A Tax Planning Cautionary Tale: Timing and Formalities Are Critical

A red alarm clock sits atop stacks of coins of varying heights.

This cautionary tale is based upon the recent tax case of Estate of Hoensheid v Commissioner, TC Memo 2023-34. When owners of a company plan to sell their business, there is very often a desire to minimize the resultant income tax. This tax is effectively taxing the increase in the value of the business often earned over many years and decades into a single year. The resultant tax will often be at the highest marginal rate, substantially reducing the net proceeds to the seller.

Many of the tools used to minimize income tax in this situation have a charitable giving component. When properly planned and implemented, three separate goals are achieved.