Bogdanski's unique perspective on the Richmond decision

The Tax Court’s decision in Estate of Richmond set the appraisal community abuzz. Since then, many have commented on the two most obvious points: (1) the use of the net asset value method to determine the value of a holding company whose assets are mostly marketable securities; and (2) discounting for the built-in capital gains (BICG) tax by determining the present value of the future BICG tax liability.

But, in his recent BVR webinar, Prof. Jack Bogdanski (Lewis & Clark Law School), a long-time observer of the Tax Court, offered a unique perspective beyond the technical details. He called the decision a significant win for the IRS—if not from a numbers point of view, then from a theoretical standpoint.

For instance, even though the court agreed that a BICG liability discount was appropriate, it plainly rejected the estate’s proposed dollar-for-dollar approach, which was based on rulings in the Court of Appeals for the 5th and 11th Circuits. The Tax Court could do so, Bogdanski explains, because it is not bound by those decisions. What matters is the law of the circuit in which the executor resides. Here it was Pennsylvania, which is in the 3rd Circuit. Since the 3rd Circuit has not yet ruled on the issue, the Tax Court was free to come up with its own method. Assuming the estate will appeal—which it still has time to do—the 3rd Circuit would weigh in. But, Bogdanski stresses, don’t count on its overturning the Tax Court on this issue, particularly since the 2nd and 6th Circuits have disagreed with the 5th Circuit.

For more comments from Bogdanski, see the BVWire (free registration required).