Estate Challenges Tax Deficiency Based on Stock Valuation

ESTATE OF DAVID G. MASSAD, DECEASED, PAMELA A. MASSAD, PERSONAL REPRESENTATIVE,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

PETITION

Pamela A. Massad (“Petitioner”), in her capacity as personal representative for the Estate of David G. Massad (the “Estate”), hereby seeks a redetermination of the deficiency set forth by the Commissioner of Internal Revenue (“Respondent”) in Respondent's notice of deficiency dated January 10, 2023 (the “Notice of Deficiency”) and, as the basis for Petitioner's case alleges, inter alia, as follows:

1. Petitioner is the personal representative of the Estate. Petitioner is a legal resident of the Commonwealth of Massachusetts. Petitioner's address is 9 Jefferson Road, Westborough, MA 01581.

2. David G. Massad (“Decedent”) died on December 28, 2018. Decedent was a legal resident of the Commonwealth of Massachusetts at his date of death, and the estate is being administered in Massachusetts. The principal office of the Decedent's estate is c/o Pamela A. Massad, 9 Jefferson Road, Westborough, MA 01581.

3. Form 706, United States Estate (and Generation Skipping Transfer) Tax Return (the “Estate Tax Return”), was timely filed by Petitioner on January 15, 2020, with the Internal Revenue Service Center located in Kansas City, Missouri.

4. The Notice of Deficiency is dated January 10, 2023, and was issued by the Office of the Internal Revenue Service at Boston, Massachusetts. A copy of the Notice of Deficiency is attached as Exhibit A.

5. The deficiency as determined by Respondent is in estate tax in the amount of $7,769,415. The entire amount of the deficiency is in dispute.

6. Respondent's adjustments to the estate tax reported on the Estate Tax Return are based on erroneous factual and legal premises and conclusions, as well as incomplete information.

7. Respondent's erroneous determination of the estate tax as set forth in the Notice of Deficiency is based upon, inter alia, the following errors:

a. Schedule B, Stocks and Bonds — Item 33. The Commissioner erred by increasing the value of 5,400,558 shares (the “Shares”) of common stock of Berkshire Hills Bancorp, Inc. (“BHLB”) reported on Schedule B, Item 33, includable in the gross estate, by $19,423,539.

b. If the Commissioner is correct that there is a deficiency in Federal estate tax and that interest is payable in respect of such deficiency, he erred in not allowing as a deduction the amount of such interest accrued to date.

c. In addition, Petitioner is entitled to additional administration expenses incurred and to be incurred, including expenses related to this litigation.

8. By this Petition, Petitioner is filing a protective claim for refund should the Court's determination of the value of the BHLB common stock or the amount of Petitioner's deductible fees and expenses of administration give rise to an overpayment.

9. The facts upon which Petitioner relies, as the basis of Petitioner's case, are, inter alia, as follows:

a. At the date of his death, on December 28, 2018, Decedent owned the Shares.

b. BHLB is and, as of the Valuation Date was, a publicly traded bank holding company, and the BHLB voting common stock was listed on the New York Stock Exchange (“NYSE”).

c. BHLB issued the Shares to Decedent as consideration for BHLB's acquisition of Commerce Bancshares Corp., which was completed on October 16, 2017. As a precondition to BHLB entering into a definitive agreement to acquire Commerce Bancshares Corp., Decedent entered into an agreement with BHLB (the “Shareholder Agreement”) that, among other things, substantially restricted the ability of Decedent (and his estate) to vote and freely sell the Shares.

d. As of the Valuation Date, the Shares constituted 11.6 percent of the shares of BHLB common stock then outstanding, and two designees of Decedent served on the 11-person BHLB board of directors.

e. The number of Shares owned by the Decedent relative to the expected trading volume of BHLB common stock, the selling and voting restrictions under the Shareholder Agreement, the probable characterization by broker-dealers and other market participants of Decedent as an affiliate of BHLB for purposes of the Securities Act of 1933, as amended, and the probable requirement by broker-dealers and other market participants that Decedent sell shares of BHLB common stock only during open trading windows for BHLB insiders would have either significantly prolonged the period required for Decedent to sell all of the Shares in a manner reasonably designed to maximize the sale proceeds or required Decedent to sell the Shares at a substantial discount compared to the average of the high and low trading prices for BHLB common stock on the NYSE on the Valuation Date.

f. Relying on a valuation report provided by Management Planning Inc. (“MPI”), Petitioner reported in the Estate Tax Return that the fair market value of the Shares on the Valuation Date was $123,965,758, reflecting a 15 percent discount for lack of liquidity and marketability.

g. In a notice dated August 24, 2021, Respondent notified Petitioner that the Estate Tax Return was selected for audit.

h. On July 11, 2022, Respondent issued an Appraisal Review and Calculation Report (the “IRS Report”) that failed to fully take into account the substantial restrictions on the Shares and incorrectly determined that the fair market value of the Shares at the date of decedent's death to be $145,112,858.

i. On October 12, 2022, Respondent issued a supplemental letter (the “IRS Supplement”) revising its previous conclusions slightly and still incorrectly determining the fair market value of the Shares at the Valuation Date to be $143,385,653, a valuation which still failed to fully account for appropriate marketability and liquidity discounts on the Shares.

WHEREFORE, it is prayed that:

a. The Court determine that there is no deficiency in estate tax due from Petitioner.

b. The Court determine that Petitioner is entitled to additional deductions under section 2053 of the Code, in such amounts as may be proven.

c. The Court grant such other and further relief to which Petitioner may be entitled.

Respectfully submitted,

Dated: April 6, 2023

Benjamin Z. Eisenstat
Tax Court Bar No. EB21420
Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005
202.862.7859 (Phone/FAX)
beisenstat@capdale.com

Dated: April 6, 2023

Megan E. Wemke
Tax Court Bar No. WM0603
Caplin & Drysdale, Chartered
One Thomas Circle NW, Suite 1100
Washington, DC 20005
202.862.5088 (Phone/FAX)
mwemke@capdalc.com

Attorneys for Petitioner