The Internal Revenue Service has formally rejected the Tax Court’s holdings in Kohler v. Comm’r, T.C. Memo. 2006-152 (see BVWire™ #58-3, in which the IRS calls the case a “learning experience”). “The Commissioner does NOT ACQUIESCE in the [Kohler] decision,” according to the Action on Decision published in the Internal Revenue Bulletin last week (2008-9, March 3, 2008) (emphasis in original). “An Action on Decision will be issued at the discretion of the Service only in unappealed issues decided adverse to the government.” A brief footnote provides the only elaboration:
Nonacquiescence relating to whether I.R.C. section 2032 allows a discount for transfer restrictions and a purchase option imposed on closely-held corporate stock pursuant to a post-death tax-free reorganization in determining the fair market value of the decedent’s stock on the alternate valuation date.
Section 2032 generally permits an estate to elect an alternate valuation date, six months after the date of a decedent’s death. If the overall value of the estate has decreased during that time, the estate can reduce its tax burden. The purpose “is to provide relief…when the MARKET causes a substantial diminution in value of an estate asset,” tax attorney Charles Rubin explains in his March 5th blog. In Kohler, the change in value resulted when the company restricted the stock during the six month period. “While the position of the IRS sounds reasonable,” Rubin says, “one has to wonder…how many cases will be litigated over the question whether a change in value is due to…market conditions vs. a voluntary act?” Indeed—we asked attorney and frequent BV analyst John Porter (Baker Botts) to comment, but he’s currently involved in several similar matters, and is not at liberty to discuss. To access the Action on Decision, on page 4 of the I.R. Bulletin, click here.
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