Attorney-at-Law

THE OPEN SPOUSE TRICK

In Uncategorized on 11/10/2021 at 16:24

I’ve covered the Hidden Spouse trick before now, but today we’ve got ex-Ch J. Michael B (“Iron Mike”) Thornton applying higher mathematics to valuing the gift made by Louis (“Forgive the Spelling”) P. Smaldino, 2021 T. C. Memo. 127, filed 11/10/21,* to Mrs. Lou.

Turns out the gift of 49% of membership interests in Lou’s family LLC to Mrs. Lou, using Mrs. Lou’s $5.2 million gift tax exclusion to try to dodge gift tax when Mrs. Lou immediately hands a large part of the goodies over to Lou’s kids’ Dynasty Trust, gets blown up via substance-over-form, looking family gift equines in orifices other than oral. Lou handed Mrs. Lou $8 million worth of the outfit that ran his real estate empire, but ex-Ch J Iron Mike knocks that down to $7 million via guaranteed payments to Lou from LLC.

Estate planners should read LLC operating agreements before devising gifting plans; ex-Ch J Iron Mike did read the OA, and found missteps in the execution. But query, would doing it right here have helped Lou’s cause any more than remove a make-weight argument?

Finally, there’s the usual mix-and-match between valuations, with IRS’ guy beating out Lou’s by a couple lengths (hi, Judge Holmes). Such arcana as Section 2701 is in play; I leave this to specialists.

Practice hint- Don’t backdate assignments of interests or memberships to dates prior to the date of the appraisal, which fixed the amounts assigned to the penny four (count ’em, four) months after the alleged assignments. These fill-it-in-later moves rarely if ever work.

*Loiuis P Smaldino 2021 T C Memo 127 11 10 21

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