In this case, a tugboat captain wanted to sell his business and retire. He set up a meeting with financial planners, who promoted a complex deal to spin straw into tax gold so he could receive cash for his business without owing any tax.
The captain decided to ask his longtime tax lawyer for advice and got the OK. On audit, the IRS claimed the captain owed tax on more than $5 million in gain, and the Tax Court concurred. However, it let him off the hook for the 40% gross valuation misstatement penalty because he relied on the advice of independent counsel (Bruce, TC Memo. 2014-178).