Esther Lafargue v. Commissioner of Internal Revenue

Taxpayer appeals from a decision of the Tax Court reported at 73 T.C. 40 (1979), and urges two errors. First, she contends that the court improperly characterized the transfer of her property to a trust. Second, she asserts that the Tax Court erred in striking an amendment to the pleadings concerning the Internal Revenue Service’s method for selecting her income tax return for audit.

A complete statement of the facts is in the Tax Court’s opinion. 73 T.C. at 41-50 . The following is a basic summary intended only as an introduction. In 1971 Taxpayer established a trust with $100. The trust agreement provided for independent trustees and taxpayer’s daughter was the named beneficiary. Taxpayer was neither a trustee nor a beneficiary under the terms of the trust. A few days after establishing the trust, taxpayer executed an Annuity Agreement with the trustees. Pursuant to that agreement she transferred property worth $335,000 to the trustees in exchange for annual lifetime payments of $16,502. The property she transferred included non-income producing land, proceeds from the liquidation of a business, and assorted stocks and municipal bonds. The actuarial value of the $16,502 annuity…