In a recent Technical Advice Memorandum ("TAM"), the IRS concluded that when gifts of closely-held stock are made simultaneously to multiple donees, the value of each gift will be determined without regard to the donor's aggregate stock ownership prior to the gift. The TAM involved the transfer of a wholly-owned corporation to the donor's 11 children. After the transfer, the corporation was owned by 11 shareholders, each owning approximately 9% of the outstanding stock. The IRS concluded that the gift to each donee must be valued separately, applying appropriate discounts for lack of control or marketability.
This valuation approach differs from the estate tax context, in which the decedent's shares would be valued as a single block, even though they may be bequeathed to several legatees. As a result, the value of property that is the subject of multiple simultaneous gifts may differ from the value of the same property if it were held until death and included in the donor's gross estate. This TAM and prior revenue rulings confirming that corporate control within a family will not be considered in valuing gifts of closely-held stock, highlight the potential tax advantages of gifting closely-held stock during lifetime.
Our clients are actively taking advantage of a number of techniques that are available to "fractionalize" interests in order to transfer property to lower generations at substantially discounted values.
