blogger visitor

Saturday, July 26, 2008


Since U.S. transfer taxes (estate and gift taxes) are calculated on the value of the property transferred, taxpayers seek low values while the IRS seeks high values. When the asset in question is an interest in a business entity (e.g., stock in a corporation), valuation experts recognize that the stock of an entity may be worth less than the value of the assets owned. Valuation adjustments (commonly referred to as "discounts") are typically applied for lack of control, and for lack of marketability.
Sometimes the interests of the taxpayer and the IRS are reversed - the IRS seeks a low value for an asset and the taxpayer seeks a high value. For example, a taxpayer seeks a high value for shares of stock when they are being contributed to charity, so as to maximize his or her charitable income tax deduction. Here, the IRS has to be mindful since the arguments it makes for a low value may be used against it in a later transfer tax case when it is seeking a high value for the same type of asset.
In a recent case, the IRS did not seem too concerned about that, when it argued for (and indeed prevailed in court) for a 35% lack of control discount and a 45% lack of marketabilty discount relating to shares of stock in a corporation. If a taxpayer sought those levels of discount in a transfer tax case, the IRS would clearly have vigorously objected. But here, such levels were acceptable since it the IRS was looking to reduce value.
It is only a matter of time before taxpayers try and use these discount levels in transfer tax cases. Will what was good for the goose, also be good for the gander?
Bradley J. Bergquist, et al. v. Commissioner, 131 T.C. No. 2 (2008).

No comments: