Taxation & Estate Planning

UNLESS YOU ARE IN THE 11TH OR 5TH CIRCUIT PLAN ON LITIGATING WHETHER AND HOW MUCH TO TAKE INTO ACCOUNT FOR CORPORATION'S BUILT-IN CAPITAL GAINS TAX LIABILITY FOR ESTATE TAX VALUATION PURPOSES.

By Fox Rothschild

Estate of Jelke III v. Comm'r 2007 WL 3378539 (11th Cir. 2007) involves the proper valuation for estate tax purposes of a 6.44% stock interest, or 3,000 shares, owned by the decedent, Jelke, in a closely-held, investment holding company, owning appreciated, marketable securities. In a case of first impression in the Eleventh Circuit (11th Cir. agreed with the 2002 5th Cir. case Estate of Dunn, 301 F. 3d 339 (5th Cir. 2002) the court vacated the Tax Court’s valuation for estate tax purposes, holding that the Tax Court used an inappropriate valuation method, and remanded with instructions that the Tax Court recalculate the net asset value of the company using a dollar-for-dollar reduction of the entire potential $51 million in built-in capital gains tax liability, under the assumption that the company was liquidated on the date of death and all assets sold. The Court reached this conclusion on the theory that a willing buyer would have insisted on reducing the closely held company value to reflect that built-in capital gains tax liability.

Full post as published by Tax Litigation Blog on December 27, 2007 (boomark / email).