Central Trust Co. v. United States

The Heekin Can Company (HCC) was a closely held corporation. The majority of HCC’s stock was owned by HCC’s founder’s family (Heekin family) (plaintiffs). The minority stockholders were HCC employees and friends of the Heekin family. On August 3, 1954, the Heekin family gifted 30,000 shares of HCC stock. On October 25, 1954, the Heekin family gifted 40,002 shares. The Heekin family filed gift tax returns, declaring that the value of HCC stock was $10 per share on the dates the shares were gifted. Prior to the gifts, little trading activity occurred in HCC’s shares, which had been sold for $7.50 per share. The Heekin family amended the gift tax returns and filed for refunds, asserting that the share value was $7.50 per share. The United States Internal Revenue Service (IRS) (defendant) rejected the refund claims and sent the Heekin family deficiency notices stating that the Heekin family owed more gift taxes. The Heekin family sued the IRS to recover the claimed refunds. Experts for the Heekin family opined that HCC’s shares were worth between $7.88 and $11.76 per share, relying on the minimal trading activity that occurred before the gifts, financial data that became available only after the shares were gifted, and old financial statements that did not include the most recent data immediately prior to the gifts. The Heekin family’s experts examined HCC’s average earnings in prior years but did not consider HCC’s business trends or weigh earnings as the most important factor in valuing HCC’s stock. Experts for the IRS determined that HCC’s shares were worth $15.25 and $16 per share based on HCC’s actual earnings, dividends, and book value.