IRS Sets Forth Bright-Line Test For QTIP Treatment Eligibility

The taxpayers in Alan Baer Revocable Trust v. United States placed non-publicly traded stock within a revocable trust. The trust instrument had a special contingent distribution provision that would activate if stock was re-sold for a price that exceeded the cost-basis of the decedent.

A federal district court held that the stock in question qualified for QTIP treatment under I.R.C. § 2056(b)(7)(b)(ii)(II), assuming that the taxpayer properly elected to take it on his estate tax return. In response to the court’s ruling, the Internal Revenue Service released an Action of Decision (AOD). The IRS in the AOD argued that the test for QTIP Treatment was still a bright line rule; therefore, the standard used by the district court to come to its decision was not correct. The AOD concluded that the “so remote as to be negligible” standard used by the district court does not apply to elections under § 2056(b)(7)(B)(ii)(II).

See Matthew Evan Rappaport, IRS AOD: QTIP Treatment Eligibility Under I.R.C. §2056(b)(7) is a Bright-Line Test, Wealth Strategies Journal, Apr. 12, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.