This article considers whether and to what extent courts should permit a built-in gain discount. It begins by presenting the challenges of valuing assets for transfer tax purposes, discussing the general principles of transfer tax valuation, and highlighting the particular methodologies used to value closely-held entities. The article then examines how, during the era of the General Utilities doctrine, a prospective liquidation test, which considered the prospect and affect of liquidation, led courts to repeatedly disallow the built-in gain discount. However, since the repeal of the General Utilities doctrine, the prospective liquidation test has been discarded, at least in part, and courts have become receptive to allowing the discount. The article considers the current debate, which the Supreme Court has declined to resolve, and analyzes the holdings in three prominent court of appeals cases, the Tax Court opinions these cases overruled, and the parties' underlying arguments. The article demonstrates that the decisions in Estate of Dunn and Estate of Jelke relied on a problematic assumption-namely, that the corporation being valued is deemed liquidated on the valuation date. The article exposes that this assumption may lead to inaccurate outcomes in future cases. To avoid such results, the article proposes a modified liquidation test, which would yield a more accurate calculation of the built-in gain discount.

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