Tuesday, October 19, 2010
Michael Schmidt recently published his note entitled Negron v. United States: the Sixth Circuit Improperly Applied the Eighth Circuit's Unreasonable and Unrealistic Results Exception Resulting in its Conclusion That the IRS Annuity Tables Must be Used to Value an Annuity with a Marketability Restriction, 43 Creighton L. Rev. 945 (2010). An excerpt from the introduction is below:
This Note will first review the facts and holding of Negron and the rationale the Sixth Circuit utilized to reach its conclusion that the IRS annuity tables did not produce an unreasonable and unrealistic result in valuing the Estates' future lottery payments. This Note will then provide a summary of the relevant sections of the United States Code and Treasury Regulations. Next, this Note will discuss the United States Court of Appeals for the Eighth Circuit, Fifth Circuit, Second Circuit, and Ninth Circuit decisions that addressed the exception to the use of the IRS annuity tables and the federal circuit court split as to whether departure from those tables is warranted when the asset to be valued is a decedent's future lottery payments with a marketability restriction.
Next, this Note will show the Sixth Circuit erred when it found that the results produced by the IRS annuity tables in Negron were reasonable and realistic. This Note will first establish that had the Sixth Circuit considered the issue, it would have found that the future lottery payments with marketability restrictions qualified under the codified restricted beneficial interest exception. This Note will explain that the Sixth Circuit would have found that the lottery payments qualified as a restricted beneficial interest because (1) the IRS annuity tables do not assume non-marketability, and (2) a marketability restriction qualifies under the "other restriction" language of the relevant Treasury Regulation. Second, this Note will demonstrate that the Sixth Circuit decided incorrectly that the IRS annuity tables produced a reasonable and realistic result when valuing the Estates' annuities and concluded erroneously that departure was unwarranted. This Note will explain that the Sixth Circuit was incorrect for three reasons: (1) it found incorrectly that the facts of the case did not undermine the assumptions underlying the IRS annuity tables; (2) it found incorrectly that the marketability restriction did not affect the relevant value of the Estates' annuities because the relevant value is the ultimate value of the annuity and the marketability restriction affected the annuities' ultimate fair market value; and (3) had it reached the issue, the Sixth Circuit would have found that a more reasonable and realistic valuation method was available. Thus, this Note will conclude the Sixth Circuit erred in Negron when it found that departure from the IRS annuity tables was unwarranted because those tables produced an unreasonable and unrealistic value for the Estates' future lottery payments.