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Tuesday, October 09, 2007


A decedent died owning a 50% joint ownership interest in art. On his estate tax return, a very substantial discount in the value of the joint interest was taken to account for the joint ownership nature of ownership. After several procedural gyrations, the discount for joint ownership issue came before the federal District Court. The IRS argued for a 0% discount due to joint ownership - the estate argued for a 44% discount.

The Court ruling allowed only for a 5% discount. This does seem to be a little on the low side, since if a joint owner wanted to cash out his or her joint interest, the probable method would be to have the entire item sold at auction. An auction is always open to the lack of a reasonable amount of bidding risk and the possible "steal" of the artwork for a low price. Would someone purchasing a joint ownership interest (that is, in trying to apply the willing buyer/willing seller standard for estate tax valuation) discount the purchase price only 5% for this risk of loss?

Stone v. U.S., 100 AFTR 2d 2007-5512 (DC N.D Cal. 2007)

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