THE TEXAS October, 2003 TAX LAWYER Vol. 31, No. 1 ✯ www.texastaxsection.org TABLE OF CONTENTS The Chair’s Message . 1 Jasper G. Taylor, III 2003-2004 Calendar . 3 Jasper G. Taylor, III Legislative Update: “No New Taxes” But Still Worth a Look: State Tax Developments . 6 in the Regular Session of the 78th Legislature Geoffrey R. Polma and Daniel L. Timmons Corporate Tax: Recent Developments . 13 Ron Kerridge Estate and Gift Tax: Recent Developments . 15 Stephen C. Simpson Property Tax: Recent Developments. 21 John Brusniak, Jr. Partnership and Real Estate Tax: Recent Developments . 30 Brandon Jones Tax Controversy: Recent Criminal Tax Developments. 30 Josh O. Ungerman Tax-Exempt Organizations: Recent Developments . 33 Tyree C. Collier Texas Nonprofits Navigate Ins and Outs of Tax Law. 34 Amy Gentry New Policies with Respect to the Business Purpose Requirement . 35 for Code Section 355 Transactions Shilpa N. Jariwala Pre-Immigration Tax Planning - Avoiding Installment Sale Treatment . 37 William H. Newton, III Disputes Among Partners Resulting in the Sale of Partnership Assets. 39 Martin M. Van Brauman From The Ground Up: An In-depth Analysis of Build-to-Suit and Related Party Exchanges. 41 Brad Borden What You Should Know About your GRAT (Grantor Retained Annuity Trust). 57 Noel Ice Tax Section Leadership Roster . 89 Committee Selection Form . 93 The name and cover design of the Texas Tax Lawyer are the property of the State Bar of Texas, Section of Taxation Texas Tax Lawyer, October, 2003 1 CHAIR'S MESSAGE While it is certainly a great honor to begin my term as Chair of the Section of Taxation, our Annual Meeting on Friday the 13th represented an inauspicious start - worthy of the connotation that day represents for those of us who are superstitious. Rather than the election of the Nominating Committee slate of Officers and Council members by acclamation - which has occurred on a regular basis for as long as I have been involved in Section activities - there instead was a hotly contested election that began with a group of five Section members nominating each other for the positions of Chair-Elect, Secretary, and the three Council member positions that were open. Although the person nominated for Chair-Elect by this group freely admitted that he had never participated in any Section activities previously - much less occupied leadership positions - this group indicated at the Annual Meeting that the nominations were occurring because the Section had ignored the concerns of solo practitioners/small firms and their clients. For a time that Friday the 13th, it appeared that this group would prevail, since there had been no notice of their intentions, and bad weath- er in Dallas had prevented some of our Section members from making it to Houston. Fortunately, because the word spread to Section members who were at meetings throughout the Houston meet- ing sites, the final votes were in favor - but by the slimmest of margins - in favor of the Nominating Committee's slate of R. David Wheat (Chair-Elect); William P. Bowers (Secretary); and Daniel J. Micciche and Josh O. Ungerman (two of the three Council member positions open). However, Christina Mondric, a member of a five lawyer firm in Austin who has provided years of hard work and leadership, was defeated by a single vote, resulting in one of the group's nominees - R. Rhett Buck - being elected. The other officers and Council members who will serve for 2003-2004 are Gene Wolf, Treasurer; Tina R. Green, Newsletter Editor; Kevin J. Thomason; Steven D. Moore; Jeffrey E. Sher; Allen B. Craig; Larry Jones; Tyree Collier; and G. Walter McCool, Chair Website/E-Communications. In sum, the Section was for a time on the brink of being taken over by a small group that took well-planned actions - without prior notice - at our Annual Meeting, rather than leadership passing to a slate of people who had worked for many years in leadership roles on behalf of the Section. Frankly, our Bylaws allow that sort of thing to occur, and one of the things that I will ask the Council to consider is amending our Bylaws in order to ensure that nominations are made with ample notice to the entire Section, and with an opportunity for Section members to consider the qualifi- cations of those who wish to serve as Officers or Council members, before a vote is taken. Other projects which I will ask the Council to consider and implement include the following: 1. Development of prototype committee meeting formats/mechanics. 2. Liaison with Texas Community Building with Attorney Resources (known as "Texas C-BAR"), a statewide pro bono initiative for transactional attorneys. 3. Consideration of a grant program or other financial assistance for projects at law schools or other academic institutions that will be of benefit to the Section. 4. Increasing the profile of Section members with federal, state and local tax officials. Finally, as provided for in our bylaws, I have appointed three ex-officio members of Council to serve for the 2003- 2004 term (in alphabetical order): Eleanor Kim (formerly of the Comptroller's General Counsel office, but soon to be Chief Administrative Law Judge); Bernard B. Nelson, IRS Area Counsel (Natural Resources); and William P. Streng, Professor at the University of Houston Law Center. We are quite fortunate to have Eleanor, Bernie, and Bill agree to serve, and I feel sure their perspectives will be of great value to the Council over the coming year. Please feel free to e-mail me with any suggestions you have for projects your leadership should consider over the next year. Jasper G. Taylor, III Chair, Section of Taxation State Bar of Texas 2 Texas Tax Lawyer, October, 2003 CONGRATULATIONS!! to Vester T. Hughes, Jr 2003 recipient of the Outstanding Tax Lawyer Award The first presentation of the Outstanding Tax Lawyer Award was made to Vester T. Hughes, Jr. at the 2003 Advanced Tax Course held in Dallas, Texas, on September 19, 2003. The selection of Vester Hughes sets a high standard for all future recipients. His career as a tax lawyer spans six decades during which he has been an important part of the local, state and national tax practice. Contrary to popular opinion, Mr. Hughes did not start life as the Tax Czar. He grew up in a small ranching community close to San Angelo. In 1949, he graduated from Rice with degrees in physics and math, and in 1952, graduated from Harvard Law School. Following graduation, Mr. Hughes served as the law clerk to U.S. Supreme Court Justice, Tom Clark, and then after his judicial clerkship, he served in the U.S. Army during the Korean War. Mr. Hughes returned to Dallas after the war and started law practice as an associate with the law firm that would become Jackson Walker. He continued with that firm for 16 years until 1976 when he joined the law firm that would become the firm that bears his name, Hughes & Luce. Mr. Hughes is one of the world’s top tax experts and his accomplishments are many. He has served as the Chairman of the Tax Section of the Texas State Bar; as member of the Council of the Taxation Section of the ABA; member of the Council of the American Law Institute; visiting professor of law at Southern Methodist University Law School; Institute Chairman of the Taxation Division of the Southwestern Legal Foundation. He is also the author of many tax publications and a frequent lecturer at tax institutes. Mr. Hughes is an active participant in a number of charities. He has served as a trustee of the Texas Scottish Rite Hospital for Children since 1967 and has served as a member of the Board of Directors of the Juvenile Diabetes foundation since 1982. Mr. Hughes has argued a number of cases before the U.S. Supreme Court and U.S. Court of Appeals, advised congressional committees and administrative agencies regarding tax laws, and represented public companies such as American Airlines and Electronic Data Systems. With all that said, when thinking of words to describe Vester T. Hughes, Jr. and the values he has taught those that have followed him in practice, people choose such words as: ethical, and principled, a lawyer of integrity and character, and a friend and mentor to many. Texas Tax Lawyer, October, 2003 3 SECTION OF TAXATION OF THE STATE BAR OF TEXAS 2003-2004 CALENDAR July 11 New Chair/Treasurer Orientation, Texas Law Center - Austin 15 Quarterly dues check mailed to section treasurers August 1-2 Local Bar Leaders Conference, Omni Mandalay, Las Colinas 10 Texas Bar Foundation grant application deadline September 1 Inform State Bar of section's Annual Meeting program chair 12 Council of Chairs meeting, Austin 21 State Bar of Texas CLE 21st Advanced Tax Law Course (co-sponsored by the Section of Taxation) in Dallas, Texas. For more information, visit www.TexasBarCLE.Com click on "Courses" and search Practice Areas for "Tax" 26 10:00 a.m. - 12:00 p.m. Council/Committee Chairs Meeting MANDATORY IN PERSON ATTENDANCE BY ALL COUNCIL MEMBERS AND EITHER CHAIR OR VICE CHAIR Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 713-651-5100 October 3 SBOT section program chair: Select program and proposed speakers for SBOT Annual Meeting 2004 15 Quarterly dues check mailed to section treasurer 4 Texas Tax Lawyer, October, 2003 November 14 10:00 a.m. - 12:00 p.m. Council/Committee Chairs Meeting Fulbright & Jaworski L.L.P. 1301 McKinney, Suite 5100 Houston, Texas 77010-3095 713-651-5100 December 12 Prepare section mid-year report (due Jan.