Section 17 Fair Market Value and Discounts

• Library: Business Transitions 2009 Supp

In Estate of Mirowski v. Commissioner, T.C. Memo 2008-74 (2008), the formation, funding, and gifting occurred within only 16 days
of the decedent’s death. But the Tax Court found strong evidence that the decedent’s death was not anticipated when the limited liability company was formed or funded or when the gifts were made. A similar step-transaction, indirect gift argument has been offered by the Internal Revenue Service (IRS) in the context of valuations of gifts. In a couple of 2008 cases, this argument was rejected. In Holman v. Commissioner, 130 T.C. 170 (2008), the IRS argued that the transfer of assets to a partnership on November 2 and the subsequent gift
of limited partnership interests in the partnership on November 8 should be considered a transaction under the step-transaction doctrine resulting in an indirect gift. The Tax Court rejected this argument. But in a footnote, the Tax Court left open the possibility
of the argument succeeding under different facts. In Gross v. Commissioner, T.C. Memo 2008-221 (2008), a taxpayer formed a family limited partnership (FLP) on July 15, 1998, by filing a certificate of limited partnership. The taxpayer contributed marketable securities to the FLP in exchange for partnership interests, with all securities being transferred before December 4, 1998. On December 15, 1998, the taxpayer and her two daughters executed the partnership agreement and made gifts of FLP interests to the daughters. The IRS argued that this was a step transaction and an indirect gift of the securities because, it claimed, the FLP was not formed until the partnership agreement was signed on December 15 and it was the securities, not the FLP interests, that were...