Accounting
Supreme Court hears case on insurance and estate taxes
In its second case this term
The petitioner, Connelly, argued that the IRS should not include the proceeds of the redemption of a family-owned company’s policy on his brother’s life in their construction firm’s value because that insurance money immediately bought the remaining shares. The IRS collected additional tax of $889,914 from the deceased brother’s estate based on the agency’s view that the proceeds boosted the company’s value. Two lower courts ruled in favor of the IRS.
Most observers
In theory, many tax experts could see how including the insurance proceeds in the company’s valuation “rises to the level of being unfair” to an estate when the policy requires them to be redeemed by purchasing the deceased family members’ shares, said Jose Reynoso, the head of personal financial planning and advance estate and tax for
“It’s really interesting to us as planners and practitioners that the Supreme Court even took it up,” Reynoso said in an interview. “It’s a unique, sort of nichey thing that impacts not too many people.”
READ MORE:
The issue does come up frequently for the owners of closely held businesses who purchase life insurance policies for their largest shareholders, he noted. The IRS valuation of the construction company “would destroy a valuable succession planning tool that the nation’s small businesses have openly used for decades,” the plaintiff’s attorney, Kannon Shanmugam, said at the hearing,
The U.S. Chamber of Commerce and the National Federation of Independent Business Small Business Legal Center
Their apparent siding with the IRS and “tepid reception to the taxpayer estate” was not “entirely surprising” to Frank Paolini, partner with the private wealth services group at the
“While I could make arguments on either side of the case, the taxpayer estate must still contend with the logically glaring issue that a policy covering the life of a key shareholder would have an impact on the fair market value of the shares in any other context,” Paolini said in an email.
“For instance, a hypothetical buyer of the company would ascribe additional value to the shares if the company held a policy on the life of key employees and shareholders,” he continued. “Just because the company must use the policy proceeds to pay the decedent’s family for the shares, the shares are still redeemed, and the value of the purchased equity is returned to the company on redemption,” he said.
“Essentially, the value of the shares must go somewhere when the decedent dies. In the end, the family receives the benefit of the payment from the policy and the company receives the shares back in return, which is presumably equal to the value of the shares purchased from the decedent’s estate. If the court held otherwise, it would seem incongruent with many other areas of estate tax valuation,” Paolini said.
READ MORE:
The plaintiffs held that the government was taking positions that are out of step with the fact that the surviving brother would still be subject to capital gains taxes and rulings in other cases that contradicted the use of the proceeds in a valuation. However, their argument revolved around the notion that “before you can value something, you must first subtract the price paid for the very thing you are trying to value,” U.S. Department of Justice Assistant to the Solicitor General Yaira Dubin told the court.
“A redemption obligation divides the corporate pie among existing shareholders without changing the value of their interests,” Dubin said. “And, here, the corporate pie was worth $6.86 million, not $3.86 million.”
Toward the end of the 54-minute hearing last month, Dubin spoke with the justices about how a cross-insurance agreement between the brothers or a trust structure could enable the taxpayers to avoid having the proceeds go into their corporation’s valuation. The Supreme Court will release decisions in the Moore and Connelly cases by the end of June or early July.
Thirteen accounting firms have united to form
Operating in an alternative practice structure as Sorren CPAs PC for attest services and Sorren Inc. for business advisory and non-attest services, the combined firms have 85 partners and approximately $170 million in revenue, with plans to add more firms going forwards.
Many of the founding firms met as members of the BDO Alliance, and their leaders had gotten to know one another as attendees at alliance meetings and managing partner roundtables, according to Josh Tyree, the president of Sorren, who was previously president of Harris CPAs, an Idaho-based firm that was the first of the group to go the PE route, signing up with DFW in January 2024.
“Harris had started looking at that process with DFW for a good chunk of 2023,” Tyree recalled, “and I remember we were having a managing partner roundtable meeting in Nashville that year in the fall, and they were all there and I raised my hand after two hours of talking about PE and I said, ‘Hey guys, I think I’m going to jump in feet first and you guys should all come and join us.'”
And they did — with individual firms joining up with DFW over the course of 2024, and a large group in January 2025.
“There was a level of comfort,” he explained. “We knew all of our firms and our people and what we do and how we do it because we’d shared so much information over the years.”
Apart from Harris, the other firms currently comprising Sorren are:
- Acuity (Georgia);
- Aycock & Co. (Texas);
- Capital Nomics Valuations (California);
- Chigbrow Ryan Murata (Idaho);
- Hoerber Tillman & Co. (Florida);
- JRJBF (Illinois);
- KDP Advisors (Oregon);
- KMA Advisors (Wisconsin);
- Pisenti & Brinker (California);
- Roeser Accountancy (California).
- SBF Advisors (Florida);
- Stockman Kast Ryan & Co. (Colorado).
Allan Koltin, CEO of Koltin Consulting Group, said in a statement, “What makes Sorren stand out is the way these firms came together — with intention, shared values, and a commitment to staying deeply connected to their local markets. This group didn’t just merge for size; they united around a common purpose. It’s a blueprint for how innovative firms can grow, while staying true to who they are.”
The firms all have a strong focus on small and middle-market businesses and nonprofits that want a local firm feel and relationship, even if they need services across the country. As it adds new firms, Sorren will prioritizing those that are a fit with their current culture.
“If we go into another region, we want to start with leadership and good people; we’re not just randomly going out to try and find any firm that meets [a client need],” Tyree explained. “It really has to fit our culture and it has to have a leader in that area for us to go into that services.”
He also made the point that Sorren is still very much a work in progress — relying on current firm expertise to build national practices in tax, assurance, CAS and advisory.
“One goal when we originally started was we wanted to get to enough mass size that we could really start to build this by using leadership from and talent from all the firms that came on board,” Tyree said.
“It’s going to be super fun, but it’s a lot of work,” he added. “If all you’re looking to do is do a rollup or something like that, that’s probably not our style. We’re trying to create this for our type of client and our type of cultures. And we think there’s a little void there where we can do it.”
Donald Trump’s promise to strip Harvard University of its tax-exempt status prompted criticism Friday from a former Internal Revenue Service commissioner in the president’s first term, who said the process would take years and need a judge’s approval.
“The IRS will not allow itself to be weaponized,” former IRS Commissioner Charles Rettig said in an emailed statement to Bloomberg News. Rettig, who oversaw the agency from 2018 to 2022, was asked to respond to Trump’s social media post early Friday that said: “We are going to be taking away Harvard’s Tax Exempt Status. It’s what they deserve!”
Trump made the announcement after weeks of threatening a change to the school’s tax-exempt treatment, stepping up his attack on the Ivy League school.
Federal criminal law bars President Trump or the vice president from ordering the IRS to punish his political opponents or reward his allies. Rettig said the Treasury Department’s Inspector General for Tax Administration “closely monitors and investigates efforts to possibly influence IRS operations.”
The IRS cannot take any action on an organization’s tax-exempt status “without conducting an appropriate examination that would provide relevant information objectively supporting such an action,” Rettig said. “The IRS does not and should not conduct a ‘fishing expedition’ designed to hopefully uncover a relevant issue.”
Organizations also have administrative and judicial appeal rights that can take years to resolve before a federal judge approves a change in tax-exempt status, he said. “Throughout that process, there are many opportunities for resolution that would not result in the removal of the tax-exempt status of an organization,” he wrote.
Trump’s fight with Harvard escalated after it rejected his administration’s demands to reform campus policies to combat antisemitism and promote viewpoint diversity. The administration has frozen $2.2 billion in funding that supported projects including ALS and tuberculosis research.
On April 21, Harvard sued the U.S., claiming the funding freeze violated its free speech rights, and the government cannot dictate what it teaches, who it hires, and which students it admits.
In Trump’s second term, four people have held the IRS commissioner’s job on an acting basis.
The Importance of Backing Up Bookkeeping Data
Warren Buffett to ask board to make Greg Abel CEO of Berkshire Hathaway at year-end
‘Trade should not be a weapon’
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
The Essential Practice of Bank and Credit Card Statement Reconciliation
Are American progressives making themselves sad?
-
Economics1 week agoECB members say inflation job nearly done but tariff risks loom
-
Accounting1 week agoAt Schellman, AI reshapes a firm’s staffing needs
-
Economics1 week agoAmericans are getting flashbacks to 2008 as tariffs stoke recession fears
-
Economics1 week agoTrump insists bond market tumult didn’t influence tariff pause: ‘I wasn’t worried’
-
Economics1 week agoChecks and Balance newsletter: Predictions for the Democrats’ future
-
Personal Finance1 week agoAs Real ID deadline approaches, there are ‘workarounds,’ experts say
-
Economics1 week agoWater sommeliers say the simplest drink is the future of luxury
-
Personal Finance1 week agoMany Americans are worried about running out of money in retirement