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return reported the value of the gift as income — from the split-dollar ar- Under Sec. 2038, a decedent’s gross
the economic benefit transferred from rangements and under Sec. 2038, she estate includes all interests in property
the revocable trust to the insurance maintained the power to alter, amend, that the decedent has at any time trans-
trust. Based on the rules in Regs. Sec. revoke, or terminate the enjoyment ferred (except in case of a bona fide sale
1.61-22(d)(2), the value of the gift of aspects of the split-dollar arrange- for an adequate and full consideration
reported on the returns was $2,644. ments; and in money or money’s worth), by trust or
The attorneys-in-fact also realized ■ Even if the full values of the life otherwise, where the enjoyment of the
that the promise by the insurance trust insurance policies are not includible property was subject at the date of his
to pay the revocable trust had some in Levine’s estate under Secs. 2036 or her death to any change through the
value at Levine’s death in 2009, which or 2038, the restrictions in the exercise of a power (in whatever capacity
had to be reported on Levine’s estate tax split-dollar arrangements should exercisable) by the decedent alone or by
return. On Schedule G, Transfers During be disregarded under the special the decedent in conjunction with any
Decedent’s Life, of Levine’s Form 706, valuation rules provided in Sec. 2703, other person (without regard to when or
United States Estate (and Generation- which would force Levine’s estate to from what source the decedent acquired
Skipping Transfer) Tax Return, the value include in its taxable value the full such power), to alter, amend, revoke,
of the split-dollar receivable, as owned cash-surrender values of the policies. or terminate, or where any such power
by the revocable trust on the alternate The estate argued that it made no is relinquished during the three-year
valuation date, was reported as an asset transfer of property that could trigger period ending on the decedent’s date
worth about $2 million. The IRS and Sec. 2036 or 2038, it retained no inter- of death.
Levine’s estate later stipulated that the est in the property that it did transfer, Sec. 2703 provides that, in general,
value of the split-dollar receivable was and, in any event, the bona fide sale for the value of any property for estate tax
$2,282,195. adequate and full consideration exemp- purposes is determined without regard
The IRS audited Levine’s gift tax tion applied. to (1) any option, agreement, or other
returns and her estate tax return. It is- After the parties settled other issues right to acquire or use the property at
sued a notice of deficiency for the 2008 in the case through stipulation, the Tax a price less than the fair market value
gift tax return and a notice of deficiency Court was left to decide whether the of the property (without regard to such
of slightly more than $3 million for the value of the split-dollar receivable held option, agreement, or right), or (2) any
estate tax return. Levine’s estate chal- by Levine’s estate was $2,282,195 or the restriction on the right to sell or use
lenged both notices of deficiency in Tax insurance policies’ cash-surrender value such property.
Court in separate cases, which the court of $6,153,478.
consolidated. However, the IRS lost on The Tax Court’s decision
the gift tax issue, with the court in 2016 Secs. 2036, 2038, and 2073 The Tax Court held that the only prop-
holding, based on its opinion in Morris- Under the general rule in Sec. 2036, erty in the estate after the execution of
sette, 146 T.C. 171 (2016) (Morrissette I), the value of the decedent’s gross estate the split-dollar arrangements was the
that it was obligated to enter judgment includes the value of any interest in any split-dollar receivable, and, as stipulated
against the IRS (Estate of Levine, No. property that the decedent transferred by the parties, its value was $2,282,195.
9345-15 (T.C. 7/13/16) (bench op.)). (other than in a bona fide sale for an The court found that Secs. 2036 and
That issue being disposed of, the court adequate and full consideration in 2038 did not require inclusion of the
severed the gift and estate tax cases, money or money’s worth), by trust or policies’ cash-surrender values because
leaving the estate’s challenge of the IRS’s otherwise, under which he or she has only the insurance trust, and not Levine,
determination regarding the estate tax to retained for his or her life or for any pe- could terminate the life insurance poli-
go forward. riod not ascertainable without reference cies, and Sec. 2703 was inapplicable to
The IRS argued in Tax Court that to his or her death or for any period that the split-dollar receivable because there
Levine’s estate should have reported does not in fact end before his or her were no restrictions on it.
the cash-surrender values of the life death (1) the possession or enjoyment
insurance policies, not the value of the of, or the right to the income from, the What was transferred and what
receivable, on the estate tax return. The property, or (2) the right, either alone or was retained
Service reasoned that: in conjunction with any person, to des- The Tax Court agreed with the IRS
■ Under Sec. 2036, Levine retained ignate the persons who shall possess or that the applicable statutes in Levine’s
the right to income — or the right enjoy the property or the income from case were Sec. 2036 and Sec. 2038, so
to designate who would possess the the property. it first considered what property was

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