Understanding Tiered Discounts
Brochure
Tiered discounts in valuations performed for estate and gift tax purposes will almost always be met with a challenge by the IRS.
April 9, 2024
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Tiered discounts in valuations performed for estate and gift tax purposes will almost always be met with a challenge by the IRS. While many Tax Court cases on this subject exist, the rationale for why such discounts were allowed or disallowed is inconsistent or lacking altogether. Since almost all valuation controversies with the IRS are settled without a trial, having a firm grasp of the justification and magnitude of tiered discounts taken will improve the taxpayer’s odds of gaining a satisfactory result. In this paper, we delve into the reasons such discounts exist and break the tiered discount into a hierarchical structure corresponding to situations in which such discounts are commonly encountered. We also illustrate that there are examples of tiered discounts existing in the marketplace providing strong support for such discounts in comparable situations. Finally, our analysis shows that just because a noncontrolling equity transfer between two tiered entities occurs does not guarantee that a tiered discount is justifiable.