Page 13 - Business Valuation for Estates & Gift Taxes

Chapter 3

Overview of Pertinent Tax Code Sections and IRS Revenue Rulings

Tax guidance comes from statutory, administrative, and judicial authority. In addition to being able to
locate and interpret the sources of guidance, valuation analysts must understand the relative weight of
authority for each source.

Tax authority created by statute is found in the United States Code (USC). The Internal Revenue Code,
formally the Internal Revenue Code of 1986, was codified in Title 26 of the USC. Subtitle B of Title 26
relates specifically to estate and gift taxes and includes five chapters: chapter 11, "Estate Tax"; chapter
12, "Gift Tax"; chapter 13, "Tax on Generation-Skipping Transfers"; chapter 14, "Special Valuation
Rules"; and chapter 15, "Gifts and Bequests from Expatriates." Chapters 11 and 12 include provisions
that impact valuations for estate or gift tax purposes. Chapter 13 establishes the rules on transferring
wealth to family members who are at least one or more generations removed from the individual making
the transfer (for example, grandchildren). Chapter 14 is devoted solely to special valuation rules as they
relate to transfers in interests in corporations, partnerships, and trusts. This section also contains the con-
comitant rights and restrictions to such transfers. Due to the scope and intricacies of the rules in this
chapter, the valuation analyst should be on alert that this is a complex section of the tax code that may
require consultation with a subject matter expert. Chapter 15 was enacted in 2008 and established the
rules for determining and paying tax on the transfer of assets by a U.S. citizen who has relinquished citi-
zenship or by a long-term resident of the United States who is no longer lawfully a U.S. resident. Subti-
tle F of Title 26 contains the procedural and administrative information relating to the tax code.

Tax laws and related guidance created from administrative sources can be found in Treasury regulations,
revenue rulings and revenue procedures, technical advice memoranda, and other sources. The authority
from these sources ranges from having the effect of law to anecdotal information.

In its role in administering the tax laws enacted by Congress, the IRS must take the specifics of these
laws and translate them into detailed regulations, rules, and procedures. The Office of Chief Counsel
fills this crucial role by producing several different kinds of documents and publications that provide
guidance to taxpayers. The following provides a summary of the more common guidance issued by the
IRS:

 Regulation—A regulation is issued by the IRS and Treasury Department to provide guidance for
new legislation or to address issues that arise with respect to existing IRC sections. Regulations
interpret and give directions on complying with the law. Regulations are published in the Federal
Register.

 Revenue Ruling—A revenue ruling is an official interpretation by the IRS of the IRC, related
statutes, tax treaties, and regulations. It is the conclusion of the IRS on how the law is applied to
a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the in-
formation of—and guidance to—taxpayers, IRS personnel, and tax professionals.

 Revenue Procedure—A revenue procedure is an official statement of a procedure that affects
the rights or duties of taxpayers or other members of the public under the IRC, related statutes,
tax treaties, and regulations; a revenue procedure should be a matter of public knowledge. It is
also published in the Internal Revenue Bulletin. While a revenue ruling generally states an IRS

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