LOYOLA UNIVERSITY CHICAGO SCHOOL OF LAW
ESTATE AND GIFT TAX
FALL SEMESTER 2009
I. REQUIRED MATERIALS
A. Jeffrey N. Pennell, Federal Wealth Transfer Taxation (4th ed. 2003)
B. Estate & Gift Tax Code & Regs (2009)
I “ RULES
A. Attend. You are allowed three (3) unexcused absences.
B. Be Prepared.
C. Contribute. Intelligent and consistent participation may raise your grade.
III. TENTATIVE SYLLABUS
(N.B.: Code sections are not specifically assigned; but you are to read them).
Class 1 JNP pp. 1-11, 25-36
B. Gross Income
1. Property Owned at Death
Class 2 JNP pp. 41-54, 57-63, First Victoria Bank, 620 F.
2d 1096 (5th CA 1980)
Class 3 JNP pp. 64-66, skim pp. 66-77, read 78-92, 95-96
2. Powers of Appointment
Class 4 JNP pp. 109-114, skim pp. 114-133
Class 5 JNP pp. 133-143, 145 (last paragraph), 150-151
3. Will Substitutes
Class 6 JNP skim pp. 185-195; read pp. 196-201, 202-208,
Class 7 JNP pp. 230-242; 244-247
Class 8-9 JNP pp. skim pp. 266-285; read pp. 285-288, 289-
291, 293-300; 301-306, 310-312, 316, 320-321,
325-330, 335-340; Strangi, 417 F.3d 468 (5th CA
4. Joint Interests & Certain Transfers
Class 10 JNP skim pp. 391-398, skim 402-407, skim pp.
153-158; read pp. 165-168, 171-172, 180-183
5. Life Insurance & Employee Death Benefits
Class 11 JNP skim pp. 435-439, read pp. 451-452, 453-456,
459-463, 468-472, 473-474, skim pp. 519-520, skim
C. Estate Tax Deductions and Computation
1. Administration Expenses
Class 12 JNP pp 563-572
2. Marital Deduction
Class 13 JNP skim pp. 601-615, read 615-621, 623-626
Class 14-15 JNP pp. 628-629, 632-636, 639-643, 647-649, 656-
Class 16 JNP skim pp. 686-690, read 690-705, Lurie, 425
F.3d 1021 (7th CA 2005)
Class 17 JNP pp. 753-759, but see new § 2058 (eff. After
12/31/04); 762-765, 778-780
D. Gift Tax
1. Meaning of Gift
Class 18-19 JNP skim pp. 789-798, read pp. 839-841, 798-829
2. Timing of Gift
Class 20 JNP p. 848, pp. 852-863
3. Annual Exclusion
Class 21-22 JNP pp. 876-881, 883-892, Hackl, 335 F.3d 664 (7th
CA 2003), 903-916, skim 921-925
4. Sample Problem
Class 23 Handout
E. Generation Skipping Tax
Class 24 JNP pp. 981-1026
Open Book Exam, Wednesday, December 9, 2009 at 1:00 p.m.
United States Court of Appeals,
FIRST VICTORIA NATIONAL BANK, Independent Executor under the Will of
T. J. Babb, Deceased, Plaintiff-Appellee,
UNITED STATES of America, Defendant-Appellant.
July 9, 1980.
Estate of deceased rice farmer sued for a refund of estate taxes. The United States
District Court for the Southern District of Texas, Owen D. Cox, J., 443 F.Supp. 865,
rendered summary judgment for the estate and Government appealed. The Court of
pel G l e Cr i ug, e h “ c io c ae n r t ne t
s d g ct d a i sr e
A pa , o br, i u Jde hl t t r eh t yar g”i e s udr h te s e
system of rice allotments established by the Agricultural Adjustment Act of 1938
u d poe y i u b n eeet gos s t
t t cd e
constit e “rpr ”nl alidcdns rsete ' a.
Reversed and remanded.
Before WISDOM, GOLDBERG and HENDERSON, Circuit Judges.
GOLDBERG, Circuit Judge:
in hte rc
This case presents a question of first impress o : w e h r “ i e
e neet ne
history acreag ” i t r s s u d r t e s s e
h ytm o f rc lomns
established by sections 351 to 356 of the Agricultural Adjustment Act
of 1938, 52 Stat. 31 (codified as 7 U.S.C.A. ss 1351-1356 (West 1973))
“h c” o s i u e p o e t ” ncludable in a decedent's gross
(te At) cnttt “rpry i
estate under sections 2031 and 2033 of the Internal Revenue Code of
1954. Because an understanding of the rice allotment system is
necessary to a full understanding of the facts of this case, we will
first discuss the rice allotment program and the interests which exist
I. The Rice Allotment Program
The rice allotment program, as it was structured until 1975 from
its inception in 1938, was a fairly complicated statutory and
regulatory scheme. The Secretary of Agriculture is empowered to set a
national acreage allotment for rice for each calendar year. See 7
U.S.C.A. s 1352 (West 1973) (since amended). The national allotment is
then apportioned among the rice-producing states, 7 U.S.C.A. s 1353(a)
(West 1973) (operation currently suspended, see n. 2 supra ), and each
state in turn apportions its quota among the farmers of that state as
provided in Section 1353(b).
The statutory scheme also created an interest which is referred
o s hsoy f ie r uto” r rc itr ceg.
t a “ i t r o r c p od c i n o “ i e h s o y a r a e ” S e 7 e
U.S.C.A. s 1353(f) (West 1973) (suspended). This interest gives its
owner the right to be apportioned rice acreage as if the owner himself
had produced in prior years the rice that was produced in those years
by the transferor of the interest.
The statutory scheme provides for the transfer of this interest.
ue n poue” tt is h rnfr f i
When a rice prod c r i a “ r d c r s a e d e , t e t a s e o h s
hsoy f ie rdcin s o
“ i t r o r c p o u t o ” i g verned by 7 U.S.C.A. s 1353(f)(1)
(added by Act of March 6, 1962, Pub.L.No. 87-412, 76 Stat. 20)
(currently suspended), which provides:
If a producer in a (s)tate in which farm rice acreage allotments are
determined on the basis of past production of rice by the producer on
the farm, dies, his history of rice production shall be apportioned in
whole or in part among his heirs or devisees according to the extent
to which they may continue, or have continued, his farming operations,
if satisfactory proof of such succession of farming operations is
furnished the Secretary.
If a rice producer in a producer state wishes to transfer his
r c i t r c e g ” o nother, subsections 1353(f)(2) and (3)
“iehsoyarae t a
govern. A producer may transfer his interest to other members of his
family with relative ease, see id., subsection (f)(2), but more
stringent conditions apply when the transferee is not a member of the
t ut e nesod ht poue
I ms b udrto ta a “rdcr rc altet i a ie lomn” s n
neet niey ifrn rm rc
itrs etrl dfeet fo “ie hsoy arae” A “rdcr itr ceg. poue
ie lomn” o er ie ie r
r c a l t e t f r a y a g v s a r c p oducer the right to grow and
market in that year a number of acres of rice free from payment of the
penalty levied by Section 1356. This right only relates to the year of
h lomn. Rc itr ceg, n otat s n neet ht
te altet “ie hsoy arae” i cnrs, i a itrs ta
nils t we o eev poue ie lomns ah er ht
ette is onr t rcie “rdcr rc altet” ec ya ta
the rice allotment program is in operation. At least ninety-seven
percent of a state's acreage allotment for a year must be apportioned
to farms operated by persons who produced rice in the state in at least
one of the five prior years. See 7 U.S.C.A. s 1353(b), supra. Thus,
pseso rc itr
f “ie hsoy arae” atogceg, lhuh nt a o boue
tttr rrqiie o h eep
sauoy peeust t te rcit o “r ue rc altet, f p od c r i e l o m n s ”
rae h ieiod f eevn poue
substantially inc e s s t e l k l h o o r c i i g “ r d c r r ice
lomns ah er
II. Facts and Proceedings Below
With the statutory and regulatory framework in mind, we turn to
the facts and procedural history of this case. The facts are
undisputed. The decedent, T. J. Babb, died on July 4, 1973. He had been
engaged for many years in the production of rice, and had annually been
granted rice allotments under the Act since at least 1958. By notices
dated December 1, 1972, and May 1, 1973, Babb was issued producer rice
allotments of 1208.3 acres. Prior to the deadline of May 1, 1973, in
compliance with the applicable regulations, Babb allocated his 1973
allotment to farms on which he intended to produce rice for the crop
At the time of his death, no producer rice allotment for 1974 had
been determined for or issued to Babb. After Babb's death, by notice
dated March 28, 1974, a producer rice allotment of 1142.6 acres was
issued to his estate.
The estate tax return filed by the First Victoria National Bank,
appellee here, as executor included no amount for either the value of
decedent's interests in the rice allotment program or the value of the
rice crop growing on July 4, 1973. After examination of the return by
an agent of the Internal Revenue Service, the Service determined that
items of $50,000, representing the value of crops growing on July 4,
1973, and $285,600, representing the value of decedent's rice producer
allotment and rice production history, were includable in the gross
I. s h au f rc itr c e g ” ncludable
II I te vle o “ie hsoy arae i in
h rpr eouin f hs pel un
Te poe rslto o ti apa trs o wehr “ie n hte rc
itr ceg” s poet” ihn h
hsoy arae i “rpry wti te cnepain o IRC s otmlto f ... s
2031 & 2033, n. 1 supra. As we attempt to resolve this question, we
g f h ae poet.
necessarily must wrestle with the meanin o t e l b l “ r p r y ”
Documentation of the history and derivation of many interests which are
ae poet” ol eur hls
today denomin t d “ r p r y w u d r q i e p i o ophers, professors of
jurisprudence, and scholars of economics to call upon their full
erudition and exegetic talents. The shelves of our jurisprudence are
tomed with obituaries of species of property long ago tolled.
Announcements of the nascence of other species which were unheard of
and unspeculated upon centuries ago populate further volumes.
Although the varieties of property may not be infinite, any
attempt to enumerate every species of property would beggar the mind
and intellect of even the wisest of persons. Avoiding this Sisyphian
endeavor, we embark on a Delphian one. As we begin, we must remind
le ht poet” s n xasoit em t
ourse v s t a “ r p r y i a e p n i n s t r . I s m o i g iorn s
contemporary rather than historical.
h tep o eie poet” s n l
T e a t m t t d f n “ r p r y i a e usive task. There is no
cosmic synoptic definiens that can encompass its range. The word is at
times more cognizable than recognizable. It is not capable of
anatomical or lexicographical definition or proof. It devolves upon the
court to fill in the definitional vacuum with the substance of the
economics of our time.
Poet” vle vr ie
“rpry eovs oe tm. I cn b d t a e escribed as the bundle
of rights attached to things conferred by law or custom, or as
everything of value which a person owns that is or may be the subject
of sale or exchange. See 73 C.J.S. Property s 1 (1951). Both of these
definitions contemplate the possibility that law or custom may create
property rights where none were earlier thought to exist.
n xml f hs eeomn a
A eape o ti dvlpet cn b se i te “ih o e en n h rgt f
ulct. ne huh
pbiiy” Oc togt t b a proa, nno e esnl o -assignable right
n rm h ih f rvc, h rgt f ulct” vle
emanati g f o t e r g t o p i a y t e “ i h o p b i i y e o v d
into a legally-protected, transferable interest. See, e. g., Haelan
Laboratories v. Topps Chewing Gum, 202 F.2d 866, 868 (2d Cir. 1953).
Recently, courts have been faced with the next question relating to the
rgt f ulct”
“ i h o p b i i y whether this right is devisable. Some courts have
held that under some circumstances the right survives death and can be
devised, see, e. g., Factors Etc., Inc. v. Pro Arts, Inc., 579 F.2d 215
(2d Cir. 1978); Hicks v. Casablanca Records, 464 F.Supp. 426
(S.D.N.Y.1978); others that the right terminates at death, see, e. g.,
Memphis Development Foundation v. Factors Etc., Inc., 616 F.2d 956 (6th
Cir. 1980); see generally Flecher & Rubin, Privacy, Publicity, and the
Portrayal of Real People by the Media, 88 Yale L.J. 1577 (1979).
n h rgt f ulct” otx, h ors ae elzd
I te“ih o pbiiy cnet tecut hv raie
h t h a p o e t ” xpresses a legal conclusion rather than any
ta tetg“rpry e
independent meaning, see Haelan Laboratories, supra, 202 F.2d at 868,
h ih poet. e atr t.
but have nevertheless labelled t e r g t “ r p r y ” S e F c o s E c ,
Inc. v. Pro Arts, Inc., supra, 579 F.2d at 221. An interest labelled
p o r y o m l y a o s s e t i h r cteristics: it can be
“ r pe t ” n r a l m y p s e s c r a n c a a
transferred to others; it can be devised and inherited; it can descend
to heirs at law; it can be levied upon to satisfy a judgment; it comes
under the jurisdiction of a bankruptcy court in a bankruptcy
proceeding; it will be protected against invasion by the courts; it
cannot be taken away without due process of law.
iiy i nt a dsryr
Possible revocab l t s o Is”
etoe. “f, “abs” mye,
modifiers, and contingencies might negate the concept of property. But
we must be certain that the analysis is a pragmatic one, not a
theoretical one. So long as an interest is not chimerical, it should
fall within the broad reach of the taxing statute.
h od poet” n h ttt s o iie n t cp y
Te wr “rpry i tesaue i ntlmtdi issoe b
concepts of property that existed when the estate tax was conceived.
When property rights have come into existence since the statute's
enactment, the generalized term must be expounded, and the terrain
cartographed, by laborers in the fields of law and government. The
economy and many of the elements of life today are different than they
were even a generation or less ago. The Congress in its wisdom decided
to use a general word like property rather than trying to envision what
the ingenuity of man would evolve as something substantial. The tax
gatherer is directed to seek out the esoterics of ownership and reap
his share of an individual's harvest of bundles of rice upon his
h rcs usin eoe s s hte
Te peie qeto bfr u i wehr “ie arae hsoy rc ceg itr”
s poet” o u
i “ r p r y f r p rposes of the estate tax laws. In deciding this
usin e tr ih h
qeto, w sat wt te bsc picpe ta “nes tee i sm
ai rnil ht uls hr s oe
special reason intrinsic to the particular provision (under
osdrto) , h eea
c n i e a i n . . . t e g n r l w r ‘ r pe t ’ h s a b o d r a h i
od po ry a ra ec n
a a. uot e eor o . ntd tts
tx lw” DPn d Nmus & C. v Uie Sae, 41 F2 11, 7 .d 21
1218, 200 Ct.Cl. 391 (1973). Appellee has presented us with a number of
reasons which, it contends, suffice to exclude the value of Babb's
rc itr c ea e
“ie hsoy ar g” fo hs gos ett. W ades a
rm i rs sae e drs ppellee's
contentions in turn.
Appellee contends that on July 4, 1973, the date of Babb's death,
Babb had no interest that could be transferred. Appellee is correct
ht h 93 lomn a
ta te 17 altet ws “sd u” i ta i hd aray be
ue p n ht t a led en
allocated to certain farms and was absorbed into the rice marketing
quota for those farms. However, appellee is not correct that the
cret lomn” s te ny hn
“urn altet i “h ol tig te poue cn da wt o h rdcr a el ih r
s. re o pele t .
ue”BiffrAple a 7
n uy , 93 ab lo osse
O Jl 4 17, Bb as psesd te “ie hsoy araeh rc itr ceg”
in t s re ht hs rc itr
of his prior product o . I i t u t a t i “ i e h s o y a r a e ceg”
was of no further use in 1973, and, as appellee earnestly contends,
that Babb had no enforceable right to any specific number of acres of
producer rice allotment, or even to any future producer rice allotment
at all, on the date of his death. It may even be true that, under the
Department of Agriculture's regulations, Babb's rice acreage history
could not have been transferred on July 4, 1973. Nevertheless, Babb did
es rc itr ceg, n no
poss s “ i e h s o y a r a e ” a i c rporeal, intangible possession
that may or may not have entitled him to receive other rights
(specifically, producer rice allotments and farm marketing quotas) in
pele et otns ht al ab a
Aple nx cned ta “l Bb hd we h de ws a hn e id a n
expectancy that he might receive future allotments if they were issued
soy f rdcin”re
and if they were issued on the basis of hi t r o p o u t o . B i f
for Appellee at 16. We cannot accept this contention, because Babb did
have a legally-enforceable right to receive future allotments if they
were issued, if they were issued on the basis of history of production.
If rice allotments based on history of production were issued in a
year, and an owner of production history were refused his appropriate
allotment, the owner of production history would be able to enforce his
rights by a bill in equity. Cf. Williamson, supra, 232 F.Supp. at 480
(tobacco allotments enforceable by bill in equity).
The grain of truth in appellee's statement is that an owner of
production history has no enforceable right to a continuation of the
allotment program or to any specific number of acres of allotment until
the national acreage allotment and apportionment factors for a given
year are established. Appellee contends that in this situation the
value of the expectancy cannot be included in the value of the estate
of its owner. It argues that an extensive line of cases dealing with
payments made to a named beneficiary or to the estate of a decedent by
his employer are controlling. These cases are not relevant here. The
leading case cited by appellee is Dimock v. Corwin, 19 F.Supp. 56
(E.D.N.Y.1937), aff'd on other grounds, 99 F.2d 799 (2d Cir. 1938),
aff'd, 306 U.S. 363, 59 S.Ct. 551, 83 L.Ed. 763 (1939). As it states,
in cases in which an expectancy of a payment to a named beneficiary
upon one's death is sought to be included in a deced n ' e t t , “ hte
eie rpry f h eeet s setd o b) i ih
pr c s p o e t o t e d c d n i a s r e t ( e h s r g t . . . t ‘o
i.”d t 8
designate the beneficiary of his death benef t ’ I . a 5 . T i hs
rgt ant e od r sind y eeet e d t 9 o os
“ih” cno b sl o asge b dcdn, se i. a 5, nr de
h rgt as o h eeets er. h
te “ih” ps t te dcdn' his Te “ih” i tu etrl rgt s hs niey
nie “ie hsoy arae” wih i, a
ulk rc itr ceg, hc s s w e hv ae ntdoe,
transferable, devisable, and descendible.
We find the analogy to the good will of a business to be more
apt. No one can seriously doubt that good will is an asset whose value
is includable in its owner's estate. See First National Bank of Memphis
v. Henslee, 74 F.Supp. 106 (M.D.Tenn.1947); Estate of A. Bluestein, 15
T.C. 770, 786-88 (1950). Yet good will is an intangible asset which,
ie rc itr ceg, a au ny
l k “ i e h s o y a r a e ” h s v l e o l because it carries the
expectancy of receiving future assets of more concrete value. Like
rc itr ceg” od il s n se
“ie hsoy arae go wl i a ast woe vle my eaoae hs au a vprt
ih. ie rc itr ceg” od il a
overn g t L k “ i e h s o y a r a e , g o w l c n b s l o e od r
dvsd rc itr
ie “ie hsoy arae, go ceg” od wl il i riaiy
transferred along with other assets (in the case of good will, a
business; in the case of rice acreage history, a rice farm).
Moreover, such expectancies as a right to compensation under a
contingent fee contract, see Duffield v. United States, 136 F.Supp. 944
(E.D.Pa.1955), and a promise to return property to an estate if other
property is insufficient to meet the estate's tax obligations, see
Welch v. Hall, 134 F.2d 366 (1st Cir. 1943), have been held to be
“ r p r y i cludable in a decedent's estate. Rc i oy ceg”
“ i e h st r a r a e
is no less certain an interest than these.
Appellee also contends that the value of Babb's rice acreage
history cannot be included in his estate because neither Babb nor his
executor could control the transfer of the rice acreage history after
Babb's death. The rice acreage history does not pass by will or by the
laws of descent, appellee argues, but under the statute and regulations
to those who continue his farming operations. See 7 U.S.C.A. s
1353(f)(1) (West 1973) (suspended); 7 C.F.R. s 730.76(b)(1) (1973)
(repealed), supra n. 9. However, it is undeniable that Babb's farms,
including his rice farming operations, could pass either by
testamentary bequest or by descent, and that in fact they passed under
his will. His rice acreage history passed, along with his rice
operations, to the persons he desired to inherit both.
Appellee may be attempting to emphasize the fact that an
attempted testamentary transfer of rice acreage history along with the
farming operations will be ineffective unless the heirs or devisees
frih h ony omte n rtn
“uns te cut cmite i wiig . . . te nms ad a h ae n ddresses
of the heirs or devisees and the extent each will continue the farming
in f h eesd” ...
operat o s o t e d c a e . 7 C F R s 7 03 .76(b)(1) (1973) (repealed).
We attach no estate tax significance to the fact that the heirs or
devisees must file a piece of paper with the county committee to
establish their rights.
We also fail to find convincing appellee's strained attempt to
e rc itr ceg” o n neet rae fe
analogiz “ i e h s o y a r a e t a i t r s c e t d a t r d a h et,
like a cause of action for wrongful death, see Connecticut Bank & Trust
Co. v. United States, 465 F.2d 760 (2d Cir. 1972), or to Social
Security survivors' benefits, see Rev.Rul. 67-277, 1967-2 C.B. 322. We
note the crucial distinction that neither a cause of action for
wrongful death nor Social Security survivors' benefits can ever be
transferred by a decedent prior to his death. Each of these interests
s cetd ny pn eeets et,
i “ r a e ” o l u o a d c d n ' d a h whereas Babb possessed rice
acreage history prior to his death.
Rc ceg itr” s o ny eial n ecnil, u
“ie arae hsoy i nt ol dvsbe ad dsedbe bt
also transferable inter vivos. Those heirs who inherited Babb's rice
farming operations, by filing the requisite document with the county
omsin ee be o ean ossin f h
cmiso, wr al t rti pseso o te “ie hsoy rc itr
ceg” osse y ab h oet eoe i et. hy ol ae
arae psesd b Bb te mmn bfr hs dah Te cud hv
converted the value of the rice acreage history into cash by selling it
to others by early 1974, if not earlier. When an interest possesses
these attributes, there can be no doubt that its value must be included
in the owner's estate, for the focus of the estate tax is on the
passage of an interest at death.
REVERSED and REMANDED.
United States Court of Appeals,
Albert STRANGI, Deceased, Rosalie Gulig, Independent Executrix,
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
July 15, 2005.
Before REAVLEY, JOLLY and PRADO, Circuit Judges.
E. GRADY JOLLY, Circuit Judge:
This case, which comes before us now for a second time, involves
an assessment by the Commissioner of Internal Revenue of an estate tax
deficiency against the Estate of Albert Strangi. Initially, the Tax
Court held for the Estate. However, we remanded to the Tax Court, which
reversed its prior holding and decided the case under I.R.C. § 2036(a).
Section 2036(a) provides that transferred assets of which the decedent
retained de facto possession or control prior to death are included in
the taxable estate. The Tax Court held that Strangi retained enjoyment
of the assets in question, and thus, that the transferred assets were
properly included in the estate. The Estate now appeals that decision.
We find no reversible error, and accordingly AFFIRM.
As failing health began to telegraph that the inevitable would
occur, Albert Strangi transferred approximately ten million dollars
worth of personal assets into a family limited partnership. Upon his
death, Strangi's Estate filed an estate tax return based on the value
of his interest in that partnership, as opposed to the actual value of
the transferred assets. The Internal Revenue Service issued a notice of
a deficiency of $2,545,826 in estate taxes. Strangi's Estate petitioned
the Tax Court for a redetermination of the deficiency.
After protracted litigation, the Tax Court found that Strangi had
retained an interest in the transferred assets such that they were
properly included in the taxable estate under I.R.C. § 2036(a), and
entered an order sustaining the deficiency. Our review of the Tax
Court's decision requires an inquiry into the structure of the limited
partnership established by Strangi and the extent to which he retained
enjoyment of partnership assets. First, however, some account of
antecedents is in order.
Albert Strangi died on October 14, 1994 in Waco, Texas. He was
survived by four children from his first marriage: Jeanne, Rosalie,
let r, n on cletvl, h
Abr J. ad Jh (olciey te “tag cide”. Rsle Srni hlrn) oai
was married to Michael J. Gulig, a local attorney.
In 1965, after divorcing his first wife, Strangi married Delores
Seymour. Seymour had two daughters, Angela and Lynda, from a prior
mrig cletvl, h Syor hlrn)
(olciey te “emu cide”. I 18, Srni ad n 97 tag n
Seymour both executed wills, naming one another as primary
beneficiaries and the Strangi and Seymour children as residual
beneficiaries. That same year, Seymour began to suffer from a series of
medical problems. As a result, Strangi and Seymour decided to move
their residence from Florida to Waco, Texas. To facilitate the
relocation, Strangi executed a general power of attorney naming Gulig
as his attorney-in-fact.
In July 1990, Strangi executed a new will, naming the Strangi
children as sole beneficiaries if Seymour predeceased him-i.e., cutting
out the Seymour children. The new will designated Strangi's daughter
Rosalie and a bank, Ameritrust, as co-executors of the Estate. Seymour
died in December 1990.
In 1993, Strangi began to experience health problems. He had
surgery to remove*473 a cancerous mass from his back, was diagnosed
with a neurological disorder called supranuclear palsy, and had
prostate surgery. At this point, Gulig took over management of
Strangi's daily affairs.
Gulig testified that, on several occasions between 1990 and 1993,
he discussed his concerns regarding Strangi's Estate with retired Texas
probate Judge David Jackson, who was a personal friend. Gulig said that
e et cniet ht h emu hlrn ol ihr u
h fl “ofdn”ta teSyorcide wudete se
Strangi's Estate or contest the will. He also claimed to have been
end bu hredu xctr es ht e eivd mrtut
conc r e a o t “ o r n o s e e u o f e ” t a h b l e e A e i r s
would charge. Further, Gulig said he worried about the possibility of a
tort claim by Strangi's housekeeper for injuries she sustained in an
accident while caring for Strangi. He testified that Judge Jackson
die i ht i er ee vr ai” n ht e hd o o
avsdhmta hsfaswr “eyvld adta h “a t d
oehn” o rtc h tag sae
smtig t poetteSrniEtt.
On August 11, 1994, Gulig attended a seminar provided by Fortress
ald Frrs ln. h
Financial Group, Inc., explaining the so-c l e “ o t e s P a ” T e
Fortress Plan was billed as a means of using limited partnerships as a
tool for (1) asset preservation, (2) estate planning, (3) income tax
planning, and (4) charitable giving.
The next day, Gulig, acting under power of attorney on behalf of
Strangi: (1) prepared the Agreement of Limited Partnership of the
tag aiy iie atesi “FP) 2 rprd n ie h
Srni Fml Lmtd Prnrhp (SL”; () peae ad fld te
rils f noprto f tac, n. “tac”; 3 rnf
A t c e o I c r o a i n o S r n o I c ( S r n o ) ( ) t a s erred
98% of Strangi's assets valued at $9,932,967-to SFLP in exchange for a
99% limited partner interest; (4) transferred $49,350 of Strangi's
assets to Stranco in exchange for 47% of Stranco's common stock; (5)
facilitated the purchase of the remaining 53% of Stranco's common stock
by the four Strangi children for $55,650; (6) issued a check from
Stranco for a 1% general partner interest in SFLP.
The result of Gulig's efforts was a three-tiered entity, with
SFLP-and the roughly $10 million in assets Strangi had transferred into
it-at the top. The SFLP partnership agreement provided that Stranco,
which owned a 1% general partnership interest in SFLP, had sole
authority to conduct SFLP's business affairs. Strangi owned a 99%
interest in SFLP, but was a limited partner, and thus had no formal
Stranco itself was a Texas corporation. Strangi owned 47% of
Stranco's common stock; each of his four children owned a 13% share.
On August 18, Stranco made a corporate gift of 100 shares-a 1/4 of one percent
stake-to the McLennan Community College Foundation. Gulig later testified that he
understood that the gift would improve the asset protection features of the Stranco/SFLP
t c r h i p m n t n fh F res l w sh cm le
r u. e ao
sut eT em l eti o t “ot s Pa” a t s o p t .
e r n u ed
Both prior to and after Strangi's death, SFLP made various
outlays, both monetary and in-kind, to meet his needs and expenses. In
September and October of 1994, SFLP distributed $8,000 and $6,000,
respectively, to Strangi. On both occasions, SFLP made proportional
distributions-$80.81 and $60.61, to be precise-to its general partner,
Stranco. The Commissioner suggests that these payments to Strangi were
necessary because, after the transfer to SFLP, Strangi retained
possession of only minimal liquid assets-i.e., two bank accounts with
funds totaling $762. The Estate responds by noting that Strangi
received a monthly pension of $1,438 and Social Security payments of
159 n ht e eand vr 1700 n lqeibe
$,5, ad ta h rtie oe $8,0 i “iufal” ast, ses
which consisted largely of various brokerage accounts.
SFLP also distributed approximately $40,000 in 1994 to pay for
funeral expenses, estate administration expenses, and various personal
debts that Strangi had incurred. In 1995 and 1996, SFLP distributed
approximately $65,000 to pay for Estate expenses and a specific bequest
made by Strangi. Moreover, in 1995, SFLP distributed $3,187,800 to the
Estate to pay federal and state inheritance taxes. The Estate notes
that all of these disbursements were recorded on SFLP's books and
accompanied by pro rata distributions to Stranco. The Estate further
oe ht t ead FP o h 6,0 avne n aur 97
ntsta i rpi SL frte$500“dac”i Jnay19.
In addition, prior to his death, Strangi continued to dwell in
one of the two houses he had transferred to SFLP. The Estate notes that
SFLP charged rent for the two months that Strangi remained in the
house. Although the accrued rent was recorded in SFLP's books, it was
not actually paid until January 1997, more than two years after
In December 1998, the Internal Revenue Service issued a notice of
deficiency to the Estate, asserting that it owed $2,545,826 in federal
estate tax or, in the alternative, $1,629,947 in federal gift tax. The
deficiency was attributable to the IRS's determination that Strangi's
interest in SFLP was $10,947,343-i.e., the actual value of the assets
transferred-rather than the $6,560,730 that the Estate reported.
The Estate petitioned the Tax Court for a redetermination of the
deficiencies. In the Tax Court, the Commissioner of Internal Revenue
contended, inter alia, that (1) SFLP should be disregarded because it
lacked economic substance and business purpose; (2) the partnership
agreement was a restriction on the sale or use of the underlying
property that should be disregarded for valuation purposes; (3) the
fair market value of Strangi's partnership interest was understated;
and (4) if a discount was appropriate, Strangi had made a taxable gift
on formation of SFLP to the extent the value of the property
transferred exceeded the value of his partnership interest.
Prior to trial, the Commissioner filed a motion for leave to
amend his answer to include the alternative theory that, under I.R.C. §
2036(a), Strangi's taxable estate should include the full value of the
assets he transferred to SFLP and Stranco. The Tax Court denied the
motion. After a two-day trial, the court held for the Estate, rejecting
all of the Commissioner's proffered reasons for inclusion of the
assets. See Estate of Strangi v. Commissioner, 115 T.C. 478, 2000 WL
4 20) “
175527 ( 0 0 ( Strangi I” .)
The Commissioner appealed, inter alia, the denial of the motion
to amend his answer. This court affirmed in part and reversed in part,
and remanded the case to the Tax Court with instructions that it either
st ot t esn
“ e f r h i s r a o s for ... denial of the Commissioner's motion for
ev o mn” r rvre t eil f h
lae t aed o “ees is dna o te Cmisoe' mto, omsinrs oin
permit the amendment, and consider the Commissioner's claim under §
2 3 ” Estate of Strangi v. Commissioner, 293 F.3d 279, 282 (5th
On remand, the Tax Court opted to permit the amendment. The
parties submitted additional briefs on the § 2036(a) issue and the Tax
Court entered its opinion in May 2003, finding in favor of the
Commissioner, and upholding the initially-assessed estate tax
deficiency. See Estate of Strangi v. Commissioner, 2003 WL 21166046,
4 20) “ ) h sae o pel
T.C. Memo 2003-1 5 ( 0 3 ( Strangi II” . T e E t t n w a p a s t e h
decision of the Tax Court.
The Strangi Estate advances two primary arguments. Both hinge on
the application of I.R.C. § 2036(a) to the facts at hand. Section
The value of the gross estate shall include the value of all property
to the extent of any interest therein which the decedent has at any
time made a transfer (except in the case of a bona fide sale for an
adequate and full consideration in money or money's worth), by trust
or otherwise, under which he has retained for his life or for any
period not ascertainable without reference to his death or for any
period which does not in fact end before his death
(1) the possession or enjoyment of, or the right to the income from,
the property, or
(2) the right, either alone or in conjunction with any person, to
designate the persons who shall possess or enjoy the property or the
First, the Estate contends that the Tax Court erred in holding
ht tag e a n d p ss s i n r n o m n ” f h
ta Srni rtie “o eso o ejyet o te poet h rpry e
transferred to SFLP or the right to designate who would possess or
enjoy it. If Strangi did not retain such an *476 interest, § 2036(a)
does not apply. Second, the Estate contends that, even if Strangi
retained possession or enjoyment of the assets, the Tax Court erred in
odn ht h rnfr i o al ihn h bn ie ae
hlig ta te tase dd nt fl wti te “oa fd sl”
exception to § 2036(a).
The core of the Estate's argument on appeal is that the Tax Court
erred in concluding that Strangi retained possession or enjoyment of
the assets he transferred to SFLP. It follows, the Estate contends,
that the Tax Court erred in holding that the assets were includible in
the taxable estate under § 2036(a).
Section 2036(a) is one of several provisions of the Internal
Revenue Code intended to prevent parties from avoiding the estate tax
by means of testamentary substitutes that permit a transferor to retain
lifetime enjoyment of purportedly transferred property. See In re
Estate of Lumpkin, 474 F.2d 1092, 1097 (5th Cir.1973). Specifically, §
2036(a) provides that property transferred by a decedent will be
included in the taxable estate if, after the transfer, the decedent
ean ihr 1 pseso r nomn” f h
r t i s e t e ( ) “ o s s i n o e j y e t o t e t a sferred rn
rpry r 2 te ih . o ei
p o e t ; o ( ) “ h r g t . . t d s gnate the persons who shall
oss r no h rpry r h noe hrfo”
pseso ejytepoet o teicm teerm.
rnfrr ean pseso
A taseo rtis “ossin o e omn” o poet,r nj y e t f rpry
h enn f 06a() f e ean sbtnil
within t e m a i g o § 2 3 ( ) 1 , i h r t i s a “ u s a t a
pres n cnmc bnft eei” fo rm te poet, a
h rpry poe
s opsd t o “ a
pcltv otnet eei hc a
seuaie cnign bnft wih my o my nt b raie” r a o e elzd.
United States v. Byrum, 408 U.S. 125, 145, 150, 92 S.Ct. 2382, 33
L.Ed.2d 238 (1972). IRS regulations further require that there be an
epes r mle” gemn a h ie f h
“xrs o ipid areet “t te tm o te tase” ta te rnfr ht h
transferor will retain possession or enjoyment of the property. 26
C.F.R. § 20.2036-1(a).
In the case at bar, the benefits retained by Strangi-including,
for example, periodic payments made prior to Strangi's death, the
continued use of the transferred house, and the post-death payment of
ee lal sbtnil n peet, s
various debts and expenses-w r c e r y “ u s a t a ” a d “ r s n ” a
poe o seuaie r cnign” s uh
opsd t “pcltv” o “otnet. A sc, or iqiy udr § u nur ne
2036(a)(1) turns solely on whether there was an express or implied
agreement that Strangi would retain de facto control and/or enjoyment
of the transferred assets.
The Commissioner does not suggest that any express agreement
existed. Thus, the precise question before us is whether the record
supports the Tax Court's conclusion that Strangi and the other
shareholders of Stranco-that is, the Strangi children-had an implicit
agreement by which Strangi would retain the enjoyment of his property
after the transfer to SFLP.
The Tax Court, in its memorandum opinion, presented a litany of
circumstantial evidence to support its conclusion. The Estate responds
that each of the factors cited by the court is either factually
erroneous or irrelevant. We consider each of the evidentiary factors in
First, the Commissioner cites SFLP's various disbursements of
funds to Strangi or his Estate. The Estate responds that only two of
the payments-those made in September and October 1994, totaling
$14,000-should be considered, because the remaining payments were made
fe tag' et, n
atr Srnis dah ad tu “ee nt a a cneune o ayhn
hs wr o s osqec f ntig
r tag i”
The Estate's response misses the point. Certainly, part of the
pseso r nomn” f n' ses s h suac ht hy
“ossino ejyet o oesast i teasrneta te
will be available to pay various debts and expenses upon one's death.
And that assurance is precisely what Strangi retained in this case.
SFLP distributed over $100,000 from 1994 to 1996 to pay for funeral
expenses, estate administration expenses, specific bequests and various
personal debts that Strangi had incurred. These repeated distributions
provide strong circumstantial evidence of an understanding between
t prnrhp ses ol e sd o
Strangi and his children tha “ a t e s i ” a s t w u d b u e t
meet Strangi's expenses.
eod h a
S c n , t e T x C u t f u d “ i h y p o at v ” S r n i s
or on hgl rb ie tag'
c n i u d h s c l o s ssion of his residence after its transfer to
“otne pyia pse
FP. h sae epns y oig ht FP hre tag
S L ” T e E t t r s o d b n t n t a S L c a g d S r n i rent on
the home. As the Tax Court observed, although the rent charge was
recorded in SFLP's books in 1994, the Estate made no actual payment
until 1997. Even assuming that the belated rent payment was not a post
hoc attempt to recast Strangi's use of the house, such a deferral, in
itself, provides a substantial economic benefit. As such, the Tax Court
did not err in considering Strangi's continued occupancy of his home as
evidence of an implied agreement.
Third, both the Commissioner and the Tax Court point to Strangi's
lack of liquid assets after the transfer to SFLP as evidence that some
arrangement to meet his expenses must have been made. As noted supra,
Strangi transferred over 98% of his wealth to SFLP and afterward
retained only $762 in truly liquid assets. The Estate counters that
tag a vr 1700 n lqeibe euiis hc ol ae
Srni hd oe $8,0 i “iufal” scrte, wih cud hv
been sold to meet expenses for the remainder of Strangi's life-that is,
for the twelve to twenty-four months he was expected to live after
August 1994. Even this limited assertion seems dubious, however, when,
as the Tax Court noted, Strangi averaged nearly $17,000 in monthly
expenses over the two months between the creation of SFLP and his
death. See Strangi II, T.C. Memo 2003-145.
In sum, upon creation of SFLP, Strangi retained assets barely
sufficient to meet his own living expenses for the low end of his life
expectancy-that is, for about one year-assuming he was never required
to pay rent, estate administration costs, outstanding personal debts,
funeral expenses, or taxes. At the same time, Strangi began receiving
substantial monthly payments out of SFLP's coffers. Given these
circumstances, we cannot say that the Tax Court clearly erred in
holding that Strangi and his children had some implicit understanding
by which Strangi would continue to use his assets as needed, and
hrfr ean pseso r nomn” ihn h enn f
teeoerti “ossino ejyet wti temaigo §
The Estate next contends that, even if the assets transferred to
SFLP do fall within the ambit of § 2036(a)(1), they should nonetheless
e xldd rm h aal sae ae
b ecue fo te txbe ett, bsd o te “oa fd sl” n h bn ie ae
exception contained in § 2036(a). For the reasons set forth below, we
Section 2036(a) provides an exception for any transfer of
property tha t i s a “oa fd
bn ie sl ae fr a
o n aeut n
dqae ad fl ul
in n oe r oe' ot” h
considerat o i m n y o m n y s w r h . T e e xception contains two
icee eurmns 1 bn ie ae, n
dsrt rqieet: () a “oa fd sl” ad () “dqae ad 2 aeut n
f l c n i e a i n . See Estate of Harper v. Commissioner, 2002 WL
992347, T.C. Memo 2002-121 (2002). Both must be satisfied for the
exception to apply.
We tr rel
un bify t o te “dqae ad fl
h aeut n osdrto”
requirement. This requirement is met only where any reduction in the
saes au s jie ih
ett' vlei “ondwt atase t r n f r hat augments the estate by a
omnuae . mut.
c m e s r t . . a o n ” Kimbell, 371 F.3d at 262. Where assets are
transferred into a partnership in exchange for a proportional interest
hri, te “dqae ad fl
teen h aeut n osdr in eurmn
u l c n i e at o ” r q i e e t w l il
generally be satisfied, so long as the formalities of the partnership
entity are respected. The Commissioner concedes that such has been the
case here. As such, the adequate and full consideration prong of the
exception is satisfied and the sole question before us is whether the
rnfr a bn ie ae.
tase wsa“oafd sl”
Thus, we turn our attention to the bona fide sale requirement.
h em bn ie, ae ieal, en
Te tr “oa fd” tkn ltrly mas “n go fih o i od at” r
wtot ru r eet.
“ i h u f a d o d c i ” SeeBLACK'S LAW DICTIONARY, 186 (8th ed.
l bevd s f bn ie tnad
2004). As we have previous y o s r e , u e o a “ o a f d ” s a d r
often requires the courts to assess both the subjective intent of a
party and the objective results of his actions. See, e.g., United
States v. Adams, 174 F.3d 571, 576-77 (5th Cir.1999).
As we noted in Wheeler v. United States, however, Congress in
1976 removed a provision from the Internal Revenue Code that included
es itne o ae fet n
within the taxable estate transf r “ n e d d t t k e f c i
ossin r nomn” fe h eeets et. 1
pseso o ejyet atr te dcdn' dah 16 F3 79 75 .d 4, 6
(5th Cir.1997). We observed that Congress's apparent purpose was to
eiiae aton eemntos ign n ujcie oie.
“ l m n t f c b u d d t r i a i n h n i g o s b e t v m t v ” Id.
(quoting Estate of Ekins v. Commissioner, 797 F.2d 481, 486 (7th
Cir.1986)). As such, since Wheeler, we have held that whether a
transfer of assets is a bona fide sale under § 2036(a) is a purely
objective inquiry. See Kimbell, 371 F.3d at 263-64.
We have yet to definitively state, however, precisely what this
o j c i e n u r ntails. Relying on language from Wheeler, the
e otns ht h ojcie oa ie ae nur eurs
Estat c n e d t a t e “ b e t v ” b n f d s l i q i y r q i e
only that the transfer be for adequate and full consideration. The
exception to § 2036(a), however, already expressly requires that
rnfr e o aeut n ul osdrto” s uh
t a s e s b f r “ d q a e a d f l c n i e a i n . A s c , the
saes nepeain f h xeto ol edr h em bn
Ett' itrrtto o teecpinwudrne tetr “oa
i e u e f uous, and must therefore be rejected.
We think that the proper approach was set forth in Kimbell, in
which we held that a sale is bona fide if, as an objective matter, it
evs s b t n i l u i e s o ] t e o -t x u p s .
s r e a “ u s a t a b s n s [ r o h r n n a ” p r o e Id. at 267.
As noted supra, Congress has foreclosed the possibility of determining
the purpose of a given transaction based on findings as to the
subjective motive of the transferor. Instead, the proper inquiry is
whether the transfer in question was objectively likely to serve a
substantial non-tax purpose. Thus, the finder of fact is charged with
making an objective determination as to what, if any, non-tax business
purposes the transfer was reasonably likely to serve at its inception.
We review such a determination only for clear error. See Walker Intern.
Holdings Ltd. v. Republic of Congo, 395 F.3d 229, 233 (5th Cir.2004).
The Estate proffered five discrete non-tax rationales for
Strangi's transfer of assets to SFLP. They are: (1) deterring potential
tort litigation by Strangi's former housekeeper; (2) deterring a
potential will contest by the Seymour children; (3) persuading a
corporate executor to decline to serve; (4) creating a joint investment
vehicle for the partners; and (5) permitting centralized, active
management of working interests owned by Strangi. The Tax Court
rejected each of the rationales as factually implausible. In reviewing
for clear error, we ask only whether the Tax Court's findings are
supported by evidence in the record as a whole, not whether we would
necessarily reach the same conclusions.
First, the Estate contends that Strangi transferred his assets to
SFLP partly out of concern that his former housekeeper, Stone, might
bring a tort claim against the Estate for injuries sustained on the
job. The Tax Court, however, heard admissions by Gulig that Strangi had
paid all of the medical expenses stemming from Stone's injury and had
continued to pay her salary during her absence from work.
Still, the Estate contends, had Stone sued, she might have
recovered a substantial amount for her pain and suffering. Although
this possibility cannot be ruled out entirely, the evidence before the
Tax Court suggests otherwise. Gulig testified, for example, that Stone
n tag ee vr ls” n ditd ht e a
ad Srni wr “ey coe ad amte ta h hd nvr iqie ee nurd
as to whether there was any evidence that Strangi actually caused
Stone's injury. Further, there is no evidence that Stone ever
threatened to take any action. As such, the Tax Court did not clearly
err in finding that the transfer of assets into SFLP did not operate to
deter Stone from bringing a tort claim against the Estate.
Second, the Estate contends that SFLP served to deter a will
or hlrn h a or ocue ht e
contest by the Seym u c i d e . T e T x C u t c n l d d t a “ t h
Seymour claims were stale when the partnership was formed, and they
n v r m t r a i e ” Strangi I, 115 T.C. at 485. Further, although the
Seymour children did retain counsel, Gulig admitted that prior to the
creation of SFLP neither they nor their attorney ever contacted him in
regard to Strangi's will, and that no claim was ever made against the
Estate. Although reasonable minds might differ on this point, the Tax
Court's factual conclusion-i.e., that the Seymour children either would
not or could not have mounted a successful challenge to the will-is not
Third, the Estate argues that SFLP deterred TCB, the corporate
co-executor of Strangi's will, from serving, thus saving the Estate a
substantial amount in executor's fees. The Estate presented Gulig's
testimony regarding a meeting with TCB and TCB's subsequent declining
to serve. Nonetheless, the Tax Court was unpersuaded, noting that it
a setcl f h saes lis f uies
w s “ k p i a o t e e t t ' c a m o b s n s purposes related to
xctr n tonys es.
e e u o a d a t r e ' f e ” See id.
h sae ocds ht te esn o hc
Te Ett cnee ta “h rao fr wih te croae c- h oprt o
lnd o ev[ s o elce n h eod. hs
executor dec i e t s r e ] i n t r f e t d i t e r c r ” T u ,
although a finder of fact might infer a causal relationship between the
existence of SFLP and TCB's withdrawal, there is nothing clearly
erroneous in the Tax Court's refusal to do so.
Fourth, the Estate contends that SFLP functioned as a joint
investment vehicle for its partners. The Tax Court rejected this
contention, noting that the contribution of the Strangi children, which
totaled $55,650, was de minimis and thus properly ignored for purposes
of the bona fide sale requirement. The Tax Court further concluded
that, even if the contributions of the children were properly
considered, SFLP never made any investments or conducted any active
business following its formation. See Strangi I, 115 T.C. at 486.
The Estate responds that ignoring a shareholder's contribution as
de minimis runs contrary to Kimbell, in which we noted that there
xss n rnil f atesi a ht ol eur h ioiy
eit “o picpe o prnrhp lw ta wud rqie te mnrt
partner to own a minimum percentage interest in the partnership for ...
rnfr o e oa ie. 7 .d t 6. t s etil
tases t b bn fd” 31 F3 a 28 I i crany tu ta re ht
the de minimis contribution of a minority partner is not, in itself,
sufficient grounds for finding that a transfer of assets to a
partnership is not bona fide. However, where a partnership has made no
actual investments, the existence of minimal minority contributions may
well be insufficient to overcome an inference by the finder of fact
that joint investment was objectively unlikely. Such appears to have
been the case here. Thus, it was not clear error for the Tax Court to
et h saes jit netet ainl.
rej c t e E t t ' “ o n i v s m n ” r t o a e
Finally, the Estate contends that SFLP permitted active
aaeet f tag' wrig ses. s
mngmn o Srnis “okn ast” A a peiiay mte, i rlmnr atr t
is undisputed that the overwhelming majority of the assets transferred
to SFLP did not require active management. Some seventy percent of the
transfer, for example, consisted of various brokerage accounts. As the
Estate points out, however, this is not unlike the situation in
Kimbell, where we reversed summary judgment for the Commissioner based
in part on the transferor's contribution of $438,000 in working oil and
gas properties, which comprised approximately 11% of the overall
transfer. See id. at 267.
The Estate asserts that working assets-including real property
and interests in real estate partnerships-comprise an approximately
equal proportion of the transfer in this case, as in Kimbell. Assuming
this to be an accurate characterization of Strangi's contribution, this
analogy misses the point. In Kimbell, we reviewed cross motions for
umr uget n h bn ie ae su.
s m a y j d m n o t e “ o a f d s l ” i s e In reversing the
itit or, e oe ht h
dsrc cut w ntd ta te Cmisoe “asd n i omsinr rie o ssues of
material fact in its motion for summary judgment and challenged none of
h apyrs at”
t e t x a e ' f c s . Id. at 268-69. Among the unchallenged facts was
the taxpayer's assertion that there had been significant active
management of the transferred oil and gas properties. Id. at 267-68.
By contrast, this case comes to us after a full trial on the
otse vdne ht 
merits. The Tax Court heard unc n e t d e i e c t a “ n o a t v cie
business was conducted by SFLP following its format o ” Strangi I, 115
T.C. at 486. In short, although Strangi may have transferred a
substantial percentage of assets that might have been actively managed
under SFLP, the Tax Court concluded, based on substantial evidence,
that no such management ever took place. From this, the Tax Court
fairly inferred that active management was objectively unlikely as of
the date of SFLP's creation. As such, we cannot say that the Tax Court
aes atv aaeet ainl.
clearly erred in rejecting the Est t ' “ c i e m n g m n ” r t o a e
In sum, we hold that the Tax Court did not clearly err in finding
that Strangi's transfer of assets to SFLP lacked a substantial non-tax
ups. codnl, h bn ie ae
proe Acrigy te “oa fd sl” ecpin t § 23() i xeto o 06a s
not triggered, and the transferred assets are properly included within
the taxable estate. We therefore affirm the estate tax deficiency
assessed against the Estate.
The Estate raises one final matter for our consideration. It
contends that, even if the Tax Court did not err in holding the
transferred assets includible under § 2036(a), it nonetheless abused
its discretion in denying the Estate leave to amend its petition to
include a computational offset, based on a time-barred income tax
refund, under the doctrine of equitable recoupment. As such, the Estate
requests that we remand the case to the Tax Court with instructions
that it offset the assessed estate tax deficiency by $304,402 already
paid in income taxes.
The doctrine of equitable recoupment applies where the
Commissioner brings a timely suit for payment of taxes owed and the
taxpayer seeks to offset that amount by seeking a refund of an
erroneously imposed tax, but the taxpayer's claim is time-barred.
Equitable recoupment allows the taxpayer to raise the time barred
li i re o eue r lmnt h oe wd n h
refund c a m “ n o d r t r d c o e i i a e t e m n y o e o t e
Cmisoe'] iey li”
[ o m s i n r s t m l c a m . Estate of Branson v. Commissioner, 264
F.3d 904, 909 (9th Cir.2001).
The problem in this case, as the Tax Court points out, is that
the Estate has adopted two inconsistent positions with respect to its
equitable recoupment argument. To sustain a claim for equitable
recoupment, the taxpayer must show, inter alia, that the refund sought
is, in fact, time-barred. See Estate of Branson, 264 F.3d at 910
(citing Stone v. White, 301 U.S. 532, 538, 57 S.Ct. 851, 81 L.Ed. 1265
(1937)). The Estate, however, currently has a separate action pending
in the Western District of Texas, in which it contends that the
disputed refund is not time-barred.
Given this inconsistency, the Tax Court held that the Estate
failed to show that the refund was time-barred, and denied its motion
to amend. On appeal, the Estate argues only that this result is
inequitable. Unfortunately, in so doing, it neglects to address the
controlling legal issue here-i.e., whether the Tax Court erred in
concluding that the refund was not time-barred, and thus not subject to
equitable recoupment. In sum, because the Estate has failed to brief us
on the underlying merits of the Tax Court's ruling, it has likewise
failed to show that the Tax Court abused its discretion in denying the
motion to amend.
For the foregoing reasons, the decision of the Tax Court is
United States Court of Appeals,
Ann LURIE, Executor of the estate of Robert H. Lurie, deceased,
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Argued June 6, 2005.
Decided Sept. 30, 2005.
Before ROVNER, WOOD, and WILLIAMS, Circuit Judges.
WILLIAMS, Circuit Judge.
This case is an example of how the best laid plans of mice and men can
often go awry. Prior to his passing, the decedent, Robert H. Lurie,
planned for the bulk of his wealth to be excluded from federal estate
taxes and passed through various trust instruments set up for the
benefit of his wife and children. The Commissioner of Internal Revenue,
however, determined that the trusts formed for the benefit of the
children, valued at approximately $40,471,059, should be included in
Lurie's gross estate for tax purposes. This determination left the
funds remaining in the probate estate insufficient to pay the estate
tax deficiency, calculated by the Tax Court to be $12,214,209.42. The
estate does not appeal the calculations of the Tax Court, but only
appeals the Tax Court's ruling that the deficiency, as well as the
legal costs arising from this dispute, must be paid by the executor,
Mrs. Ann Lurie, out of the trust set up for Mrs. Lurie's benefit,
instead of out of the trusts set up for the decedent's children that
generated the tax deficiency. We agree with the ruling of the Tax Court
and, therefore, affirm.
The underlying facts in this case are undisputed. Robert Lurie
“eeet) id n ue 0 90
(dcdn” de o Jn 2, 19, laig ast wrh a evn ses ot pproximately
$130 million. He was survived by his wife, Ann Lurie, and six children,
who were minors when he died.
In May 1969, at the start of Robert Lurie's career, his mother created
ten trusts which came to be known as the Robert Lurie Family Trusts
“h F rss) ui a i
( t e L T u t ” . L r e h d a l mited power of appointment over the LF
Trusts, and exercised that power in February 1990 to create six new
trusts, one for the sole benefit of each of his six minor children. The
six new trusts received all of the assets of the LF Trusts. Lurie also
held a power of appointment with respect to ten trusts, known as the
“D tut. Lre ee ui x rcised his power of appointment over the RD
trusts and created ten new trusts to succeed and receive the assets of
the RD trusts. Both parties and the Tax Court referred to the LF
Trusts, the RD Trusts, and their successor trusts collectively as the
Lurie created the Revocable Trust, of which he was both grantor and
trustee, on December 19, 1989, three days before he executed his will.
The Revocable Trust Agreement provides that upon Lurie's death the
assets of the Revocable Trust would be allocated bet e n a “ a i a
rs” n omrtl Rsday rs.
Tut adannaia “eiur Tut”
The Residuary Trust is established pursuant to section 4.2. Section 4.2
provides that, upon Lurie's death, the remainder of the trust estate
not allocated to the Marital Trust or used for the payment of the debts
and expenses of Lurie's estate was to be allocated into a Residuary
Trust for the benefit of Mrs. Lurie and his children.
Section 4.1 of the Revocable Trust instrument provides that if the
residue of the probate estate was insufficient, then any remaining
expenses from the administration of his estate were to be paid from the
Revocable Trust. In relevant part:
4.1 Debts and Taxes. Upon the death of the Grantor, the Trustee shall,
to the extent that the assets of the Grantor's estate ... are
insufficient, pay ... reasonable expenses of administration of his
estate ... all income, estate, inheritance, transfer and succession
taxes, including any interest and penalties thereon, which may be
assessed by reason of the Grantor's death, without reimbursement from
the Grantor's Executor or Administrator, from any beneficiary of
insurance upon the Grantor's life, or from any other person.... All
such payments shall be charged first against the principal of the
Lurie executed his will on December 22, 1989. Mr. Lurie's will directs
that his personal effects be distributed to his wife and that any
residuary, after payment of debts, funeral expenses, costs of
administration, taxes and legal expenses, be distributed to the
Revocable Trust. The will references the Revocable Trust Agreement and
states that the trust agreement governs the administration and
distribution of the residue estate which includes the payment of estate
taxes and legal fees ordinarily payable from the residue estate. See
Section 2.1 of the Will of Robert Lurie dated December 22, 1989.
At Lurie's death, the value of his probate estate was $760,253. The
value of the Revocable Trust at his death was $88,659,780. In
accordance with the decedent's will, his personal effects valued at
$12,470 were bequeathed to his wife, leaving a residuary probate estate
of $747,783. After payment of funeral expenses and administrative
expenses, the residue of the probate estate was distributed to the
Revocable Trust. Lurie had made gifts during his lifetime which fully
absorbed the unified credit, so the nonmarital Residuary Trust was
never formed, and the Revocable Trust distributed all of its assets to
the Marital Trust for the benefit of Mrs. Lurie. On its federal estate
tax return, the estate reported a gross estate of $91,712,318, which
did not include the value of any of the Notice Trusts. The estate
claimed a marital deduction in the amount of $91,682,908, and other
deductions in the amount of $29,410, resulting in a taxable estate of
Upon an audit by the Internal Revenue Service, the Commissioner of
Internal Revenue determined that the Notice Trusts should have been
included in the decedent's gross estate and, as a result, calculated a
$47,459,641 deficiency in the decedent's taxable estate. The increase
in the taxable estate unsurprisingly led to an estate tax deficiency,
which in turn left the residual probate estate insufficient to the
outstanding expenses of the estate. The estate then petitioned the Tax
Court for a redetermination.
Before the Tax Court, the parties eventually stipulated that the Notice
Trusts would be included in the decedent's gross estate at a total
value of $40,461,079, but left it to the Tax Court to decide whether
the resulting estate taxes, payable as a result of including the value
of the Notice Trusts in the decedent's gross estate, were payable from
the Revocable Trust assets that otherwise would have gone to the
Marital Trust, or from the Notice Trusts that generated the tax. In
addition, the parties left it to the Tax Court to decide whether the
legal costs associated with the audit and the ensuing litigation should
be paid by the Revocable Trust or the Notice Trusts.
The Tax Court found that section 4.1 of the Revocable Trust instrument
provided for payment of estate taxes and legal costs if the residuary
probate estate was insufficient, and that, in accordance with that
provision, the estate taxes and legal costs should be paid out of
Revocable Trust assets that otherwise would go to the Marital Trust.
The Tax Court calculated the estate tax deficiency to be
Typically, the resulting estate tax is paid from property that
otherwise would pass to the surviving spouse, thereby reducing the
marital deduction by that amount of federal estate tax. State law
controls, however, how the estate tax burden is allocated among the
assets of an estate. Riggs v. del Drago, 317 U.S. 95, 101, 63 S.Ct.
109, 87 L.Ed. 106 (1942). Here, the decedent was domiciled in Illinois
when he died, so Illinois law governs how his estate tax is to be
allocated. Doetsch v. Doetsch, 312 F.2d 323, 328 (7th Cir.1963).
Illinois has no statute specifying which assets of the taxable estate
bears the burden of any estate tax, but the default rule in Illinois is
the rule of equitable apportionment, which means that the burden of
estate taxes is allocated pro rata to the portions of the taxable
estate that generated the tax. See Roe v. Farrell's Estate, 69 Ill.2d
525, 14 Ill.Dec. 466, 372 N.E.2d 662, 665 (1978) (applying the rule of
equitable apportionment to an intestate estate, where a person dies
without leaving a valid will).
This leads to the ultimate question in this case: whether the decedent
expressly intended not to have the rule of apportionment apply. The
estate argues that since the decedent did not leave specific
instructions in his will negating equitable apportionment in the event
the residuary probate estate was insufficient to cover estate taxes,
then the rule of apportionment should apply. A closer reading of the
will, however, leads us to believe that the will is not silent.
The decedent's will specifically references the Revocable Trust
Agreement and directs that the Revocable Trust Agreement governs the
administration and distribution of the residue estate. See Section 2.1
of the Will of Robert Lurie dated December 22, 1989. The administration
of the decedent's residue estate includes the payment of estate taxes
and legal fees ordinarily payable from the residue estate, and section
4.1 of the Revocable Trust Agreement specifically details that the
eoal rs hl, t h xet ht h
Rvcbe Tut sal “o te etn ta te ast o te Gatrs ses f h rno'
estate ... are insufficient, pay the ... reasonable expenses of
diitain f i sae” hs e id ht h
amnsrto o hs ett. Tu, w fn ta te dcdn i hs eeet n i
will gave specific instructions as to how the residual estate was to be
administered and how the expenses of his estate were to be handled in
the event the residue estate was insufficient and sufficiently intended
to negate the default rule of apportionment.
The estate also argues that the Tax Court erred in reviewing both the
valid will and a trust agreement left by the decedent in order to
conclude that the decedent intended to negate apportionment. The estate
otns ht h a or i o ed te sa
c n e d t a t e T x C u t d d n t h e “ h e t blished Illinois
ue ht h eeets net s o h
rl” ta te dcdn' itn a t te suc o ast t b ue ore f ses o e sd
for payment of estate taxes and whether to negate the doctrine of
equitable apportionment can only be determined from his will. See
Appellant's Opening Brief at 13 (emphasis added). We find that this
argument overstates Illinois law.
We find that case law in Illinois has merely recognized that a decedent
can avoid the application of equitable apportionment by expressing the
intent not to have apportionment apply in his will. Roe, 14 Ill.Dec.
466, 372 N.E.2d at 665; In re Estate of Grant, 83 Ill.2d 379, 47
Ill.Dec. 411, 415 N.E.2d 416, 417 (1980). We have found no case in
Illinois instructing us that we must limit our search for the
decedent's intent to negate equitable apportionment to only the
decedent's will. Our review of Illinois law leads us to conclude that
the decedent's intent as expressed in the language of a will or a trust
instrument can control both what source of assets shall be used to pay
estate taxes and whether equitable apportionment applies.
The estate has failed to cite a single Illinois case which holds that a
court can only look to the decedent's will to determine whether the
decedent intended to negate equitable apportionment. Thus, we conclude
that the Tax Court properly considered both the trust instrument and
the decedent's will in order to discern the decedent's intent to negate
the rule of apportionment.
The estate also argues that if it was proper for the Tax Court to
consider the Revocable Trust Agreement, then the Tax Court did not
properly analyze the instrument. Specifically, the estate argues that a
review of the Revocable Trust Agreement as a whole discloses the
eeets umsaal” net o aiie h
dcdn' “nitkbe itn t mxmz te mrtl ddcin a aia euto, n
intent inherently at odds with the waiver of equitable apportionment.
See Appellant's Opening Brief at 28. The estate contends that the
Revocable Trust Agreement in section 3.2 plainly communicates the
decedent's intent to maximize the marital deduction and not reduce it
by the payment of estate taxes.
We find that section 3.2 of the trust instrument contains no express
language of the decedent's intent not to reduce the Marital Trust by
the payment of estate taxes and contains no language barring the
executor from using trust estate funds otherwise eligible for the
Marital Trust for the payment of estate taxes. Contrary to the estate's
argument, the express intent of section 3.2 is to maximize the amount
of the marital trust allowable under the federal estate tax laws. Thus,
section 3.2 anticipates that federal estate taxes will be paid, and
then creates a Marital Trust up to the maximum allowed under the tax
Construing section 3.2 as maximizing the Marital Trust to the exclusion
of federal estate taxes, as the estate suggests, would allow the
Marital Trust to consume the entire Revocable Trust rendering section
4.1 surplusage. A proper construction of section 3.2 as simply
allocating for a Marital Trust consistent with federal estate tax law
then enables section 4.1 to pay all income, estate, inheritance,
transfer and succession taxes from the Revocable Trust to the extent
that the assets of the decedent's estate are insufficient.
It is clear that the decedent did not anticipate that the Notice Trusts
would be included in his gross estate, and it is very likely that the
decedent would have laid out his estate plan differently had he or his
attorneys considered this possibility. We cannot, however, rewrite the
decedent's will or trust agreement to give effect to what the decedent
would have done. Under Illinois law and the law of this circuit, the
intent that we seek to enforce is not that presumed to have been in the
decedent's mind, but rather the intent that is expressed in the four
corners of the documents in question. See Smith v. United States, 801
F.2d 975, 977 (7th Cir.1986) (quotations and citations omitted)
(interpreting Illinois law); Weir v. Leafgreen, 26 Ill.2d 406, 186
N.E.2d 293, 296 (1962).
Finally, we find that the Tax Court correctly determined that the legal
costs associated with the audit and this litigation should be paid from
the assets of the Revocable Trust. Again, section 4.1 of the Revocable
Trust Agreement directs that if the assets of the residuary probate
estate are insufficient, then the remaining administration costs of the
estate are to be paid from the assets of the Revocable Trust. Since
legal costs are considered administration costs under Illinois law, see
In re Rolley, 121 Ill.2d 222, 117 Ill.Dec. 141, 520 N.E.2d 302, 303
(1998) (describing legal fees as costs of administration of an estate);
In re Desisles' Estate, 59 Ill.App.2d 194, 208 N.E.2d 122, 125 (1965)
(costs of administration include legal fees), the Tax Court was correct
in directing the legal costs associated with this litigation to be paid
out of the Revocable Trust.
For all the foregoing reasons, the decision of the Tax Court is
United States Court of Appeals,
Albert J. HACKL, Sr. and Christine M. Hackl, Petitioners-Appellants,
COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Nos. 02-3093, 02-3094.
Argued June 3, 2003.
Decided July 11, 2003.
Before FLAUM, Chief Judge, and BAUER and EVANS, Circuit Judges.
TERENCE T. EVANS, Circuit Judge.
Most post-retirement hobbies don't involve multi-million dollar companies or
land retirees in hot water with the IRS, but those are the circumstances in this
case. Albert J. (A.J.) and Christine M. Hackl began a tree-farming business after
A.J.'s retirement and gave shares in the company to family members. The Hackls
believed the transfers were excludable from the gift tax, but the IRS thought
otherwise. The Tax Court agreed with the IRS, Hackl v. Comm'r, 118 T.C. 279, 2002
WL 467117 (2002), resulting in a gift tax deficiency of roughly $400,000 for the
couple. The Hackls appeal.
Our story begins with A.J. Hackl's retirement and subsequent search for a
hobby that would allow him to keep his hand in the business world, diversify his
investments, and provide a long-term investment for his family. Tree-farming fit
the bill and, in 1995, A.J. purchased two tree farms (worth around $4.5 million)
and contributed them, as well as about $8 million in cash and securities, to
Treeco, LLC, a limited liability company that he set up in *666 Indiana (Treeco
later changed names, but that doesn't matter for our purposes, so we'll refer to
Treeco and its successors as simply Treeco).
A.J. and his wife, Christine, initially owned all of Treeco's stock (which
included voting and nonvoting shares), with A.J. serving as the company's manager.
Under Treeco's operating agreement, the manager served for life (or until
resignation, removal, or incapacity), had the power to appoint a successor, and
could also dissolve the company. In addition, the manager controlled any financial
distributions, and members needed his approval to withdraw from the company or sell
shares. If a member transferred his or her shares without consent, the transferee
would receive the shares' economic rights but not any membership or voting rights.
Voting members could run Treeco during any interim period between managers, approve
any salaries or bonuses paid by the company, and remove a manager and elect a
successor. With an 80-percent majority, voting members could amend the Articles of
Organization and operating agreement and dissolve the company after A.J.'s tenure
as manager. Both the voting and the nonvoting members had the right to access
Treeco's books and records and to decide whether to continue Treeco following an
event of dissolution (such as the death, resignation, removal, retirement,
bankruptcy, or insanity of the manager). During A.J.'s watch, Treeco has operated
at a loss and not made any distributions to its stockholders. While Treeco has yet
o un rft .. a
t tr a poi, AJ ws nmd “re Fre o te Ya” i Pta Cut,
ae Te amr f h er n unm ony
Florida, in 1999.
Shortly after Treeco's creation, A.J. and Christine began annual transfers of
Treeco voting and nonvoting shares to their children, their children's spouses, and
a trust set up for the couple's grandchildren. After January 1998, 51 percent of
the company's voting shares were in the hands of the couple's children and their
spouses. The Hackls attempted to shield the transfers from taxation by treating
them as excludable gifts on their gift tax returns. While the Internal Revenue Code
imposes a tax on gifts, 26 U.S.C. § 2501(a), a donor does not pay the tax on the
it, ohr hn it f uue neet n rpry” ae o
first $10,000 of g f s “ t e t a g f s o f t r i t r s s i p o e t , m d t
any person during the calendar year, 26 U.S.C. § 2503(b)(1). Unfortunately for the
Hackls, the IRS thought that the transfers were future interests and ineligible for
the gift tax exclusion. The Hackls took the dispute to the Tax Court which, as we
said, sided with the IRS.
The Hackls contend that the Tax Court was in error. Although we owe no
special deference to the Tax Court on a legal question, when we consider the
application of the legal principle to the facts we will reject the Tax Court
decision only if it is clearly erroneous. See Seggerman Farms, Inc. v. Comm'r, 308
F.3d 803, 805 (7th Cir.2002) (quoting Whittle v. Comm'r, 994 F.2d 379, 381 (7th
Cir.1993)). Deficiencies determined by the Commissioner are presumed to be correct,
and the taxpayers bear the burden of proving otherwise. See Reynolds v. Comm'r, 296
F.3d 607, 612 (7th Cir.2002) (citing Pittman v. Comm'r, 100 F.3d 1308, 1313 (7th
The crux of the Hackls' appeal is that the gift tax doesn't apply to a
transfer if the donors give up all of their legal rights. In other words, the
future interest exception to the gift tax exclusion only comes into play if the
donee has gotten something less than the full bundle of legal property rights.
Because the Hackls gave up all of their property rights to the shares, they think
that the shares were excludable gifts within the plain meaning of § 2503(b)(1). The
government, on the other hand, interprets the gift tax exclusion more narrowly. It
argues that any transfer without a substantial present economic benefit is a future
interest and ineligible for the gift tax exclusion.
The Hackls' initial argument is that § 2503(b)(1) automatically allows the
gift tax exclusion for their transfers. The Hackls argue that their position
enn f ftr neet s sd n h
reflects the plain-and only-m a i g o “ u u e i t r s ” a u e i t e s a u ettt,
and that the Tax Court's reliance on materials outside the statute (such as the
Treasury regulation definition of future interest and case law) was not only
ay t a rn. e iare aln
unnecess r , i w s w o g W d s g e . C l i g a y t x l w “ l i ” i a h r r w
n a a pan s ad o
to hoe, and a number of cases (including our decision in Stinson Estate v. United
States, 214 F.3d 846 (7th Cir.2000)) have looked beyond the language of §
2503(b)(1) for guidance. See, e.g., United States v. Pelzer, 312 U.S. 399, 403-04,
61 S.Ct. 659, 85 L.Ed. 913 (1941), and Comm'r v. Disston, 325 U.S. 442, 446, 65
S.Ct. 1328, 89 L.Ed. 1720 (1945) (stating that regulatory definition of future
interest has been approved repeatedly). The Hackls do not cite any cases that
z 53b() s li, n h em f ue neet
actually characteri e § 2 0 ( ) 1 a p a n a d t e t r “ ut r i t r s ” i n t s o
defined in the statute itself. Furthermore, the fact that both the government and
the Hackls have proposed different-yet reasonable-interpretations of the statute
shows that it is ambiguous. Under these circumstances, it was appropriate for the
Tax Court to look to the Treasury regulation and case law for guidance.
Hedging their bet, the Hackls say that the applicable Treasury regulation
supports the conclusion that giving up all legal rights to a gift automatically
makes it a present interest. The applicable Treasury regulation states that a
ftr neet s ea
“uue itrs” i a lgl tr ta apis t itrss “hc ae lmtd t
em ht ple o neet wih r iie o
omne n s, ossin r nomn t oe uue ae r ie” ra. e.
cmec i ue pseso,o ejyeta sm ftr dt o tm, Tes Rg
§ 25.2503-3. The regulation also provides that a present interest in property is
[ ] n estricted right to the immediate use, possession, or enjoyment of property
r h noe rm rpry sc s ie sae r em eti)” e o'
o te icm fo poet (uh a a lf ett o tr cran. W dnt
think that this language automatically excludes all outright transfers from the
gift tax. See also Hamilton v. United States, 553 F.2d 1216, 1218 (9th Cir.1977).
We previously addressed the issue of future interests for purposes of the
gift tax exclusion in Stinson Estate. In that case, forgiveness of a corporation's
indebtedness was a future interest outside the gift tax exclusion because
shareholders could not individually realize the gift without liquidating the
corporation or declaring a dividend-events that could not occur upon the actions of
any one individual under the corporation's bylaws. See 214 F.3d at 848. We said
ht h sl tttr
ta te “oe sauoy dsicin b itnto etween present and future interests lies in
the question of whether there is postponement of enjoyment of specific rights,
powers or privileges which would be forthwith existent if the interest were
p e e t ” Id. at 848-49 (quoting Howe v. United States, 142 F.2d 310, 312 (7th
i.94) n te od, h hae peet neet
Cr14). I ohr wrs te prs “rsn itrs” cnoe te rgt t onts h ih o
substantial present economic benefit. See Fondren v. Comm'r, 324 U.S. 18, 20, 65
S.Ct. 499, 89 L.Ed. 668 (1945).
In this case, Treeco's operating agreement clearly foreclosed the donees'
ability to realize any substantial present economic benefit. Although the voting
shares that the Hackls gave away had the same legal rights as those that they
retained, Treeco's restrictions on the transferability of the shares meant that
they were essentially without immediate value *668 to the donees. Granted, Treeco's
operating agreement did address the possibility that a shareholder might violate
the agreement and sell his or her shares without the manager's approval. But, as
the Tax Court found, the possibility that a shareholder might violate the operating
agreement and sell his or her shares to a transferee who would then not have any
membership or voting rights can hardly be called a substantial economic benefit.
Thus, the Hackls' gifts-while outright-were not gifts of present interests.
The Hackls protest that Treeco is set up like any other limited liability
corporation and that its restrictions on the alienability of its shares are common
in closely held companies. While that may be true, the fact that other companies
operate this way does not mean that shares in such companies should automatically
be considered present interests for purposes of the gift tax exclusion. As we have
previously said, Internal Revenue Code provisions dealing with exclusions are
matters of legislative grace that must be narrowly construed. See Stinson Estate,
214 F.3d at 848. The onus is on the taxpayers to show that their transfers qualify
for the gift tax exclusion, a burden the Hackls have not met.
The decision of the Tax Court is AFFIRMED.