“Explain everything” when writing a business valuation report, advises Howard Lewis (International Society of Business Analysts and RiskGuidance Co. LLC). Lewis, formerly with the IRS, spoke at the recent NYSSCPA Business Valuation Conference in New York City. He says the most common problem with reports is the failure to explain certain conclusions, especially discounts and multiples. “Don’t just state—explain.”

Under the radar: He asked conference attendees if anyone knew or could explain what the Gallagher case says about report writing. No one raised their hand. “I was shocked that no one appeared to know this case,” Lewis said later. “It’s a great report-writing case.”

In a detailed, comprehensive opinion by Judge Halpern, the U.S. Tax Court in Gallagher addresses nearly every aspect of private company valuation, including the application of the guideline public company method and income approaches. It also has a particular focus on tax affecting, adjustments to financial statements and cash flow projections, calculation of the rate of return, application of subsequent events, and the determination of discounts for lack of control and lack of marketability.

“Judge Halpern had many problems with both experts not being able to explain things,” says Lewis. “The judge destroyed both sides. Read it. It will help you understand your report writing—and your testimony.”

Free download: The full text of the case, Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148, is available from BVR on its Free Resources page (registration required).