Hiding Gift in Company Merger Not Successful Estate Plan

The Tax Court recently decided a case that involved whether an unbalanced business deal between family members constituted a disguised gift, and was thus taxable.

InWilliam Cavallaro v. Commissioner, T.C. Memo. 2014-189, the court held that when parents and their sons merged companies, the imbalance of the shares of stock that each party received was not reasonable based on the value of the companies that each side came to the deal with. Thus, the parents’ significantly lower amount of shares received constituted a $29.6 million gift to their sons. However, the parents will not have to pay penalties on the unpaid taxes due to their reliance on advice from legal counsel.

See Charles (Chuck) Rubin, Hidden Gift in Merger Transaction, Rubin on Tax, Oct. 4, 2014.