Category Archives: Estate and Gift Tax Valuation

SRR’s Estate and Gift Tax Valuation Blog provides updates on current hot topics in the areas of trust and estate planning, economic damages, and other valuation related topics.

A person is completing the tax form with a pen.

The Forecast for Valuations in the Aftermath of the 2704 Hearing and the Election of Donald Trump

Since the release of the proposed changes to Internal Revenue Code Section 2704 (REG-163113-02) on August 2, 2016 (the proposed regs) and until the election of Donald J. Trump on November 8, 2016, wealthy taxpayers, family businesses, estate planners and business appraisers thought and talked about little else other than the possible valuation ramifications of these changes to the regulations.

Read more…

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Cecil v. Commissioner – The Hope for S Corp Valuation Clarity

The pending U.S. Tax Court decision in Cecil[1] may discredit the current IRS view that it is improper to “tax affect” the operating earnings of pass-through entities when using the Discounted Cash Flow (“DCF”) method.  In Cecil, the subject S corporation is an 83-year-old family business, the Biltmore Company, which operates the Biltmore Estate in Ashville, North Carolina.

All valuation experts in the Cecil matter, including the IRS expert, have tax affected the earnings of the Biltmore Company when using the DCF method to derive value.  In addition, valuation experts for both the taxpayer and IRS have used the Van Vleet Model to address the valuation-related tax differences between C corporations, S corporations, and their respective shareholders. Read more…

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Implications of Proposed Section 2704 – Taxation Based on Theoretical Value vs. Actual Value

The Proposed Regs value equity interests (“stock”) held by a member of a family control group as if the stock could be sold back (redeemed) by the company at any time at pro-rata Enterprise Value. In other words, a shareholder’s pro-rata value of the entire business, less debt, but without any normally applicable discounts for minority interest or lack of marketability. Not only do the Proposed Regs overvalue the stock, the cash-out redemption feature is an impossibility even in theory. Read more…

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Giustina II: The Speculation, Liquidation and Diversification Determination

On June 13, 2016, the U.S. Tax Court rendered its opinion relating to the fair market value of a 41.128 percent limited partnership interest in Giustina Land & Timber Co. Limited Partnership (“Giustina”) held by the estate of Natale B. Giustina at August 13, 2005.[1],[2]  The company owned and operated 47,939 acres of timberland near Eugene, Oregon. The timberland was valued at about $143 million, after a 40 percent “absorption” discount for the time delay in selling the acreage. The normalized net income of Giustina at the date of death was $6,120,000. Read more…

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Prince’s death: How will his intellectual property and estate be handled?

The musical artist Prince died on April 21, apparently without a will in place. If this turns out to be true, the handling of his estate, including its valuation, will be administered by a Minnesota probate court. Minnesota statutes and federal tax code will dictate who gets what and at what cost. Prince’s estate will have to foot a potentially huge tax bill. An article in Billboard cited a conservative estimate of the value of estate’s assets at $250 million. Read more…

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Section 6035: Good news for appraisers?

Congress recently enacted IRC Section 6035. The purpose of 6035 is to have a consistent cost reporting basis so that income would not be understated by overstating the basis of an asset. In summary, the bill provides that for any federal estate tax return required to be filed, the executor or trustee must provide a statement to the Service, and to ALL persons ‘who hold a legal or beneficial interest in the property to which such return relates,” a statement identifying the value of each interest in such property as reported on the Form 706. Read more…

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Tax Court Experience of Current Members of SRR’s Private Client Services Group

The SRR Private Client Service Group has a long and rich history when it comes to the public trial of tax controversies. In this regard, most often these matters are tried in U.S. Tax Court but other venues for resolving these disputes include U.S. Federal Districts courts, U.S. Court of Claims and even the U.S. Bankruptcy courts. In addition, these matters, once tried, may find their way to one of the U.S. Circuit Court of Appeals. The current SRR team has experience in all of these courts. Read more…

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Valuation of the Net, Net Gift in Steinberg v. Commissioner

On April 17, 2007, Ms. Jean Steinberg, 89 years old, entered into a binding gift agreement (net gift agreement) with her daughters (the “donees”). In the net gift agreement she agreed to make gifts of properties to her daughters. In exchange, her daughters agreed to assume and to pay any Federal gift tax liability imposed as a result of the gifts. The daughters also agreed to assume and to pay any Federal or State estate tax liability imposed under section 2035(b) as a result of the gifts in the event that Ms. Steinberg passed away within three years of the gifts. The gift is described as a “net, net gift” because the donees agreed to pay both the resulting gift tax and any section 2035(b) estate tax.[1] Read more…

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Estate of William M. Davidson v. Commissioner, T.C. Docket No. 13748-13 (filed June 14, 2013, stipulated decision entered July 6, 2015)

Estate planners and valuation analysts were eagerly awaiting a Tax Court decision in Estate of Davidson v. Commissioner for guidance with respect to valuing self-canceling installment notes (SCINs) in this well publicized case. Instead, a stipulated decision was entered in Tax Court indicating the taxpayer and the IRS had reached a settlement agreement providing for a total deficiency in estate, gift, and generation-skipping taxes of approximately $388 million. The IRS originally asserted a deficiency of approximately $2.8 billion. Unfortunately, we are not able to determine how the valuation issues were resolved. Read more…