Question
Estate&Gift Taxation-Valuation part D owns stock in two closely-held corporations. In one company, Smith & Smith, Real Estate Inc., the decedent owns 85% of the
Estate&Gift Taxation-Valuation part
D owns stock in two closely-held corporations. In one company, Smith & Smith, Real Estate Inc., the decedent owns 85% of the stock. The primary asset of this
company is a group of commercial properties that have an appraised value of $3,000,000, and book value of $500,000. The second company, Future Tech,
Inc. makes computer software for kids with learning disabilities. The decedent owns 40% of this company. Future Tech's earnings have been increasing
dramatically for the four year period prior to D's death.
(a) How should D's interests in these companies be valued?
(b) Assume that the underlying asset value of Smith & Smith translates to a value of $100 per share and an earnings approach for Future Tech translates to a
value of $200 per share. What discounts are available for valuing the stock of each company?
(c) What if D owned 100% of both companies?
(b) What if Future Tech also owns a cattle ranch in Colorado?
(d) Assume instead that D held a 4% interest in Future Tech. The other 96% of
the stock was held by two individuals, A, who owned 48% of the company, and
B, who owned the other 48%. How, if at all, does this effect the value of D's
stock.
(e) What if the 85% interest in Smith & Smith described in part (a) represented
the community property of D and his spouse?
(f) Assume that D dies in 2018 owning 10% of Smith & Smith. D's estate tax return is examined and it is determined that said stock is worth $40 per share.
Suppose that Y also dies in 2018 owning an identical block of the same stock that was owned by D. Is Y's estate bound by the value adopted in D's estate?
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