Taxation & Estate Planning

TAX COURT COMBINES GIFT AND SALE TRANSACTION

By Charles Rubin

In a recent Tax Court decision, the Court applied the step transaction doctrine to collapse a separate gift and sale of LLC interests to gift trusts into a gift transaction. Perhaps the precedential value of the case can be limited due to some bad facts present in the case, but the broad use of the step transaction doctrine simply by reason of a taxpayer bifurcating transfers into a gift and sale element so as to be able to use available gift and generation skipping tax exemptions is quite troubling.

The decision is also somewhat troubling since it involves many elements that are present in current sales transactions that are undertaken in transfer tax planning. However, the particular holding of the case does not act to convert the entire sale transaction into a taxable gift but appears to only have created a gift to the extent of discounts taken on the sold property.

For a more detailed review of the case and its facts, click here or go to http://tinyurl.com/2b74mce for a summary in map format which can be viewed using most versions of Adobe Acrobat or Adobe Reader (click on the ?+?s in the map to expand it).

Suzanne J. Pierre, TC Memo 2010-106

Full post as published by Rubin on Tax on May 23, 2010 (boomark / email).