LLC valuation case is a win for the taxpayer.

In a win for the taxpayer in a limited liability company (LLC) valuation case (W.G. Anderson et al., WD AL., 2/22/06), a U.S. District Court held that the IRS erred in revaluing a decedent's minority ownership interest in four LLCs. The estate will now receive a tax refund for the estate and gift taxes, related interest and properly deductible administrative expenses. The estate did not win on its claim for attorneys' fees and litigation costs, because the gross value of the estate at the decedent's death was greater than $2 million. In determining the fair market value of the decedents interest in her directly held property and minority interest in the LLCs, the court found a 40% marketability discount was proper for both the market and net asset approaches, and that a 10% discount for liquidation casts and a 10% minority discount were proper for the net asset approach. It was well worth the taxpayer disputing the IRS's valuation in this case. Practitioners should continue to document the valuation methodology being used for estate minority LLC interests.

Eileen Sherr, CPA, MT, AICPA Technical Manager--Taxation, Washington, DC, and Justin Ransome, CPA, J.D., MBA, Grant Thornton LLP, Washington, DC