Estimated reading time: 3 minutes

The article in brief:

• Courts place significant weight on rigorous valuation analysis and credible expert testimony in reviewing gifted business interests.
• Well-structured, properly supported intrafamily loans continue to withstand IRS scrutiny.
• Non-cash charitable contributions require strict documentation and timing compliance.

The Heckerling Institute on Estate Planning remains one of the most influential national events for estate planning professionals. This year’s program highlighted key developments and examined how legislative, regulatory, and judicial changes are shaping valuation and estate-planning practices. Below are three valuation issues that stood out to VRC’s professionals in attendance.

Gifted Business Interests

Pierce v. Commissioner, T.C. Memo 2025-29 (April 7, 2025)

In Pierce, the IRS challenged the valuation of gifted business interests, asserting that the reported gift values were understated. The Tax Court was tasked with determining the fair market value of the transferred interests and assessing the validity of the underlying valuation methodology.

Valuation Methodology

Both parties agreed that the discounted cash flow (DCF) was the most appropriate method given the company’s growth expectations. The Court rejected the market and asset-based approaches due to a lack of comparable sales and because the business’s going concern value exceeded the value of its net assets. The Court emphasized that valuation analyses must incorporate facts known or reasonably knowable as of the valuation date. Consequently, the company’s serious internal problems, including litigation, management dysfunction, customer complaints, and marital turmoil, were relevant and required incorporation into the projected cash flows.

Tax-Affecting

The tax-affecting approach applies a corporate tax rate to a pass-through entity’s earnings to estimate net income for equity holders and to match valuation inputs based on public C-corporation data (i.e., matches return with rate of return). Earlier cases have rejected tax-affecting (Gross v. Commissioner, T.C. Memo 1999-254), but more recent decisions have permitted tax-affecting when supported by a valuation expert (Estate of Jones, T.C. Memo 2019-101; T.C. and Estate of Cecil, Memo 2023-24). In Pierce, the Court accepted the Delaware Chancery method of tax affecting because the discount rate and cash flow assumptions were internally consistent and reflected the entity’s economic circumstances.

Discounts

Discounts for lack of control and marketability were justified through both industry benchmarks and specific provisions in the LLC’s operating agreement. The discount rate included a risk-free rate, equity risk premium, and size and company-specific risk premiums. The Taxpayer’s expert provided detailed, independent, and well-supported projections. The IRS’s expert was criticized for relying too heavily on prior taxpayer reports without independent verification. The Tax Court accepted the Taxpayer’s more credible analysis.

Key Takeaway

The case reinforces that, in valuation disputes, courts place significant weight on sound, consistent methodology, rigorous analysis, and expert testimony.

Intrafamily Loans

Estate of Galli v. Commissioner, T.C. Memo 7003-20 (March 5, 2025)

In Galli, the Tax Court evaluated whether a transfer between a parent and child constituted a bona fide loan, a gift, or a combination of both. The IRS argued for partial gift treatment, asserting that the promissory note lacked commercially enforceable terms due to its unsecured nature and insufficient evidence of the borrower’s intent or ability to repay. The Tax Court rejected the IRS’s position, concluding that the transfer was a valid loan based on the following factors:

• Proper Structure. The promissory note was signed, included a definite repayment schedule, and used the correct Applicable Federal Rate (AFR) in accordance with IRC §7872.
• Actual performance. The borrower made timely and consistent interest payments, all of which were supported by documentation.
• Precedent. Citing Frazee v. Commissioner (1992), the Court reaffirmed that §7872, not commercial-market comparability, governs whether a below-market loan triggers a gift. Because the note used the proper AFR, no gift occurred.

Key Takeaway

Well-designed intrafamily loans supported by thorough documentation remain defensible in IRS examinations. Using AFR-compliant rates and maintaining accurate payment records helps preserve the loan as a bona fide estate asset and mitigate the risk of costly gift tax recharacterization. A valid intrafamily loan can be a bona fide estate asset, potentially reducing estate tax liability at death.

Qualified Appraisals

Cade v. Commissioner, T.C. Memo 2025-2 (March 10, 2025)

In Cade, the Tax Court upheld the IRS’s denial of a charitable-contribution deduction for tangible property for failing to meet substantiation requirements under IRC §170.

For contributions of $250 or more, taxpayers must obtain a contemporaneous written acknowledgment (CWA) from the organization by the original tax return date for the year of contribution. Without a CWA, a donation is entirely nondeductible, regardless of the taxpayer’s intent. There is no “reasonable cause” exception.

Deductions for any non-cash contribution valued at more than $5,000 require a qualified appraisal performed by a qualified appraiser. Form 8283 alone cannot substitute for either the appraisal or the acknowledgment. Appraiser qualifications are strictly defined in tax regulations, and education credentials or professional designations specific to the property type are required. A qualified appraisal must be prepared no more than 60 days before the contribution date and received before the tax filing date.

Key Takeaway

Strict adherence to statutory documentation and timing requirements is mandatory for non-cash charitable deductions. Taxpayers considering substantial non-cash gifts should allocate adequate time to secure the required appraisal.

Conclusion

The 2026 Heckerling Institute event highlighted how the rapidly evolving tax and legal landscape is shaping estate planning and valuation strategies. These cases underscore that favorable estate and gift tax outcomes depend on proper documentation, disciplined valuation methodology, credible expert testimony, and strict adherence to statutory requirements.

How VRC Can Help

VRC supports business owners, taxpayers, families, estate planning attorneys, and wealth managers with independent valuation analyses for gift and estate planning purposes during the transition of ownership in privately held companies and partnerships. Our professionals have deep experience addressing discounts for lack of control and marketability, built-in gains considerations, retrospective valuation studies, audit support, and testimony as needed. Our valuations prepared for gift tax purposes meet the IRS’s Adequate Disclosure Rules. We welcome you to contact article authors Charles Costa or Chris Mellen, or any VRC professional for assistance with gift and estate valuation considerations.