When presenter Dan Van Vleet asked attendees at NACVA’s recent 14th Annual Consultants’ Conference in Washington, D.C. whether they tax affect the valuation of S corporation interests, the vast majority (80%) at his session said they do, while the remaining 20% do not. "Who's right?" asked Dan. "Neither.  The answer is somewhere in the middle."  Deciding not to tax affect may keep your appraisal safe from the Service, but is not fair to the taxpayer.  At the same time, "the tax court won't allow the big discounts" that may have been acceptable before the Gross decision (6th Cir. 2001) and its progeny.

While Van Vleet’s model tries to find the middle ground of valuing the benefits of single taxation entities, there’s also a newer, simpler version by Nancy Fannon, which builds on traditional financial theory as well as the economic models, offering a clear view of the tax affecting issues to analysts, lawyers, and triers of fact.  The introduction to her teaching on this Simplified Model has already appeared in the Spring issues of CPAExpert, Value Examiner, and Business Valuation Review, to much acclaim by appraisers—and relief. 

“The CPAExpert [article] was understandable, logical, and concise,” says Ed Moran Jr. CPA/ABV, CVA, CBA (Horne, LLP).  Fannon’s simplified model “is a clear lighthouse in a foggy S corporation world.”  For an abstract of her CPAExpert article, published in the May 2007 BVU, click here.  And look for BVR’s Complete Guide to the Valuation of Subchapter S Corporations: A Simplified Model, written by Nancy Fannon and published by BVR, available by the end of summer/early fall.