IRS refuses to back down on defined-value clauses

BVWireIssue #122-3
November 28, 2012

After withdrawing its appeal in Wandry v. Commissioner, the IRS has since filed its “nonacquiescence” to the decision. According to the accompanying IRS Bulletin:

“Nonacquiescence” signifies that, although no further review was sought, the Service does not agree with the holding of the court and, generally, will not follow the decision in disposing of cases involving other taxpayers. In reference to an opinion of a circuit court of appeals, a “nonacquiescence” indicates that the Service will not follow the holding on a nationwide basis. However, the Service will recognize the precedential impact of the opinion on cases arising within the venue of the deciding circuit.

According to Peter Reilly (Grant Thornton), writing in Forbes, the news of nonacquiescence is not good for 2012 gift giving:

The Wandry decision has not been overturned. In principle, it still works, but the IRS has thrown down the gauntlet on it. It would seem that relying on it for a mega-gift would be risky. If there is plenty of liquidity to pay the resulting gift tax if it does not work, it might be worth trying, but not otherwise. For those who are charitably inclined, the Petter case, which was upheld by the Ninth Circuit, is worth considering. Under the Petter formula, units would be transferred to charity rather than coming back to the donor. Barring that, 2012 mega-gifts should be made with property that is not open to significant valuation adjustment.

For more on Petter, see our report in BVWire #107-2.

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