Elaine Hightower Gagliardi on Proving Estate and Gift Tax Value: Evolving Lessons from Recent Cases
Source Publication Abbreviation
Lexis Fed. Tax J. Q., Sept, 2015 at ch. 2.
The term, “fair market value,” proves one of the most litigated in the Federal estate and gift tax code. Value lies in the eyes of the appraiser, often resulting in wide disparities between the Service’s and taxpayer’s appraised values.2 The underlying assumptions, and at times the legal principles, on which an appraisal rests can vary greatly based on the particular asset and the appraisal method. The Tax Court claims wide latitude in deciding an asset’s value, reserving the right to draw from each appraisal submitted as it deems appropriate to arrive at ultimate value based on a preponderance of the evidence. This article addresses the evolving trends in proving value as indicated by recent case law.
The positions of the Service and the taxpayer with respect to valuation depend in large part on the issue litigated. In the estate planning context the parties preferences as to value depend on whether the taxpayer’s assets can be fully sheltered by the applicable exclusion amount. In a taxable estate, the taxpayer typically prefers a lower value in order to minimize estate tax payable; whereas, in a non-taxable estate, the taxpayer may prefer a higher value, especially with respect to depreciable assets, in order to obtain an increased basis. In each case the Commissioner likely will take the opposite position. The consistent tension between the Service and taxpayer as to valuation yields numerous cases each year. The recent cases discussed in this article involve taxable estates or gifts where the Commissioner’s appraisal yields a higher asserted value than that of the taxpayer’s appraisal.
The determination of value can have a substantial impact on the amount of tax ultimately paid and whether the court may assess a penalty for undervaluation. Analysis of recent cases provides a better understanding of trends in proving valuation. Following in Part II, the article examines how the burden of proof, and the potential for shifting that burden to the Commissioner, often has little or no impact on the Tax Court’s ultimate determination of value. Part III focuses on trends in application of the willing buyer – willing seller test, specifically adjustments for personal goodwill, fractional interests and built-in capital gains. Part IV concludes that the common thread to prevailing in a valuation case is the importance of providing a strong factual basis for each key assumption underlying the ultimate determination of value. The cases reveal that, in general, it is only when one party provides no evidence of value does the court adopt in full the appraisal.
submitted by the opposing party, otherwise application of the preponderance of evidence standard in valuation cases leads to the Tax Court picking and choosing among various assumptions to arrive at a compromise value. The tendency of the court to pick and choose among assumptions and theories of the different appraisals encourages both parties to litigate.
Gagliardi, Elaine H., "Elaine Hightower Gagliardi on Proving Estate and Gift Tax Value: Evolving Lessons from Recent Cases" (2015). Faculty Journal Articles & Other Writings. 147.
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