New tax law gets the spotlight at the AICPA FVS conference

BVWireIssue #194-2
November 14, 2018

valuation profession news
s corporation, american institute of certified public accountants (AICPA), pass-through entity, Tax Cuts and Jobs Act

BVWire attended the AICPA Forensic & Valuation Services Conference November 5-7 in Atlanta where there were a number of good sessions on the Tax Cuts and Jobs Act (TCJA), which impacts “everything” in valuation. Overall, speakers were surprised at the lack of guidance from the IRS as compared with prior tax law changes that were followed up with an abundance of guidance. One speaker called it an “eerie silence” as practitioners grapple with understanding the new law’s many provisions.

More due diligence: Speakers all agreed that it is now necessary to have more consultative conversations with management over its plans in light of the new law changes that overall will increase a company’s cash flow. But not all of this extra cash will go to the bottom line. The company may increase wages, accelerate capital expenditures, invest in R&D, and the like. Are these plans reflected in the projections you get from management? Will the company change its capital structure? For fair value purposes, do these plans translate into what market participants might do? These are just some of the questions to think about.

Here are a few more takeaways, and we’ll have more coverage here in the BVWire and in a future issue of Business Valuation Update:

  • The IRS is expected to follow a strict interpretation of the rule that eliminates the deduction for alimony payments that becomes effective December 31; that is, a marital settlement agreement must be approved by the court—not just agreed to by the parties—before that date for the alimony to be deductible;
  • There will likely be many disputes over what was “known or knowable” if you have a valuation date between the dates President Trump was elected and when the new tax law was passed; some will factor in a pre-enactment expectation into their valuations;
  • Although the tax effects of certain provisions extend more than five years out, you can still do a standard five-year DCF and use separate analysis modules (bolt-ons) for the cash flow effects of those provisions;
  • Consult with a tax attorney over how the new law applies to your subject company; for example, is the company a “service” business with respect to the new QBI deduction for pass-through entities?
  • There are a number of industries that get special tax breaks under the new law; and
  • Don’t lose sight of the notion that, overall, companies are more valuable under the new tax law.

Extra: Attendance at this year’s conference was about half of what it has been in recent years, partly due to the boycott by ABVs over their opposition to the AICPA’s decision to open up the ABV credential to non-CPAs.

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