Submitted by: Kevin Gilboy
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In Estate of McFarland v. Commissioner, T.C. Memo. 1996-424 Tax Ct. Dkt. No. 23704-95, 96 TNT 185-9, the Tax Court denied the estate's motion for partial summary judgement, rejecting the estate's assertion that the Court must use a going concern methodology to value the estate's 20% interest in a partnership. The partnership had substantial real estate holdings and other assets. The IRS had valued the partnership's real estate based on comparable sales of real estate and adding to that value the estate's reported value of the other partnership assets. The IRS then valued the decedent's 20% interest by taking 20% of the value of the whole and applying a 10% minority discount and a 15% lack of marketability discount. The estate moved for partial summary judgment on the grounds that the IRS erred as a matter of law in valuing the real estate on other than a going concern approach.
The Court viewed the appropriate valuation method to be a question of fact. The Court distinguished Estate of Watts v. Commissioner, 823 F.2d 483, 486 (11th Cir. 1987), affg. T.C. Memo. 1985-595, in which the Court used a going concern method, on the grounds that the instant partnership agreement (on the facts of record) did not clearly require continuation of the partnership.