Valuation and Planning Lessons From SmaldinoValuation and Planning Lessons From Smaldino
Tax Court applies IRC Section 2701 special valuation rules.
The recent Tax Court decision in Smaldino v. Commissioner1 provides important lessons regarding the valuation of gifts of discounted interests in a family limited partnership. In that case, Louis P. Smaldino placed 10 rental properties in Southern California in Smaldino Investments, LLC (Smaldino Investments) in late 2012. The entity was owned through Louis’ revocable trust. A few months later, in April 2013, he transferred effectively a 49% interest in Smaldino Investments to an irrevocable trust. But there were a few wrinkles to this transfer:
Approximately 41 percentage points of the transfer were made indirectly by first transferring this portion to Louis’ wife, Agustina. Agustina then transferred it, the next day, to the irrevocable trust —at least according to the transfer documents.2
Smaldino Investments had two classes of interests. The senior voting interest also had the right to receive a guaranteed payment of $10,000 per month. What impact, if any, should that have on the valuation of the gift?
Gift Tax Return and Audit
To prepare their 2013 gift tax returns, the Smaldinos retained an appraiser who valued a 49% interest in the class B units of Smaldino Investments at $6,281,000. This a...
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