We previously reported on the Tax Court case Elkins v. Commissioner (March 11, 2013) (Vol. 8, No. 2, May 2013). At issue was the value, for estate tax purposes, of 64 pieces of art owned by the decedent taxpayer. At his death, the decedent held fractional interests in the art, with the balance held by his children. The estate claimed a 44.75 percent discount due to the fractional ownership. The Tax Court allowed only a 10 percent discount, largely based on evidence in the record that the decedent’s children very much wanted to keep the art in the family. In the court’s analysis, if an unrelated party did acquire the decedent’s interest, the children likely would have to pay nearly full value to get it back.
The United States Court of Appeals for the Fifth Circuit reversed the decision of the Tax Court and handed the estate an even better result than it claimed on the decedent’s estate tax return. The Fifth Circuit found that there was no evidence in the record to support the 10 percent discount selected by the Tax Court. The IRS did not present any expert witnesses on valuation at the Tax Court trial, arguing instead that no discount should be allowed because the IRS does not impose any discount on the value of fractional gifts given to charities.
The Fifth Circuit deemed the presentation made by the taxpayer’s experts in the Tax Court trial to be credible and awarded discounts consistent with their analysis ranging from 65.57 percent to 79.74 percent: a major taxpayer victory.