Jul 1, 2010 12:30 PM

, By David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, and Alison E. Lothes, as

By David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, and Alison E. Lothes, as

Tax Court collapses gift and sale transaction but upholds discount — In 2009, the Tax Court held that the single member limited liability company (LLC) Suzanne J. Pierre formed as a part of her estate plan shouldn't be disregarded for gift tax valuation purposes under the “check-the-box” regulations (133 TC No. 2 (Aug. 24, 2009)). However, other issues that the court had bifurcated were left undecided. The Tax Court has now addressed the outstanding issues of whether the step transaction should apply to collapse a gift and sale of LLC interests and what discounts, if any, should apply when valuing the LLC interests. Pierre v. Commissioner, TC Memo 2010-106 (May 13, 2010).

Suzanne, an 85-year-old widow, had turned to her financial advisor for help regarding her estate plan when she unexpectedly received a $10 million gift from a friend (increasing her net worth from $2 million to $12 million). Suzanne wanted to ensure that she had sufficient income while providing for her son and granddaughter.