Submitted by: Kevin Gilboy
To Comment on this development, click here and write an e-mail message.
Tax Notes reports on 7/24 a Tax Court decision, Scanlan v. Commissioner, 96 TNT 145-12, in which the court allowed a 30% discount in valuing blocks of closely held stock for a gift made 3 months before death in 1991and for the remaining stock held at death. The decedent owned 50% community interest in a block of stock with his wife (50,000 shares or 5.2% of all shares outstanding). His family owned 37.1% and two unrelated families owned 35% and 14% blocks (other shareholders held the balance).
Three months before his death, the decedent's wife gave a total of 10,667 shares to 6 family members. These shares were valued at $34.84/sh based on a 1989 appraisal by an investment banking firm. The reported date of death value was $35.20/sh. These figures were based on a 35% marketability discount of a minority shareholder value derived by comparisons with publicly traded companies.
More than a year after the decedent's death, the company solicited and received offers for its stock, the highest of which was $75.15/sh. The decedent's family then exercised a right of first refusal to have the company redeem the other shareholders at that price.
The IRS valued the stock at $72.15 per share based on this redemption price and allowed a 4% minority discount.
The court allowed the evidence of the post death offers and redemption as relevant, with the passage of time going to the weight of the evidence. The court rejected both parties' positions and applied a 30% combined minority and marketability discount to the redemption price as adjusted for the passage of time to produce a $50.51/sh value.