- 32 -
estate, and gift tax benefits. His method was to enter into
agreements with his daughters to buy tax-exempt bonds, with
Mr. Kornfeld buying a life estate and his daughters buying the
remainder interests. Mr. Kornfeld, acting through a revocable
trust of which he was trustee, executed two such agreements,
after which Congress added a provision to the Federal tax law
disallowing the amortization of a term interest where the
remainder interest is held by a related party. See supra note
13. Aware of this change, Mr. Kornfeld amended the later
agreements to provide that one of his daughters would take a
second life estate in the bonds, and his long-time secretary
would take the remainder interest.
Mr. Kornfeld used the valuation tables published by the
Internal Revenue Service for estate and gift tax purposes to
calculate the respective values of the interests. He then
furnished his daughters and secretary with the amounts necessary
to purchase their interests and filed gift tax returns reflecting
those amounts. Thus, as recipients of the gifts, they were not
under any legal obligation to use that money to do the joint
asset purchase. As planned, though, they did participate, and
Mr. Kornfeld began amortizing ratably over his expected life his
cost of acquiring life interests in the bonds.
In analyzing the tax consequences, the Court of Appeals for
the Tenth Circuit, the court to which appeals by petitioner CGF
Industries, Inc. and Subsidiaries would generally lie, stepped
together the intermediate transactions that Mr. Kornfeld
Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 NextLast modified: May 25, 2011