Different values for the same stock in the same estate tax return.In IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. Letter Ruling (TAM) 9403005, at the date of his death, a decedent An individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away. (D) owned 400 preferred erred and 37,728 common X Corporation shares. The IRS and D's estate agreed on the following values for each share:
Combined Separate block blocks Preferred $1,300 $919.80 Common 13 6.98
The common shares were bequeathed to a credit shelter trust for the benefit of D's spouse and children. The bulk of the preferred shares Preferred shares
Preferred shares give investors a fixed dividend from the company's earnings and entitle them to be paid before common shareholders. See: Preferred stock. was bequeathed to the spouse.
The combined block of common and preferred shares constituted a controlling interest controlling interest
The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail in X. The preferred shares passing to the spouse were a minority interest.
The letter ruling held that the control premium attributed to D's total shares in X applied in determining the value of those shares for inclusion in D's gross estate under Sec. 2031. This valuation did not reflect the fact that only a minority interest passed to D's spouse.
On the other hand, the value of this minority interest was differrent purposes of computing the estate tax marital deduction marital deduction n. when one spouse dies, the survivor may take a tax deduction of half of the value of the estate of the dying spouse. Thus, the minimum value of the estate before there is a possible federal estate tax rises from $600,000 to $1,200,000 at the death under Sec. 2056.
Regs. Sec. 20.2056t(b)-4(a) provides that this deduction "may be taken only with respect to the net value of any deductible That which may be taken away or subtracted. In taxation, an item that may be subtracted from gross income or adjusted gross income in determining taxable income (e.g., interest expenses, charitable contributions, certain taxes). interest which passed from the decedent to his surviving spouse .... "
Therefore, the ruling held:
Because the value of the interest that passed to the surviving spouse is a minority interest in company, the value deductible for purposes of section 2056 must reflect this fact. Accordingly, we conclude that, for purposes of the estate tax marital deduction, a minority discount is appropriate in valuing the portion of the decedent's stockholding in Company that passes to the surviving spouse.