IRS Memo says Self- Canceling Notes areTaxable Gifts

Recently, the IRS concluded that self-canceling notes are taxable gifts. In the caseat issue, the notes were worth less than the amount printed on the notes.Additionally, the notes had a self-cancellation clause if the decedent diedbefore the notes expired, was in bad health, and had a balloon payment term theself-cancellation clause would be enacted. As a result, the IRS believed thatthe entire amount of the notes would in all likely hood not be paid and thedifference between the fair market value and the printed amount could beconsidered a taxable gift. 

See Internal Revenue Service, “Transfers In Exchange For Self-Canceling Notes Are Taxable Gifts,” 2013 TNT 145-18 (July 29, 2013).

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