5th Circuit: Donee's Liability For Billionaire's Unpaid Gift Tax And Interest Cannot Exceed The Amount Of The Gift

A divided Fifth Circuit withdrew an earlier opinion (771 F.3d 854 (5th Cir. 2014)) and held that the heirs of J. Howard Marshall (who was married to model Anna Nicole Smith) are not liable for gift tax and interest beyond the value of a gift from Marshall on which he did not pay gift tax.  United States v. Marshall, No. 12-20804 (5th Cir. Aug. 19, 2015).

Majority:

One of the principal issues in this appeal is whether a donee’s liability for a donor’s unpaid gift tax and interest on that tax is limited under 26 U.S.C. § 6324(b) to the value of the gift of the donee. We hold that a donee’s liability for the donor’s unpaid gift tax and interest is capped by the amount of the gift. Accordingly, we reverse the district court’s judgment to the extent that it imposed liability upon the donees beyond the value of the gifts.

Dissent:

All Appellants argue that the district court erred when it found both that [§ 6324(b)] creates an independent liability on the part of the donee to pay the unpaid gift tax and that the donee can be charged interest until the gift tax is paid. First, they argue that the district court's interpretation of § 6324(b) directly contradicts the plain language of the statute. Second, the Appellants argue that the district court erred in applying I.R.C. § 6901 ; specifically, they argue that because the Government did not assess transferee liability under § 6901 but instead chose to seek a personal judgment against the donees, § 6901 is irrelevant in this case. Finally, they claim that even if § 6901 applies, the district court's interpretation of § 6324(b) is incorrect for several reasons. For the reasons that follow, I disagree with each of these arguments and would hold that interest accrues on donee's liability for the unpaid gift taxes and that interest is not limited to the extent of the value of the gift.