## Facts

- John G. Boykin, a Mobile, Alabama resident, died June 26, 1980.
- Boykin owned 7,000 shares of voting common stock in Tensaw Land & Timber Co., Inc., a closely held corporation.
- Tensaw recapitalized to create a new class of nonvoting stock structured to receive substantially all future dividends compared to the voting stock.
- After recapitalization, Boykin transferred his 7,000 voting shares to an irrevocable trust for his children.
- Boykin and family members retained/received the nonvoting shares outside the trust, and those shares carried the principal dividend rights.
- The IRS asserted an estate tax deficiency, arguing the recapitalization and trust transfer functioned as an “estate freeze” in which Boykin effectively retained the income from the transferred property.
- The estate petitioned the Tax Court; the memorandum opinion addressed only whether I.R.C. § 2036(a)(1) required inclusion of the transferred voting stock in the gross estate.

## Issues

1. Whether the transfer of Tensaw voting stock to a family trust, coupled with a recapitalization allocating most dividend rights to nonvoting shares held outside the trust, was a transfer with a retained life interest in “possession or enjoyment of, or the right to the income from,” the transferred voting stock under I.R.C. § 2036(a)(1).

## Decision

- The Tax Court held § 2036(a)(1) did not apply because Boykin did not retain a right to income from, or enjoyment of, the voting stock transferred to the trust.
- The value of the transferred voting shares was not includible in Boykin’s gross estate under § 2036(a)(1).
- Judgment was entered for the estate on the § 2036 issue (with other issues severed for separate disposition).

## Legal Principles

- I.R.C. § 2036(a)(1) includes in a decedent’s gross estate property transferred during life if the decedent retained for life (or a period not ending before death) the possession or enjoyment of, or the right to income from, the transferred property.
- The § 2036(a)(1) inquiry focuses on whether the decedent retained a legally enforceable right or benefit in the specific property transferred, not merely whether a series of related transactions left the decedent in a favorable economic position.
- Retention of separate property interests (e.g., a different class of stock with dividend rights) does not, without more, establish a retained income or enjoyment interest in the property transferred to the trust.
- In related-party “freeze” transactions, close scrutiny is appropriate, but § 2036(a)(1) requires evidence of a retained right or an agreement/understanding that the transferred property’s income or enjoyment would be used for the transferor’s benefit.

## Conclusion

The Tax Court declined to treat a recapitalization-and-trust “estate freeze” as a retained life estate under § 2036(a)(1) absent proof that the decedent retained an enforceable right to income or enjoyment in the voting stock actually transferred to the trust.


Estate of Boykin v. Commissioner, T.C. Memo. 1987-134 (1987)