I was surprised to see the Tax Court issue a numbered opinion (Estate of Kahn , 125 T.C. No. 1) involving whether the estate tax value of IRAs could be reduced by the anticipated income tax liability that the beneficiaries would incur. I thought there was well-settled law on that matter, so I anticipated the Tax Court was going to blaze a new trail.According to the estate, the only way that the owner of the IRAs could create an asset that a willing seller could sell and a willing buyer could buy would be to distribute the underlying assets in the IRAs and to pay the income tax liability resulting from the distribution--a "cost" necessary to "render the assets marketable."
The Tax Court held that the value of the assets (securities) in IRAs isn't reduced by the anticipated income tax liability upon distribution. It also held that a lack of marketability discount wouldn't apply. It reasoned that the main problem with the estate's argument is that it is "trying to draw a parallel where one does not exist by comparing this situation to situations where a reduction in value is appropriate because a willing buyer would have to assume whatever burden was associated with that property--paying taxes, zoning costs, lack of control, lack of marketability, or resale restrictions. In this case, a willing buyer would be obtaining the securities free and clear of any burden."
So what was my conclusion after reading the opinion? There is nothing new here. The denial of the reduction in value for estate tax purposes is just a recital of well-established law and the Court's language denying the lack of marketability is well written, but shouldn't surprise anyone.
The only interesting aspect of the opinion is that the Tax Court did recognize the Section 691(c) deduction doesn't provide complete relief against the double taxation, indicating that was a Congressional choice. But, then again, Congress, over the years, has deemed fit to do nothing to correct the inequity that can result when an IRA is included in a gross estate for federal estate tax purposes. I rather doubt that this engraved invitation in the form of a numbered Tax Court opinion will result in Congressional corrective action.
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