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Wiggling off the hook for tax penalty

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Can you avoid tax penalties if you rely on advice from a professional? It depends on the particular facts and circumstances. In a new case, a retiring tugboat captain met with financial planners who convinced him to enter into a complex deal to sell his business.

The upshot: He would owe zero tax on the transaction. After his long-time attorney gave the stamp of approval, the captain went ahead with the deal. But then the IRS audited the captain and said he owed tax on $5 million of gain. Now the Tax Court has agreed with the IRS, but there’s some consolation for the captain: He doesn’t owe the 40% gross valuation penalty because he relied on professional advice. (Bruce, TC Memo 2014-78)

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