang had performed tax services

for the Youngs, but she was unaware of Wang's educational

background, such as where he attended school and whether he had a

master's degree in taxation.    While Yang was aware that Wang was

a certified public accountant, her testimony was unclear whether

she based her reliance on that fact.    See Sanders v.
                              - 41 -


Commissioner, 

, 1019 (1954), affd. 

(10th

Cir. 1955).

     Accordingly, we hold on this record that petitioner has not

carried its burden of proof that the delinquent filing of the

estate tax return was due to reasonable cause and not to willful

neglect.   Therefore, petitioner is liable for the addition to tax

under section 6651(a).

     To reflect the foregoing,

                                      Decision will be entered under

                                 Rule 155.