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While the CCA cites Regs. Sec. adjusted — resulting in more of the shares should be followed. The appraisal should
25.2702-3(b)(2) for the requirements of a of the company and/or its income being be dated as of the date of the transfer or
qualified annuity interest, the IRS failed to paid to the taxpayer. not more than 60 days prior to the date
address the application of this requirement The IRS has audited a number of of transfer. ■
to the facts before it. One can assume that GRATs over the last few years, with the
this provision was in the GRAT instru- result as previously stated, if the property
ment, as the IRS states that the GRAT transferred to the GRAT was underval-
appeared to meet the requirements of Sec. ued. However, the CCA shows the IRS’s Contributors
2702 and Regs. Sec. 2702-3. willingness to invalidate a GRAT when
The question for the IRS, then, is the taxpayer uses an egregious valuation. Justin Ransome, CPA, J.D., MBA, is
why did it ignore its own regulations, This CCA serves as a warning to taxpay- a partner in the National Tax Depart-
specifically, Regs. Sec. 25.2702-3(b)(2)? ers about the need to get good appraisals ment of Ernst & Young LLP in Wash-
In Rauenhorst,23 the IRS made an argu- for gift and estate tax purposes and to be ington, D.C. He would like to thank his
ment contrary to one of its published mindful of this new argument, particularly colleagues in the firm’s National Tax
revenue rulings. The Tax Court held that where views regarding the valuation of an Department in Private Tax for their con-
the IRS could not do so unless it first asset may differ significantly. It is question- tributions to this article, as well as Fran
revoked the ruling. That should be the able whether a court would agree with the Schafer for her thoughtful comments
case especially with regard to current Trea- IRS in this case, since the IRS did not ad- on the article. The views expressed
sury regulations. dress Regs. Sec. 25.2702-3(b)(2); however, here are those of the author and
It also is questionable whether Ferguson as it stands, the IRS may use this reasoning do not necessarily reflect the views of
should apply to valuation cases. Ferguson in similar situations going forward. Ernst & Young LLP. For more informa-
is an anticipatory assignment-of-income As a rule of thumb, the rules for a tion about this article, contact
case; valuation was not at issue. The CCA qualified appraisal for income tax chari- thetaxadviser@aicpa.org.
had already cited other cases in which table deductions in Sec. 170(f)(11)(E)
post-death events could be considered
for purposes of the willing-buyer, willing-
seller test, and it may have been reasonable
to take into consideration for valuation AICPA RESOURCES
purposes the likelihood that the company
Podcast episode
might be sold. However, that does not
require that the valuation equal the price “Five Questions to Get Clients to Act on Their Estate Planning”
of the ultimate sale. Webcast
Regarding the application of Atkinson,
Estate & Trust Primer, Dec. 2, Noon–4 p.m. ET
nothing in the facts of the CCA indicated
that the GRAT was not being adminis- Publication
tered pursuant to the terms of the GRAT The Adviser’s Guide to Financial and Estate Planning, Vol. 1
instrument. There was no “operational
PFP Section resource (members only)
failure” as there had been in Atkinson (i.e.,
the failure of the trustee to make the an- 2022 Individual, Estate, and Gift Tax Cheat Sheet
nual annuity payments). Valuation was the CPE self-study
issue and should have been addressed by
Estate Planning Certificate Program (Exam + Course)
the IRS via Regs. Sec. 25.2702-3(b)(2).
If Regs. Sec. 25.2702-3(b)(2) had been Estate & Trust Primer — Tax Staff Essentials
followed in this case, the parties would For more information or to make a purchase, visit aicpa.org/cpe-learning or call
have agreed upon a valuation of the shares the Institute at 888-777-7077.
on the date of transfer to the GRAT and
the annuity payments would have been

23. Rauenhorst, 119 T.C. 157 (2002).

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