From: Harry Beller To: Jeffrey Epstein <[email protected]> Subject: Art Date: Tue, 19 Feb 2013 15:10:10 +0000 Jeffrey this is the opinion that I received from Drew Benenson Hany Begin forwarded message: From: Drew Benenson Date: February 18, 2013 7:10:42 PM EST To: Harry Beller Subject: Art Harry, Below is Mark's response. I do not have Jeffrey's e-mail so please forward to him. I am back in the office tomorrow and can discuss. Thank you. Drew The point is well taken this type of situation--where a settlor of a grantor trust reacquires property previously contributed to the trust--does not resemble a typical sale between a "vendor" and a buyer. However, the fact that the grantor here has broad power to reacquire the property without trustee approval doesn't change anything with respect to our analysis. The fact is that the sales tax is a form-over-substance tax, and right to disregard the separate legal existence of an entity is not one that can be invoked by the taxpayer to avoid the tax consequences of the chosen form. Without any specified exemptions for a grantor trusts or casual transactions, it would have to be presumed the proposed transaction would be deemed a non-exempt "sale" for New York Sales tax purposes. The client's point about a lack of consideration in the transaction also doesn't account for the fact that the substitution of trust property for stock of the grantor would meet the definition of a "barter" or "exchange" under the definitions of both a "sale" and "consideration". Under the sales tax statutes, all "sales" of tangible personal property are subject to tax unless specifically exempted. (Tax Law § 1105(a)). Although the client correctly notes that definition of a "sale" requires that there be consideration, the definition of both a "sale" and "consideration" include an "exchange" or "barter". (See 20 NYCRR § 532(a),(b)). The right of the settlor here to re-acquire trust property is a right of substitution,