*10 Decisions will be entered under Rule 50.
Decedent, who died on Nov. 18, 1953, and her former husband resided in New Mexico from the time of their marriage in 1905 until the date of their divorce in 1936 and both separately resided in New Mexico thereafter. No property settlement was made at the time of divorce. After decedent's death her two sons approached their father with a view to obtaining from him as heirs of their mother a portion of the property held in their father's name at the date of his divorce from their mother on the basis that such property was community property at the time of divorce and thereafter their mother held the interest of tenant in common in the property. Litigation ensued in the course of which attorneys' fees and other necessary expenses were incurred by decedent's sons. The litigation resulted in a decision of the Supreme Court of New Mexico that all property held in the father's name at the date of divorce was community property. That court directed an accounting which resulted in further litigation culminating in a decree based on an agreement of the parties. No estate tax return was filed for decedent's estate. Held: 1. Decedent's interest*11 in the property held in her husband's name at the date of her death is includable in her gross estate to the extent of its value at the date of her death taking into account that the property in which she had such interest was unestablished and subject to contest at that time. 2. Attorneys' fees and expenses incurred by the sons in establishing their mother's rights in the property are deductible from the gross estate in computing the taxable estate if they have not been considered in determining value of decedent's interest. 3. The respondent properly asserted an addition to tax for failure to file an estate tax return.
*207 Respondent determined a deficiency in*13 the estate tax *208 liability of the Estate of Alice M. Porter in the amount of $ 92,536.16 and an addition to tax for failure to file an estate tax return in the amount of $ 23,134.04. 1 Respondent asserted that petitioners are liable as transferees of the assets of the Estate of Alice M. Porter.
The issues for decision are: (1) Whether the only asset owned by Alice M. Porter at the time of her death was a claim against her former husband (Robert P. Porter, Sr.) or whether she owned an interest in various properties held in the name of her former husband; (2) if the only asset owned by Alice M. Porter at the date of her death was a claim against her former husband, what was the value of that *14 claim at the date of her death; (3) whether legal and other expenses incurred by Harry C. Porter and Robert P. Porter, Jr., are deductible by the Estate of Alice M. Porter in computing estate tax liability and, if so, the proper amount of such deduction; and (4) whether the addition to tax for failure to file an estate tax return for the Estate of Alice M. Porter was properly determined by respondent. Petitioners have conceded transferee liability should we determine liability of the Estate of Alice M. Porter and the parties stipulated the "gross estate" if the Court finds for respondent. 2
*15 This case was submitted under Rule 30 of the Rules of Practice of the Court, the evidence consisting of a stipulation of fact with exhibits attached thereto and depositions filed with the Court.
FINDINGS OF FACT
The stipulated facts together with the exhibits attached thereto are found accordingly.
Petitioner Harry C. Porter (hereinafter referred to as Harry) is an individual whose residence at the time of filing the petition in this case was Las Cruces, N. Mex.
*209 Fern W. Porter, whose residence at the time of filing the petition in this case was Las Cruces, N. Mex., and S. Holt McAloney, who resides in Sarasota, Fla., were appointed coexecutors of the Estate of Robert P. Porter, Jr., deceased (referred to hereinafter as Robert), by the Surrogate's Court of New York, N.Y. Subsequently, Robert's will was admitted to probate by the Probate Court of Dona Ana County, N. Mex., and Fern W. Porter was appointed sole executrix of Robert's estate in that cause. Robert from before 1953 until sometime after October 31, 1956, had resided in New York.
Harry and Robert (hereinafter referred to as petitioners) were the only children of Alice M. Porter (hereinafter referred to as Alice). *16 Alice died intestate on November 18, 1953, leaving Harry and Robert as her sole heirs. Robert was appointed administrator of her estate by the Probate Court of Dona Ana County, N. Mex., on November 5, 1959. Harry was appointed successor administrator of Alice's estate on February 25, 1965, following Robert's death. No inventory was ever filed in connection with the administration proceedings and no Federal estate tax return has been filed for the Estate of Alice.
Alice married Robert P. Porter, Sr. (hereinafter referred to as Porter), on December 20, 1905, and they lived at all times during their marriage in New Mexico, a community property State. Petitioners were the only children of the marriage of Alice and Porter. On July 31, 1936, Alice and Porter entered into a "Contract and Agreement" which recited that they had permanently separated and no longer lived or intended to live together as husband and wife, that Alice should continue to occupy the house which had been the family home, and that Porter would furnish her support. The final paragraph of this contract stated:
This agreement is not intended to be a property settlement between the parties hereto, but the status *17 of the property rights of the respective parties shall remain unchanged by any of the provisions hereof.
Alice was granted a divorce from Porter by decree entered on the same date the contract was executed but after its execution. This decree was silent concerning support and property rights and made no reference to the support agreement which the parties had executed.
Porter on October 30, 1936, married Violet P. Porter (hereinafter referred to as Violet) and was married to her at the time of his death on October 20, 1958. No children were born to Violet and Porter.
Until her death, Alice lived in the house which she and Porter had used as the family home prior to their divorce, and Porter provided her ample support, increasing his payments to her when necessary. Alice did not claim at any time after the date of the divorce decree a division of property or any other property settlement.
*210 On the date the divorce decree was entered the following assets were held by Porter in his name only:
(a) 708 of 1,000 shares issued and outstanding of Robert Porter and Sons, Inc. (referred to hereinafter as Porter & Sons);
(b) A lot and warehouse located at the corner of Organ and *18 Compress Streets, Las Cruces;
(c) A lot on Church Street south of Griggs Street, in Las Cruces;
(d) Property four blocks east of the Catholic Church in Las Cruces;
(e) Five life insurance policies with an aggregate cash surrender value of $ 7,605.43; and
(f) $ 573.79 in cash.
After the divorce Porter retained sole possession of all these assets.
The following transactions affecting these properties through the year 1954 must be considered to trace the properties owned by Alice and Porter as of July 31, 1936, together with the proceeds and income therefrom to the date of Alice's death:
Stock dividends.
(a) Porter & Sons declared a stock dividend of $ 25 per share, payable in cash or stock, on April 24, 1937. Porter elected to take 132 shares (equal to $ 13,200) and $ 4,400 in cash.
(b) Porter & Sons declared a 57 percent stock dividend on August 27, 1943. Thereafter, Porter owned 1,336 of 2,000 shares issued and outstanding.
(c) Porter & Sons declared a stock dividend of $ 24.82 per share on October 24, 1944. Porter received 282 shares.
Stock transfers.
(d) Porter transferred 40 shares of his stock in Porter & Sons to Harry on December 27, 1939, in payment of a $ 4,000*19 debt to his brother Henry P. Porter, which had been bequeathed to Harry.
(e) Porter transferred 200 of his shares of Porter & Sons to Violet on March 4, 1944.
(f) Spin-off. On February 7, 1954, Porter & Sons transferred real property to Robert Porter Investment Company a New Mexico corporation (referred to hereinafter as Porter Investment) in exchange for 20,000 shares of stock, par value $ 10, which were distributed to the shareholders of Porter & Sons on March 1, 1954, at the rate of 8 shares for each Porter & Sons share.
(g) Property transfers. Porter & Sons conveyed to Porter, without consideration, real property in Las Cruces at 226 W. Picacho, at 920 N. Alameda and at the corner of N. Alameda and W. Picacho (a 54-foot lot). The 920 N. Alameda property was conveyed by Porter to Robert on December 30, 1940.
Property sales.
(h) The property four blocks east of the Catholic Church was apparently sold for cash on August 19, 1938.
(i) The insurance policies had been surrendered for cash before Alice's death.
(j) Cash dividends. Dividends were paid by Porter & Sons from 1937 through 1953.
(k) Rents. The warehouse and Church Street properties were leased by*20 Porter to Porter & Sons. Porter received net rentals of $ 33,505.39 through the end of 1953, after deduction of insurance, taxes and repairs.
(l) Income tax. Porter reported income received by him for Federal and state tax purposes.
*211 Shortly after Alice's death on November 18, 1953, Harry sought legal advice on the possibility of seeking a property settlement for himself and Robert, as Alice's sole surviving heirs, against their father. The attorney whom Harry consulted initially was of the opinion that no difficult legal or factual questions would be involved in obtaining such a property settlement for Harry and Robert. In late 1954 this attorney learned that Porter claimed that all property held in his name at the date of his divorce from Alice was his separate property since all such property was traceable to property he owned before his marriage to Alice. It was Porter's position that under the law of New Mexico, the profits and gains from his separate property which accrued during his marriage to Alice remained his separate property. The attorney consulted by Harry encountered difficulty in obtaining any facts bearing on Porter's assertions because of the nearly*21 50-year time span between the marriage of Alice and Porter and the latter part of 1954 when the question as to whether the property was community property came to his attention.
Porter made an offer in settlement to Harry and Robert on October 13, 1954, of $ 49,124.58. Porter based this offer on an amount representing one-half of the book value of the stock in Porter & Sons held in his name on June 30, 1936, as determined by the secretary-treasurer of Porter & Sons. Robert and Harry rejected the offer.
Porter filed a suit in the District Court of Dona Ana County, N. Mex., in February 1955, seeking a declaratory judgment that neither Alice nor Harry and Robert had any interest in the property held in his name at the date of his divorce from Alice. He alleged that all such property was his separate property. Harry and Robert answered, alleging that all property held in Porter's name at the date of his divorce from Alice had been community property and demanding certain properties as representing their interest therein as heirs of Alice. Trial was had in the District Court for Dona Ana County, N. Mex., on October 18, 1955.
Porter testified at length concerning his business activities*22 and accumulation of property prior to his marriage to Alice.
He testified that he had about $ 30,000 in cash and notes receivable at the time he came to Las Cruces, N. Mex., in the spring of 1905, which he immediately began to invest in property and businesses in Las Cruces.
Porter testified that Alice had no property when they were married on December 20, 1905, that he supported his family from his earnings and that an amount inherited by Alice during their marriage had not been used either in any of his business operations or for family expenses.
*212 Porter testified in detail to various transactions tracing the funds he had prior to December 20, 1905, into the assets held in his name on July 31, 1936.
Two other witnesses testified in the Dona Ana District Court concerning the business of Porter & Sons and Porter Lumber Co., its predecessor. One of these witnesses had worked for Porter's business from 1910 and the other from 1923. They testified to the capital structure and financial development of Porter & Sons from its incorporation in 1915. Depositions of two elderly ladies were entered in evidence. Their testimony was to the effect that Porter appeared to be a "man*23 of means" when he came to Las Cruces in the spring of 1905.
The defendants, Harry and Robert, presented no evidence at the trial.
The District Court decided that Porter, on whom the burden of proof lay, "by the documentary evidence and the testimony of the witnesses, including that of the plaintiff, has sufficiently proved the general allegations of his complaint." (Emphasis in original.) The District Court judge decided that the provisions of section 20-2-5, N.M. Stat. Ann., commonly referred to as the "Deadman's Statute" were inapplicable to the type suit there in litigation. The Deadman's Statute of New Mexico as of the date of the trial and decision in Porter's suit was worded as follows:
In a suit by or against the heirs, executors, administrators or assigns of a deceased person, an opposite or interested party to the suit shall not obtain a verdict, judgment or decision therein, on his own evidence, in respect to any matter occurring before the death of the deceased person, unless such evidence is corroborated by some other material evidence.
Judgment was entered on October 5, 1956, by the trial court that all of the property in which defendants claimed an interest *24 was the sole separate property of Porter.
Porter made a second settlement offer at some time before the decision of the trial court. He offered to transfer to Harry and Robert 354 shares of stock of Porter & Sons, which at that time had a value of about $ 88,500. The offer was rejected. After the decision of the trial court Robert and Harry offered to settle for $ 50,000 in cash and 200 shares of stock, or a total value of $ 102,000, plus the employment of Harry as manager of the Albuquerque Division of Porter & Sons. Porter rejected this offer. Harry in a letter to Robert respecting Porter's rejection stated in part:
It seems that I was the only one that favored a compromise of Dad's case against us. Dad's reply was that he refused it in toto. Garland didn't favor it as it would cut him out of a larger fee. Gill didn't favor it because he wanted to take a chance on a larger fee. He says we have a better than even chance but he isn't as sharp as he used to be.
You were under the impression that an earlier offer was better. The best offer we had so far was 354 shares at $ 250 per share that would be $ 88,500. It looks *213 now that we should have taken that. Of course*25 if we win on appeal we should be better off. * * *
An appeal was taken by Robert and Harry from the decision of the District Court of Dona Ana County to the Supreme Court of New Mexico on October 26, 1956. Two of numerous assignments of error on this appeal were the failure of the lower court to hold that the Deadman's Statute was applicable to the case and the failure of that court to hold that there was insufficient evidence to corroborate Porter's testimony since under the Deadman's Statute such corroborating evidence must be of a nature that standing alone it would tend to prove the elements of the claim.
The Supreme Court of New Mexico reversed the District Court in an opinion rendered on July 22, 1958, in Porter v. Porter, 65 N.M. 14">65 N.M. 14, 331 P. 2d 360, holding that the Deadman's Statute did apply, "that the corroborating evidence must be such as would, standing alone and unsupported by the evidence of the claimant, tend to prove the essential allegations," and that Porter's testimony was not so corroborated. Porter's attorneys filed two motions for rehearing with the Supreme Court of New Mexico which were denied. In its opinion*26 on motion for rehearing entered September 19, 1958, the court stated:
we did not intend to order a new trial. The case was fully tried on the merits and whether § 20-2-5, 1953 Comp. was applicable, was the decisive question * * *
Accordingly, the judgment is reversed and the cause remanded with a direction to the trial court to set it aside and to enter one in favor of defendants, by reason whereof an accounting between the parties should follow, based upon our holding that all property, both real and personal, on hand and undivided at the time of the divorce, was community property. * * * [331 P. 2d at 364.]
Subsequently, the New Mexico legislature passed a bill introduced by a legislator who was a member of the law firm which had represented Porter, amending section 20-2-5, N.M. Stat. Ann. (Supp. 1967), to provide that the corroboration be "some other material evidence tending to corroborate the claimant or interested person." (New language italicized.)
Porter died on October 20, 1958. Violet as his executrix continued the litigation under the remand of the case from the Supreme Court for an accounting to determine what portion *27 of the property held by Porter on November 18, 1953, was attributable to community property held by him on July 31, 1936. By a letter dated January 25, 1960, the judge of the trial court advised the attorneys for the parties respecting his tentative view covering several points in dispute, such as whether there ought to be an allowance of compensation for management services rendered by Porter, the proper treatment of certain expenses, and whether the statute of limitations barred Robert and Harry from collection of any "interest" on account of the failure of their father to transfer at an earlier time the property of their mother. The final decree of the District Court entered July 26, 1961, *214 in the accounting proceeding was based on a settlement agreement between the parties and provided for payment of certain amounts of money and the distributing of certain specific assets to Harry and Robert. Among other property, each received 595 shares of Porter & Sons and 3,758 shares of Porter Investment. This decree stated in part:
5. That the property to be received by Robert P. Porter, Jr. and Harry C. Porter under Findings of Fact numbered 1 and 2 above, do not constitute *28 part of the estate of Robert P. Porter, Sr., since the estate held them only as constructive trustee.
6. That Robert P. Porter, Sr. in his lifetime, and his estate after his death, stood in a fiduciary relationship to defendants Robert P. Porter, Jr. and Harry C. Porter as constructive trustee of the capital assets belonging to such defendants by right of inheritance from their mother Alice Porter. A breach of this fiduciary relationship occurred when such constructive trustees failed to pay over to Robert P. Porter, Jr. and Harry C. Porter the income from such capital assets. Robert P. Porter, Jr. and Harry C. Porter were damaged by this breach of fiduciary duty as shown in Findings of Fact numbered 7 and 8 below.
7. Of the property allocated to Robert P. Porter, Jr., the following amounts are allocable to income for the respective years shown below, with all rights to income prior to November 26, 1953 being barred by limitations and laches, said amounts of income being the damages suffered by Robert P. Porter, Jr. because of the breach of the fiduciary duty of Robert P. Porter, Sr. and the estate of Robert P. Porter, Sr., deceased:
| Year | Dividends | Rentals |
| 1954 | $ 8,750.00 | $ 1,366.45 |
| 1955 | 8,750.00 | 1,232.73 |
| 1956 | 8,750.00 | 1,416.02 |
| 1957 | 8,750.00 | 1,597.81 |
| 1958 | 8,750.00 | 1,750.00 |
| 1959 | 1,750.00 | |
| 1960 | 8,750.00 | 1,750.00 |
| 1961 | 8,750.00 | 1,160.00 |
*29 8. Of the property allocated to Harry C. Porter, the following amounts are allocable to income for the respective years shown below, with all rights to income prior to November 26, 1953 being barred by limitations and laches, said amounts of income being the damages suffered by Harry C. Porter because of the breach of the fiduciary duty of Robert P. Porter, Sr. and the estate of Robert P. Porter Sr., deceased:
| Year | Dividends | Rentals |
| 1954 | $ 8,750.00 | $ 1,366.45 |
| 1955 | 8,750.00 | 1,232.73 |
| 1956 | 8,750.00 | 1,416.02 |
| 1957 | 8,750.00 | 1,597.81 |
| 1958 | 8,750.00 | 1,750.00 |
| 1959 | 1,750.00 | |
| 1960 | 8,750.00 | 1,750.00 |
| 1961 | 8,750.00 | 1,160.00 |
9. All other assets obtained under this decree by Robert P. Porter, Jr. and Harry C. Porter are attributable to capital and not to damages for failure to pay over income.
*215 10. The estate of Robert P. Porter, Sr. will be entitled to the benefits of Section 1341 of the Internal Revenue Code of 1954 in respect of the income items specified in paragraphs 7 and 8 above. All such benefits, whether by reduction of income tax otherwise payable by such estate, by recovery of an overpayment of income tax by such estate and/or Robert P. Porter, Sr., *30 or otherwise, shall be paid over to Robert P. Porter, Jr. and Harry C. Porter by such estate and the plaintiff is ordered to execute and deliver to the named designee of Robert P. Porter, Jr. and Harry C. Porter a power of attorney in such form as they may require to empower such designee to prepare, file and prosecute any such claim for refund. All expense in connection with such claim shall be paid by Robert P. Porter, Jr. and Harry C. Porter.
On or about July 26, 1961, Robert and Harry each received as Alice's heirs property of a value of $ 273,069.69, of which $ 73,273.01 represented income accrued since Alice's death and $ 199,796.68 represented the value of the interest of each in Alice's estate at her death. The only other assets owned by Alice at the date of her death were household goods with a value of $ 1,000, a diamond ring with a value of $ 800, and $ 40 in cash.
After the mandate of the Supreme Court of New Mexico in Porter v. Porter, supra, in addition to the litigation concerning the accounting between Violet as executor of Porter's Estate and Harry and Robert, several disputes related to the main suit arose. One *31 basis for these disputes was the distribution on March 28, 1958, by the board of directors of Porter & Sons, which was composed of its managing employees, of 470 additional shares to a large group of employees. This distribution deprived Robert and Harry of any prospect of gaining control of the corporation. Another cause for dispute was the cancellation as of September 30, 1959, of a contract by one of the most important accounts of Porter & Sons.
The stock of Porter & Sons fell in book value from $ 308.89 per share as of April 30, 1959, to $ 253 per share as of April 30, 1961. Net income fell from $ 175,668.39 in 1959 to a net operating loss of $ 34,028.66 in 1961.
In the course of the litigation between Harry and Robert against Porter, Harry incurred attorneys' fees of $ 28,609.88 and travel expenses of $ 529.56. Robert incurred attorneys' fees of $ 59,324.54, accounting fees of $ 22,883.10 and travel expenses of $ 6,094.36.
Respondent determined in his notice of deficiency that the following assets are includable in the decedent's gross estate at their indicated fair market value:
| 875 shares of Porter & Sons | $ 379,260 |
| One-half interest in warehouse property | 22,500 |
| One-half interest in Church Street property | 3,300 |
| Diamond ring | 800 |
| Household goods | 1,000 |
| Cash | 40 |
| 406,900 |
*32 *216 Respondent further determined a taxable estate in the amount of $ 333,863 after the allowance of certain deductions, which did not include any of the fees and expenses paid by Harry and Robert in connection with their litigation with Porter, and the specific exemption of $ 60,000. Respondent also determined that the estate is liable for an addition to tax of 25 percent of the tax for failure to file a return, and that petitioners are liable as transferees.
OPINION
Petitioners contend that at the date of her death Alice owned merely a chose in action or a claim against Porter for her interest in the community property standing in Porter's name at the date of their divorce. Petitioners refer to section 22-7-22 of the New Mexico Statutes Annotated which provides as follows:
The failure to divide the property on divorce shall not affect the property rights of either the husband or wife, either may subsequently institute and prosecute a suit for division and distribution thereof, or with reference to any other matter pertaining thereto, which could have been litigated in the original suit for divorce.
It is petitioners' position that it is the value of this claim at the*33 date of Alice's death which is the property she owned which is includable in her gross estate for the purpose of determining her estate tax liability, if any, and that the value of the claim did not exceed the $ 60,000 exclusion. 3
Respondent determined that the following assets were owned by Alice at the date of her death and are includable in her gross estate at their value as of that date:
875 shares of Porter & Sons,
A one-half interest in certain warehouse property,
A one-half interest in the Church Street property,
The diamond ring, household goods and $ 40 in cash.
We do not agree with petitioners that because under New Mexico law Alice could have instituted a suit for division of the community property held by her and Porter at the date of their divorce, she owned at the date of her death only a chose in action or claim against Porter. The statute specifies that Alice retained the right*34 to institute a division suit, specifically stating that failure to divide property on divorce "shall not affect the property rights of either the husband or wife." Therefore, Alice at the date of her death had not lost any rights to property which she had at the time of her divorce. Under New Mexico law when Alice and Robert were divorced they became tenants in common of all the property which had just prior to their divorce been community property. The interest of the wife in community *217 property under the community-property law of New Mexico is a present, existing interest, not a mere expectancy. Arnett v. Reade, 220 U.S. 311">220 U.S. 311 (1911), and In re Stutzman's Estate, 57 N.M. 710">57 N.M. 710, 262 P. 2d 990 (1953). 4 The dissolution of the marriage by divorce, without division of the property, leaves the parties "as tenants in common." Jones v. Tate, 68 N.M. 258">68 N.M. 258, 360 P. 2d 920 (1961), and In re Miller's Estate, 44 N.M. 214">44 N.M. 214, 100 P. 2d 908 (1940).
*35 The facts show that Alice during her lifetime never sought a transfer to her name of any property held in Porter's name at the time of their divorce but that shortly after her death Harry and Robert took the position that because the property was community property prior to the divorce she did own an undivided interest in it at the time of her death and that as her heirs they were entitled to her interest in that property after her death. So far as this record shows, neither Porter nor anyone on his behalf ever contended that to the extent he and Alice owned community property at the date of their divorce, Alice did not own from the date of the divorce until her death a tenancy-in-common interest in that property. All persons concerned with the subsequent litigation apparently recognized that Alice at the date of her death owned an undivided interest as a tenant-in-common in all community property which she and Porter had owned at the date of their divorce. In fact, it is because the husband and wife upon divorce become tenants in common with respect to property held by them as community property prior to divorce, that a suit for division is a proper action. A suit for division*36 can be maintained only by an owner of an undivided interest in property. It was rather Porter's contention that at the date of their divorce, he and Alice owned no community property.
Porter contended that all the property held in his name at the time he and Alice were divorced was his separate property. He instituted a suit against Harry and Robert for a declaratory judgment that neither Alice nor her heirs, Harry and Robert, had any interest in the property held in his name at the date of divorce alleging that all such property was his separate property. The question was litigated and the Supreme Court of New Mexico held in Porter v. Porter, 65 N.M. 14">65 N.M. 14, 331 P. 2d 360, 364 (1958), that "all property, real and personal, on hand and undivided at the time of the divorce was community property." At the date of Alice's death, it was known that she had an undivided interest in property which had been community property prior to the divorce. It was not known that litigation would arise over Alice's property interests. When this litigation was commenced, its outcome was uncertain. This uncertainty was concluded insofar as the *218 *37 ownership of the property was concerned by the decision of the highest court of New Mexico. The decision of the New Mexico Supreme Court determined that all property standing in Porter's name when he and Alice were divorced was community property, thus settling this question, not only for the purposes of the litigation between Porter and Harry and Robert, but also for Federal estate tax purposes. Commissioner v. Estate of Bosch, 387 U.S. 456">387 U.S. 456 (1967).
Petitioners argue that the Supreme Court of New Mexico did not determine that Alice owned an interest in any property but merely that Porter had failed to prove she did not. This is an incorrect interpretation of the holding of the Supreme Court of New Mexico. The law of New Mexico creates a presumption that all property acquired during coverture is community property. Strong v. Eakin, 11 N.M. 107">11 N.M. 107, 66 Pac. 539 (1901). Therefore, when Porter failed to prove that the property was his separate property under this presumption she owned, as the Supreme Court of New Mexico found, an undivided interest in property even though the court did not state what*38 specific property should be awarded in the division to Alice's heirs but left that to an accounting. However, this does not mean that that court did not determine that Alice had an undivided interest in property. We will later discuss the effect to be given to the final decree of the District Court of Dona Ana County entered July 26, 1961.
Here, the Supreme Court of New Mexicodetermined Alice's property interest as distinguished from the specific property which should be set aside to her estate in a division proceeding to satisfy that interest. If there had been no determination of the property interest made by the State court (now, under Commissioner v. Estate of Bosch, supra, by the highest court of the State), then the property interest which the decedent owned under the applicable State law would have been left to be determined by the Federal Court in which the estate tax issue is being litigated from the evidence before it. See Austin Leigh Claiborne et al., Executors, 40 B.T.A. 722 (1939). However, once this determination is made, it is the property determined to be owned by the decedent at the date of his*39 death which is includable in his gross estate for the purpose of Federal estate tax and not merely a "chose in action" or "claim." See Estate of Fletcher E. Awrey, 5 T.C. 222">5 T.C. 222 (1945); Estate of William P. Metcalf, 7 T.C. 153">7 T.C. 153 (1946), affirmed per curiam (C.A. 6, May 5, 1947 (unreported)); Estate of Theodore O. Hamlin, 9 T.C. 677 (1947); Estate of Ralph Rainger, 12 T.C. 483">12 T.C. 483, 488 (1949), affirmed per curiam 183 F. 2d 587 (C.A. 9, 1950), certiorari denied 341 U.S. 904">341 U.S. 904; Estate of Frank Hagenlocher, 42 T.C. 1015">42 T.C. 1015 (1964); Kirkpatrick v. Sanders, 261 F. 2d 480 (C.A. 4, 1958); and Dauphin Deposit Trust Co. v. McGinnis, 324 F. 2d 458 (C.A. 3, 1963).
Petitioners cited certain cases dealing with the value of "claims" owned by a decedent at the date of his death. These cases deal with *219 claims or suits for money and are not comparable to the instant case. Also in none of those cases was there any issue between the*40 parties as to the nature of the "property" or "interest" in property to be included in the decedent's estate. Both parties in those cases recognized that the "property" to be included was a "claim." The issue in each was only whether the claim had any value at the date of the decedent's death and, if so, the value of the claim. See United States v. Simmons, 346 F. 2d 213, 216 (C.A. 5, 1965), and cases there cited and discussed. In Estate of A. Bluestein, 15 T.C. 770">15 T.C. 770 (1950), there existed a situation comparable factually to that here but involving the husband who held the property which was in fact later held by a State appellate court to be community property under claim that it was his own. Respondent included the value of the property he claimed to own at the date of his death in his gross estate but we held that only the community one-half which, about 5 years after his death, was determined by the State court to be his, was includable in his estate and included no amount because of his "claim" to the other portion which the State court held to belong to the heirs of his wife who died long before he did. In *41 fact, insofar as we have been able to ascertain, none of the many cases dealing with whether or not a decedent owned an interest in property has held that the decedent owned merely a "claim" to such property and proceeded to value the "claim." Some have concluded the decedent did not own the property in dispute, Estate of A. Bluestein, supra, and therefore included no value with respect to it in the gross estate. Others have concluded that decedent did own at the date of death the interest in property or part of it and then considered the question of the "value" of the interest owned by decedent.
Section 811(a), I.R.C. 1939, provides that the value of the gross estate of a decedent shall include the value at the time of his death of all property to the extent of the interest of decedent therein. It is, of course, the interest owned at the time of death which must be valued. The decedent's interest in the property at the date of his death which is includable in his estate may, of course, be a partial or undivided interest. Merely because it is determined that the "interest" is an interest in property does not mean that when that interest is an undivided*42 interest its value would necessarily equal that proportionate part of the full value of the asset in which the decedent had an undivided interest. See Estate of Nina M. Campanari, 5 T.C. 488">5 T.C. 488 (1945), as to a discount to be applied from the proportion of the fair market value of the total property in valuing an undivided interest in real estate. See also Estate of Arthur H. Hull, 38 T.C. 512">38 T.C. 512, 524 (1962), reversed on another issue 325 F. 2d 367 (C.A. 3, 1963), in which we referred to the doubt as to enforceability of a contract at the date of decedent's death as an element to consider in determining its value, and Estate of Walter A. May, 8 T.C. 1099">8 T.C. 1099, 1104 (1947), in which we valued an 18.125-percent *220 interest in a trust taxable as a corporation composed of real properties of a total fair market value of $ 270,000 at $ 25,000 and not its $ 51,160.22 proportionate share value partially because of there being an unfavorable long-term lease on one of the properties. Cf. Estate of Burd Blair Edwards Dickson, 13 T.C. 318">13 T.C. 318 (1949).*43
In the present case Alice's interest was not only an undivided interest but was an interest in property held by Porter in his name only. Under these circumstances, there existed the definite possibility that the facts would develop as in fact they did that litigation would be necessary to settle the property interest. Certainly, if an admitted fractional interest requires that property not be valued at its proportionate share of the fair market value of the whole property, such an undivided interest which had not been admitted to exist by the person holding the property should be valued at a substantial discount from its proportionate share of value of the total property.
The parties stipulated the "gross estate" if the Court "finds for respondent." This stipulation is difficult to interpret. If by "finds for the respondent," the parties mean that we conclude that what is includable in Alice's gross estate is an interest in property as distinguished from a mere "claim" or "chose in action," as contended by petitioner, then we have "found for respondent." If by "finds for the respondent," the parties mean find that specific assets determined by respondent are the assets includable*44 in Alice's gross estate, then we do not "find for respondent." What Alice owned at the date of her death was an undivided interest in all the property which she and Porter had held as community property at the time of their divorce, or the properties substituted therefor when such properties had been disposed of by Porter after their divorce and prior to Alice's death, plus her share of the increases in these properties by divisions or other growth, plus possibly her proportion of the net profits or gains resulting from the properties from the date of the divorce to the date of her death, less perhaps some adjustment for income taxes on such profits and gains which had been paid by Porter. This is not the property respondent included in Alice's estate in the notice of deficiency. Respondent included in Alice's estate 875 shares of stock of Porter & Sons and a one-half interest in the warehouse and Church Street properties. Under the decree entered July 26, 1961, Robert and Harry each received 595 shares of Porter & Sons stock and a one-half interest in the warehouse property and in addition received other property and cash.
We agree with petitioner that since this decree was entered*45 as a result of a settlement among the parties, it is not binding on this Court as to the properties owned by Alice at the date of her death. In fact, the "interest" Alice owned at the date of her death was an undivided interest and even if the decree had not been the result of a settlement it would be clear from its contents that it did not *221 purport to distribute to Harry and Robert one-half in kind of the specific properties in which Alice had an undivided one-half interest at the date of her death. However, from the agreement of the parties, it might be inferred that by the stipulation they intended the stipulated amount of "gross estate" to be the value of Alice's entire gross estate if we found that she did own an "interest in property" and not merely a "claim" at the date of her death. Also, as discussed later in this opinion, the parties' intent with respect to this stipulation has an effect on the issue of deductibility of attorneys' fees and other litigation costs by Alice's estate.
Since the parties must have known their intent in entering into this stipulation, we will let them have the opportunity to apply that intent in a Rule 50 computation in accordance with*46 our holding that Alice owned at the date of her death an undivided interest in the property and its increments which had been community property at the date of her divorce from Porter. If the stipulation is not applicable under our holding as to the property interest owned by Alice at the date of her death, then the parties may suggest such other action as they consider appropriate.
To value Alice's undivided interest, which at the date of her death was neither admitted nor contested, might result in substantially the same value as if Alice were considered to have merely a "chose in action" or "claim." However, from this record we would not agree that Alice's interest was less than $ 60,000 which petitioners contend to be the value of a "chose in action" or "claim" at the date of her death. To value her interest, we would need to know the value of all property in which Alice owned an interest at the date of her death. This would not necessarily be the properties which Harry and Robert ultimately recovered. In addition to the properties held by Porter both at the date of divorce and the date of Alice's death, it would include an amount to replace or represent the value of the properties*47 owned by Alice and Porter at the date of the divorce but disposed of by Porter between that time and the date of Alice's death, and it might also include the value of the income or "interest" on Alice's undivided interest from the date of the divorce to the date of her death, no amount with respect to which was awarded to Harry and Robert in the final decree resulting from the settlement of the parties on the theory of these rights being barred by "limitations and laches." At the date of her death Alice had an undivided interest in items which are not among the specific items of property ultimately awarded to Harry and Robert.
The failure on the part of petitioners to establish facts sufficient to permit a proper determination of the fair market value of the undivided interest in property which Alice owned at the date of her *222 death might be considered to require the conclusion that respondent's determination shall be sustained for failure of proof on the part of petitioners had this case been presented to the Court other than under a stipulation which to us leaves the intent of the parties unclear. The only specific reference in the record to the value at the date of her*48 death of Alice's tenancy-in-common interest in the property which she and Porter had held as community property prior to their divorce is a statement by one of petitioners' lawyer witnesses in his testimony by deposition that $ 50,000 represented about 10 percent of its value. There is no explanation of how this speculation that Alice's undivided interest in such property had a value at the date of her death of about $ 500,000 was arrived at, but we must assume that this off-hand estimate of value referred to one-half of the value of what this witness considered to constitute the specific assets in which Alice had an undivided interest at the date of her death since this speculation as to value was followed by the further speculation that Alice's "claim" had possibly a 25-percent chance of being sustained. This lawyer was a member of the firm that had represented Porter in the litigation. The record fails to show how this "value" of $ 500,000 was arrived at or whether in this amount was included Alice's interest in the amounts received for property which had been disposed of by Porter between the date of the divorce and the date of Alice's death and the profits and gains on her*49 interest in the properties from the date of the divorce to the date of her death which had, as had the property itself, been retained by Porter. Since the record reflects that during the litigation up until the time of the decision of the Supreme Court of New Mexico, the major concern of the parties focused on the stock of Porter & Sons and the control of the corporation, we would hesitate to speculate as to the "property" this witness as considering when he made this off-hand reference to $ 50,000 representing 10 percent of Alice's "claimed" interest. Another difficulty with this record, if the parties intended any issue of the value of Alice's tenancy-in-common interest in property to be involved, is that not only is there no reference to the fair market value of the stock of Porter & Sons or any other property at the date of Alice's death, but also the clear inference from the record is that every reference to the value of this stock at various other times is to its book value which may or may not be its fair market value. When the nature of the business of this corporation is considered and the fact that customer contracts which most likely were intangible assets without a *50 book value were such an important part of that business, we would be totally unwilling to speculate that the fair market value of the stock of Porter & Sons and the book value of that stock were the same.
We might add that we would have the same difficulty with the lack *223 of proof of fair market value of the assets in which Alice owned a tenancy-in-common interest at the date of her death, were we to attempt to value Alice's interest as a "claim." Petitioners have made no effort to show such value but rather ask us to find that no matter what that value, Alice's "claim" has no value. We are asked to make this determination on the basis of the testimony of three lawyers. One of these lawyers represented Harry and Robert throughout the proceedings and gave Harry the impression after the decision of the trial court that he and Robert had a 50-percent chance of success in the Supreme Court. Yet in his deposition offered in this case he testified that even before he tried the case in the trial court he thought that Alice's "claim" had no value. One of the other lawyers was a member of the firm who handled the case for Porter and lost it. We have previously discussed his testimony*51 to some extent. This lawyer showed a not uncommon inclination of one convinced against his will "to be of the same opinion still." We give no weight to his testimony. The third lawyer had read part of the record presented in this case by stipulation which record we have read in full. We, therefore, consider that we are in a better position to judge the value of Alice's so-called claim than this lawyer and we find a total lack of sufficient evidence in the record to make a considered determination of its value.
From the record in this case we would not consider that at the date of her death, Alice's chances or those of her estate of obtaining a division of the property she owned jointly with Porter, so that one-half would be distributed to her estate, were nominal. From the record we consider that she had far more than a nominal chance of obtaining her one-half of the properties. We are not at all persuaded to the contrary by the opinions given by the three lawyers who testified by deposition for petitioners. See Estate of Burd Blair Edwards Dickson, supra.See also as to evidence necessary to overcome the presumption that property acquired during*52 coverture in New Mexico is community property Campbell v. Campbell, 62 N.M. 530">62 N.M. 530, 310 P. 2d 266 (1957). We are aware that in addition to the value of all assets in which Alice had an undivided one-half interest at the date of her death (which this record does not show) and the chance of having to litigate with questionable results to obtain division, the cost of such litigation would have to be considered in determining what the fair market value of Alice's interest at the date of her death would be. However, if this factor is to be considered in valuing Alice's interest in the property, the parties apparently consider that the amount of such expenses should not be deductible by the estate. To then allow such a deduction would in effect give credit for such costs and expenses twice.
As we view the record, no issue in this respect exists. At the date of Alice's death there existed the presumption under New Mexico law *224 that all property held at the date of her divorce which had been acquired during the 31 years she was married to Porter was community property. From the transcript of the testimony in the State trial court, *53 particularly the testimony of Porter, we would not have reached the same conclusion as to Porter's having proved that all this property was his separate property as was reached by the trial court without giving any consideration to whether the Deadman's Statute was applicable.
We therefore conclude that even if we were to view Alice's interest as a "claim," the prime factor needed to value this "claim," namely, the "fair market value of the property" to which she had a claim at the date of her death, is not shown in the record. However, there may exist no issue of "burden of proof" in this case. As we have heretofore stated, the parties have entered into a stipulation as to Alice's "gross estate" which they may intend to eliminate such an issue.
During the course of their litigation with Porter, Harry and Robert incurred legal expenses of $ 28,609.88 and $ 59,324.54, respectively, travel expenses of $ 529.56 and $ 6,094.36, respectively, and Robert incurred accounting expenses of $ 22,883.10, making a total of $ 117,441.44. Petitioners contend that if the agreed "gross estate" value is the amount of Alice's gross estate, these expenses are deductible by Alice's estate as expenses*54 of administration under section 812(b), I.R.C. 1939, because they were incurred "in the collection of assets." Sec. 81.32, Regs. 105. If we assume that attorneys' fees and other litigation costs were not a discounting factor in valuing Alice's undivided property interest at the date of her death, then it is necessary to consider the deductibility of these expenditures by the estate. Since petitioners did not contend that these fees and costs were deductible if all Alice owned at the date of her death was a "chose in action" or "claim," we consider that they are not contending that if such litigation costs are considered in valuing Alice's interest in property at the date of her death, these amounts should also be deductible from the gross estate. This issue, as we view it, arises only if the value of Alice's property interest is not discounted because of such anticipated costs. Again, we do not consider the stipulated facts to be clear.
Respondent argues that the expenses are not deductible by the estate because petitioners incurred them for their own benefit and not for the benefit of the estate and that since these expenses have not been approved by the court having jurisdiction*55 over the estate they are not shown to be "allowable" expenses.
Expenses which are "actually and necessarily" incurred in the administration of the estate, "in the collection of assets * * * and distribution among the persons entitled" thereto are deductible from the gross estate in computing the net estate subject to taxation. However, "Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs * * * may not be taken *225 as deductions." Sec. 81.32, Regs. 105. The regulations provide specifically with respect to attorney's fees that such fees are not deductible if "incurred by beneficiaries incident to litigation as to their respective interests." Sec. 81.34, Regs. 105.
In the litigation undertaken by Harry and Robert in the instant case, assets of the estate were collected. The litigation did not relate to settlement of the "respective interests" of the beneficiaries. There was never any question as to the interest owned by Harry or Robert in Alice's estate. Each had a one-half interest. The issue throughout the litigation was what assets belonged to the estate of Alice. The fact that some benefit results to*56 the beneficiaries from an expenditure is not a reason to disallow the expense as a deduction, especially where, as here, the collection of assets affects all beneficiaries equally and not one over others. See Estate of Christine Swayne, 43 T.C. 190">43 T.C. 190 (1964), and Dulles v. Johnson, 273 F. 2d 362 (C.A. 2, 1959).
Since the expenses have not been actually allowed by the New Mexico court having jurisdiction over Alice's estate, we must determine whether under the laws of that State they are allowable. These expenses were incurred, at least partially, before letters of administration were granted. No administration of the estate was sought until 1959. However, this is not a bar to allowance of the deduction by the estate if they are allowable under State law. James D. Bronson et al., Trustees, 7 B.T.A. 127">7 B.T.A. 127 (1927), affd. 32 F. 2d 112 (C.A. 8, 1929).
Under New Mexico law all expenses necessary to the "care, management, and settlement of the estate" are allowable "including reasonable attorney fees." N.M. Stat. Ann. sec. 31-12-10. 5 This statute, as the New York *57 statute involved in James D. Bronson et al., Trustees, supra, is sufficiently broad to permit allowances of fees for services incurred prior to appointment of an administrator where the litigation was "necessary" as it was in this case and the expenses are reasonable. In view of the difficult and protracted litigation in this case and the distance of Robert's residence in New York from the place of litigation, the fees and expenses incurred by Harry and Robert appear reasonable in amount. In fact respondent does not contend to the contrary. The fees and expenses are of the nature allowable under New Mexico law. We conclude that the fees and expenses are reasonable under the circumstances of this case and that they are "allowable" under New Mexico law. Petitioners are not required to show *226 that the fees have been allowed by the State court but merely that they are allowable under State law. Estate of Charles M. Prell, Sr., 48 T.C. 67 (1967), on appeal (C.A. 6, July 19, 1967). We, therefore, hold that if attorneys' fees and other litigation costs have not been considered as a discounting factor in determining*58 the value of Alice's undivided interest in property held at the date of her death, the entire $ 117,441.44 expended by Harry and Robert in their litigation with Porter is deductible as administrative expenses in computing the estate tax liability for Alice's estate.
Respondent determined in his notice of deficiency that "since no estate tax return was filed," petitioners are liable for an addition to tax equal to 25 percent of the tax due "in accordance *59 with the provisions of section 291(a) of the 1939 Code." Petitioners contend that their belief that the gross estate of Alice was less than the amount of $ 60,000 was reasonable cause for failure to file an estate tax return.
Section 291(a), I.R.C. 1939, provides an addition to tax ranging from 5 percent to 25 percent for failure to file an income tax return on time. The addition is applicable unless the failure to file is shown to be due to "reasonable cause and not due to willful neglect." However, section 291(a) does not apply to an estate tax return. Section 840 provides that the provision of section 3612(d)(1), I.R.C. 1939, is applicable to the filing of estate tax returns. This section provides for the additions to tax for failure to file a return or to timely file a return "except that when a return is filed after such time" a showing of reasonable cause and no willful neglect will cause the addition to tax not to apply. Section 3612(d)(1), I.R.C. 1939, has been interpreted to mean that reasonable cause is a defense only when a return was filed at some late date. Chas. F. Roeser, 2 T.C. 298">2 T.C. 298, 305 (1943).
Since no return was ever filed for Alice's*60 estate, respondent's determination of the addition to tax must be sustained under section 3612(d)(1), I.R.C. 1939, unless petitioners are entitled to show "reasonable cause" for failure to file any estate tax return for Alice's estate because of respondent's reference to the wrong section of the statute in his notice of deficiency. Since there was no evidence petitioners could have offered to refute the addition to tax if respondent had relied on the correct section of the Code, petitioners have not been harmed by his relying on the incorrect section and therefore his reference to section 291(a), I.R.C. 1939, is no reason for holding for petitioners even had they shown "reasonable cause" for failure to file any return for Alice's estate. However, they have not shown such reasonable cause. Under the facts here and the position Harry and Robert were taking as to the ownership of property by Alice at the date of her death, there appears to have been no reasonable cause for not filing a timely estate tax return for Alice's estate even if it were *227 necessary to give only a tentative value to the estate pending the outcome of the litigation. However, at least after the decision*61 of the Supreme Court of New Mexico in 1958, it would have been possible to file a reasonably accurate return for Alice's estate but none was filed. We, therefore, conclude that petitioners have failed to show any reasonable cause for failure to file any estate tax return for Alice's estate.
We sustain respondent in his determination of additions to tax for failure to file an estate tax return.
Decisions will be entered under Rule 50.
Raum, J., concurring: I think the question whether the decedent had an "interest" in the property as against a "chose in action" or a "claim" against her former husband is a false issue. Whether her rights are labeled an interest in property rather than a claim or a chose in action, it was at best an interest that was under a cloud. The property was in fact in her former husband's name, and he was asserting full rights of ownership in respect thereof. Indeed, the lower court in New Mexico subsequently found that it was his separate property, and the contrary ruling by the Supreme Court of New Mexico was based essentially upon a technical application of the rules of evidence.
What goes into decedent's gross estate is the value of her rights*62 at the time of her death, namely, what a willing buyer would have paid for her unestablished interest at that time -- an amount that is without doubt substantially less than the value of that interest computed as though it were uncontested or had already been established.
Although I read the majority opinion as reaching this result, there may be language therein that could cast doubt upon the matter, and I therefore think that it should be made explicit beyond any ambiguity.
Footnotes
1. In the notice of deficiency respondent states that the determination is made in "accordance with the provisions of Section 291(a) of the 1939 Code." Sec. 291(a), I.R.C. 1939↩, by its terms applies to a return "required by this Chapter," i.e., ch. 1 dealing with income tax. Estate tax is imposed by ch. 3, I.R.C. 1939.
2. Pars. 5, 6, and 7 of the stipulation of facts read as follows:
"5. The petitioners characterize the issue in controversy as being whether the only asset owned by Alice M. Porter (here and after referred to as Alice) at the date of her death was a claim against her former husband, Robert P. Porter, Sr. (here and after referred to as Porter) for the amount of her interest in community property at the date of her divorce.
"6. The respondent characterizes the issue in controversy as being whether at the date of her death, Alice owned one-half interest in the various assets which were community property at the time of her divorce from Porter, and, therefore, includable, in her gross estate to the extent of the value of such property interest at the time of her death.
"7. For the purpose of these two cases, if the Court finds for respondent, the computation set forth in the statutory notices of liability and statement showing the transferor's estate, shall be accepted as true, except the gross estate shall be $ 355,301.25 instead of $ 406,900.00 as set forth in the statutory notice, and the petitioners are liable as transferees. Petitioners' liability is limited, however, to the value of the assets received by them, and reduced by the amounts set forth in paragraph 69 of this Stipulation of Facts, should the Court determine that such amounts are deductible by Alice's estate."↩
3. The diamond ring of a value of $ 800, household goods of a value of $ 1,000, and $ 40 cash are not in controversy.↩
4. We are not here concerned with the lack of testamentary power in the wife as to community property if she predeceases her husband where they are still married and living together at the time of her death. Sec. 29-1-8, N.M. Stat. Ann.↩
5. Sec. 31-12-10. Expenses and attorney fees -- Compensation of executor or administrator. -- An executor or administrator shall be allowed, in the settlement of his accounts, all necessary expenses incurred in the care, management, and settlement of the estate, including reasonable attorney fees in any necessary litigation or matter requiring legal advice or counsel. * * *
Sec. 31-10-4, N.M. Stat. Ann., provides for the amount of attorney's fees in "conducting of ordinary probate proceedings," but does not preclude additional fees under sec. 31-12-10↩ above quoted.