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| ACTEC Amicus Brief on the Kimbell Case
An Adobe PDF version of this document is available here.
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Case No. 03-10529
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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
__________________ |
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DAVID A KIMBELL, INDEPENDENT EXECUTOR
UNDER THE WILL OF RUTH A KIMBELL, DECEASED
Plaintiff - Appellant
v. |
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UNITED STATES OF AMERICA
Defendant - Appellee |
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___________________ |
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ON APPEAL FROM UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS |
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__________________ |
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BRIEF FOR AMICUS CURIAE IN SUPPORT OF NEITHER PARTY
ON BEHALF OF
AMERICAN COLLEGE OF TRUST AND ESTATE COUNSEL |
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___________________ |
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Milford B. Hatcher, Jr.
JONES DAY
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta , Georgia 30308-3242
(404) 581-8510
(404) 581-8330 (Fax) |
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T. Randolph Harris
MCLAUGHLIN & STERN LLP
260 Madison Avenue
Suite 1800
New York , NY 10016
(212) 448-6272
(212) 448-0066 (Fax) |
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Jennifer Jordan McCall
PILLSBURY WINTHROP LLP
One Battery Park Plaza
New York , NY 10004
(212) 858-1546
(212) 858-1500 (Fax) |
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Carol A. Harrington
MCDERMOTT, WILL & EMERY
227 West Monroe Street
Chicago , IL 60606-5096
(312) 372-2000
(312) 984-2096 (Fax) |
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Ronald D. Aucutt
MCGUIREWOODS LLP
Suite 1800
1750 Tysons Boulevard
McLean , VA 22102
(703) 712-5497
(703) 712-5286 (Fax) |
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Edward F. Koren
HOLLAND & KNIGHT, LLP
Suite 4100
100 North Tampa Street
Tampa , FL 33602-4300
(813) 227-8500
(863) 688-1186 (Fax) |
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CERTIFICATE OF INTERESTED PERSONS |
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No. 03-10529 |
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DAVID A KIMBELL, INDEPENDENT EXECUTOR
UNDER THE WILL OF RUTH A KIMBELL, DECEASED |
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Plaintiff - Appellant |
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v. |
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UNITED STATES OF AMERICA |
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Defendant - Appellee |
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___________________ |
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| The undersigned counsel of record certifies that the following listed persons and entities as described in the fourth sentence of Rule 28.2.1 have an interest in the outcome of the case. These representations are made in order that the Judges of this Court may evaluate possible disqualification or recusal. |
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| Estate of Ruth A. Kimbell, David A. Kimbell, Independent Executor, Plaintiff Appellant |
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| David A. Kimbell |
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| Peggy S. Kimbell |
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| Meadows, Owens, Collier, Reed, Cousins & Blau, L.L.P |
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William R. Cousins III
Robert Don Collier
Michael Allen Denham
901 Main St., Suite 3700
Dallas, TX 75202
Telephone (214) 744-3700
Facsimile (214) 747-3732
ATTORNEYS FOR APPELLANT |
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| Mullin Hoard & Brown, L.L.P. |
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Charles R. Watson, Jr.
P.O. Box 31656 (all mail)
Amarillo, Texas 79120-1656
500 S. Taylor, Suite 800
Amarillo, Texas 79101-2445
(806) 372-5050
(806) 372-5086 (Fax)
ATTORNEY FOR APPELLANT |
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| United States of America , Defendant Appellee: |
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Jonathon S. Cohen
Department of Justice, Tax Division
601 D. St., N.W. , PHB 7032
Washington , D.C. 20004
(202) 514-2970
(202) 514-8456 (Fax) |
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Louise Hytken
Department of Justice
717 N. Harwood, Suite 400
Dallas, Texas 75201
(214) 880-9725
(214) 880-9741 (Fax)
ATTORNEYS FOR DEFENDANT APPELLEE |
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| American College of Trust and Estate Counsel Amicus Curiae |
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| Jones Day |
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Milford B. Hatcher, Jr.
3500 SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3242
(404) 581-8510
(404) 581-8330 (Fax) |
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| McLaughlin & Stern LLP |
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T. Randolph Harris
260 Madison Avenue
Suite 1800
New York , NY 10016
(212) 448-6272
(212) 448-0066 (Fax) |
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| Pillsbury Winthrop LLP |
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Jennifer Jordan McCall
One Battery Park Plaza
New York , NY 10004
(212) 858-1546
(212) 858-1500 (Fax) |
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| McDermott, Will & Emery |
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Carol A. Harrington
227 West Monroe Street
Chicago , IL 60606-5096
(312) 372-2000
(312) 984-2096 (Fax) |
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| McGuireWoods LLP |
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Ronald D. Aucutt
Suite 1800
1750 Tysons Boulevard
McLean , VA 22102
(703) 712-5497
(703) 712-5286 (Fax) |
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| Holland & Knight, LLP |
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Edward F. Koren
Suite 4100
100 North Tampa Street
Tampa, FL 33602-4300
(813) 227-8500
(863) 688-1186 (Fax)
ATTORNEYS FOR AMICUS CURIAE |
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______________________________
Milford B. Hatcher, Jr.
Attorney of Record for Amicus Curiae
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REQUEST FOR ORAL ARGUMENT |
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| In light of the importance of the issues, the amicus curiae requests the Court's permission to participate in oral arguments pursuant to Fed. R. App. P. 29(g). |
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| CERTIFICATE OF INTERESTED PERSONS |
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| REQUEST FOR ORAL ARGUMENT |
v |
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| TABLE OF AUTHORITIES |
vii |
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| INTEREST OF THE AMICUS CURIAE |
1 |
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| SUMMARY OF THE ARGUMENT |
2 |
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| ARGUMENT |
6 |
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| I. |
THE DECEDENT'S POWER TO CONTROL OR PARTICIPATE IN THE DISTRIBUTION DECISION-MAKING PROCESS FOR AN ENTITY DOES NOT GENERALLY CONSTITUTE A RETAINED "RIGHT" TO INCOME FROM THE TRANSFERRED PROPERTY WITHIN THE MEANING OF SECTION 2036(a)(1) OR THE "RIGHT," ALONE OR IN CONJUNCTION WITH ONE OR MORE OTHER PERSONS, TO DESIGNATE THE PERSONS WHO WOULD BENEFIT FROM SUCH INCOME WITHIN THE MEANING OF SECTION 2036(a)(2) |
6 |
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| II. |
SUBJECTIVE STANDARDS BASED ON INTENT AND ARM'S LENGTH NEGOTIATIONS ARE INCONSISTENT WITH THE OBJECTIVE STANDARDS ENACTED BY CONGRESS AND PROPERLY APPLIED BY THIS COURT PREVIOUSLY IN CONSTRUING THE BONA FIDE SALE FOR AN ADEQUATE AND FULL CONSIDERATION EXCEPTION UNDER SECTION 2036(a) |
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| CERTIFICATE OF SERVICE |
32
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| CERTIFICATE OF COMPLIANCE |
34
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TABLE OF AUTHORITIES |
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| CASES: |
PAGE |
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| Burnet v. Northern Trust Co., 283 U.S. 782 (1931) (per curiam) |
19 |
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| Estate of Bright v. U.S., 658 F.2d 999 (5th Cir. 1981) (en banc) |
13 |
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| Estate of Cohen v. Comm'r, 79 T.C. 1015 (1982) |
12, 14 |
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| Estate of Gilman v. Comm'r, 65 T.C. 296 (1975), aff'd, 547 F.2d 23 (2nd Cir. 1976) |
12 |
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| Estate of Harper v. Comm'r, 83 T.C.M. (CCH) 1641 (2002) |
21 |
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| Estate of Stone v. Comm'r, 86 T.C.M. (CCH) 551 (2003) |
24, 26 |
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| Estate of Strangi v. Comm'r, 115 T.C. 478 (2000) |
21, 23 |
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| Estate of Strangi v. Comm'r, 85 T.C.M. (CCH) 1331 (2003) |
4, 21, 27 |
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| Estate of Thompson v. Comm'r, 84 T.C.M. (CCH) 374 (2002) |
21 |
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| Gulig v. Comm'r, 293 F.3d 279 (5th Cir. 2002) |
21, 23 |
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| Kimbell v. United States, 244 F. Supp. 2d 700 (N.D. Tex. 2003) |
2, 4, 8, 10, 12, 13, 14, 15, 17, 21, 23, 26, 27, 30 |
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| McLendon v. Comm'r, 135 F.3d 1017 (5th Cir. 1998) |
16 |
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| May v. Heiner, 281 U.S. 238 (1930) |
19 |
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| Morganbesser v. U.S., 984 F.2d 560 (2nd Cir. 1993) |
16 |
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| Rauenhorst v. Comm'r, 119 T.C. 157 (2002) |
16 |
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| U.S. v. Byrum, 408 U.S. 125 (1972) |
2, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18 |
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| Wheeler v. U.S., 116 F.3d 749 (5th Cir. 1997) |
3, 6, 8, 19, 20, 21, 22, 23, 24, 26, 27, 28, 29, 30 |
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| STATUTES, RULES AND REGULATIONS: |
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| Internal Revenue Code of 1986, as amended (26 U.S.C.): |
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§ 2033 |
25, 26 |
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§ 2035 |
20, 29 |
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§ 2036 |
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§ 2036(a) |
3, 18, 20, 22, 24, 25, 29 |
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§ 2036(a)(1) |
2, 4, 6, 7, 9, 19, 25 |
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§ 2036(a)(2) |
2, 3, 5, 7, 9, 10, 12, 13, 14, 15, 16, 17 |
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§ 2036(b) |
14, 16 |
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§ 2036(c) |
8, 17, 26, 29 |
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§ 2036(c) (including § 2036(c)(2) |
29 |
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§ 2038(a)(1) |
3 |
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§ 2512(b) |
20, 21 |
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§ 2043 |
25 |
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§ 2701(a)(2) |
17 |
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§§ 2701-2704 (West. Supp. 1996) |
17 |
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§ 6110(k)(3) |
15 |
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MISCELLANEOUS:
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| Gen. Couns. Mem. 38,984 ( May 6, 1983 ) |
14, 16 |
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| H.R.J. Res. 131, 72 nd Cong. (1931) |
19 |
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| Informal Senate Report on S. 3209, 136 Cong. Rec. 515,680 (daily ed. Oct. 18, 1990 ) |
17 |
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| Notice 89-99, 1989-2 C.B. 422, 428 (1989) |
17 |
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| Present Law and Proposals Relating to Federal Transfer Tax Consequences of Estate Freezes, Before the Senate Joint Comm. on Taxation , 101st Cong. (1990) |
17 |
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| Priv. Ltr. Rul. 9026021 ( March 26, 1990 ) |
15 |
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| Priv. Ltr. Rul. 9310039 ( December 16, 1992 ) |
15 |
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| Priv. Ltr. Rul. 9415007 ( January 12, 1994 ) |
15 |
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| Priv. Ltr. Rul. 9546006 ( August 14, 1995 ) |
15 |
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| Revenue Act of 1916, ch. 463, § 202(b), 39 Stat. 756, 777-78 (1916) |
19 |
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| Rev. Rul. 81-15, 1981-1 C.B. 457 (1981) |
14 |
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| Rev. Rul. 93-12, 1993-1 C.B. 202 (1993) |
13 |
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| Tax Reform Act of 1976, Pub. L. No. 94-455, 90 Stat. 1848 (1976) |
20 |
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| Tech. Adv. Mem. 9131006 ( April 30, 1991 ) |
15 |
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INTEREST OF THE AMICUS CURIAE
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| The American College of Trust and Estate Counsel (the "College") is a professional association of lawyers with a current membership of approximately 2,700 from throughout the United States . Members have been elected by their peers on the basis of their professional reputation and their demonstrated exceptional skill and ability in probate, trust, and estate planning law, and on the basis of their substantial contributions to these fields through lecturing, writing, teaching, and bar activities. The College has no "client" in this matter, although many of its members represent clients who may be impacted by the Court's decision, either now or in the future. |
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| Family limited partnerships have been used extensively, not just as estate planning vehicles, but also as relatively flexible investment management vehicles and for many other legitimate purposes. The issues to be decided in this case are central to the predictability and stability of the tax treatment of family limited partnerships. The policies of the College provide for the filing of an amicus curiae brief only sparingly and only where the issues are of special significance. Because of these stringent guidelines, this amicus curiae brief is only the third filed by the College within 10 years, thus reflecting the College's evaluation of the special importance and significance of the issues involved. The College believes that, by filing this amicus brief pursuant to leave of this Court, it can provide a perspective not available from either the Government or the individual taxpayer. |
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SUMMARY OF THE ARGUMENT
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| This amicus brief is being filed by the College to express its extreme concerns about the legal standards relating to Sections 2036(a) and 2038(a)(1) that were used by the District Court in Kimbell v. United States , 244 F. Supp. 2d 700 (N.D. Tex. 2003) ("Kimbell"), or are being proposed in the Government's brief filed with this Court. |
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| The College believes that the determinative issue in regard to whether the decedent retained the "right," alone or in conjunction with one or more other persons, to designate the persons who would possess or enjoy the transferred property within the meaning of Section 2036(a)(2), or retained the "right" to the income within the meaning of Section 2036(a)(1), should be whether there were sufficient constraints, including fiduciary constraints, under applicable state law to prevent any power held by the decedent to control or otherwise participate in partnership or LLC distribution decisions from rising to the level of a "right" within the meaning of the statute. See U.S. v. Byrum , 408 U.S. 125 (1972) ("Byrum"). The subjective likelihood of enforcement of those fiduciary duties, as proposed, in effect, by the Government, is not an appropriate standard for determining whether a power is a "right" within the meaning of the statute. |
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| Next, the College believes that the ability of all of the partners and members to dissolve a partnership or LLC should not be a "right," alone or in conjunction with other persons, to designate who would presently "enjoy" the transferred property within the meaning of Section 2036(a)(2) or the power, alone or in conjunction with other persons, to revoke or terminate within the meaning of Section 2038(a)(1). The College concurs with the arguments presented by the decedent's estate in regard to these issues generally and will limit its comments to the meaning of the term "right" under Section 2036(a)(2). |
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| In regard to the applicability of the exception under each of Sections 2036(a) and 2038(a)(1) for a "bona fide sale for an adequate and full consideration in money or money's worth", the College concurs with the principles set forth in this Court's prior analysis in Wheeler v. U.S. , 116 F.3d 749 (5th Cir. 1997) ("Wheeler"). The potential applicability of the "bona fide sale for an adequate and full consideration in money or money's worth" exception under Section 2036(a) requires a two-part analysis. First, whether the decedent received "adequate and full consideration in money or money's worth" for her capital contributions to the partnership and LLC should be based on an objective comparison of what the decedent contributed and what she received in the exchange. Such subjective considerations as the decedent's intent are not material to the adequacy of the consideration. Second, in determining whether a sale is "bona fide," the issue should not be whether the parties negotiated at arm's length but instead should be whether the transferor actually parted with the property supposedly transferred and actually received the full consideration to which he or she was entitled by reason of the sale (that is, whether the transfer or the consideration received was a sham). |
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| The College is expressly refraining from taking any position in regard to questions of fact, including any possible implied agreement to retain enjoyment under Section 2036(a)(1), and any application of facts to the appropriate legal standards for the other issues. Therefore, no position is being taken as to which party should prevail. |
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| Despite taking no position on which party should prevail, the College strongly believes that the legal standards used in the Kimbell decision, or proposed by the Government, are in error and should be repudiated for the following reasons: |
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(1) |
The use of family limited partnerships and the equivalent in estate planning is widespread, including by College members. |
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(2) |
Most estate planning advisers, including College members, and their clients, want to design and use such partnerships within known rules and boundaries, and believed |
