“The Cahill intergenerational split dollar case received a lot of attention in June when the Tax Court denied the taxpayer’s request for partial summary judgement. In the taxpayer’s petition for partial summary judgment he requested the Court hold that IRC Sections 2036, 2038 and 2703 should not apply to the valuation of the split dollar receivable. The taxpayer had claimed a 98% discount on the value of that receivable. The Tax Court ruled that these three Code Sections could apply to the valuation. The tone of the Tax Court opinion was not favorable to the Cahill estate. Now, only two months later, the Cahill Estate has settled with the IRS and conceded in full on the split dollar valuation issue.

The Cahill settlement is a victory for the IRS and likely will embolden the IRS to challenge other economic benefit intergenerational split dollar cases, especially if the facts are “bad. It may also embolden the IRS to challenge loan intergenerational split dollar arrangements, even though these were not directly implicated in the Cahill or other cases. The Cahill case is not a statement of law – we will have to wait for Levine and Morrissette to be decided to know the final position of the Tax Court.

As we stated in Estate Planning Newsletter #2651, one should probably not start a new economic benefit intergenerational split dollar agreement if a discount on the receivable is a feature of the plan. Those pursuing loan intergenerational split dollar plans may want to evaluate the possible impact of the Cahill case – can IRC Sections 2036, 2038 and 2703 be applied to loan arrangements? The imposition of a 20% penalty in the Cahill case and the IRS’s willingness to settle on other issues to win on the split dollar receivable should send a strong message to practitioners.”

Lee Slavutin, Richard Harris and Martin Shenkman provide LISI members with important commentary on the settlement of the Cahill case.

Click this link to read their commentary.

EXECUTIVE SUMMARY:

The Cahill intergenerational split dollar case received a lot of attention in June when the Tax Court denied the taxpayer’s request for partial summary judgement. In the taxpayer’s petition for partial summary judgment he requested the Court hold that IRC Sections 2036, 2038 and 2703 should not apply to the valuation of the split dollar receivable. The taxpayer had claimed a 98% discount on the value of that receivable. The Tax Court ruled that these three Code Sections could apply to the valuation. The tone of the Tax Court opinion was not favorable to the Cahill estate. Now, only two months later, the Cahill Estate has settled with the IRS and conceded in full on the split dollar valuation issue.

HOPE THIS HELPS YOU HELP OTHERS MAKE A POSITIVE DIFFERENCE! 

Lee Slavutin

Richard Harris

Martin Shenkman

CITE AS:  

LISI Estate Planning Newsletter #2663 (September 13, 2018) at http://www.leimbergservices.com  Copyright 2018 Leimberg Information Services, Inc. (LISI).  Reproduction in Any Form or Forwarding to Any Person Prohibited – Without Express Permission.