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Significant recent developments in estate planning.

Cases and Rulings on Income Taxation of Trusts and Estates; Debts, Claims and Administration Expenses; Special Use Valuation; and Charitable Giving

Parts I and II of this article, published in October and November, discussed recent court decisions and IRS rulings on gift tax, disclaimers, life insurance, retained interests, powers of appointment, miscellaneous estate tax matters and the marital deduction. This final installment covers the income taxation of trusts and estates; special use valuation; debts, claims and administration expenses; and charitable giving.

As a general note of caution, the estate planner should determine the current status of a reported development, particularly if the IRS has appealed or otherwise indicated that it will not follow a court decision. In such cases, the estate planner should emphasize to clients that the recommended plan, although supported by a court decision, may lead to litigation in which the IRS may prevail.

Income Taxation of Trusts and Estates

In the area of the income taxation of trusts and estates, developments included the following.

* A trust's investment management fees were subject to the 2% floor on itemized deductions.

* Taxable gain was not triggered by property distributed to satisfy the grantor's annuity right.

* Prearranged funeral arrangements constituted grantor trusts.

* The inability to locate the trust beneficiary did not prevent a simple trust's distribution deduction.

* Estate distributions during administration were not deductible since they were improper under state law.

* A basis step-up was allowed for a decedent's interest in another estate's undistributed property.

* A Crummey-power trust qualified as an S shareholder.

* Grantor trusts were qualified S shareholders even though trustees have a contingent remainder interest.

* Management fees incurred by trust

subject to 2% limitation

In O'Neill,[87] an irrevocable trust was established naming two individuals as cotrustees, neither of whom had experience in investment management. The cotrustees entered into an agreement with an investment consulting firm, which thereafter handled the investment strategy with respect to the $4.5 million corpus. The investment management fees were paid by the trust, but the cotrustees waived any fees for themselves. The fees were deducted in full on the trust's Federal income tax return. The IRS subsequently asserted that the 2% limitation under Sec. 67(a) applied and the Tax Court agreed.

Critique: Sec. 67(a) provides that certain miscellaneous itemized deductions may be deducted for Federal income tax purposes only to the extent that they exceed 2% of adjusted gross income. Sec. 67(e) creates a limited exception for trusts and estates to the extent that costs are paid or incurred in connection with the administration of the entity "which would not have been incurred if the property were not held in such trust or estate. . . ." The taxpayer asserted that the investment advisory fees fell within the Sec. 67(e) exception, since local law imposed on fiduciaries an obligation to prudently invest trust assets. Since neither cotrustee was an experienced investment manager, such local law requirements imposed an obligation to seek professional advice in order to comply.

The Tax Court disagreed. It interpreted Sec. 67(e) as excluding only those costs that are unique to the administration of an estate or trust, such as fees paid to a trustee and trust accounting fees mandated by law or the trust agreement. The court noted that individual investors routinely incur costs for investment advice as an integral part of their investment activities.

Local law provided the fiduciary with a detailed listing of preapproved investments that would obviate the need to incur investment advisory fees. The cotrustees could have avoided the risk of being surcharged for a breach of their fiduciary responsibilities simply by investing trust assets in the statutorily preapproved investments.

The taxpayer alternatively argued that the fees should be fully deductible as quasi-trustee fees. The trustees could have separately engaged an investment adviser to be paid from their own (presumably increased) trustee fee. The court did not accept or reject the proposition that investment advisory charges incorporated within a trustee fee are deductible within the Sec. 67(e) exception. It merely stated that the case should be adjudicated on the actual, rather than hypothetical, facts.

Planning hints: O'Neill represents the first case to address the Sec. 67 deductibility of the cost of rendering investment advice on behalf of a trust. It is not clear what the court would have decided had the cotrustees charged a trustee fee in an amount comparable to the investment advisory fees, and thereafter remitted these amounts to the investment management company. It is conceivable that the court may have ruled against the taxpayer.

It is far more questionable as to what the result would have been had the issue involved normal trustee fees charged by a professional corporate trustee. Professional trustees typically provide a myriad of services, including custodianship, investment advice, tax reporting, general accounting, administration and the like. The cost of these services obviously is included in the overall trustee fee, although virtually no institution divides the fee into its multiple components.

At this time, it would appear that tax preparers may continue to deduct the full amount of professional trustee fees. However, practitioners must wait and see what action the IRS will take in light of its victory in O'Neill.

* No taxable gain realized on distribution

of appreciated assets from grantor trust

In IRS Letter Ruling 9146025,[88] the taxpayer created an irrevocable trust for a term of years. Under the agreement, a specific annuity amount was to be distributed to the taxpayer during the term of the trust. In addition, to the extent that trust income and realized capital gains exceeded the annuity in a given year, such excess amount was required to be distributed in commutation of future payments. The trustee also had authority to distribute a portion of trust corpus in commutation of future payments. On termination of the trust, the remainder passed to the taxpayer's children.

The trust sought to distribute a portion of corpus, made up of appreciated closely held stock, to the taxpayer in complete satisfaction of future payments provided for under the instrument. On such distribution, the trust would terminate. The IRS concluded that no gain or loss would be realized on the proposed distribution.

Critique: For Federal income tax purposes, the annuity established under the trust was a fixed obligation. Typically, the satisfaction of a fixed obligation with appreciated property results in a taxable transaction and the realization of gain.

Sec. 671 provides that a grantor's taxable income shall include those items of income, deduction and credit that are attributable to the portion of the trust deemed owned by him. Set. 677(a)(1) states that a grantor will be treated as the owner of any portion of a trust whose income, without the approval or consent of an adverse party, may be distributed to such grantor. Rev. Rul. 85-13[89] concluded that if a grantor is treated as the owner of the entire trust, the trust assets are considered owned by him for Federal income tax purposes.

In Letter Ruling 9146025, trust income, including realized capital gains, was required to be distributed to the grantor. As such, both the income and corpus of the trust were subject to Sec. 671 and the taxpayer was considered to own the underlying assets. Since the grantor is treated as owning the assets, a partial distribution of those assets in commutation of the annuity obligation did not represent a taxable exchange for Federal income tax purposes. The ruling also noted that the shares received by the taxpayer under the transaction would have a carryover basis as determined under Sec. 1012.[90]

* Prearranged funeral contract results

in grantor trust

In IRS Letter Ruling (TAM) 9140006,[91] a funeral director-established a prearranged funeral plan under which customers contributed cash for future application against funeral expenses. Two options existed under the plan: First, amounts paid were contributed to an independent trustee and held for future use, except that on written notice the customer could cancel the arrangement and receive the corpus and accumulated income; and second, the same arrangement as the first option, except that the trust was noncancelable. Under both options, all trust income was accumulated. All customers' payments were aggregated and administered by the trustee as a single fund. A "consolidated" Form 1041, U.S. Fiduciary Income Tax Return, was filed, which treated each customer's account as a separate complex trust. The IRS ruled that each customer's account represented a separate grantor trust for which a Form 1041 was required to be filed.

Critique: Sec. 673(a) provides that a grantor will be treated as the owner of any portion of a trust in which he has a reversionary interest in either corpus or income, provided that such reversionary interest exceeds 5% of the value of that portion. Sec. 676(a) provides that a grantor will be treated as the owner of any portion of a trust when he has a power to revest that portion in himself, provided that power is exercisable by the grantor, a nonadverse party or both.

Citing Rev. Rul. 87-127,[92] the IRS concluded that the first option under the plan was a grantor trust within the meaning of Sec. 676(a), since the customer's unilateral ability to cancel the arrangement constituted a power to revest corpus and income in himself within the meaning of the statute. The second option resulted in grantor trust status under Sec. 673(a) since the mandatory application of plan assets and accumulated income in satisfaction of the customer's estate's local law obligation to pay funeral expenses constituted a reversionary interest within the meaning of that statute.

The IRS cited Regs. Sec. 1.671-4(a) for the requirement that a grantor trust should be reported to the Service by Form 1041, accompanied by an attached statement reflecting income and expenses. As such, the "consolidated" tax return filed by the funeral director was deemed inappropriate. Obviously, no Sec. 642(b) exemption was allowed.

* Trust required to pay annual income

to unlocated beneficiary

was a simple trust

In IRS Letter Ruling 9138034,[93] the decedent's will established an irrevocable testamentary trust for the benefit of his granddaughter. Net income was required to be distributed at least annually, with the corpus distributable 50% on reaching age 37 and the balance on reaching age 45. From the date of death to the current date, the whereabouts of the beneficiary were unknown. As such, the trustee routinely made distributions of trust accounting income to a separate bank account for the benefit of the beneficiary. Similar action was taken with respect to required distributions of corpus. The IRS concluded that the trust was a simple trust and that distribution deductions were appropriate for transfers to the separate bank account. Further, the trustee was not obligated to, or responsible for, the filing of returns or the payment of tax with respect to the separate account.

Critique: Under the trust, the unlocated granddaughter had an absolute and unconditional right to current distributions of net income payable at least annually. As such, Sec. 651(a) treats the trust as a simple trust for all years in which only distributions of net income were required. For the years in which a principal payment was required, the trust became a complex trust and a distribution deduction was allowed, limited to distributable net income.

The IRS noted that Sec. 468B(g) provides that nothing in any provision of law shall be construed as providing that an escrow account, settlement fund or similar fund is not subject to income tax. The Secretary is directed to prescribe regulations for the taxation of such accounts. However, Sec. 468B(g) imposes no obligation on the trustee for either the filing of tax returns or the payment of tax with respect to amounts conveyed to the separate bank account. The ruling was silent as to whether Federal income tax returns were required to be filed, and as to the identity of the party who would assume responsibility for such returns.

* Distribution deduction unavailable

for improper estate transfers

In Murphy,[94] the decedent bequeathed her entire estate equally to her nephew and niece. The will contained no provision for income distributions during administration. Before the final distribution of estate assets, the executor made partial distributions of substantial amounts of estate income and claimed a distribution deduction under Sec. 661(a). Subsequently, the executor obtained a nunc pro tunc order from the Probate Court retroactively ratifying these distributions. The district court held that no distribution deduction was available and that the income was fully taxable at the estate level.

Critique: Sec. 661(a) provides a deduction for the total of amounts required to be distributed and properly paid or credited to the beneficiary. Generally, an amount is considered "required to be distributed" to the extent that the distribution is mandated by the will or trust instrument or under local law. Both parties in Murphy agreed that the will was silent concerning distributions of income, and that the applicable Oklahoma law did not mandate interim income distributions during administration. As such, the availability of a distribution deduction under Sec. 661(a) rested on whether the distributions were properly paid or credited within the meaning of the statute.

The IRS asserted that here the propriety of an interim distribution of estate income rested on obtaining court approval prior to the actual distribution. The IRS cited Cooks Trust, an Oklahoma case holding that "[un]til the county court makes an order for partial or final distribution of the estate of a decedent, the executor or administrator is without authority to deliver any of the estate . . . ."[95] Further, the IRS argued that court approval, under Cooks Trust, is a prerequisite for distribution that could not be corrected by a retroactive nunc pro tunc order.

The district court agreed with the IRS, and found the taxpayer's reliance on Freulez[96] unpersuasive. In Freuler, the U.S. Supreme Court interpreted the application of Sec. 661(a) with respect to a distribution made by a California estate. As in Murphy, the executors made interim distributions of estate income without securing prior court approval. However, in Freuler, while the will did not mandate current distribution of income during the period of estate administration, the Supreme Court concluded that such income distributions were contemplated under the instrument and, as such, implicitly authorized. Further, the district court found that legal precedence existed in California law for interim distributions of estate income, under facts comparable to Freuler, without the requirement of securing a prior approval. No such latitude was found to exist in Oklahoma law, nor, more importantly, did the will in Murphy contemplate distributions of income from the estate.

Planning hints: Presumably, the adverse tax consequences in Murphy arose from an inattention to the local law requirements for the distribution of estate income. In light of the will's silence concerning such distributions, the executors should have obtained a prior court order before making the distributions.

However, it is not altogether clear that the district court would have ruled favorably for the taxpayer if the facts in Murphy were comparable or identical to those in Freuler. The Supreme Court allowed a distribution deduction in Freuler, without a prior court order, based on the testator's expressed desire for income to be distributed. California law treated this as implicitly authorizing the executor to make such distributions. The Oklahoma court's language in Cooks Trust arguably does not extend the same latitude as the law of California. As such, even if the will indicated a desire for income to be distributed, the IRS and the district court could have required prior Probate Court approval before a distribution would be deemed properly made within the meaning of Sec. 661(a).

* Basis step-up allowed for undistributed stock

In Connecticut National Bank,[97] the decedent's husband and the decedent died within a five-year period. The husband, who died first, left an estate of approximately $7.2 million, consisting primarily of shares of a single corporation. At the time of the decedent's death, her husband's estate had appreciated to approximately $25 million in value. While the husband's will provided for marital and family trusts, neither were funded at the time of the, decedent's death. Approximately seven months after the decedent's death, the husband's estate sold the stock and reported a capital gain equal to the difference between the proceeds received and the value reflected in the husband's estate tax return.

In examining the decedent's estate tax return, the IRS asserted (and the estate paid) a deficiency resulting from treating the husband's marital bequest as a fractional share that participated in the interim appreciation. In light of the decedent's estate tax adjustment, the husband's estate filed an income tax refund claim asserting that the stock basis originally used to calculate gain was understated. The appropriate basis should be the fair market value (FMV) as of the decedent's death, not the husband's death as originally claimed. The Second Circuit agreed with the taxpayer.

Critique: If the shares had been distributed to the marital trust before the wife's death, the IRS acknowledged that a basis step-up would be permitted. However, the IRS argued that the failure of the husband's estate to distribute shares to the marital trust barred the taxpayer from asserting a higher basis. The IRS argued that Sec. 1014(a) allows a basis step-up only for property "acquired" from a decedent. Since no formal transfer had been made to the marital trust, the decedent's estate never "acquired" the shares.

The Second Circuit did not agree. It noted that the husband's executor was responsible for liquidating the estate and did not possess any real ownership interest in the property. While the court acknowledged that legal title had not formally been conveyed during the period between the husband's death and the decedent's death, there was no doubt that the marital trust had become the beneficial owner of the property at the time of the decedent's death.

The court then pointed out that the IRS seemed to be taking an inconsistent position. First, it asserted that a substantial portion of the appreciation enjoyed by the husband's estate should be attributed to the decedent because of the fractional share language of the marital bequest. In fact, a substantial deficiency was assessed and paid on the basis of this argument. However, notwithstanding the attribution of substantial additional value to the decedent's estate, the IRS then attempted to deny a basis step-up with respect to the same shares based on a formalistic argument that no legal transfer had been made.

In holding against the IRS, the court concluded that Sec. 1014(a) should be interpreted literally. The statute merely requires that property be acquired from a decedent. Further, Sec. 1014(b) provides 10 circumstances under which property will be deemed to be acquired from a decedent. The combination of these two subsections led the court to conclude that an acquisition of beneficial ownership, rather than a formal legal transfer, is sufficient.

* Crummey trust qualified to hold

S stock

In IRS Letter Ruling 9140047,[98] the grantor established identical irrevocable trusts for his three children and seven grandchildren. The grantor's three children and two unrelated parties were named as trustees of each trust. Under the agreement, income and principal could be distributed to the beneficiaries based on trustee discretion. Each beneficiary was granted a noncumulative, annual withdrawal power with respect to any contributions made to the trust within a given year. This power was limited to the lesser of the value of the property contributed or the available annual exclusion amount.

The grantor adopted a program of transferring shares of an S corporation to each of the trusts. In no year did the value of the shares conveyed to a single trust exceed the available annual exclusion. The IRS concluded that each trust was a qualified holder of the S shares.

Critique: In general, Sec. 1361(d) limits the authorized holders of S stock to individuals who are either residents or citizens of the United States. Sec. 1361(c)(2) provides a limited exception for a trust that is treated as being owned by an individual who is a citizen or resident of the United States. As such, a trust that is a grantor trust within the meaning of Sec. 671 is a permitted S shareholder.

The IRS first noted that the grantor retained no interest or powers that would treat him as the owner of the trust within the meaning of Sec. 671. Sec. 678(a) provides that a person other than the grantor will be treated as the owner of any portion of a trust with respect to which (1) he has a power exercisable solely by himself to vest corpus or the income therefrom in himself, or (2) he has previously partially released or otherwise modified such a power and after the release or modification retains such control as would, within the principles of Secs. 671-677, subject a grantor of the trust to treatment as the owner.

Each beneficiary possessed an unrestricted ability to withdraw annual contributions within 30 days of notice of contribution. This withdrawal power was considered equivalent to an absolute power to vest the asset in the beneficiary. Until that power was exercised, released or allowed to lapse, the beneficiary was treated as the owner of that portion of the trust and was required to include in taxable income each item of income, deduction and credit attributable to the trust property.

On the power's release or lapse, continuing grantor status rested on whether the beneficiaries retained a Sec. 677 interest. Sec. 677(a) provides that a grantor will be treated as the owner of a trust whose income, without the approval or consent of an adverse party, may be distributed to or held or accumulated for future distribution to the grantor or his spouse. In Letter Ruling 9140047, each beneficiary was entitled to discretionary distributions of current and accumulated income and principal. These distributions were not subject to the consent of an adverse party. As such, had the beneficiaries been grantors of the trust, they would have been subject to the provisions of Sec. 677.

The IRS concluded that the withdrawal rights, when coupled with the distribution provisions, caused the trusts to be grantor trusts within the meaning of Sec. 671. In consequence, each of the trusts was a permitted S shareholder.

Planning hints: The authors have no argument with the IRS's application of the law in this instance. However, we urge extreme caution given the IRS's propensity to challenge gift tax valuations. If the value of an annual gift exceeds the amount of the withdrawal right, grantor trust status will not exist for the excess. Although the excess may be slight, the result may be the loss of the S election.

* Grantor trust permitted to hold S

stock even though trustees have contingent

remainder interest

In IRS Letter Ruling 9142023,(99])two minor children owned 6.5% each of an S corporation. The remaining shares were held by their parents. In order to monitor the amount of dividends available to their children, the parents obtained a court order authorizing them, as guardians, to transfer the children's shares to an irrevocable trust. Under the trust terms, income or principal was distributable to the children based on the sole and absolute discretion of the trustees. On a child's attaining age 35, the trustees were required to gradually pay out remaining income and principal so as to achieve trust termination at the child's attaining age 39. The parents were named trustees and the instrument expressly stated that nothing in the trust should be deemed to relieve them of their primary obligation to provide support. The IRS ruled that both trusts were qualified S shareholders.

Critique: Qualified shareholder status rested on grantor trust treatment under Sec. 671. Both children were considered the grantors of their respective trusts, even though actual conveyance was made by their guardians. Sec. 677(a) provides that a grantor will be treated as the owner of a trust whenever its income, without the approval or consent of an adverse party, may be distributed or held or accumulated for future distribution to himself or his spouse. Since the trust income could be distributed to the children until their attaining age 39, with total distribution of trust property occurring not later than age 39, Sec. 677(a) was deemed to apply.

The second question was whether this distribution power was subject to the consent of an adverse party. The trust instrument provided for alternative distributions if the primary grantor/beneficiary died before complete distribution. The instrument specified the following order of distribution: First, to the beneficiaries' natural or adopted children; second, to the trust established for the other child; third, equally divided among the child's two half-brothers; and finally, in the event that all of the above have predeceased, to the children's parents. Since the parents were also trustees, the question was whether they constituted adverse parties within the meaning of Sec. 677.

In Holt,[100] - a district court considered a case in which the grantor's parents, who were named trustees with the power to distribute income, would receive principal if no grandchildren or great-grandchildren of the grantor survived the termination of the trust. The district court concluded that the parents' interest was not sufficiently substantial to cause them to be considered "adverse parties" under Sec. 672. Since the parents' interest in Letter Ruling 9142023 was even more remote than that expressed in Holt, the IRS concluded that the trusts were grantor trusts within the meaning of Sec. 671 and permitted holders of S stock within the meaning of Sec. 1361(c)(2)(a)(i).

Debts, Claims and Administration Expenses

Some of the recent developments in the deductibility of debts, claims and administration expenses included the following. * Operating business expenses could not be deducted as estate administration expenses. * A delinquent claim could not be deducted.

* Expenses of operating ongoing business

not deductible as an administration expense

In IRS Letter Ruling (TAM) 9121002,(101) the decedent's spouse's estate included an ongoing business that passed to a qualified terminable interest property (QTIP) trust for the decedent's benefit. When preparing the decedent's Federal estate tax return, deductions were claimed for various expenditures made by the QTIP trust, including trustee commissions outstanding as of the date of death, the cost of preparing the decedent's Federal and state transfer tax returns, trustee commissions incurred subsequent to death (but not related to special circumstances arising from death), and the cost of operating the ongoing business.

The IRS found that only the costs of preparing the decedent's Federal and state transfer tax returns were properly deductible as an administration expense. The trustee fees incurred before the date of death were an obligation of the decedent and properly claimed as a debt. All other expenditures were deemed not to be deductible in the estate return.

Critique: Sec. 2053(b) allows a deduction for amounts representing expenses incurred in administering property that is included in the gross estate. The fact that expenses were incurred and paid by the QTIP trust, and were not claims against the estate, was not itself found controlling in determining deductibility.

However, Regs. Sec. 20.2053-3(a) states that administration expenses are limited to those actually and necessarily incurred in the administration of a decedent's estate. For this purpose, the administration of an estate generally includes collection of assets, payment of debts, and preservation and distribution of property to beneficiaries. Expenditures that are not necessary to the proper settlement of the estate, but are incurred for the individual benefit or convenience of the beneficiaries, are not deductible as administration expenses.

The IRS pointed out that a deduction under Sec. 2053 depends on the timing and type of expenses. For example, expenses incurred before the decedent's death are personal obligations and, to the extent paid by the personal representative are properly chargeable as claims or debts against the estate rather than administration expenses. Consequently, the predeath trustee fees were deductible as a debt or claim. However, QTIP trustee fees incurred after death, but not arising from special circumstances attendant to death, are not deductible as administration expenses.

The administration expense deductibility of ongoing business expenses was discussed at greater length in IRS Letter Ruling (TAM) 9132003.(102) In that ruling, approximately 54% of the decedent's gross estate consisted of a motel business operated as a proprietorship. The executor claimed a $1.9 million administration expense deduction for the ongoing and day-to-day expenditures incurred in operating the motel during the administration period.

The IRS noted that, in Papson,[103] the Tax Court had previously allowed an administration expense deduction for a substantial commission incurred by an executor to replace a tenant in a shopping center property held by an estate. However, in Papson, the major tenant became bankrupt, thereby significantly imperiling the shopping center's value. As such, the need to replace was equivalent to taking extraordinary steps to preserve the estate's value before distribution. Such a preservation action is a proper administration expense within the meaning of Sec. 2053.

In Letter Ruling 9132003, the motel conducted business as usual and was operating to obtain a profit. Although the IRS recognized that a business's value may decrease ff it ceases to operate as a going concern, it distinguished the motel expenses as more necessary to generate postdeath profit than to preserve or maintain the business. Any "preservation" or "maintenance" was a minor or secondary consequence of operating the business.

In light of the above rulings and the Tax Court's decision in Papson, it may be arguable that certain expenditures required to preserve a business during the period of administration may qualify as an administration expense. However, it is very unlikely that the IRS will allow such treatment in the absence of a clear demonstration that a failure to take action or pay certain expenses would result in a substantial loss to the estate. According to the IRS, merely paying expenses in conjunction with the ongoing conduct of a profitable business, or a business seeking to achieve a profit, is not sufficient to justify a deduction as an administration expense under Sec. 2053.

* Failure to file claim bars deduction

under Sec. 2053

In IRS Letter Ruling (TAM) 9204006,[104] the decedent and her husband had been married for several years. During that time, they filed joint individual income tax returns, which reflected both of their separate incomes. However, throughout their marriage, the husband routinely paid all estimated taxes and any balance of tax due without seeking reimbursement from the decedent.

The decedent died in April 1988 and a Federal estate tax return was filed. No deduction was claimed for the decedent's share of the 1987 joint income tax liability. Subsequently, on review of the estate tax return, the husband indicated an intention to file a claim against the estate for the decedent's share of the 1987 tax liability. The husband had been named executor and had not previously filed a claim with the Maryland probate court. The IRS concluded that no deduction was available under Sec. 2053 with respect to the decedent's share of 1987 taxes.

Critique: The husband asserted that the 1987 joint income tax return resulted in a tax liability that was at least partially attributable to the decedent's income. Irrespective of the fact that he had personally paid all estimated taxes for the year, he argued that a deduction should be available to the decedent's estate to the extent of her share of the tax liability.

Regs. Sec. 20.2053-6(f) acknowledges that a deductible claim may arise for a decedent's share of a joint income tax liability, provided that under local law or prior agreement an effective right of reimbursement or contribution exists between the parties. The IRS focused on two issues. First, did a debtor-creditor relationship actually exist between the decedent and her husband with respect to such taxes? Second, if such relationship did exist, was the debt enforceable under Maryland law at the time of the estate tax audit?

With respect to the first issue, the IRS reviewed Maryland law, which creates a gift presumption when one spouse advances or transfers funds to the other spouse. This presumption can be rebutted if the funds were advanced under an express promise to repay or if clear and convincing evidence otherwise negates the presumed dominative intent. In the ruling, no formal reimbursement agreement was submitted in evidence and it was observed that the husband had historically paid all joint income taxes, irrespective of the source of income. However, the IRS chose not to resolve this issue of whether a debt existed.

Instead, it cited Rev. Rul. 60-247(105) and Kyle(106) - for the proposition that no deduction is allowable under Sec. 2053(a) when the creditor has failed to perfect his claim within the limits and under the conditions prescribed by applicable local law. Maryland law establishes specific time limits for the formal filing of claims against an estate as a precondition for enforceability. As the husband failed to file a timely formal claim with the probate court, the IRS concluded, irrespective of the existence of an actual debt, that no deduction could be claimed with respect to the decedent's share of 1987 taxes.

Further, the IRS rejected the husband's assertion that the formal filing of a claim was unnecessary in light of his status as personal administrator of the estate. The IRS noted that Maryland law makes no exception for the filing of claims when the estate's personal representative is also the claimant. Indeed, to take such a position would be inconsistent with the objective of the claims statute to provide all persons who have an interest in the estate with notice of possible outstanding claims. Excepting the personal representative from this obligation would potentially place estate beneficiaries at risk and deprive them of their right to be aware of claims against the estate assets.

Special Use Valuation

Significant developments in special use valuation included the following matters. * The failure to timely file a recapture agreement resulted in the disallowance of the special use election. * Late appraisals and calculations invalidated a special use election. * A partition of special use property did not trigger recapture.

* Failure to file recapture agreement

resulted in loss of special use valuation

In Bartlett,[107] the decedent died on Dec. 25, 1980, and his gross estate included farmland qualifying for special use valuation under Sec. 2032A. Two days before the filing date of the Federal estate tax return, the decedent's spouse and daughters executed a recapture agreement as required by Regs. Sec. 20.2032A-8(a)(3). The Federal estate tax return was timely filed and a Sec. 2032A election was made. While this election met most of the requirements specified in the regulations, the estate's attorney apparently forgot to include the recapture election in the tax return. When this omission was noted, the recapture election was forwarded to the IRS approximately 10 days after the filing date. The Seventh Circuit held that special use valuation was not available to the estate.

Critique: Sec. 2032A is a relief provision that allows qualified real estate, including farmland, to be valued in terms of its actual, rather than highest and best, use. Among the statutory requirements is that a Sec. 2032A election be included in a timely filed Federal estate tax return. One of the regulatory requirements is the inclusion in the tax return of an agreement, signed by all persons having an interest in the qualified use property, acknowledging their consent to be personally liable under Sec. 2032A(c) for any recaptured Federal estate taxes resulting from an early disposition or early cessation of qualified use.

Citing Prussner,[108] the Seventh Circuit stated that failing to file the recapture agreement "with the return" does not satisfy an unequivocal requirement of Sec. 2032A and does not substantially comply with the regulations. The recapture agreement is an essential element of the Sec. 2032A statutory scheme since it provides a mechanism for Treasury to enforce recaptured estate taxes against persons having an interest in the property.

The Seventh Circuit then addressed whether the election, as filed, followed by the subsequent submission of the recapture agreement, constituted substantial compliance within the meaning of Sec. 2032A(d)(3). The court once again cited Prussner for the proposition that a recapture agreement is integral to the election. The court then said: "It is no excuse that the estate's lawyer apparently overlooked the requirement that the recapture agreement must be filed with the estate tax return. In the context of a failure to timely elect favorable tax treatment under another provision of the Code, this Court recognized that |[t]he taxpayer's own ignorance cannot excuse the failure to make a timely election, regardless of whether he or she is ignorant only of the election opportunity or the tax consequences [of the provision] itself.'"(109) As such, the Seventh Circuit found that the substantial compliance doctrine, as applied to cases involving the election of Sec. 2032A(d)(3), is limited to correcting minor errors in the recapture agreement and the notice of election filed with a timely tax return.

The taxpayer then sought to obtain relief under Section 1421 of the Tax Reform Act of 1986, which provides that the failure to file a recapture agreement with an estate tax return is not fatal if the estate tax return contains all the information with respect to the election that the return requires. The court refused to address the merits of this argument, since the taxpayer never raised Section 1421 in the Tax Court. The Seventh Circuit stated that it had repeatedly held that issues and arguments cannot be raised for the first time on appeal.

A similar result occurred in IRS Letter Ruling (TAM) 9207003,(110) in which a timely filed estate tax return contained a recapture agreement that had been signed by all parties, except one of the life tenants. The IRS noted that Sec. 2032A(d)(3) does provide relief, based on the concept of substantial compliance with the regulations, in some instances in which a submitted recapture agreement fails to contain all of the necessary signatures. However, citing legislative history for Sec. 2032A(d)(3), the IRS pointed out that relief was intended only when the recapture agreement included the signatures of all parties, other than those with an interest having relatively small value. The IRS asserted that relief was not accorded under the statute simply because one of the interested parties had failed to sign the recapture agreement. It was necessary that all parties having a substantial interest sign on a timely submitted agreement.

Planning hints: The results in Bartlett and Letter Ruling 9207003 once again demonstrate the critical importance of the recapture agreement required under Sec. 2032A. If special use valuation relief is sought, it is important that the personal administrator of the decedent's estate take timely action to obtain the requisite signatures from all persons with an interest in the property. The failure to submit such an agreement with a timely filed estate tax return, or the omission of any person holding a significant interest, will result in the election's failure.

Another lesson, particularly in Bartlett, is the danger associated with a layman acting as executor and the reliance on the advice of an attorney not specializing in Federal estate tax matters. Since a recapture agreement had been signed by all relevant parties prior to filing the tax return, a simple review of the return before filing should have disclosed the inadvertent omission of this agreement. The fact that this omission was not noted reflects the lack of expertise of the various involved individuals. This is particularly unsettling, since the submission of a recapture agreement only 10 days after the filing date was deemed insufficient to perfect the election.

* Failure to timely submit appraisals

resulted in loss of special use valuation

In IRS Letter Ruling (TAM) 9204005,(111) the decedent's gross estate included properties qualifying for special use valuation and the Federal estate tax return was timely filed under an extension. The return included a special use valuation election and some of the information required by the regulations. The original return did not, however, include appraisals substantiating FMV or documentation with respect to the special use value as required by Sec. 2032A(e)(7). Subsequently, appraisals of these properties were submitted in an amended return.

The IRS initiated an audit of the Federal estate tax return and repeatedly requested, both verbally and in writing, documentation concerning the method of computing the special use valuation. Approximately 14 months after the audit was initiated, the case was closed and a deficiency assessment issued. During the course of the taxpayer's protest of the deficiency assessment, the requested documentation was eventually obtained. The IRS concluded that special use valuation relief was not available to the estate.

Critique: Regs. Sec. 301.9100-1(a) provides that the IRS may, in its discretion and on showing of good cause, grant a reasonable extension of time for the making of various elections. The regulatory requirements for this relief include: * The time for making the election is not expressly prescribed by statute. * The extension request is filed within a period of time the IRS considers reasonable under the circumstances. * It is shown to the IRS's satisfaction that granting the extension will not jeopardize the Government's interests.

The regulations also extend special relief with respect to estate and gift tax elections before Apr. 5, 1991. To qualify for this special relief, the taxpayer must demonstrate clear evidence of intent to make the specific election at the time it was required to be made and the requirements of Rev. Proc. 79-63(112) must be satisfied. Rev. Proc. 79-63 outlines various factors that the IRS generally will consider in determining whether, under the facts and circumstances of each situation, good cause for granting an extension of time has been shown. One of these requirements is that the taxpayer take reasonable action under the circumstances to deal promptly with the missed deadline.

While the facts outlined in the ruling generally fall within the special relief provisions of Regs. Sec. 301.9100-1 (a), the IRS refused to grant relief because the taxpayer failed to meet the test of Rev. Proc. 79-63. From the date of the audit to the final submission of the required documentation almost 25 months elapsed. During this time, the IRS repeatedly requested the documentation. The dilatoriness of the taxpayer in submitting this documentation was found to be an inexcusable delay and a failure to "deal promptly with the missed deadline," as specified in Rev. Proc. 79-63.

* Partition of special use property

did not trigger recapture

In IRS Letter Ruling 9113028,(113) the decedent's gross estate contained special use valuation farm property that was bequeathed to a niece and her husband as tenants-in-common. A special use valuation election was included in the decedent's Federal estate tax return, accompanied by a recapture agreement signed by both devisees.

The devisees proposed to partition the special use property. After partition, one devisee would sell his partitioned parcel, which would include the personal residence. The remaining devisee would continue to operate her parcel as a farm. The niece wished to assume sole personal liability for the aggregate amount of recapture taxes potentially payable with respect to both parcels. The IRS concluded that partition would not constitute an early disposition within the meaning of Sec. 2032A(c). However, no ruling was given with respect to the shifting of personal liability for recapture taxes.

Critique: The taxpayers' objective was to partition a farm with respect to which a special use valuation election had been made, sell one of the partitioned parcels of that farm within the recapture period, and continue to defer all recapture taxes with respect to the aggregate property.

With respect to partition, the IRS noted that the special use valuation election was valid and that both devisees were qualified heirs within the meaning of the statute. The proposed partition would simply convert the ownership of an undivided 50% interest in qualified use property into a fee interest in a portion of that property. When all of the covenants are qualified heirs, and the property continues in a qualified use, the mere form of legal ownership has no impact on the continuing application of the election.

Sec. 6325 provides statutory authority for the Secretary to release liens imposed with respect to any IRS tax, including the recapture tax under Sec. 2032A. Regs. Sec. 301.6325-1(c) provides that the issuance of a certified discharge of real property from a lien that has arisen under Sec. 6324B is a matter resting within the discretion of the district director. Since the shifting of personal liability from the disposed parcel and its owner to the owner of the remaining parcel represents a discharge of the lien, the IRS simply refused to rule on this issue. However, in accordance with any instructions from the district director, the release apparently could be obtained if the niece properly agrees to personal liability for the entire recapture tax.

Charitable Giving

Developments in charitable giving included the following. * Powers to revoke a life estate and to remove trustees did not taint unitrust status. * A gift to a "secret" trust qualified for an estate tax charitable deduction. * A charitable deduction was allowed for a bequest to a trust qualified after death. * A lump-sum settlement payment was disregarded in determining deductible amount * A residual charitable deduction was denied due to the uncertain magnitude of noncharitable bequests.

* Grantor's power to revoke second

life interest and name trustee

did not defeat unitrust status

In IRS Letter Ruling 9120016,[114] the grantor established a charitable remainder unitrust naming himself and his spouse as life beneficiaries and a charity as remainder beneficiary. Under the instrument, the grantor reserved a testamentary power to revoke his spouse's successor income interest. He also retained the power to change, either during his life or by will, the recipient of the charitable remainder. Finally, the grantor reserved the power to remove any trustee and appoint a successor trustee, including himself, except that he could not appoint himself trustee while he still held title to the property originally contributed to the trust. The IRS found the trust qualified as a charitable remainder unitrust.

Critique: Regs. Sec. 1.664-3(a)(3)(ii) disqualifies a charitable remainder unitrust if any person has the power to alter the amount to be paid to any named person, other than a charitable organization, if the possession of that power would cause any person to be treated as the owner of the trust. This section is modified by Regs. Sec. 1.664-3 (a)(4), which states that the grantor may retain a testamentary. power to revoke or terminate the interest of any recipient other than a charitable organization. The IRS concluded that the grantor's retained testamentary revocation power over his spouse's successor income interest fell within the exception provided in Regs. Sec. 1.664-3 (a)(4).

Sec. 674(a) states that a grantor will be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income is subject to a power of disposition, exercisable by the grantor or a nonadverse party or both, without the approval or consent of an adverse party. Sec. 674(b)(4) excepts a power to determine the beneficial enjoyment of the corpus or the income if it is irrevocably payable for charitable purposes. Since the entire remainder was irrevocably payable to a charitable organization and the grantor reserved only the power to substitute one Sec. 170(c) organization for another, he was deemed not to be an owner of the trust within the meaning of Sec. 674(b)(4).

Finally, the grantor's reservation of the power to remove a trustee, and name himself as trustee, would treat him as the owner only if the trustee possessed any powers or interests such as would cause it to be treated as the owner of the trust under Secs. 673-677 if it were the grantor. The IRS noted that the unitrust amounts payable to the non-charitable beneficiaries were fixed by the terms of the trust and the trustee had no power to alter the amounts payable to those beneficiaries. Furthermore, the trust instrument prohibited the grantor from appointing himself as a trustee while he still held title to the property used to fund the trust. Under these circumstances, the reserved power to remove and replace any trustee does not cause the grantor to be treated as the owner of any portion of the trust under Sec. 674(a).

* Charitable gift made to a

half-secret trust qualified for

deduction under Sec. 2055

In IRS Letter Ruling 9126028,(115) the decedent was caring for individual A and was residing in a residential property known as the Manor. On A's death, his entire estate, including the Manor, passed to the decedent. The decedent died one day later. Three days before his death, the decedent executed a new will leaving all of his personal and real property to B and C in trust. The will contained no directions as to the purpose or beneficiaries of the trust and there was no separate trust document. The only statement made by the decedent in his will was that "[m]y trustee shall hold my residuary estate upon trust to apply the same in such manner as has been made known to them regarding my intentions so often expressed by me in recent years." (Emphasis added.)

Contemporaneous with the execution of the will, the decedent wrote a letter to B and C indicating that a charitable organization was the beneficiary of the trust and describing how the income and principal were to be used on its behalf. Based on the law of the jurisdiction in which the Manor was located, the IRS concluded that a charitable deduction under Sec. 2055 was available.

Critique: The IRS noted that the validity of the trust rested on the application of local law, based on the jurisdiction of the highest court. The jurisdiction in which the Manor property was located recognized the validity of both secret and half-secret trusts.

A secret trust arises when a testator gives property to a person (apparently beneficially) but has communicated to that person during his lifetime certain trusts on which the property is to be held. A half-secret trust is one in which property is bequeathed to a legatee in trust, but no mention is made in the will as to the trust terms or beneficiaries. A half-secret trust is enforceable only when it can be demonstrated that the legatees have been informed of the terms of the trust either prior to or contemporaneously with the execution of the will.

In Blackwell v. Blackwell,(116) which involved a half-secret trust, the court required that the recipients of the property be informed of the nature and beneficiaries of the trusts prior to or contemporaneously with the execution of the will, and that they accept the property as trustees on those terms. Under such circumstances, it was held that parol evidence was admissible to explain the trusts and to prove that the trustees had accepted the legacy on the condition of fulfilling them.

In Letter Ruling 9126028, the decedent's will clearly indicated that the Manor was transferred to B and C "upon trust" and that they had been informed by previous communications as to what they were to do with the property. The letters to B and C clearly indicated that the Manor, and any income derived therefrom, was to be used for the exclusive benefit of a specified charitable organization. Since the communications contained in the letters, together with the express language in the will, were not in conflict, the IRS found that a charitable deduction was available to the estate.

Planning hints: While the ruling is not clear on the issue, it would appear that the Manor was located outside of the United States. Further, the decedent was a domiciliary of the United States and subject to worldwide taxation. The ruling's result is a fortuitous one for the taxpayer. It should be recognized, however, that it rested solely on the IRS'S determination that legal precedent existed in the jurisdiction concerning the enforceability of secret and half-secret trusts. The ruling also noted that the state in which the decedent was domiciled did not recognize the enforceability of such trusts and, had the Manor been located in that state, the trust would have been unenforceable and no charitable deduction would have resulted.

* Bequest to charitable trust

not yet exempt at date of death

qualified for charitable deduction

In IRS-letter Ruling 9127047,(117) the decedent's will provided that his estate should be divided into two trusts. The second was a residual trust, the assets of which were to be distributed to the acting trustees of an inter vivos charitable trust to be held, administered and distributed in accordance with the terms of that trust. The will also provided that if, for any reason, the charitable trust was not operative or had been revoked, the charitable trust terms should be incorporated by reference into the will and the residual assets distributed to that trust and held for charitable purposes.

At the date of the decedent's death, no exemption application had been submitted for the charitable trust and it had not been funded. Under its terms, the trust was deemed not to exist unless tax-exempt status had been obtained. Six months after the date of death, an exemption was received by the trust. The IRS allowed a charitable deduction under Sec. 2055.

Critique: Regs. Sec. 20.2055-2(b) states that an estate tax charitable deduction will not be available if a transfer to a charitable organization is dependent on the performance of an act or the happening of an event before it takes effect, unless the possibility that the charity might not receive the property is so remote as to be considered negligible. In In re Lamb(118), a California court held that a bequest to a charitable corporation that was not in existence until four months after the decedent's death could be sustained. The holding was based on evidence that the decedent had intended the bequest to be used for charitable purposes, even if the charity in question had never become able to carry on its activities.

In Letter Ruling 9127047, the IRS noted that the provisions of the inter vivos trust were clearly intended to further charitable goals with respect to an organization defined in Sec. 170(c). Further, the decedent's will authorized the trustee to incorporate the terms of the inter vivos charitable trust by reference in the will if the original charitable trust was unable to accept the assets. This reference clearly demonstrated a charitable purpose on the decedent's part. As such, the IRS concluded that the decedent clearly intended the bequest be used for purposes described in Sec. 2055(a)(3) and, at the time of his death, there was no more than a remote, illegible possibility that the bequest might not be used for those purposes.

* Lump-sum payment to charity

in will contest disregarded

in determining deductible amount

In Terre Haute First National Bank,(119) the decedent's last will created a pooled-income fund, naming his children as life tenants with his grandchildren as successor life tenants. On the death of his grandchildren, the corpus was to pass to a charitable foundation. A Federal estate tax charitable deduction of $14,746, the actuarial value of the remainder interest, was claimed on the Federal estate tax return.

Pursuant to a will contest, the terms of the will were ignored and each child received an outright distribution of $75,000, an outright payment was made to the foundation of $250,000, and the residue of the estate was distributed to a trust for the benefit of the decedent's children and grandchildren. The district court limited the estate tax charitable deduction to $14,746.

Critique: The district court first agreed with the reasoning in Northern Trust Co.,[120] which held that a will settlement extinguishing intervening life estates with a nonqualifying remainder interest to charity, followed by a lump-sum cash payment to the life tenants and the charities, did not result in the disallowance of the charitable deduction. Sec. 2055(e)(2)(a) provides that an estate tax charitable deduction will be granted for the charitable portion of a split-interest gift only to the extent that it qualifies as a charitable remainder annuity trust, a charitable remainder unitrust or a pooled-income fund. In effect, the lump-sum payment of $250,000 to charity addressed the congressional concern behind Sec. 2055(e), which was to prevent the depletion of charitable remainders during the tenancy of intervening noncharitable interests.

However, the court then addressed the actual amount of that deduction. In determining this amount, the court stated that it was bound by the decedent's donative intent as reflected in the will and trust. A review of that will indicated that the decedent's donative intent was to convey only a remainder amount to charity after two successive life interests had passed. The actuarial value of that remainder interest was $14,746. Nothing in the will, or under state law, demonstrated that the foundation had an enforceable right to the outright accelerated payment of $250,000.

In light of the above, the district court concluded that the sole deduction available to the estate under Sec. 2055 was the actuarial value of the remainder interest in the pooled-income fund. The lump-sum payment of a substantially greater amount had no effect with respect to the Federal estate tax return of the decedent.

* Charitable residue held contingent

and no deduction available

In Marine,(121) in 1981, the decedent died of cirrhosis of the liver as a result of his chronic alcoholism. Approximately 10 years before his death, he executed a will leaving specific bequests to various individuals and charitable organizations, with the remainder of his estate divisible between two charitable organizations. He later executed a codicil to the will empowering his personal representatives to "compensate persons who have contributed to my well-being or who have been otherwise helpful to me during my lifetime" by allocating to each a combination of personal property, cash or securities, or both in an amount that his personal representative deemed fair for services rendered. The amount allocable to each "interested individual" was limited to 1% of his gross estate.

After the decedent's death, the personal representatives, acting under this provision, made a $10,000 distribution to a housekeeper, which was double the amount specified in the will, and $15,000 to a personal physician and friend, who was not mentioned in any specific bequest under the will. The personal representatives also filed a list of "interested persons" in the Orphans' Court to ascertain whether any other parties were entitled to payment under the codicil.

Notwithstanding that actual distributions made under the empowerment provision were less than $30,000, the Tax Court disallowed a charitable deduction for the residue - i.e., approximately $2.1 million.

Critique: Sec. 2055(a) allows a deduction from a decedent's gross estate in the amount of all bequests, legacies, devises, or other transfers to or for the use of any charitable organization. A number of cases have interpreted this provision as limiting the Federal estate tax charitable deduction to amounts that are ascertainable at the time of a decedent's death. As such, bequests that are subject to substantial contingencies at the time of death have been found nondeductible. In Sternberger,(122) the Supreme Court stated that it found "no statutory authority for the deduction from a gross estate of any percentage of a conditional bequest to charity where there is no assurance that charity will receive the bequest or some determinable part of it. Where the amount of a bequest to charity has not been determinable, the deduction has properly been denied."(123)

In light of the above line of cases, the Tax Court asserted that when a contingency against the charitable bequest cannot be defined in amount or expressed in terms of a specific limit, the entire bequest is denied charitable deduction treatment under Sec. 2055(a).

The codicil language empowered the personal representatives, in their sole and absolute discretion, to select and reward persons who contributed to the decedent's well-being or who had "been otherwise helpful" to him during his lifetime. These amounts were to be paid from the estate's residue. No language existed in the will that limited the amount payable under this provision, except that no single individual was entitled to receive an amount in excess of 1% of the decedent's gross estate. Since the amount of residue available to make these payments was determinable after the payment of death taxes, claims, administration expenses and specific bequests, the court noted that a significantly lesser number than 100 individuals, if each was granted a 1% maximum payment amount, would be sufficient to entirely consume the residue otherwise available for distribution to charity.

Further, a review of local law disclosed no provision that would limit the personal representatives' discretion in any way or the number of individuals who could be identified as interested parties entitled to a payment. Finally, a subsequent review of the administration of the estate demonstrated that the personal representatives in fact acted under the empowerment provision in the will by doubling the size of the housekeeper's bequest and adding a $15,000 payment to an individual who had not been previously included in the decedent's will.

The Tax Court concluded that the amounts ultimately receivable by charity were subject to the unilateral action of the personal representatives. Because this contingency existed as of the date of death, and no quantifiable limitations were imposed on the personal representatives by either the will or local law, the Tax Court disallowed the entire $2.1 million charitable deduction claimed on the estate tax return.

The Tax Court noted that Sec. 2055(a) provides a statutory relief provision. Sec. 2055(a), flush language, provides that a "complete termination before the date prescribed for the filing of the estate tax return of a power to consume, invade, or appropriate property for the benefit of an individual before such power has been exercised by reason of the death of such individual or for any other reason shall be considered and be deemed to be a qualified disclaimer . . . . ." If the personal representatives had terminated their "interested party" distribution authority before filing the estate tax return, and if they had not exercised the power in favor of the housekeeper and the decedent's physician, they would have been deemed to have disclaimed that authority as of the date of death. Under such circumstances the deduction for the charitable residue would have been allowed.

Planning hints: The result in Marine is clearly an estate tax disaster. The decedent was terrified that he would be abandoned by various persons who had been taking care of him. In order to protect himself, he sought to provide an open-ended provision in his will to induce them to remain with him until his death. Notwithstanding, he clearly expected that a large portion of his estate, over $2 million, would be divided between two charitable organizations. The open-ended nature of the clause empowering his personal representatives to make payments to any person who had contributed to his well-being or had otherwise been helpful was ill-considered. No attempt was made to define what those terms meant, or to limit the aggregate amount of residue that could be paid to these individuals as a class. The drafter's failure to put such limits in the will cost the estate a charitable deduction of approximately $2 million and resulted in the unnecessary payment of substantial Federal estate taxes.

(87) William J. O'Neill, Jr., Irrevocable Trust, 98 TC No. 17 (1992). (88) IRS Letter Ruling 9146025 8/14/91). (89) Rev. Rul. 85-13, 1985-1 CB 184. (90) IRS Letter Ruling (TAM) 9140006 (6/26/91). (91) Rev. Rul. 87-127, 1987-2 CB 156. (93) IRS Ruling 9138034 (6/20/91). (94) Jesse E. Murphy. W.D. Okla, 1991 (91-1 USTC [paragraph]50,167). (95) In Re Cooks Trust, 135 P.2d 492 (Okla. 1943), quoted in Murphy, id., at 91-1 USTC 87,684. (96) John Freuler, 291 US 31 (1993)(13 AFTR 834, 4 USTC [paragraph]1213). (97) Connecticut National Bank, 937 F2d 90 (2d Cir. 1991)(68 AFTR2d 91-5170, 91-2 USTC [paragraph]50,348), rev'g and rem'g DC Conn. 1990 (66 AFTR2d 90-5852, 90-2 USTC [paragraph]50,526). (98) IRS Letter Ruling 9140047 (7/2/91). (99) IRS Letter Ruling (7/19/91). (100) Virginia E. Holt, 669 F Supp 751 (W.D. Va. 1987)(60 AFTR2d 87-5544, 87-2 USTC [paragraph]9450). (101) IRS Letter Ruling (TAM) 9121002 (1/18/91). (102) IRS Letter Ruling (TAM) 9132003 (4/29/91). (103) Est. of Leonidas C. Papson, 73 TC 290 (1979). (104) IRS Letter Ruling TAMI 9204006 (10/21/91). (105) Rev. Rul. 60-247, 1960-2 CB 272. (106) Est. of Henry H. Kyle, 94 TC 829 (1990). (107) Elizabeth J. Bartlett, 937 F2d 316 (7th Cir. 1991)(68 AFTR2d 91-6015, 91-2 USTC T60,078), aff'g TC Memo 1988-576. (108) Lucille Prussner, 896 F2d 218 (7th Cir. 1990)(65 AFTR2d 90-1222, 90-1 USTC [paragraph]60,007). (109) Bartlett, note 107, 7th Cir., at 91-2 USTC 90,244, quoting Herbert G. Whyte, 852 F2d 306 (7th Cir. 1988)(62 AFTR2d 88-5272, 88-2 USTC [paragraph]9440), at 88-2 USTC 85,176. (110) IRS Letter Ruling (TAM) 9207003 (1/7/91). (111) IRS Letter Ruling (TAM) 9204005 (10/16/91). (112) Rev. Proc. 79-63, 1979-2 CB 578. (113) IRS Letter Ruling 9113028 (no date given). (114) IRS Letter Ruling 9120016 (2/15/91). (115) IRS Letter Ruling 9126028 (3/29/91). (116) Blackwell v. Blackwell, AC 318 (1929). (117) IRS Letter Ruling 9127047 (4/10/91). (118) In re Lamb, 97 Cal. 46 (1971). (119) Terre Haute First National Bank, S.D. Ind., 1991 (67 AFTR2d 91-1217, 91-1 USTC [paragraph]60,070). (120) Northern Trust Co., N.D. Ill., 1977 (41 AFTR2d 78-1523, 78-1 USTC [paragraph]13,229). (121) Est. of David N. Marine, 97 TC 368 (1991). (122) Est. of Louis Sternberger, 348 US 187 (1955)(46 AFTR 976, 55-1 USTC [paragraph]11,504). [123] Id., at 55-1 USTC 35,405. See also Humes, 276 US 487 (1928)(6 AFTR 7787, 1 USTC 1298); Ithaca Trust Co. (exec. Est. of E.C. Stewart), 279 US 151 (1929)(7 AFTR 8856, 1 USTC [paragraph]386).
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Title Annotation:part 3
Author:Nager, Ross W.
Publication:The Tax Adviser
Date:Dec 1, 1992
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