Sec. 2032(d) (2) time limit for electing AVD.

• Author: Koppel, Michael D.
• Position: Alternate valuation date for valuing decedent's property, IRC section 2032

In Est. of Eddy, 115 TC No. 10, the Tax Court ruled that an executor could not elect the alternate valuation date (AVD) for valuing a decedent's property, because the estate tax return was not filed within 27 months after the decedent's death. The estate was required to use the date-of-death (DOD) value, resulting in over $370,000 in additional estate tax. For decedents whose estates include significant investments in stocks or bonds, the AVD has become increasingly important (due to volatile stock and bond markets).

Sec. 2031 requires that the DOD be used to value property. However, Sec. 2032 allows the executor to elect to value all of the property as of six months after the DOD (the AVD), if such election decreases the gross estate and the sum of the estate and the generation-skipping transfer (GST) taxes after credits. If the AVD is elected, any property disposed of within six months after the decedent's death is valued on the disposal date. Sec. 2032(d)(2) specifies that the AVD election may not be made if the estate tax return "is filed more than 1 year after the time prescribed by law (including extensions) for filing such return." The election is made on the return and, once made, is irrevocable.

Whether or not the AVD is elected, Sec. 6075(a) requires the estate tax return to be filed within nine months after the DOD. Under Sec. 6081(a), the IRS may grant an extension that does not exceed six months, unless the executor is abroad. (For a discussion of proposed regulations on this issue, see NewsNotes, "Estate Tax Automatic Extension," p. 833, this issue.) Therefore, the return is due, even with a six-month extension, no later than 15 months after the decedent's death. Thus, because Sec. 2032(d)(2) requires the AVD election to be made within one year after the extended due date, the AVD must be elected within 27 months after the decedent's death if the executor has obtained a six-month extension under Sec. 6081(a).

Edward Eddy died on April 13, 1993. Over 90% of his gross estate consisted of Browning-Ferris stock, which is publicly traded. Because Eddy's shares constituted 1.4% of Browning-Ferris' outstanding stock, the executor hired a brokerage firm to determine the blockage discount, which did not complete this task by the estate tax return's extended due date of July 13, 1994. The executor then hired another firm, which determined that a discount of 75 cents per share (or $178,014) should apply on the AVD. The new firm completed...