The IRS has announced acquiescence in the Tax Court’s decision in Mellinger Est. v. Comr., 112 T.C. 26 (1999). In that case, the IRS had sought to aggregate, for estate tax purposes, a minority interest in a closely held corporation (Frederick’s of Hollywood, Inc.) in a qualified terminable interest property (QTIP) trust that was includible in the surviving spouse’s gross estate under §2044 with another minority interest in the same corporation includible in the surviving spouse’s estate. Both were 27.8671-percent interests, and if aggregated would constitute a majority interest in Frederick’s. Nevertheless, the estate applied a minority interest discount in valuing the shares.

The IRS has contended that fractional interests in assets owned outright by a decedent must be aggregated, for estate tax purposes, with fractional interests held by a marital deduction QTIP trust. But the Tax Court disagreed, siding with the estate. According to the Tax Court, ownership of assets for valuation purposes is based on the ability to control the assets. Though the QTIP trust is includible in the surviving spouse’s gross estate under §2044, the predeceasing spouse controls the disposition of the QTIP’s assets, which therefore are not "owned" by the surviving spouse for valuation purposes.

With this acquiescence, the IRS will no longer seek to aggregate such fractional interests for valuation purposes.