- Ag Docket
The U.S. Supreme Court has declined to review a decision on the U.S. Court of Appeals for the Ninth Circuit which affirmed a Tax Court decision involving a decedent’s estate that claimed valuation discounts and deductions associated with claims against the estate. Under the facts of the case, the decedent and her pre-deceased spouse founded a mail-order horticulture business. They sold their shares to a company ESOP with the company funding the purchase by borrowing $70 million on an unsecured basis with one lender being the trustee of the ESOP. The pre-deceased spouse contributed his sale proceeds ($33 million) to his revocable trust. Upon his death, the trust split into marital trusts, with the ESOP trustee being the trustee of the marital trusts. The company’s earnings declined and the ESOP lenders wanted to restructure the loans so that they would be secured. The company filed bankruptcy after the ESOP beneficiaries sued for breach of fiduciary duty. Pending the outcome of the litigation, the ESOP trustee barred the decedent from receiving trust distributions from one of the marital trusts. The trial court ruled against the beneficiaries, and the decedent then died while the appeal was pending. On the decedent’s estate tax return, a $15 million liability was listed which related to the litigation associated with the three trusts. The Tax Court denied any discount for litigation hazards and lack of marketability. The court reasoned that the lawsuit would not have impacted a buyer’s rights. Also, the bar on the decedent getting distributions had no impact on the value of the assets in the trust. On the estate’s potential liability, no discount was allowed because the estate did not establish it’s liability with reasonable certainty. On appeal, the Ninth Circuit affirmed on the same grounds that the Tax Court ruled against the estate. The U.S. Supreme Court declined to review the case. Estate of Foster v. Comr., 565 Fed. Appx. 654 (9th Cir. 2014), aff’g., T.C. Memo. 2011-95, cert. den., Bradley v. Comr., No. 14-267, 2014 U.S. LEXIS 8142 (U.S. Sup. Ct. Dec. 8, 2014).
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