{"id":1470777,"date":"2024-06-11T18:25:00","date_gmt":"2024-06-11T22:25:00","guid":{"rendered":"https:\/\/bugaluu.com\/news\/?p=1470777"},"modified":"2024-06-11T18:25:00","modified_gmt":"2024-06-11T22:25:00","slug":"supreme-court-rules-9-0-for-irs-denying-refund-in-estate-tax-dispute","status":"publish","type":"post","link":"https:\/\/bugaluu.com\/news\/supreme-court-rules-9-0-for-irs-denying-refund-in-estate-tax-dispute\/1470777\/","title":{"rendered":"Supreme Court Rules 9\u20130 For IRS, Denying Refund In Estate Tax Dispute"},"content":{"rendered":"

Supreme Court Rules 9\u20130 For IRS, Denying Refund In Estate Tax Dispute<\/span><\/p>\n

\n

Authored by Matthew Vadum via The Epoch Times<\/a> (emphasis ours),<\/em><\/p>\n

The Supreme Court ruled unanimously in favor of the IRS on June 6 in a dispute over taxing shareholders\u2019 life insurance policies.<\/strong><\/p>\n

Supreme Court Associate Justice Clarence Thomas poses for an official portrait at the Supreme Court in Washington on Oct. 7, 2022. (Alex Wong\/Getty Images)<\/em><\/a><\/p>\n

Justice Clarence Thomas wrote the court\u2019s 9\u20130 decision<\/a> in Connelly v. Internal Revenue Service.<\/p>\n

The case concerns two brothers\u2019 closely held corporation. After one of the brothers died, tax authorities and the estate didn\u2019t agree on the value of the stock.<\/p>\n

Closely held corporations commonly enter into agreements that require the redemption of a shareholder\u2019s stock after the shareholder dies to preserve the closely held nature of the business. Under such routine estate-planning devices, corporations purchase life insurance on the shareholder to make sure the transaction is funded.<\/strong><\/p>\n

The Supreme Court held that life insurance proceeds that will be used to redeem a decedent\u2019s shares must be included when calculating the value of those shares for purposes of the federal estate tax.<\/p>\n

The appeal of Thomas Connelly, executor of the estate of Michael Connelly, was rejected by the U.S. Court of Appeals for the Eighth Circuit in June 2023.<\/p>\n

The IRS said the estate owed close to $1 million after it found that St. Louis-based Crown C Corp., a building materials business, failed to report life insurance proceeds after Michael Connelly died in 2013.<\/strong><\/p>\n

Michael Connelly, who was president and CEO of the corporation when he died, owned 77.18 percent of the company\u2019s shares, while Thomas Connelly owned 22.82 percent.<\/p>\n

The executor filed an estate tax return reporting the value of his brother\u2019s shares as $3 million, but the IRS conducted an audit in which an accounting firm valued the shares at more than $3.8 million at the time of the brother\u2019s death.<\/p>\n

The IRS determined that the life insurance proceeds needed to be included in the valuation of the corporation, which meant the company had a value of $6.8 million at the date of death. The IRS found that the estate owed an additional $890,000. The estate paid the amount and then sued the tax agency in federal court in Missouri.<\/p>\n

The Supreme Court examined whether a life insurance policy obtained to finance the company\u2019s repurchase of the deceased co-owner\u2019s shares should be factored into the valuation of the stock.<\/strong><\/p>\n

The estate argued the stock shouldn\u2019t be taxed because the proceeds were to be used to repurchase the outstanding shares. The IRS countered that the shares were subject to tax based on the fair market value as measured by what they could be sold for when the co-owner died.<\/p>\n

The case concerns an important question of federal tax law on which the federal courts of appeal disagree, according to the surviving brother\u2019s petition.<\/p>\n

Under the Internal Revenue Code, when an individual dies, his or her estate is subject to federal estate tax calculated, based on the fair market value of the estate\u2019s holdings at the time of the death.<\/p>\n

\u201cIn many cases, fair market value can be determined through a straightforward analysis of public markets. But when a particular type of asset is not freely traded, fair market value must be determined on the basis of assessment and evaluation,\u201d the petition states.<\/p>\n

\u201cUnder applicable Treasury regulations, life-insurance proceeds payable to a corporation may be relevant to determining the value of a decedent\u2019s stock in the corporation in some circumstances but not others.<\/strong><\/p>\n

\u201cThe question presented is whether the proceeds of a life insurance policy taken out by a closely held corporation on a shareholder in order to facilitate the redemption of the shareholder\u2019s stock should be considered a corporate asset when calculating the value of the shareholder\u2019s shares for purposes of the federal estate tax.\u201d<\/p>\n

In his new opinion, Justice Thomas recounted that the Connelly brothers entered into an agreement to make sure the company would stay in the family if either brother died. In that pact, the corporation could be forced to purchase the deceased brother\u2019s shares.<\/p>\n

To finance the possible share redemption, the corporation took out life insurance on each brother. After Michael Connelly died, there was a dispute over how to value his shares for calculating the estate tax.<\/p>\n

\u201cThe central question is whether the corporation\u2019s obligation to redeem Michael\u2019s shares was a liability that decreased the value of those shares<\/strong>,\u201c Justice Thomas wrote. \u201dWe conclude that it was not and therefore affirm [the decision of the Eighth Circuit].<\/strong>\u201d<\/p>\n

The justice explained that when Michael Connelly died, the corporation was worth almost $4 million and the family valued his shares at about $3 million. However, the tax agency took the view that the corporation\u2019s value was closer to $7 million because of the $3 million in insurance proceeds. This made the decedent\u2019s shares worth a little more than $5 million.<\/p>\n

\u201cBecause a fair-market-value redemption has no effect on any shareholder\u2019s economic interest, no willing buyer purchasing Michael\u2019s shares would have treated Crown\u2019s obligation to redeem Michael\u2019s shares at fair market value as a factor that reduced the value of those shares,\u201d Justice Thomas wrote.<\/p>\n

The justice wrote, \u201cRedemption obligations are not necessarily liabilities that reduce a corporation\u2019s value for purposes of the federal estate tax.\u201d<\/p>\n<\/div>\n

Tyler Durden<\/a><\/span>
\nTue, 06\/11\/2024 – 14:25<\/span><\/p>\n

\u200bhttps:\/\/www.zerohedge.com\/political\/supreme-court-rules-9-0-irs-denying-refund-estate-tax-dispute<\/a>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"

Supreme Court Rules 9\u20130 For IRS, Denying Refund In Estate Tax Dispute Authored by Matthew Vadum via The Epoch Times (emphasis ours), The Supreme Court…<\/p>\n","protected":false},"author":0,"featured_media":1470778,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-1470777","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","wpcat-1-id"],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbimBl-6aCd","jetpack_featured_media_url":"https:\/\/bugaluu.com\/news\/wp-content\/uploads\/sites\/3\/2024\/06\/image_922864829-KZw6pf.jpeg","_links":{"self":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470777","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/comments?post=1470777"}],"version-history":[{"count":0,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/posts\/1470777\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media\/1470778"}],"wp:attachment":[{"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/media?parent=1470777"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/categories?post=1470777"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bugaluu.com\/news\/wp-json\/wp\/v2\/tags?post=1470777"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}