Adam Wiensch, one of the attorneys representing the taxpayer in the Woelbing case, reported that the IRS has settled. In that case, Mr. and Mrs. Woelbing had created an insurance trust which held policies with a cash value of $1.6 million. The Woelbings sold $59 million of stock in Carma Laboratories (Carmex lip balm, etc.) to the trust in exchange for a note. To achieve the suggested 10% cushion/equity in the trust, two Woelbing sons guaranteed that amount of the note. The stock was appraised, and the amount conveyed was under a Wandry-like formula (“stock equal in value to $59 million” – amount of shares to be adjusted on final IRS determination). The IRS attacked the sale saying it was really a massive $59 million gift under Section 2702, and because the Woelbings died before the case was resolved, the IRS also alleged that all of the stock was still countable in the Woelbings’ estates under Section 2036. So the IRS wanted massive gift tax and estate tax amounts, and a lot of penalties and interest.
In the settlement, Wiensch reports (quoting his email):
- The IRS accepted the validity of our Wandry-like formula language in the Installment Sale Agreement to avoid any gift in the year of the sale. The tradeoff is more shares were retained, but we avoided penalties and interest.
- The IRS conceded that Section 2702 did not apply to our transaction because we met the 10% equity test.
- The IRS conceded that Section 2036 did not apply to our transaction because we met the 10% equity test.
He promises more details later.