Gifts to Trust Complete Even With Retained Power of Appointment

In Chief Counsel Advice 201208026, the IRS rejected two arguments for transfers to an irrevocable trust to avoid gift tax. First, the taxpayer argued the gifts were "incomplete" because the donor retained a testamentary limited power of appointment over the trust, but no power over discretionary distributions to the current beneficiaries. The IRS stated that the gift was complete as to the income interest of the current beneficiaries, and incomplete as to the remainder. In addition, the "crummey" withdrawal powers were defective because the beneficiaries could not enforce them, and would lose their interests as a discretionary beneficiary if the powers were exercised. For more information, see Federal Taxes Weekly Alert.

Court Grants IRS “John Doe” Summons in Gift Tax Case

After previously refusing to do so, a district court in California has granted an IRS request for lists from the California Board of Equalization of grantees of real property between nonspouse relatives, looking for taxable gifts. In Re Does, (DC CA 12/15/2011) 108 AFTR 2d 2011-5589. The IRS has already received such information from Connecticut, Florida, Hawaii, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, Washington and Wisconsin. Even though Colorado is not yet on that list, keep in mind that a conveyance without consideration to a child, for example, is a taxable gift and a gift tax return should be filed to report the gift. In addition, because Colorado gives a joint tenant the right to unilaterally sever and convey his or her interest in real property, adding a child to one’s title as a joint tenant is also a taxable gift (unlike the use of a Beneficiary Deed). For more information on Beneficiary Deeds, see the article entitled Property Transfers on Page 3 of our Spring 2005 newsletter at http://www.wadeash.com/newsletter.asp.