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Tax Law Update: March 2023Tax Law Update: March 2023

David A. Handler and Alison E. Lothes highlight the most important tax law developments of the past month.

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• Cryptocurrency donation needs a qualified appraisal for income tax deduction—In Chief Counsel Memorandum 202302012, the Internal Revenue Service assessed how Internal Revenue Code Section 170(f)(11)(C) applies to cryptocurrency. That section provides that when a charitable contribution deduction of more than $5,000 is made, a qualified appraisal is required. There are exceptions for certain kinds of property, including: cash, publicly traded securities and intellectual property inventory.

The taxpayer had purchased cryptocurrency on an exchange and donated it to a charity. The taxpayer prepared her own income tax return and claimed the deduction valued at $10,000 based on the trading price on the exchange on the date of the donation.

The Chief Counsel explained that cryptocurrency isn’t a security under the Treasury regulations and didn’t fall into a category that would be excepted from the appraisal requirement. Further, the fact that the cryptocurrency was traded on an exchange didn’t provide reasonable cause to omit a qualified appraisal. Therefore, the charitable deduction was denied.

• Complaint filed for estate tax refund by executors of billionaire’s estateThe executors of the estate of billionaire Richard Mellon Scaife have filed a claim in the U.S. District Court for the Western District of Pennsylvania to recoup an estate tax refund based on a deduction for a liability under an indemnity agreement (H. Yale Gutnick et al. v. United States, 2:23-cv-00139). Richard had been a beneficiary of a trust established by his mother in 1935. The trust allowed for discretionary distributions of principal to him; on Richard’s death, the remaining trust property would benefit his two children. However, over his lifetime, he had requested and received over $400 million in principal distributions, which completely exhausted the trust. In exchange for each distribution, he signed an indemnity agreement in which he agreed, on behalf of his heirs and executors, among others, to indemnify and hold harmless the trustees for any action related to the distribution.

Richard died, survived by his two children whom he completely excluded from his estate plan. The children sued the trustees of the trust for breach of duty, claiming that the distributions made to Richard during his life were improper. They argued that the distributions made to support Richard’s newspaper business and for “estate-planning purposes” were a breach of duty. Meanwhile, the estate paid over
$239 million in estate taxes and advised the IRS of the claim and its obligation to defend the trustees and pay its legal and administrative expenses.

After six years of litigation, the trustees and the children signed a settlement agreement in which the estate was obligated to indemnify the trustees for an agreed $200 million reimbursement to the trust. The estate has filed a claim for a refund of nearly $70 million in estate taxes, but the IRS hasn’t responded with any notice of disallowances, so the estate filed the complaint.

About the Authors

David A. Handler

 

David A. Handler is a partner in the Trusts and Estates Practice Group of Kirkland & Ellis LLP.  David is a fellow of the American College of Trust and Estate Counsel (ACTEC), a member of the NAEPC Estate Planning Hall of Fame as an Accredited Estate Planner (Distinguished), and a member of the professional advisory committees of several non-profit organizations, including the Chicago Community Trust, The Art Institute of Chicago, The Goodman Theatre, WTTW11/98.7WFMT (Chicago public broadcasting stations) and the American Society for Technion - Israel Institute of Technology. He is among a handful of trusts & estates attorneys featured in the top tier in Chambers USA: America's Leading Lawyers for Business in the Wealth Management category, is listed in The Best Lawyers in America and is recognized as an "Illinois Super Lawyer" bySuper Lawyers magazine. The October 2011 edition of Leading Lawyers Magazine lists David as one of the "Top Ten Trust, Will & Estate" lawyers in Illinois as well as a "Top 100 Consumer" lawyer in Illinois. 

He is a member of the Tax Management Estates, Gifts and Trusts Advisory Board, and an Editorial Advisory Board Member of Trusts & Estates Magazine for which he currently writes the monthly "Tax Update" column. David is a co-author of a book on estate planning, Drafting the Estate Plan: Law and Forms. He has authored many articles that have appeared in prominent estate planning and taxation journals, magazines and newsletters, including Lawyer's Weekly, Trusts & Estates Magazine, Estate Planning Magazine, Journal of Taxation, Tax Management Estates, Gifts and Trusts Journal. He is regularly interviewed for trade and news periodicals, including The Wall Street Journal, The New York Times, Lawyer's Weekly, Registered Representative, Financial Advisor, Worth and Bloomberg Wealth Manager magazines. 

David is a frequent lecturer at professional education seminars. David concentrates his practice on trust and estate planning and administration, representing owners of closely-held businesses, principals of private equity/venture capital/LBO funds, executives and families of significant wealth, and establishing and administering private foundations, public charities and other tax-exempt entities. 

David is a graduate of Northwestern University School of Law and received a B.S. Degree in Finance with highest honors from the University of Illinois College of Commerce.

Alison E. Lothes

Partner, Gilmore, Rees & Carlson, P.C.

http://www.grcpc.com

 

Alison E. Lothes is a partner at Gilmore, Rees & Carlson, P.C., located in Wellesley, Massachusetts. Ms. Lothes focuses on estate planning for high net worth individuals including estate, gift and generation-skipping transfer tax planning, will and trust preparation, estate and trust administration, and charitable giving.  Ms. Lothes previously practiced at Kirkland & Ellis LLP (Chicago, Illinois) and Sullivan & Worcester LLP (Boston, Massachusetts).

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