Notes From the Chair
By Maurice D. Holloway
Nelson, Mullins, Riley & Scarborough, LLP
Charlotte, NC

The Tax Law Section is pleased to announce that the Section will partner with the Real Estate Practices Section at the 2008 Bar Convention scheduled for January 24-27 at the Charleston Place Hotel in Charleston. The seminar is scheduled on Saturday, January 26, 1–4:15 p.m. For additional information, click here. In addition, the Sections plan to invite the Probate, Estate Planning & Trust Section for a reception scheduled for Saturday, 5:15-7 p.m. tentatively at the Market Pavilion Hotel. Additional information is forthcoming.

For additional information on the Tax Law Section, please log onto the Section Web site.

We look forward to seeing you in January!

Legislative highlites

2207-2008 Section Goals

2006-2007 Tax Law Section Council

Articles needed

South Carolina Department of Mental Health v. Henry Dargan McMaster, Attorney General of South Carolina, 372 S.C. 175, 642 S.E.2d 552 (2007).

By Shawn M. Flanagan
Buist Moore Smythe McGee, PA, Charleston

The South Carolina Supreme Court in this case cited Scott on Trusts (2nd Edition 1956) and Restatement of the Law Second—Trusts (“Trusts Second”) for the definition of a charitable trust and applied the doctrine of equitable deviation. Facts: The Department of Mental Health (“DMH”) owned 185.6 acres in Columbia known as the “Bull Street Property.” The property was acquired in a series of transactions occurring between the 1820s and 1905.  The Bull Street Property was to be sold for development.  The General Assembly passed an Act in 2005 providing that upon the sale of surplus land owned by the state, 50% of the proceeds would be retained by the Budget and Control Board for use in the deferred maintenance of state owned buildings, with the remaining 50% of the net proceeds being returned to the agency that owned or used the land.  The Attorney General opined stating that a “court would most likely conclude that the Department of Mental Health … is a ‘public charity’ and that the Bull Street Property is thus impressed with a charitable trust.”  First Holding: The Supreme Court agreed with the Attorney General that the property was subject to a charitable trust.  The Court cited three South Carolina cases decided in 1922, 1938 and 1956 as precedent for its finding that a charitable trust exists.  The Court cited cases from five other states for the proposition that properties conveyed to a public charity are also impressed with a charitable trust.  Note: The Supreme Court in the Department of Mental Health case made no reference to S.C. Code Ann. §62-7-405 (Charitable purposes; enforcement), which became law on January 1, 2006.  The Supreme Court also made no reference to Restatement of the Law Third—Trusts (2003) (“Trusts Third”).  See Restatement (3rd) Trusts §28 for possible application in this case.  How much significance (if any) should be placed on the Court’s reliance on Trusts Second?  Trusts Third was published approximately four years ago.  A Westlaw search indicates that over the past four years, the Fourth Circuit Court of Appeals, the District Court for South Carolina, the South Carolina Supreme Court and the South Carolina Court of Appeals have cited Trusts Second in eleven (11) cases.  As of August 2007, no South Carolina cases have cited to Trusts Third.  It may simply be that it takes time for cases to wind their way through the court system rather than a lack of respect for the new restatement. Second Holding:  The Court found that the doctrine of equitable deviation should be utilized to allow the Bull Street Property to be sold.  The Court held that the proceeds from any sale of the property must remain in trust for the benefit of the DMH for the care and treatment of the mentally ill.  In other words, 50% of the proceeds should not be given to the Budget and Control Board for use in the deferred maintenance of state owned buildings.

Osterneck v. Osterneck, Opinion No. 4265 (S.C. Ct. App. June 27, 2007).

The court of appeals affirmed the holding of the Master In Equity that an oral family agreement existed between the decedent’s surviving spouse and decedent’s three sons.  The facts of this case occurred prior to July 1, 1987, which is the effective date of the South Carolina Probate Code, which code generally requires family agreements to be in writing.  The following is quote from the case.  “The recognition of family agreements is favored by the courts, and the evidence in this case fully supports the making of such an agreement.” Objection was made to some of the testimony based on the hearsay rule and the deadman statute, but exceptions to both of these existed and the testimony was allowed.  In this case, the surviving spouse disclaimed her interest in a certificate of deposit (CD) owned jointly with the right of survivorship in exchange for her husband’s one-half interest in the marital home. The personal representative executed a deed of distribution to her.  An argument was made that the deed of distribution did not convey the father’s one-half interest in the marital home to the mother.  The court disagreed.

A deed of distribution from a personal representative is evidence that the distributee has succeeded to the interest of the estate.  See S.C. Code Ann. §62-3-908(Supp. 2006).  A personal representative is also authorized to make a distribution in kind pursuant to Section 62-3-907 of the South Carolina Code (Supp. 2006).

* * * * *

Myles acted within his power as executor by releasing the estate’s claim on the marital home in accordance with the family agreement through the deed of distribution.

Mid-South Mgt. Co. Inc. v. Sherwood Development Corp., --- S.E.2d ----, 2007 WL 1894209 (S.C. Ct. App. June 29, 2007)

This was a piercing the corporate veil case concerning parent-subsidiary corporations.  The S.C. Court of Appeals declined to pierce the limited liability veils of the corporations.  Spartanburg Beach Cove Associates (“Spartanburg”) and Sherwood Development Corporation formed a joint venture.  Sherwood was a wholly owned subsidiary of another corporation. Spartanburg sued Sherwood.  It appears that a regular corporation enjoys a perquisite that might have been thought reserved only for a statutory close corporation. “Although Sherwood was not a statutory close corporation, this court has recently noted that the statutory creation of such an entity, designed to lessen the formalities necessary for a corporation, has lessened the importance of some of the Sturkie factors . . .”  See footnote 4.  Corporate Formalities.  Court found that Spartanburg did not meet its burden of proving that Sherwood failed to observe corporate formalities. “The repayment of the loan to the parent corporations out of the sole distribution to Sherwood did not amount to the ‘siphoning’ of funds.”  Fundamental Unfairness. “Even assuming Sherwood failed to observe corporate formalities, Appellants failed to prove that failure to pierce the corporate veil would result in fundamental unfairness.” Sherwood repaid its loan to its parent approximately 4 years before Sherwood would have been aware of the claim against the joint venture.  Also, “Spartanburg distributed its share of the proceeds to its partners and made no attempt to establish a similar reserve that it now demands Sherwood should have done.” Alter-Ego or Instrumentality Theory.  “[T]his theory does not apply in the absence of fraud or misuse of control by the dominant entity which results in some injustice.”  The court found that the alter-ego theory was inapplicable to the present case.  Amalgamation of Interest or Blurred Identity Theory.  In Kincaid, the Court of Appeals found sibling companies jointly liable for negligent construction due to evidence “revealing an amalgamation of corporate interests, entities, and activities so as to blur the legal distinction between the corporations and their activities.”  In the Sherwood case, the Court found that “the Kincaid amalgamation of interest theory” was inapplicable. Note: The Kincaid theory was applied to a structure of brother-sister corporations. The Sherwood case involved a structure of parent-subsidiary corporations.

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Section Goals
FY2007-2008

• Sponsor a Section seminar in conjunction with the 2008 Bar Convention.
• Sponsor a reception for Section members in conjunction with the 2008 Bar Convention.
• Continue to publish a bi-annual newsletter and distribute through the Section listserv and post on the Bar Website.
• Continue to inform Section members of significant developments on local and state tax laws through the Section listserv and post on the Bar Website.
• Continue to actively promote and support the joint NC/SC Tax Law Section Workshop.

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Tax Law Section Council FY2008-09

The following nominations have been made for the Tax Law Section Council for FY2008-09. In accordance with Article IV, Section 4 of the Section bylaws,

Section 4. No later than February 15 preceding the annual meeting, not less than ten (10) members of the Section in good standing may file by registered mail with the Chairman of the Section a nominating petition, which may be in parts, duly signed, with the signatures and printed names and addresses, making nominations for one or more of the offices of Chairman Elect, Vice Chairman, Secretary and the Section Delegate to the House of Delegates, such Council members as are due to be elected. All such petitions shall be accompanied with the written consent of any person so nominated. Nominations shall be considered closed on February 16 of each year.

Officers
Chairperson                                               
James F. Reames III, Columbia

Chairperson-Elect                                   
John H. Muench, Florence                       

Vice-Chairperson                                   
George McDowell, Jr., Charleston           

Secretary                                                
Shawn Flanagan, Charleston

Section Delegate                                    
Jeff Z. Brooker, III, Columbia

Immediate Past Chairperson           
Maurice D. Holloway, Charlotte, NC
                                                           
Council Members
Robert E. August (expires 2009)          
Greenville              

Timothy C. Thompson (expires 2009)
Columbia

J. Tod Hyche (expires 2010)          
Greenville                          

Aaron Schaal (expires 2010)
Charleston
           
W. Jack Turner-Vaught (expires 2011)        
Columbia    

Anthony Rebollo (expires 2011)
Columbia                                                           

Nominating petitions must be received no later than February 16th and should be sent to Tara Smith, SC Bar, Post Office Box 608, Columbia, South Carolina 29202.  If you should have any questions, please feel free to contact me at tsmith@scbar.org or by phone (803) 799-6653, ext. 146.

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Articles needed

The Section Council would like to improve the content of its bi-annual newsletter.  If you should any suggestions and/or submissions, please forward to Tara Smith at tsmith@scbar.org.  

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