
James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
Author: James F. McDonough
Date: January 12, 2016
Of Counsel
732-568-8360 jmcdonough@sh-law.comIn what has been deemed by the tabloids as a family soap opera, the U.S. Tax Court ruled in a recent landmark case of the Redstone family that the transfer of stocks does not qualify as a taxable gift because the transfer was made for full and adequate consideration in money or money’s worth. According to a Law 360 report, this was a significant decision because the ruling drew a distinction between a transfer that is done “in the ordinary course of a business” and gifts made for tax purposes.
The case involved Edward Redstone, the younger brother Sumner Redstone, the media magnate and majority owner of National Amusements Inc. In the initial ruling, the IRS wrote that the transfer of $1.3 million in National Amusement stock to Edward Redstone’s children classified as a taxable gift. The IRS found that because this $5 million in shares was part of a settlement in 1972 to resolve ownership shares in the company, the stocks qualified as a business transaction for federal tax purposes. The court found that the transfer was bona fide, arm’s length and free of donative intent which are the three elements in the regulations that must be satisfied.
In its assessment of the case, the IRS argued that the stock transfer was not an ordinary business use. It also stated that since the Redstone children were not listed as heirs to the ownership shares, this transfer should be considered a taxable gift. The vexing and public nature of the litigation was strong evidence of the absence of donative intent.
The IRS then assessed Edward Redstone’s transfer to have more than $1.2 million in penalties and tax deficiencies as well as interest for the 44 year period after the settlement. Therefore, it argued that Edward Redstone owed $737,625 in federal gift taxes, $368,813 for tax fraud, $184,406 for failure to pay the gift taxes in a timely manner and $36,881 for negligence involved in the 1972 settlement transfer.
The Tax Court disagreed with the IRS because the transfer did not have donative intent. In fact, the transfer was ruled to be done in the course of ordinary business because it was classified as a legitimate arm’s-length transaction. Therefore, citing previous rulings on estate and gift tax precedents, the Tax Court found that the stocks were not subject to federal gift taxes.
This was due to the fact that Edward Redstone had been part owner of National Amusements, but was forced out after several problems among family members. The conflicts eventually led to a settlement where Edward Redstone was given ownership shares in the company that were redeemed later for $5 million. In the settlement, Edward Redstone also agreed to transfer $1.3 million of these stocks to his children in a trust. The Tax Court ruled that this transfer was done in exchange for recognition that Edward Redstone was the outright owner of the larger portion of the ownership stakes worth $3.7 million.
Finally, the Tax Court found that the gift tax was not applicable for transfers that are deemed ordinary business transactions. The transaction was for a “full and adequate consideration in money or money’s worth,” and thus not subject to federal gift taxes as part of the 1972 settlement.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Corporate consolidation involves two or more businesses merging to become a single larger entity. The result is often a stronger and more competitive company that can better navigate today’s competitive marketplace. What Is Corporate Consolidation? Corporate consolidation closely resembles a basic merger transaction. The primary difference is that a consolidation creates an entirely new business […]
Author: Dan Brecher
Business law plays a critical role in nearly every aspect of running a successful enterprise, from negotiating a commercial lease to drafting employee policies to fulfilling corporate disclosure obligations. Understanding what is business law and your legal obligations can help your business run smoothly and build productive relationships with clients, business partners, regulators, and others. […]
Author: Dan Brecher
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
Author: Dan Brecher
Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]
Author: Angela A. Turiano
While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]
Author: Dan Brecher
Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]
Author: Robert E. Levy
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!