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Estate and Gift Tax
Temple University School of Law
Mandelbaum, Kathy

I. INTRODUCTION TO TRANSFER TAXATION
A. Historical Perspective. Chapter 1.
            Need for government revenue
Est tax in 1916
GT from 1924-1926 (repealed)
GT in 1932     
 
           
B. Policy Considerations. Chapters 6 & 7 (Skim). Wealth redistribution, high marginal rates very progressive, basis step up income tax benefit for recipient
            How do transfer taxes affect savings- liquidity problems, forced sales of family business, cost of administration of the tax
 
C. Basic Structure of the Present Statutory Framework. IRC §§ 2001; 2010; 2031(a);
2033; 2501(a)(1); 2502; 2511(a); Treas. Reg. §§20.2031-1(a); 25.2501-1(a)(1); 25.2511-
1(a) . Chapter 9, Chapter 10
(McDSP Chapter 5, Questions 1 – 4).
 
D. Constitutional Concerns. Pages 54 – 55.
If taxes are on property, and not on the transfer of property they are not directly apportioned, original statutes written very carefully and narrowly. Tax on the priveledge of transfer at death or during life.
 
E. The Role of State Law. Commissioner v. Bosch’s Estate. Pages 82 – 91. (Page 91,
Illustrative Materials and Page 95 – 97, Illustrative Materials).
(McDSP: Chapter 8, Question 2).
 
Did widow release the general power of appointment under state law? The marital deduction only available to the general power.
 
Where federal estate tax liability turns upon the character of a property interest held and transferred by the decedent under State law, held, federal authorities are not bound by the determination made of such property interest by a state trial court; if there is no decision by the State’s highest court, federal authorities must apply what they find to be the state law after giving “proper regard” to relevant rulings of other courts of the State.
 
            Govt. should predict what next highest court would do.
 
Could have joined IRS in state ct decision letter, get a state court opinion, try to find adversity to get it to a higher level court. The IRS would never get a chance to litigate.
 
II. THE ESTATE TAX -PROPERTY OWNED AT DEATH
A. Interests Included in the Gross Estate under IRC § 2033. Pages 100 – 102.
1. Dominion and Control. Helvering v. Safe Deposit & Trust Co., Pages 102 – 107.
IRC § 2033 and Treas. Reg. § 20.2033-1. (Pages 107 – 108, Illustrative Materials
A & B). Gov’t argues that the powers that he does have are close enough to a beneficial interest. But..
§ 2033 is read restrictively. Life estates aren’t includible under § 2033 because they’re worthless at death. General testamentary powers of appointment aren’t includible under § 2033 because they’re not a classic interest in property. (They’re now includible under § 2041. If you have a general power of appointment taxable whether exercised or not) To be includible under § 2033, must be a classic interest in property. Probate or intestacy.
 
2. Possession. Excerpts from Technical Advice Memoranda 9207004 and
9152005 (Handout).
Technical Advice Memorandum 9207004
Guy dies in a plane crash with a load of marijuana. State-law presumption that he owned it, so includible? Strong public policy against drugs, so yes. Valued at street value (weird, since probably couldn’t sell it for that). However, you can’t have title to something you can’t own, gov’t said he has control and the right to transfer, created “constructive title”. Street value? He had unprocessed wholesale, not retail, if it was tobacco you would get a casualty deduction.
 
9152005- stolen art- someone could have title to it, value at legal value or underground value if it is higher? Since he didn’t have title should the value be less?
 
3. Interests in Property at the Time of Death. Barr’s Estate v. Commissioner.
Pages 113 – 116. (Pages 116 – 118, Illustrative Materials).
             Legally Enforceable rights are includible under § 2033, but mere expectancies aren’t. Wage death benefit was contingent on a profit, need from family, and board certification. Barr’s Estate.
 
Connecticut Bank and
Trust Co. v. United States. Pages 109 – 111. (Pages 111 – 112, Illustrative
Materials A ).
            Value of action for wrongful death does not accrue until death occurs, not in estate. Brought by relatives on behalf of themselves.
            Survivors action, where the action sur

he school mmight be considered a gift to the parent relieving their obligation. Have grandparent sign th tuition agreement.
 
4. Property Settlements in Contemplation of Divorce or Separation. IRC §§ 2516,
2043(b)(2).
a. Harris v. Commissioner. Pages 183 – 189. (Pages 189 – 197, Illustrative
Materials A – D).
(McDSP: Chapter 14, Questions 2 – 14).
 
Commissioner v. Harris
An imbalance in who gets what in a property settlement pursuant to a divorce is not a gift, as the settlement is subject to court modification and approval. Set up passage of § 2516. This was an attempt for the parties to squish a transfer at divorce into a non tax transfer
 
            Cant argue release of support obligation, release of marital rights not exempt
            Harris’s got a court order, no longer a gift
Is the settlement sourced in the judges decree or a private contract.
 
2516 enacted
Transfers from a property settlement pursuant to a divorce. § 2516.
Husband and wife, divorce occurs, property settlement is written, divorce occurs within 1 year before to 2 years after the settlement is written.
Transfers to either spouse to settle marital/property rights, or to provide reasonable allowance for support of minor children from the marriage, are deemed for good consideration and therefore not gifts.
If more than a year after divorce there is a spousal upport exception, if before, can you void old agreement? You can argue the Harris facts.
 
b. Transfers to Minor Children. 2516-2 allowance for the prevention of setate depletion for children, can’t use divorce for the benefit of the kids
 
what happens if spouse dies during payments over time? Remaining payments reduce the estate tax