Tuesday, May 21, 2013
Patrick J. Duffey (The Duffey Law Firm, Boca Raton, FL), Brian K. Duffey (The Duffey Law Firm, Boca Raton, FL) & Lee-ford Tritt (Florida), A Question of Value: The Evolution of Formula Clauses Through The Decades, 47 Real Prop. Tr.& Est. 467 L.J. (2013):
Wealthy families often use closely-held businesses to manage, preserve, and transfer wealth. These entities are difficult to value and, therefore, present estate planning and transfer challenges when owners attempt to give or sell portions of the business. Attorneys often use formula clauses to ensure predictability in the parties' expected tax liability. Recently, the Tax Court decided Wandry v. Commissioner [T.C. Memo. 2012-88 (Mar. 26, 2012)] in favor of the taxpayer, where the taxable transfer employed a defined value clause with a non-charitable valve. Until this decision, courts have endorsed only the use of charitable valves in conjunction with defined value clauses. This Article analyzes the Tax Court's decision in Wandry and attempts to fit it within well-established case law decided in the last century. Although Wandry was decided in favor of the taxpayer, this Article suggests that attorneys who step outside the boundaries of court-blessed formula clauses do so at their own risk.
Prior TaxProf Blog coverage:
- Wendy C. Gerzog (Baltimore), Wandering Far Afield With Defined Value Clauses, 135 Tax Notes 1171 (May 28, 2012)
- WSJ: Tax Court Blesses Tax-Free Technique for Parents to Transfer Family Business, Wealth to Their Children (Apr. 29, 2012)