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ESTATES, TRUSTS & GIFTS

establish Crown C’s value for estate should be considered in the same man- the district court upheld the IRS’s posi-
tax purposes. ner as any other nonoperating asset in tion and granted its motion for summary
calculating the FMV of a company’s judgment. ■
Life insurance proceeds and stock. Further, a redemption obligation
Crown C’s value is not the same as an ordinary corporate
Having concluded that the SPA did not liability. The court added that there is a
set the value of the deceased’s shares for difference between a redemption obliga-
estate tax purposes, the court analyzed tion that simply buys shares of stock and
whether the insurance death benefit one that also compensates for a share- Contributors
should be considered when calculating holder’s past work. One that only buys
the corporation’s value for estate tax stock is not an ordinary corporate liability Justin Ransome, CPA, J.D., MBA, is
purposes. The IRS argued that the court since it does not change the value of the a partner in the National Tax Depart-
should reject the Eleventh Circuit’s hold- corporation as a whole before the shares ment of Ernst & Young LLP in Wash-
ing in Estate of Blount33 and apply the Tax are redeemed. It involves a change in the ington, D.C. He would like to thank his
Court’s reasoning in that same case.34 In ownership structure, with a shareholder colleagues in the firm’s National Tax
the IRS’s view, the Eleventh Circuit’s ap- essentially “cashing out.” Department in Private Tax for their con-
proach violated customary valuation prin- The court noted that the parties had tributions to this article, as well as Fran
ciples and would result in a below-market stipulated that the decedent’s shares were Schafer for her thoughtful comments
valuation for Crown C and a windfall worth $3.1 million, aside from the life on the article. The views expressed
for Thomas at the expense of Michael’s insurance proceeds. Because the insur- here are those of the author and
estate. Per the IRS, a willing buyer and ance proceeds were not offset by the do not necessarily reflect the views
seller would value Crown C at approxi- company’s redemption obligation, the of Ernst & Young LLP. For more
mately $6.86 million rather than $3.86 FMV of the company at Michael’s date information about this article, contact
million because, on the date of Michael’s of death and of Michael’s shares included thetaxadviser@aicpa.org.
death, Crown C possessed the $3 million all of the insurance proceeds. Accordingly,
in life insurance proceeds that were later
used to redeem Michael’s shares.
The district court rejected the appel-
late court’s approach in Blount, finding AICPA RESOURCES
it contained an analytical flaw. The Podcast episode
court determined that the appellate
“Five Questions to Get Clients to Act on Their Estate Planning”
court in Blount had misread Regs. Sec.
20.2031-2(f)(2) and that the regulation Webcast
specifically requires consideration to be Estate & Trust Primer, Nov. 18, 8 a.m.–noon ET, or Dec. 2, noon–4 p.m. ET
given to nonoperating assets including
Publication
life insurance proceeds “to the extent
such nonoperating assets have not been The Adviser’s Guide to Financial and Estate Planning, Vol. 1
taken into account in the determination PFP Section resource (members only)
of net worth.” The court found that the
2022 Individual, Estate, and Gift Tax Cheat Sheet
text of the regulation does not indicate
that the presence of an offsetting liability CPE self-study
means that the life insurance proceeds Estate Planning Certificate Program (Exam + Course)
have already been taken into account in
Estate & Trust Primer — Tax Staff Essentials
determining a company’s net worth.
The district court determined that, For more information or to make a purchase, visit aicpa.org/cpe-learning or call
the Institute at 888-777-7077.
under its plain terms, the regulation
means that the life insurance proceeds

33. Estate of Blount, 428 F.3d 1338 (11th Cir. 2005), rev’g in part T.C. Memo. 34. Estate of Blount, T.C. Memo. 2004-116.
2004-116.

36 November 2022 The Tax Adviser