Mike Reibling CPA recently asked the following question in LinkedIn’s Business Valuation Professionals group: “I've had two encounters with attorneys who adamantly take the view that S corps should not be tax-effected ... period ... end of story. How have you all approached the same?” Several folks responded, including Chris Mercer, who said “I must be such a dummy. Should have hired those two lawyers to value Mercer Capital when we installed the ESOP a few years ago. Other things being equal, the sellers would have received 15% to 20% more. But our appraiser just went ahead and did the economic thing and tax effected the earnings. Darn!” Mercer also directed readers to the Mercer Capital website for articles on the subject. “Or better yet, read the chapter in Business Valuation: An Integrated Theory, which is also available at our website,” he adds.
BV Law is another source of digests where this principle has been tested in court.