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undervalued shares of stock in a company
failed to meet the requirements of Sec. Ignoring the facts and circumstances of the
2702; therefore, the annuity interest
retained by the taxpayer was valued at pending merger would undermine the FMV
zero and was included in determining the concept and lead to an unfounded valuation.
value of the taxable gift of the remainder
interest, resulting in a taxable gift of the
entire value of the stock transferred into
the GRAT, rather than a “zero gift.” interest. For purposes of valuing the shares events that are relevant to the question
The taxpayer founded and owned all transferred to the CRT, the taxpayer ob- of value.
of the stock of a successful company. At tained a qualified appraisal,18 as required by The IRS then focused on Ferguson,21
the end of year 1, he reached out to a pair Sec. 170(f)(11)(A), for purposes of receiv- an anticipatory assignment-of-income
of investment advisers to research options ing an income tax charitable deduction case, in which the Ninth Circuit, agree-
for selling the company to a third-party for the remainder interest transferred to ing with the Tax Court, held that at the
buyer. Approximately seven months later, charity (the CRT appraisal). The per-share time the taxpayers made donations to
the investment advisers presented the value was equal to the tender offer the tax- certain charities, the merger in question
taxpayer with five offers from various payer ultimately accepted for the company. was “practically certain” to be executed,
corporations. Three days after receiving The tender offer accepted by the tax- given the targeted search by the taxpayers
the offers, the taxpayer transferred shares payer involved an initial cash payment for to find merger candidates, the generous
of his company to a two-year GRAT and a portion of the outstanding shares of the terms of the merger, and the exclusive
retained an annuity stream for a two-year company that was equal to roughly three negotiations with one of the corporations
period. The annuity payments were based times more than the value determined immediately prior to the final agreement.
on a fixed percentage of the initial FMV under the GRAT appraisal that was used In Ferguson, the tender offer started
of the property transferred to the GRAT. to report the value of the shares transferred on Aug. 3, 1988. Twelve days later, the
The company’s shares were valued based to the GRAT on the taxpayer’s gift tax taxpayers donated some of their shares in
on an appraisal of the company on Dec. return. Roughly six months following the the target company to certain charities.
31 of year 1, which was roughly seven end of the GRAT’s two-year term, the On Sept. 9, 1988, the charities tendered
months before the shares were transferred purchasing corporation purchased the re- the donated stock. On Sept. 12, 1988,
to the GRAT (the GRAT appraisal). The maining balance of the company’s shares at the final shares needed to execute the
GRAT appraisal had been obtained to a price-per-share value that was nearly four merger were tendered. On or about Oct.
satisfy the reporting requirements for the times the value that was determined under 14, 1988, the merger was completed. The
company’s nonqualified deferred com- the GRAT appraisal. IRS stated in the CCA that, although the
pensation plans under Sec. 409A. The The IRS noted that the value of a Ferguson opinion deals entirely with the
GRAT appraisal was prepared before any gift for gift tax purposes is based on the assignment-of-income doctrine, it also
discussions and/or offers to sell shares willing-buyer, willing-seller test.19 It then relies on the belief that the facts and cir-
occurred and, therefore, did not reflect summarized case law establishing that cumstances concerning a transaction are
these facts. the willing buyer and willing seller are relevant to determining whether a merger
Approximately three months after the hypothetical persons and the meaning is likely to be executed.
taxpayer received the initial offers, four of of the phrase “reasonable knowledge of The IRS determined that the facts of
the corporations submitted final offers. relevant facts.”20 Finally, it stated that the the CCA present an issue similar to Fer-
Several weeks after the final offers were value of property for gift tax purposes guson with respect to whether the FMV
received, the taxpayer transferred shares generally does not take into consideration of the stock should take into consider-
of the company to a charitable remainder post-transfer events but that case law has ation the odds of the merger as of the
trust (CRT) and retained an income allowed consideration of such post-transfer date of the transfer of the shares to the

18. As defined in Sec. 170(f)(11)(E). 20. Estate of McCord, 120 T.C. 358 (2003), rev’d on other grounds, 461 F.3d
19. The price at which property would change hands between a willing buyer 614 (5th Cir. 2006); Estate of Newhouse, 94 T.C. 193 (1990); see also
and a willing seller, neither being under any compulsion to buy or sell, Estate of Kollsman, T.C. Memo. 2017-40, aff’d, 777 Fed. Appx. 870 (9th
and both having reasonable knowledge of relevant facts. See Regs. Sec. Cir. 2019).
25.2512-1. 21. Ferguson, 174 F.3d 997 (9th Cir. 1999), aff’g 108 T.C. 244 (1997).

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