Two Halves Do Not Make a Whole

Stepping away from celebrities for a minute and focusing on estate laws, yesterday the IRS issued proposed regulations to minimize valuation discounts in estate planning. In a nutshell, the regulations prohibit taxpayers from dividing property between family members and then claiming their proportionate shares are not worth the exact proportion because that small proportion does not have control of the property. Wonky? Yes.

Three small points:

1. These regulations have been bandied about for 25 years.

2. From a practice viewpoint, I have never completely bought into the idea of valuation discounts for marketable securities transferred to an LLC or partnership solely for the purpose of obtaining a reduced value for estate tax purposes.

3. Nonetheless, this issue seems to be one for Congress to address through legislation rather than one more edict from a lame duck (re: imperial) administration to issue in its waning days.

Pistons, Lightning, Shock, and Fury

William Davidson was the owner of the Detroit Pistons, Tampa Bay Lightning, and Detroit Shock (WNBA). When he died in 2009, he was listed as the 62nd richest man in the U.S. His estate recently settled litigation with the IRS over the amount of estate taxes owed. The IRS claimed that the estate owed an additional $2.8 billion (yes, with a B) in estate taxes. The dispute involved the value of closely held stock transferred to various trusts. The estate settled for $388 million.

Points, if I must:

1. I would call this a victory for the estate given that the IRS was seeking 7X more than the settlement amount.

2. Of course, it is never a victory for the family when they had already presumably paid more than $1 billion in estate taxes and were fighting over the incremental taxes.

3. All of this begs the question about how much estate tax is enough from one individual. If Democratic candidate nee Socialist Bernie Sanders were president, Davidson's tax bill would have been $1 billion more.

4. Last, if one owns a professional sports team, or three, good estate planning advice is essential.

What in the Name of Tony Oliva?

Carl Pohlad was the owner of the Minnesota Twins.  He died in early 2009.  His estate is currently embroiled in a $121 million dispute with the IRS about the value of his ownership interest and the commensurate estate taxes owed.  The IRS claims that his interest was worth $293 million while his executor claims it was only worth $24 million.  The executor's value is much lower because it claims that even though Mr. Pohlad owned a majority interest in the team through several entities, he owned only 10% of the voting shares and he died when the stock market was at a 12 year low.       

Several points:

1.  Fractional interests of privately held businesses are difficult to value.

2.  Voting control of an entity is worth significantly more the non-voting interests.

3.  Mr. Pohlad died when the financial markets had collapsed and the stock market was being pummeled. However, baseball teams with television contracts and other revenue streams have different business cycles than financial institutions, and should not be valued in the same manner.  

4.  As if the Twins habitually losing to the Yankees in the regular season and the playoffs is not ignominious enough, it has be to be more galling to the Pohlads and Twins fans that George Steinbrenner's estate did not pay any federal estate taxes on his $1.6 billion (yes, with a B) interest in the Yankees because he died in 2010 when there was no federal estate tax.