As the Wall Street Journal recently reported, a Washington State case recently upheld a taxpayer’s right not only to take a valuation reduction for LLC units but also to redirect gifts which unintentionally exceed the gift tax exemption to a charity.
Discounts are a common technique for making gifts. The idea is that if you place property into an LLC and then distribute ownership units in that LLC, each unit will have a lower value than the whole because no one collection of units controls the LLC. These minority interests are often discounted substantially. In the case described in the article, the estate took at 51% discount but settled later with the IRS for a lower discount.
Valuations are common and generally accepted (although subject to constant attack by the IRS). The issue in the case really involved the feature of the plan that automatically gifted to a charity any amount in excess of the $1 million gift tax exemption. The IRS wanted, instead, to collect more gift tax but the court found in favor of the taxpayer.
The IRS can change its regulations, however, so this win might be short-lived. If you have a large estate or significant assets that you would like to gift while alive, please call for a free consultation.