One Christmas not too many years ago, G. Wendell Smith received from his wife a small, framed caricature of a sour-faced golfer. Printed beneath the drawing were these words: "Golf is like taxes. You drive hard to get to the green and end up in the hole."

It was a lesson Smith knew all too well. Back in December 1976, Smith, a Ruskin, Fla., real estate broker, was named executor of two separate estates. One belonged to his long-time employer, Paul B. Dickman; the other to his employer's son, Lyle C. Dickman. (They had died within six months of each other.)

Although he expected to carry out his duties as executor with little or no fuss, Smith soon locked horns with the Internal Revenue Service. At issue were the no-interest loans Paul and his wife, Esther, had made to Lyle and one of the family's businesses, Artesian Farms Inc., which operated a farm, a motel, and a restaurant.

The IRS uncovered the loans during a routine audit of the estate tax uals and businesses.

Specifically, the Supreme Court ruled that interest-free loans made by parents to their children constitute "transfers of property by gift" and a-re subject to the gift tax. The taxable gift, the Court concluded, "is the reasonable value of the use otthe money lent [meaning the imputed interest] rather than the principal amount of the loan."

But the Supreme Court neglected to explain how the imputed interest is to be determined. What is more, says Peter L. Faber, a tax lawyer in New York, the Court worded its decision so that it hinted at a change in the tax treatment of nointerest and low-tnterest loans made by employers to employees.

It took Congress and the Tax Reform Act of 1984 to put the issue to rest. The law imposes gift taxes as high as 50% (depending on the size of the gift) on the imputed interest on family loans. It also levies income taxes on the imputed interest on employer-employee loans.

"In general," says Harvey Fireman, a manager in the Washington, U.L., office of Ernst & Whinney, the Big Eight accounting firm, "the act treats low-interest loans as the economic equivalent of loans on which the borrower pays a market rate of interest and the lender funds the borrower's interest payments with gifts, salary, or dividends."

The immediate loser in all this remains the Dickman family. Lyle's wife and three sons face attorneys' fees, plus a gift-tax bill that could equal more than $200,000. The exact amount will be determined at a court hearing in November. ByBruceG. Posner

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