ESTATE OF JOHN KOONS III v. COMMISSIONER OF INTERNAL REVENUE (U.S. Tax Court)

One issue at hand between the parties is the lack of marketability discount rate used to value the revocable trust’s 50.5% interest in CI LLC.   Petitioners contend that a 31.7% rate is appropriate while the respondent finds a 7.5% discount is sufficient, resulting in an approximately $40 million difference in value of the interest in question.  At the time of death, Koons’ 50.5% interest included a 49.94% voting interest and 51.59% nonvoting interest.  Upon his death, the children’s total interest in CI LLC would increase to 70.93% with 70.42% voting interest and 71.07% nonvoting interest.  Because a voting interest that results from Koons’ death would enable the trust to sell most of its interest in the entity and receive approximately $140 million, this was the minimum distribution from the interest and as such, the respondent’s finding that the interest would only be worth $110 million after discounts is improper.

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