April Is Too Late

When I was young I learned something about lions that has stayed with me for the rest of my life.

An old male lion cannot hunt. His teeth are worn and his claws are brittle and he has lost the speed he had at five years old. What he still has is a roar you can hear for miles.

So the pride puts him on one side of the plain, and the females and the young males wait quietly on the other. The old lion roars. The herd hears it, panics, and runs directly away from the sound. Straight into the ones who can still hunt.

The animal that survives is the one that runs toward the roar. Because when it gets there, all it finds is an old lion who cannot do much of anything. All he did was bluff.

I have thought about that a great many times sitting across from people who were afraid of their tax situation.

What the avoidance costs

Most sellers do not fail to plan because planning is unavailable to them. They fail to plan because the subject is unpleasant and there is always a reason to deal with it next month.

The deal is not certain yet. The buyer is still doing diligence. The accountant is busy. We will handle it when we know the price.

Every one of those is reasonable in isolation. Together they carry a transaction from March to September to closing, and then the year ends, and the file goes to the preparer.

And in April the envelope arrives, and the number in it is real, and it is now a historical fact.

What April can and cannot do

Your preparer is working with a finished year. He will apply every provision your facts support, and a good one will find things a lesser one misses. I do not want to diminish that work. Elections, carryforwards, basis corrections, and classification questions all get decided at the return, and they matter.

What he cannot do is change the facts.

If a provision required something to be in place before the transaction, and it was not in place, then it was not in place. There is no filing that alters that. He is reporting a year that is over.

This is why I say the planning conversation and the filing conversation are two different conversations that happen at two different times, and why so many people are surprised to learn they only ever had one of them.

The honest exception

I am not going to tell you nothing can ever be done after a transaction closes, because that is not true and I would be overstating my own rule to say it.

There are circumstances where a completed transaction still leaves something available. There are also amended returns and refund claims for prior years, which exist and which are bounded by statutory deadlines. I have seen a business owner told by a competent CPA that a very large tax bill was fixed because escrow had closed, and I have seen that turn out not to be the whole story.

But I want to be careful with that, because it is the kind of statement that gets repeated as a promise.

Eligibility after the fact depends entirely on the specific facts, the structure of the original deal, and the timing of your filings. It is narrow, it is conditional, and nobody can tell you whether it applies to you without seeing your documents. Anyone who quotes you an outcome on a closed transaction without reading anything is not being straight with you.

The rule remains what it has always been. Before signing is the moment. Everything after that is a narrower conversation with fewer doors in it.

Run toward it

The reason I told you about the lions is that the roar in this subject is almost always louder than what is behind it.

People avoid the tax conversation because they expect it to be complicated, expensive, and full of bad news. What it usually is instead is a two-page comparison showing what happens if they do nothing, next to what happens if they do something, with the assumptions written out.

Sometimes that comparison shows a meaningful difference and there is a decision to make. Sometimes it shows very little and the seller proceeds with more confidence than he had before, because now he knows rather than suspects.

Either result is better than the envelope in April. And the entire cost of finding out is a conversation you have been putting off.

The complexity in this area is not a barrier. It is a filter. It separates the people who accept unnecessary tax from the people who take the time to understand what the law actually permits.

Which side of that you end up on is decided long before April.

This information is general and is not tax, legal, or investment advice. Every situation is different. Work with your own CPA and attorney before acting on any strategy.