Taxpayer challenges IRS’ aggregation of two minority pursuits into one controlling curiosity for valuation functions—In Property of Epstein v. Commissioner, No. 11534-23 (T.C. 2023), the property filed a petition difficult a $2.6 million tax deficiency, arguing that the IRS improperly mixed restricted companion (LP) and common companion (GP) pursuits when valuing an curiosity in an condo advanced for property tax valuation functions. On Jerry Epstein’s loss of life, a marital belief created by his late spouse held an 8.746% LP curiosity and a 1.2% GP curiosity, and a survivor’s belief held a ten.4% LP curiosity. The IRS valued the marital belief’s pursuits at a complete of $15.59 million versus the property’s worth of $12.6 million, and the IRS valued the survivor’s belief curiosity at $16.4 million versus the property’s $13.1 million, for a complete distinction of $6.29 million. Amongst different arguments, the property claimed the IRS improperly aggregated the LP and GP pursuits within the two trusts to reach at its valuation. 

The IRS has misplaced on a number of makes an attempt to mixture two minority pursuits held in numerous capacities into one controlling curiosity and has now conceded the difficulty within the case of certified terminable curiosity property (QTIP) marital trusts; that’s, property passing to a person’s property isn’t aggregated, for property tax valuation functions, with property in a QTIP marital belief that’s included in such particular person’s gross property underneath IRC Part 2044. See Property of Brilliant v. United States, 658 F.second 999 (fifth Cir. 1981); Property of Bonner v. U.S., 84 F.3d 196 (fifth Cir. 1996); Property of Mellinger v. Comm’r, 112 T.C. 26 (1999); Property of Nowell v. Comm’r, 77 T.C.M. 1239 (1999); Property of Lopes v. Comm’r, 78 T.C.M. 46 (1999); and AOD-1999-006 (Aug. 30, 1999). The IRS has acquiesced to this line of circumstances.

The above courts famous that the surviving partner doesn’t possess, management or have any energy of disposition over the belongings within the QTIP belief; that’s, the surviving partner’s property didn’t have management over the belief belongings “such that it may act as a hypothetical vendor negotiating with patrons freed from the handicaps related to fractional undivided pursuits. The valuation of the belongings ought to replicate that actuality.” Property of Bonner v. U.S., 84 F.3d 196, at p. 199. So it appears probably the Tax Court docket in Epstein will rule in favor of the property on this declare.