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Taxpayer Challenges IRS’ Aggregation of Two Minority Pursuits


Taxpayer challenges IRS’ aggregation of two minority pursuits into one controlling curiosity for valuation functions—In Property of Epstein v. Commissioner, No. 11534-23 (T.C. 2023), the property filed a petition difficult a $2.6 million tax deficiency, arguing that the IRS improperly mixed restricted companion (LP) and normal companion (GP) pursuits when valuing an curiosity in an residence complicated for property tax valuation functions. On Jerry Epstein’s demise, a marital belief created by his late spouse held an 8.746% LP curiosity and a 1.2% GP curiosity, and a survivor’s belief held a ten.4% LP curiosity. The IRS valued the marital belief’s pursuits at a complete of $15.59 million versus the property’s worth of $12.6 million, and the IRS valued the survivor’s belief curiosity at $16.4 million versus the property’s $13.1 million, for a complete distinction of $6.29 million. Amongst different arguments, the property claimed the IRS improperly aggregated the LP and GP pursuits within the two trusts to reach at its valuation. 

The IRS has misplaced on a number of makes an attempt to combination two minority pursuits held in several capacities into one controlling curiosity and has now conceded the problem within the case of certified terminable curiosity property (QTIP) marital trusts; that’s, property passing to a person’s property isn’t aggregated, for property tax valuation functions, with property in a QTIP marital belief that’s included in such particular person’s gross property below IRC Part 2044. See Property of Vibrant v. United States, 658 F.2nd 999 (fifth Cir. 1981); Property of Bonner v. U.S., 84 F.3d 196 (fifth Cir. 1996); Property of Mellinger v. Comm’r, 112 T.C. 26 (1999); Property of Nowell v. Comm’r, 77 T.C.M. 1239 (1999); Property of Lopes v. Comm’r, 78 T.C.M. 46 (1999); and AOD-1999-006 (Aug. 30, 1999). The IRS has acquiesced to this line of circumstances.

The above courts famous that the surviving partner doesn’t possess, management or have any energy of disposition over the property within the QTIP belief; that’s, the surviving partner’s property didn’t have management over the belief property “such that it might act as a hypothetical vendor negotiating with consumers freed from the handicaps related to fractional undivided pursuits. The valuation of the property ought to mirror that actuality.” Property of Bonner v. U.S., 84 F.3d 196, at p. 199. So it appears doubtless the Tax Court docket in Epstein will rule in favor of the property on this declare.

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