Not long ago, we were at a conference where the speaker asked the audience whether anyone was familiar with the Gallagher case. Very few hands were raised, and the speaker was surprised. During a recent webinar, former IRS manager Michael Gregory also talked about this Tax Court case in the context of what the IRS wants to see in a valuation report.

Explain please: The Gallagher case is a great example of the need to fully explain your conclusions. The judge (Halpern) had many problems with experts just stating things without explaining them. The very detailed opinion 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.

The case, Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148, is available at BVLaw.