Samuel Black Jr. was born into poverty in 1902, began peddling bread and newspapers in his Pennsylvania hometown when he was 11; started with the Erie Indemnity Co. in 1925 when it just insured automobiles, and stayed until he was senior vice president and a director—and the company was a national, multiline insurer. Bullish on the company but a conservative “buy and hold” investor, Black bought Erie shares at every chance, until his holdings were worth nearly $80 million in 1993. Wanting to pool, protect, and preserve the family’s wealth for his son and grandsons, Black formed a family limited partnership (FLP). He contributed all his Erie stock and maintaining a 1% GP interest, disbursing LP interests among his son and grandsons’ trusts. When he died in 2001(and his wife of nearly seventy years followed in 2002), the Erie stock was worth over $318 million. The IRS challenged the FLP transfers under Sec. 2036(a), claiming its full, fair market value should be brought back into the estate for taxation.

The estate claimed only the FMV of the LP interests should be taxed—and the Tax Court agreed, finding a host of factors to support the FLP’s formation for a bona fide, business (non-tax) purpose at adequate consideration, even though the assets consisted entirely of marketable securities donated from primarily one person. As Owen Fiore observes in his newsletter, “Were the facts in Black...so good that most, if not all, of our clients will not be able to match them?”  Read our digest of Black v. Comm’r (T.C. Memo, Dec. 2010) in the next (March 2010) Business Valuation Update™. The full-text of the court’s opinion will be available soon at BVLaw™.