Court approves gift tax strategy

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in Small Business Tax,Small Business Tax Deduction Strategies

Are you considering giving large gifts to family members? A new 9th Circuit Court case presents an intriguing idea. (Est. of Petter, 9th Circ. 10-71854, 8/4/11)

Facts: A taxpayer made a gift of a minority interest in a limited liability company (LLC) based on a steep discount in value. After the IRS disagreed with the valuation, the parties settled on an amount. Then the IRS imposed gift tax on the difference in the valuations. However, under the terms of the gift, if the discount was disallowed or reduced, the portion of the gift representing the difference goes to charity. Result: The court approved the use of this technique.

Note that this technique effectively put the taxpayer in a win-win situation. If the gift valuation is disputed, the taxpayer gets a charitable deduction. The IRS is expected to put the clamps on this idea.

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