Thoughts on Estate of Richmond Tax Court Case

Abstract

The case Estate of Helen P. Richmond, Deceased, Amanda Zerbey, Executrix, Petitioner v. Commissioner of Internal Revenue, Respondent, T.C. Memo 2014-26, was not your ordinary family limited partnership tax court case. The subject interest was a noncontrolling interest in a C corporation that held only marketable securities with significant built-in capital gains (BICGs). The case was heard in the 3rd Circuit, which—unlike the 5th and 11th Circuits that had previously accepted a dollar-for-dollar reduction in value for the BICG tax—had not ruled on this issue. Another interesting issue was the selection of the valuation approach; the estate expert relied on the income approach, whereas the IRS expert relied on the asset approach. This article comments on weaknesses in the court's valuation approach and why the income approach is a valid method when valuing a noncontrolling interest.