Estate of Smith v. United States

The Smith family owned the Atlanta Falcons through an S-corporation called Five Smiths, Inc. The equity of Five Smiths was split into Class A common stock, which had enhanced voting rights, and Class B common stock, which had ordinary voting rights. Rankin Smith owned only shares of Class A common stock. Other members of the Smith family owned the remaining Class A stock and all of the Class B stock. Two Smith family members sold some of their Class B common shares to nonfamily members. In conjunction with the sale, Five Smiths and all its shareholders entered into an agreement providing that all of Rankin’s Class A shares would convert into Class B shares upon his death. Immediately before Rankin’s death, the Smith family held 97.4 percent of the total votes of Five Smiths. Immediately after Rankin’s death, the family held 88 percent of the vote. Rankin’s estate (plaintiff) included the shares converted into Class B stock in the gross estate at their postconversion value, without the enhanced voting rights. The Internal Revenue Service (defendant) valued the shares in their preconversion, Class A state, taking into account the added value of the enhanced voting rights. The parties brought their dispute to the Federal Court of Claims to resolve the issue of whether the voting rights lapsed before or after Rankin’s death for the purposes of valuing his gross estate.