If you’ve ever done gift or estate planning, you are no doubt familiar with the valuation discounts for lack of control and/or lack of marketability.

You’re probably also familiar with the concepts of inside and outside basis, especially low inside basis and low outside basis.

Low outside basis is, for example, where the client owns an entity, such as an s-corp, and the client has a low basis in the shares of the s-corp.

Low inside basis would be when the s-corp itself owns assets that have low basis.

You know that when the s-corp sells assets, or the client sells (or gifts) shares in the s-corp, one of those low bases is going to bite.

For example, suppose that the total pre-capital gains tax value of the s-corp shares to your client were $10 million, (the actual numbers don’t matter much – they pretty much scale except at the very low end), and the potential tax is $3 million.

You might think that because there’s a $3 million tax that will be due, the actual, pre-discount value (i.e. ignoring lack of marketability and lack of control) of the s-corp to your client is really only $7 million, because to get cash the client will have to incur the tax.

Can your client get gift or estate taxes reduced by the amount of the tax?

 To learn more, click here or call 703 437 9720 and ask for Connor or Dave.