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Victory for Personal Goodwill in Value of an Estate

Saul Brenner, CPA, J.D., LL.M. 09.29.2014 | eVisor

In a decision important to both estate valuations and sales of businesses, the Tax Court gave a serious thumbs up to the significance of “personal goodwill”.1

In the case, the deceased owned, in a trust, 100% of a cable uplinking company that had one customer, a religious broadcasting network managed by the deceased man’s son.  Upon the death of the father, the son became president of the uplinking company.  The estate initially valued the company’s stock at $9.3 million. At first, the IRS came in sharply higher at $92.2 million.

In support of the $9.3 million value, the estate argued that the success of the uplinking company turned substantially on the “personal goodwill” of the son and his relationship with the board members of its one and only client, the broadcasting network.  Further, a potential buyer for the uplinking company would be required to retain the son because there was no noncompete agreement.

The Tax Court agreed that the $9.3 value established by the estate properly took into account the son’s personal goodwill and that the estate had correctly used the income approach in valuing the company. 

1 T.C. Memo 2014-155 Estate of Franklin Z. Adell, Deceased, Kevin R. Adell, Temporary Co-Personal Representative, Petitioner v. Commissioner of Internal Revenue, Respondent.   

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 or

sbrenner@berdonllp.com.

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