Gift, Estate, & Income Tax Compliance
2019 01 Value Matters

January 1, 2019

Mercer Capital’s Value Matters® 2019-01

Kress v. U.S. Denies S Corporation Premium and Accepts Tax-Affecting

The issue of a premium for an S corporation at the enterprise level has been tried in a tax case, and the conclusion is none.

In Kress v. United States (James F. Kress and Julie Ann Kress v. U.S., Case No. 16-C-795, U.S. District Court, E.D. Wisconsin, March 25, 2019), the Kresses filed suit in Federal District Court (Eastern District of Wisconsin) for a refund after paying taxes on gifts of minority positions in a family-owned company.  The original appraiser tax-affected the earnings of the S corporation in appraisals filed as of December 31, 2006, 2007, and 2008.  The court concluded that fair market value was as filed with the exception of a very modest decrease in the original appraiser’s discounts for lack of marketability (DLOMs).

Background on GBP

The company was GBP (Green Bay Packaging Inc.), a family owned S corporation with headquarters in Green Bay, Wisconsin.  The company experienced substantial growth after its founding in 1933 by George Kress.  A current description of the company, consistent with information in the Kress decision, follows.

Green Bay Packaging Inc. is a privately owned, diversified paper and packaging manufacturer. Founded in 1933, this Green Bay WI based company has over 3,400 employees and 32 manufacturing locations, operating in 15 states that serve the corrugated container, folding carton, and coated label markets.

Little actual financial data is provided in the decision, but GBP is a large, family-owned business.  Facts provided include:

  • Although GBP has the size to be a public company, it has remained a family-owned business as envisioned by its founder.
  • About 90% of the shares are held by members of the Kress family (a Kress descendant is the current CEO), with the remaining 10% owned by employees and directors.
  • The company paid annual dividends (distributions) ranging from $15.6 million to $74.5 million per year between 1990 and 2009.  While historical profitability information is not available, the distribution history suggests that the company has been profitable.
  • Net sales increased during the period 2002 to 2008.
The issue of a premium for an  S corporation at the enterprise level has been tried in a tax case, and the conclusion is none.

Hoovers provides the following (current) information, along with a sales estimate of $1.3 billion:

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Mercer Capital to Sponsor The 32nd Annual Advanced Estate Planning Strategies Course
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