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Estate and Gift Tax
St. Johns University School of Law
Todres, Jacob L.

Final Exam:
Open book
Calculators OK
No computer
Touch all bases.
Authority for everything.

Estate Tax
TABLE OF CONTENTS: (insert here).
Starting 2002, annual gift tax exclusion has been indexed up to 11k from 10k per year per donor.


EGTRRA –> Economic Growth and Tax Relief Reconcilliation act of 2001
Kicks in 2002

Revenue collection
Prevent the accumultion of wealth

Raise very little revenue in reality

Purpose of Generation Skipping Tax:
Backstop to estate tax, a preventitive measure to prevent people from avoiding tax.

Some states have eliminated part of the rule of perpetuities in order to avoid transfer tax.

Generation skipping tax levies a tax to account for avoided transfer tax for each generation skipped.

EGTRRA 2001:
Originally sold to public as a repeal of the transfer tax.

-Raised unified credited to $1 million from 675k. professor says, “I can live with this, it’s not that big a change.” considers it a disaster though. (liberal wacko)

-Decreased marginal tax rate.
maximum was 55%
Will drop to 45% in 2007-2009

-Estate tax and generation skipping tax is repealed in 2010
HOWEVER, in 2011, the repealed taxes come back and the whole system goes back to pre-EGTRRA

-Gift tax is NOT getting repealed

Right now, step-up basis to FMV at time of death. Section 1014

When estate and transfer tax are repealed, Basis will become carryover basis. Will have significant impact on tax planning.
Most basic outside source for tax purposes are the reporters: ex. CCH

Reporter designed to be useful for day-to-day practice

-Reporter contains:
Statute, excerpts from leg history, treasury regs, editorial explanations, annotations to cases, rulings
Weekly updates

-Treatises: Murten’s, bidker(excellent), johnson’s sucks., RIA Tax Coordinator (practice oriented)

-Tax Coordinator has a great index

-BNA Tax management portfolios:
Each one outlines an area of law. Estate and Gift tax is very extensive. Also gives copies of very useful information, treaties, draft agreements, practice documents, and an extensive bibliography.

-Daily Tax report put out by BNA..current cases and legislation

-Tax Notes–> Weekly publication. Widely read and very good. Letters written in response by readers besides tons of info. Congress relied on Tax Notes in drafting EGTRRA


-Constitution: not many Constitutional issues anymore, lost all the court cases.


-Legislative History-report from ways and means committee, which is responsible for tax. In Senate, the Senate Finance Committee is responsible. Sometimes in Congressional Record.

-Blue Books–> reports from the staff on the joint committee on taxation, which explain the law. The joint committee on taxation is a bipartisan committee that is responsible for writing all tax laws. The legislators go to the committee and draft the legislation with the committee.

Most material in the bluebook is in other committee reports, but bluebook is not legislative history, but judge may consider it authoritative.

US tax treaties- have a status equal to that of legislation. Extensive network of treaties designed at avoiding double-taxation and reduce taxes on estate and gift taxes.


-Treasury Regulations–generally prospective. IRC 7805 addresses regulations. If reg is inconsistent with statute, then it may be stricken. Most authoritative administrative materials.

Public vs. Private

Cannot rely on private rulings unless addressed to you..Can’t use as authority in court unless addressed to you.

When enough people write and ask for the same ruling, then they issue the ruling to the public. Anyone can rely on a public ruling. –very authoritative.

Acquiescence Program—> When IRS loses in tax court, it can issue an acquiescence or non-acquiescence…Either way no legal binding standard..just a guideline to determine whether IRS will challenge you. Not strong authority.

General counsel memos, field service. IRS had some shady dealings. Refused to issue docs under freedom of info. Would change names…


1. Tax court
2. District court
3. Court of federal claims
4. Bankruptcy Court

Tax Court: 1 judge, no jury.
Based in DC, ride circuit throughout the US. 14 or 17 judges..
ONLY court where don’t have to pay taxes first to get into court.
Jurisdictional condition precedent is a 90-day notice of deficiency letter from IRS saying you owe money. If you lose, must pay interest. Can deposit to prevent interest.

Small claims procedure, but no appeal. Threshold for small claims is 50k.

Types of opinions:
Memo opinions–> routine case, tend to be more factual, not officially reported, but reported unofficially.

Reviewed by the court opinions–> if a very important matter, the single judge hearing the case will recommend to chief judge that all judges collectively hear the case.

District Court:
Since IRC is US code, fed courts have jurisdiction. Entitled to a jury trial. Must first pay tax, then file refund with IRS, and then sue if denied or ignored for 6 months.

Court of Claims: jurisdiction lim

Other deductions
Geration skipping transfer tax
Interaction of Estate & Gift and IncomeTax

Gift Tax: Sections 2501, 2502
1. First determine the gifts made after the anual exclusion–current gifts
2. Plus prior taxable gifts
3. Apply appropriate rate
4. Now you have a tentative tax.
5. Sutract out the tax paid on prior gifts. Subtract the tax out the CURRENT RATE, not necessarily the amout actually paid, use table on the amount on the prior gift.
6. Now you have the current gift tax
7. Subtract the unified credit to the extent it hasn’t been used.
Estate Tax:
1. Gross Estate
2. Minus deductions
3. now you have taxale estate
4. Add prior gifts made (adjusted taxable gifts), because it is a unified system.
5. Now you have Tax Base
6. Multiply by the rate
7. Now you have tenative rate
8. Subtract out tax attributable to prior gifts, use current rate schedual to prior gifts.
9. Now you have your estate tax
10. Subtract unified credit to extent it hasn’t been used. To get tax payable.

Until 2002, there was a surcharge in addition to the tax rates. If tax base exceeded $10 million, had to pay 5% on top of rate schedual for amounts over 10 million to $21 million. Has been repealed in 2002.

NY Trust v Eisner—-current form of tax was upheld as an excise tax so it didn’t have to be apportioned according to population.

Carlton case—retroactive tax increase. –Plaintiff was subject to retroactive tax with no notice…rational basis standard

2505–unified gift tax credit
2505(a)–there “shall” be allowed as a credit…

Rev ruling: 79-398
-“shall” means that you have to take the unified credit as soon as you are able to. NOT AN OPTION.

Problem I
155,800 Tax due before credit
-192,800 pre-1998 credit amout
0 tax due

A. Donor is liable for gift-2502(c), If donor doesn’t pay, then doneee is liable to pay—301.6324-1b

B. 2513–gift treated as though 1/2 by each spouse:

255k – 10k exclusion = lower bracket = 69200 tax, times 2 = 138,400 in taxes vs. 155,800 in taxes if gift is treated as 1/2 from each couple.