Indirect Gift Triggered Upon Sale of Stock Back To Company.

The decedent was a famous Texas oil man that sold his stock in his company back to it for a price below its fair market value.  The sale increased the value of the stock of the remaining stockholders - five other individuals and trusts including a Grantor Retained Income Trust (GRIT), which paid income to a prior spouse that he was married to from 1931-1961.  As part of her divorce settlement, the former spouse received stock shares. In 1984, the prior spouse transferred all of her shares to a Living Trust, and a few years later, the Living Trust split those shares into four trusts. Slightly more than half of the shares were transferred into three Charitable Remainder Annuity Trusts (CRATs), and the remaining shares were put into the GRIT. The GRIT was designed to pay income to Stevens for ten years and then terminate, with one of the decedent's children as the remainder beneficiary. When the stock shares were transferred to the three CRATs and the GRIT, the shares were cancelled and then reissued in the name of the four trusts.  The IRS determined that the decedent's sale of stock back to the company at less than fair market value constituted indirect gifts to the remaining shareholders and triggered gift tax liability of over $3 million.  The trial court largely agreed.  On appeal, the donees argued that their were not independently liable for the gift tax and/or they weren't donees by virtue of their income interest in the GRIT and/or they weren't liable as fiduciaries for distributions from the Living Trust or the estate of the decedent's prior spouse.  The appellate court affirmed, and also held that interest accrued on the donee's liability for the unpaid gift taxes and that the interest is not limited to the extent of the value of the gift.  United States v. Marshall, No. 12-20804, 2014 U.S. App. LEXIS 21731 (5th Cir. Nov. 10, 2014).

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

RSS​ Facebook Twitter