Nancy Fannon (Fannon Valuation Group) and Prof. Keith Sellers (University of Denver) have just published their new paper, “Valuation of Pass-Through Entities: Looking at the Bigger Picture” on SSRN. In the article abstract, the authors first note the “critical and ongoing controversy” regarding the relative valuation of closely held, pass-through entities vis-à-vis traditional corporations in the valuation community. Then they add:
This paper documents a wealth of empirical research that demonstrates that the Tax Court, the IRS, and indeed the valuation profession are missing the larger issue. Cost of capital estimates based on publicly traded markets impound shareholder-level taxes, but at varying rates across firms and over time. Fortunately, research may also provide a means of removing the effects of shareholder-level taxes, yielding an untainted and defensible cost of equity capital appropriate for the valuation of closely held companies.
“Whether you agree or not, this paper adds to the body of knowledge regarding how we choose to treat pass-through entities that are the subject of an appraisal,” comments Rick Warner, editor of the ASA’s BV E-Letter. Fannon and Sellers just presented their new paper this past week in New Orleans at the mid-year 2012 meeting of the American Tax Association, held in conjunction with the annual Journal of Legal Tax Research Conference. Afterwards, their paper was ranked among the top ten SSRN downloads.
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