Intrafamily buyouts get “extra scrutiny,” which is taxspeak for flyspecking, nitpicking, and full-body-searching, so it is rare for any friends-and-family deal to emerge without many plucked feathers. So Cynthia L. Huffman and Estate of Chet S. Huffman, Deceased, Cynthia L. Huffman, Executor, et al., T.C. Memo. 2024-12, filed 1/31/24, manage to dodge some of IRS’ box-barrage.
And a Taishoff “Good Job” to Cindy’s trusty attorneys; no Beverly Hillbillies they, although I wonder why an arms’-length agreement that would have satisfied Section 2703(b)’s one-off safe harbor never got into evidence, although they ultimately do shoot the Section 2703(b)(2) rapids. See T. C. Memo. 2024-12, at pp. 18-20. True, this is ultra-fact-specific, but aren’t all of these?
There is the obligatory valuation joust, with a well-known valuation firm taking a major gut-punch: why choose comparables from the bottom quartile for key-person discount? IRS’ expert chooses the median, and that carries the day, bar one adjustment. I’ll wager an ale or two that the Rule 155 beancount proves this an expensive miscue. T. C. 2024-12, at p. 27.
The real homerun for Cindy’s trusty attorneys is avoiding chops on the gift tax on the bargain sale from parents to son. Parents’ long-time accountant bailed when this deal was going down, getting papers was a tooth-pull, and parents reasonably relied on advice that gift tax not due, satisfying all the Neonatology boobytraps. Son and family C Corp do get some late-filings and late-paying add-ons. See T. C. Memo. 2024-12, at pp,. 44.
Takeaway- When families get ready to do the torch-throw, they’d best get appraisals lined up, comparables on deck, accountants and attorneys at the ready. And tell ’em Cindy sent ya’.
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