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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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Tax Court Splits on FLP Discounts

June 2009 | Issue 40

The Tax Court determined that FLP valuation discounts would be permitted for initial contributions, but would be denied for deathbed additions, in the case of Miller v. Commissioner; T. C. Memo. 209-119; No. 5207-07 (May 27, 2009).

Formation of the Partnership – 2002 Contribution
Decedent Valeria Miller was a widow and a resident of Indiana. On November 21, 2001, on the advice of her estate planning advisor, she formed a family limited partnership, the V/V Miller Family Limited Partnership (MFLP). She was 86 years old at the time. On March 28, 2002, the partnership issued 1,000 units. Each of decedent’s four children received 20 units as gifts. The remaining 920 units remained with the Decedent. In May of 2002, she funded the partnership with about 77% of her estate.

The MFLP agreement provided in part, “that the purpose of MFLP shall be to buy, sell and trade in securities of any nature.” The MFLP agreement also included a right of first refusal should a limited partner wish to dispose of his or her interest in MFLP and a clause requiring the partners to submit any dispute among themselves to arbitration.

One of Ms. Miller’s sons, Virgil, managed MFLP’s assets, spending about 40 hours a week on the task. He used a stock charting method that he had learned from his father.

2003 Contribution
In May of 2003, Mrs. Miller was recovering from a broken hip, and was suffering from congestive heart failure. Just prior to her death on May 28, 2003, she transferred most of her remaining securities to MFLP.

The estate, in its Form 706, claimed 35% discounts for lack of marketability on the MFLP contributions of May 2002 and May 2003. The IRS claimed that the MFLP discounts were not valid under Sec. 2036.

The Court’s Ruling
The court ruled that the 2002 transfers to MFLP were a valid exercise in effectuating and continuing the investment philosophy of Mr. Miller. Furthermore, at the time of the 2002 transfer, Mrs. Miller retained over $1 million in securities outside of MFLP, enough to provide for her other needs.

The court concluded, however, that the 2003 contributions were deathbed additions with “no significant nontax purpose.” Therefore no discount was allowed on the 2003 contributions.

This case affirms the continuing availability of FLP discounts for partnerships that observe the appropriate niceties of formation and operation.