A recent Tax Court case involved estate tax valuation and procedure relating to a deceased founder’s interest in a medical device company.[1] Following his passing, his estate reported based on an alternative valuation date, including the business interest to be valued at zero.[2] Later, the company sold for $15 million. The IRS asserted a large estate tax deficiency and penalties.
The opinion addresses cross-motions for partial summary judgment, particularly the one filed by the estate, where it argued that:
- The IRS failed to comply with IRC § 7517 (written valuation explanation after request); and
- The estate had reasonable cause and should avoid penalties because it relied on an appraisal.
In ruling on cross-motions for partial summary judgment, the Tax Court rejected the estate’s attempt to obtain an early ruling barring the IRS’s valuation position and also declined to dispose of the penalty issue in the estate’s favor.
Facts
Kurt Amplatz, the decedent in this case, formed KA Medical, LLC in 2014. It designed and sold medical devices. Ownership was held through trusts, referenced in the opinion as the Funding Trust and Medical Trust, both of which appear from the facts of the case to be trusts that were treated as being part of Mr. Amplatz’s taxable estate.
Prior to Mr. Amplatz’s passing, the Funding Trust advanced roughly $19 million to fund research and development, receiving multiple promissory notes from the company. Meanwhile, the Medical Trust owned what appears to be a significant majority of the interests in KA Medical, LLC. The opinion notes that KA Medical, LLC made no payments of principal or interest on the notes to the Funding Trust and extended the due date on 19 of the 25 promissory notes. The estate alleged that KA Medical, LLC had no revenue in the years 2015 through 2018, sustained recurring losses, but nevertheless consistently treated the promissory notes as bona fide debt.
Decedent died November 6, 2019. After the decedent’s death, the estate began exploring a sale of the company, meeting with a broker in January 2020, and formally engaging that broker in May 2020. Around the same period, a buyer expressed interest, culminating in a July 2020 nonbinding letter of intent for $15 million. The appraisal delivered on July 20, 2020, having a value determination as of May 6, 2020, however, valued the estate’s company interest at zero as of the alternate valuation date and the promissory notes at $1 million.
On June 3, 2020, the same buyer expressed interest in acquiring KA Medical, LLC, making an oral offer of $10 million plus a 6% royalty for ten years. On July 15, 2020, five days prior to the day the appraisal was delivered to KA Medical, LLC, the buyer entered into a nonbinding letter of intent to purchase all of the interests (expressed as membership units) in KA Medical, LLC for $15 million dollars.
The personal representative, Security Bank, filed the estate tax return (Form 706) on August 6, 2020 and selected to use an alternative valuation date as of May 6, 2020, the effective date of the appraisal, referenced above, and using the values for the promissory notes and KA Medical, LLC interests from the appraisal.[3] Months later, in November 2020, the company sold to Merit Medical Systems, Inc. for $15 million.
IRS Position
IRS examined the return and adjusted values:
- KA Medical interest = $15,145,000; and
- Notes either worthless equity contributions or alternatively worth over $17 million.[4]
IRS also asserted accuracy-related penalties under IRC § 6662.
Estate’s Arguments
IRS Failed IRC § 7517 Disclosure Duties
The estate formally requested a written statement explaining IRS valuation methodology under IRC § 7517.
That statute generally requires the IRS to furnish:
- basis of valuation,
- computations, and
- copy of any appraisal used.
The estate argued IRS noncompliance should bar the IRS from using its valuation position.
Reasonable Cause Defense
The estate relied on an outside appraisal valuing business interest at zero and notes at $1 million dollars. Therefore, penalty relief should be available based on reasonable cause reliance on a qualified appraisal.
Court’s Holdings
IRS Won on Penalty Approval (IRC § 6751(b))
The IRS obtained timely written supervisory approval before formally communicating penalties. This satisfied §6751(b), and the Court granted IRS partial summary judgment on that issue. Recently, there have been many cases involving supervisory approval issues pertaining to penalties.[5] As a contrast to the IRC §7517 provision lacking remedy (discussed below), failure to obtain proper supervisory approval can undermine the imposition of penalties, which can be a substantial win for taxpayers.
Estate Lost Main §7517 Remedy Argument
The more notable issue was the estate’s reliance on IRC §7517. Although the Court appeared to acknowledge substantial questions regarding whether the IRS fully complied with the statute, it concluded that §7517 does not provide an express remedy that would justify excluding the IRS’s valuation evidence or otherwise invalidating the deficiency determination.
So, if anything, this serves as a reminder that mere procedural IRS failures do not automatically produce taxpayer victories unless Congress created a remedy.
For the sake of completeness, see the full text of the relevant statute, below:
26 U.S. Code § 7517 – Furnishing on request of statement explaining estate or gift valuation
(a)General rule
If the Secretary makes a determination or a proposed determination of the value of an item of property for purposes of the tax imposed under chapter 11, 12, or 13, he shall furnish, on the written request of the executor, donor, or the person required to make the return of the tax imposed by chapter 13 (as the case may be), to such executor, donor, or person a written statement containing the material required by subsection (b). Such statement shall be furnished not later than 45 days after the later of the date of such request or the date of such determination or proposed determination.
(b)Contents of statement
A statement required to be furnished under subsection (a) with respect to the value of an item of property shall—
(1) explain the basis on which the valuation was determined or proposed,
(2) set forth any computation used in arriving at such value, and
(3) contain a copy of any expert appraisal made by or for the Secretary.
(c)Effect of statement
Except to the extent otherwise provided by law, the value determined or proposed by the Secretary with respect to which a statement is furnished under this section, and the method used in arriving at such value, shall not be binding on the Secretary.
As you can see, the statute provides no remedy for non-compliance on the part of the IRS. The Tax Court held that precluding the IRS from asserting its purported value was not an available remedy for failure to comply with this statute. Therefore, even if the IRS failed to comply, the taxpayer could not prevail on this argument.
Reasonable Cause Defense Survives for Trial
A taxpayer may avoid IRC §6662 penalties by showing there was reasonable cause for the underpayment and that the taxpayer acted in good faith.[6] The determination of whether reasonable cause exists is made on a case-by-case basis, considering all pertinent facts and circumstances.[7] Citing to Neonatology Assocs., P.A. v. Comm’r, 115 T.C. 43 (2000), the Court stated that “Reasonable cause requires that the taxpayer have exercised ordinary business care and prudence as to the disputed item.” To rely upon a qualified appraiser’s advice, a taxpayer must show that:
- the adviser was a competent professional with sufficient expertise to justify reliance;
- the taxpayer provided necessary and accurate information to the adviser; and
- the taxpayer actually relied in good faith on the adviser’s judgment.[8]
Ultimately, the estate did not win summary judgment on penalties. But the Court also did not reject the reasonable cause defense. Instead, it held factual disputes remain:
- What information was given to appraiser?
- Were negotiations with buyers known?
- Was reliance on zero valuation reasonable while acquisition talks were active?
Based on these factors, application of penalties remains an issue for trial, set for May 12, 2026.
Takeaway
The decision underscores two practical points for estate tax controversies. First, even if the IRS does not fully comply with IRC § 7517, that alone may not prevent it from advancing its valuation position absent an express statutory remedy. Second, reliance on an appraisal may support a reasonable-cause defense to penalties, but only where the taxpayer can show the appraiser received complete and accurate facts and that the reliance was genuinely in good faith.
[1] Estate of Amplatz v. Comm’r, T.C. Memo. 2026-35 (Apr. 23, 2026).
[2] See IRC § 2032, allowing an executor of an estate to irrevocably elect to have assets of the estate valued on the date that is 6 months following the death of a decedent.
[3] See IRC Section 2032.
[4] As of current, the promissory note values are argued to be either zero, if just worthless equity contributions, or approximately $17 million, pending decision at trial, pursuant to the IRS’ alternative position.
[5] See Wells Fargo & Co. v. U.S., 957 F.3d 840, 854 (8th Cir. 2020); Graev v. Comm’r, 149 T.C. 485, 492-93 (2017); Belair Woods, LLC v. Comm’r, 154 T.C. 1, 16 (2020); Swift v. Comm’r, 144 F.4th 756, 770-71 (5th Cir. 2025), aff’g T.C. Memo. 2024-13; Kroner v. Comm’r, 48 F.4th 1272, 1278, 1279 n.1 (11th Cir. 2022), rev’g in part T.C. Memo. 2020-73; Laidlaw’s Harley Davidson Sales, Inc. v. Comm’r, 29 F.4th 1066, 1074 (9th Cir. 2022), rev’g and remanding 154 T.C. 68 (2020); Chai v. Comm’r, 851 F.3d 190, 220 (2d Cir. 2017), aff’g in part, rev’g in part T.C. Memo. 2015-42.
[6] See IRC § 6664(c); Higbee v. Comm’r, 116T.C 438, 448-49 (2001).
[7] See Treas. Reg. § 1.6664-4(b)(1); Patel v. Comm’r, 165 T.C, slip op. at 35 (Nov. 12, 2025).
[8] Neonatology Assocs., P.A. v. Comm’r, 115 T.C. 43, 99 (2000).
