Valuing LLC interests: How to lose in Tax Court

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Abstract: After the IRS determined that an estate had underreported the value of its interest in a limited liability company (LLC), it assessed an estate tax deficiency. The estate responded with a new appraisal, prepared by another professional appraiser, which valued the LLC interest at a figure that was lower than what was reported on the estate tax return. The estate sought a refund. While the Tax Court seemed sympathetic to part of the estate’s argument, it ultimately refused to admit the second appraisal into evidence at least partly because the second appraiser wasn’t available to testify in support. This article emphasizes the importance of having a valuation supported by a qualified valuation expert. A sidebar discusses how LLCs and family limited partnerships (FLPs) can save taxes.