Estate of Anne Burch Hayes Disputes Tory Burch Share Sale

Anne Burch Hayes, of Wayne, Pennsylvania, a former personnel manager and volunteer, died on March 4, 2009, at age 52, of esophageal cancer at Penn Hospice at Rittenhouse in Pennsylvania.  Last week, in the U.S. Tax Court, her Estate challenged an enormous $2.4 Million IRS tax bill and additional $400,000 penalty for what the IRS believes was an incorrect asset valuation.

From 1982 until 1994, Mrs. Hayes was the personnel manager at the Eagle's Eye, a women's sportswear company in Conshohocken, Pennsylvania, co-founded by her brothers Robert and Christopher. Her brother, Christopher, is the ex-husband of Tory Burch. Tory Burch is the Chairman, CEO, and Designer of Tory Burch LLC. As of this year, she is listed as the 73rd most powerful woman in the world by Forbes.

Mrs. Hayes held an interest in Tory Burch LLC. After her passing, during December of 2012, her brother, Christopher, also a co-founder of Tory Burch LLC, sold a 20 percent stake in the company at more than $47 per unit. The IRS assessed the value of Mrs. Hayes’ interest in the company based on this December 2012 sale. Mrs. Hayes’ Estate is now challenging this valuation.

The Estate believes that the IRS should have assessed the Estate’s value from a sale in July of 2009, the last sale before Mrs. Hayes’ passing. The IRS, however, believes that the valuation should include all post-death appreciate in it’s value. The Estate received a $2.4 million tax bill and a $400,000 penalty for using what the IRS believed to be an incorrect valuation of the LLC interest. The Estate is now challenging the IRS valuation, tax bill, and penalty in the U.S. Tax Court, today.

Under IRC § 1014(a), the general rule applied to any property a beneficiary receives from a decedent, is that the beneficiary's basis equals the fair market value of the property at the time the decedent dies. For example, if a Decedent owned a home originally purchased for $50,000, the basis would be equal to the purchase price. If the Decedent gave the home to a beneficiary during her lifetime, the beneficiary would have a basis equal to that purchase price. If the beneficiary does not receive the home until after the Decedent dies, the basis would be the fair market value of the home as of the Decedent’s date of death.

Alternatively, IRC § 2032 allows the beneficiary to elect an “alternate valuation.” If the property is not disposed of within six months of the Decedent's death, the executor or Personal Representative may elect to use the property's fair market value six months after the date of death. However, this can only be selected if the election results in a decrease in the value of the gross estate.

In this case, Mrs. Hayes’ Estate argues that it was “unreasonable to use an unanticipated sale nine months in the future to assess value on the date of death” and that a “potential buyer might put a different value on the 20 percent sold in December 2012 than the 0.3 percent” held by Mrs. Hayes’ Estate. 1

More updates to come.


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