Tax Court: Exchange of Partnership Interest for Annuity Agreements Was Not Disguised Gift

On February 7, the U.S. Tax Court held that a taxpayer's transfer of partnership interest to her children in exchange for private annuity agreements was not a disguised gift subject to gift tax  (Estate of Kite v. Commissioner, T.C., No. 6772-08, T.C. Memo. 2013-43, 2/7/13).

BNA reported that Judge Elizabeth Crewson Paris determined that the annuity transaction was a bona fide sale for adequate and full consideration.
 
Virginia Kite was the beneficiary of two qualified terminable interest property (QTIP) trusts, one marital deduction trust, and one revocable trust. In 2001, the QTIP trusts and the marital deduction trust were liquidated, and the trusts' assets, which consisted of family partnership interests, were transferred to Kite's lifetime revocable trust. The family partnership interests held by the lifetime revocable trust were then transferred to Kite's three children in exchange for 10-year deferred private annuity agreements.
 
IRS assessed more than $6 million for Kite's 2001 gift tax, and more than $5 million in estate tax.

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