Gift value reduced by donee’s promise to pay estate tax

U.S. Tax Court opinion on gift tax valuation

The U.S. Tax Court today issued an opinion concluding that a donee’s promise to pay any estate tax liability that may arise if the donor dies within three years of the gift can be used to reduce the fair market value of the gift.


Related content

The case is: Steinberg v. Commissioner, 145 T.C. No. 7 (September 16, 2015). Read the Tax Court opinion [PDF 118 KB]


The taxpayer entered into a binding gift agreement with her daughters by which she gave her daughters properties and, in exchange, the daughters agreed to assume and to pay, among other things, any estate tax liability imposed under section 2035(b) as a result of the gifts in the event that the taxpayer died within three years of the gifts. In calculating, for gift tax purposes, the gross fair market value of the property transferred to the daughters, the taxpayer reduced the fair market value of the properties by an amount representing the value of the daughters’ assumption of the estate tax liability. 

The IRS issued a notice of deficiency to the taxpayer, increasing the taxpayer’s gift tax liability by over $1.8 million for tax year 2007. The IRS disallowed the discount claimed by the taxpayer for the daughters’ assumption of the section 2035(b) estate tax liability. 

The Tax Court today concluded that the circumstances in this case reflect that a hypothetical willing buyer and willing seller would take into account the assumption of the estate tax liability in arriving at a sale price. The court concluded that the daughters’ assumption of the estate tax liability reduced the value of the gift to the daughters by approximately $5.8 million.

As found by the court, the daughters’ assumption of a potential estate tax liability was a detriment to them and a benefit to the taxpayer—such as would be considered by a willing buyer and willing seller in determining a sale price of the transferred property rights.

© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Request for proposal



KPMG's new digital platform

KPMG International has created a state of the art digital platform that enhances your experience, optimized to discover new and related content.

Read more