Scott makes a gift of stock in Cormorant Corporation, which is not closely held but is traded
in an over-the-counter market. The transactions involving this stock that occurred closest to
the date of gift took place six trading days before (mean selling price of $60) and seven days
after (mean selling price of $50). Determine the fair market value of the Cormorant stock on
the date of the gift.
(7x60) +(6 x 50)/13 days=55.38.
The average is weighted inversely so switch the days for each amount.
At the time of her death, Lila owns 50% of the stock in Kingfisher Corporation, with the
balance of the stock held by family members. Kingfisher Corporation’s total profits for the
past five years are $3,000,000, and the book value of its stock is $2,000,000. If 8% is an
appropriate rate of return and goodwill exists, what is a possible value for the stock to be
included in Lila’s gross estate?
Average profit ($3,000,000 ÷ 5 years) $ 600,000
8% (rate of return) x $2,000,000 (book value) (160,000)
Excess earnings over 8% $ 440,000
Goodwill (5 x $440,000) $2,200,000
Add book value 2,000,000
Value of stock $4,200,000
Lila’s interest x 50%
Value of stock in gross estate $2,100,000
Jen inherits her father’s farm, and the executor of the estate properly makes a § 2032A
election. Six years later, Jen sells the farm. It is determined that the election, which allowed
$600,000 in value to be excluded, saved $120,000 in estate taxes. What are Jen’s tax
options? Tax consequences?
Jen must pay an additional $120,000 in estate taxes. At her option, she may add $600,000
to her income tax basis in the farm. To do this, she must pay back interest on the estate tax