Skip to content

IRS Exceeding Powers By Demanding Excessive Gift Tax “Interest”: Marshall v. United States

1 min read

Download Attached Document

In April 2013, we filed a joint brief with a number of respected law professors in Marshall v. United States, challenging IRS enforcement policy on collecting gift taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. interest from recipients. The IRS asserts the power to collect gift taxA gift tax is a tax on the transfer of property by a living individual, without payment or a valuable exchange in return. The donor, not the recipient of the gift, is typically liable for the tax. from donees, including interest on unpaid amounts. In some cases, the interest exceeds the value of the gift, primarily due to delayed IRS action as they first attempt to collect the tax from the donor. The taxpayers paid the tax under protest and have demanded a refund, pointing to a statute prohibiting gift tax to exceed the value of the gift. The district court ruled in favor of the government, and the taxpayers have appealed to the Fifth Circuit Court of Appeals.

Our brief argues:

  • The district court misunderstood the nature of the gift tax. It is not a tax on a person (the donees) but rather a tax on a transfer of property. Donees are secondarily liable to pay the tax but do not have a liability distinct from the donor.
  • The district court erred in finding that the taxpayers owe interest for holding “government property” because the government does not and never has held title to property owned by the donees. The government has a tax lien on the gift, not title to it. Thus, the donees never possessed government property.
  • The district court disregarded Congress’s statutory determination to limit donee liability to the value of the gift received, a provision that balances donee liability while not incentivizing IRS enforcement delays.
  • If the court determines the statute is ambiguous, that ambiguity should be resolved in favor of the taxpayer.
Share