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1991 and 1992 gift tax liabilities. The trust sought refunds of
the $118,801 and $304,910 gift tax deficiencies assessed for 1991
and 1992, respectively. The estate sought refunds of these same
gift tax deficiencies plus the taxes originally paid with
decedent’s 1991 and 1992 gift tax returns. The premise of each
refund claim was that the donee children’s alleged obligations to
pay additional gift and estate taxes as a condition of the gifts
they received from decedent reduced the gifts’ value and the
resulting gift taxes accordingly. Respondent disallowed the
refund claims.
The estate and the trust (collectively, the plaintiffs)
filed a complaint in the U.S. District Court for the Western
District of Virginia seeking a refund of the entire amount of
gift taxes paid in 1991 and 1992. The District Court granted the
Government’s motion for summary judgment, concluding that the
donee children’s asserted obligations to pay additional gift and
estate taxes were “speculative” and did not reduce the value of
the gifts; moreover, noting that the donee children never in fact
paid the additional gift tax as called for in the transferee
agreement despite the occurrence of the liability-triggering
contingency, the District Court concluded that the donee
children’s asserted gift tax liabilities were “illusory.”
Armstrong ex rel. Armstrong v. United States, 132 F. Supp. 2d
421, 429 (W.D. Va. 2001), affd. sub nom. Estate of Armstrong v.
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