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Publisher’s Estate Wins 21% Valuation Discount

A prominent publisher’s estate apparently saved more than $3 million in taxes when a federal appeals court allowed a 21% discount in valuing some of the publisher’s stock.

At his death in 1989, McClatchy Newspapers CEO Charles McClatchy held more than 2 million untraded Class B shares in the company. The shares were convertible into publicly traded Class A shares, but because of his company affiliation, McClatchy was subject to trading restrictions. His estate, however, was not subject to the restrictions.

The IRS contended, and the Tax Court agreed, that the shares should be taxed based on the unrestricted value of $15.56 per share. But a divided panel of the Ninth U.S. Circuit Court of Appeals reversed the Tax Court. “Making the amount of the estate tax dependent…on the status of the executor contradicts the principle that valuation should not depend on the status of the recipient,” the court wrote. Taking the restrictions into account, the stock was valued at just under $12.34 per share, knocking more than $6.5 million off the IRS valuation of McClatchy’s total estate. Estate of Charles K. McClatchy v. Commissioner, 81 AFTR2d ¶98-5001.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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