Grabowski analyzes COLI valuation issue SCOTUS will decide

BVWireIssue #255-3
December 20, 2023

estate and gift taxation
estate and gift tax, estate & gift, fair market value (FMV), insurance

The U.S. Supreme Court has agreed to hear a case involving a valuation issue in order to resolve a circuit split. The issue is this: How should corporate-owned life insurance (COLI) designed to fund the redemption of a deceased shareholder’s stock impact the fair market value of the subject company and the value of the decedent’s gross estate?

Circuit split: In the Connelly case, the IRS argued that the insurance proceeds should be included for purposes of valuing the corporation for estate tax purposes. On appeal, the U.S. Court of Appeals for the 8th Circuit sided with the IRS, creating a split with the 11th Circuit, which, in the 2004 Blount case, ruled that it should not be included.

The petitioner in Connelly petitioned SCOTUS to resolve the differences between the opinions of the two circuits. There was also a brief in opposition the government filed as well as a reply brief by the petitioner. On December 13, SCOTUS granted the petition and will hear the case.

Flawed logic: In a new paper, Roger Grabowski (Kroll) does a detailed analysis of the Blount and Connelly cases as well as the petition to SCOTUS. His view is that the 8th Circuit has used flawed reasoning, and he gives an example of the implications of the court’s faulty logic. The paper will appear in the January 2024 issue of Business Valuation Update.

The Blount and Connelly cases are on the BVLaw platform. The SCOTUS petition and replies are available if you click here.

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