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United States, 277 F.3d 490 (4th Cir. 2002). (Hereinafter, these
proceedings in the District Court and the U.S. Court of Appeals
for the Fourth Circuit are sometimes referred to collectively as
the refund litigation.)
Affirming the District Court, the U.S. Court of Appeals for
the Fourth Circuit concluded that the so-called net gift
principle did not apply to reduce the value of the transferred
stock because “the [donee] children’s obligation to pay the
additional gift taxes was both contingent and highly
speculative.” Estate of Armstrong v. United States, supra at
496. Furthermore, the Court of Appeals reasoned, even if the
donee children’s obligation to pay the additional gift tax were
assumed not to be speculative, it was nevertheless “illusory”
because the trust in fact paid the additional gift taxes pursuant
to the terms of the trust agreement.2 Id. For similar reasons,
the Court of Appeals rejected the plaintiffs’ argument that net
gift principles should reduce the value of the gifts by the
amount of estate taxes the donee children were obligated to pay
on the gift taxes. Id. at 497-498. The Court of Appeals held
that the plaintiffs were entitled to no refund of the gift taxes
paid. Id. at 498.
2 The U.S. Court of Appeals for the Fourth Circuit rejected,
as being contrary to the undisputed facts, the taxpayers’
argument that the trust’s payment of the gift taxes constituted
payment by decedent’s children. Estate of Armstrong v. United
States, 277 F.3d 490, 497 (4th Cir. 2002).
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