From: Harry Beller .< To: Jeffrey Epstein <[email protected]> Cc: Rich Kahn Subject: Sales tax - defective grantor trust Date: Wed, 13 Feb 2013 15:17:54 +0000 Attachments: Sale to IDGT.docx Jeffrey Below is the opinion from Drew Benenson of Tarlow & Co. The conclusion in this memo is that an exchange of art for stock under a substitution clause in a defective grantor trust is subject to NY sales tax. Attached is the memo that I sent Drew to review suggesting some authority to avoid the sales tax. Begin forwarded message: From: Drew Benenson Date: February 12, 2013 3:39:20 PM EST To: Harry Beller >, Rich Kahn < Subject: Sales tax Harry, Below is the summary we received from the attorney. Let me know when you want to speak. Thank you. Drew The memorandum Drew Benenson asked us to review looks at two issues with regard to the sales tax consequences of a proposed transfer of art from a (defective) grantor trust to the grantor, apparently in exchange for stock of the grantor. The issues are: (1) whether a grantor trust (disregarded for federal income tax purposes) is recognized as a separate entity for sales tax purposes in a transaction with the grantor; and (2) if so, whether its existence could be disregarded instead on a common-law alter-ego theory. The memo correctly points out that there is no direct guidance on the sales tax obligations of grantor trusts. However, ample authority does exist with respect to other federally disregarded entities-namely, single- member LLCs (SMLLCs)-and it confirms that New York considers an entity's "disregarded" status for federal income tax purposes to be irrelevant with respect to its sales tax obligations. Numerous rulings have found SMLLCs subject to sales tax obligations, whether in transactions with third parties or with their sole member. See, e.g., Arthur Anderson, TSB-A-99(7)S, Jan. 28, 1999 (ruling that leases of tangible property between a federal disregarded SMLLC and its sole member-a C