Qualified Independent Appraisal of Retirement Plan Assets                    

 

Resources

Case Law Research
 
  • Charles T. McCord, Jr. and Mary S. McCord v. Commissioner, 120 T.C. No. 13 (May 14, 2003).
  • Clarissa W. Lappo v. Commissioner, T.C. Memo 2003-258 (September 3, 2003).
  • Peter S. Peracchio v. Commissioner, T.C. Memo 2003-280 (September 25, 2003).
  • Estate of Jelke v. Commissioner, T.C. Memo 2005-131 (May 31, 2005).
  • Pierre v. Commissioner of Internal Revenue, 133 T.C. No. 2 (2009).
  • Estate of Sanford v. Commissioner, 308 U.S. 39, 44 (1939).
  • Burnet v. Guggenheim, 288 U.S. 280, 286 (1933).
  • In re KRSM Properties, LLC, 318 B.R. 712 (9th Cir. Bank App. 2004).
  • Stone v. Advance America (3/20/09) 2009 U.S. Dist LEXIS 24762; 2009 WL 765665.
  • In re Albright, No. 01-11367 (Colo. Bkrpt. April 4, 2003).
  • In re KRSM Properties, LLC, 318 B.R. 712 (9th Cir. Bank App. 2004).
  • Peter S. Peracchio v. Commissioner, T.C. Memo 2003-280, (September 25, 2003).
  • R&R Capital, LLC v. Buck & Doe Run Valley Farms, LLC, No. 3803-CC (Del. Ch.Aug. 19, 2008).
  • Mandelbaum v. Commissioner, T.C. Memo (1995-255).
  • McCord v. Commissioner, 120 T.C. at 390-393.
  • Dallas v. Commissioner T.C. Memo 2006-212, (September 28, 2006).
  • Kohler v. Commissioner T.C. Memo 2006-152, (July 25, 2006).
  • Huber v. Commissioner T.C. Memo 2006-96, United States Tax Court, (5/9/06).
  • Estate of Blount v. Commissioner U.S. Tax Court No. 540-02.
  • Estate of Strangi Appeal No. 03-60992, United States Court of Appeals for the FifthCircuit, (7/15/05).
  • Estate of Bongard v. Commissioner 124 T.C. No. 8, United States Tax Court, (3/15/05).
  • TravelCenters of America, LLC v. Brog, No. 3516-CC (Del. Ch. Apr. 3, 2008).
  • Betsy T. Turner, Executrix of the Estate of Theodore Thompson, Deceased v. Commissioner No. 03-3173, United States Court of Appeals for the Third Circuit, (9/1/04).
  • Estate of Lea K. Hillgren T.C. Memo 2004-46, (3/3/04).
  • Dailey v. Commissioner T.C. Memo. 2001-263, (10/03/01).
  • Estate of Heck T.C. Memo. 2002-34 (2/05/02).
  • Estate of Harper T.C. Memo 2002-121, (5/15/02).
  • Okerlund v. U.S. United States Court of Federal Claims, Consolidated Nos. 99-133T & 99-134T, (8/23/02).
  • David A. Kimbell Sr., et al. v. United States US Dist Court N Dist Texas, No. 7:01-CV-0218-R, (1/14/03).
  More on Discounts

Taxable events related to retirement accounts involve the Fair Market Value report you provided to your IRA custodian, if you hold an LLC or other private investment in your IRA. Therefore, the lower the fair market value of the IRA assets the less taxes you will have to pay on a taxable event. But equaly important, is you must have an appraisal that meets the requirements given by the IRS.

The concept of "fair market value" arises in other areas of taxation as well, including gift tax and estate tax. There is abundant case law to refer to. For all tax purposes, "fair market value" is based on a traditional "willing buyer - willing seller" standard. Specifically, the fair market value of an item of property is "the price at which the property would change hands between a hypothetical willing buyer and a hypothetical willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts."  U.S. v. Cartwright, 411 US 546 (1973). Reg. § 20.2031-1(b); Reg. § 25.2512-1; Reg. § 1.170A-1(c)(2).

The restrictive terms contained in many operating agreements of LLCs provide the opportunity to discount the value of the LLC for tax purposes.

Fair Market Value can be lowered based on the lack of marketability and lack of control over assets held in some LLCs. The standard of "fair market value" is an objective test using hypothetical buyers and sellers; it is not a personalized one that envisions a particular buyer and seller. Commissioner, 66 T.C.M. 1297, 1299 (1993). All relevant facts and elements of value as of the applicable valuation date must be considered in every case. Reg. § 20.2031-1(b). The determination of value must be made as of the valuation date without regard to hindsight.  Knowledge of future events that might affect value cannot be attributed to the hypothetical willing sellers and buyers. Reg. § 20.2031-1(b).

 

The magnitude of these discounts range from 10% to 40% of the value of the underlying assets held in a LLC or IRA, although most are in the 30% range. Discounted Valuation Strategies for ROTH conversions and taking distributions can save you thousands of dollars in taxes and is based on established case law.

 

Example:

If the IRA you are converting to a ROTH holds assets you purchased for $100,000 last week and you have an independently prepared Fair Market Valuation report with a value of $70,000, a person in the 35% tax bracket will save $10,500 in taxes.

  
Additional Regs and IRC 
 
See "check-the-box" regulations of secs. 301.7701-1 through 301.7701-3, Proced. & Admin.

Regs.§ 2036, Business Loan Agreement, Business Purpose, Discount for Lack of Voting Rights, Discount for Lack of Control, Discount for Lack of Marketability Family Limited Partnerships, I.R.C. 2036(a)Burden of Proof, USPAP, Alternate Valuation Date, Dividend MethodTax-Affecting S Corporation Earnings, Discount for Lack of Marketability, Self Cancelling Installment Note, Arm's Length Family Member Sales, Family Limited Partnership, Bona Fide Sale, Retained Income or Rights.

Regs.§ 2703, Non-Operating Assets, Life Insurance Proceeds.

Regs.§2701 and §2703, State law restrictions in valuing transfers and Congress having not acted to eliminate entity related discounts for LLCs or other entities generally, or for single-member LLCs specifically. 

Rev. Rul. 77-287 § 4.02, Single Member LLCs and Estate & Gift Tax Treatment.
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