FCG Valuation Case E-Flash Richard v. Commissioner

Authored by John Walker and Chris D. Treharne, ASA, MCBA, BVAL of Gibraltar Business Appraisals, Inc. a member firm of FCG Issue 14:4

Estate Of Alfred J. Richard, Deceased, Gary H. Richard And Peter C. Richard, Co-Executors, Petitioners V. Commissioner Of Internal Revenue, Respondent

T.C. Memo. 2012-173, Docket No. 9876-09, Filed June 20, 2012, Judge Joseph Robert Goeke

In an unusual case, a wife owning preferred shares in a closely-held company predeceased her husband. Almost six years after her husband’s death, his personal representatives discovered the wife’s will 13 years after her death. At issue for the court is whether the wife’s shares are includable in the husband’s estate.

The Takeaway
The estate valued the Decedent’s preferred stock at its par value, $1,000 per share. In contrast, the IRS valued the preferred shares at $192,166.22 per share. While the valuation dispute will be settled subsequent to this case, readers can nonetheless benefit by realizing that the fair market value of closely-held preferred shares likely will not be par value. Many factors (including contemporaneous market rates for preferred stock, cumulative versus noncumulative dividends, call features, convertibility, etc.) may affect fair market value in relation to par value

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