## Facts

- Mary Frances Smith Bright died in 1971 owning, under Texas community-property law, an undivided one-half interest in a 55% community block of closely held corporate stock (i.e., a 27.5% interest in the total outstanding shares).
- The Brights’ combined 55% holdings were in East Texas Motor Freight Lines, Inc., 27 affiliated corporations, and Southern Trust and Mortgage Company; unrelated parties owned the remaining 45%.
- None of the stock was publicly traded, and no market existed on the date of death.
- The estate reported the 27.5% interest as a minority block and did not add a control premium.
- The IRS assessed an estate-tax deficiency on the view that the 27.5% interest should be valued as part of an undivided 55% controlling block and/or by attributing family members’ holdings to the decedent for valuation; the estate paid and sued for a refund exceeding $3 million.

## Issues

1. For federal estate-tax valuation, must a decedent’s 27.5% community-property stock interest be valued with a control premium because it was part of a combined 55% block held with the surviving spouse?
2. May control be imputed to the decedent’s minority interest through family-attribution principles when applying the fair market value (willing buyer–willing seller) standard?

## Decision

- The Fifth Circuit, sitting en banc, affirmed judgment for the estate.
- The court held the decedent’s 27.5% interest was properly valued as a minority interest without a control premium.
- The court rejected valuing the interest as part of an undivided 55% controlling block.
- The court rejected family attribution as a basis to impute control to the interest transferred at death.

## Legal Principles

- Federal estate tax values the specific property interest transferred at death, not a larger combined interest held before death or controlled after death.
- Fair market value is determined by a hypothetical willing buyer and willing seller, neither under compulsion and both reasonably informed.
- A control premium may be included only if control is inherent in the particular interest being valued under applicable property law.
- Control cannot be imputed to a decedent’s minority interest merely because related parties hold other shares; family relationships and post-death ownership are not valuation assumptions under the hypothetical buyer–seller test.
- Where state law treats spouses’ community interests as separate, partitionable halves, a decedent’s half is valued as its own minority interest unless that half alone carries control.

## Conclusion

The en banc Fifth Circuit held that the estate must value only the 27.5% community-property interest actually transferred at death and may not add a control premium based on the surviving spouse’s shares or family attribution, thereby upholding the estate’s refund judgment.


Estate of Bright v. United States, 658 F.2d 999 (5th Cir. 1981) (en banc)