In the annals of family business succession planning, it is worth noting some clever, albeit flawed, attempts to transfer ownership interests in a mature enterprise to family members while avoiding the transfer tax toll.
The Saga
This is not a new story but is an interesting one that bears revisiting. Cavallaro v. Commissioner, 842 F.3rd 16 (1st Cir. 2016), affirming in part, reversing in part, and remanding, T.C. Memo. 2014-189, is one such instance. (In this connection, see also the final Tax Court decision on remand at T.C. Memo 2019-144.) In 1979, William Cavallaro and his wife Patricia founded the contract manufacturing company known as Knight Tool Co. (Knight). William owned 49% of the stock and Patricia owned 51%. Their sons, Ken, Paul and James began working in the business.
