Piper v. Comm'r of Internal Revenue (In re Estate of Piper)
| Decision Date | 13 September 1979 |
| Docket Number | Docket No. 2533-76. |
| Parties | ESTATE of WILLIAM T. PIPER, SR., DECEASED, WILLIAM T. PIPER, JR., THOMAS F. PIPER, and HOWARD PIPER, EXECUTORS, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Donor made a gift of all the issued and outstanding stock of two investment corporations. These corporations, the donor, and members of the donor's family owned shares constituting a substantial block of the issued and outstanding stock of another corporation (PAC), whose shares were listed and traded on the New York Stock Exchange. The stock of the two investment companies and the PAC stock held by them were unregistered. Held, tax purposes:
1. Donor was a “control person” of PAC within the meaning of the Securities Act of 1933 and, as such, could have compelled PAC to register its shares held by the investment corporations, with the result that, in determining the net asset value of those corporations, the PAC shares owned by them should be treated as restricted stock but should be valued on the basis of the price at which those shares were traded on the New York Stock Exchange on the date of the gift, less a discount for the cost involved in registering and selling such shares;
2. In determining such net asset value, no additional value should be included for prepaid or deferred expenses of the investment
3. No reduction in net asset value should be allowed for the potential capital gains tax attributable to the possible sale of the PAC shares held by the investment corporations;
4. A further discount should be allowed because of the nondiversified portfolios of the investment corporations;
5. A further discount should be allowed for lack of marketability of the gifted shares. Donald C. Young, for the petitioner.
Russell F. Kurdys, for the respondent.
Respondent determined a deficiency in William T. Piper, Sr.‘s gift tax for 1969 in the amount of $411,839.57. The only issue for decision is the valuation of all the was the subject of gifts from William T. Piper, Sr., to his son and to 11 trusts for the benefit of his grandchildren.
Some of the facts were stipulated and are found accordingly. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
William T. Piper, Sr. (Piper), died on January 15, 1970. His estate is the petitioner herein. The executors of his estate are his sons, Thomas F. Piper, William T. Piper, Jr., and Howard Piper.
Piper resided at Lock Haven, Pa. His gift tax return for the year 1969 was filed with the District Director of Internal Revenue at Pittsburgh, Pa.
The gifts reported on the gift tax return were made by Piper on January 8, 1969, and consisted of all the outstanding stock of Piper Investment Co., Inc. (Castanea). The donees of the gifts were Piper's son, William T. Piper, Jr., and 11 trusts created by Piper, contemporaneously with the making of the gifts, for the benefit of each of 11 of his grandchildren.1
Piper Investment was incorporated in Nevada on December 8, 1959. Castanea was incorporated in Pennsylvania on August 9, 1962. At all times relevant herein, Piper Investment had 12,125 shares of common stock outstanding, and Castanea had 10,000 shares of common stock outstanding. Neither corporation had any other class of stock.
Each of the corporations was funded at its inception by the transfer from Piper of Piper Aircraft Corp. (PAC) common stock in return for all the shares of stock of the new corporation. Piper transferred 25,000 shares of PAC common to Piper Investment in exchange for its 12,125 shares of common stock and transferred 45,000 shares of PAC common to Castanea in exchange for 10,000 shares of Castanea common stock. Piper had a basis of less than $1 per share in the PAC stock transferred to Piper Investment and Castanea. His basis in the shares of the new corporations received in these exchanges was the same as the basis of the PAC shares transferred. a 1-for-2 stock dividend, so that, at the time of the gifts, Piper Investment held 37,500 shares of PAC common, and Castanea held 67,500 shares.
Castanea and Piper Investment were formed by Piper upon the advice of an accountant, Warren G. Lefort, in order to achieve certain tax planning objectives, while at the same time maintaining control of his PAC stock. Because of the dividends-received deduction for intercorporate dividends and corporate tax rates lower than Piper's individual income tax rates, Piper's transfer of PAC stock to the two wholly owned investment companies resulted in reduced income taxes on the dividends received with respect to that stock. Each corporation was structured to avoid the tax on personal holding companies by the receipt of a sufficient proportion of the corporation's income as rental income, and, after amendment of the personal holding company provisions of the Internal Revenue Code in 1964, to the retirement of qualified preexisting indebtedness.
In order to avoid classification as a personal holding company, each corporation acquired real estate. In 1961, Piper Investment purchased real estate located in Overland, Mo., which it promptly leased, on a long-term basis, to the B. F. Goodrich Co.
Changes in Federal tax laws in 1964 made it necessary for Piper Investment to obtain additional income from real estate in order to continue to avoid the personal holding company tax.2 Therefore, in 1966, Piper Investment purchased a leasehold interest in real estate located in Pittsburgh, Pa., which it promptly subleased to Mack Trucks, Inc., under a long-term lease.
Each purchase was financed, in part, by a mortgage loan and, in part, by funds obtained by borrowing from a commercial bank, using the PAC stock owned by Piper Investment as collateral. the real estate in Overland, Mo., owned by Piper Investment was $535,600 and the fair market value of the property held by Piper Investment in Pittsburgh, Pa., was $394,000.
Shortly after its formation in 1962, Castanea purchased real estate located in Staten Island, N.Y. Castanea promptly constructed thereon a warehouse building and leased the premises to B. F. Goodrich Co. on a long-term basis. The acquisition and construction were accomplished in part by borrowing from a commercial bank using the PAC stock owned by Castanea as collateral.
On January 8, 1969, the fair market value of the real estate in Staten Island owned by Castanea was $1,435,000.
Both Piper Investment and Castanea were on the cash method of accounting for financial reporting and tax purposes. The book value of the corporations on January 8, 1969, as reflected in their balance sheets attached to the gift tax return are shown in tables I and II:
The amount at which the PAC shares were carried on Piper Investment's financial statements represented the date they were transferred by Piper to Piper Investment. The amount at which the PAC shares were carried on Castanea's financial statements represented the aggregate par value of the Castanea shares issued in exchange, each of which had a par value of $100.
The items carried on the corporations' books as deferred expenses or prepaid expenses represented professional fees...
To continue reading
Request your trial
-
Ward v. Comm'r of Internal Revenue
...speculative, such costs are not to be taken into account. Estate of Andrews v. Commissioner, 79 T.C. at 942; Estate of Piper v. Commissioner, 72 T.C. 1062, 1086-1087 (1979); Estate of Cruikshank v. Commissioner, supra. 7 Since the parties now agree on the fair market value of the land, the ......
-
Estate of Murphy v. Commissioner
...agreed that a minority discount was applicable, Harwood v. Commissioner [Dec. 40,985], 82 T.C. 239 (1984); Estate of Piper v. Commissioner [Dec. 36,315], 72 T.C. 1062 (1979); Estate of Heckscher v. Commissioner [Dec. 33,023], 63 T.C. 485, 497 (1975); Martin v. Commissioner [Dec. 42,311(M)],......
-
Yang v. Comm'r of Internal Revenue (In re Estate of Young)
...Estate of Andrews v. Commissioner, 79 T.C. 938, 1982 WL 11197 (1982) (discussing a minority discount); Estate of Piper v. Commissioner, 72 T.C. 1062, 1084–1086, 1979 WL 3788 (1979) (discussing a discount for lack of marketability for stock); Estate of O'Keeffe v. Commissioner, T.C. Memo.199......
-
Muhm v. Comm'r of Internal Revenue (In re Estate of Johnson)
...(1958); and Estate of Weil v. Commissioner, 22 T.C. 1267 (1954) (restrictive agreement affects estate tax valuation); Estate of Piper v. Commissioner, 72 T.C. 1062 (1979); and Bolles v. Commissioner, 69 T.C. 342 (1977) (restrictions under Federal securities laws affect fair market value); W......
-
Table of Cases
...v. Comm'r, 94 T.C. 193 (1990): 23.6 Estate of Nowell v. Comm'r, T.C. Memo 1999-15 (1999): 23.6(2), 27.3(2) Estate of Piper v. Comm'r, 72 T.C. 1062 (1979): 23.5 Estate of Powell v. Comm'r, 148 T.C. 392 (2017): 23.4(3)(c) Estate of Purdue v. Comm'r, T.C. Memo. 2015-249, 119 T.C.M. (CCH) 627 (......
-
Federal Taxation - Michael H. Plowgian, Svetoslav S. Minkov, and Mark S. Davis
...of closely held stock when liquidation is only speculative because it is unlikely taxes will ever be incurred); Estate of Piper v. Comm'r, 72 T.C. 1062, 1086-87 (1979) (potential capital gains tax discount unwarranted under net asset value method when there is no evidence of a planned liqui......
-
Significant recent developments in estate planning.
...id. (67) Est. of Alto B. Cervin, TC Memo 1994-550. (68) Est. of William F. Luton, TC Memo 1994-539. (69) See Est. of William T Piper, Sr., 72 TC 1062, 1087 (1979); Est. of Frank A. Cruikshank, 9 TC 162, 165 (1947); Est. of Mark W. Munroe, P-H TC Memo. Dec., [paragraph] 46,050; Est. of Wilfr......
-
§23.5 - Valuation of Family Limited Partnerships and LLCs—in General
...all the facts and circumstances, often with significant reliance on the reports and testimony of experts. Estate of Piper v. Comm'r, 72 T.C. 1062 (1979). As a consequence, each involving the valuation of a closely held entity generally turns on its own particular facts. See Hamm v. Comm'r, ......