The Tax Court has ruled favorably concerning a valuation formula that ultimately produced a higher gift-tax charitable deduction than was originally calculated and reported. As part of her estate planning, the taxpayer created an irrevocable life insurance trust, a charitable remainder unitrust, two defective grantor trusts and a limited liability corporation. She contributed a substantial amount of stock to the LLC. Membership units of the LLC were in part gifted and in part sold in exchange for promissory notes. The relevant formula clause that determined whether units were being gifted or sold was designed to minimize the taxpayer’s exposure to federal gift tax. The IRS argued that formula clauses like the one the taxpayer used are void as against public policy. But the Tax Court disagreed, finding the taxpayer’s formula clause to be permissible (Estate of Anne Y. Petter, TC Memo. 2009-280).

This newsletter is provided by Somerset for our clients and other interested persons upon request. Since technical information is presented in generalized fashion, no final conclusion on these topics should be made without further review. For additional information on the issues discussed, please contact Steve Riddle, Tom Thieme, Rex Collins, Ken Stalcup or Doug Ayres of our Litigation, Valuation & Forensic Team. This document is not intended or written to be used, and cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer.

Somerset CPAs, P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
info@somersetcpas.com

Print This Article