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ESTATE OF JELKE REVERSAL IS A MAJOR WIN FOR TAXPAYERS
Background
In Estate of Jelke (T.C. Memo. 2005-131), the Tax Court circumscribed the amount that a taxpayer could deduct for built-in capital gains when valuing the stock of a C corporation which holds appreciated assets. The haircut was applied to reflect the fact that the built-in gain tax would be incurred at some date in the future, and therefore needed to be discounted to the present by an amount to reflect the time value of money.
The Appeal
Taxpayer appealed this decision to the 11th Circuit Court of Appeals, and last week, in Estate of Jelke v. Commissioner (November 15, 2007), the appeals court approved a “dollar-for-dollar” reduction for the entire built-in capital gains tax liability of a minority interest in a closely held corporation, overturning the Tax Court’s prior allowance of only a partial discount.
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