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Gift Tax Audits – A Search For Prior Gifts

The Service has recently issued two memoranda, IRS SBSE Memorandum, SBSE-04-1211-101 and IRS SBSE Memorandum, SBSE-04-1211-103, to provide interim guidance for the Internal Revenue Manual concerning Gift Tax Examinations, specifically providing guidance concerning identifying prior previously undisclosed gifts.

Will an Audit of One Gift Tax Return Lead to an Audit of All Gift Tax Returns?

Memorandum 103 states that the examiner is now responsible for requesting a transcript of all prior gift tax returns that the taxpayer has filed with the IRS, and for obtaining copies of all such returns from the Service Center where the return was filed, from the C-Site in Kansas City, Missouri, prior to starting the examination, or from the taxpayer once the examination has commenced.  The examiner is then to determine the statute of limitations for each gift tax return, and to “probe for undisclosed transfers.” These new IRM instructions would

Newly Found Amendment To Trust Barred By Language In Trust Instrument

March 28, 2012

Authored by:


Here’s an interesting case out of Missouri last week in which the court of appeals determined that the trial court flat out got the reasoning for its decision wrong, but nevertheless reached the correct result.  In Banks v. Central Trust and Investment Co., a party alleged that he just “found” an amendment to a trust and asked the court to determine its validity.  The trial court dismissed the case on the basis of judicial estoppel.  The court of appeals determined that judicial estoppel didn’t apply, but the trial court was still correct in dismissing the case.  Let’s see why.

IRS Issues Annual Data Book

March 26, 2012


IRS Issues Annual Data Book

March 26, 2012

Authored by: Stephanie Moll

The IRS has released its annual Data Book, 2011, which it describes as follows:  “This report describes activities conducted by the Internal Revenue Service during Fiscal Year 2011 (October 1, 2010, through September 30, 2011).  It provides information on returns filed and taxes collected, enforcement, taxpayer assistance, the IRS budget and workforce, and other selected activities.”

As seen on page 22 of the report, what many may find interesting is that, of 140,837,499 individual income tax returns filed last year, 1,564,690 (or 1.1%) were examined by the IRS.

How to: Use Deceased Spousal Unused Exclusion Amount on the Surviving Spouse’s Gift Tax Return

On December 19, 2011, the Internal Revenue Service published the 2011 Form 709 and the accompanying Instructions for Form 709.  The 2011 Form 709 is substantially similar to that published for 2010.

Under the “What’s New” section of the Instructions for Form 709, there does not appear to be much new.  Set out in this section are the amounts in 2011 for the annual exclusion ($13,000) and for the annual exclusion for non-U.S. citizen spouses ($136,000), the due date in 2012 for the 2011 Form 709 (4/17/2012), the unified credit for 2011 ($1,730,800) and the top gift tax and GST rates for 2011 (35%), all of which is well-known.

However there is one section that is new in the Instructions to the Form 709 that is not mentioned in the “What’s New” section. 

Yes, Virginia….

Yes, Virginia….

March 25, 2012

Authored by: Kathy Sherby and Stephanie Moll

In an unusual ruling, the IRS shows it has a heart when it comes to helping a minor recover inherited funds misappropriated by the minor’s mother.  In PLR 201139011, the Service permitted the minor to contribute funds to an inherited IRA that were inappropriately distributed in a lump sum from a qualified plan she inherited from deceased father.

The minor, whom we’ll call Alice, was 13 when her father, whom we’ll call Eric, died.  Eric, who was unmarried at the time of his death, had designated Alice as the beneficiary of his qualified plan.  While Alice could have arranged for a trustee to trustee transfer of the qualified plan benefits to an inherited IRA, Alice’s mother and guardian, whom we’ll call Francis, instead arranged for the plan administrator to make a lump sum distribution of the benefits.  Francis then reported the distribution on a

Searching for Guidance Regarding Making a Portability Election?

In Notice 2011-82, 2011-42 IRB 516, 09/26/2011 the Service reiterated much of the instructions on portability addressed informally in the Instructions for Form 706 for 2011 decedents. The Form 706 Instructions contain detailed instructions for dealing with making the election to allow the surviving spouse to use the predeceased spouse’s unused exclusion amount and for computing the maximum unified credit amount on the death of the surviving spouse.

The instructions for Form 706 state that the executor will be considered to have made the predeceased spouse’s unused exclusion election by filing a “timely and complete Form 706.” There will be no need to check a box on the return. This has again been reaffirmed in Notice 2011-82. The use of the word “complete” in the instructions lead most practitioners to conclude that the Service is looking for a 706 with all the information that would be

Planning for Same-Sex Couples

Planning for Same-Sex Couples

March 22, 2012

Authored by: Stacie J. Rottenstreich and Karin Barkhorn

Same-sex marriage is currently permitted in Connecticut, Iowa, Massachusetts, New Hampshire, New York, Vermont, Washington, D.C. and Washington. The individuals who marry in these states have the ability to enjoy state level rights based on their marital status. Rights granted under state law to married couples who divorce are available to same-sex couples who marry. Examples of such rights include spousal maintenance or alimony and equitable distribution of marital property. Similarly, rights granted under state law to married couples upon the death of one of the parties are also available to same-sex couples who marry. Examples of such rights include rights regarding intestate succession (the distribution of a decedent’s property when he or she dies without leaving a valid Will), the right to receive an elective share (many states require

Diversification And The Prudent Investor Rule


We get asked a lot about two categories of cases: (1) cases about discretionary distributions; and (2) cases about concentrations and diversification. And, it’s easy to understand why – fiduciaries are often given a great amount of discretion in exercising their duties, but then may get sued over it. While there seems to be a growing number of decisions dealing with matters like undue influence and lack of capacity, the numbers of authorities regarding the exercise of discretionary powers and diversification/concentrations are still limited.

That’s why when an opinion like that of the Illinois Court of Appeals in Carter v. Carter comes along, we have to take notice. In this case, the court considered a breach of fiduciary duty claim arising from the trustee’s alleged strategy of investing only in tax-free municipal bonds. The appellate court determined that this strategy did not violate the prudent

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