CCA 200941016: Agency rights can limit a claimed valuation discount

Number

200941016

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Valuation of Gifts; Valuation of Property in General

Topics

Gift tax Estate tax

Code sections

§ 2031, § 2512, § 6110

Ruling dated

August 26, 2008

Publicly released

October 9, 2009

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

This Chief Counsel advice considers the valuation of an account owner's interest where a financial institution acts as agent. It states that the account owner can generally revoke the principal-agent relationship unilaterally, and that the relationship ends when the principal dies. Because the arrangement can be terminated at any time, the advice states that any allowable discount should be limited to potential breach-of-contract damages. It indicates that this amount would ordinarily be significantly less than the claimed lack-of-control and lack-of-marketability discounts.

Ruling snapshot

Question: How does an account owner's ability to terminate a financial institution's agency affect valuation discounts?
Outcome: Advice given.
Key authorities: IRC §§ 2031, 2512, 6110(k)(3); CJS Agency § 95 (2007); Snyder v. Westover, 217 F.2d 928 (9th Cir. 1954); Ireland v. Wynkoop, 36 Colo. App. 205, 539 P.2d 1349 (1975).

Full text (IRS public release)

ID: CCA-826939-08 Number: 200941016
Release Date: 10/9/2009
Office: ----------------
UILC: 2512.00-00, 2031.01-00

From: ---------------------
Sent:Tuesday, August 26, 2008 9:39 AM
To: ----------------------
Cc: -----------------
Subject: RMA Rev Rul

---------- These were our thoughts on the agency argument.

A principal/agent relationship exists between the account owner and the financial institution. Further, under general principles of agency, the relationship may be revoked unilaterally by the account owner/principal and is terminated on the death of the principal. CJS Agency § 95 (2007). This is the case notwithstanding the existence of any express or implied agreement that the agency is irrevocable, and th even though revocation might constitute a breach of contract. Snyder v. Westover, 217 F.2d 928 (9 Cir. 1954); Ireland v. Wynkoop, 36 Colo. App. 205, 539 P.2d 1349 (1975). Because the account owner can terminate the arrangement at any time, the allowable discount, if any, should be limited to the potential damages for breach of contract, which would ordinarily be significantly less than the lack of control minority/marketability discounts claimed. -------------------------------------------------------------------------------------
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