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Notre Dame Law Review

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Two formats are available for taxing these difficult-to-value transfers. The first alternative is to tax the transfer at the time the transferor severs his control, the point at which transfers are generally subject to taxation. Using this format, the determination of value is necessarily speculative. That is, the process requires taxpayers, the Internal Revenue Service, and the courts to hazard the best guess that the circumstances will permit. The second alternative is to defer the imposition of the transfer tax until the difficult-to-value aspect of the transfer becomes susceptible to more accurate valuation.

In the estate tax context, the former alternative has generally been applied because, unlike the latter, it makes it possible to compute the estate tax within a reasonable time after death, facilitating prompt estate administration. In the gift tax setting, however, a valuation-difficulty rule has evolved, which in some situations defers the computation and payment of the tax where the gift is difficult to value. Since this deferral approach allows the tax computation to be made when valuation is no longer difficult, its application increases valuation accuracy. This article will argue that this increase in accuracy warrants a more expansive application of the valuation-difficulty rule than has thus far been the case.