Estate of Morgens v. Commissioner, 678 F.3d 769

The Estate of Anne Morgens challenges estate tax after gift taxes on §2519 deemed transfers were not included in the gross estate.
Morgens elected QTIP treatment for the Residual Trusts, making the trust assets eligible for the marital deduction.
Residual Trusts A and B were created; Morgens retained lifetime income interests but later relinquished them to beneficiaries.
Gift taxes on the deemed transfers were paid by the trust trustees, not directly by Morgens, within the three-year period before death.
Morgens died on August 25, 2002, within three years of both 2000 and 2001 transfers; the Tax Court held §2035(b) applies.
The central issue is whether the gift taxes paid by the trustees on §2519 transfers are includible in the gross estate under §2035(b).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Should §2035(b) include gift taxes on §2519 transfers?	Taxes paid by trustees; not decedent.	Taxes paid by decedent via conduit.	Yes, included in gross estate.
Is the net gift analogy controlling for §2035(b) treatment?	Net gift reasoning not controlling here.	Net gift analogy persuasive for conduit taxes.	Analogy persuasive; taxes paid by decedent.
Do Diedrich, Sachs, and Brown guide the result?	Argue against application of these authorities.	These authorities support inclusion as conduit payments.	Authorities support inclusion under §2035(b).

Diedrich v. Comm'r, 457 U.S. 191 (1982) (gift tax liability falls on the donor; net gift logic applied)
Sachs v. Comm'r, 856 F.2d 1158 (8th Cir. 1988) (net gift conduit taxes included in estate under §2035(b))
Brown v. United States, 329 F.3d 664 (9th Cir. 2003) (funds source matters; donor pays gift tax via conduit)