Linton v. United States
2011 U.S. App. LEXIS 1174
| 9th Cir. | 2011Background
- William and Stacy Linton formed WLFB Investments, LLC in November 2002 and funded it with cash, securities, and real property in January 2003.
- At a January 22, 2003 meeting, the Lintons signed gift documents gifting 11.25% interests in WLFB to their four children's irrevocable trusts and signed trust documents appointing a trustee.
- The documents were left undated on January 22, and later dated January 31 by Hack, the attorneys involved, though Hack later claimed this dating was erroneous.
- Tax returns and ledgers suggested the gifts and the trusts' capital accounts were formed and funded around January 2003, with conflicting indications about the exact sequencing of transfers.
- The IRS treated the transfers as either indirect gifts of cash/securities/property or as gifts under the step transaction doctrine, while the Lintons claimed gifts were of WLFB LLC interests and potentially discountable.
- The district court granted summary judgment for the government on the timing and step transaction issues; the Lintons appealed seeking reversal and remand.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| When did the gift occur under Washington law? | Lintons argue gifts occurred when LLC interests were transferred, enabling discounts. | United States contends gifts occurred earlier or were indirect via step transaction. | Remanded to determine the exact date gifts became operative. |
| Are the Lintons entitled to summary judgment on the failed-gift theory? | If timing is as the Lintons claim, transfers to trusts could be gifts of capital accounts, not gifts of LLC interests. | All parties treated the capital accounts as enhanced; state-law formalities do not govern federal tax outcomes. | No; the district court correctly denied summary judgment on failed-gift theory. |
| Does the step transaction doctrine apply to collapse the transactions into a single gift? | The sequence could be treated as a gift of LLC interests, not cash/securities/property, avoiding the step-transaction treatment. | Step transaction doctrine should collapse the steps to treat gifts as indirect gifts of assets. | Not entitled to summary judgment on step transaction doctrine; the doctrine does not resolve the case at this stage. |
| Is the case resolvable on the record for timing and intent to donate under Washington law? | Intention to donate can be inferred from documents and actions surrounding January 22, 2003. | Objective manifestations of intent are unclear; further proceedings are needed to determine the exact moment gifts became operative. | Remand for further proceedings to determine when four elements of a gift were simultaneously present and when intent became effective. |
Key Cases Cited
- Brown v. United States, 329 F.3d 664 (9th Cir. 2003) (heightened scrutiny of related-party transactions in tax law)
- Pahl v. Comm'r, 150 F.3d 1124 (9th Cir. 1998) (state-law interests plus federal tax consequences)
- Morgan v. Comm'r, 309 U.S. 78 (S. Ct. 1940) (ownership follows state-law interests for tax purposes)
- Nat'l Bank of Commerce, 472 U.S. 713 (1985) (state law shapes the transfer for tax consequences then federal law applies)
- Smith v. Shaughnessy, 318 U.S. 176 (1943) (donor must part with dominion and control for a valid gift)