Under Code Section 2032, an estate can elect to value its assets for estate tax purposes on a date that is six months after the death of the decedent, instead of on the date of death. Thus, an estate can reduce its estate taxes if the overall value of those assets has declined in that six month period. In 2006, the Tax Court held that post-death changes in the character of stock owned by a decedent pursuant to a tax-free reorganization would be allowed to affect the alternative valuation date value of the stock for estate tax purposes. Herbert V. Kohler, Jr., et al., TC Memo 2006-152.
The IRS, in a direct attack on the Kohler decision, has announced that it will soon be issuing regulations that will limit Section 2032 value adjustments to those that occur to changes in market conditions. Thus, voluntary actions by interested persons that affect post-death value will not allow for the use of alternatve valuation. The regulations will define “market conditions” as events outside of the control of the decedent (or the decedent's executor or trustee) or other person whose property is being valued that affect the fair market value of the property being valued.
Preamble to Proposed Regulations 04/24/2008; Proposed Regulations Section 20.2032-1
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