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Saturday, May 12, 2012


For those of you with a great memory, you will remember that in December 2009 we wrote about the case of Morgens v. Commissioner. For those with a more typical memory, you can read the original post on the case here.

In that case, a QTIP marital trust was terminated during the lifetime of the surviving spouse’s lifetime. §2519 imposed a gift tax on the spouse, but the tax was ultimately paid by trust under §2207A apportionment of tax rules. The surviving spouse then died within three years. The issue was whether the gross estate of the surviving spouse included the amount of gift taxes that were paid under the three year rule of §2035 which draws back gift taxes paid within three years of death. The Tax Court held that the three year rule applies, even though the taxes were not paid by the spouse.

The Ninth Circuit Court of Appeals has sustained the Tax Court, thus adding further authority to this determination and firming up another negative consequences to an early termination of a QTIP trust. The Court analogized the §2519 taxation regime to a net gift scenario, which also results in the application of the three year rule even though the taxes are paid by the gift recipient.

Estate of Anne W. Morgens, 109 AFTR 2d ¶ 2012-736 (CA9 2012)

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