Wall St. Journal:  “Small-business owners often complain of feeling caught in the cross hairs of the tax code. For a change, here’s good news.  The Tax Court has just blessed a new technique that owners of closely held businesses—and wealthy families—can use to pass assets to heirs with a minimum of taxes and complications. The ruling in the case, Wandry v. Commissioner, is stirring up excitement among experts.”

The taxpayers owned a limited liability company worth approximately $1 million dollars.  In 2004 they created a plan by which they would make gifts each year of membership interests in the LLC to their children and grandchildren.  Their gift plan provided that at no time could an annual gift to a donee exceed the then amount of the U.S. gift tax exemption (currently $,3,000).  The court ruled that because of the method the taxpayers used to make the gifts it was not possible for any gift to ever exceed the amount gift tax exclusion amount therefor no gift tax was owed.

P.S.  The taxpayers plan included a clause that provided that to the extent any gift ever exceeded the annual gift tax exclusion amount the excess over the exclusion amount would go to a charity rather than the donee.  This type of clause gives the IRS no reason to challenge the taxpayers action because even if the IRS were successful on its claim the excess gift amount would go to the charity and the taxpayers would be entitled to a corresponding charitable deduction.