In a huge victory for taxpayers, the U.S. Tax Court determined that formula gifts are valid. In Wandry v. Commissioner, T.C. Memo 2012-88, decided on March 26, 2012, the court upheld language that described gifts of LLC membership interests roughly as follows: "I hereby transfer that number of LLC membership units as, effective as of January 1, 2004, are worth $11,000 [which was the amount of the annual gift tax exclusion at the time], to each of the following named individuals . . . ." The gifting formula also included adjustment language to ensure that the value of the gifted LLC interests did not exceed the amount that could be gifted tax free.
The reason this taxpayer victory is important is that it greatly simplifies the making of gifts where the value of the gifted asset is unclear or is difficult to determine. The IRS has historically opposed anything that would make gifting easier or more predictable for taxpayers. The so-called "Service" would prefer to keep us off our toes when it second-guesses our gifting strategies during audits.
All in all, yesterday was a good day for taxpayers and their professional advisors. For more information about estate planning, go to www.est8planning.com.