Steve Akers' Summary of Estate of Murphy vs. United States, U.S. Dist. Ct. W.D. Ark. El Dorado Division, Case No. 07-CV-1013 (October 2, 2009)

Steve Akers, Associate Fiduciary Counsel, Bessemer Trust, provides the following summary of Estate of Murphy vs. United States, U.S. Dist. Ct. W.D. Ark. El Dorado Division, Case No. 07-CV-1013 (October 2, 2009):

In another John Porter case, the IRS alleged a deficiency of over $34 million plus interest. A federal district court in a refund action that is an almost total taxpayer victory addressed very interesting issues including the following.

1. The bona fide sale for full consideration exception to §2036 applies for transfers to an FLP that was created to centralize management and prevent dissipation of family assets.
2. Rule 144/blockage discounts are allowed in valuing substantial blocks of stock of various companies owned by the FLP (with discounts ranging from 1.3% to 10.6%).
3. Lack of control and marketability discounts of 12.5% and 32.5%, respectively (for a combined seriatim discount of 41%) are allowed in valuing decedent's approximate 95% limited partnership interest.
4. Tiered discounts are allowed in valuing decedent's 49% interest in an LLC that was the sole general partner of the FLP (for an overall combined discount of 52%).
5. Interest deductions are allowed for estate tax purposes on interest that will accrue on a 9-year $11 million Graegin note for a loan from the FLP. Interest paid to date on another $14 million note that is not a Graegin note is also deductible. The borrowed funds were used to pay estate taxes because of a lack of liquid funds in the estate.

Please click here for a more detailed summary of the Murphy case.

Posted by Lewis J. Saret, General Editor, Wealth Strategies Journal.