Formula Clauses Bolstered by Case That Rules Against the Taxpayer
Formula clauses are used when property with uncertain value is transferred by gift or sale. The objective is to set the amount that is transferred for gift tax purposes, even if the IRS later is successful in asserting that what was transferred was worth more than what was reported. This can avoid gift tax by keeping the value below available exemption amounts.
The use of formula clauses received a boost in Wandry v. Commissioner, T.C. Memo. 2012-88. There, the Tax Court held that a clause which defined the amount being transferred as a portion of the property equal to a specific value as the value of the property is finally determined for gift tax purposes, would limit the transfer to such portion of the property, as finally valued for gift tax purposes after IRS review and court determination, as equal in value to the stated dollar amount.
In a recent Tax Court case. . .