Estate of Aaron U. Jones-Tax-affecting

The Tax Court in Estate of Aaron U. Jones upheld the use of tax-affecting in the valuation of gifts made of S corporation and limited partnership interests.  The business involved timber, and the income method is typically used to value an ongoing timber business.  Tax-affecting is adjusting the value to reflect an after tax value as if the business was a C corporation.  Tax-affecting for S corporations was in the IRS manual twenty years ago, but was removed after the IRS won a victory against its use in Gross v Commissioner.

It is unclear at this point how broad the Tax Court’s acceptance of tax-affecting will go, but it is certainly a welcome result for the taxpayer.

It is important to point out that the facts were good.  This was no death bed case, and the taxpayer retained a very qualified appraiser in the area of timber.  The IRS appraiser had little or no experience in the area.   This is a great lesson to take away.  Always have the better appraiser when you head into litigation with the IRS.

About Grady Dickens

I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.