Opinion ID: 70891
Heading Depth: 2
Heading Rank: 1

Heading: The Qualified Family-Owned Business Interest Deduction

Text: This case turns on the interpretation of § 2057 of the Internal Revenue Code, 26 U.S.C. § 2057, which provides an estate tax deduction for certain qualified family-owned business interests (QFOBI's). [1] As its name suggests, the QFOBI deduction allows an estate to deduct the value of a decedent's interests in a family-owned business (in this case, a family farm) from the value of the decedent's taxable gross estate. The deduction is limited to $675,000. For an estate to qualify for it, the total value of the claimed QFOBI's must be greater than 50% of the value of the adjusted gross estate; this is known as the 50% liquidity test. The test creates an all-or-nothing threshold: If an estate does not meet the 50% liquidity test, then none of the estate's family business interests qualifies for the QFOBI deduction. The question is whether, for purposes of § 2057, the word interest in Qualified Family Owned Business Interest means only an equity and ownership interest, or whether instead interest can also mean a debt interest. Mary Artall's estate and its executors (collectively, the Artalls) claimed a QFOBI deduction based in part on loans receivabledebt interestsheld by the estate against the Artall family farm. If those loans receivable are counted as QFOBI's, the estate meets the 50% liquidity threshold and benefit from a substantial tax deduction. If not, the Artalls will not satisfy the 50% liquidity test and owe additional taxes.