Once again the Internal Revenue Service in AOD 2008-1 announced its nonacquiescence in Herbert V. Kohler, Jr., v. Commissioner, T.C. Memo 2006-152(2006), but did not appeal the adverse result in the Tax Court.

In Kohler, a shareholder died and two months later the corporation reorganized tax-free under § 368 and the new stock received by the shareholder’s estate was subject to transfer restrictions, and a purchase option designed to insure that family members would continue to own all of the stock.

Pursuant to § 2032, the Tax Court held that the new stock received within six months after death, is the stock to be valued. In other words, the court accepted the estate’s argument that (i) the stock should be valued at six months post-death and (ii) that the stock to be valued has the restrictions which depress the value. As the court noted, the regulations (Reg Sec. 20.2032-1(c)(1)) provide that a tax-free organization is not a disposition. 

If the Service disagrees with a decision, it has a simple remedy: Appeal. Sound tax policy is not found here. 

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