- 18 -
having reasonable knowledge of relevant facts.’” United States
v. Cartwright, 411 U.S. 546, 551 (1973) (quoting section
20.2031-1(b), Estate Tax Regs.). The fair market value of a note
is generally the amount of the unpaid principal, plus interest
accrued to the date of a decedent’s death, unless the executor
establishes that the value is lower or that the note is
worthless. Sec. 20.2031-4, Estate Tax Regs. The fair market
value of the accrued interest is the amount of unpaid accrued
interest as of the date of decedent’s death unless the executor
establishes a lower value. See id.
Respondent contends that decedent’s estate includes $21,782
of accrued interest owed by Advance Leasing because: (1) Advance
Leasing could have used the $400,000 to pay $21,782 of accrued
interest; or (2) decedent could have reduced the $400,000 owed
under the stock subscription agreement note against the $21,782.
We disagree. We believe that the fair market value of the
accrued interest is zero because: (1) Advance Leasing was
insolvent;12 and (2) we do not believe that a willing buyer with
knowledge of Advance Leasing’s financial situation would pay any
amount for the $21,872 of accrued interest owed by Advance
Leasing. We conclude that the $21,782 of accrued interest had no
12 Respondent acknowledges that Advance Leasing was
insolvent and that its liabilities exceeded its assets during
1999.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Next
Last modified: May 25, 2011