In Uncategorized on 02/11/2016 at 16:49

The use of sales of assets to trusts as an estate planning gambit is getting a lot of space in the tax blogosphere.

And today we have a word on the subject, although early in the game, from The Great Dissenter, a/k/a The Judge Who Writes Like a Human Being, s/a/k/a The Indomitable, Irrefragable, Illustrious, Implacable, Indefatigable, Ineluctable and Incontrovertible Foe of the Partitive Genitive, and Old China Hand, Judge Mark V. Holmes.

There are three (count ‘em, three) companion designated hitters, but for today’s sermonette I’ll take Estate of Jack C. Trent, Deceased, Jimmy Lee Trent & Jacqueline Carol Walters, Co-Executors, et al., Docket No. 9496-11, filed 2/11/16.

IRS is claiming incomplete gift, and Jimmy Lee and Jackie of course are claiming sale. Now the late Jack was allegedly incompetent at the time the sales (gifts) were made, so Jimmy Lee and Jacky used PoAs to offload membership interests (presumably in LLCs, although not explicitly stated) into trusts, of which said Jimmy Lee and Jacky were trustees.

Jimmy Lee and Jacky first want to exclude one of the contested years because SOL says IRS can’t contest valuation.

Judge Holmes: “That is what IRC § 2001(f) says. The problem for petitioners is that this isn’t a jurisdictional provision. Our jurisdiction in Trent’s estate-tax case depends only on the issuance of a notice of deficiency in estate tax and a timely petition. Branson v. Commissioner, 113 T.C. 6, 31 (1999). A general principle in tax law is that ‘the basis for tax liability in a prior barred period may be recomputed for the purpose of calculating the tax liability for an open period.’ Estate of Robinson v. Commissioner, 101 T.C. 499, 517 (1993). And, as the Commissioner argues, precluding a challenge to the value of what Trent gave…isn’t the same as precluding the inclusion of that value in the taxable estate because the gift was incomplete.” Order, at p. 2.

Remember, high-priced colleagues, SOL here is an affirmative defense, not a jurisdictional condition precedent. And anyway, IRS will buy your valuation; they’ll just add it back into the late Jack’s estate and tax it accordingly.

Next, the real issue. Jimmy Lee and Jacky want to bar IRS from arguing that their PoAs are invalid, and so move.

But IRS hasn’t moved to amend its answer to add that. All they’ve said so far is that the gifts were “revocable” or “incomplete,” and the only words about the PoAs was an offhand oral remark by IRS counsel to Jimmy Lee’s and Jacky’s counsel about why the gifts were revocable or incomplete, because of the supposedly defective PoAs.

“We think this motion is at best premature. We normally presume notices of deficiency are correct, Welch v. Helvering, 290 U.S. 111, 115 (1933); Shea v. Commissioner, 112 T.C. 183, 196 (1999), and here those notices all state some variation of a statement that the gifts weren’t truly gifts because they were ‘incomplete’ or ‘revocable’ or such. This puts the burden on petitioners to show that the gifts weren’t revocable transfers under IRC § 2038. Looking at the exhibits that they attached to their motion, they intend to do this by showing the gifts were made by the children acting as trustees of their father’s trust. Neither party has explained what the children’s powers of attorney have to do with this, but as of now, the burden is on petitioners to show that these gifts don’t fit within the inclusion rules of section 2038. How they try to do that is up to them.” Order, at p. 3.

Go to it, guys.





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