Self-canceling installment note did not result in a gift, but was bona fide debt

Article Abstract:

The Tax Court held in Wilson that a self-canceling installment note was a bona fide debt rather than a taxable gift. Mrs. Wilson was the income beneficiary of a real estate trust. After her husband's death she transferred the real estate to her children in return for a promissory note which was to be self-canceling if she died before payment. The court disagreed with the IRS view that this transfer was a gift, even though the parties were related and the debt was to be forgiven in the future, stating that the note was executed as an arms-length transaction and intended to be legally enforceable.

Debtor and creditor

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Valuation tables did not reflect value of retained income interest

Article Abstract:

The Eighth Circuit in O'Reilly ruled that the actuarial tables for gift tax could not be used to place a value on a retained income interest in a pre-Chapter 14 grantor retained income trust if the value produced would be unrealistic. Regulation 25.2512-1 still stands that the value of a gift is the price which would be paid for it in an arms-length transaction. This decision reversed a Tax Court ruling.

Taxation, Grantor trusts

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