When a taxpayer has made a “net gift” within three years of the taxpayer’s death, how is that gift handled for purposes of the “gross up” rule for such gifts found in IRC §2035(a) and (b)? In the case of Estate of Sommers v. Commissioner, 149 TC No. 8, the taxpayer argued that the estate should be allowed a deduction on the Form 706 for the gift tax that was paid by the donors.
There is a transfer tax advantage to making fully taxable gifts prior to the date a taxpayer dies and paying the gift tax. Although the estate and gift taxes are now “unified” with the same rates being applied, the gift tax is not imposed on the amount that is actually used to pay the gift tax—rather that tax is removed from the pool of assets that will eventually be subject to the tax.
Image copyright byzonda / 123RF Stock PhotoRead More