Major Court Decisions and Tax Sunset Provisions: New and Noteworthy Developments in the Valuation of S Corporations
The vast majority of U.S businesses are pass-through entities (S corporations, LLCs, and partnerships). The debate over how to value them has raged in the courts and academia for decades, and understanding how to do so is important to all valuation professionals. Recent cases such as the Estate of Cecil have demonstrated that the IRS and the Tax Court will accept tax affecting only when correctly applied and supported.
A Behind-the-Scenes Look at the Cecil Case May Surprise You
The Cecil Tax Court case has received a lot of coverage in the legal and valuation press, but here are a few aspects of the case you probably haven’t heard about.
Valuation Matters Highlighted in the Estate of Cecil
A discussion and the valuation implications of several issues in this case: tax affecting an S corporation, applying an asset approach to value a going-concern business, reliance on a single comparable company, and discounts applied to arrive at per-share value.
Results of poll on tax affecting surprise Hitchner
During a recent webinar on gift and estate tax valuations, the audience was asked a question regarding tax affecting income for pass-through entities.
Tax Court accepts tax affecting—grudgingly
In an important case litigated seven years ago, the Tax Court has issued a memo decision that accepts tax affecting—but noted that it did so because of the “unique setting at hand” in the case.
Understanding Business Valuation - 6th Edition
February 2022 Hardcover, PDF
Gary Trugman
Business Valuation Resources, LLC
Letter to the Editor: Response to a Reader’s Comments Concerning the Kress Case
The Kress case has received a great deal of attention on a number of valuation fronts, most notably that both the taxpayer and the government tax affected the earnings of the subject S corp. This letter to the editor is a response to comments on the case made by an IRS analyst.
A special announcement on the 20th anniversary of Gross
On July 29, 1999, a landmark case rocked the business valuation world.
Kress and S Corp Valuations: Be a Little Cautious
Details have emerged about the methodology the government’s valuation expert used in the Kress gift tax case. The case is important because both sides tax affected the earnings of the subject S corp, which is contrary to the position the IRS and the Tax Court have taken in the past.
Hope for clarity on S corp valuations
The recent Kress case indicates approval of S corp tax affecting, but the court was neutral on the issue of an S corp premium (see prior coverage).
Details emerge on Kress S corp valuation
The Kress gift tax case is brimming with valuation issues (see our prior coverage), but one aspect in particular has captured the valuation community’s attention.
Questions surround reach of Kress S corp tax-affecting decision
One of the questions arising in the much-debated Kress gift tax case is how much precedent value the court’s decision has.
Testing the S Corp Value Premium for Realism and Reasonableness
Not long ago, we attended the author’s session at a NACVA conference where she presented on this topic. We asked her for this article, which has some key takeaways from that session as well as from a longer paper she wrote.
Valuing an S-corporation? Ten books and articles you absolutely should read
View a list of essential reading for business appraisers preparing to value an S corporation, from valuation expert and former IRS territory manager, Michael Gregory.
Internal IRS memo unearthed re: S corp valuations
During a webinar, Michael Gregory (Michael Gregory Consulting LLC) discussed an internal IRS memo he recently obtained via a Freedom of Information Act (FOIA) request that has implications for valuing noncontrolling interests in S corps.
How to Conduct an S Corp Valuation for the IRS Given IRS Internal Memorandums
Join Michael Gregory for a discussion on two recently obtained internal IRS memorandums so that you can work more effectively with the IRS on estate and gift tax valuations. These memorandums shed light on how the IRS approaches valuing S corporation valuations and what you need to consider when preparing an S corporation valuation for federal tax purposes. The memorandums recommend consideration of both Revenue Ruling 59-60 and the IRS Job Aid on Non-Controlling Interests.
Inside Pratt’s Stats: Impact of Entity Form on Selling Price (Part 2)
Based on the results of various statistical analyses of Pratt’s Stats transactional data, this article explains how transaction size and the entity form support the existence (and the magnitude) of the “pass-through entity premium.”
Testing the S-Corp Value Premium for Realism and Reasonableness
For almost fifty years, the field of finance and the valuation profession have deliberated over the potential impact of taxation on security prices and costs of capital as well as the value effects of the tax attributes of pass-through entities (PTEs). Hundreds of papers on these topics have been published. Analytic models that offer various approaches to problem resolution have been proposed. Some have been widely used. Debates have been held in court and out.
Valuing S Corporations: An Extension of the S Corporation Economic Adjustment Model
Following a series of US Tax Court decisions during the late 1990s and early 2000s, appraisers revisited how to value privately held S corporations. In particular, the key issue concerned how to account for the differing tax burdens between C corporations and S corporations when financial data from the former are used to appraise minority interests in the latter. One method developed to address this issue is the Van Vleet model—also known as the S ...
Business Valuations and the IRS: Five Books In One
March 2018 Softcover (852 pages)
Michael Gregory
Birch Grove Publishing
S Corp model now in Tax Court
At the recent NYSSCPA business valuation conference in New York City, Daniel Van Vleet (Stout Risius Ross) told the audience that the Van Vleet model (S corporation economic adjustment model) is being used for the first time in a pending U.S. Tax Court case. What’s more, both the IRS and the taxpayer are using it in this case, says Van Vleet.
A few nuggets from the NYSSCPA BV conference
BVWire provides a few key takeaways from the recent annual business valuation conference of the New York State Society of CPAs (NYSSCPA) in New York City.
BVR Legal and Court Case Yearbook 2015
February 2015 978-1-62150-047-6 PDF (262 pages)
BVR (editor)
Business Valuation Resources, LLC
Business Valuation Update Yearbook 2015
February 2015 978-1-62150-048-3 PDF
BVR (editor)
Business Valuation Resources, LLC
Taxes and Value: The Ongoing Research and Analysis Relating to the S Corporation Valuation Puzzle
April 2015 Hardcover, PDF (154 pages)
Keith Sellers, Nancy Fannon
Business Valuation Resources, LLC