Albert and Joanne Wandry had made various gifts or partnership/LLC interests to their children and grandchildren over several years. When making the gifts, the Wandry's provided specific language in the gift documentation noting a gift of a fixed dollar amount. It is difficult to value a partnership interest based upon a fixed dollar amount until after the books are closed and a valuation is performed.
As you can guess, the IRS audited these gift tax returns and assessed additional tax against the Wandry's. The Tax Court in a ruling back in March found the taxpayers. The IRS had several novel arguments:
- The taxpayers wording on the gift tax return indicated a percentage gift, not a dollar amount - The Court indicated the taxpayers had indicated a dollar amount and ruled in their favor
- The gift documents showed a transfer of a fixed percentage to the donees - The Court ruled the % indicated was soley based upon the dollar amount transferred and ruled for the taxpayer.
- Last, the IRS indicated that these types of gifts were contrary to public policy - The Court basically said the IRS was wrong and if they did not like the law, get Congress to change it. Quoting the Court "The Commissioner's role is to enforce tax laws, not merely to maximize tax receipts". We wish the IRS would follow this rule more often.
The IRS just announced formally that they disagree with the ruling and will not be bound by it. There has been several other fixed value adjustment cases regarding charitable gifts or estates and the IRS has lost most if not all of those cases. Absent a law change, it seems the IRS is facing a losing battle.