AUG. 25, 2000

Estate Talk
Election for Alternate Valuation Date Invalid 
When Filed More Than One Year Late

The Tax Court recently held that an executor cannot elect to value estate property as of an alternate valuation date if the estate tax return is filed more than a year after the time prescribed for filing (including extensions). In this case, all estate property must be valued as of the date of the decedent’s death.

Mr. Eddy died in April of 1993, leaving 237,000 shares of stock in Browning-Ferris Industries, Inc. (BFI). The executor received an extension to file the estate tax return until July 13, 1994. The brokerage firm the executor had engaged to value the BFI stock informed the executor the valuation would not be complete in time for the filing date. The executor hired another brokerage firm, which still did not complete the valuation until November 29, 1994. The firm concluded that the estate should value the stock as of the alternate valuation date of October 13, 1993. On that date, the estate would have had to accept 75 cents per share less than that day’s mean trading price (the discount for blockage).

The executor filed a return on January 19, 1996, reporting all estate property values as of the alternate valuation date. While the IRS allowed the 75-cent discount for blockage, the Service also determined that the estate could not use the alternate valuation date and must value all estate property as of the date of the decedent’s death. The IRS reasoned that the election for an alternate valuation date was untimely and therefore invalid.

The Tax Court agreed, noting that the §2032 election for an alternate valuation date must be made on the estate tax return and cannot be made if the return is filed more than one year after the prescribed time, including extensions.