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Court Upholds Gift Tax Strategy

The 9th Circuit court, which includes California, just ruled against the IRS in an important gifting case, Estate of Anne Y. Petter, CA-9, No. 10-71854 (8/4/2011), and upheld a “defined value” gift.

An example of a defined value gift: You own 100 shares in your corporation. You want to gift 40 shares to your son. Based on an appraisal of your business, your CPA and your estate planning attorney value the gift at $20. Your estate planning attorney drafts a gift document which says you are gifting 40 shares for $20, but if the IRS determines the shares are worth more than $20, you will gift additional shares to make up the difference. That is a defined value gift. If the courts uphold a defined value gift, then no matter the result of an IRS audit, the estate wins and no tax is owed.

This is a terrific planning strategy that has now been upheld in the Ninth Circuit and previously in the Eight Circuit. Thanks to Joe Kristan for the update.


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