"Swing vote" attributes of transferred stock: implications for minority interest discounts.

Last year, in Letter Ruling (TAM) 9436005,(1) the IRS attributed value for transfer tax purposes to the "swing vote" characteristics of stock transferred to family members. While the Service did not specify how much value to attribute or whether such value reduced or eliminated otherwise allowable minority interest discounts (MIDs), it was the first IRS ruling directly to assign value to gifts of stock considered to have swing vote characteristics.(2)

For years, the IRS has tried to eliminate MIDs for transfers of stock in family-owned corporations; without judicial intervention, such discounts would now be completely disallowed. Despite the directive from the courts to allow discounts in such cases, the IRS has stated a desire to disallow them.(3) The use of swing vote value as described in TAM 9436005 is but one of the ways the IRS is attempting to reduce or eliminate the amount of MIDs being applied.

Given the IRS position that swing vote attributes must be taken into account when valuing minority stock interests, it is important for taxpayers and practitioners to understand how the IRS defines a swing vote attribute. This article examines TAM 9436005 and the support the IRS used in issuing its decision, reviews the history of swing vote attributes (as applied in the context of gift and estate taxation) and discusses the strengths and weaknesses of the IRS's argument to attribute value to such characteristics.

MIDs

Historically, the IRS has taken the position that family attribution should apply to transfers of minority interests when the transferee and transferor are members of a family-controlled company. In Rev. Rul. 81-253,(4) the IRS held that a MID would not be allowed for transfers of shares among family members when the family controlled the corporation at the time of the transfer, because the restrictions that generally create a MID did not apply.(5) Thus, there was no need to value characteristics such as swing vote value because, under family attribution, no discount would be allowed.

However, after repeated losses in the courts,(6) the IRS issued Rev. Rul. 93-12,(7) stating that it would follow the Fifth Circuit's decision in Est. of Bright.(8) The IRS indicated in that ruling that it would no longer attribute to an individual family member shares held by other family members in determining whether the transferred shares should be valued as part of a controlling interest. In Bright, the decedent held 27.5% (an undivided one-half interest of 55% held as community property) of the stock of several nonpublicly traded corporations. The IRS sought to value the 27.5% interest by using one-half of the value of a 55% interest, computed with a control premium. The Fifth Circuit ruled that the 27.5% interest should be valued not with a control premium, but with a MID, because the decedent's death effectively severed the stock ownership into two minority interests. Further, the court stated that family attribution rules do not apply for gift and estate tax valuation purposes.(9)

Practitioners and taxpayers heralded the arrival of Rev. Rul. 93-12, believing it represented the IRS's final acquiescence to the use of MIDs for transfers of interests in closely held, family-controlled corporations. Unfortunately, the issuance of TAM 9436005 shows that the IRS is now attempting to eliminate (or at least reduce) MIDs when the interests transferred include swing vote attributes.

TAM 9436005

In TAM 9436005, the donor, who owned all the outstanding common stock of a corporation, transferred 30% of such stock to each of his three children and 5% to his spouse. On a timely filed Federal gift tax return, the stock was valued at approximately $50 per share, representing the net asset value of the corporation less a 25% MID and LOMD.

The IRS ruled that the swing vote attributes of each block had to be considered in determining fair market value (FMV). The IRS believed the value of the stock transferred had to be increased for the value of the stockholder's ability to join with the owner of any of the other transferred blocks and control the corporation; thus, any one of the 30% blocks, whether owned by an individual related or unrelated to the family, could be critical in controlling the corporation.

The IRS also addressed whether the value of each 30% block would be different if the transfers had been made at different times (e.g., one month apart). The first 30% block transferred might have no swing vote attributes because, after the initial transfer, the donor would continue to control the corporation through his ownership of the retained 70% block. In the Service's view, only on the transfer of the second 30% would the donor lose control over the company (by reducing his owner-ship to 40%), thereby creating the potential for swing vote attributes in the block transferred.

However, the IRS ruled that even if the three transfers were made at different times, the result would ultimately be the same. Although the IRS agreed that the value of the first 30% transferred would not contain any swing vote value, the second and third transfers of 30% would. Further, the IRS stated that the value of the 30% interest held by the first transferee would increase in value, because that block would acquire enhanced voting control as a result of the second transfer, constituting an indirect gift to the first transferee at the time of the second transfer. The third 30% block transferred would also have swing vote value, both before and after the transfer.

Est. of Winkler 

The IRS's ruling in TAM 9436005, that swing vote attributes have value for transfer tax purposes, was based almost exclusively on the holding of Est. of Winkler.(10) In that case, the decedent owned through a living trust 10% of the Class A voting common stock and 1.055% of the Class B nonvoting common stock of Rock Island Refining Corp., a closely held corporation. At the time of the decedent's death, the Class A voting stock was owned equally by the Winkler and Simmons families. The living trust provided that on the decedent's death, the trustee was to distribute all shares of the Class A voting stock equally to the decedent's two daughters and son.

On a timely filed Federal estate tax return, the estate valued both the Class A voting and the Class B nonvoting stock at $22.43 per share, by applying a 45% MID and LOMD. The estate did not differentiate between the value of the voting and nonvoting stock, as it believed that neither block had an effective voice in determining company policies or in making decisions; nor did it attribute value to the swing vote characteristics of the transferred stock. The estate's appraiser considered it unlikely that the Simmons family, which owned 50% of the company, would attempt to buy the decedent's 10% interest to gain control, because no transactions had taken place between the families in 40 years and there were no indications that a transaction between the families was likely to occur in the immediate future.

The IRS's expert determined the voting stock to be worth 10% more than the nonvoting stock, because of the ability of the owner of the voting stock to vote for a board of directors who would run the company. However, that appraiser applied only a 25% MID and LOMD, because he believed that the decedent's 10% of the Class A voting stock had some swing vote characteristics and could create majority control in the hands of the Simmons family, and that the sale of the decedent's shares might cause the two families to compete for the stock, thereby increasing its sales price.

The court agreed with the IRS that the voting stock was worth more than the nonvoting stock, due to the owner's ability to vote for a board of directors. In the court's view, the ability to vote gives a shareholder a voice (albeit a small one) in deciding corporate policy, directing the payment of dividends and compelling a corporate liquidation. In addition, the 10% block of voting stock had value because it could become pivotal in a closely held corporation, in which members of one family owned 50% and members of another family held 40% (50% less the decedent's 10%). By joining with the Simmons family, a minority shareholder could effect control over the corporation, and by joining the Winkler family, a minority shareholder could block action.

The court ruled that the voting stock was worth 10% more than the nonvoting stock (before discounts) and that no MID would be allowed because of the swing vote attributes. However, the nonvoting shares were allowed a 20% MID, and both the voting and nonvoting shares were allowed a 25% LOMD.

In determining how much of a MID to apply to the nonvoting stock, the Winkler court cited a number of well-known cases(11) dealing with the issue of MIDs in a family-controlled corporation. The court noted that, according to those cases, the transfers had to be analyzed from the point of view of a hypothetical seller and buyer, rather than a particular person or family member. However, citing Andrews,(12) the court observed that the hypothetical sale should not be constructed in a vacuum, isolated from the actual facts that affect the value of the stock in the decedent's hands. Citing Luce,(13) the court found that no MID applies if there is a market for the shares (e.g., among the existing shareholders). The Winkler court concluded, without much discussion, that it did not matter whether the hypothetical buyer or seller was viewed as a member of either the Winkler or the Simmons family; the willing buyer could be an unrelated third party who would pay a premium for a 10% block of voting stock that could be pivotal between the two families. A MID would be inappropriate in valuing such swing vote stock.

Analysis of Swing Vote Value

Aside from TAM 9436005, little else has been said by either the IRS or the courts about swing vote attributes in a transfer tax context. The only other references by the IRS to such characteristics are found in Letter Rulings (TAMs) 8610011(14) and 9449001.(15) In TAM 8610011, the decedent had owned all of the voting preferred stock and one share of the common stock of a closely held corporation. The voting rights on the voting preferred expired on the decedent's death. His two sons, A and B, each owned 200 shares of the common stock. One month before the decedent's death, the corporation purchased A's 200 shares. The IRS ruled that the company's purchase of A's shares resulted in a transfer of property by the decedent, because the decedent lost the swing vote value inherent in his one share. In TAM 9449001, the value of a donor's gifts of 100% of a corporation in equal shares to his 11 children was determined by considering each gift separately. The IRS did not discuss the effect, if any, of potential swing vote value on the gifts, but noted that it must be considered in valuing a minority interest for gift tax purposes.

Aside from Winkler, the only other recent court case that discussed the value of these characteristics for transfer tax purposes was Bright, although there the Fifth Circuit refused to rule on the issue. In Bright, the IRS raised for the first time on appeal the issue of swing value. It argued that the "hypothetical buyer and seller" are both parties considered to have "reasonable knowledge of relevant facts." Therefore, both the "willing seller" and "willing buyer" would know that the block of shares being offered by the decedent would provide the margin of control for one of the other shareholders, and presumably, might negotiate a sale (at a premium) to either of these parties. The Fifth Circuit declined to review the issue, as it had been raised for the first time on appeal. The court noted only that "although this particular application of the willing buyer-seller rule has not been widely recognized, a few cases have acknowledged the relevance of such facts."(16) Apparently, the Bright court saw no need to address the swing vote issue. That responsibility has been left to practitioners, taxpayers and, undoubtedly, future courts.

* Hypothetical buyer-seller rule

Under Regs. Sec. 20.2031-1(b), the value of property to be included in a decedent's estate is its FMV at the time of the decedent's death (unless the alternate valuation method is elected under Sec. 2032). FMV is defined in that regulation as the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. Bright, which held that family attribution should not apply when valuing a decedent's stock, found that both the "willing buyer" and "willing seller" are hypothetical, and are not the estate itself or the decedent's surviving spouse. In the Fifth Circuit's view, valuation is to be made as of the moment of death and is to be measured by the interest that passes, as contrasted with the interest held by the decedent before death or the interest held by the legatee after death. Therefore, under the "hypothetical buyer-seller" rule, it is irrelevant who the real buyer and seller are.

However, as the IRS argued in Bright, the identity of the other stockholders may not be irrelevant. Although a majority of the Bright court declined to rule on this issue, five judges stated in dissent that, because a "hypothetical seller" would know that the decedent's 27.5% block would give control to either of the two shareholders, this knowledge "might" affect the FMV of the 27.5% interest. The logic, which was also the basis for the decision in Winkler, is that the hypothetical buyer would know that the other shareholders each owned minority interests and that control could be acquired through the block of stock transferred. Therefore, the other shareholders would be willing to pay a premium for the interest transferred--i.e., the existence of a "market" among the other shareholders (as opposed to the general public) might increase the value of the stock transferred.

* Existence of a ready market

Whether the existence of a market among the other shareholders increases the value of the stock transferred was the pivotal issue in the cases cited by Bright as acknowledging the relevance of the swing vote issue. In each case, whether the transferred stock had swing vote value depended on the expressed intent by the other shareholders to acquire control. When this intent was lacking, as in Chandler,(17) the transferred stock was not assigned a premium; when this intent was manifest, as in Brush,(18) a MID was disallowed. According to these decisions, the value of the shares offered for sale by a hypothetical seller differs depending on who seeks to purchase them and on whether such intent is indicated.

In support of the decision in Winkler that the existence of a ready market among the other shareholders should be considered when valuing the transferred interest, the court relied on Luce, in which the Claims Court had disallowed the taxpayer's claim for a refund of gift tax paid on the transfers of minority interests in the stock of a family-controlled corporation. The original transfers had been reported at book value. The refund claim reported the value using the capitalization-of-earnings method and a 30% MID. The court ruled that because there was a market for the minority interest among the company or persons associated with it, there was no need for a MID. As support for the existence of a "market" among the existing shareholders, the court noted the company policy that all shares remain in the ownership of (1) members of the Luce family, (2) trusts for their benefit and (3) executive employees.

Although Luce was decided after Bright and Lee,(19) the Claims Court did not refer to either of these cases; instead, it found guidance in Rothgery,(20) in which it had disagreed with an estate that a 50% interest held by the decedent should be valuded at less than book value because there was no public market for the shares and because the estate's interest was not controlling. The Rothgery court reasoned that although the decedent had bequeathed the shares, had the shares been available for sale, a sufficient market existed in the decedent's son (who owned the other 50% of the stock) to negate any need for a discount.

The Luce court's failure to address Bright and Lee, and its reliance on Rothgery, makes Luce, and the Winkler court's subsequent reliance on it, questionable. The Luce court's failure to apply the hypothetical buyer-seller rule and to allow the identity of the buyer to affect the value of the interest transferred conflicts with well-established precedent. Indeed, in Est. of Gallo,(21) the court disregarded the IRS's reliance on Luce:

Citing Luce v. United States, respondent implies in his brief that we should presume the purchaser...to be a member of the Gallo family. Respondent is desperately reaching for some support for the unsupportable .... [S]uch a presumption would be inconsistent with the holding of Estate of Bright v. United States, expressly adopted by both the Ninth Circuit .... and this Court. (Citations omitted.)

The decision in Luce (although questionable) illustrates the importance of determining the intent of the other shareholders. If the value of a transferred interest can be affected by the existence of a ready market among the other shareholders, the legitimacy of that market must be determined. Thus, it follows that the absence of such a ready market (i.e., lack of intent) should require a MID. In Ward,(22) which also cited Luce, the court found that MIDs were appropriate, in part, because the other shareholders were not willing or financially able to buy the transferred shares if they were offered for sale. Thus, discounts for lack of control were necessary. The court distinguished Luce because there was no established market for the stock in the existing stockholders or the corporation.

As stated above, TAM 9436005 relies heavily on Winkler for support. However, the Winkler court failed to address whether the other shareholders wanted to acquire or block control of the company, despite the evidence presented by the estate that such intent did not exist. In fact, the court rejected this evidence entirely, stating that the estate seemed to place too much emphasis on the fact that the two families had had equal control for some 40 years and that neither family had ever tried to wrest control from the other. Both the TAM and the Winkler court failed to ascertain the existence and legitimacy of a ready market.

* Family attribution

In Winkler, the court assumed that if a family owned the shares, there would be an absence of discord, so that the family could be considered to be acting as a single unit with the same voice and singular intent. The expert for the IRS admitted that in valuing the voting stock at a premium over the nonvoting stock (because of its swing vote attributes), he had assumed the stock owned by the Simmons family was owned by a single individual, rather than by a family. The appraiser agreed that if the interest were owned by a family rather than by one individual, the MID might change.(23) In addition, for the swing vote characteristic to apply, the Simmons family would probably have to act in concert to acquire the decedent's stock. Without the competing interests of the two families (i.e., the circumstance that created the swing vote value), the appraiser agreed that a 40% to 45% MID and LOMD would be reasonable. (The estate had claimed a combined MID and LOMD of 45%.)

In Winkler, family attribution was not applied to the hypothetical buyer or seller, but rather, to the potential purchaser from the hypothetical buyer. Family attribution in that case was very important because, without it, the transferred stock potentially lost its swing vote attributes. While it is not unreasonable to assume that a family unit may act with a single voice and with singular intent, there are many instances when this would not be the case. Family interests are often fragmented among numerous trusts, individuals and other entities. Further, each family member may place different values on stock ownership and the benefits of acquiring control. To assume that a family unit will act in concert to acquire control (and pay extra for the privilege) is to apply family attribution for both stock ownership purposes and in determining intent. Clearly, the directive of the courts (and Rev. Rul. 93-12) is not to apply family attribution in these types of transfers (i.e., those involving stock in closely held, family-owned companies). Accordingly, Winkler is inconsistent with established case authority and the IRS's ruling on this issue.

Valuation

Assuming there is a market among the other shareholders and that family attribution is not an issue, what is the value of a swing vote characteristic? By disallowing the MID, the Winkler court indirectly assigned the swing vote shares a value 36% greater than when such stock was not considered to contain swing vote attributes. In assigning this value, the court assumed all purchasers (i.e., the two families) would view the swing vote attribute equally (i.e., that they would each derive the same relative value from ownership of the transferred stock). However, such a valuation ignores the fact that the Simmons family would gain control over the company if it were to purchase the transferred shares, whereas the Winkler family could only gain enough stock to block others from acquiring control. Should this attribute be valued equally, or should the ability to gain control be valued at an amount greater than the ability to block control?

Consider also whether the premium assigned to a block of stock with swing vote characteristics should apply only to the portion needed by the existing shareholders to gain a 51% majority, with the balance being valued as "nonswing vote" stock. For example, in TAM 9436005, each 30% block of stock transferred was deemed to include the same amount of swing vote value for the other two shareholders who each owned 30% interests. Should the swing vote premium assigned to each block be attributed to all 30% transferred, or should only that portion of the block needed by a son to gain control (i.e., 21%) be valued at a premium, and the remaining 9% be valued without a premium?

In TAM 9436005, each of the other shareholders (i.e., the sons) owned the same number of shares and, therefore, required the same amount of additional stock to obtain a 51% majority. What happens when one son (S1) owns 39% and the other son (S2) owns 21%? What should be the swing vote value of the block of stock transferred? Would the 30% block transferred be more valuable to S2 than S1 because S2 needs more of the stock to be transferred to gain control?

Obviously, the value of the swing vote attributes in these hypothetical cases may not be the same for each shareholder. Certainly, any premium assigned to stock because of its potential swing vote value will depend on the facts and circumstances. The IRS should not arbitrarily assign swing vote value (or reduce MIDs) for transfers that may qualify for such treatment simply because the requisite number of shares were transferred and there exists the right combination of other shareholders with sufficient percentage ownership. Although swing vote attributes may exist in certain transfers, its value is too subjective to be measured without reference to the facts and circumstances.

Reconciling TAM 9436005 With Rev. Rul. 93-12

As stated in Bright, there is a need for stability and predictability in the rules and practices that govern the valuation of transfers in the gift and estate tax area. According to the Fifth Circuit in that case, a final reason for rejecting family attribution is based on the important policy that the law should be stable and predictable, especially in the tax area, because there is widespread reliance by taxpayers on established tax principles in planning their affairs.

With respect to intrafamily transfers of closely held stock, Rev. Rul. 93-12 offered taxpayers and practitioners stability. No longer was there uncertainty (or so it was thought) as to the IRS position on family attribution in determining ownership. Therefore, in valuing minority interests, taxpayers and practitioners believed their only concern going forward was determining the MID to apply.

TAM 9436005, however, reintroduces uncertainty into the valuation of transfers of stock in family-owned companies, because it is inconsistent with Rev. Rul. 93-12. Setting aside the argument that swing vote value is, in part, derived from the ability of a third party to bid the transferred block of shares against existing shareholders (as was discussed), it is instructive to compare the mechanics of the transfers described in Rev. Rul. 93-12 with those in TAM 9436005 and focus on what is actually transferred.

In Rev. Rul. 93-12, the donor transferred 20% of his stock in a closely held corporation to each of his five children. The IRS ruled that in valuing each transferred interest, the factor of corporate control in the family is not considered. Consequently, a MID will not be disallowed solely because a transferred interest, when aggregated with interests held by family members, would be part of a controlling interest.

In comparison, TAM 9436005 involved the transfer of 30% of the stock in a closely held corporation to each of the donor's three children, and 5% to his spouse. While the IRS agreed, citing Rev. Rul. 93-12, that in valuing the shares, a MID will not be disallowed solely because a transferred interest, when aggregated with interests held by other family members, would be part of a controlling interest, it ruled that the swing vote attributes of each block should be considered in determining the value of each share. While the IRS did not address the extent to which swing vote attributes should reduce or eliminate any otherwise allowable MIDs, it did cite Winkler, which disallowed a MID applied to the transfer of voting stock.

To distinguish between Rev. Rul. 93-12 and TAM 9436005, it is important to understand whether the IRS is focusing on the value the donor transfers or the value the donee receives--i.e., is the critical issue in determining the value of swing vote attributes the release of control by the donor, or the receipt of control by the donee? In Rev. Rul. 93-12, the donor relinquished control of the company through the simultaneous transfer of five 20% blocks of stock. None of the donees received control of the company, because none of them held over 50% of the stock either before or after the transfer; thus, there was no swing vote value.

Similarly, the donor in TAM 9436005 relinquished control over the company through the simultaneous transfer of three 30% blocks of stock; however, the donees were not receiving control, absent some sort of attribution between the other shareholders. Viewed in this manner, there is no difference between the substance of the transfers in Rev. Rul. 93-12 and TAM 9436005, although the IRS would have taxpayers and practitioners view them differently and place different values on them.

Swing vote attributes have value only when control is in fact passed through the transfer of stock.

Example 1: Donor F owns 100% of ABC, Inc., a closely held corporation. In year 1, F transfers 49% of ABC stock to his daughter, D. This is a transfer of a minority interest, because F retains control of the company. In year 2, F transfers an additional 2% to D. What is the value of this transfer? Does the 2% have swing vote attributes because control is being passed to D?

Here, swing vote value should be considered. Clearly, the 2% transferred represents more than just 2% of the ownership of the company; it carries with it D's ability to control the company.(24)

Example 2: The facts are the same as in Example 1, except that the transfer of 2% in year 2 is made to an unrelated third party, T.

Here, the 2% transfer does not carry with it control of the company. Although F loses control, as in Example 1, neither D nor T obtains control. Therefore, the 2% transferred does not have any swing vote attributes, because it does not convey ownership in the company, as in Example 1.

Example 3: The facts are the same as in Example 2, except that the recipient of the 2% transfer in year 2, S, is related to D.

Has the transfer conveyed control, as in Example 1, or are there three minority interest holders, as in Example 2? If family attribution is assumed, clearly, the transfer carries with it effective control of the company, because D's and S's ownership, when combined, exceeds 50%. On the other hand, without family attribution, the transfers described in Examples 2 and 3 are similar.

Contrast these examples with TAM 9436005. Although the TAM illustrates a simultaneous transfer of three 30% interests, the IRS stated in the TAM that the same valuation would apply had the three transfers been made at different times. Thus, assuming that the three transfers occur one year apart, the 30% transfer in year 2 would have swing vote value. However, that is identical to Example 3, with the exception of the amount of stock transferred. In no case does control exist in any one shareholder, unless the transfer increases stock ownership above 50%, or the shares held by different family members are attributed to one another.

Conclusion

The existence of swing vote attributes for blocks of stock transferred in closely held, family-owned companies is not new. As indicated by Bright, a number of courts have acknowledged the relevance of such attributes and have determined what value, if any, to assign to them. Nor has the IRS been ignorant as to the existence of swing vote attributes, as evidenced by its raising of the issue in Bright and TAM 8610011. The novelty is that the IRS has taken a position in TAM 9436005 that is too broad for any practical application and contradicts Rev. Rul. 93-12.

Arbitrarily assigning value to so-called swing vote attributes of a block of stock, or disallowing entirely a MID because of this value, disregards the realities of the market for these shares and reintroduces uncertainty into the planning for transfers subject to estate and gift tax. To value these attributes by reference not only to the identities, but also to the intent, of the potential purchasers (i.e., the other shareholders) requires taxpayers and the courts to make subjective inquiries into the feelings, attitudes and anticipated behaviors of individuals and families.(25)

Further, attribution of family interests to determine the identity of potential controlling shareholders goes against what the courts have been saying for over a decade--that family attribution does not apply to determine control (or, arguably, the disire for control) in the estate and gift tax area.

Finally, the position by the IRS in TAM 9436005 is inconsistent with its position in Rev. Rul. 93-12 and conflicts with Bright, Propstra and Lee. It appears that the IRS is making the same argument with respect to family attribution, but from a different angle. This inconsistency undermines taxpayers' ability to properly plan for transfers of family-owned stock and will undoubtedly necessitate judicial clarification.

(1)Letter Ruling (TAM) 9436005 (5/26/94).

(2)See the text accompanying note 14 for a discussion of Letter Ruling (TAM) 8610011 (11/15/85), which held that the loss of a swing vote was a transfer of property.

(3)See, e.g., Charles W. Ward, 87 TC 78 (1986) (value of minority interest must be discounted to reflect lack of control over corporate policy and inability to compel dividends or corporate liquidation). At the June 1993 IRS meeting in Austin, Tex., personnel in the IRS National Office distributed a list of suggested transfer tax changes, including a limit on the application of MIDs.

(4)Rev. Rul. 81-253, 1981-2 CB 187, revoked by Rev. Rul. 93-12, 1993-1 CB 202.

(5)A MID reflects the fact that a shareholder who owns less than a majority interest cannot control managerial decisions, establish compensation levels, affect future earnings or force corporate liquidation. With a family-owned corporation, it is assumed that there is a unity of ownership and interest.

(6)See, e.g., Victor I. Minahan, 88 TC 492 (1987) (IRS was liable for litigation costs for an assessment of gift taxes related to the disallowance of a MID, because long line of cases suggested that family attribution was unreasonable).

(7)Rev. Rul. 93-12, note 4.

(8)Est. of Mary Frances Smith Bright, 658 F2d 999 (5th Cir. 1981)(48 AFTR2d 81-6292, 81-2 USTC [paragraph] 13,436).

(9)In concluding in Rev. Rul. 93-12 that a MID will not be disallowed solely because a transferred interest, when aggregated with interests held by other family members, would be part of a controlling interest, the IRS stated that it would follow the decisions in John A. Propstra, 680 F2d 1248 (9th Cir. 1982)(50 AFTR2d 82-6152, 82-2 USTC [paragraph] 13,475)(15% lack of marketability discount (LOMD) applied to decedent's one-half community property fractional interest; unity of ownership does not apply to property valuations for estate tax purposes), Est. of Woodbury G. Andrews, 79 TC 938 (1982)(allowing a MID for the decedent's 20% interest in four closely held corporations, even though the remaining 80% of each company was owned by his four siblings), and Est. of Elizabeth M. Lee, 69 TC 860 (1978)(decedent's 40% community property interest in a closely held corporation was a minority interest even though together, at the time of decedent's death, the decedent and her husband owned 80% of the common and 100% of the preferred stock).

(10)Est. of Clara S. Roeder Winkler, TC Memo 1989-231.

(11)E.g., Propstra, note 9, Est. of Joyce C. Hall, 92 TC 312 (1989), Bright, note 8, and Andrews, note 9.

(12)See Andrews, note 9, 79 TC at 956.

(13)Albert L. Luce, Jr., 4 Cl. Ct. 212 (1983)(53 AFTR2d 84-1563, 84-1 USTC [paragraph] 13,549)(no MID for a 30% stock interest when a ready market existed for the stock among other shareholders or persons associated with the corporation).

(14)Note 2.

(15)IRS Letter Ruling (TAM) 9449001 (3/11/94).

(16)Citing, e.g., Marian Otis Chandler, 1941 BTA Memo [paragraph] 41,193, Est. of Bernon S. Prentice, TC Memo 1956-3, and Est. of Marjorie Gilbert Brush, TC Memo 1963-186.

(17)Id.

(18)Brush, note 16.

(19)Lee, note 9.

(20)Hal Joseph Rothgery, 475 F2d 591 (Ct. Cl. 1973)(31 AFTR2d 73-1421, 73-1 USTC [paragraph] 12,911).

(21)Est. of Mark s. Gallo, TC Memo 1985-363, at 50 TCM 486.

(22)Ward, note 3.

(23)While the record did not indicate the exact owner of the stock, the court acknowledged that the voting stock held by the Simmons family might or might not be held by a single individual, and that, if that fact was important, the estate failed to carry its burden of proof.

(24)Essentially, TAM 8610011 involved this type of transfer, because the deemed transfer of a swing vote by the donor gave control to the donee.

(25)In Propstra, note 9, at 82-2 USTC 85, 627, the Ninth Circuit used the same logic in defending its decision to apply the hypothetical buyer-seller rule, stating: "Defining fair market value with reference to hypothetical willing-buyers and willing-sellers provides an objective standard by which to measure value. The use of an objective standard avoids the uncertainties that would otherwise be inherent if valuation methods attempted to account for the likelihood that estates, legatees, or heirs would sell their interests together with others who hold undivided interests in the property. Executors will not have to make delicate inquiries into the feelings, attitudes and anticipated behavior of those holding undivided interests in the property in question." (Citations omitted.)