A charitable freeze technique that used a complex contribution formula was considered by the Ninth Circuit Court of Appeals in Petter v. Commissioner, No. 10-71854 (2011). The charitable freeze is a technique that readjusts a simultaneous gift/charitable contribution combo if the IRS successfully challenges a valuation of the gift, shifting additional value from the gift component to the charitable contribution component to eliminate any gift taxation resulting from the challenge.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of estate planning in Advisor’s Journal, see What Next? ILITs and Estates under 5MM (CC 11-114).

For in-depth analysis of estate freeze techniques, see Advisor’s Main Library: E—Estate Planning For The Family Business.

Today we re-examine the case in-depth, focusing on how the IRS utilizes the step transaction doctrine to deny taxpayers valuation discounts.  The case is yet another example of how important the dating of transactions is when you’re looking to secure a valuation discount.  A single date on a document can mean the difference between a substantial valuation discount on a gift and the expense of fighting the IRS through the court system.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of valuation discounts in Advisor’s Journal, see IRS Rebuffed by Federal Court of Appeals in Valuation Discount Case (CC 11-21), Vigorous Debate over Qualified Appraisal Standard for Valuation of Donated Policies (CC 10-92) & Valuation Discounts: Only for a Bona Fide Business (CC 10-60).

For in-depth analysis of gift tax valuation discounts, see Advisor’s Main Library: A—Family Limited Partnerships and Estate & Gift Tax Valuation Discounting.

Valuation discounts will always be a disputed issue between taxpayers and the IRS, but as illustrated by the recently published Ninth Circuit Court of Appeals case, a properly timed gift can still qualify for a discount.  The parents contributed cash, securities, and real property to an LLC and then transferred LLC interests to a trust (“the children’s trust”) naming their children as beneficiaries.

The IRS rejected the valuation discount, claiming that the parents did not make a gift of the LLC interests to the trusts as they claimed, but instead made an indirect gift of the assets owned by the LLC. The IRS also argued that, even if the LLC were funded prior to the gifting of the LLC interests to the children, the transaction’s two steps—transfer of assets to the LLC and the gift of the LLC interest to the children’s trust—were really a single transaction, an indirect gift of the assets, under the step transaction doctrine.   Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).