A Court of Appeals ruled that reliance on an accountant’s advice was not enough to avoid the negligence penalty. In the case, the taxpayers contracted with an accountant to aid them in the sale of a business. The accountant recommended that the reporting of the sale be shown in the following year in order to avoid paying tax in the current year. The taxpayer argued that since the advice was from a professional accountant, the negligence penalty should be disallowed. The court disagreed and found the penalty to be proper.
There was little or no disputing that the business interest was conveyed in 1994. As such, the sale should have been reported in the year of 1994 by the taxpayer. Denying the obvious on a tax return, but claiming professional advice does not excuse you from the tax or the corresponding penalties. Proper tax planning in this situation (delaying the closing, changing the structure, etc.) could have worked in reducing the tax or at least delaying its pay date. Whenever you sell a business, you must have competent professionals on your team. The Center routinely helps structure business sales and plans tax strategies for the best possible results. If you are selling your business, be sure to contact the professionals at The Center to obtain the best tax results.
By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors