A Comprehensive Analysis of Minority Interest Discounts in Estate and Gift Taxation

One of the most litigated and adjusted areas in taxation has been the determination of the minority interest discount in estate and gift taxation. Valuation disputes arise because the valuation processes for estate and gift taxation are “inherently imprecise,” and the goals of the taxpayer and Internal Revenue Service (IRS) are diametrically opposed. The IRS's vigorous defense of the estate and gift tax base and the taxpayersa' attempts to pay no more tax than is their legal duty have resulted in a history of situations where the taxpayer and the IRS turn to the courts for adjudication. This paper addresses the basis for a minority interest discount, the determination whether ownership interests are in fact minority interests, and the importance of facts and law in the determination of the minority interest discount. A comprehensive analysis of estate and gift tax cases that determined minority interest discounts is used as a basis for planning ideas to maximize these discounts.