ognized as proper for educational and charitable organizations. [H. Rept. 2319, 81st Cong., 2d Sess. 38 (1950), 1950-2 C.B. 380, 409.]

It later stated:

The term "rents from real property" does not include income from the operation of a hotel but does include rents derived from a lease of the hotel itself. Similarly, income derived from the operation of a parking lot is not considered "rents from real property." [Id. at 110, 1950-2 C.B. at 459; emphasis added.]

The Senate Finance Committee report also included the language above regarding operation of a hotel and a parking lot. S. Rept. 2375, 81st Cong., 2d Sess. 108 (1950), 1950-2 C.B. 483, 560.

The tax on unrelated business income, as enacted in 1950, did not apply to churches and some other tax-exempt organizations. Revenue Act of 1950, sec. 421(b)(1), 64 Stat. 948. In 1969, the Treasury Department recommended extending the unrelated business income tax to all taxexempt organizations. U.S. Treasury Dept. Tax Reform Studies and Proposals (Part 1) 26–27 (1969). The Joint Committee staff supported the Treasury Department's recommendation, citing its own research on the scope of churches' unrelated business activities. One of the examples of an unrelated business given by the staff was a church's operation of a parking lot. Staff of Joint Comm. on Taxation, Tax-Exempt Organizations 20-21 (J. Comm. Print 1969). The House Ways and Means Committee report on the Tax Reform Act of 1969, Pub. L. 91-172, 83 Stat. 487, incorporated the Joint Committee's examples of proliferating church-operated businesses in describing why it was recommending an expansion of the unrelated business income tax:

There is inequity in taxing certain exempt organizations on their "unrelated business income" and not taxing others. It has become apparent that organizations now subject to the provision and those not subject to it are equally apt to engage in unrelated business. For example, numerous business activities of churches have come to the attention of the committee. Some churches are involved in operating chains of religious bookstores, hotels, factories, companies leasing business property, radio and TV stations, newspapers, parking lots, record companies, groceries, bakeries, cleaners, candy sale businesses, restaurants, etc. *** [Emphasis added.]

The bill in extending the unrelated business income tax to churches provides a period of time * * * for churches to dispose of unrelated business or to spin them off in separate taxable corporations.

[H. Rept. 91-413 (Part 1), at 47-48 (1969), 1969-3 C.B. 200, 230-231.]

Similarly, the report of the Senate Finance Committee stated:

In recent years, many of the exempt organizations not now subject to the unrelated business income tax-such as churches, social clubs, fraternal beneficiary societies, etc.-have begun to engage in substantial commercial activity. For example, numerous business activities of churches have come to the attention of the committee. Some churches are engaged in operating publishing houses, hotels, factories, radio and TV stations, parking lots, newspapers, bakeries, restaurants, etc. Furthermore, it is difficult to justify taxing a university or hospital which runs a public restaurant or hotel or other business and not tax a country club or lodge engaged in similar activity. [S. Rept. 91–552, at 67 (1969), 1969–3 C.B. 423, 467; emphasis added.]

The reports suggest that income from operating a parking lot was not exempt from the unrelated business income tax under any provision. The legislative history stated or implied four times that the operation of parking lots yields unrelated business taxable income and not rent from real property.

Section 1.512(b)-1(c)(5), Income Tax Regs., provides that income from the operation of a parking lot is not rent from real property. The regulation provides:

Rendering of services. For purposes of this paragraph, payments for the use or occupancy of rooms and other space where services are also rendered to the occupant, such as for the use or occupancy of rooms or other quarters in hotels, boarding houses, or apartment houses furnishing hotel services, or in tourist camps or tourist homes, motor courts, or motels, or for the use or occupancy of space in parking lots, warehouses, or storage garages, does not constitute rent from real property. Generally, services are considered rendered to the occupant if they are primarily for his convenience and are other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only. The supplying of maid service, for example, constitutes such service; whereas the furnishing of heat and light, the cleaning of public entrances, exits, stairways, and lobbies, the collection of trash, etc., are not considered as services rendered to the occupant. Payments for the use or occupancy of entire private residences or living quarters in duplex or multiple housing units, of offices in any office building, etc., are generally treated as rent from real property. [Emphasis added.]

The Association, in interpreting the above regulation, argues that income from operating a parking lot is rent from real

property unless the services provided by the tax-exempt organization in operating it are "substantial." It states that the services it provides at the lots, i.e., the provision of parking guards to open the lots and to check parking decals, are insubstantial. It compares its level of service to its parking lot customers to the level of service involved in the trash collection mentioned in the regulation. But the test in the regulation for determining whether the services are rendered to the occupant (and therefore disqualify the organization from using the rental exception) is not whether the services provided are substantial, but whether the services are (1) “primarily” for the "convenience" of the occupant and (2) are "other than those usually or customarily rendered in connection with the rental of rooms or other space for occupancy only." And as to the question of whether the services provided by an operator of a parking lot satisfy this test, the regulation also provides guidance. The first sentence of the regulation lists "the use or occupancy of space in parking lots" as an example of “use or occupancy of rooms and other space where services are also rendered to the occupant". The regulation, as we interpret it, determines that the services provided by an operator of a parking lot (at least a typical parking lot) are primarily for the convenience of the customer and are other than those usually or customarily rendered in connection with the rental of rooms or space for occupancy only. 5 Although this conclusion might not apply to a parking lot that is so unusual that it would not be considered a "parking lot" within the ordinary meaning of the term, there is nothing to suggest that the services the Association provides to its parking lot customers are unusual in this context. Thus, the net income the Association earned from operating the parking lots during the summer months does not constitute rent from real property as defined in section 512(b)(3). The net income is subject to the unrelated business income tax.

In reaching our holdings here, we have considered all arguments made, and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

5 The lease payments from third-party businesses are rent from real property under the regulation, and thus were properly conceded by the IRS as excludable from unrelated business taxable income, because Ocean Pines did not directly operate the parking lot on the behalf of the third-party businesses.

To reflect the foregoing,

Decision will be entered under Rule 155.

ESTATE OF LUCIEN J. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

ESTATE OF MARIE L. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 29631-07, 30041-07.

Filed September 7, 2010.

Husband (H) and wife (W) established an inter vivos trust that was to be split into four shares upon the death of the first spouse to die. After H's death the trustees made a qualified terminable interest property (QTIP) election with respect to a portion of one share of the trust. W received a life estate in the remaining portion of that share, but this portion purposefully did not qualify for a marital deduction. H's estate paid Federal and State estate taxes. W died less than 3 months after H died. On W's Federal estate tax return W's estate claimed the amounts that H's estate paid as Federal and State estate taxes as a credit for tax on prior transfers under sec. 2013, I.R.C. Three years after H's estate filed the return, it filed with R an additional protective QTIP election. In the notice of deficiency R disallowed the credit for tax on prior transfers on the ground that sec. 2013, I.R.C., provides that the amount of the credit is subject to the limitations of sec. 2013(b) and (c), I.R.C. R also contends the protective QTIP election was untimely. Held: The limitations of sec. 2013(b) and (c), I.R.C., apply. Held, further, the amount of "the taxable estate of the transferor" for the purposes of sec. 2013(b), I.R.C., is not reduced by the applicable exclusion amount. Held, further, W's estate may not claim a sec. 2013, I.R.C., credit with respect to the State estate tax that H's estate paid. Held, further, because the property interest W received from H was a life estate, the value of that property interest for purposes of the sec. 2013, I.R.C., credit is determined under valuation principles in accordance with sec. 20.2013-4, Estate Tax Regs. Held, further, the QTIP protective election is untimely when filed 3 years after the estate tax return is filed.

Nick A. Moschetti, Jr., for petitioners.

Wesley J. Wong, for respondent.

OPINION

MARVEL, Judge: Respondent determined a $2,400 deficiency in the Federal estate tax of the Estate of Lucien Le Caer (Mr. Le Caer) and a $227,399 deficiency in the Federal estate tax of the Estate of Marie L. Le Caer (Mrs. Le Caer). 1 After concessions, 2 the issues for decision are: (1) Whether and to what extent Mrs. Le Caer's estate may claim a credit under section 2013 for Federal estate tax paid on the transfer of property to Mrs. Le Caer from Mr. Le Caer's estate; (2) whether Mrs. Le Caer's estate may decrease the gross estate by or claim as an allowable deduction the amount of the Federal and State estate tax paid with respect to Mr. Le Caer's estate; and (3) whether the trustees of Mr. Le Caer's estate filed a valid qualified terminable interest property (QTIP) protective election and whether such election may apply to the Rule 155 computations.

Background

The parties submitted this case fully stipulated under Rule 122. We incorporate the stipulated facts into our findings by this reference. Mr. Le Caer was a resident of Nevada when he died testate on January 19, 2004. Mrs. Le Caer also was a resident of Nevada when she died testate on March 29, 2004. 3 For purposes of this Opinion the estates and the cotrustees are referred to as petitioners.

Mr. Le Caer was born in 1924, and Mrs. Le Caer was born in 1923. The couple had two daughters, Lorraine Le CaerDomini and Denise Le Caer Stagner.

On April 21, 1992, Mr. and Mrs. Le Caer, as settlors and cotrustees, executed the Lucien and Marie Louise Le Caer

1 We consolidated these cases for purposes of trial, briefing, and opinion under Rule 141(a). Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in effect for the dates of decedents' deaths, and all Rule references are to the Tax Court Rules of Practice and Procedure. Monetary amounts are rounded to the nearest dollar.

2 Respondent concedes the adjustments to taxable gifts with respect to both estates. Respondent agrees with the computation of the State death tax credit allowable to both estates. Respondent also states on brief that he does not challenge the validity of the sec. 6166 elections that the estates made.

3 The cotrustees had a mailing address in Nevada when the petitions were filed. The record does not disclose where the cotrustees resided when the petitions were filed.