Recent Decisions
By Robert L. Moshman
FLP Victory
A couple had founded a global sports-apparel company and had established two trusts to benefit their family. However, litigation over control of the trusts erupted among the couple's four children. As a result, the couple transferred assets to five separate family limited partnerships (FLPs)-one for each child and one for the father. This was to allow each child to have control over separate assets. In return the couple received partnership interests. At the father's death, his FLP interests were transferred to his wife's qualified terminable interest trust (QTIP). At her death, the IRS concluded that assets transferred to the FLPs were includible in both estates.
Rejecting this conclusion, the Tax Court noted the investment and business concerns related to the management of the assets. These were bona fide sales adequate and full consideration [satisfying §2036(a)], so the transferred assets were not included in the couple's gross estates. The case of Harper v. Comm'r., T.C. Memo. 2002-121, was distinguished. Since the FLP assets were not includible in the husband's estate, they never reached the wife's QTIP either. Stone v. Comm'r., T.C. Memo. 2003-309 (2003).
No Waiver of Sovereign Immunity
An estate faced with gift and estate tax deficiencies petitioned the Tax Court for a redetermination of liabilities and remitted $1 million to the IRS as a "deposit." The parties agreed upon $578,663 as the gift tax deficiency, for which the IRS applied a portion of the deposit. When the IRS failed to make a timely assessment with respect to the estate tax deficiency, the estate filed suit demanding the return of the remainder of the deposit. The U.S. District Court in Florida concluded that it lacked subject-matter jurisdiction because there was no explicit waiver of sovereign immunity (as required under, Mid-South Holding Co., 225 F.3d 1201, 1203 (11th Cir. 2000); §6512 prohibited actions by the court; and the exceptions of §6512(a) did not apply. Parker v. U.S., Dist. Ct. S.D. Fla., No. 01-7426-CIV (Sept., 2003).
Military Tax Relief
President Bush signed the Military Family Tax Relief Act of 2003 (H.R. 3365) on Veterans Day. Under the new law, which was passed unanimously by the House and Senate, members of the Armed Forces and certain terrorist victims will qualify for tax benefits. These benefits include an exclusion of gain from the sale of a principal residence and an increase in the death gratuity exclusion to $12,000. In response to the Columbia space shuttle disaster, the bill extends estate tax benefits under §2201 to astronauts who die in the line of duty. The $69 million of costs attributed to the tax relief will be offset by an extension of customs user fees.
QFOBI Election Extension Granted
Decedent's estate was granted an extension of time to make the QFOBI election under §2057. The estate initially concluded that the threshold requirements of §2057 had not been met. In filing the second of two supplemental estate tax returns, the QFOBI election was finally made. The IRS concluded that, based on Reg. §301.9100-3, the administrator of the estate had relied in good faith on legal advice and that the government's interests had not been prejudiced. Letter Ruling 200328012.
Gifts Within Three Years of Death
Within three years of his death, Decedent used his separate fund to pay $1,437,000 toward the estimated income tax liabilities of himself and his wife. The estimated payment became an overpayment and the decedent subsequently applied $700,000 toward his wife's unpaid gift taxes. This constituted a gift within three years of death and was included in Decedent's estate under §2035(b). Since the couple had elected gift splitting, Decedent was jointly and severally liable for the gift tax and was therefore able to deduct the gift tax payment on his Alabama income tax return. This in turn reduced Decedent's federal income tax deduction. O'Neal Estate v. U.S., U.S. Dist. Ct., Northern District, Alabama, No. 94-PT-2493-S (Oct., 2003).
GST Exemptions
Administrative modifications of a trust to permit beneficiaries to remove and replace a trustee without court involvement and expand the trustee's investment authority did not cause the trust to lose its GST-exempt status. The modifications did not shift beneficial interests to lower generations. Letter Ruling 200341011. In another ruling, the IRS granted a 60-day extension for a couple to allocate their GST tax exemptions to lifetime transfers to irrevocable trusts. The couple had relied upon a qualified tax professional who failed to advise them to make the allocations and granting the extensions did not prejudice the government's interests. Letter Ruling 200343014.
|
