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Here, the estate argues that it has a stronger case than the
taxpayer in Estate of Davis because in that case, unlike this
case, the taxpayer’s asset--the stock--could be marketed without
paying the income tax liability associated with the sale of the
underlying assets. The estate contends that “it is not merely
likely, it is legally certain, that the IRA could not be sold at
all, nor could the underlying assets be sold by Petitioner except
by distributing the assets and paying the tax on that
distribution.”
The second portion of this statement is simply not true.
The IRA trust agreements provide that the account holder may not
sell their IRA interest; however, the agreements specifically
provide that the underlying assets in the IRAs may be sold. See
supra note 2. Because it is legally certain that the IRAs cannot
be sold, the subject of a hypothetical sale between a willing
seller and a willing buyer would not be the IRAs themselves but
their underlying assets, which are marketable securities. The
sale of the underlying marketable securities in the IRAs is not
comparable to the sale of closely held stock because in the case
of closely held stock, the capital gains tax potential associated
with the potential liquidation of the corporation survives the
transfer to an unrelated third party. The survival of the
capital gains tax liability is exactly why a hypothetical buyer
would take it into account. See Estate of Smith v. United
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