New cases may knock out IRS opposition to defined value clauses

First, the U.S. Eight Circuit Court of Appeals decided Estate of Christiansen v. Comm’r (Nov. 2009), approving a formula disclaimer of estate assets that operated much like a defined value clause. Less than three weeks later, the U.S. Tax Court decided Estate of Petter v. Comm’r (T. C. Memo, Dec. 2009), which involved a defined value clause in the gift tax arena. Judge Holmes, who authored the original Tax Court decision in Christiansen, may very well have been waiting to see how the Eight Circuit would rule before issuing his Petter opinion, according to Steve Akers (Bessemer Trust, Dallas). “These types of clauses have been used for years,” Akers says—by estate planning professionals, tax attorneys, and valuation advisors. “But we’ve been waiting for cases to address the IRS’s vehement public policy objections to the clauses.” The lengthy, well-written, and well-analyzed Petter case amounts to a “resounding rejection” of the IRS’s arguments, Akers adds, delivering a “one-two” punch to the agency’s efforts to eliminate their use in tax planning. Together, the two cases “may represent the most important estate planning development of 2009.” Aker’s complete analysis will appear in the next (Feb. 2010) Business Valuation Update.