Undervalue business now; estate will pay later. (Internal Revenue Service valuation of estates)

National Underwriter Life & Health-Financial Services Edition, June, 1993 by Zygman, Morry

Business owners should not undervalue their businesses for estate planning purposes in an attempt to avoid taxes since the Internal Revenue Service (IRS) audits close to 100% of business transferals made by decedent taxpayers to children or close family members. The IRS audits most transferals because undervaluations are common and the unpaid taxes and penalties are a significant revenue source. Depending on the amount the business was undervalued, penalties are either 20% or 40%. In addition to taxes and penalties, the new owners will face court costs. It is better to properly value the business and pay only the required taxes.

Sometimes a business owner believes it would be advantageous to undervalue his or her company now, in order to save on estate taxes later....

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