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Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

Future Expected Investment Strategy Determines Value of FLP Interest

January 2016 | Issue 83 The estate of Helen P. Richmond held a 23.44% interest in Pearson Holding Co. (“PHC”), a family investment company.  The estate valued this holding at $3,150,000, later adjusted to $5,046,000.  The IRS valued it at $7,330,000.  This difference of opinion was aired in US Tax Court in a case called Estate […] More...

Do Attached Strings Affect the Value of a Gift?

October 2015 | Issue 82 Steinberg v. Commissioner, 145 T.C. No. 7 (Sept. 16, 2015) explores how a contingent liability accepted by a donee can impact the value of a gift for gift tax purposes. Introduction In 2007, Petitioner Jean Steinberg, age 89, entered into a net gift agreement under which she gave her four […] More...

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House Proposal Could Spell the End of Minority Valuation Discounts

January 2009 | Issue 32

Congressman Earl Pomeroy has introduced a bill (H. R. 436; “Certain Estate Tax Relief Act of 2000“) which, among other things, seeks to impose new valuation rules for transfers of certain kinds of assets. The main thrust of the bill, which was introduced January 9, 2009, is to fix the federal estate tax exemption at $3,500,000, and set the tax rate for estates exceeding that amount at 45%. The bill also seeks to repeal the new carryover basis rules.

The Discount Situation Now
Under current law, when an individual transfers a partnership interest, by gift or at death, the interest is valued at fair market value. Since such interests can have limited marketability, and often do not confer control of the partnership to their holder, business appraisers will apply valuation discounts to the value of the assets held by the partnership. For example, if a taxpayer transfers a 10% interest in a partnership that owns non-business property worth $1 million, the 10% interest would be valued not at $100,000, but at some lesser discounted value.

The New Proposal

If H. R. 436 becomes law, appraisers would no longer be allowed to apply valuation discounts to “non-business” assets held by partnerships. The value would be determined as if the transferor had transferred the assets directly to the transferee. In the example above, the interest would be valued at $100,000.

The Return of Family Attribution
An additional provision of the new bill seeks to eliminate minority discounts in valuations of companies where the transferee does not control the entity, but the transferee’s family does. In other words, a father who owns 100% of a company would no longer be able to avail himself of a minority discount by giving, say, a one third interest to a child

If passed, the provisions of this bill would apply to transfers taking place after the date of enactment. This suggests that there might still be some time left to take advantage of the valuation discounts that are still available.