New Problems for the Unwary in Estate and Gift Tax Valuations: Penalties Under I.R.C. 6660

The federal estate tax presents 2 key issues surrounding the establishment of the tax base for estate, gift, and generation-skipping transfers: 1. Is the property in question includable in the tax base? 2. If it is, how is the tax to be measured? The measure of tax is tied to valuation, which always has been of central concern to taxpayers and tax collectors. Internal Revenue Code (IRC) Section 6660 provides a penalty for undervaluation of assets as declared in the estate, gift, or generation-skipping tax. A review of the legislative history of this penalty indicates that few substantive guidelines on how to verify compliance exist. However, there are some issue guidelines now available to practitioners. These include: 1. good faith and reasonable basis, 2. consideration of differing perspectives on valuation, 3. appraisal guidelines, 4. use of expert witnesses and/or appraisers, and 5. implications of secondary liability. The ultimate impact of IRC Section 6660 is too uncertain to predict at this time. Clearly, procedure revenue rulings are needed to provide safe harbors for the taxpayer to avoid the penalty.