Authored by Dustin J. Crespin and Chris D. Treharne, ASA, MCBA, CFFA of Gibraltar Business Appraisals, Inc. a member firm of FCG Issue 15:2
Estate of John F. Koons III, Deceased, A. Manuel Zapata, Personal Representative, Petitioner V. Commissioner of Internal Revenue, Respondent
John F. Koons III, Revocable Trust, Estate of John F. Koons III, Deceased, A. Manuel Zapata, Personal Representative, William P. Martin II, A. Manuel Zapata, Robert W. Maxwell II, Keven E. Shell, Michael S. Caudill, and D. Scott Elliott, Trustees, Petitioners V. Commissioner of Internal Revenue, Respondent
TC Memo 2013-94, Docket Nos. 19771-09, 19772-09, Filing date April 8, 2013, Judge Morrison
The Estate of John F. Koons III claimed an interest expense deduction of $71,419,497 on a $10,750,000 loan related to estate administration. Further, it asserted the fair market value of the John F. Koons III Revocable Trust’s (Revocable Trust) interest in Central Investment LLC (CI LLC) on March 3, 2005, was $117,197,442.72. Disputing the preceding, the IRS issued a notice of deficiency in 2009.
The Takeaway
The Revocable Trust owned a 70.42% voting interest (implying a control level of value) in a company having 92% of its assets in cash, and the court accepted a 7.5% discount for lack of marketability. In part, the discount was justified by contractual restrictions imposed on the company’s net worth, a potential lawsuit, and the need to get approval of a 75% supermajority of owners to transfer member interests.