This is the seventh in a series of 23 tax tips that AdvisorOne will publish on each business day in March as part of our Tax Planning Special Report (see our Special Report calendar for a more complete list of topics to be covered and experts who will deliver their insights).
Today’s tax tip comes from Martin Shenkman of Shenkman Law, with offices in New Jersey and New York. Shenkman is the author of 34 books, hundreds of magazine and journal articles, and received his undergraduate education from the Wharton School of the University of Pennsylvania, his MBA from the University of Michigan, and his JD from Fordham University.
The Tip: Use Accurate Formula Clauses in Legal Agreements.
Shenkman (left) says it is unfortunately common for tax advisors to use inaccurate tax terms and definitions when creating formula clauses or definitions in a myriad of legal documents. Too often these clauses are also not updated for changes in the tax law, he points out.
For example, providing that a buyout of a business is based on tax book value could result in wide swings in economic effect given the tremendous changes in the maximum amount of equipment that could be deducted in the year of purchase under Code Section 179. Because of broad changes in Section 179 allowances, drastic differences in valuation can result depending on which year the Section 179 allowances were determined.