In Estate of Fortunato v. Commissioner, T.C. Memo 2010-105 (May 12, 2010), the Tax Court ruled that the decedent had no ownership interest in various companies despite his involvement in the operation of the companies.
The decedent's brothers started a group of warehouse companies. The decedent became involved in running some of those companies. During business dealings, the decedent held himself out as the owner or the CEO. However, he had no documented ownership interest in any of the companies, and he did not provide any of the initial or subsequent infusions of capital. As such, the executors did not report an ownership interest in the companies on the decedent's estate tax return.
The IRS determined a deficiency in the federal estate tax paid; it asserted that the decedent held an interest in the companies as a beneficial owner because he created the business strategies for the companies, controlled the companies' finances, had the companies' employees report to him, and held himself out as the business owner.
Although the applicable state laws allowed a legal owner of a corporation to be an uncertified shareholder, the Tax Court held that the facts showed the decedent did not exhibit any intent to become a shareholder nor did the corporation exhibit an intent to make the decedent an owner. The decedent never wanted to become a shareholder because he was afraid his creditors would attempt to collect on his debts and he was worried his past criminal convictions would stigmatize the companies. Furthermore, the decedent's brothers thought the decedent was irresponsible despite his business acumen.