The Tax Court did not have a good quarter in the United States Court of Appeals. Estate of Natale B. Giustina v. Commissioner (9th Cir., December 1, 2014) represents another reversal of the Tax Court, this time by the Ninth Circuit Court of Appeals. As in the Elkins case, the Ninth Circuit reversed the Tax Court for utilizing assumptions that were not supported by the trial record.
The decedent held a limited partnership ownership interest as a limited partner. The decedent’s estate valued that interest based on going concern value, rather than using liquidation value. The estate presented evidence that the general partners believe strongly that the business should continue and no limited partner had ever sought to dissolve the partnership or seek the redemption of his interest.
Despite this evidence, the Tax Court assigned a 25 percent probability that a limited partner might band together with other limited partners and vote for a dissolution of the partnership. The court then computed the value of decedent’s interest by using a blend of going concern value (75 percent) and liquidation value (25 percent). This increased the value of the interest from $12 million to $27 million, resulting in a significant estate tax increase. The Ninth Circuit rejected the Tax Court’s analysis because there was no evidence in the record supporting the assumption that there was a 25 percent likelihood that the partnership would be liquidated. The case was sent back to the Tax Court to reconsider the value using only going concern valuation concepts.