Tax Court revaluation means big-time savings for taxpayer

In an estate tax dispute that has lasted for over five years, the Tax Court recently revalued the decedent’s minority interest in an Oregon family business by order of the 9th Circuit Court of Appeals. The recalculation proved a boon to the taxpayer.

The flashpoint between the IRS and the taxpayer was the decedent's limited partner interest in a timber company that owned many acres of land. When the decedent died, the business had been in operation for 15 years.

The Tax Court initially used two methods to value the LP interest: the discounted cash flow (DCF) approach and the net asset value (NAV) approach. It gave a 75% weighting to the DCF-derived value and a 25% weighting to the NAV-derived value. The different weight represented the probability that the business would either continue or that the partnership would be dissolved and the assets would be liquidated. 

The Tax Court's valuation triggered a scolding from the 9th Circuit Court of Appeals, which said the Tax Court had created "imaginary scenarios" when it allowed for the possibility that a hypothetical buyer of the decedent's interest could somehow affect a dissolution of this family business.

The Court of Appeals remanded with an express order that the Tax Court “recalculate the value of the Estate based on the partnership’s value as a going concern.” 

Find out more about the case here.