Summer 2019


Thought Leadership in Valuations for Estate and Gift Tax Planning, Compliance, and Controversies

Editor for This Issue: Weston C. Kirk Business Leadership Case Study

Why You Should Eat a Live Frog Every Day
Mitzi Perdue
This business leadership case study provides perspectives on the success of two iconic American companies: the Sheraton Hotels & Resorts chain and Perdue Farms Inc. In particular, this case study focuses on the personal and professional principles of two business leaders involved in the successful development of these two companies.

Estate and Gift Tax Planning Thought Leadership

Thought Leadership Discussion:
Valuation for the Expatriation Tax—”So Long, It’s Been Good to Know Yuh”
Curtis R. Kimball
Expatriation involves the relinquishment of citizenship or the termination of long-term residency in your home country. When this event occurs, the home country, especially the United States, may levy a tax on the expatriating party. The current expatriation tax in the United States is a tax on the built-in accumulated unrealized gain on an expatriate’s worldwide assets. Business and property valuations are often required to document the expatriating party’s exit tax position. In addition, such valuations may be required to assist in establishing a new tax basis in the new country. This discussion summarizes the U.S. expatriation tax and related valuation matters for the expatriate.

Current Estate and Gift Tax Proposals in Congress
Parker F. Taylor, Esq., and Vanessa A. Woods, Esq.
The Internal Revenue Code has been a central focus of both taxpayers and tax advisers over the past two years. The recent 2017 Tax Cuts and Jobs Act (“TCJA”) was the first major change to the Code since the Tax Reform Act of 1986. Many of the TCJA provisions benefit low- and middle-income taxpayers; however, the TCJA also provided tax benefits to high-income taxpayers. Some of these changes relate to estate and gift tax rates, exemptions, and exclusions. This discussion considers these salient provisions. Additionally, this discussion addresses current proposals in Congress that are intended to amend some of the TCJA benefits to high-income taxpayers. Although many of the proposals are targeted at curtailing the tax benefits provided to affluent taxpayers, some proposals attempt to redirect tax receipts from high-income and high-net-worth taxpayers to the middle class, infrastructure projects, and educational programs.

Estate and Gift Tax Compliance Thought Leadership

Best Practices Discussion:
Guaranty Fee Analysis for Intrafamily Promissory Notes
Weston C. Kirk
When one guarantees a transaction promissory note for another party—in practicality, “lending” the guarantor’s creditworthiness to the obligor—does this guaranty arrangement provide the obligor with economic value? Does this guaranty create a gift tax reporting requirement for the guarantor? This discussion considers the elements of a transaction promissory note guaranty arrangement between family members (although the context can be extended to any two or more parties). This discussion also describes valuation principles to assist the analyst in quantifying the guaranty’s economic value, either (1) in the form of a fee in exchange for the guaranty or (2) in the form of a gift from the guarantor to the obligor.

Valuation Discounts for Family Limited Partnerships and Family Limited Liability Companies
Chad M. Kirkland and George H. Haramaras, CPA
The family limited partnership (“FLP”) and family limited liability company (“FLLC”) are two types of entities that may be used in trust and estate planning. Families use such entities to achieve multiple strategies, including (1) the intergenerational transfer of family wealth, (2) the protection of assets, and (3) the consolidation of assets to achieve economies of scale related to administrative costs. The valuation analyst can provide expertise in navigating the topics that frequently arise when valuing these family asset holding entities. First, this discussion focuses on the application of the generally accepted business valuation approaches in the context of an FLP or an FLLC. Second, this discussion examines the application and derivation of valuation discounts for a noncontrolling ownership interest in an FLP or an FLLC.

Valuing Art Fund Investments for Estate and Gift Tax Purposes
Weston C. Kirk
Investors with large artwork collections may contribute these assets to an investment management entity that will hold, acquire, sell, manage, and protect the works of art. These entities are often referred to as art funds. An interest in an art fund may be a significant investment holding that is transferred to a beneficiary during life or at death. For gift or estate tax purposes, these transfers require independent valuation analyses—typically both an independent art appraisal and an independent business valuation.

Estate and Gift Tax Controversy Thought Leadership

Kress v. United States of America—All Experts Consider Private Company’s S Corporation Income Tax Status
Thomas M. Eichenblatt
This discussion considers the recent decision issued by the United States District Court of the Eastern Division of Wisconsin in Kress v. United States of America. Specifically, this discussion describes (1) the main topics of the case and (2) the District Court’s conclusion that the company’s S corporation income tax status was merely a neutral factor in the valuation of a noncontrolling interest in the company common stock.

Damage Analyses in Claims regarding an Investment Management Trustee Breach of Fiduciary Duty
Connor J. Thurman, Jason M. Bolt, and Weston C. Kirk
The management of trust assets is often handled by a third-party trust fiduciary (“trustee”). Trustees have an obligation to manage trust assets with the intent of providing the best risk-adjusted outcome possible for trust beneficiaries based on the stated investment goals in the trust documents. In some situations, trustees can be accused of breaching their fiduciary duty to trust beneficiaries while managing the trust assets. Two types of claims typically made by dissatisfied trust beneficiaries are that (1) the trustee made overly aggressive investment decisions or (2) the trustee made overly conservative investment decisions. One part of either proving or disproving such trustee breach of fiduciary duty allegations while managing trust assets is the measurement of the damages (if any) that resulted from the claimed wrongful actions of the trustee. This discussion focuses on (1) investment management trustee fiduciary duties and (2) damage measurement methods that analysts may apply to conclude whether or not potential damages were incurred due to the alleged breach of fiduciary duty.

What Tax Counsel Needs to Know about Working with a Valuation Specialist
Robert F. Reilly, CPA
Tax counsel often have to retain, and work with, a valuation specialist related to a gift tax, estate tax, or generation-skipping transfer tax controversy. This statement is particularly true if the transfer involves a private company, a private business ownership interest, a closely held security, or an intangible asset. This discussion provides guidance to tax counsel related to selecting, working with, and defending the work of the valuation specialist.

What Tax Counsel Needs to Know about the Valuation Due Diligence Process
Robert F. Reilly, CPA
Gift tax, estate tax, and generation-skipping transfer tax controversies often involve the transfer of a private company, business ownership interest, security, or intangible asset. These controversies often involve the valuation of these private business ownership interests. In these instances, tax counsel often retain a valuation analyst (“analyst”) to serve as either a consulting expert or a testifying expert. As part of the valuation process, the analyst typically performs due diligence related to the private company and the taxpayer company owner/operator. This discussion summarizes what the tax counsel (and the taxpayer owner/ operator) needs to know about this tax-controversy-related valuation due diligence process.