The other taxpayer win is a gift tax break for owners of closely held firms. It involves the use of a formula clause when making transfers of interests in the business to family members. Because of the uncertainty that’s involved in valuing a closely held company, a tax professional said to structure the gifts as gifts of a set dollar amount that would be converted into interests in the business after a valuation of the firm was done.
If IRS determined the business was worth more, each donee’s stake would be reduced accordingly and no extra gift tax would be due. The Service balked at the formula clause because the time it spent auditing the gifts was wasted, but the Tax Court gave the OK. Although IRS will keep fighting this issue, tax advisers can rely on the Court’s decision as authority to avoid any penalties.