Case Summaries Elcan v. Commissioner, Tax Court Docket No. 3405-25 (Petition filed March 14, 2025) – GRATs, Substitution Powers and Grantor Notes

The IRS is surprisingly taking the position in an ongoing case that using grantor notes to satisfy annual annuity payments from a GRAT causes the GRAT to fail, and the full value contributed to the GRAT is treated as a taxable gift. The notes arose in substitution transactions in which the grantor acquired assets from GRATs in return for promissory notes from the grantor, and the GRATs later used the notes to satisfy, in part, annuity payment from the GRATs.