Some notions have recently been kicking around in the valuation profession that have prompted Jim Hitchner (Financial Valuation Advisors) to speak out. “There are a few myths that need debunking. Well, more than a few,” he writes in the April issue of Hardball With Hitchner. He’s up to two now, with more to come.

Myth 1: The Internal Revenue Service (IRS) only accepts the Uniform Standards of Professional Appraisal Practice (USPAP) in tax-related business valuations. In his March issue, he deals with this belief and quotes Business Valuation Update and its coverage of a conference where this notion was dispelled. After a review of IRS material and the various sets of valuation standards, Hitchner writes: “The bottom line is that USPAP is not required in a federal tax engagement.”

Myth 2: Restricted stock studies and data cannot be relied upon to determine a DLOM in federal tax business valuations, whether solely or in conjunction with other methods. “This is patently false,” he writes in the April issue. While these studies have their faults, so do all the other DLOM methods, he notes. Therefore, most analysts use multiple methods when estimating a DLOM (most use two to three methods, according to a BVR survey). “As such, restricted stock studies and data can indeed be used in the determination of a DLOM, particularly along with other methods,” he writes. Hitchner also examines the criticism that the use of restricted stock studies violates USPAP and, therefore, is not accepted by the IRS. “This is incorrect,” he writes and goes on to examine the USPAP sections that support his assertion.

Stay tuned for more myth-busting! Hardball With Hitchner is a monthly publication. For subscription information, click here.