Gift or Sale? A Question of Intent in Estate of Costanza v. Commissioner
James A. Bulen, Jr.
In the recently decided case Estate of Costanza v. Commissioner, the Tax Court held that intra family transfers are presumed to be gifts absent convincing evidence to the contrary. This case involved the transfer of real property between the taxpayer and his son in exchange for a self-canceling installment note (SCIN). Following mixed precedent, Costanza held that courts should inquire beyond the formal requirements of an intrafamily sale to the substance of a transaction to determine whether the transfer was a valid sale. Here, the court determined that the taxpayer failed to rebut the presumption that the transfer in question was a gift, because the transaction was effectuated in a haphazard manner.
Part I of this Note describes the background of the Costanza case. Part II discusses the court’s holding. Part III addresses precedent regarding intrafamily transfers and revisits the Costanza decision. Part IV discusses the Costanza decision’s implications for tax practitioners. Part V concludes that, while the Costanza court correctly held that intrafamily transfers in exchange for an installment obligation are presumed to be gifts, it decided the case incorrectly on its merits.