Estate may face the 40 percent gross valuation misstatement penalty for undervaluing an annuity

Plain-English summary

Chief Counsel considered an estate tax return that reported an annuity at a redacted value after the annuity apparently had been exchanged for bonds worth a much larger redacted amount. IRC § 6662(g) and (h) treats a reported gift or estate tax value as a gross valuation misstatement when it is 40 percent or less of the correct value. The advice states that the return’s claimed annuity value likely met that threshold if the bond value reflected the annuity’s correct value. It concludes that the 40 percent penalty under § 6662(h) would apply unless the estate establishes reasonable cause.

Ruling snapshot

• Question: Would the estate’s reported annuity value trigger the IRC § 6662(h) gross valuation misstatement penalty?
• Outcome: Advice given
• Key authorities: IRC §§ 6662(g), 6662(h)

Full text (IRS public release)

ID: CCA_2024082708550317 [Third Party Communication:

UILC: 9560.12-00 Date of Communication: Month DD, YYYY]

Number: 202515013
Release Date: 4/11/2025
From: -------------------
Sent: Tuesday, August 27, 2024 8:55:03 AM
To: -------------------
Cc: ----------------------------------------------------------------
Bcc:
Subject: RE: Gross Valuation Understatement Penalty

Hi --------,

Section 6662(g) and (h) state that there is a gross valuation understatement if the value
of any property claimed on any gift or estate tax return is 40 percent or less of the
amount determined to be the correct amount of such valuation. Because the estate
claimed the annuity on the estate tax return at a value of $--, this would likely be 40
percent or less of the correct value of the annuity (if it was exchanged for $----------------
worth of bonds). It would follow that unless there is reasonable cause, the 40% section
6662(h) gross valuation misstatement penalty would apply.

Let us know if you have any further questions.

Thanks,

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