Brant J. Hellwig
Washington and Lee University - School of Law
Virginia Tax Review, Vol. 23, p. 275, 2003
In the landmark case of United States v. Byrum, the Supreme Court determined that a majority shareholder's retention of voting rights over stock transferred in trust did not cause the stock to be included in his gross estate under Section 2036(a)(1) or (a)(2). The Court grounded its decision in the fiduciary duty owed by the board of directors and the majority shareholder to exercise their discretion over corporate distributions to promote the best interests of the entity. Despite legislative action quickly reversing the Court's holding in Byrum, the case continued to influence decisions concerning the estate tax consequences of a decedent's retained control over the beneficial enjoyment of transferred property.
The Byrum decision has most recently surfaced in the context of closely held limited partnerships that are formed and utilized primarily for estate-planning purposes. Taxpayers have cited Byrum for the proposition that a decedent's retained control over the timing and amount of income distributions from the partnership are exempt from Section 2036(a) on account of the fiduciary duties owed by the general partner to the partnership.
However, a federal district court in Kimbell v. United States and the Tax Court in Estate of Strangi v. Commissioner each have recently rejected the taxpayer's argument to this effect, thereby calling into question the status of the taxpayer defense under Byrum. In light of these decisions, the article examines the Byrum decision anew. After analyzing the decision and recounting its subsequent history, the article concludes with thoughts on how Byrum should be applied in future cases.
Date posted: March 11, 2004
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