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United States, 391 F.3d 621 (5th Cir. 2004), affg. 300 F. Supp.
2d 474 (S.D. Tex. 2004). In Estate of Smith, the Court of
Appeals for the Fifth Circuit, affirming the District Court, held
that the proper valuation of certain retirement accounts included
in a decedent’s gross estate reflects the value of the securities
held in decedent’s retirement accounts as determined by reference
to applicable securities rates on the date of decedent’s death
but does not include a discount for the income tax liability to
the beneficiaries. Id. at 628. In Estate of Smith, as in this
case, the underlying securities of the retirement accounts were
readily marketable, while the retirement accounts were not
because of restrictions like those applicable to the IRAs in
this case. Just as the estate did in this case, the taxpayer in
Estate of Smith supported its argument for the reduction in value
of the retirement accounts by analogy to opinions that allowed
estates possessing closely held corporate stock to reduce the
value by the potential capital gains tax.10 Applying the willing
buyer-willing seller test, the District Court reasoned that while
the retirement accounts may generate a tax liability for the
beneficiaries, a hypothetical willing buyer would not take the
tax liability into consideration when purchasing the underlying
securities but would simply pay the value of the securities as
determined by applicable securities exchange prices. The
10This line of cases and petitioner’s analysis were
discussed supra sec. II.
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