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This page contains a single entry by Associate Editor published on October 24, 2013 7:04 PM.

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Reduce Gift Taxes with a Donee's Written Promise

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The U.S Tax Court recently held that the value of a taxable gift can be decreased if the donee agrees to pay any resulting estate tax if the donor dies within three years of making the gift. The donee is technically promising to pay the gift tax that is added back to the taxable estate of the donor pursuant to IRC §2035(b) when the donor dies in the three year period following the date of the gift.  In Steinberg v. Commissioner, 141 T.C. No.8 (2013), the recipient of a gift agreed in writing to pay any additional estate tax resulting from such gift if the donor passed within three years pursuant to IRC §2035(b).  The donor filed Form 709 reporting the value of the gift reduced by an estimated amount of estate tax that would arise if they passed within three years based on the actuarial value of the donor's survival.  The Tax Court allowed such reporting, reasoning a willing buyer would want the price so reduced to compensate for the risk of becoming liable for the estate tax.

See Reeve Chudd, "A Donee's Promise Can Reduce Your Gift Tax Liability," (October 15, 2013).

Posted by Kelly Humke, Associate Editor, Wealth Strategies Journal

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