IRS Appeals Jelke to Supreme Court


The government asked the U.S. Supreme Court to review the Eleventh Circuit’s decision in Estate of Frazier Jelke III v. Commissioner (100 AFTR2d 2007-6694, “Tax Matters: Dunn Does It Again,” JofA, March 08, page 70). The Eleventh Circuit previously declined to rehear en banc its decision overruling the Tax Court on a valuation discount for tax liability of an estate’s built-in capital gains.

In its brief to the Supreme Court, the government said the Eleventh Circuit in Jelke adopted the “categorical approach which it believed the Fifth Circuit had adopted in Estate of Dunn v. Commissioner” (90 AFTR2d 2002-5527). Following that approach, the Eleventh Circuit in Jelke rejected the Tax Court’s holding that discounted the built-in gains tax liability over a period of time. Rather, the Eleventh Circuit said, 100% of the built-in gains taxes must be taken into account under the net asset valuation method (regardless of the likelihood of liquidation), because the method assumes that all assets are liquidated as of the date of valuation. In its brief to the Supreme Court, the government argued the Eleventh Circuit had used an erroneous standard of review—it treated the selection of a valuation method as a matter of law (and therefore subject to de novo review) instead of as a matter of fact (which can be reviewed only for clear error).

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