Attorney-at-Law

“IT MIGHT BE, IT COULD BE”

In Uncategorized on 07/23/2015 at 17:56

Isn’t Good Enough

At least for valuing real property for tax purposes, according to Judge Vasquez in Estate of John A. Pulling, Sr., Deceased, 2015 T. C. Memo. 134, filed 7/23/15. And I agree that “Estate of X, Deceased,” is a tautology, as only dead people have estates.

IRS wanted to argue that the late John A.’s tree farms in the Sunshine State were worth a mint, because they could be assembled with other property in which the late John A.’s friends and family owned the majority interest, and he a minority interest.

But the friends and family had turned down a chance to sell out before, and there was no evidence that any likely suitors were hovering.

Besides, merely because one owns jointly with friends and family doesn’t mean that the parties uniformly agree on everything. (Thanks to whatever gods there be, for friends and familes squabbles have kept me eating for many years.)

State law determines property rights, and Federal law determines how these are taxed. Federal law permits taxing on “reasonable probability” that property may have a better economic value if used otherwise than at present.

“If a special or higher use of the land is only possible when it is combined with other parcels, we may consider that special use, but ‘there must be a reasonable probability of the lands in question being combined with other tracts for that purpose in the reasonably near future.’” 2015 T. C. Memo. 134, at pp. 12-13. (Citation omitted).

But merely because friends and family own a majority interest in lands wherein taxpayer owns a minority interest doesn’t mean they’re all hot to sell.

“Both parties’ experts opined that assembling the estate’s property and [friends and family]’s property would yield the greatest economic benefits, and we agree. However, using that fact as evidence that combining of the properties was reasonably likely places the cart before the horse. The economic benefits of assemblage can only come into consideration once we have established that assemblage is otherwise reasonably likely. The only evidence in the record, however, suggests that assemblage was not likely.

“First, [friends and family] has had at least one prior offer to sell its property as part of a residential development, but it declined the offer. This fact tends to show that [friends and family]’s stakeholders were not interested in selling the property just because it would have been in their economic interests. Moreover, both parties’ experts testified at trial that they would not recommend to a hypothetical buyer of the estate’s property that he purchase the land as a possible investment. Not even respondent’s expert [IRS]’s believed that assemblage was certain enough to recommend purchase to a client.” 2105 T. C. Memo. 134, at pp.14-15.

Ultimately, while relativity may rule the universe, it doesn’t rule property valuation for estate tax purposes.

“The mere fact that they are related to decedent is not enough. See Estate of Bright, 658 F.2d at 1006 (rejecting application of family attribution for purposes of valuing property for estate tax purposes); see also Minahan v. Commissioner, 88 T.C. 492, 499 (1987) (‘It has been noted that the Congress has explicitly directed that family attribution or unity of ownership principles be applied in certain aspects of Federal taxation, and in the absence of legislative directives, judicial forums should not extend such principles beyond those areas specifically designated by Congress.’).” 2015 T. C. Memo. 134, at pp. 16-17. (Footnote omitted, but it says the Bright case is Golsenized onto this case).

So, like my Hong Kong investor of long ago, who pored over a proposed deal for a long time, murmuring “it might be, it could be, it could be, it might be,” and walked away, Judge Vasquez does likewise.

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