Bongard's Nontax Motive Test: Not Open and Schutt

6 Pages Posted: 24 Mar 2006

See all articles by Wendy C. Gerzog

Wendy C. Gerzog

University of Baltimore - School of Law

Abstract

Under either the Bongard majority's test or a business or economic analysis test, Bigelow and the two Korby opinions would likely be decided the same way. They involved clearly testamentary transfers where the assets of the FLP were intended to be, and were in fact, used for their respective decedents' lifetime needs.On the other hand, Schutt, which was decided in the taxpayer's favor under the application of the Bongard majority's nontax motive test to unique facts, would likely have been decided differently under a business purpose test or economic analysis. Despite Schutt's nontax motive of restricting the trusts' terms, the bottom line is that in Schutt the taxpayer did what the taxpayer in Turner did. He was not operating a business and he converted liquid assets into illiquid ones. Objectively, Schutt transferred assets to an FLP for a limited partnership interest that was worth less than the value of his transferred assets. Because the transfers were not in the ordinary course of a business, he should not have been able to take advantage of the presumption that the transfer constituted an economic equivalence. Section 2036 excepts only a bona fide sale for an adequate and full consideration in money or money's worth so that the decedent's estate is not diminished. Under a traditional economic analysis, therefore, the value of the assets that Schutt transferred to his FLP should have been included in his gross estate under section 2036.

Keywords: FLP, Bongard, Schutt

Suggested Citation

Gerzog, Wendy C., Bongard's Nontax Motive Test: Not Open and Schutt. Tax Notes, Vol. 107, pp. 1711-1716, 2005. Available at SSRN: https://ssrn.com/abstract=890202

Wendy C. Gerzog (Contact Author)

University of Baltimore - School of Law ( email )

1420 N. Charles Street
Baltimore, MD 21218
United States
410-837-4522 (Phone)

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