Summer continues here in Idaho, with high temperatures, cool water in the Clearwater River, and planning for the Fall. Mary Ann and I had a wonderful experience on the small ship Alaska Cruise last month. We were on a Lindblad Expedititions/National Geographic cruise in Southeastern Alaska - great scenery, lots of whales, bear, sea lions, many eagles - plus good company and food. See the Lindblad website at www.expeditions.com.
Education Events
I will be attending a couple of tax seminars in September. First, in San Diego on September 18th there is the "Summit on the Discount for Lack of Marketability" at the USD School of Law with Tax Court Judge David Laro and CPA Mel Abraham as co-chairs - speakers include tax litigator John Porter, Chuck Rettig, Esq., and a number of appraisers. The next day, September 19th, I attend the 4th Annual Jerry A. Kasner Estate Planning Institute at the University of Santa Clara in the San Jose area. Jerry Kasner was an outstanding law professor and advisor to many tax professionals for nearly 50 years until his death about 5 years ago.
As mentioned in my last newsletter, dated July 17th, I am participating as an author/instructor for CPELink in several webcasts - from my home office in Idaho thanks to the technology available. You can check out the topics and dates on the website: www.CPELink.com. My first presentation, 2 hours in length, is on August 26th, 9-11 am PDT - "CPA Practice Development Opportunities in Estate Planning". Then on September 25th I present a Valuation Planning 4-hour course and finally on October 7th my 4-hour course is on Effective Uses of Pass-Through Entities, Including FLPs, LLCs and S Corporations. See the details of these courses on the CPELink website.
I am also in the process of working out my course and presentation schedule with WesternCPE - see the website for this CPE provider, including its many Resort Conferences, at www.westerncpe.com. In 2009 I will be a presenter at 6 or 7 Resort Conferences, with likely my courses being "Hot Topics in Estate Planning" and "Tax Planning for the Family Business" at each location. The WesternCPE approach is to have a course or courses each day over 5-6 days at a great resort location running from 7:30 am to 1:00 pm - leaving the rest of the day for resort activities. My remaining course for 2008 is at the Ritz-Carlton Hotel and Resort at Kapalua, Maui, HI in mid-November - incl presentation of my "Hot Topics in Estate Planning" and "Pass-Through Entities" courses - each with over 100 pages of course materials, plus power point slides.
New Developments
My May 1, 2008 newsletter reported on the LLC case in which the taxpayer won hands down - namely, Estate of Anna Morowski, T.C.Memo. 2008-74, the Tax Court opinion having been issued March 26, 2008. The court in this case found substantial non-tax purpose for the LLC entity, and thus determined that the "bona fide sale for full and adequate consideration" exception to application of the IRC Sec. 2036(a) attack on the entity was available and proper to use in this case. See my report on the case in the archived May 1st newsletter for the details.
Then we have seen two (2) gift tax FLP/LLC cases which provide insights into a number of issues including "layered discounts", "step transaction" and the valuation methodology issues. I will report in the near future in detail on these cases, which are Holman v. Comm'r, 130 TC No. 12(2008), and Astleford v. Comm'r, T.C. Memo. 2008-128(2008).
Very recently, the Tax Court(Judge Swift) issued an opinion in 6 consolidated docketed cases with 20 other cases riding also on the result per stipulation, that dealt with the stock value of a professional service corporation the stock of which was donated to a tax-exempt organization. Claimed charitable deductions at over $400 per share were determined as being properly valued at only $35 per share. This of course was quite a defeat for the 26 out of 28 medical doctors in the professional corporation who claimed the charitable deductions! See Bergquist and Kendrick, et al v. Comm'r, 131 TC No. 2(7/22/08).
(1) Various medical practice specialty groups practiced through their professional service corporations and provided services to patients of the Oregon Health & Science University Hospital(OHSU). The specific provider reviewed in the Tax Court case reported on was University Anesthesiologists, P.C.(UA) which had 5 Oregon doctors practicing anesthesiology.
(2) OHSU however decided that all the specialty practices should consolidate into a single practice group(OHSU Medical Group), which was a newly formed 501(c)(3) organization. A CPA who was a shareholder of UA and its CEO learned that doctors around the country in similar situations were claiming charitable income tax deductions for donating their private personal service corporation stock to academically affiliated health care institutions.
(3) Timing is everything! There were many issues involved in the consolidation and it was not completed until shortly after the 9/14/2001 date of contributions of stock to OHSU Medical Group. So the most significant issue was whether the completion of the consolidation was reasonably foreseeable at the valuation date since otherwise post-valuation date events cannot be taken into account.
(4) Judge Swift believed that it was incorrect for the taxpayer appraisers to use a "going concern value" for the UA entity, which was most likely to go out of existence shortly, and did in fact. One of taxpayer's appraisers stated that if the consolidation were a "done deal", the going concern value approach would not have been used, so obviously many fact details may not be contained in the opinion.
(5) The IRS appraiser used the net worth method and then opined on discounts approaching 65% on a combined basis! It appeared that going with the IRS appraiser on such high discounts indirectly was a penalty against the taxpayers for claiming the charitable deductions. Plus, the court imposed accuracy-related and negligence penalties on the taxpayers!
(6) Lots of bad facts - other practice groups did not donate their corporation stock to the tax-exempt entity, only UA; the management of OHSU Medical Group notified UA in writing shortly after the "gifts" that it would enter the stock on its books at zero value as it did not expect any cash distributions or other financial benefits from the UA stock.
(7) Footnote 6 on the Tax Court's opinion seems to say it all! - "In their expert reports neither of petitioners' experts explain how or why they selected a going concern premise of value, and they conveniently and incredibly make no mention of the scheduled Jan. 1 2002 consolidation."
