Subscribers to Business Valuation Update read an article in the December issue that gives one expert’s opinion that there is a “bright-line rule” that precludes tax affecting S corporations under the fair market value standard. BVU asked for feedback from readers, and it’s starting to come in. “I find it preposterous that a handful of erroneous Tax Court cases equate to a bright-line rule for valuators to follow,” says one commenter. “Regardless of these few rulings, appraisers are still charged with determining fair market value as set forth in IRS RR 59-60, which includes the term ‘willing buyer.’ Why a willing buyer, with alternative investment opportunities at their disposal, would overpay for a stock/asset under the assumption that income taxes don’t exist (when in reality they certainly do) when comparative investments priced in accordance with tax realities eludes me. As it does for any logical, sensible investor. Or valuator.”

Other commenters say this matter is not settled law, as the article implies. They point to the fact that the Tax Court cases cited are memorandum decisions, which are not precedent. Also, cases now pending in Tax Court back this up—one in which the experts for both the taxpayer and the IRS use tax affecting for an S corp.

What do you think? If you’re not a BVU subscriber, you can acquire the article here. It’s “Tax Affecting S Corporations: It’s Not a Matter of Whether. It’s a Matter of When,” by Alan S. Zipp, a CPA, attorney, and accredited in business valuation.