I previously wrote about Estate of Blount v. Commissioner, 428 F.3d 1338, 1339 (11th Cir. 2005) – an 11th Circuit estate tax valuation case – in which the court held that in the context of a buy-out agreement funded by insurance proceeds, the insurance funds should not be counted when estimating the company’s fair market value. In a recently published article, Prof. Adam Chodorow (Associate Professor – Arizona State College of Law) argues that the 11th Circuit got this one wrong. The SSRN abstract of his article, entitled Valuing Corporations for Estate Tax Purposes: A Blount Reappraisal, is as follows:
Valuation issues have long been the bane of the estate tax. In addition to the basic problem of valuing property in the absence of a market transaction, taxpayers routinely engage in tactics specifically designed to suppress the value of their property for estate tax purposes, without actually diminishing the value of the property itself.
This article explores a recurring issue of asset valuation, which the Eleventh Circuit purported to resolve in Estate of Blount v. Commissioner, 428 F.3d 1338, 1339 (11th Cir. 2005), namely how to value a corporation where the corporation is set to receive insurance proceeds on account of a decedent’s death, but where those proceeds are offset by a corresponding obligation to redeem the decedent’s shares. Both the Eleventh and the Ninth Circuit (the only other court to consider this issue) concluded that insurance proceeds and redemption obligations offset, and therefore insurance proceeds should be excluded from corporate value. I argue here that, despite the superficial appeal of their holdings, both courts are, in no uncertain terms, wrong. Rather, insurance proceeds must be included in corporate value, and any redemption agreement must be ignored.