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Duly Noted

IRS Gives Same-Sex Couples A Do-Over. Same-sex marriage arrived in the United States in 2004 when Massachusetts first allowed it, but such unions were not recognized by the Internal Revenue Service until after the Supreme Court’s 2013 ruling in United States v. Windsor. Between those two dates, same-sex couples were denied the favorable treatment that spouses receive for gift, estate and generation-skipping transfer taxes. After Windsor, the IRS accepted amended returns for periods in which the statute of limitations had not expired but granted no relief for earlier transfers. That changed this year. In Notice 2017-15, the IRS authorized members of same-sex couples to recompute their lifetime transfer tax exemptions to reclaim amounts consumed in what should have been taxfree transfers to spouses. However, the agency still refuses to grant refunds for any tax that was paid in years for which the deadline for filing claims has passed. Notice 2017-15.

Taxpayer Gives IRS A Do-Over. Robert Hamilton got into a dispute with the Internal Revenue Service over the deductions he claimed for charitable contributions between 2003 and 2006. In 2009, while administratively appealing the IRS assessments, he signed a waiver of the statute of limitations that restricted the IRS examination to his charitable contributions. After his administrative appeal was denied, Hamilton paid the tax and sued for a refund in U.S. District Court in Colorado. In so doing, the court ruled, he opened the door for the IRS to re-examine everything in his returns for the years in question, to establish whether Hamilton actually overpaid his taxes even if he won his claim for the charitable gifts. Robert S. Hamilton v. United States, 156 F. Supp. 3d 1269.

Another Deathbed Strategy Goes Belly-Up. A week before his mother’s death in 2008, Jeffrey Powell established a limited partnership with himself as general partner and his mother as holder of a 99 percent limited partner interest. His mother contributed $10 million to the partnership; her children contributed only promissory notes. The Internal Revenue Service asserted nearly $9 million in estate and gift taxes on the $10 million transaction. That went too far for the Tax Court, which concluded — in a novel application of Sec. 2043(a) of the Internal Revenue Code — that the IRS improperly double-counted the assets Nancy Powell contributed to the partnership and the value of the limited partnership interests she received in return. But the court agreed that the entire $10 million was taxable in her estate, without any valuation discounts for her partnership interests. Estate of Powell v. Commissioner, 148 T.C. 18.

If you enjoyed this article, be sure to check out Palisades Hudson’s books, The High Achiever’s Guide To Wealth and Looking Ahead: Life, Family, Wealth and Business After 55. Both are available in paperback and as e-books.