Summer is Here - and so are CPE Opportunities
Lonnie McGee, founder and chair of the Southern California Tax & Estate Planning Forum (this year the 31st Forum will be held in San Diego, October 26-29), has come up with a timely in-depth seminar on what to actually do in advising clients under the Tax Relief Act of 2010 -
"Estate Tax Past, Present and Future: 2010 Estates and 2011 Planning" - being presented from 9am to 5pm in San Francisco on Saturday, August 6, 2011. The principal speakers on the TRA 2010 will be nationally known tax lawyers Ron Aucutt and Steve Akers - both of whom have written extensively as well as lectured on the TRA 2010. Here is how the flyer (available at www.clenet.com) describes the program:
"This program will look at the challenges of administering estates of decedents who died in 2010 and of recommending estate planning measures for clients in 2011 and 2012 and beyond, with applications in each case to small, medium, large and very large estates." Even with the 2011/2012 $5 million unified gift and estate tax exemption, there is much to do in Family Wealth & Succession Planning.
As an added attraction for this seminar, there also will be a panel consisting of Keith Schiller, Esq. and IRS Supervisory Attorney (Estate & Gift) Kyle Martin, who will discuss by way of update and overview the 2010 Forms 706 ad 709, and the still draft Form 8939, as well as other current compliance issues.
I plan to be present in SF at this seminar on August 6th - it will be a worthwhile Saturday CPE session.
And as to the 31st Forum in San Diego, I will be presenting two sessions, together with attorney John Prokey, Ramsbacher Prokey LLP (my former law firm) and L.A. business valuation appraiser, Mark Higgins, ASA, of Higgins, Marcus & Lovett, Inc. - these sessions will concentrate on valuation developments, new and updated approaches to working with valuation appraisers and how best to structure entities and transactions to insure maximum valuation strategy success.
Also, involving CPE efforts, note the websites for several providers showing my involvement in webcasting and in a special succession planning conference in Tucson, Arizona:
(1) CPE Link: www.cpelink.com - I am presenting live webcasts on Estate Planning 2011-2012 and Beyond (July 28th - 4 CPE hour credit), Pass-Through Entity Planning - FLPs, LLCs & S Corps (August 3rd - 4 CPE hour credit), and Buy-Sell and Deferred Compensation Planning (August 10th - 2 CPE hour credit). Check the website for more details, time of webcasts, and costs.
(2) CPE Credit: www.cpecredit.com - I will present several live webcasts, including: Tax Relief Act of 2010: Focus on Financial and Estate Planning (August 2nd - 2 CPE hour credit), Playing the Valuation Game (August 4th - 3 CPE hour credit), Buy-Sell and Deferred Compensation Agreement Planning (August 5th - 2 CPE hour credit), and FLPs, LLCs & S Corp Planning (August 11th - 3 CPE hour credit). The details as to times, coverage and costs are on the website under streaming webinars.
(3) WesternCPE (www.westerncpe.com) will present a new them conference November 14 - 18, 2011, in Tucson AZ at the Omni National Resort Tucson - The Family Business and Wealth Succession Conference. There will be a number of nationally recognized speakers and I will be on the faculty for this Wealth Succession based conference, which will lead off with the 2011-12 version of Vern Hoven's Federal Tax Update on Monday and Tuesday. Wednesday through Friday will deal specifically with the family succession planning opportunities and pitfalls. See the topics, speakers, schedule and all other information on this unique conference on the WesternCPE website, under resort and theme conferences.
Now to Briefly Report on Recent Valuation Cases: Mitchell, Hendrix, Giustina and Gallagher
These cases, one way or the other, all emphasize several points: First, always insist that your client retains a well-qualified, communicative appraiser in any valuation situation. Second, know that especially the Tax Court will substitute its own judgment for that of your appraiser unless the court (the "gatekeeper" of the relevance and reliability of expert testimony, per the 1993 U.S. Supreme Court case of Daubert) concludes that the appraiser has properly and completed educated the court. Absent that, you may find bizarre results occur that are quite different than those expected by your client. Finally, as Hendriz illustrates, look for a way to "backstop" your appraisal evidence, i.e. perhaps the Fixed Dollar Formula Clause approach, now approved recently by 4 courts!
Let's take Hendrix first - Hendrix v. Commissioner, T.C. Memo. 2011-133 - TC Judge Paris. Here the court upheld a defined value clause in the context of gift/sale transfers to trusts and charity and specifically held that these transfers were at "arms-length" and "not contrary to public policy". Now we have 4 cases supporting the use of fixed dollar value formula clauses, namely, McCord (5th Cir. reversing Tax Court), Christiansen and Petter, 2 TC decisions, and now Hendrix. An excellent review of this issue is found in LISI email estate planning newsletter archive message #1827, authored by Steve Akers of Bessemer Trust Co. Review of these cases, and especially the Akers LISI commentary on Hendrix, should encourage planners to use these formula clauses carefully and regularly!
Now the Mitchell case, Estate of James Mitchell v. Comm'r, T.C. Memo. 2011-94, TC Judge Kroupa. In Mitchell, a case in which my former law firm, now Ramsbacher Prokey LLP, San Jose, CA, was the estate's counsel, several important issues affecting valuations were involved. First of all, a 5% co-tenancy interest in two valuable real estate holdings (Beachfront residence and Ranch - both under long-term leases) was gifted to trusts for teenage sons of decedent a mere 6 days prior to his death - - and the reality of such "deathbed gifts" was upheld, so substantial co-tenancy discounts were allowed (actually stipulated before trial!) both as to the gifts and as to the estate's own 95% interests in the property. In the valuation area, the estate retained John Thomson of Klaris, Thomson, Schroeder, as its real estate appraiser and he carried the day - the court agreed right down the line with the Thomson appraisals. Note that he often testifies on behalf of IRS. In addition to the real estate valuation issues, there were two America West paintings to be valued, and, once again, the careful work of the estate's lawyers and appraisers again resulted in total victory. This is a great taxpayer estate victory to review, savor and perhaps emulate in other situations. See my LISI commentary, Email Estate Planning Newsletter, Archive Message #1806(May 2, 2011), or watch for my CCH Business Valuation Alert article in the soon to be published July, 2011 issue.
The next court opinion, released June 27, 2011, is Estate of Natale Giustina v. Comm'r, T.C. Memo. 2011-141, TC Judge Morrison. The Giustina case is puzzling, involving a minority limited partner interest in an active Oregon timber farming business where the court gave a 25% "weighting" to the net asset method of valuation. Since the net asset value was triple the present value of the discounted cash flow income method, there was a much higher value than appears justified. In any event, the opinion is well worth reading to illustrate how the "battle of the experts" proceeds - John Thomson for the IRS and Robert Reilly, Willamette Management Associates, for the estate. John Thornton, a Boise-based tax attorney, was lead counsel to the estate. He was the successful counsel in the 2001 Simplot case in which the 9th Circuit reversed the Tax Court - so is there another appeal effort coming?
Finally, we have the Gallagher case: Estate of Louise Paxton Gallagher v. Comm'r, T.C. Memo. 2011-148 (June 28. 2011). Note the good discussion of this case by Lance S. Hall, ASA, in the "A Battle of the Experts" The FMV Valuation Alert (7/1/11), see info@fmv-value.com. Lots of issues were involved, and while Tax Court Judge Halpern generally went with the IRS expert over the taxpayer's expert, the estate actually won on the dollars! - What was at issue was the decedent's 15% equity interest in a media publishing company (an LLC that elected taxation as a corporation, and also elected S corporation status - unusual in itself!). Judge Halpern, recently a panelist on an ASA sponsored valuation conference in Los Angeles (May 18th) clearly was in his element applying relevance and reliability tests to each expert's report and testimony. The 706 reported a 34.9 million FMV for the minority LLC interest of the decedent, the IRS stat notice alleged 49.5 million as the FMV, the taxpayer's two appraisers were at 26.6 million and 28.2 million (the 706 appraisal was done by the company's CEO, a Paxton family member), the IRS appraiser, favored by the court clearly, was at 40.9 million. But the result - the court concluded a FMV of 32.6 million, less than that reported on the 706. So here are some of the issues discussed in the case: (1) proper date for financial information used relative to date of death, (2) adjustments to company's historical financial data, (3) propriety of using a market-based valuation approach and how to use it, (4) use of the discounted cash flow method income approach, (5) adjustments to company's "enterprise value", and (6) the nature and size of valuation discounts. The opinion of the court, 52 pages, plus an appendix with the court's own determination of value, is well worth reading.
Thanks for reading this Newsletter, and I hope my readers find it useful.
Owen Fiore
