Revisiting Byrum

In the landmark case of United States v. Byrum, the Supreme Court determined that a majority shareholder\u27s 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\u27s holding in Byrum, the case continued to influence decisions concerning the estate tax consequences of a decedent\u27s 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\u27s 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\u27s 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

Kimbell v. United States: The Rise and Apparent Fall of the Section 2036 Argument Against FLPs

In this report, Professor Hellwig examines the application of section 2036 to family limited partnerships in the context of the Fifth Circuit\u27s recent opinion in Kimbell v. United States. After describing how the government developed section 2036 into an effective tool in combating the use of family limited partnerships to generate transfer tax savings, the report details how the Fifth Circuit\u27s interpretation of the adequate and full consideration exception to section 2036 in Kimbell severely curtails the government\u27s position. The report concludes with criticisms of the Kimbell decision, namely that the court failed to properly follow its own precedent in Wheeler v. United States and that the court failed to consider the legislative purpose behind section 2036 in interpreting the adequate and full consideration exception

W&L Law Fall Scholarship Celebration 2015

On September 30, 2015, the Washington and Lee Law Library hosted a Fall Scholarship Celebration. The event took place in the Law Library\u27s third floor reading room from 4:30 to 6:30 p.m. On display were dozens of scholarly articles, books, chapters, and amicus briefs authored by the W&L Law faculty and student body during 2014 and 2015, with hundreds of additional works accessible online through the Scholarly Commons institutional repository. Faculty, librarians, staff, and administrators mingled with law students over hors d\u27oeuvres and wine to peruse the formidable scholarly output of the W&L Law community. Spouses, alumni, faculty from W&L\u27s undergraduate campus, and others with ties to the University were also in attendance. The Celebration was also an opportunity to enjoy a newly renovated and improved library space, which had undergone extensive remodeling over the summer. A list of the scholarship displayed at the event is available to download here in PDF. Photos taken at the event are also available to view in the W&L Law Scholarly Commons Image Gallery

Kimbell: Is the Party over for Family Limited Partnerships

Professor Brant J. Hellwig of the University of South Carolina School of Law examines the impact of the recent Kimbell decision on the future use of family limited partnerships for estate planning purposes

The Constitutional Nature of the United States Tax Court

Is the United States Tax Court part of the Executive Branch of government? One would expect that question would be capable of being definitively answered without considerable difficulty. And as recently expressed by the Court of Appeals for the District of Columbia Circuit, that indeed is the case. In the course of addressing a challenge to the President\u27s ability to remove a judge of the Tax Court for cause on separation of powers grounds, the D.C. Circuit rejected the premise that the removal power implicates two branches of government: the Tax Court exercises Executive authority as part of the Executive Branch. This seemingly innocuous observation by the D.C. Circuit is difficult to reconcile with the congressional treatment of the United States Tax Court. Although the court originated as an executive agency in the Board of Tax Appeals (later to be renamed the Tax Court of the United States that expressly remained an executive agency), Congress sought to change the court\u27s constitutional status through the Tax Reform Act of 1969. Troubled by the propriety of one executive agency sitting in judgment of the determinations of another, Congress eliminated the statutory reference to the Tax Court being an independent agency within the Executive Branch. In its place Congress established under article I of the Constitution of the United States, a court of record to be known as the United States Tax Court. The Senate report accompanying the legislation indicated that the statutory change was intended to establish the Tax Court as an Article I court, rather than an executive agency. Given the statutory change to the Tax Court\u27s charter and the committee reports attendant to the 1969 legislative revision, the Tax Court comfortably observed in a 1971 case that Congress removed the Tax Court from the Executive Branch by establishing it as court of record under Article I

The Supreme Court\u27s Casual Use of the Assignment of Income Doctrine

In early 2005, the U.S. Supreme Court answered a question that had been plaguing courts for years: whether plaintiffs should be taxed on the portion of contingent fee awards paid to their attorneys. The Court determined that they should. In this article, Professor Brant J. Hellwig focuses on the analysis employed by the Court to reach its conclusion in Commissioner v. Banks and the implications of that analysis for future cases. Although Professor Hellwig believes that the Court correctly ascertained the plaintiff\u27s tax burden, he suggests that the Court\u27s use of the assignment of income doctrine was both unnecessary to the final determination of the question before the Court and costly in its potential to confuse the issues of income realization and assignment of income. By applying the assignment of income doctrine in a commercial transaction and employing the doctrine as a means of income realization, the Court broke with the foundational principles of equity that originally supported the assignment of income doctrine and instead created a potential conflict with statutory authority on the question of income realization. Professor Hellwig calls for courts to restrict expansion of this trend, noting the potential of the Court\u27s decision to create more problems than it solves

Questioning the Wisdom of Patent Protection for Tax Planning

The topic of federal patent protection for tax planning strategies has received considerable recent attention, much of it from a tax bar whose overall incredulity concerning the patentability of tax advice has been transformed into anxiety and disgust by the prospect of infringement actions. In their article Patents, Tax Shelters, and the Firm, Dan Burk and Brett McDonnell approach the subject from a broader perspective by employing theory of the firm principles to evaluate the effects of stronger intellectual property protection in the tax planning arena. While conceding that the possible effects are complex and ambiguous, the authors predict that the introduction of business method patents in the tax planning industry will lead to enhanced mobility in the labor market for tax professionals, to an increase in the creation of tax planning strategies, and to a degree of disintegration within the tax planning community as firms become more specialized. For the most part, I am less sanguine about the dawn of patents in the tax planning arena. This commentary on Burk and McDonnell\u27s article therefore is offered in the nature of a counterpoint. I begin by addressing an issue to which Burk and McDonnell do not devote a great deal of attention, as it is not central to their analysis: whether innovation in tax planning is socially desirable. I draw on prior scholarship in the tax-shelter context to demonstrate that tax planning creates deadweight loss to society through distortions in taxpayer behavior and transaction costs that do not contribute to the public fisc. I then argue that such deadweight loss likely will be significantly increased if temporal monopolies on tax-planning strategies were conferred through the patent system. Next, I offer competing speculation concerning the effects that patentability will have on innovation in tax planning, positing that the ability to patent a tax strategy will not lead to a marked increase in the quality of tax advice and may actually cause it to decline. In keeping with the theme of the symposium, I contend that the ability to patent a tax strategy would not have a meaningful impact on the market in abusive tax shelters, as the success of the shelter industry depends on completing as many transactions as possible before the shelter draws the attention of the Service. Purveyors of these transactions thus will avoid the public disclosure associated with patent protection, and the field of patented tax strategies likely will be relegated to more traditional, conservative planning. I close by highlighting the potential decrease in client mobility that will come at the expense of the increased mobility of tax advisors that Burk and McDonnell predict

Judicial Activism is Not the Solution to the Attorney\u27s Fee Problem

The report responds to criticism of the Tax Court\u27s decision in Biehl v. Commissioner, in which the court determined that contingency fees paid to the taxpayer\u27s attorney in employment litigation did not constitute an above-the-line deduction under section 62(a)(2)(A). The report examines the relevant statutes, regulations, and legislative history and concludes that the Tax Court reached the correct decision. Professor Hellwig further contends that had the Tax Court interpreted section 62(a)(2)(A) to grant above-the-line status to the attorney\u27s fees in this case to avoid the disallowance of the miscelleaneous itemized deduction for attorney\u27s fees under the alternative minimum tax, the court would have assumed an impermissible legislative role