- 17 -
Congress recognized substantial valuation abuse in
the law as it existed prior to the enactment of I.R.C.
sec. 2036(c) in 1987. In 1990 Congress replaced
section 2036(c) with a new Chapter 14, including
sections 2701 through 2704, which sets out special
valuation rules for transfer tax purposes. It intended
these new sections to target transfer-tax valuation
abuses in the intra-family transfers more effectively
while relieving taxpayers of section 2036(c)’s broad
sweep. It wanted to value property interests more
accurately when they were transferred, instead of
including previously transferred property in the
transferor’s gross estate. “Discussion Draft” Relating
to Estate Valuation Freezes: Hearing Before the House
Comm. on Ways and Means, 101st Cong. 2d Sess. 102
(April 24, 1990) [House hearing]; Estate Freezes:
Hearing on “Discussion Draft” Before the Subcomm. on
Energy and Agricultural Taxation and Subcomm. on
Taxation and Debt Management of the Senate Comm. on
Finance, 101st Cong. 1233 (June 27, 1990) [Senate
hearing].
The new special valuation rules in Chapter 14
departed substantially from the hypothetical willing
buyer-willing seller standard. The Treasury Department
recognized that valuing nonpublicly traded assets in
family transactions for transfer tax purposes presented
a significant problem. It testified to Congress that
applying the hypothetical standard of a willing buyer-
willing seller to family transactions allowed
significant amounts to escape taxation. Senate hearing
at 15.
Congress enacted section 2703(a) to address
abusive intra-family situations. Section 2703(a)(1)
addresses burdening a decedent’s property with options
to purchase at less than fair market value. Section
2703(a)(2), which applies to this case, addresses other
restrictions that reduce the value of a decedent’s
property for estate tax purposes but not in the hands
of the beneficiary. Congress contemplated that the
section would apply to “any restriction, however
created,” including restrictions implicit in the
capital structure of a partnership or contained in a
partnership agreement, articles of incorporation,
corporate bylaws or a shareholders’ agreement.
Informal Senate Report on S. 3209, 101st Cong., 2d
Sess. (1990), 136 Cong. Rec. S15777 (October 18, 1990).
Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 NextLast modified: May 25, 2011