Significant recent developments in estate planning.
Recent developments involving valuation included the following.
* Tax Court relied on estate's appraiser--not government's--for valuation of stock.
* Formula price in shareholder agreement was deemed not binding for Federal estate tax purposes.
* Tax Court relies on estate's appraiser in valuing shares
In Friedberg,(45) the decedent died holding 47% of a thinly traded public company that was the largest independent operator of bowling alleys in the United States. Before his death, the decedent had entered into a "redemption agreement" with the company that was approved by its board of outside directors. Under the agreement, the company was obligated to redeem 942,471 shares at a price equal to 80% of the mean of the bid and asked prices on the day preceding the decedent's death. This agreement was executed to provide liquidity to the decedent's estate and to avoid the significant price erosion that could result if a block of this size was placed on the market. The decedent's remaining 2,443,548 shares were not subject to the agreement. The estate elected alternate valuation under Sec. 2032.
After hearing the testimony of various appraisal experts the taxpayer submitted appraisals by three different experts and the government one), the Tax Court valued the shares at the highest value developed by the taxpayer's appraisers. The government's appraised value exceeded the court's determination by more than $3 million.
Critique: Fair Lanes, inc., began as a family business before 1970. In 1971, when it was still a fairly small operation, it floated a public offering of approximately 16% of its shares. Shortly after that offering, the mean market price rose to over $11 per share. At the time, bowling operations were viewed favorably by the market and Fair Lanes was perceived as a growth company. By the time the decedent died, the company had grown substantially and had become the largest independent bowling alley operator in the country. Although it remained profitable, its market price had fallen to between $5 and $6 per share. Bowling operations were no longer "hot" in the marketplace. Fair Lanes was viewed as a solid, mature company, rather than a growth stock.
The estate's appraisers adopted similar approaches to valuing the two blocks of shares. With respect to the nonredemption shares, each analyzed the status that bowling alley stocks had for the investing public, the effect of dumping a 2.4 million share block into the market (the nonredemption shares represented 148 times the average weekly trading level), the absence of interest by institutional investors and the likelihood of selling a noncontrol block at the existing market price. In addition, each appraiser analyzed various disposition strategies, including a private placement, a secondary offering and a sale in the over-the-counter market. In each instance, the discussion was exhaustive and the valuation experts demonstrated clear and compelling knowledge, both of the company and the market environment in which the shares would be sold. The three independent appraisals submitted by the estate's experts ranged from a high of approximately $9.2 million to a low of approximately $8.2 million for the entire nonredemption block.
With respect to the redemption shares, each appraiser looked beyond the agreement's contract price. The redemption was mandatory, but the company had the option of a lump-sum payment or a cash down payment accompanied by a five-year balloon note at 10% interest. Since the company adopted the latter option, and the estate had elected alternate valuation, the appraisers argued that the Federal estate tax value should be the aggregate values of the consideration received. In particular, the note should be valued at its present value on the alternate valuation date. The appraisers considered such factors as the company's credit-worthiness, the note's unsecured nature and the stated interest rate (which was below the market rate for similar instruments issued by companies like Fair Lanes). The taxpayer's experts valued the redemption shares in a range of approximately $2.2 million to approximately $3.1 million.
With respect to the nonredemption shares, the IRS's expert argued that the secondary offering prices estimated by the estate's experts were far too pessimistic. He noted the company's very successful 1971 public offering and expected similar market enthusiasm to recur for a current offer. In addition, he presented 19 "comparable companies" that had recently undertaken successful public offerings. On that basis, he valued the nonredemption block at approximately $11.7 million.
With respect to the redemption shares, the IRS expert assumed that the entire principal balance would be paid off in five years and that the sole consideration was a present value analysis. The lack of security and the company's credit-worthiness were not considered relevant as Fair Lanes had sufficient cash flow for debt service and a Standard & Poors (S&P) stock rating of A--. The IRS appraiser valued the redemption shares at approximately $3.8 million.
In reaching its decision, the Tax Court expressed a complete lack of confidence in the IRS's expert. It was troubled by the expert's disregard of such issues as creditworthiness, the impact of selling a massive block of shares on a thinly traded market and bowling stocks' changed status in the marketplace. It noted that none of the 19 companies cited by the IRS's expert were truly comparable and that most had been growth stocks. Finally, the court thought it was incredible that the IRS equated a 1971 public offering of a 16% interest in a small growth stock with a proposed public offering of over 20% of a mature, nongrowth company. The Tax Court then indicated that, while all of the estate's experts did an outstanding job in proving their positions, none of them provided it with sufficient information to "pick a precise figure." As such, it selected the highest appraisal submitted by the estate's experts for each share block. This represented an approximately $3.3 million reduction from the IRS's valuation.
Planning hints: Friedberg is an extremely useful case as it clearly demonstrates the advantages of using highly competent appraisal experts when hard to value or nontraded assets are included in an estate. It also demonstrates a continuing trend in the courts. No longer can practitioners expect the courts to simply add the taxpayer's and IRS's appraisals together and divide by two. Contested estate tax value litigation increasingly is an all-or-nothing proposition. The winner will be the litigant supported by the valuation expert found most convincing by the court.
There is another important point. Over the past few years, the IRS has been embarrassed because of the poor quality of its appraisals and its experts' arbitrary approaches. Tax planners must assume that the IRS is beginning to learn its lesson. It will begin to secure better appraisals from more competent professionals. If taxpayers do not do the same, they must accept the risk.
* Buy-sell agreement at book value does not set Federal estate tax value
In Lauder,(46) at the time of his death in 1983, the decedent owned blocks of voting and nonvoting shares in Estee Lauder, Inc., a nontraded family business. The shares were valued in the Federal estate tax return under a 1974 shareholder agreement formula. The formula was based on the company's book value, unadjusted for intangible assets. On audit, the IRS issued a deficiency adjustment of approximately $42.7 million. The Tax Court held that the formula price did not set the estate tax value.
Critique: In reaching its decision, the Tax Court first noted that various criteria have been established for testing whether restrictive stock agreement formula prices are binding for Federal estate tax purposes. These include:
1. The offering price must be fixed and determinable under the agreement,
2. The agreement must be binding on the parties both during life and after death,(47) and
3. The agreement must have been entered into for a bona fide business purpose and not as a substitute for a testamentary disposition.(48)
The formula price was clear and unambiguous. With a few justifiable exceptions, the formula was binding at all times and was treated as binding by all parties to the agreement. The court found that maintaining control within the family was a real and compelling business purpose.
However, the court stated that "it is evident that intrafamily agreements restricting the transfer of stock in a closely held corporation must be subjected to greater scrutiny than that afforded similar agreements between unrelated parties."(49) A significant element of this "additional scrutiny" is a determination that the agreement was "not intended as a device to pass decedent's shares to the natural objects of his bounty for less than an adequate and full consideration in money or money's worth."(50) On this matter, the taxpayer bears the burden of proof.
The court noted that the agreement was the idea of the decedent's son. Apparently very little forethought went into the formula's development. in fact, the son testified that the agreement had been discussed with a family adviser who had suggested book value as the pricing mechanism. This advice was taken. However, no attempt was made to elicit valuation experts' advice or assistance. At trial, both sides' valuation experts indicated that appropriate appraisal methodology included earnings multiples developed from an analysis of comparable traded companies. Finally, the court found no evidence that the Lauders negotiated the formula price. Instead, they accepted the son's unilateral decision.
Planning hints: The decision in Lauder, like that in Friedberg, compellingly demonstrates the need for professional advice when making planning decisions with respect to nontraded assets. A key factor in the Tax Court's decision was the absence of any valuation expert's input in developing the agreement's formula price. It stressed that the facts that the agreement was binding and executed for a valid business purpose were not sufficient to set estate tax values because family members were the parties to the agreement. The formula price must represent fair and adequate consideration to avoid treatment as a quasi-testamentary device.
An interesting side issue in Lauder, not dealt with by the court, is the economic effect on the estate because of the binding nature of the agreement. The court acknowledged that the agreement's terms, including the formula price, were binding on the parties under local law. As a result, the parties to the agreement had the opportunity to purchase the shares at a price significantly less than the Federal estate tax value. Such a sale could have resulted in an unanticipated reduction of the residuary estate available for distribution to others.
Although Lauder's agreement predated Chapter 14's effective date, the court substantively applied Sec. 2703. Specifically, Congress's intent was to require independent satisfaction of the business purpose and testamentary substitute requirements. The Lauder agreement satisfied the former, but clearly failed the latter.
Special Use Valuation
In the area of special use valuation, the following developments occurred.
* Executor's failure to attach written property appraisal to Federal estate tax return did not prevent making special use election.
* Estate was not entitled to Sec. 2032A relief as excess cash deemed not a qualified use asset.
* Qualified heir liable for recapture tax after leasing farm to his nephew on a cash rental basis.
* Failure to submit a written appraisal does not prohibit special use election
In Doherty,(51) on her death in 1984, the decedent owned shares in a family corporation. The corporation held interests in a partnership that owned several thousand acres of ranch and farm land. When filing the Federal estate tax return, the executor elected Sec. 2032A special use valuation. He attached a completed Schedule N to the Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, properly reflected the election and submitted all required information, except for an appraisal of the properties. In response to the Schedule N question about written appraisals, the executor responded, "There are none. Value determined by Personal Representative. See attached for comparable rental value."
The examining agent informed the executor that failure to obtain written appraisals prior to filing the return was fatal to the election. She also indicated that no relief was available either under Sec. 2032A(d)(3) or Section 1421 of the Tax Reform Act of 1986 (TRA). Notwithstanding, the executor subsequently obtained appraisals and submitted them to the IRS. The benefits of the election were denied on audit. The Tenth Circuit held that relief under TRA Section 1421 was available.
Critique: Sec. 2032A(d)(3) establishes procedures to "perfect" a special use valuation election when certain informational items are omitted in the initial filing. In general, this relief provision applies only when the election is timely and substantially complies with the regulations prescribed by the IRS. In such circumstances, the election will be validated if the missing information is submitted to the IRS within 90 days of a notification of such deficiency. The Tenth Circuit noted that the regulations require appraisals to be submitted with the Form 706. As such, the court agreed that the taxpayer did not qualify for Sec. 2032A(d)(3) relief.
However, the court pointed out that the TRA Section 1421 relief provisions differ from those in Sec. 2032A(d)(3). TRA Section 1421 simply requires that (a) the electing estate involve a decedent dying before Jan. 1, 1986, (b) the election be timely and contain substantially all required information and (c) the missing information be submitted within 90 days of a request for it. The Tenth Circuit found it significant that TRA Section 1421 makes no mention of any requirements specified in regulations. Since the Code does not require an appraisal to accompany the election, the court concluded that the appraisal's absence was not fatal to the election, so long as one was submitted within the 90-day remedy period.
Similarly, the Fifth Circuit, in McAlpine,(52) allowed Sec. 2032A(d)(3) relief when a timely special use election was made and all required information was submitted, except that the "recapture agreement" was signed only by the trustees of the trust holding the farm property. The IRS asserted that the agreement must also be signed by all beneficiaries with an interest in the trust. On notification of this oversight, the executor submitted an amended agreement containing all required signatures within the 90-day remedy period.
The holding in McAlpine rested on the court's belief that the statutory and regulatory requirements for the recapture agreement were far from clear. The Code required signature by all living parties having an interest in the property. The regulations interpreted this language to encompass any party having an interest, if it could be asserted under local law to affect the property's disposition. Regs. Sec. 20.2032A-8(c)(2) defines such parties to include owners of remainder and executory interests, joint tenants and holders of other undivided interests in the property, and trustees of trusts holding interests in such properties.
Noting that no specific mention is made of trust beneficiaries, the Fifth Circuit stated, "The beneficiaries of a trust have the ability to affect the disposition of the assets of the trust only insofar as they have the right to sue to force the trustee to fulfill its fiduciary obligations. The signatures of trust beneficiaries are arguably required on this basis. This result is hardly obvious from the plain language of the regulations, however."(53)
Aside from the above reasoning, the court was obviously troubled by the idea of denying special use value when the property so clearly qualified, a timely election was made and the missing information was due to an understandable misconception of the statutory and regulatory requirements.
* Excess cash is not held for a qualified use
In Mapes,(54) the decedent held assets having a date of death value of approximately $1.2 million. included in this figure were three farming real estate parcels worth $518,000, stored grain valued at $31,000 and a checking account balance of $92,000. The decedent's estate asserted that the aggregate value of qualified use property was $641,000, which exceeded 50% of the adjusted gross estate. The Tax Court held that the estate was not entitled to relief under Sec. 2032A, since qualified use assets did not meet the 50% of adjusted gross estate test.
Critique: The IRS did not question the "qualified use" status of either the real estate or the stored grain. The principal asset in contention was the checking account. The parties agreed that cash on hand, in certain circumstances, can be considered as property used in farming for purposes of the Sec. 2032A(b)(1)(A) percentage test; the question was how much.
The facts indicated that the bank account funds were derived from farming revenue and earned interest. However, the decedent regularly withdrew funds for both personal needs and the periodic farming operation costs. As a result, the IRS asserted that a portion of the remaining funds was held for future personal withdrawals.
The estate responded by demonstrating that the decedent routinely withdraw sums roughly equivalent to interest. Withdrawn funds were invested in other accounts. According to the estate, the date-of-death account balance had little, if any, amounts derived from interest. As such, the date-of-death balance was almost exclusively attributable to farming revenues. The court responded that the critical issue is whether that balance is needed in the farm operations, not the source of the balance.
The estate engaged a farming consultant to analyze the farm's anticipated cash requirements. The consultant assumed that the best management method would be to hire a farm manager, fund all of the day-to-day operations and receive all revenues. Under these assumptions, the consultant concluded that the $92,000 balance was barely adequate to meet the farming operation's needs.
The Tax Court disagreed. It noted that the decedent had used a standard "crop sharing" arrangement, not the consultant's approach. Roughly half of the operating expenses were borne by the tenant. The Tax Court held that the qualified-use determination must be based on the decedent's actual procedures, not on a hypothetical arrangement.
* Cash rental to nephew triggers recapture
In Williamson,(55) the decedent's will left her entire family farm interest to her son. Before her death, the property was operated as a farm by the decedent's grandson (the son's nephew) under a cropshare lease. The estate elected Sec. 2032A special use valuation. The son leased the farm to his nephew on a cash rental basis. The Ninth Circuit held that a cessation of "qualified use" had occurred and the recapture provisions of Sec. 2032A were triggered.
Critique: Sec. 2032A(c)(1) requires recapture of special use valuation benefit if the qualified heir ceases qualified use within 10 years of the decedent's death. The IRS asserted that the cash rental arrangement entered into by the decedent's son was a cessation of qualified use within the meaning of the statute. The taxpayer argued that a cessation did not occur since he remained the property owner and his nephew, a family member, continued to farm it.
The Ninth Circuit disagreed. It held that the statute clearly treats a cash rental arrangement as a cessation of qualified use irrespective of the relationship of the tenant to the heir. In support of its view, the court cited Sec. 2032A(b)(5)(A), a "special provision" added to the Code in 1988, that expressly provides that qualified use does not cease when a surviving spouse "rents such property to a member of such spouse's family on a net cash basis." This "special provision" addressing this limited fact pattern would not have been needed if the statute permitted any qualified heir to enter into cash rental arrangements.
Williamson clearly demonstrates the limited objectives underlying Sec. 2032A. Congress's objective was to provide relief to family-owned farms. From Congress's perspective, a "family farm" is one that is owned and operated by the family. There is, however, some latitude in what constitutes the operation of a family farm. The parameters are embodied in the statutory phrase "qualified use." A qualified heir has committed the farm to a qualified use if he is substantively involved in its management, materially commits resources towards its operation and bears meaningful risk of loss and potential for gain from its operations. These conditions are always found in farms operated by the qualified heir and generally are present in crop-sharing arrangements. The same cannot be said of net cash rental arrangements. In these situations, the qualified heir is not involved in management decisions, has no responsibility to fund any portion of the farming expenses and bears no risk of loss. From Congress's viewpoint, the heir stands in no different position than a passive investor in real estate or common stocks.
Federal Income Taxation of Fiduciaries
Some of the recent developments in the Federal income taxation of fiduciaries included the following.
* Even without probate court's prior approval of income distributions, their deduction was allowable.
* Court assessed tax deficiency and upheld penalties for failure to file on sham family farm trust.
* Grantor deemed the owner of his children's revocable trusts.
* Transfer of partnership interest to grantor trust is not a transfer for Sec. 1041 purposes.
* Trusts were considered grantor trusts and thereby qualified to hold S stock.
* A trust qualified as a QSST even though trust authorized income accumulation when no S stock was held.
* Absence of prior approval does not imperil distribution deduction
In Buckmaster,(56) the decedent bequeathed her estate to her niece and nephew in equal shares. During administration, the executor made substantial income distributions to each beneficiary. He reflected a distribution deduction on the estate's fiduciary income tax return. The executor did not obtain the probate court's prior approval for these distributions, although that court did ratify them later. The Tenth Circuit held that the distributions were valid under local law and allowed the distribution deduction.
Critique: While estates and trusts are separate taxable entities, their income taxation is governed by the concept of distributable net income (DNI). Sec. 661 (a)(2) provides that income will be taxed to the fiduciary except to the extent that it is required to be paid out currently or is, in fact, properly paid or credited to the beneficiaries during the year. The "distributed" income is taxable to the beneficiaries, and deductible by the fiduciary, to the extent of DNI.
In Buckmaster, the IRS asserted that the estate's distribution deduction was improper because Oklahoma law required prior court approval for all estate distributions. The IRS, and the district court, relied heavily on the holding in In Re Cook's Trust.(57) In Cook's, the state court held that estate distributions made directly to a testamentary trust's beneficiaries could not be deemed constructively made to the testamentary trust because that trust had not yet been established under local law.
The Tenth Circuit disagreed with the IRS's interpretation of Cook's. That decision did not mandate prior approval as a condition precedent to the legal validity of an estate distribution. The state court did not foreclose an "after-the-fact" ratification of the disbursements. The Tenth Circuit noted that one of the distribution deduction's purposes is to allow income allocation between the fiduciary and the beneficiaries. That objective is usually best accomplished shortly before year-end when the estate's income is best estimated. Since the distributions were listed on the final accounting presented to and approved by the probate court, and since they were made to the appropriate beneficiaries, the Tenth Circuit concluded that the claimed distribution deductions were proper.
Planning hints: Buckmaster reinforces the importance of local law in assessing the Federal income tax consequences of fiduciary transactions. Had the Tenth Circuit agreed that prior court approval was required for estate distributions, the estate would have been assessed a substantial income tax, even though the funds had long been in the hands of the beneficiaries.
It is difficult to quarrel with the equity of the result in Buckmaster. However, the court's reliance on the validity of a retroactive approval process does raise some concern. Conceivably, under this approach, the tax consequences of any unapproved distribution would remain "in limbo" until the time approval is secured. Under such circumstances, what is the appropriate tax return reporting in the interim? Unfortunately, the court did not adequately pursue this issue. Rather, it simply stated that "approval" would normally be considered a formality when the estate distributions are made to the correct beneficiaries and in amounts proportional to their interests under the will.
* Family trust results in disaster
In Buelow,(58) the taxpayer transferred a dairy farm to a family trust. Both before and after the transfer, the decedent worked on the farm and he, his wife and his daughter's family lived on the property. The farming operation was his sole source of income. The trust document failed to name any beneficiaries and the taxpayer's spouse and daughter were named as the sole trustees. Between 1979 and 1983, the trust filed fiduciary income tax returns, but the grantor failed to file returns for himself individually.
The Seventh Circuit, affirming the Tax Court, assessed a tax deficiency against the taxpayer based on the amount of gross farming income realized during the four-year period, plus a failure to file penalty.
Critique: While the opinion is vague as to the taxpayer's reason for creating the trust, it seems clear that "taxpayer protest" was a material contributing factor. Further, this spirit of protest and belligerence was exhibited throughout the IRS audit and the Tax Court proceedings. The taxpayer consistently refused to provide the IRS and the Tax Court with financial information concerning the farm's operations. He asserted that the dairy farm was held in trust and that he was neither officer nor trustee of that entity. Further, while he admitted the existence of financial records, he refused to turn them over to the Tax Court on the grounds that they were outside of his control.
The Tenth Circuit, agreeing with the Tax Court, concluded that the trust arrangement was a sham. First, the trust did not meet local law requirements of bona fide intent to create a trust and identification of beneficiaries. The lack of intent to create a trust was deduced from several factors: First, each party's relationship to the farm remained unchanged after the purported transfer. Second, the taxpayer continued to derive all of his income from the farm operations. Third, the trustees were related to the taxpayer and substantively under his control.
On appeal, the taxpayer did not contest the "sham" nature of the arrangement. He argued that the Tax Court erred in assessing a deficiency against gross, rather than net, income. The Seventh Circuit disagreed. It concluded that the taxpayer had acted capriciously, and in concert with his wife, in denying the IRS and the Tax Court access to the farm's financial records. As a result, neither court had evidence to reasonably estimate the amount of deductible expenses that may have been incurred. Since this lack of evidence was due solely to the taxpayer's actions, the court had no responsibility to subsequently accept information that may have been otherwise available.
Planning hints: Buelow is a rather strange case. On its face, it resembles the "apocalypse" trust cases that appeared during the early 1980s. In those cases, promoters promised that convoluted trust arrangements would shield taxpayers from income and transfer taxes. Invariably, these cases resulted in tax deficiencies and fraud penalties. Buelow, however, is somewhat different. Its difference lies in the arrangement's apparent complete lack of sophistication.
The important lesson is that the taxpayer's tax avoidance attempt left him in a significantly worse position than he would have been in had he done nothing. His refusal to share relevant financial information resulted in his loss of otherwise available business deductions and the assessment of penalties.
* Taxpayer deemed the owner of children's revocable trusts
In McGinnis,(59) in 1980, the taxpayer established revocable trusts for each of his three children. At the same time, he made $100,000 interest-free loans to each trust. Under their terms, these trusts would terminate on the earlier of the beneficiary's death or a repayment demand. The Tax Court held that the children's trusts were deemed owned by the grantor within the meaning of Sec. 674(a).
Critique: Sec. 674(a) provides that the grantor will be considered the owner of any trust in which he possesses a power of disposition over the beneficial enjoyment of the income or corpus. The Tax Court found such a power in the grantor's ability to terminate the trust through his demand power. The court stated that the taxpayer's ability to demand repayment "enabled him to maintain an unchecked power of disposition over the beneficial enjoyment of the trusts' corpus. " In support of this position the Tax Court cited Kushner(60) and Batson.(61)
* Transfer to grantor trust did not trigger Sec. 1041(a)
In IRS Letter Ruling 9230021,(62) the grantor transferred various partnership interests to a trust established for his spouse's benefit. The liabilities owed with respect to these partnerships exceeded the grantor's adjusted tax bases.
Under the trust instrument, the trustee was empowered to distribute income or principal as it deemed necessary or desirable for the beneficiary's pleasure, happiness or general welfare. An independent trustee was named, but the grantor reserved the right to remove the trustee and name a substitute--including himself.
The IRS ruled that the trust was a grantor trust within the meaning of Sec. 671 and that no gain was triggered under Sec. 1041 as a result of the transfer to the trust of liabilities in excess of basis.
Critique: Letter Ruling 9230021 reflects a carefully planned transaction designed to redirect income and other amounts to the grantor's spouse without triggering adverse tax consequences.
Generally, Sec. 1041(a) provides that no gain or loss will be recognized on a transfer of property to the transferor's spouse or a trust for the spouse's benefit. There is an important exception to this rule. Sec. 1041(e) states that the nonrecognition rule will not apply to the extent that the sum of liabilities assumed, plus the amount of liabilities to which the property is subject, exceeds the transferred property's adjusted basis. This fact pattern existed in Letter Ruling 9230021. As such, in the absence of planning, a transfer of the partnership interests to the trust would have resulted in the immediate recognition of significant income.
Recognition was avoided by investing the independent trustee with certain powers. Sec. 674[a) provides that a trust will be deemed entirely owned by a grantor who, either alone or in conjunction with a nonadverse party, possesses a power of disposition such as would control the beneficial enjoyment of its income and corpus. As a general rule, an independent trustee is not considered an adverse party.
There are various exceptions, however. An independent trustee, who is not also an adverse party, may possess a power to distribute corpus to a beneficiary or among a class of beneficiaries if the power is limited by a reasonably definite standard expressed in the instrument or a power to apportion, distribute or accumulate income to or for a beneficiary if such power is limited by a reasonably definite external standard set out in the instrument. The IRS found that the powers given to the trustee here fell within neither exception, since the standards of "pleasure" and "happiness" were not sufficiently measurable to hold the trustee legally accountable for their nonexercise. Further, the grantor was deemed to indirectly possess the prohibited powers in that he could remove the trustee at any time and substitute himself as trustee.
Since the entire trust was found to be a grantor trust under Sec. 674(a), the transferor was deemed to be the owner of the partnership interests both before and after the transfer. As a result, no transfer occurred for purposes of Sec. 1041(a) and (e).
* Crummey power allowed trust to hold S stock
In IRS Letter Ruling 9311021,(63) the grantor established trusts for each of his three children. The trust income was distributable under the ascertainable standards of health, education, support and maintenance. The trust instruments also provided each child with the right to withdraw an amount equal to the original contribution, plus additions. The withdrawal rights were cumulative and each right continued until the last day of the year of contribution, on which a lapse occurred on all rights except to the extent of the greater of $5,000 or 5% of corpus. On a child's death, the entire trust would pass to his descendants. The IRS ruled that the trusts were grantor trusts within the meaning of Sec. 678 and, thereby, qualified to hold S stock.
Critique: Sec. 1361(b)(1) provides that only individuals and certain trusts may be S stockholders. In Letter Ruling 9311021, the taxpayer sought to have the grantor's children treated as the owners of their trusts. The trusts would not otherwise qualify to own S stock because the income distribution limitations violated the qualified subchapter S trust (QSST) requirements that all income be required to be distributed currently or, in fact, actually distributed currently.
Among the trusts qualified to own S stock are those treated as owned in their entirety by an individual who is a citizen or resident of the United States. Secs. 673 through 677 specify various circumstances that cause a trust's grantor to be treated as its owner for Federal income tax purposes. Sec. 678(a) provides that a person other than the grantor will be treated as a trust's owner only if (1) he possesses a power solely by himself to vest the income or corpus in himself or (2) he previously held such a power and after its release or modification he retained such control as would subject a grantor to ownership status within the meaning of Secs. 671 through 677.
The children's grantor status under Sec. 678 was conditional on finding that they had modified or released a power to vest the trust in themselves and, after that release, had retained a control over the trust assets that would have caused a grantor to be treated as the owner.
First, the IRS noted that the withdrawal powers granted the children over the initial and subsequent contributions to the trust constituted an unconditional power to vest all of the trust assets in themselves. Further, the failure to exercise their right of withdrawal, with their resulting lapse at year-end, was a release within the meaning of Sec. 678(a)(2).
While the withdrawal power and its subsequent release were not alone sufficient to treat the children as the owners of their trusts, the trust instrument did contain an additional provision that accomplished this result. Each child was granted the absolute and unrestricted right to acquire or exchange any or all of the trust property by substituting it for property of equal value. Sec. 675 states that such a power held by the grantor, if exercisable in a nonfiduciary capacity, will result in his treatment as the owner. Thus, the withdrawal power, when coupled with the right of substitution, caused grantor trust treatment and permitted the trusts to own S stock.
A similar result was obtained in IRS Letter Ruling 9226037,(64) in which the trust beneficiaries had a withdrawal power over contributions, and possessed the right to all income after age 21 and income and corpus at age 35. In this case, a Sec. 675 power of substitution was not necessary, since the children's income and principal rights were grantor trust powers under Sec. 677.
Planning hints: Letter Ruling 9311021 demonstrates how careful planning can achieve multiple family objectives when the use of a single technique would have required compromise. Clearly, the grantor wanted the S shares to be held in trust, but he did not want all of the trust income to be distributed currently. The health, education, maintenance and welfare distribution standards indicated that desire. These restrictions prohibited his use of a QSST. The alternative was to secure grantor status for the trust under Sec. 678. The use of an annual withdrawal power, coupled with the unrestricted substitution power, achieved this objective.
Obviously some "risks" did exist. First, the child could exercise the withdrawal power. However, this risk might be controllable through parental advice. The second risk" was that a child would exercise the substitution power. This risk likely was mitigated because the power requires the children to exchange property of equivalent value.
* QSST may authorize income accumulation when no S stock is held
In Rev. Rul. 92-20,(65) the taxpayer established a trust for the benefit of another. Under the trust instrument, all income was required to be distributed annually as long as S stock was included in its corpus. The trustee was authorized to accumulate income whenever the trust ceased to hold such shares. The trust otherwise met all of the other QSST requirements. The IRS ruled that the trust was a QSST.
Critique: Sec. 1361 (d)(3)(A) enumerates four requirements that must be met for a trust to qualify as a QSST. One of these requirements is that all of the income be distributed to the beneficiary annually. The statute does not require, however, that the trust instrument mandate distribution; it is sufficient that the trustee have the authority to distribute all of the income currently and that such distributions are in fact made.
Since a discretionary trust can qualify as a QSST if all trust income is actually distributed annually, the IRS saw no difficulty in allowing QSST status when the governing instrument required annual distributions of income so long as, and only so long as, S stock was held in the trust. However, the IRS did volunteer that QSST status would not be accorded to a trust that automatically terminated in favor of individuals other than the primary beneficiary whenever it ceased to hold S stock. This latter provision was found to violate the requirement that corpus be distributed to the primary beneficiary if the trust terminates during his lifetime.
Recent developments involving charitable matters included the following.
* Estate not entitled to charitable deduction because value of the remainder trust interest was not ascertainable.
* Administration costs paid from postmortem income did not reduce the charitable deduction.
* Residuary bequest of over $2.1 million does not qualify for charitable deduction
In Marine,(66) after several years of chronic alcoholism and diminishing mental capacity, the taxpayer executed a will that bequeathed his residuary estate to two charitable organizations. The will also empowered his personal representatives to distribute up to 1% of his gross probate estate to each person who they determined, in their sole and absolute discretion, had "contributed to my well-being or who have been otherwise helpful to me during my lifetime . . . ." Only $25,000 was distributed to individuals under this clause and the remainder of his estate, over $2.1 million, was distributed to two charities. The Fourth Circuit held that no estate tax charitable deduction was available.
Critique: The evidence clearly demonstrated the decedent's principal desire to leave the preponderance of his estate to the named charities. However, he inserted the contested clause for fear that he would be abandoned and left uncared for during the remainder of his life. His alcoholism and weakened condition left him totally dependant on the attentions of his housekeeper and a few good friends.
Unfortunately, the clause was ill-conceived. Instead of establishing a few substantial cash bequests that were conditional on continued care and attention, he land his attorneys) left the potential class of takers completely open-ended. Conceivably, his personal representatives could have parcelled out 100 1% interests, thereby leaving the charities with nothing. In practical terms, the clause contained two glaring deficiencies: First, it failed to limit, in terms of a fixed percentage or dollar amount, the maximum portion of his estate that could be disposed of under the clause. Second, it made no attempt to define the phrases "contributed to my well-being" and "otherwise helpful to me." This left the executors with unrestricted control over the provisions' interpretation.
The Fourth Circuit correctly stated that a Sec. 2055(a)(2) estate tax charitable deduction is available only for interests that are "presently ascertainable" as of the date of death. It distinguished Marine from the Supreme Court's decision in Ithaca Trust Co.,(67) in which a charitable bequest of a remainder interest in trust was preserved, even though the trustees were authorized to invade corpus in the widow's favor to maintain her "in as much comfort as she now enjoys." The Supreme Court concluded that the invasion standard in Ithaca was fixed and capable of being stated in definite money terms. Such was not the case in Marine.
Planning hints: The result in Marine truly approaches tragedy. The decedent's fears and concerns compelled him to include a "carrot" to induce people to "stick with him" until he died. it is sad that he felt the need for such a provision. However, where were his advisers? Certainly the will could have accomplished this objective without putting the entire charitable deduction at risk. Conditional fixed-dollar-amount bequests or a limit to a fixed percentage of the estate would have avoided this disaster. The court record is not clear as to what went wrong. Were the advisers out of their technical depth, or was the client simply unwilling to listen to reason?
* Administration expenses paid from postmortem income did not reduce charitable deduction
In Warren,(68) the decedent's will bequeathed the bulk of her estate, which was made up of oil and gas properties, to a series of charitable lead trusts. Each trust was directed to pay an annual annuity equal to 8 1/2% of the "inital net fair market value of the assets constituting the trust" for 20 years, after which the remainder would pass to her descendants. After her death, her creditors and beneficiaries instituted litigation contesting the terms and the parties' interests. Eventually, a settlement was reached and approved by the probate court, but only after litigation and other administration costs had reached $9 million. As part of the settlement, the parties agreed that 72 1/2% of the cost would be paid from accumulated postmortem income, with the balance coming from principal. The executor based the charitable deduction on the value of the decedent's residuary estate after reduction for only those administration expenses that were charged against principal.
The IRS argued, and the Tax Court agreed, that the annuity should be computed based on the estate value net of all administration expenses. This resulted in a $6 million reduction of the charitable deduction. The Fifth Circuit reversed in the taxpayer's favor.
Critique: The Tax Court held for the IRS on the basis of the Supreme Court's decision in Bosch.(69) It concluded that the IRS was not bound by the Texas probate court order allocating administration expenses. The Fifth Circuit, however, held that Bosch was not pertinent in the instant case. It noted that, in the estate tax charitable deduction area, "controlling effect has frequently been given to bona fide settlements of adversarial litigation not instituted for tax purposes."(70) Further, it noted that the Sec. 2055 legislative history clearly reflects a desire to encourage charitable giving. Finally, the Fifth Circuit stated that a Texas probate court settlement is wholly valid and binding under Texas law: "Texas law control[s] the extent to which the administrative expenses are charged to the residuary estate . . . ."
The court found that the settlement was a result of protracted and contentious adversarial proceedings. There was no indication whatsoever of collusive action by the parties. Further, the adversarial nature of the negotiations extended to the allocation of administration expenses. In support of the allocation, the court agreed with the rationale of the parties:
* The will was sufficiently ambiguous to allow for the payment of administration expenses from postmortem income.
* The postmortem revenues were the only liquid assets from which the expenses could have been paid.
* Under local law, the postmortem oil and gas revenues were allocated 27 1/2% (depletion) to principal and 72 1/2% to income--the actual allocation percentages specified in the agreement.
Planning hints: The Warren decision leaves the reader a little uncomfortable. While the court reviews Bosch in some detail, it never really addresses its holding "head on." It simply asserts that there is nothing in the case that would force application to charitable deductions under Sec. 2055. Clearly, the court felt that the settlement agreement arrived at a fair result, both for the charities and the other beneficiaries. Further, while allocating 72 1/2% of the administration expenses to postmortem income resulted in a larger charitable deduction, it also increased the annual annuity payable to the charities by several hundred thousand dollars. The court clearly felt this good result was well within Sec. 2055's spirit. Whether it can be relied on in other jurisdictions remains open to question.
Miscellaneous Estate and Gift Tax Matters
Developments relating to miscellaneous estate and gift tax matters included the following.
* A basis step-up was not available when a surviving spouse had revocation power over trust.
* Corporate and partnership involvement in operating real estate properties constituted interests in a single trade or business and thus qualified or Sec. 6166 deferral.
* No basis step-up when surviving spouse had revocation power over trust
In IRS Letter Ruling (TAM) 9308002,(71) the decedent and her surviving spouse transferred all of their property to a revocable trust one month before her death. Virtually all of the property had been held in joint tenancy. Under the trust agreement, either grantor, acting alone and without the consent of the other, could have revoked the trust. The trustee was authorized to pay the taxes, expenses and debts of the first-to-die grantor, but only if the grantor had executed and delivered a formal direction to do so prior to death. The IRS ruled that the surviving spouse's half of the trust was includible in the decedent's estate under Sec. 2041, but that a basis step-up was not available.
Critique: Various factors apparently led the IRS to conclude that the transaction was designed to avoid taxes. First, the grantors transferred to the trust their joint tenancy property only one month before the decedent's death. Absent the transfer, Sec. 2040 would have included only one-half of the property in the decedent's gross estate.
Second, the power retained by each grantor to subject the entire trust to the taxes, expenses and debts of the first grantor to die effectively created a Sec. 2041 general power of appointment. That power caused a greater estate inclusion than would have occurred absent the power. However, estate taxes did not increase due to the marital deduction. The IRS concluded that the transaction's only possible economic effect was to extend a basis step-up to the survivor's half interest.
The IRS noted that Sec. 1014(e) denies a basis step-up when appreciated property is acquired by a decedent by gift within one year of death and that property passes back to the donor. The provision's purpose is to prevent taxpayers from obtaining a basis step-up by conveying low-basis property to a person in imminent danger of death with a view to reacquiring the property as a bequest.
Planning hints: The IRS found that the transaction in Letter Ruling 9308002 fell squarely within the ambit of Sec. 1014(e), since the transfer in trust, coupled with the general power of appointment, was equivalent to a gift of the surviving spouse's one-half undivided interest in the joint tenancy property. Further, the surviving spouse's gift was not consummated as long as he possessed the ability to revoke the trust during their joint lives. Thus, the conclusion reached in the letter ruling would not be affected by the interval between the transfer to the trust and death. Presumably, the intended result would have occurred only if the revocation and other powers over the trust had been released more than one year before the decedent's death.
* Corporations and partnership involved in operating real estate properties qualify for Sec. 6166 deferral
In IRS Letter Ruling 9250022,(72) at the time of his death, the decedent owned 100% of the stock of two corporations, a 50% general partnership interest with his brother, and a 50% tenancy-in-common interest in a building used by their partnership. The two corporations owned multi-unit residential and commercial real estate. The partnership was a service business providing bookkeeping, clerical and secretarial services to the two corporations. The IRS ruled that each of the properties, plus various cash reserves maintained by each entity, qualified for estate tax deferral under Sec. 6166 as a single trade or business.
Critique: Sec. 6166(a)(1) allows installment payment of estate taxes to the extent attributable to an interest in a closely held business. To qualify for this relief, the asset(s) must be (a) a closely held business engaged in an active trade or business within the meaning of the Code, (b) included in the decedent's gross estate and (c) have a value greater than 35% of the adjusted gross estate. The sole issue in Letter Ruling 9250022 was whether the decedent's closely held real estate properties, either singly or in the aggregate, constituted active trades or businesses for purposes of Sec. 6166.
Traditionally, the IRS has applied narrow guidelines in qualifying real estate holdings for Sec. 6166 treatment. These guidelines seek to differentiate real estate held for investment from properties comprising an active trade or business. In Rev. Ruls. 75-365(73) and 75-367,(74) the IRS held that a decedent's involvement in (1) collecting rents, (2) negotiating leases, (3) directing property maintenance by entering service contracts with third-party providers and (4) screening tenants was not sufficient to treat real estate as an active trade or business. In each case, the decedent was deemed an owner "managing investment assets to obtain the income ordinarily expected from them. "
In Letter Ruling 9250022, however, the IRS found that the decedent's activities significantly exceeded the scope of those outlined in the revenue rulings. In particular, the decedent, either himself or through his own employees, performed all of the day-to-day management and operational activities associated with each property. He supervised the daily cleaning of the facilities and saw to all major repairs. In each instance, these activities were performed by the decedent or his employees, not by independent contractors.
The IRS was persuaded that the cash reserves were no more than was reasonably required to meet anticipated working capital requirements, together with a reserve to fund planned renovations and major repairs.
Planning hints: The line separating real estate held for investment from that comprising an active trade or business is a fine one. The differentiating point is the decedent's "direct" involvement in routine management and operational activities. This direct participation can be achieved either by the decedent's own activities or those of his employees. However, it is clear that routine activities performed by an independent contractor on the decedent's behalf will not be attributed back to the decedent for Sec. 6166 purposes.
Some of the recent developments in the area of generation-skipping transfers included the following.
* Proposed modification of existing trust results in loss of grandfathered status.
* Renunciation of encroachment rights is taxable gift and addition to grandfathered trust.
* Adoption of grandchild by stepmother did not change GST status of natural grandparent's bequest.
* Modification of grandfathered GST trust results in loss of exemption
In IRS Letter Ruling 9244019,(75) the decedent's will passed various undivided real estate interests to a trust. Under its terms, income was distributable to his six children under an ascertainable standard, with any excess being accumulated and added to principal. On the last child's death, principal was distributable to the decedent's grandchildren.
At the time of his death in 1967, the trust property generated approximately $9,000 of income. By 1992, these assets had dramatically increased in value and were annually producing income in excess of $270,000. Most of this income was being added to corpus. The trustee sought to modify the agreement to require that income remaining after making the discretionary distributions be paid out equally to the children. The IRS concluded that the proposed modification would result in a loss of grandfathered status for Chapter 13 purposes.
Critique: Section 1431 of the Tax Reform Act of 1986 (TRA) repealed old Chapter 13 and established a new effective date for its replacement. TRA Section 1433(b)(2)[A) grandfathers trusts that were irrevocable on Sept. 25, 1985, but only to the extent that a transfer or addition has not been made after that date. A modification to an existing grandfathered trust will result in loss of its grandfathered status if the modification changes the quality, value or timing of any powers, beneficial interests, rights or expectancies originally provided under the instrument's terms. This rule prevents subsequent modifications that could increase the amount available for distribution to lower tier generations.
However, the proposed modification's effect in Letter Ruling 9244019 would do just the opposite. Under the instrument, substantial income accumulations were being added to corpus for eventual distribution to the decedent's grandchildren free of generation-skipping tax (GST). The amendment would require this income to be distributed currently to the children. Unexpended amounts would have been included in their gross estates at death. While the IRS's ruling is consistent with the general rule described above, it does seem to violate its spirit.
In Letter Rulings 9302019(76) and 9226043,(77) the IRS ruled that proposed modifications to partition a single trust into multiple trusts did not result in loss of exempt grandfathered status. In each instance, a single trust existed for the benefit of a child, with the remainder distributable among the creator's grandchildren per stirpes. The trustee sought to partition the single trust into separate trusts for each vested remainderman. After the partition, the interests of the income beneficiary and the various remaindermen would be the same as in the unpartitioned trust. The separate trusts were intended solely to simplify distribution of the trust property once the income beneficiary's intervening interest terminated. The IRS "authorized" the partition in each case because the respective interests of the remaindermen were vested on the partition date and the income beneficiary had the same interest in the partitioned trusts that he had in the original one.
Finally, in Letter Ruling 9247020,(78) the IRS ruled that grandfathered status was not lost due to a modification creating a "trust committee" authorized to remove and appoint new trustees. The ruling was conditioned on including a provision restricting committee admission to persons who were neither the grantor nor named beneficiaries of the trust.
Planning hints: These rulings demonstrate that modifications to grandfathered GST trusts can be used effectively to address administrative issues and problems. However, great care should be employed. If the modification affects the rights or interests of the beneficiaries, even in a manner that would, or could, diminish the amount of assets passing to skip generations, loss of grandfathered status will likely result. A ruling is always recommended for these types of situations.
* Renunciation of right of encroachment is an "addition" to grandfathered trust
In IRS Letter Ruling 9308007,(79) the decedent died in 1969. His will created both a marital and a family trust. Under the family trust's terms, the trustee was required to pay income to the surviving spouse at least quarterly. In addition, the trustee was authorized to make encroachments against the principal of the trust in favor of the spouse, the children and the grandchildren based on ascertainable standards. This power was not effective for the surviving spouse until the principal of the marital trust had been expended.
The family trust principal consisted of family business stock. The other shareholders sought to make an S election. However, the encroachment right in favor of the decedent's descendants during the life of the surviving spouse violated the qualified subchapter S trust requirements. As a result, the children sought to renounce their and their children's encroachment rights for the remainder of the spouse's life. At the time of the ruling request, all of the children were more than 35 years of age.
The IRS ruled that the renunciation would be a taxable gift and an addition to the grandfathered trust would be deemed to occur.
Critique: The family trust here was grandfathered from Chapter 13 because it was irrevocable before Sept. 25, 1985. However, Temp. Regs. Sec. 26.2601-1(b)(11(i) provides that additions to such trusts made after Sept. 25, 1985 will subject a part of the trust to the GST. Generally, a gift made to a trust is considered an addition within the meaning of the regulations.
The IRS concluded that the proposed renunciation would be a gift, unless it constituted a disclaimer. For interests created after Dec. 31, 1981, disclaimers must conform to the Sec. 2518 requirements to be effective for Federal transfer tax purposes. However, as the decedent died in 1969, the provisions of Regs. Sec. 25.2511-1 (c) are controlling. That regulation requires a disclaimer to be made within a "reasonable time" after knowledge of the existence of the transfer. Further, this "reasonable time" period is deemed to begin with the creation of the interest.(80) Generally, the IRS has considered nine months to be reasonable for purposes of the regulation. Exceptions are made, however, for incapacity or lack of majority.
The IRS concluded that the renunciation was not timely within the regulation's meaning. The interest was created in 1969 and all of the children had reached majority well before 1992. To have been effective, a disclaimer should have been filed within nine months of each child's twenty-first birthday (if that was legal majority age). Since the disclaimer was ineffective, a gift resulted from the proposed renunciation with an accompanying addition to the trust for GST purposes.
* Grandchild's adoption will not change GST treatment of natural grandparent's transfer
In IRS Letter Ruling 9310005,(81) the testator proposed bequeathing her estate to her grandchild. At the time, the testator's child (the grandchild's parent) had predeceased. However, her natural father had remarried and the second spouse had formally adopted the grandchild. Under Maryland law, an adopted child is legally considered the natural child of the adoptive parent and loses all rights of inheritance from natural parents and natural collateral and lineal relatives. Notwithstanding, the IRS ruled that the bequest to the grandchild would not be subject to GST.
Critique: Sec. 2611 (a) defines a "generation-skipping transfer" to include a direct skip. A "direct skip" is defined as a transfer to a "skip person" that is subject either to estate or gift tax. A "skip person" is a natural person assigned to a generation at least two tiers below that of the transferor.
Under these general rules, the proposed bequest would normally be subject to both estate and generation-skipping taxes. However, Sec. 2612(c)(2) provides that the transferor's grandchild will be deemed to be in the child's generation, if the grandchild's parent who is the transferor's lineal descendant has predeceased the transfer. This was the case here. At issue, however, was whether the grandchild's adoption by the stepmother, when coupled with Maryland law, took the bequest outside of the Sec. 2612(c)(2) exception.
The IRS ruled that it did not. Irrespective of the adoption, the grandchild's relationships to the transferor and to the deceased child did not change for GST purposes. The Maryland law governing adoptions was deemed irrelevant to Chapter 13's application. (45) Est. of Sidney M. Friedberg, TC Memo 1992-310. (46) Est. of Joseph H. Lauder, TC Memo 1992-736. (47) Charles M. Land, 303 F2d 170 (5th Cir. 1962)(9 AFTR2d 1955, 62-1 USTC [paragraph] 12,078); Est. of James H. Matthews, 3 TC 525 (1944). (48) Regs. Sec. 20.2031-2(h); Clayton G. Dorn, 828 F2d 177 (3d Cir. 1987)(60 AFTR2D 87-6135, 87-2 USTC [paragraph] 13, 732); St. Louis County Bank, 674 F2d 1207 (8th Cir. 1982)(49 AFTR2d 82-1509, 82-1 USTC [paragraph] 13,4591. (49) Lauder, note 46, at 92-3731. (50) Id.; Regs. Sec. 20.2031-2(h). (51) Est. of Loren Doherty, 982 F2d 450 (10th Cir. 1992)(71 AFTR2d [paragraph] 149,081, 93-1 USTC [paragraph] 60,125), rev'g and rem'g 95 TC 446 1990). (52) Est. of Malcolm McAlpine, Jr., 968 F2d 459 (5th Cir. 1992)(70 AFTR2d 92-6216, 92-2 USTC [paragraph] 60,109), aff'g 96 TC 134 (1991). See also IRS Letter Ruling (TAM) 9245002 (6/12/92), in which an election was not valid because the recapture agreement submitted with the return was signed by the relevant individuals as qualified heirs, but not in their capacities as directors, partners and trustees. The estate was allowed to perfect the election under Sec. 2032A(d)(3). (53) McAlpine, id., 5th Cir., at 92-2 USTC 86,215. (54) Est. of Kenneth R. Mapes, 99 TC 511 (1992). (55) Beryl P. Williamson, 974 F2d 1525 (9th Cir. 19921(70 AFTR2d 92-6244, 92-2 USTC [paragraph] 60,115), aff'g 93 TC 242 (1989). (56) Sylvia M. Buckmaster, 984 F2d 379 (10th Cir. 1993)(71 AFTR2d 93-764, 93-1 USTC [paragraph] 50,054), rev'g and rem'g W.D. Okla., 1991 (91-1 USTC 150,167). (57) In Re Cook's Trust, 192 Okla. 291, 135 P.2d 492 (1943). (58) Ralph C. Buelow, 970 F2d 412 (7th Cir. 1992)(70 AFTR2d 92-5521, 92-2 USTC [paragraph] 50,518), aff'g TC Memo 1990-219. (59) William B. McGinnis, TC Memo 1993-45. (60) Jack Kushner, TC Memo 1991-26, aff'd without published opinion, 955 F2d 41 (4th Cir. 1992). (61) Horace F. Batson, TC Memo 1983-545, aff'd without published opinion, 758 F2d 652 (6th Cir. 1985). 62IRS Letter Ruling 9230021 (4/28/92). (63) IRS Letter Ruling 9311021 (12/18/92). (64) IRS Letter Ruling 9226037 (3/27/92). (65) Rev. Rul. 92-20, 1992-1 CB 301. (66) Est. of David N. Marine, 990 F2d 136 (4th Cir. 1993)(71 AFTR2d [paragraph] 149,086, 93-1 USTC [paragraph] 60,131), aff'g 97 TC 368 (1991). (67) Ithaca Trust Co., 279 US 151 (1929)(7 AFTR 8856, 1 USTC [paragraph] 1386). (68) Est. of Dorothy J. Warren, 981 F2d 776 (5th Cir. 1993)(71 AFTR2d [paragraph] 149,082, 93-1 USTC 160,127). (69) Est. of Herman J. Bosch, 387 US 456 (1967)(19 AFTR2d 1891, 67-2 USTC [paragraph] 12,472). (70) Warren, note 68, at 93-1 USTC 88,435. See also James P. Flanagan, 810 F2d 930 (10th Cir. 1987)(59 AFTR2d 87-1212, 87-1 USTC [paragraph] 13,718); Est. of John Givler Strock, 655 F Supp 1334 (W.D. Pa. 1987)(59 AFTR2d 87-1258, 87-1 USTC [paragraph] 13,717); The Northern Trust Co., N.D. Ill., 1977 (41 AFTR2d 78-1523, 78-1 USTC [paragraph] 13,229). (71) IRS Letter Ruling (TAM) 9308002 (11/16/92). (72) IRS Letter Ruling 9250022 (9/11/92). (73) Rev. Rul. 75-365, 1975-2 CB 471. (74) Rev. Rul. 75-367, 1975-2 CB 472. (75) IRS Letter Ruling 9244019 (7/31/92 1. (76) IRS Letter Ruling 9302019 (10/16/92). (77) IRS Letter Ruling 9226043 (3/27/92). (78) IRS Letter Ruling 9247020 (8/24/92). (79) IRS Letter Ruling 9308007 (11/14/92). (80) George F. Jewett, Jr., 455US305 (1982)(49AFTR2d 82-1470, 82-1 USTC [paragraph] 13,453). (81) IRS Letter Ruling 9310005 (12/7/92).
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|Title Annotation:||part 2|
|Author:||Carlson, David K.|
|Publication:||The Tax Adviser|
|Date:||Jan 1, 1994|
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