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Duly Noted

Tax Court’s ‘Imaginary Scenario’ Reversed On Appeal. A federal appeals court sided with the taxpayer in an estate tax fight over the value of a 41 percent interest in a family business. The estate of Natale Giustina valued its limited partner interest in the Giustina Land and Timber Co. at $12.7 million, but the Tax Court set the value at nearly $27.5 million. The Tax Court looked at the underlying value of the partnership’s assets, and concluded that there was a 25 percent likelihood that the partnership would be liquidated. The 9th Circuit ruled that this was “clear error” because there was no evidence that a buyer of the estate’s interest could obtain a liquidation, which would require a two-thirds vote. The appeals court also found clear error in the Tax Court’s unexplained decision to cut in half the risk premium that the estate’s expert used to value the partnership interest. The case was returned to the Tax Court to recompute the value of the estate’s interest. Estate of Natale B. Giustina v. Commissioner, 2014 TNT 235-16.

Small LLC Interest Does Not Require California Corporate Filing. An aggressive effort by California tax authorities to force out-of-state corporations to file returns in the Golden State was rejected by a Superior Court judge. Judge Kristi Culver Kapetan granted summary judgment to Swart Enterprises Inc., an Iowa corporation that held a 0.2 percent interest in a limited liability company treated for tax purposes as a partnership. The Franchise Tax Board argued that merely owning this interest meant the Iowa corporation must file a California return and pay at least the $800 minimum annual corporate tax, plus interest and penalties. But the court observed that the out-of-state company had no management powers and no direct ownership of the LLC’s California property or other business assets, and concluded that Swart therefore is not doing business in California. Swart Enterprises, Inc., v. California Franchise Tax Board, Case No. 13CECG02171.

New Law Means New Flexibility For 529 Plans. Holders of 529 college funding accounts now can make changes to their investment allocations twice each year rather than once. The change was included in the Tax Increase Prevention Act of 2014, otherwise known as H.R. 5771, which President Obama signed into law Dec. 19. The primary purpose of the legislation was to extend a variety of tax provisions that would have otherwise expired.

If you enjoyed this article, be sure to check out Palisades Hudson’s books, The High Achiever’s Guide To Wealth and Looking Ahead: Life, Family, Wealth and Business After 55. Both are available in paperback and as e-books.