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Stock gifts and minority discounts.

When a gift is made of a small block of stock in a closely held corporation, a valuation discount is often claimed because of the shares' minority status. This discount is premised on the lack of voting control typically associated with a small amount of stock in a closely controlled corporation.

In the past, the IRS resisted discounts when the donor controlled the corporation at the time of the gift (revenue ruling 81-253, 1981-1 CB 187). However, the IRS has now made an about-face, saying family members' shares will not be aggregated with the shares transferred through the gift when it determines whether a minority transfer occurred (revenue ruling 93-12, IRB no. 1993-7).

For example, a parent owning 100% of the outstanding stock of a corporation can now bestow simultaneous gifts of 20% of the stock to each of five children and obtain a minority discount for each 20% block of stock transferred.

Observation: This reversal by the IRS acknowledges a long line of taxpayer victories on this issue in the courts, led by Bright Estate (CA-5, 1981) and Andrews Estate (79 TC 938, 1982).

The ruling also should be of benefit in discounting noncontrolling blocks of family corporation stock within an estate.
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Apr 1, 1993
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