On December 22, 2017, President Donald J. Trump signed into law the Tax Cuts and Jobs Act of 2017 (the “Act”). The Act is the most comprehensive tax reform package since the Tax Reform Act of 1986. The Act contains sweeping changes to corporate and individual tax rates, deduction limitations, foreign income taxation, and the tax treatment of pass-through entities (PTEs) such as S corporations and limited liability companies. In this article, we will discuss the valuation-related characteristics of the Act and provide a series of conceptual solutions that address these characteristics. These solutions address the tax law changes as well as the changing nature of the absolute and relative values of C corporations (“C corps”) and PTEs. We will focus the discussion on tax attributes as they relate to businesses operating in the U.S. The foreign tax characteristics of the Act are complicated and deserving of another article devoted solely to these issues. In this article, we will not address valuation issues such as control, marketability, liquidity or standard or premise of value. We will use general terminology such as enterprise value, debt, equity, and cash flow without specific definition. This is not to suggest that these issues are not important. However, the variability of these issues in conjunction with the new tax law creates a nearly infinite variety of situations that would require individualized analyses. Consequently, the objective of this article is to provide a conceptual framework for the conduct of valuations in this changing tax environment.
Valuing C Corps and Pass-Through Entities Under the New Tax Law
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