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In Jackson case, Tax Court dismisses IRS expert’s revenue projections as ‘simply not reasonable’

When Michael Jackson died, his image and likeness was besmirched and yet, once competent executors took charge, they were able to make a lot of money for the estate in the immediate post-death years. The issue was to what extent this subsequent development could factor into the image-and-likeness valuation. In explaining his high valuation, the IRS’ expert offered a theory of “foreseeable opportunities” that the U.S. Tax Court found unpersuasive.

Five Timely Insights From the NYSSCPA Business Valuation and Litigation Services Conference

The conference season is well underway, and Business Valuation Update has been on the virtual road, collecting the latest insights on a wide variety of topics. Here are some interesting takeaways from the New York State Society of CPAs (NYSSCPA) Business Valuation and Litigation Services Conference, held May 17. Topics included emerging issues (SPACs, cryptocurrency, Zoom as a practice-builder) and some new perspectives on evergreen topics (estate valuations, cannabis, distressed firms, and collaborations).

Tax Court issues highly anticipated ruling in Michael Jackson case

In the long-running litigation between the estate of the late megastar Michael Jackson and the Internal Revenue Service, the U.S. Tax Court recently issued its opinion on the value of Jackson’s image and likeness, as well as the value of his interest in two music publishing assets. Overall, this much-anticipated decision is a major win for the Jackson estate. The court’s momentous decision includes an expansive analysis of the rivaling valuation testimony.

Tax Court allows for ‘slight’ discount for lack of control for majority interests in real estate holding companies

In a gift and estate tax dispute, the estate and Internal Revenue Service agreed to apply discounts for lack of control and marketability to the majority interests in a number of real estate holding companies.

Business Valuation Update Yearbook, 2021 Edition

January 2021 Hardcover, PDF

BVR (editor)

Business Valuation Resources, LLC

Always a highly-anticipated annual publication, the Business Valuation Update Yearbook 2021 covers the year’s most groundbreaking and thought-provoking advancements on valuation methodologies in the face of a global pandemic.  It also captures, changes in regulations and professional standards, key takeaways from the best virtual conferences, and tactical practice-building ideas. This critical desktop reference puts you ahead of the competition with on-the-ground reporting from valuation experts, thought-leaders, and BVR’s expert editorial and legal teams. Learn more >>

Pandemic Triggers Chances for Valuers in Exit Planning

One of the key takeaways from the recent ENGAGE 2020 conference sponsored by the AICPA was one of particular interest to business valuers. “The pandemic has created some temporary financial planning opportunities,” says Steve Siegel, JD, LLM, president of The Siegel Group. “If you have a client who plans to pass their business along to a child one day—while business values are low, this is a useful time to get a new business appraisal. If you wait, values may recover, and federal tax laws may be less generous to business owners seeking to transfer their interests to family members.”

Nelson v. Commissioner

In gift tax case, Tax Court finds donor transferred percentages in limited liability company rather than fixed dollar amounts based on language in transfer instruments; further, where transferred minority interests include elements of control, minority discount should be reduced, not eliminated.

Court Says Reduced Minority Discount Appropriate Where Minority Interest Has Elements of Control

In gift tax case, Tax Court finds donor transferred percentages in limited liability company rather than fixed dollar amounts based on language in transfer instruments; further, where transferred minority interests include elements of control, minority discount should be reduced, not eliminated.

Perfect Storm: COVID-19 and 2020 Election—Unexpected Windfall for E&G Tax Planning

Insights into the impacts on the estate and gift tax area and the opportunities it presents for business valuers.

5th Circuit Upholds Tax Court’s Characterization of Interest and Discount Rulings

5th Circuit affirms Tax Court’s ruling that decedent’s transferred interest is limited partner, not an assignee, interest; appeals court says estate’s related challenge to Tax Court’s valuation reflects disagreement with characterization of interest, not value computation; valuation holds up.

Estate of Streightoff v. Commissioner (II)

5th Circuit affirms Tax Court’s ruling that decedent’s transferred interest is limited partner, not an assignee, interest; appeals court says estate’s related challenge to Tax Court’s valuation reflects disagreement with characterization of interest, not value computation; valuation holds up.

Tax Court spurns IRS’ gift tax valuation theory and methodology

In a gift tax dispute, the U.S. Tax Court recently found for the taxpayer when it rejected the unusual reasoning and methodology the Internal Revenue Service’s trial expert proposed to keep low the discounts applicable to the nonvoting membership units in two limited liability companies (LLCs).

Grieve v. Commissioner

In gift tax dispute, Tax Court rejects IRS expert’s valuation of noncontrolling, nonmarketable interests in two LLCs; expert proposed valuation theory and method were intended to lower opposing experts’ minority and marketability discounts but lacked support in facts, case law, or among peers.

Tax Court Rejects IRS’ Value Analysis, Finding It Assumes Additional Actions Not ‘Reasonably Probable’

In gift tax dispute, Tax Court rejects IRS expert’s valuation of noncontrolling, nonmarketable interests in two LLCs; expert proposed valuation theory and method were intended to lower opposing experts’ minority and marketability discounts but lacked support in facts, case law, or among peers.

Business Valuation Update Yearbook, 2020 Edition

January 2020 Hardcover, PDF

BVR (editor)

Business Valuation Resources, LLC

BVR has you covered with the Business Valuation Update Yearbook 2020. This newest edition from the publishers of Business Valuation Update covers the year’s most groundbreaking and thought-provoking advancements in business valuation, and more. This critical desktop reference keeps you ahead of your peers with on-the-ground reporting from valuation experts, thought-leaders, and BVR’s editorial team. Learn more >>

Office of Chief Counsel Internal Revenue Service Memorandum

IRS private letter ruling says that, under facts, gift tax valuation must consider merger that was being negotiated at the time the donor transferred company stock into a trust where the merger was only announced after the stock transfer and the announcement prompted an increase in stock value.

IRS Private Letter Ruling on Whether to Consider Pending Merger in Gift Tax Valuation

IRS private letter ruling says that, under facts, gift tax valuation must consider merger that was being negotiated at the time the donor transferred company stock into a trust where the merger was only announced after the stock transfer and the announcement prompted an increase in stock value.

Estate of Aaron Jones v. Commissioner

In gift tax dispute, Tax Court adopts estate expert’s valuation of two related PTEs, including expert’s tax affecting; court distinguishes Gross and later cases; issue is not whether to tax affect but how; estate expert’s tax affecting was “more accurate than [IRS’] blunt zero-rate approach.”

Keeping Gross Alive, Nimble Tax Court Accepts PTE Tax Affecting

In gift tax dispute, Tax Court adopts estate expert’s valuation of two related PTEs, including expert’s tax affecting; court distinguishes Gross and later cases; issue is not whether to tax affect but how; estate expert’s tax affecting was “more accurate than [IRS’] blunt zero-rate approach.”

Willamette gives insights into estate and gift valuations

The Summer 2019 Insights from Willamette Management Associates focuses on valuations for estate and gift tax purposes and is edited by Weston C. Kirk.

More than one valuation issue in Kress

Tax affecting is only one issue that makes the federal district court’s opinion in Kress a must-know for valuators, notwithstanding a recent reader comment that it’s doubtful the case would have received much attention had it not been for the tax-affecting angle.

Reader comment on Kress case coverage

Responding to the attention the Kress case has received (at BVR and elsewhere), Harry Fuhrman, financial analyst with the Internal Revenue Service, gave us the following comments.

Kress appeal still a possibility

As the valuation community ponders the reach of the recent Kress decision, many eyes are trained on the government’s next move.

Kress gift tax case signifies approval of tax affecting—at least in federal district court

One aspect that has valuators excited about the Kress v. United States gift tax case is that the federal court that ruled on the taxpayers’ challenge to the IRS’s gift tax assessment accepted valuations from both parties’ experts that applied a C corporation tax rate to value minority shares in an S corporation.

Kress v. United States signifies approval of S corp tax affecting

In a gift tax case teeming with valuation issues, one notable aspect was that, in valuing the minority shares of an S corporation, both parties’ experts applied a C corporation tax rate to the company’s earnings and the court, without ado, accepted the practice.

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