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AMBRECHT & BRITTAIN, LLP

Recent Tax Litigation Cases

Valuation of farm land near Santa Maria, CA. The IRS claimed that an estate had undervalued its assets, and owed an additional estate tax liability of almost $800,000 plus interest. The principal issue was the validity of a "special use" election made on the estate tax return. If valid, the election would reduce the reported value of the farm land. However, the Santa Maria law firm that made the election failed to follow the correct procedures. In an unprecedented ruling, the Tax Court upheld the validity of the election notwithstanding the omission. Due to this ruling, the additional taxes owed by the estate were only 12% of those asserted by the IRS.

Valuation of a Santa Barbara shopping center. The IRS claimed that an estate had undervalued its assets, and owed an additional estate tax liability of $3.4 million (plus interest). The principal asset of the estate was stock in a corporation that owned a Santa Barbara shopping center. The estate tax return used a 35% minority and marketability discount when valuing the corporate stock. The IRS claimed the discount should be only 27%. The Tax Court determined that the appropriate discount was 33%, or nearly that claimed by the taxpayer.

Valuation of corporate stock. A couple gave stock in their closely held corporation to their children. The IRS claimed that the taxpayers had undervalued the gifted stock by millions of dollars. The case went to trial, where both the IRS and the taxpayers presented expert testimony. After the parties filed their post-trial briefs, the IRS conceded the case, agreeing that the taxpayer’s appraiser had correctly valued the stock. This victory saved the taxpayers approximately $4 million in tax and interest.

Corporate distribution. A corporation made a $250,000 salary payment to its principal shareholder. The IRS claimed that $125,000 of the payment was a dividend rather than salary, and thus was not deductible. The case went to the Tax Court, but before trial the Appeals Officer conceded the entire case.

The contents of this publication are for information purposes only and are not meant nor should be construed to be legal advice. Note, also, the date of the document. Laws are constantly changing, and are subject to differing interpretations. We, therefore, urge you to do additional research or to contact your own legal or tax counsel before acting on the information contained herin.

This article: www.taxlawsb.com/resources/lit/cases.htm
Updated October, 2007