Academic journal article Journal of Accountancy

Hunt Family "Gifts."

Academic journal article Journal of Accountancy

Hunt Family "Gifts."

Article excerpt

Individual

HUNT FAMILY "GIFTS"

The Tax Court, in C. L. Hunt v. Commissioner (T.C. Memo. 1989-335), sorted through complex silver and gold futures transactions of Texas's billionaire Hunt family to determine the nature of large transfers of money from Nelson Bunker Hunt and his wife, Caroline L. Hunt, to each of their children. These were made to cover the children's margin calls at various brokerage houses.

The parents classified all the transfers as loans and thereafter claimed nonbusiness bad debt deductions for a large portion of the unpaid balances of the "loans." The children, who were insolvent even after the debt forgiveness, did not recognize any cancellation of indebtedness income. The Internal Revenue Service, claiming that all the transfers constituted gifts, disallowed the Hunts' nonbusiness bad debt deductions and assessed both gift tax and income tax deficiencies.

The court, in its discussion of the law regarding intrafamily loans, held in part for the taxpayer and in part for the government. The court drew a distinction between transfers made when the children were solvent and those made when the children were insolvent. With respect to the transfers made while the children were solvent, the court found the taxpayer acted consistently with an intention to create bona fide debt (and avoid the gift tax). …

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