The Journal of Accountancy reports that state law is applied to determine whether a transferee is liable for a transferor’s tax liability.  Specifically, the Tax Court held that four trusts were not required to pay their former personal holding company’s tax liability. Virginia state law does not contain a corollary to the federal substance-over-form doctrine, and federal law has overridden state law only when the underlying transaction was clearly a sham.

To read the summary, see Tax Court foils transferee liability of Reynolds family trusts.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.