Gift, Estate, & Income Tax Compliance
2020 01 Value Matters

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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Value Matters® April 2026

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In estate and gift tax related business valuation, few inputs are as consequential, and as frequently underestimated, as the valuation date. While the concept appears straightforward, the practical implications are anything but. The valuation date determines the universe of information available to the appraiser, frames the applicable standard of value, and anchors the conclusion in a specific economic, industry, and subject company context.
Mercer Capital to Sponsor The 32nd Annual Advanced Estate Planning Strategies Course
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Mercer Capital is proud to sponsor the 32nd Annual Advanced Estate Planning Strategies course, a live, in-person CLE event held April 23-24, 2026, at the St. Julien Hotel & Spa in Boulder, Colorado. Representing the firm at the event are J. David Smith, CFA, ASA, and Barbara Walters Price.Presented by TexasBarCLE and cosponsored by the Real Estate, Probate & Trust Law Section of the State Bar of Texas, the course brings together attorneys and advisors for two days of in-depth discussion on advanced estate planning topics. The program features sessions addressing retirement benefits planning under SECURE 2.0, life insurance strategies, multijurisdictional planning considerations, and approaches to minimizing conflict in estate and trust administration.Attorneys attending the course will be focused on navigating increasingly technical planning issues, from evolving transfer tax rules to the practical challenges of administering complex estates. Mercer Capital regularly supports these efforts through valuation analyses used in estate and gift tax planning, charitable giving, and ownership transitions, helping clients and their advisors make informed decisions in high-stakes situations.J. David Smith is a Senior Vice President at Mercer Capital with more than 25 years of experience in business valuation. 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.Barbara Walters Price serves as Chief Marketing Officer of Mercer Capital and is a member of the firm’s Board of Directors. She leads the firm’s marketing strategy and oversees corporate communications, business development, digital strategy, and thought leadership initiatives.Mercer Capital looks forward to connecting with attendees and contributing to the discussions at this year’s event. To learn more about this in-person CLE course, visit TexasBarCLE’s website: https://www.TexasBarCLE.com/new/?TransferTo=L23823.
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Mercer Capital is pleased to sponsor the 13th Annual Florida Tax Institute, which will be held April 8–10 at The Ritz-Carlton Orlando, Grande Lakes in Orlando, Florida. Tim Bronza, CPA, ASA; Tom Insalaco, CFA, ASA; and Barbara Price will attend on behalf of the firm.More than a conference, the Florida Tax Institute is widely recognized as a leading educational forum for attorneys, accountants, trust officers, estate planners, and financial advisors. This year’s program features nationally respected speakers addressing timely developments in federal and state taxation, estate and gift tax planning, business tax matters, and emerging regulatory considerations. Sessions are designed to offer practical insights that professionals can apply directly in their client work.Tim Bronza serves as Managing Director of Mercer Capital’s Florida office. He has extensive experience valuing business interests for federal gift, estate, and income tax purposes and leads sophisticated valuation engagements across corporate and fiduciary contexts.Tom Insalaco is a Senior Vice President in Mercer Capital’s Florida office. Since 2008, Tom has performed valuation analyses across a broad range of industries, assisting attorneys, fiduciaries, and financial professionals with estate planning, exit planning, and transaction-related matters.Barbara Walters Price serves as Chief Marketing Officer of Mercer Capital and is also a member of the firm’s Board of Directors. She leads the firm’s marketing strategy and oversees corporate communications, business development, digital strategy, and thought leadership initiatives.Mercer Capital’s sponsorship reflects the firm’s ongoing commitment to supporting the tax and estate planning communities in Florida and beyond. Learn more about the event at https://www.floridataxinstitute.org/

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