Estate Planning

In the Dickerson case, T.C. Memo 2012-60, the taxpayer established an S corporation shortly after winning the lottery. The taxpayer and her family were the shareholders of the corporation. The taxpayer then transferred the lottery ticket to the S corporation, which ultimately claimed the lottery prize. The IRS determined that the taxpayer made a gift as a result of the transfer to the S corporation and issued a deficiency notice for $771,000 for gift tax owed.

The court evaluated the facts of the case and found that the taxpayer had no family contract which required the taxpayer to transfer the ticket. The court also found that there were no predetermined sharing percentages or voting rights, and there was no pooling of money of the family members for the purchase of lottery tickets. The court concluded that the transfer to the S corporation was a gift because the taxpayer transferred property to a corporation for less than adequate consideration.


In a recent case, Donald G. Cave, a Professional Law Corp., v. Comm'r, 109 A.F.T.R.2d 2012-1504 (5th Cir. 2012), the Fifth Circuit affirmed the Tax Court's decision that associate attorneys were employees of an S corporation law firm. As a result the S corporation was liable for past due employment taxes, penalties and interest.

This is one in a long line of cases involving the determination of whether an individual is an employee or an independent contractor. In this case, the court focused on the common law factors illustrating whether a worker is a common law employee. The IRS and courts generally examine numerous factors, sometimes described as a twenty (20) factor test, in ultimately determining whether a worker is an employee or an independent contractor.

In this case, the Tax Court originally concluded, and the Fifth Circuit affirmed, that the associate attorneys were employees rather than independent contractors because of the high degree of control that the corporation exercised over the associate attorneys. Employee-independent contractor cases are factually intensive and can wreak financial havoc on companies in the form of past due employment taxes, penalties and interest on employers.


The U.S. Court of Appeals for the Federal Circuit upheld the decision of the Trademark Trial and Appeal Board (TTAB) to refuse the service mark "NATIONAL CHAMBER" as merely descriptive of the web services promoted by the Chamber of Commerce of the United States of America. In re The Chamber of Commerce of the United States of America, Case No. 11-1330 (Fed. Cir., Apr. 3, 2012) (Reyna J.).

The Court noted that there could be no recourse to secondary meaning or acquired distinctiveness because the applications are based not on actual use, but intent to use. Thus, the analysis must turn on the descriptiveness of the terms themselves. Further, a mark is merely descriptive if it describes even a single feature or attribute of the relevant goods or services; it need not recite each and every feature in detail.

The Court found that substantial evidence to support the TTAB's factual finding that the mark was merely descriptive of at least one of the services described in the applications. The Court cited as examples services for providing directory information regarding local and state chambers of commerce, promotion of the interests of businesspersons and activities to help members become informed and involved in business-related legal and policy decisions by governments.

Further, the Court noted that a term is merely descriptive if it immediately conveys knowledge of a function of the goods and services for which it is to be used. Because the applications expressly recite the function of promoting the interests of businesspersons, within the traditional sphere of chambers of commerce, registration of the mark was rightly refused for being merely descriptive of that function.