Estate Planning: Alternate Valuation Date
Greg A. Raffaele CPA CVA FCPA
Edward H. Eddy died on April 13, 1993 and his Federal Estate Tax Return1(Return) was due nine months later on January 13, 1994. Mr. Eddy's Estate (Estate) filed an application to extend the time of its Return on January 12, 1994, the day before it was due. The estate paid $2 million with its application and had until July 13, 1995 to file its Return. The Estate elected to use the alternate valuation date2 (AVD) when it filed its Return because it eventually established that the value of Estate on the AVD was less than its value on Mr. Eddy's death. The Return, however, was not filed until January 19, 1996 because of the Estate's inability to value its primary asset, 237,352 shares of common stock of BFI, a publicly traded corporation.
The IRS denied the Estate the right to elect the AVD as the date the assets of the Estate would be valued because the Return was filed and election made more than one year after the expiration of the grace period. Notably, the IRS agreed that the Estate could take a "blockage" discount because the fair market value (FMV) of the stock would be less if all 237,352 shares were sold at once instead of in much smaller "blocks."
Since the Estate did not timely file the Return, it could not elect to value the estate on the AVD and pay the reduced tax even though its value on the AVD was less than its value on the date of death. The Estate appealed to the IRS for discretion in allowing it to make an untimely election. The IRS did not allow the Estate to elect the AVD because its policy prohibits it from using discretion in the event of untimely filing. The Tax Court confirmed the IRS position in this case.3 It would have been more prudent for the Estate to timely file its Return and to file a supplemental or amended return if the election to use the AVD would have saved taxes.
1 Federal Form 706.
2 Six months after the date of death.
3 Estate of Edward H. Eddy v. Comm., 115 T.C. No. 10 (August 16, 2000).
Important Notice
The preceding article is intended as general information and should not be considered legal, tax, accounting or other expert advice. As the author, I represent that neither the information nor its impact is comprehensive. If legal, tax, accounting or other expert advice is required, please use a qualified and competent professional.
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