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Built-in corporate tax liability reduces taxable estate

Article Abstract:

The Tax Court went against its policy of not allowing the discount of the estate tax value of closely held stock for the corporate tax liability that would be due if corporate assets were sold. The court has indicated in a number of memorandum decisions that a valuation discount is not proper for transfer tax purposes when there is no expected liquidation of the entity. However, it allowed a tax discount in situations where an impending asset sale would result in a tax liability. The court approved a discount in the case 'Estate of Davis' for the inherent tax liability linked to holding appreciated assets in corporate form even though the discount was recognized as a component of a lack-of-marketability discount. A tax discount was allowed as part of a marketability discount despite the lack of any foreseeable plan of liquidation. The Second Circuit arrived at a similar verdict in the 'Eisenberg' case.

Estate tax, Estate taxes, Liquidation

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Vague notations not proper payment designations

Article Abstract:

The Court of Federal Claims in one case ruled that vague notations written on checks were not sufficient to designate tax payments to specific employment quarters. Thus, the taxpayer was held personally liable under the provisions of IRS section 6672. In this case the taxpayer was the owner/president of a firm which ceased operations in Nov 1992. The business was delinquent in making employment tax payments for 1st and 2nd qtr 1990, 2nd, 3rd and 4th qtr 1991 and 1st, 2nd and 3rd qtr 1992. The taxpayer issued checks to the IRS on Nov 12, 1992, and Jan 8, 1993, with vague notations that the court found did not constitute written instructions for how the payments were to be applied that are required by law for voluntary payments. Thus, the court ruled that the IRS was correct in allocating the payments in its own best interest.

Tax Law, Public Finance Activities, United States. Court of Federal Claims, United States. Internal Revenue Service

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Factual evidence was substantial authority

Article Abstract:

The Sixth Circuit held that the transfer of a taxpayer's appreciated property to his wholly owned corporation that had net operating losses (NOLs) was not recognized for tax purposes. This meant that the taxpayer was not allowed to offset gain from the sale of the aforementioned asset against the NOLs. However, the court recognized factual evidence as substantial authority for the avoidance of the penalty. It found that the transfer of horses owned by the taxpayer to his corporation was made for a valid, nontax business purpose. Therefore, the corporation was considered the seller and its NOL could be employed as shelter for any gains from the sale. An exception to the imposition of penalty was thus allowed.

Business purpose doctrine

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