Tax Court Won't Provide a Remedy for IRS Failure to Provide Estate Valuation Statement

(Parker Tax Publishing May 2026)

The Tax Court rejected an estate's motion seeking to preclude the IRS from asserting its determined value of the estate as a consequence of the alleged IRS's failure to provide a written statement explaining the basis of the valuation as required within 45 days of the estate's request under Code Sec. 7517(a). The court found that, even assuming the IRS failed to comply with the written statement requirement, the statute is silent as to what remedy, if any, was available, and the court declined to impose such a severe consequence where the statute itself provided no enforcement mechanism. Estate of Amplatz v. Comm'r, T.C. Memo. 2026-35.

Background

In 2014 Kurt Amplatz formed KA Medical, LLC (KA Medical), a Minnesota limited liability company that designed, manufactured, and sold medical devices. Amplatz created three trusts: (1) the Kurt A. Amplatz Funding Trust (Funding Trust), (2) the KA Medical Trust (Medical Trust), and (3) the Kurt A. Amplatz Revocable Trust (Revocable Trust). Security Bank serves as trustee for the Revocable Trust and successor trustee for the Medical Trust and the Funding Trust.

Amplatz was the original settlor of the Funding Trust. Through the Medical Trust, Amplatz held 50,000 voting and 450,000 nonvoting membership units in KA Medical. The Medical Trust contributed $500,000 to KA Medical in exchange for the 500,000 membership units. Two other company executives also held 55,500 nonvoting membership units each in KA Medical. The Funding Trust made approximately $19 million in cash transfers to fund KA Medical's research and development. In exchange KA Medical gave 25 promissory notes to the Funding Trust during Amplatz's lifetime and at least two more after his death. KA Medical made no payments of principal or interest on those notes and extended the due dates on 19 of them. According to Amplatz's estate, KA Medical had no revenue from 2015 to 2018, sustained recurring losses, and consistently treated the promissory notes payable to the Funding Trust as bona fide debt.

On November 6, 2019, Amplatz passed away. Shortly thereafter, efforts began to sell KA Medical. On or around January 23, 2020, KA Medical representatives met with SealedBid Marketing, Inc. (SealedBid), a mergers and acquisitions brokerage. On May 3, 2020, KA Medical executed an Exclusive Right to Sell Engagement Agreement with SealedBid. On or around June 3, 2020, Merit Medical Systems, Inc. (Merit Medical), expressed interest in acquiring KA Medical. It made an oral offer of $10 million plus a 6 percent royalty for ten years, with potential upward adjustments of $1 million to $2 million. On July 15, 2020, Merit Medical entered into a nonbinding letter of intent to purchase all membership units of KA Medical for $15 million. On July 20, 2020, KA Medical received an appraisal from Value Consulting Group valuing the Estate's interest in KA Medical at zero and the promissory notes at $1 million as of May 6, 2020.

On August 6, 2020, Security Bank, as personal representative, filed the Estate's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, selecting an alternate valuation date of May 6, 2020. The Form 706 reported the value of the Estate's membership units in the Medical Trust, which held KA Medical, as zero and reported the value of the promissory notes payable to the Funding Trust as $1 million. On or around November 6, 2020, both the Medical Trust and the two company executives with membership interests in KA Medical transferred all of their membership units to the Funding Trust, resulting in the Funding Trust's owning all of KA Medical's membership units. On November 6, 2020, Merit Medical and Security Bank entered into a Unit Purchasing Agreement, in which Merit Medical purchased all membership units in KA Medical from the Funding Trust for $15 million.

The IRS selected the Estate's Form 706 for examination and assigned the case to Estate Tax Legal Specialist Elizabeth Miller. On June 21, 2023, Miller sent the Estate a preliminary examination report setting forth respondent's adjustments to the Estate's Form 706. The preliminary examination report also included Form 886-A, Explanation of Items, providing statements for the IRS's adjustments to the values of KA Medical and the promissory notes.

On June 28, 2023, the Estate emailed Miller requesting a written statement of the IRS's valuation pursuant to Code Sec. 7517 as to the valuation of KA Medical and the promissory notes no later than August 12, 2023 (45 days). Code Sec. 7517 allows requests for a written statement from the IRS explaining the basis for its valuation for estate, gift, or generation-skipping tax purposes. Under Code Sec. 7517(a), the IRS is required to furnish the written statement "not later than 45 days after the later of the date of such request or the date of such determination or proposed determination." That is, the IRS must respond (1) after the taxpayer's request and (2) within 45 days of the request or the determination. The provision does not require a particular form or format, and no information disclosed in the statement is binding on the IRS.

Miller reviewed Code Sec. 7517 and determined that the preliminary examination report complied with the statutory requirements. Miller did not communicate this determination to the Estate. On July 17, 2023, the IRS issued the Estate a notice of deficiency with respect to Form 706. The notice of deficiency included another Form 886-A, providing statements for respondent's adjustments to the values of KA Medical and the promissory notes.

The Estate filed a petition with the Tax Court. The Estate argued it was entitled to summary judgment on two issues: (1) the IRS should be precluded from asserting its valuation of KA Medical and certain related promissory notes because the IRS failed to comply with the written statement requirement in Code Sec. 7517 and (2) the Estate should not be liable for accuracy-related penalties under Code Sec. 6662 because the Estate had reasonable cause and acted with good faith in valuing KA Medical and certain promissory notes. The IRS also filed for summary judgment, arguing that it complied with the Estate's Code Sec. 7517 request by issuing the preliminary examination report before the Estate's request and the notice of deficiency after it.

Analysis

The Tax Court held that precluding the IRS from asserting its determined value was not an available remedy under Code Sec. 7517. Thus, the court denied both the Estate's and the IRS's motions for summary judgment on that issue.

The court observed that the IRS had two opportunities to comply with Code Sec. 7517. First, after the Estate submitted its Code Sec. 7517 request on June 28, 2023, the IRS could have responded to that request within 45 days. Second, the IRS could have responded within 45 days after issuing the notice of deficiency on July 17, 2023, but did not do so. In the court's view, the preliminary examination report could not satisfy Code Sec. 7517 because it was issued before the Estate's request. The court further found that it did not need to decide whether the notice of deficiency satisfied Code Sec. 7517.

The court explained that, assuming the IRS failed to comply with Code Sec. 7517, the question was what remedy (if any) was available. The court noted that, as a consequence of the IRS's compliance, the Estate was asking the court to preclude the IRS from asserting the value of Amplatz's estate determined in the notice of deficiency -- $15,145,000. Doing so would leave the court with the Estate's asserted value of zero. The court declined to grant that relief after finding that no authority existed to support it. The court said that it would presume Congress said in the statute what it meant, and by its plain text, Code Sec. 7517 does not suggest any consequence for noncompliance, let alone the harsh result the Estate sought.

The court found that it has previously declined to impose severe consequences for noncompliance where the statute itself supplies no enforcement mechanism. In Rochelle v. Comm'r, 116 T.C. 356 (2001), aff'd per curiam, 293 F.3d 740 (5th Cir. 2002), the IRS issued a notice of deficiency under Code Secs. 6212 and 6213(a), but it did not stamp on the Notice the specific calendar date by which the taxpayer could last timely file a petition. The Internal Revenue Service Restructuring and Reform Act of 1998 (RRA) (Pub. L. 105-206) requires the IRS to specify the last possible date on which a taxpayer can file a timely petition with the Tax Court, but the statute contains no enforcement mechanism for failing to do so. The taxpayer in Rochelle raised the IRS's technical noncompliance with RRA Sec. 3463(a) as his argument for invalidating the notice of deficiency. In that case, the Tax Court held that the IRS's failure to comply with the statutory mandate in RRA Sec. 3463(a) did not require invalidating the notice of deficiency. Further, the court noted that where Congress did not specify what consequence was to follow from the IRS's noncompliance, the court declined to impose one absent express statutory direction.

With respect to the Estate's reasonable cause defense, the court found that the basis of that argument was that the Estate relied in good faith on a qualified, independent appraisal for its valuation of KA Medical and the promissory notes. The court found that there were issues of material fact concerning the Estate's reasonable cause assertion and therefore denied the Estate's motion for summary judgment on that issue.

For a discussion of estate tax valuation of interests in businesses, see Parker Tax ¶224,740.

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