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Steinberg v. Commissioner

145 T.C. 184 (2015)

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Steinberg v. Commissioner

United States Tax Court

145 T.C. 184 (2015)

Facts

Jean Steinberg (plaintiff) and her daughters negotiated a gift agreement whereby Steinberg agreed to gift her daughters approximately $110 million. Steinberg was 89 years old at the time. In exchange for the gift, the daughters agreed to pay both (1) Steinberg’s gift-tax liability resulting from the transfer and (2) any increase in Steinberg’s estate tax that could result from the transfer. The second liability would arise only if Steinberg died within three years of making the gift. In such an event, § 2035(b) of the Internal Revenue Code would increase Steinberg’s gross estate by an amount equal to the gift tax the transfer had been subject to. That increased gross estate would increase Steinberg’s overall estate-tax liability. Steinberg calculated the value of her daughters’ assumption of the contingent increase in estate-tax liability to be approximately $5.8 million. On her gift tax return, Steinberg reduced the value of the gift for the purposes of calculating the estate-tax liability by that amount. The Internal Revenue Service (IRS) (defendant) determined that the reduction was improper and assessed a gift-tax deficiency. Steinberg challenged the IRS’s assessment in tax court.

Rule of Law

Issue

Holding and Reasoning (Kerrigan, J.)

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