Gift, Estate, & Income Tax Compliance

January 1, 2020

Mercer Capital’s Value Matters® 2020-01

Jones v. Commissioner

Tax-Affecting Is Not the Only Interesting Issue in This 2019 Tax Court Case

Estate of Aaron U. Jones v. Commissioner, T.C. Memo 2019-101 (August 19, 2019)

EXECUTIVE SUMMARY

In May 2009, Aaron U. Jones made gifts to his three daughters, as well as to trusts for their benefit, of interests (voting and non-voting) from two family owned companies, Seneca Jones Timber Co. (SJTC), an S corporation, and Seneca Sawmill Co. (SSC), a limited partnership. These gifts were reported on his gift tax return with a total value of approximately $21 million. The IRS asserted a gift tax deficiency of approximately $45 million on a valuation of approximately $120 million. The Tax Court ruled that value was approximately $24 million, agreeing with the taxpayer’s appraiser.

In this case, the Tax Court again concluded that “taxaffecting” earnings of an S corporation was appropriate in determining value under the income method (see also Mercer Capital’s review of the Kress decision). However, there are several other issues of interest in this case which we discuss further in this article. 

BACKGROUND

SSC was established in 1954 in Oregon as a lumber manufacturer.  SSC operated two saw mills – its dimension and stud mill – delivering high quality products that were technologically advanced, allowing SSC to demand a higher price for its products than its competitors.  Early in its history, SSC acquired most of its lumber from Federal timberlands.  As environmental regulations increased, SSC’s access to Federal timberlands became at risk.  Mr. Jones began purchasing timberland in the late 1980s and early 1990s when he became convinced that SSC could no longer rely on timber from Federal lands.  

SJTC was formed as an Oregon limited partnership in 1992 by the contribution of those timberlands purchased by Mr. Jones.  SJTC’s timberlands were intended to be SSC’s inventory.  Further, both SSC and SJTC maintained similar ownership groups, with SSC serving as the 10% general partner of SJTC.  As of the date of valuation, SJTC held approximately 1.45 million board feet of timber over 165,000 acres in western Oregon, most of which was acquired in those initial purchases between 1989 and 1992.  In 2008, approximately 89% of SJTC’s harvested logs were sold directly or indirectly to SSC and SJTC charged SSC the highest price that SSC paid for logs on the open market.  

GIFT TAX VALUATION

In May 2009, Mr. Jones formed seven family trusts and made gifts to those trusts of SSC voting and nonvoting stock. He also made gifts to his three daughters of SJTC limited partner interests. Mr. Jones filed a timely gift tax return reporting values based upon appraisals prepared by Columbia Financial Advisors as shown in Figure 1 on the next page (Petitioner’s Value). The IRS notice of deficiency asserted values much higher.

A petition was filed in the Tax Court by Mr. Jones in November 2013. Mr. Jones died in September 2014 and was replaced in the Tax Court proceeding by his estate and personal representatives. His estate then engaged another appraiser, Robert Reilly of Willamette Management Associates. Mr. Reilly was noted by the Court to have “performed approximately 100 business valuations of sawmills and timber product companies.”

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October 2026 | When a Large Ownership Block Doesn’t Mean Control
Value Matters® October 2026

When a Large Ownership Block Doesn’t Mean Control | Valuation Lessons from Grieve v. Commissioner

A large ownership interest does not necessarily convey control, a distinction with important implications for gift and estate tax valuations. In Grieve v. Commissioner, T.C. Memo. 2020-28, the U.S. Tax Court accepted discounts for lack of control and lack of marketability on ownership interests representing 99.8% of the economic interests in two family-owned LLCs.
Thomas C. Insalaco to Speak at Tampa Bay Estate Planning Council
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Thomas C. Insalaco, CFA, ASA, Senior Vice President at Mercer Capital, will speak at the Tampa Bay Estate Planning Council on Wednesday, October 21, 2026, at the Chester H. Ferguson Law Center in Tampa, Florida.His presentation, “Navigating Business Valuations: What Estate Planners Need to Know,” will examine common estate planning valuation issues that have recently received IRS scrutiny and offer practical guidance for avoiding potential problems.The Tampa Bay Estate Planning Council brings together attorneys, fiduciaries, accountants, investment advisors, charitable giving specialists, family office executives, insurance professionals, and valuation experts. The Council promotes collaboration among the disciplines involved in estate planning and provides educational opportunities for its members. As a Council Partner, Mercer Capital is proud to support the organization’s educational programming and commitment to collaborative planning.Tom Insalaco is a Senior Vice President and a member of Mercer Capital’s Gift, Estate, and Income Tax Planning and Compliance practice group. Since 2008, he has provided valuation services across a broad range of industries and matters, including gift and estate tax, business succession and exit planning, and buy-sell agreements.Mercer Capital regularly works with attorneys, fiduciaries, business owners, and other professional advisors on valuation matters involving gift and estate tax planning, business succession, ownership transitions, and buy-sell agreements.For additional information or to register, visit the Tampa Bay Estate Planning Council’s website.
Mercer Capital to Sponsor ACTEC’s 2026 Fall Meeting
Mercer Capital to Sponsor ACTEC’s 2026 Fall Meeting
Mercer Capital is pleased to sponsor the American College of Trust and Estate Counsel’s 2026 Fall Meeting, taking place October 15 through 18, 2026, at the Hyatt Regency Denver in Denver, Colorado. Bryce Erickson, ASA, MRICS, J. David Smith, CFA, ASA, and Sujan Rajbhandary, CFA, ABV, will attend on behalf of the firm.ACTEC’s national meetings bring together leading trust and estate lawyers, law professors, and other professionals for education, committee sessions, and peer discussion. This year’s professional program will address the prudent investment of unique and unusual assets; estate and business planning for farms, ranches, and oil and gas interests; publicity rights; digital assets; art collections; and assets held in regulated businesses.Bryce Erickson, ASA, MRICS, is a Managing Director and member of Mercer Capital’s board of directors. Since 1998, he has led approximately one thousand valuation engagements and has deep experience in gift, estate, and federal tax matters, litigation support, transactions, and business planning across a broad range of industries. Bryce leads Mercer Capital’s energy industry practice and is a regular contributor to Mercer Capital’s Energy Valuations Insights blog.J. David Smith, CFA, ASA, is a Senior Vice President at Mercer Capital and a senior member of the firm’s tax practice. He provides valuation services for tax planning, transactional purposes, and financial reporting, with particular experience in industries including financial services, oil and gas, and biotechnology. David is also a regular contributor to Mercer Capital’s Value Matters Newsletter.Sujan Rajbhandary, CFA, ABV, is a Senior Vice President and a member of Mercer Capital’s Gift, Estate & Income Tax Valuation Group. During his 20-year career at Mercer Capital, he has provided valuation and financial advisory services for tax planning and compliance, transactions, ownership transitions, and other corporate and shareholder matters. He is a regular contributor to Mercer Capital’s Value Matters Newsletter.Mercer Capital regularly works with attorneys, fiduciaries, business owners, and professional advisors on valuation matters involving gift and estate tax planning, trusts, ownership transitions, transactions, and disputes. The firm is proud to support ACTEC’s commitment to professional education and excellence in trust and estate law.Mercer Capital looks forward to reconnecting with friends and meeting new colleagues in Denver. For more information about the 2026 Fall Meeting, visit ACTEC’s event website.

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