Not All Defined Value Clauses are Equal
Wendy C. Gerzog
University of Baltimore - School of Law
July 14, 2012
Pittsburgh Tax Review, Forthcoming
Defined value clauses used to value nonmarketable family limited partnership (FLP) interests create valuation distortions and other public policy issues. This paper describes these abuses and proposes the employment of restrictions similar to those applied to pecuniary formula marital deduction clauses.
The article explains how pecuniary formula marital deduction provisions created valuation distortions by allowing for undervaluation of the marital share that were remedied by the IRS’s Rev. Proc. 64-19 and the enactment of section 2056(b)(10). The article analyzes recent case law expanding the use of defined value clauses into the FLP area and criticizes the courts for not applying the public policy doctrines of Procter and Robinette to those cases. The article distinguishes defined valuation clauses in the FLP context and shows how all fixed value clauses are not equivalent. Finally, the article proposes solutions to deal with the valuation distortions that these clauses create.
Number of Pages in PDF File: 45
Keywords: defined value clauses, valuation, gift tax, estate tax, marital deduction, charitable deduction, Procter, Robinette, tax and public policy
JEL Classification: E62, H2, H20, H22, H23, H24, H25, H26, H29, K34Accepted Paper Series
Date posted: July 15, 2012 ; Last revised: August 27, 2012
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