ABA Section of Taxation
2023-2024 Law Student Tax Challenge
Official LL.M. Division Problem
You have just completed your sixth month at a large law firm, and you are ready to take on more
nuanced assignments from the Senior Partner. This evening, as you prepare to leave for the day
and enjoy a well-deserved dinner, you turn to close your laptop when an unread email pops into
your inbox. You open the following email from the senior partner:
To: Tax Associate
From: Senior Partner
Re: Patricia O’Shaughnessy, Client
Tax Associate:
Good work on that last assignment. I need you to look at another important matter involving one
of our clients, Ms. Patricia O’Shaughnessy. She is a successful entrepreneur from the Republic of
Ireland who has had a long and industrious career in the zinc mining industry, one of Ireland’s
most exported natural resources. She just turned 75 years old last month and now wants to retire
after her three decades of owning and operating Zinc Power Corporation (“Zinc Power”), a closely
held business based in Ireland. Ms. O’Shaughnessy plans to relocate to her vast working dude
ranch (“Dude Ranch”) in Jackson Hole, Wyoming by the end of the year as her permanent
retirement residence. Dude Ranch is currently owned by Ms. O’Shaughnessy’s personal LLC (of
which Ms. O’Shaughnessy is the sole member and which for federal tax purposes is classified, by
default, as a disregarded entity). Ms. O’Shaughnessy organized the LLC (under Wyoming law) to
own and operate Dude Ranch while benefitting from limited legal liability since Dude Ranch is
open to paying guests. Ms. O’Shaughnessy was widowed over fifteen years ago, so she also wants
to make sure that her three children, all from different international marriages, reap the benefits of
her hard work over the decades. Those children include:
• Elsa O’Shaughnessy, her first child, born in the United States, in the state of
Minnesota, where she currently resides with her spouse and children.
• Laszlo O’Shaughnessy, her second child, born and currently resides in Budapest,
Hungary with his paternal family.
• Lars O’Shaughnessy, her third child, born in Ghent, Belgium, but is a permanent
resident of the United States, living and working in New York City.
Ms. O’Shaughnessy wants to pass on her legacy to her children. She has a plan for how to do that
but is unsure of the tax implications of this proposed plan. Ideally, Ms. O’Shaughnessy would like
to manage tax burdens or cumbersome filing obligations, so she has asked us to evaluate her
proposed actions and explain any tax implications arising from those actions, as well as answer
specific questions she has about certain actions. Ms. O’Shaughnessy has also indicated that she is
open to alternate courses of action that will achieve the same goals while managing tax burdens or
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reporting obligations. With that in mind, please consider the tax implications of the specific actions
Ms. O’Shaughnessy is proposing:
1. Opening three bank accounts in Luxembourg, one for each of her three children.
a. Discuss any impact of each child owning a foreign bank account, including any
potential US federal income tax implications (e.g., interest earned on amounts held
in the Luxembourg accounts) and potential consequences should any of the children
fail to timely report his or her account.
Please consider relevant concepts such as: Report of Foreign Bank and
Financial Accounts (FBAR); and Specified Foreign Financial Asset disclosure.
2. Filing an election to classify her personal LLC as a corporation for federal tax purposes
and then selling the entity to her children.
a. Ms. O’Shaughnessy asked us to (i) advise whether the LLC is an entity that is
eligible for a change in classification, and (ii) explain the potential tax
consequences of the change in classification from a disregarded entity to an
association.
Please consider relevant concepts such as: Check the Box Regulations under IRC
§7701 (including Treas. Reg. §301.7701-3(g) and IRC §351).
b. Ms. O’Shaughnessy knows that Laszlo is not interested in personally owning and
operating the Dude Ranch. Rather, she expects Laszlo will sell his interest in the
ranch in a few years. Assume for purposes of this question that the Dude Ranch is
owned by a corporation the sole shareholder of which is Ms. O’Shaughnessy and
that Dude Ranch is the corporation’s only asset. Are there additional tax
consequences from Laszlo’s sale in a few years?
Please consider any relevant concepts such as: the Foreign Investment in U.S.
Real Property Tax Act (FIRPTA), US Real Property Interests (USRPI), US
Real Property Holding Corporations (USRPHC), IRC §897(a).
3. Gifting shares in Zinc Power during her life to her children.
a. Ms. O’Shaughnessy is open to (i) a one-time transfer or recurring transfers, and (ii)
the timing for those transfers. Ms. O’Shaughnessy knows that longevity does not
run in her family and that she wants to enjoy his retirement with the years she has
left. She is also concerned about incurring wealth transfer taxes, such as estate tax,
when she dies.
Please consider relevant concepts such as gift tax, basis of the gifted shares in
the hands of the grantees, incomplete or completed gifts, estate tax, and whether
gifting shares would reduce Ms. O’Shaughnessy’s estate.
Do not consider state tax or the effect of sunsetting legislation, such as the Tax Cuts and Jobs
Act (TCJA) of 2017 with provisions expected to expire at the end of 2025.
I have several time-intensive matters coming up over the next couple of months, including a very
rewarding pro bono matter before the Tax Court. Therefore, I will not be available to answer any
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substantive questions you may have. If there is additional information you need, specify what
information is needed in the memorandum and the client letter.
That reminds me, address the issues above in a memorandum to me that does not exceed 10 pages.
Also, please draft a letter, not to exceed 5 pages, to Ms. O’Shaughnessy addressing the issues
above. Ms. O’Shaughnessy is very savvy but does not understand United States tax concepts very
well, so draft her letter accordingly. Also, because of my schedule, I will only have one day to
review your memorandum so please have both the memorandum and client letter to me on or
before November 1, 2023.
Best,
Senior Partner
