Wednesday, August 12, 2015


The North Carolina Court of Appeals recently decided in Fowler v. North Carolina Department of Revenue, No. COA-14-1302 (August 8, 2015) that the owners of a construction company in Raleigh owed none of the $10.4 million capital gains tax from the sale of their business claimed by the NCDOR, because they changed tax residency to Florida a few weeks before the sale closing.  This has been a very highly contested case and the taxpayers have won for the third time, first at trial before an administrative law judge, then before the NC Superior Court, then before the Court of Appeals.

The Fowler case is significant because of the complex nature of the facts and the trial court's findings that they intended to change their domicile to Florida right before selling their business due to the steps they took to achieve the change (including buying a larger new home in Florida, starting a Florida business, changing their address) even though their steps were less than perfect and even though they had continuing contacts with North Carolina by keeping their old home, and continuing to work for the company's buyer after the sale for a temporary period of time.

Our Firm was handled the taxpayer's administrative appeal in the case and served as co-counsel at trial.  Our view is that the Court of Appeals decision was a just one when all the change of domicile factors are analyzed, and that it is not necessary for a taxpayer to sever every single tie with the prior state of domicile to change to another state, which is consistent with tax residency decisions in other states, most notably of which is the Allen Page case in Minnesota.

For more information, contact Curtis Elliott at 704-372-6322 or

Wednesday, May 27, 2015

Crummey Trusts Continue to Be Approved By Tax Court

The U.S. Tax Court recently held in Mikel v. Commissioner, T.C. Memo 2015-64 that so called "Crummey" gifts of $12,000 each to 60 trust beneficiaries qualified for the annual gift tax exclusion as present interest gifts.  The IRS argued that although the trust beneficiaries had legally enforceable rights of withdrawal over those funds, they were unlikely to assert those rights under the trust's no-contest clause.  The Tax Court disagreed, and found the withdrawal demands could not be legally resisted by the Trustee of the trust and that the in terrorem provisions would not necessarily deter the beneficiaries from pursuing judicial relief as a practical matter.

This favorable view of the trust's Crummey provisions provides further solace to estate planners and their clients that the use of Crummey trust gifts to multiple trust beneficiaries will be accorded present interest status per gift to enable the donor to make larger annual exclusion gifts to family trusts.  This case is a major positive case law development for practitioners and their clients.