Lightened Taxpayer Burdens in the Sale of Personal Goodwill After H&M, Inc. v. Commissioner

In any negotiation for the purchase of a business, the valuation of the various assets of the business is likely to be a contentious issue. Tax professionals advise that the best way to protect against a reallocation action by the Service is to obtain a professional valuation of the business' assets. A recent Tax Court case, however, casts some doubt on this conservative wisdom. The case shows that the parties to a business purchase transaction may have significantly more freedom to value a business' assets than previously thought. In H&M, Inc. v. Commissioner, the Tax Court dismissed the Service's contention that the parties to an asset purchase agreement had inaccurately valued the assets of the business in an effort to receive more advantageous tax treatment. This note argues that the H&M, Inc. court came to the correct conclusion in upholding the parties' purchase price allocations, but that its analysis was flawed because the court failed to impose a higher evidentiary burden on the taxpayer in support of those values.