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Florida Tax Review

Abstract

The IRS lost the Crummey battle before it began. Hindsight makes abundantly clear that the real abuse in Crummey powers has nothing to do with the majority of the power-holder. The abuse is endemic to all Crummey powers. As discussed herein, in Crummey and the earlier cases, the IRS should have argued that a withdrawal power does not create a present interest, regardless of the majority of the power-holder.

Part Two of this article addresses the basic workings of the annual exclusion.

Part Three discusses the operation of Crummey powers and notes that the Economic Growth Tax Relief Reconciliation Act of 2001 (“EGTRRA”) made few changes to the basic operation of Crummey powers. Indeed, EGTRRA may increase the use of Crummey powers in the short term.

Part Four argues that Crummey was wrongly decided. A withdrawal power does not create a present interest for purposes of the federal gift tax annual exclusion.

Part Five discusses the possibilities for reform. Clearly, the abrogation of Crummey could be accomplished by Congress. The power of the IRS and the Treasury Department to administratively overrule Crummey is also considered.

Part Six concludes that, due in large part to the IRS’s missteps, the law concerning the use of Crummey withdrawal powers has gone awry. Although the use of Crummey powers is unsupportable, the IRS’s acceptance of Crummey for the past thirty years may force the IRS to lie in the bed that it made for itself (and the fisc) when it acquiesced in Crummey.

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