Meadows Collier has handled hundreds of estate and gift tax controversies over its 25 year history. The vast majority of these controversies have been settled favorably without protracted litigation, due in part to our considerable experience in this area. We continue to be on the cutting-edge of estate and gift tax controversies. We are often involved in potential controversies at a very early stage – assisting the attorneys and CPAs to prepare estate tax returns. With early involvement, we are able to help professionals obtain the best possible appraisals and present the best legal positions before the IRS even commences an audit.
Where it has been necessary, our attorneys have vigorously challenged the government in court. The following are some examples of significant reported cases in the estate and gift tax area in which we have represented the taxpayer:
- Kimbell v. United States, 371 F.3d 257 (5th Cir. 2004). The Kimbell case was a major victory for taxpayers in the Fifth Circuit. It set a favorable standard for determining when the bona fide sale for adequate and full consideration exception will apply against an attack by the government under Section 2036 of the Internal Revenue Code. The ruling established that the taxpayer had the right to be taxed on the value of the partnership interests in her estate rather than the much higher value of the assets held by the partnership.
- Adams v. United States, 218 F.3d 383 (5th Cir. 2000) (a/k/a “Estate of Mendenhall”). This case involved the estate tax effect of ambiguous partnership law. In reversing the U.S. District Court’s denial of valuation discounts to the estate, the Fifth Circuit established what could reasonably be called a separate “Adams discount”. The Court wrote, “[L]egal uncertainty – which raises the specter of costly litigation in addition to an adverse result – is itself a factor that must be taken into account when appraising the fair market value of [a partner’s] interest for estate tax purposes.” We have since found this Adams discount to be useful to many taxpayers.
- Estate of W.W. Jones II v. Commissioner, 116 T.C. 121 (2001). Jones was a test case for the IRS’s so-called “gift on formation theory.” The IRS argued that a person makes a taxable gift to the other partners upon the formation of a partnership, because the amount the “donor” transfers to the partnership is less than the value of the partnership interest received. We successfully defended the taxpayer against this attack.
- Knight v. Commissioner, 115 T.C. 506 (2000). Knight was another test case in the IRS’s fight against family limited partnerships, this time the “economic substance” theory. The government sought to disregard the existence of the partnership for gift tax purposes to avoid the tax-reducing effects of valuation discounts. Our client prevailed in the litigation.
- Estate of Ann H. Brookshire v. Commissioner, T.C. Memo 1998-365. The decedent’s estate had a put option to force a sale of the majority of the estate’s shares in the company at a fixed price. Sustaining our objection, the Tax Court refused to allow the IRS to introduce expert testimony at trial of a value greater than that in the notice of deficiency. The Court then accepted our expert’s conclusion that a 40 percent lack of marketability discount applied to the estate’s stock. The resulting value for estate tax purposes was computed with discount to be less than the price which the estate would receive if it exercised the option to sell. This was true even though the estate had in fact exercised its option nine months after death and received cash for the stock far in excess of the estate tax value.
- Estate of Foy Proctor v. Commissioner, T.C. Memo 1994-208. This case involved a highly unusual factual pattern involving the charitable bequest of a 60,000 acre ranch to our client, Texas Tech University. After an aggressively litigated trial on the merits, we were able to obtain a ruling that resolved adverse claims against our client’s interests and allowed our client to receive the full benefit of the charitable bequest. The case is also noteworthy as it is believed to be the only reported Tax Court case in which there were four separate parties of record with different interests. (Usually there is just a taxpayer and the government in a Tax Court case.)