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, K34

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Date posted: July 15, 2012 ; Last revised: August 27, 2012

Suggested Citation

Gerzog, Wendy C., Not All Defined Value Clauses are Equal (July 14, 2012). Pittsburgh Tax Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2106008 or http://dx.doi.org/10.2139/ssrn.2106008

Contact Information

Wendy C. Gerzog (Contact Author)
University of Baltimore - School of Law ( email )
1420 N. Charles Street
Baltimore, MD 21218
United States
410-837-4522 (Phone)
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