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Tax Court Penalizes Doctors Who Overstated Value of Their Corporate Stock Contributions

The Tax Court only allowed doctors who donated stock in their practice to a newly formed tax-exempt professional services corporation (PSC) a small portion of the charitable contribution deduction they had original claimed.  The Court found that the value of the donated stock to be too high and should not have been valued because it was going to be consolidated into the PSC.  The Court also assessed a 40% accuracy penalty to each taxpayer because they did not act in good faith when valuing the stock.  While the taxpayers claimed that they relied on professional appraisers and advisors, the Court found that they were educated and should have known of problems in valuing the stock so high when the medical group was not likely to continue operating.

Points of Interest

  • A very considerable amount of wealth has been created and those owners are now looking to retire or move on from their businesses.
  • Unless Congress acts to the contrary, the capital gains tax will go up in the next year.
  • With the imminent increase in the capital gains tax and the dividend tax rates, owners of closely-held businesses are well advised to sell their businesses this year as opposed to next in order to take advantage of the lower tax rates.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors