Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Valuation (finance)’

The Perils of Not Re-Visiting a Client’s Plan—a $3MM Tax Bill

Posted by William Byrnes on March 24, 2011


In a recent case, the IRS denied an estate a fractional interest discount on the family ranch, resulting in a seven digit tax bill and the likely liquidation of the family homestead.  The father had numerous options for securing a valuation discount on, or excluding the value of, a significant tract of property from his gross estate, but hadn’t done any planning since 1965, resulting in total denial of a discount.  When he died in 2004, the property was worth $6,390,000.  Don’t let this be your client.

The dispute between the IRS and the father’s estate centered on whether the property’s value in the gross estate was: (1) the undiscounted value of a fee simple interest in the property or (2) the aggregated value of the children’s fractional interests in the property—valued separately with fractional interest discounts.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of valuation discounts in Advisor’s Journal, see IRS Rebuffed by Federal Court of Appeals in Valuation Discount Case (CC 11-21) and Valuation Discounts: Only for a Bona Fide Business (CC 10-60).

For in-depth analysis of valuation discounts, see Advisor’s Main Library: A—Family Limited Partnerships and Estate & Gift Tax Valuation Discounting.

 

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IRS Rebuffed by Federal Court of Appeals in Valuation Discount Case

Posted by William Byrnes on March 6, 2011


Valuation discounts will always be a disputed issue between taxpayers and the IRS, but as illustrated by the recently published Ninth Circuit Court of Appeals case, a properly timed gift can still qualify for a discount.  The parents contributed cash, securities, and real property to an LLC and then transferred LLC interests to a trust (“the children’s trust”) naming their children as beneficiaries.

The IRS rejected the valuation discount, claiming that the parents did not make a gift of the LLC interests to the trusts as they claimed, but instead made an indirect gift of the assets owned by the LLC.  The IRS also argued that, even if the LLC were funded prior to the gifting of the LLC interests to the children, the transaction’s two steps—transfer of assets to the LLC and the gift of the LLC interest to the children’s trust—were really a single transaction, an indirect gift of the assets, under the step transaction doctrine.   Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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