After the Del. Radiology decision, Nancy Fannon (Fannon Valuation Group) commented that the Delaware Chancery Court finally “got” the essence of the argument that appraisers had been making for years, “that is, it’s the avoidance of the DIVIDEND TAX, not the deduction of the income tax, which is the issue.” (See BVWire™ #45-4.)
But despite the allusion to a fair market valuation of the S corporation interests, the Bernier Court emphasized the “equitable” nature of the divorce action, where one party retains and the other is entirely divested of a marital asset. In this context, “the judge must take particular care to treat the parties not as arm’s-length hypothetical buyers and sellers in a theoretical open market but as fiduciaries entitled to equitable distribution of their marital assets.” Does Bernier leave the door open to cases such as Dallas v Commissioner (2006), in which the Tax Court distinguished its holding from Del. Radiology based on the fair market value vs. fair value/appraisal context? Email your insights and expert intelligence to the editor.
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