One of the times google is failing me........I'm sure something similar has been discussed on the internet before but I can't find anything. Next best thing: (I don't understand the details of the scheme but the general ideas make sense)
https://www.taxinglessons.com/case-step-transaction-doctrine/
THE QUESTION
When can separate steps in a multi-part transaction be collapsed into one?
THE DISPUTE
Taxpayer Says: Each of four transfers of property had an independent business purpose and they should not be collapsed into a single transaction.
Internal Revenue Service Says: The transfers were divided into four parts instead of one solely to avoid gift tax.
THE LAW
From From Holman v. Commissioner, 130 T.C. 170, 187 (2008), affd. ___ F.3d ___ (8th Cir., Apr. 7, 2010): Where an interrelated series of steps is taken pursuant to a plan to achieve an intended result, the tax consequences are to be determined not by viewing each step in isolation, but by considering all of them as an integrated whole.
From Senda v. Commissioner, 433 F.3d 1044, 1049 (8th Cir. 2006) (citing Commissioner v. Clark, supra at 738), affg. T.C. Memo. 2004-160:
The step transaction doctrine is “well-established” and “expressly sanctioned” and may be applied in the area of gift tax where intra-family transactions often occur. Whether several transactions should be considered integrated steps of a single transaction is a question of fact.
From Estate of Cidulka v. Commissioner, T.C. Memo. 1996-149:
It is appropriate to use the step transaction doctrine where the only reason that a single transaction was done as two or more separate transactions was to avoid gift tax.
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In OP's case: ex gives to DD; ex-DH; person C
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ex-DH,person C gifts to DD
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in some minds, seeming unrelated.....can be semi-camouflaged by
delaying step 2 and by changing amounts in step 1, step 2 so they
are not the same
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IRS would claim that you have to look at the whole picture and that the end result is that ex gave > annual limit to DD and that it was thought out in advance. Perhaps they would look at how often gifts were given by ex DH
and person C to DD in the past and wonder about the coincidence of timing this time for this first time event. Perhaps they wouldn't put you on a lie detector but I would hate to be under the agent's gaze when they ask about
whether there was an ulterior motive. I would probably explore other more conservative methods before doing this.
