Business Valuation Services

Expert Witnesses

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.

The Effect
This decision is a win for taxpayers, and should provide certainty to tax practitioners and appraisers alike. The decision derives from a simple yet logical analysis of the tax valuation issues involved.

More to Come
We want to get this information out to you quickly. We’ll follow up with a more detailed analysis soon. Meanwhile, have a nice Thanksgiving.

The material presented in the Hempstead E-Letter should not be construed as definitive legal, accounting, financial, or business advice nor should it be acted upon without consultation with legal or other professional counsel.