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Significant recent developments in estate planning.

This article examines current developments in the area of estates, trusts and gifts. Cases, regulations and rulings on the following are discussed: use of deathbed and other family limited partnerships; qualified personal residence trust final regulations; gift tax on the sale of a qualified terminable interest property remainder interest; and gift tax ramifications of gifts of nonvested, nonstatutory compensatory stock options.

Since the last estate planning developments article,(1) the IRS has issued a series of rulings attacking perceived abuses in the estates, trusts and gifts arena. The flurry of developments demonstrates the IRS's continuing focus in this area and the need for practitioners to be aware of developments to effectively serve clients.

Part one of this two-part article, below, highlights in-depth, significant judicial and administrative developments between May 1997 and April 1998, in the areas of estates, trusts and gifts. Part two, in the September issue, will discuss additional cases, rulings and regulations involving gifts, disclaimers, valuation, marital deduction, charitable planning, generation skipping transfer (GST) tax and Chapter 14.


The period's highlights included:

* The issuance of new technical advice memoranda (TAMs) attacking the use of family limited partnerships (FLPs) as an estate planning tool.

* Imposition of gift tax on a sale of a qualified terminable interest property (QTIP) remainder interest.

* The announcement of the long-awaited IRS position on the transfer tax implications of gifting nonvested, non-qualified compensatory stock options to family members.

FLP Gifts

Seeking a new avenue of attack against the use of FLPs for estate planning purposes, the Service ruled in Letter Ruling (TAM) 9751003(2) that the transfer of a limited partnership interest did not qualify as a present interest for gift tax purposes. As a result, the donor was denied the Sec. 2503(b) $10,000 annual gift tax exclusion on the transfer.

The annual exclusion is allowed for a gift of a present interest in property, but not for a gift of a future interest. A future interest in property is an interest that limits the use, possession or enjoyment of the property to some future date or time. Deviating from previous rulings in which it had held that a gift of a limited partnership interest was a present interest for annual exclusion purposes,(3) TAM 9751003 held that the annual exclusion was not available. Given the Service's stance on FLPs,TAM 9751003 is no surprise.

In the ruling, the Service first stated that in accordance with Supreme Court holdings,(4) the critical question in determining if a present interest exists at the time of a transfer is whether the done received the right to a substantial present economic benefit from the property gibed, not whether legal title vests in the done at that time. For this purpose, a gift may be separated into its component parts of corpus and income; an annual exclusion is available if there is a requirement for a steady and ascertainable flow of income to the donee. The Service then noted that it was not dispositive that the donees at issue had a vested interest in the partnership; rather, the pivotal fact was that the partnership agreement vested the right to determine the timing of income distributions in the absolute discretion of the general partner. Thus, the donee did not receive a present interest in the FLP's current income.

Turning to liquidation rights, the Service concluded that the donee had no more than an illusory right to benefit from the partnership through a sale or a liquidation, because the partnership agreement restricted a partner's right to unilaterally transfer or assign his partnership interest. Having decided that neither the donees' income nor their liquidation rights were present interests, the Service ruled that the donees did not receive a present interest in the FLP. Even if the Service's conclusions are correct given the facts and circumstances, its holding is easily avoided.

Flawed analysis: It is not clear that the Service's bifurcation of a partnership interest into a gift of income rights and a gift of corpus rights is supportable. The cases cited by the Service justifying this approach concern trust interests.(5) Clearly, if (1) a donee receives both an income and corpus interest in a trust, (2) trust income and corpus are distributable solely at the trustee's discretion and (3) the beneficiary is precluded from transferring either interest, it is reasonable to conclude that neither the gift of the income interest or the corpus interest is a gift of a present interest. This conclusion is supported by the fact that, in general, state law allows a trust agreement to contain an absolute restriction on alienation of a trust interest,(6) at least fox; a limited amount of time. As a result, it is impossible for a trust beneficiary to receive presently any economic value from such discretionary income and corpus rights through the sale of the interest.

In contrast, even when state law allows a restriction on a partner's ability to transfer a partnership interest, it usually does not recognize an absolute restriction on the right of a partner to alienate his interest. At the very least, the transferee or a partnership interest who receives his interest in violation of a partnership restriction receives the rights of an assignee. Thus, in most states, the holder of a partnership interest subject to liquidation and transfer restrictions may still benefit immediately from his partnership interest by selling an assignee interest.

It is easy to imagine a potential purchaser of such a partnership interest, because eventually, the partnership will make income or liquidating distributions. In arriving at a purchase price, the potential purchaser will take into account the partnership's present ability to generate income; provided the purchaser holds the interest until its liquidation, he will eventually benefit from the current income stream. Further, in the absence of a partnership agreement provision voiding an assignment of an interest, it should be possible to negate the Service's holding in TAM 9751003, because a partner may benefit immediately through the sale of an assignee interest in the partnership.(7)

Because the ability to assign a partnership interest is a present right and a potential purchaser would consider the partnership's present income stream in arriving at a purchase price, the Service's conclusion in TAM 9751003 that the gift of the partnership interest is not a present interest is subject to challenge. The Service's position more appropriately supports the argument that the receipt of a restricted partnership interest should be discounted to reflect the value at which it could presently be sold, not that only a future interest has been received.

FLP Discounts

The IRS issued several TAMs challenging the validity of large valuation discounts (e.g., for marketability and minority interests) taken in connection with the gifting of FLP interests.(8) Accordingly, practitioners need to educate clients who implement FLPs that the IRS continues to scrutinize discounts claimed for transfer tax purposes.

Initial salvo: The Service has attempted to firm the beachhead established by TAM 9719006,(9) which was the first official pronouncement of its three-pronged attack against FLPs. First, in some cases, for gift tax purposes, the gift is the underlying partnership property, not the partnership interest. In the IRS's view, this prong is supported by Sec. 2703 or substance-over-form analysis. As is discussed below, Sec. 2703 requires a transferor to ignore certain restrictions on property in valuing the property for estate and gift tax purposes. Sometimes, the Service also argues that the FLP transaction is a disguised testamentary transfer.

TAM 9719006 had extremely bad taxpayer facts. The decedent held assets in a revocable trust and was the beneficiary of a marital trust in which she had a general power of appointment. One or more of the decedent's children were trustees of these trusts, which consisted of marketable securities and real estate. Under the terms of each trust, the decedent's two children would each receive one-half of the assets at her death.

Two days before the decedent's death, a FLP was formed; each child contributed cash for a 1% general partnership interest and the trusts contributed marketable securities and land for limited partnership interests. The marital trust then transferred two 30% limited partnership interests (one to each child) for $10,000 cash and a 30-year, interest-bearing promissory note. After the decedent's death, the estate contended that a 48% discount should apply to the interests held by the two trusts.

The Service ruled that the FLP should be ignored for estate tax valuation purposes, because the partnership transactions should be regarded as a single testamentary transfer. Several rulings have followed, with nearly identical holdings. The fact patterns found in these rulings echo those found in TAM 9719006, involving decedents who established FLPs or limited liability companies very shortly (e.g., two months) before death. Predictably, the estates attempted to claim valuation discounts on the interests retained by the decedents, which the Service challenged.

Substance over form: In each of these rulings, the Service placed considerable reliance on Est. of Murphy(10) and Est. of Cidulka,(11) arguing that the transactions lacked economic substance and should be collapsed into a single, integrated transaction. If the transactions are collapsed, the creation of the partnership and the transfer of the partnership interests are ignored. If the partnership is ignored, the assets included in the estates are the underlying partnership property; thus, no discounts are available.

Sec. 2703: The second prong of the Service's attack is that the partnership is merely a Sec. 2703(a)(2) device to transfer value. Sec. 2703(a)(2) provides that for estate, gift and GST tax purposes, the value of any property shall be determined without regard "to any restriction on the right to sell or use such property." Sec. 2703(b) provides certain circumstances under which Sec. 2703(a) will not apply.

In the rulings, the taxpayers argued unsuccessfully that the property transferred was the partnership interest, not the underlying partnership assets. Because the transactions were collapsed and the partnership disregarded, the property transferred was the underlying assets used to fund the partnership. Nor did the transfers qualify for the Sec. 2703(b) exception to the application of Sec. 2703(a), because they were not bona fide, arm's-length business arrangements.

In Letter Ruling (TAM) 9730004,(12) the decedent retained the sole limited partnership interest. The partnership agreement provided that no limited partner could transfer an interest without the consent of all of the partners. The IRS rejected the taxpayer's argument that sufficient business purpose existed to meet the Sec. 2703(b) exception to restriction nonrecognition, Stating that the transaction was not a bona fide business arrangement because, "rather than attempting to maximize the value of his farmland, the Decedent structured this transaction to achieve the opposite result." It was "inconceivable that Decedent would have accepted, if dealing at arms' length, a partnership interest purportedly worth only a fraction of the value of the asset he transferred." In support of its substance-over-form argument, the Service cited ACM Partnership,(13) which had never before been cited in an estate tax context.

Sec. 2704: TAM 9723009(14) introduced the IRS'S third prong in attacking FLP discounts--application of Sec. 2704. Sec. 2704(b)(1) provides that for estate, gift and GST tax purposes, the value of a partnership interest transferred to a family member must be determined without regard to any "applicable restriction" if the transferor and the members of his family hold (immediately before the transfer) control of the entity.

An applicable restriction is defined by Sec. 2704(b)(2) as any restriction (1) that effectively limits the ability of the entity to liquidate and (2) with respect to which either the transferor (or any member of his family, either alone or collectively), has the right, after such transfer, to remove the restriction in whole or in part.

The Service applied the Sec. 2704(b) argument in TAM 9723009, in which the decedent created a New York partnership two months before her death. Under the partnership agreement, the decedent could not withdraw from the partnership or liquidate her interest without the unanimous consent of the other partners. However, under New York law, in the absence of such a provision in the partnership agreement, the decedent could have withdrawn and received payments in liquidation of her interest on six months' notice. First, because the liquidation restriction contained in the partnership agreement was more restrictive than state law, the Service found the Sec. 2704(b) (3) (B) exception for state law-imposed restrictions did not apply.

Second, the Service ruled that the restriction was a Sec. 2704 applicable restriction that could be disregarded, because the requirements of Sec. 2704(b) (2) (B) were met. In so ruling, the Service ignored a shareholder agreement requiring the unanimous consent of all shareholders (1) for the corporation to withdraw as managing partner of or (2) to liquidate the partnership.

In the TAM, the partnership's general (and managing) partner was a corporation with a 1% interest; the decedent was a 98% limited partner and her son was a 1% limited partner. The corporation had three shareholders, the decedent (65%), her son (34%) and a nonfamily member (1%). While the restriction on withdrawal and liquidation could be removed by the unanimous vote of the three partners, the nonfamily member's vote was required for the corporation to vote to amend the partnership agreement. The Service viewed the nonfamily member's interest as de minimis, because no evidence was submitted as to his role in the transactions, what function he served or whether he made any contribution to the corporation's capital in exchange for his interest.

If the Service's Sec. 2704 argument is valid, the ability of estate planners to use restrictions on liquidation rights to suppress the value of closely held business interests is significantly hindered for partnership agreements drafted in certain states. If Sec. 2704(b) applies in the manner asserted by the Service, partnership restrictions more restrictive than state law default provisions will be disregarded, and the transferred partnership will be valued as if the transferred rights were determined under the state law default provisions. It is expected that the courts will intervene and rule on the applicability of Secs. 2703 and 2704 within a year.(15)

Possession/Enjoyment Retained

The tumultuous activity in the FLP arena did not involve only deathbed FLPs. In Schauerhamer,(16) applying a substance-over-form analysis, the Tax Court held that limited partnership interests transferred by a decedent to her children and their spouses were includible in her estate under Sec. 2036(a)(1).

Shortly after being diagnosed with cancer, the decedent created three FLPs to which she contributed land, buildings, partnership interests, notes and bonds. Limited partnership interests in these FLPs were then given to her three children and their spouses. The partnership agreement required that all income generated by the partnership was to be deposited into a partnership account. However, contrary to this provision, the decedent (as general partner) deposited the partnership income directly into her personal account and continued to use the contributed assets as her own. The holding in this case is easily avoided, but illustrates the importance of educating taxpayers of the need to respect the form of the transaction entered into.


Final regulations(17) governing qualified personal residence trusts (QPRTs) were adopted with little change. Final Regs. Sec. 25.2702-5(b)(1) included a controversial provision requiring a QPRT governing instrument to include language prohibiting "the trust from selling or transferring the residence, directly or indirectly, to the grantor, the grantor's spouse, or an entity controlled by the grantor or the grantor's spouse during the retained term interest of the trust, or at any time after the original duration of the term interest that the trust is a grantor trust." The prohibition eliminates a strategy the Service has argued is abusive, under which a QPRT grantor repurchases the residence from the trust during the QPRT term. As a result of the repurchase, the residence would eventually be included in the grantor's estate and receive a basis step-up to fair market value (FMV). Further, because cash was used to purchase the residence from the trust, the trust beneficiaries could be expected to receive trust assets with a basis higher than they would have had if they had received the residence.(18)

The prohibition must be included in governing instruments for QPRTs established after May 16,1996 (the date set by the proposed regulations). If a QPRT instrument fails to include the required prohibition, the retained interest will be assigned a value of zero under Sec. 2702(a)(2)(A) (because it will fail to be a qualified interest). As a result, a gift equal to the date-of-transfer FMV of the residence will occur when the QPRT is funded. While the final regulations are prospective in nature, the preamble to the regulations states that the IRS may challenge "abusive" pre-May 17, 1996 QPRTs using judicial doctrines (e.g., substance over form).

Crummey Powers

The Service continues to attack the availability of annual gift tax exclusions for transfers to trusts containing Crummey(19) withdrawal rights. On the positive side, the Tax Court continues to vigorously reject the Service's arguments.

In TAM 9731004,(20) some trust beneficiaries who had only a contingent interest in a trust also received annual withdrawal rights (Crummey powers). Applying a substance-over-form analysis, the Service ruled that annual exclusions were not available for transfers to the trust that triggered such rights. The Service found that a pre-arranged understanding existed that the contingent beneficiaries' withdrawal rights would not be exercised. Notwithstanding this and other unfavorable rulings, however, the Crummey battle appears one the taxpayer is likely to win in the long run, absent a legislative change.(21) In Holland,(22) the Tax Court again sided with the taxpayer in a case addressing a number of gift and estate tax issues, including transfers in trust with Crummey powers.

In recent years, the Service's position has been, for contingent interests with Crummey powers to qualify for the annual exclusion, the beneficiaries must receive written notice when a transfer is made to the trust that triggers the Crummey withdrawal right. The trust grantor in Holland made transfers to trusts with beneficiaries holding Crummey powers, but written notice was not given to the beneficiaries that the powers had been triggered, even though the trust agreement explicitly so required. The Service argued that the failure to provide written notice as required by the trust agreement rendered the interests future interests. Focusing on Crummey and Cristofani,(23) the Tax Court adamantly rejected the Service's argument.

According to the court, the Service's argument went to the likelihood a withdrawal right would be exercised; in contrast, both Crummey and Cristofani were firmly based on the existence of the legal right to demand payment. The Holland court also rejected a perennial Crummey argument used by the Service--that there was a pre-existing agreement between the donor and donees not to exercise their Crummey rights. In rejecting this argument, the Tax Court again focused on actual substantive legal rights and swept aside the significance of an informal agreement that the donees and donor had entered into to pursue a mutual investment strategy. The court held that this informal agreement, in and of itself, was not controlling unless it could be shown that the beneficiaries' legal right to demand a withdrawal had been limited. Based on the facts presented, the court found that the informal investment decision had not restricted that right.

The Holland decision should further limit the Service's ability to successfully deny annual exclusions for transfers in trust subject to a right of withdrawal. The decision reiterates that the test for the existence of a present interest in property is an objective test of existing substantive legal rights, rather than one driven by form and a detailed inquiry into the subtleties of the transfer.

Sale of QTIP Remainder Interests

A popular (although arguably aggressive) estate planning technique used by a surviving spouse who is the beneficiary of a QTIP trust is the purchase of the trust remainder interest from the remainder beneficiaries. Purchase of the remainder interest by the surviving spouse may significantly reduce estate tax. However, in Rev. Rul. 98-8,(24) the Service described when gift tax would be imposed on transfers of remainder interests in trusts subject to a QTIP election (including the purchase of the QTIP interest).

In the ruling, a decedent established a testamentary trust that provided his surviving spouse was to receive all of the trust income, payable annually, for her life. On her death, the remainder was to be distributed to the decedent's adult child. No power of appointment was given to the surviving spouse. The executor elected to treat the trust property as QTIP to qualify the value of the property passing from the decedent to the trust for the marital deduction. Subsequently, the surviving spouse purchased the child's remainder interest in the QTIP trust with a promissory note(25) with a face value equaling the FMV of the remainder interest. The QTIP trust terminated as a result of the purchase. The surviving spouse's position was that no gift resulted from the purchase, because full and adequate consideration had been paid for the remainder interest. The Service held to the contrary, advancing two separate theories as support for its position.

First, the Service held that the sale of the remainder interest is a disposition of a qualifying QTIP interest subject to gift tax under Sec. 2519. The Service based this holding on case law and regulations that treated a commutation of a QTIP trust as a disposition of the spouse's income interest.(26) Here, a commutation occurred because under state law, the income and remainder interests merged when the surviving spouse purchased the remainder interest. Second, the IRS relied on older cases standing for the general proposition that the "receipt of an asset that does not effectively increase the value of the recipient's gross estate does not constitute adequate consideration for purposes of the gift and estate tax."(27)

The Service's general economic position is subject to attack in light of two circuit court decisions(28) that examined the sale of remainder interests. In these cases, actuarial values were arrived at using applicable regulations; the courts held that full and adequate consideration was paid for the remainder interests. As a result, each circuit held that the remainder interest was not includible in the decedent's estate under Sec. 2036, which does not apply when a decedent has made a transfer of property for full and adequate consideration. Each of these decisions reject the questionable economic reasoning adopted in Gradow(29) and Rev. Rul. 988. The Sec. 2519 argument might be avoided by structuring the sale to avoid a commutation.

Transfer of Nonvested Stock Options

In a much-anticipated ruling, Rev Rul. 98-21,(30) the Service held that transfers of nonvested, nonqualified compensatory stock options were not completed gifts. Although the IRS has issued letter rulings concluding that a transfer of nonstatutory options to an employee's family members constituted a completed gift, those rulings either specifically involved vested options(31) or were unclear on the options' vested status.(32) Until now, the question of whether the IRS would treat the transfer of a nonvested option as a completed gift remained unanswered.

In Rev. Rul. 98-21, a company granted an employee options to purchase company stock, which was freely transferable after acquired on exercise. While the granted options are exercisable only after the employee performs additional services, the employee can transfer the options to a family member (or to a trust for the benefit of a family member) before the date on which they could be exercised. As allowed by the plan, the employee gave the options to his children before they vested.

The Service first noted that if the employee failed to perform the services, the option could not be exercised; the options became binding and enforceable only after the services were completed. Because the options could not legally be exercised prior to vesting, the Service held that the employee did not make a completed gift of the options until services were completed that would allow the transferee to exercise the options.

The ruling appears to contradict earlier rulings that supported the conclusion that termination of employment is an act of independent significance by a transferor of options.(33) Also, the Service failed to consider whether under state law, option rights might be considered a transferable property right when issued. If the options represent a transferable state law property right, the Service's argument really goes to valuation of the transferred property. As a general rule, the courts have not looked kindly on the "open transaction" theory often advanced as an argument for taxing completed transfers as gifts at some later date (when it is easier to determine the transferred property's value).

In an ancillary pronouncement, Rev. Proc. 98-34,(34) the Service set forth safe-harbor guidance for valuing nonpublicly traded compensatory stock options on publicly traded stock. Taxpayers may determine the value of these stock options using a generally recognized option-pricing model (e.g., the Black-Scholes model or an accepted version of the binomial model) that takes six specific factors into account:

1. The option's exercise price.

2. The option's expected life.

3. The underlying stock's current trading price.

4. The underlying stock's expected volatility.

5. The underlying stock's expected dividends.

6. The risk-free interest rate over the remaining option term.

To rely on the procedure, no discount can be applied to the valuation produced by the option-pricing model (e.g., for lack of transferability).


In the September issue, the second part of this two-part article will examine a number of cases and administrative pronouncements concerning gifts, disclaimers, valuation, marital deduction, charitable planning, GST tax and Chapter 14.

(1) See Zysik, "Significant Recent Developments in Estate Planning," 28 The Tax Adviser 500 (Aug. 1997).

(2) IRS Letter Ruling (TAM) 9751003 (8/28/97).

(3) See, e.g., IRS Letter Ruling (TAM) 9710021 (3/7/97).

(4) See, e.g., Ella F. Fondren, 324 US 18 (1945)(33 AFTR 302, 45-1 USTC [paragraph] 10,164); Est. of Holmes, 326 US 480 (1946)(34 AFTR 308, 46-1 USTC [paragraph] 10,245).

(5) The IRS cited Fondren, id., and William D. Disston, 325 US 442 (1945)(33 AFTR 857, 45-2 USTC [paragraph] 10,207).

(6) The ability to restrict absolutely the fight of a trust beneficiary to transfer his interest is an exception to the common law's abhorrence of inalienable property interests. The objection to an inalienable trust interest is overcome by the common law rule against perpetuities; in most jurisdictions, the rule eventually causes a trust to terminate, at which time the restriction lapses.

(7) The partnership agreement at issue in TAM 9751003 stated that an assignment would be void ab initio. The Service did not discuss whether this restriction would be respected in the partnership's controlling jurisdiction. If it would, the Service's conclusion is more meritorious; if not, it is suspect.

(8) See, e.g., IRS Letter Rulings (TAMs) 9719006 (1/14/97), 9723009 (2/24/97), 9725002 (3/3/97), 9730004 (4/3/97), 9735003 (5/8/97) and 9736004 (6/6/97).

(9) IRS Letter Ruling (TAM) 9719006, note 8; for a complete analysis, see Zysik, note 1, p. 504.

(10) Est. of Elizabeth B. Mushy, TC Memo 1990-472.

(11) Est. of Joseph Cidulka, TC Memo 1996-149.

(12) IRS Letter Ruling (TAM) 9730004, note 8.

(13) In ACM Partnership, TC Memo 1997-115, the Tax Court disregarded a contingent installment sale because it lacked economic substance. A company had entered into a partnership arrangement to create a loss used to shelter a capital gain. The court stated that "transactions will only be recognized for tax purposes if there is some `tax-independent purpose' for the entire transaction."

(14) IRS Letter Ruling (TAM) 9723009, note 8; see also IRS Letter Rulings (TAMs) 9725992 and 973004, note 8.

(15) See, e.g., Est. of White, TC Docket No. 14412-97. It is the authors' understanding that the IRS has abandoned its Sec. 2703 argument.

(16) Est. of Dorothy Morganson Schauerhamer, TC Memo 1997-242.

(17) TD 8743 (12/22/97).

(18) If the QPRT beneficiaries received the residence, the basis would be a Sec. 1015 carryover basis.

(19) This term refers to the type of trusts involved in D. Clifford Crummey, 397 F2d 82 (9th Cir. 1968)(22 AFTR2d 6023, 68-2 USTC [paragraph] 12,541), aff'g and rev'g TC Memo 1966-144 (holding that minor beneficiaries' withdrawal rights were present interests that qualified for the annual exclusion).

(20) IRS Letter Ruling (TAM) 9731004 (4/21/97).

(21) See, e.g., Est. of Lieselotte Kohlsaat, TC Memo 1997-212, discussed in Zysik, note 1, p. 505; see also Schenkel, "Will a Crummey Beneficial Interest Qualify for an Annual Exclusion?," 28 The Tax Adviser 378 (June 1997), p. 381.

(22) Est. of Carolyn W. Holland, TC Memo 1997-302.

(23) Est. of Maria Cristofani, 97 TC 74 (1991).

(24) Rev. Rul. 98-8, IRB 1998-7, 24.

(25) The IRS indicated that it would have reached the same conclusion had the surviving spouse paid cash rather than a promissory, note for the remainder interest.

(26) William H. Wemyss, 324 US 303 (1945)(32 AFTR 1150, 45-1 USTC [paragraph] 10,179); Charles E. Merrill v. John L. Fahs, 324 US 308 (1945) (33 AFFR 587, 45-1 USTC [paragraph] 10,180); Regs. Sec. 25.2519-1(f).

(27) In support of its position, the Service relied on old marital rights cases holding that a spouse's relinquishment of marital rights in the taxpayer's property did not constitute adequate consideration for the transfer of property to the spouse; see Wemyss and Merrill, note 26.

(28) John Michael Wheeler, 116 F3d 749 (5th Cir. 1997)(80 AFTR2d 97-5075, 97-2 USTC [paragraph] 60,278); Est. of Rose D'Ambrosio, 101 F3d 309 (3d Cir. 1996)(78 AFTR2d 96-7347, 96-2 USTC [paragraph] 60,252).

(29) George S. Gradow, 897 F2d 516 (Fed. Cir. 1990)(59 AFTR2d 87-1221, 90-1 USTC [paragraph] 60,010).

(30) Rev. Rul. 98-21, IRB 1998-18, 7.

(31) IRS Letter Ruling 9514017 (1/9/95).

(32) IRS Letter Ruling 9616035 (1/23/96).

(33) In IRS Letter Rulings 9616035, id., 9725032 (3/24/97) and 9722022 (2/27/97), the IRS ruled that the ability of an employee to affect the ownership or value of the option through a termination of employment causing a change in vesting rights is not a retained power that triggers inclusion of the option in the employee's estate.

(34) Rev. Proc. 98-34, IRB 1998-18, 15.
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Title Annotation:part 1
Author:Zysik, Jeff
Publication:The Tax Adviser
Date:Aug 1, 1998
Previous Article:Is your S election really late.
Next Article:Current corporate income tax developments.

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