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Valuing Shareholder Cash Flows

The integrated theory of business valuation provides a conceptual framework for disciplined analysis of valuation questions. Too often, valuation analysts are tempted to view individual components of a valuation assignment on a piecemeal basis. Adhering to the integrated theory helps valuation analysts develop base valuation conclusions, discounts, and premiums that are rooted in a shared perspective of the subject company and the subject ownership interest. In the first webinar of the three-part series, Chris Mercer ...

Tax Court rejects claimed deduction for management fees

The U.S. Tax Court recently agreed with the Internal Revenue Service that management fees a corporation paid to its three shareholders over a three-year period were not deductible since none of the fees were paid “purely for services” and the petitioner failed to show the fees were “ordinary, necessary, and reasonable.”

Tax Court Rejects Claimed Deduction for Management Fees

The U.S. Tax Court recently agreed with the Internal Revenue Service that management fees a corporation paid to its three shareholders over a three-year period were not deductible since none of the fees were paid “purely for services” and the petitioner failed to show the fees were “ordinary, necessary, and reasonable.” Rather, they represented disguised distributions, the court found.

Aspro, Inc. v Commissioner

The U.S. Tax Court recently agreed with the Internal Revenue Service that management fees a corporation paid to its three shareholders over a three-year period were not deductible since none of the fees were paid “purely for services” and the petitioner failed to show the fees were “ordinary, necessary, and reasonable.” Rather, they represented disguised distributions, the court found.

Coca-Cola Co. v. Comm'r

Coca-Cola had been applying a transfer pricing method called the 10-50-50 since it entered into a closing agreement with the IRS in 198, covering the years 1987 to 1995. Coca-Cola had consistently followed that transfer pricing method; the IRS had audited Coca-Cola annually and “signed off” on that transfer pricing method for over a decade. Upon examination of Coca-Cola’s tax returns for 2007 to 2009, the IRS determined that Coca-Cola’s transfer pricing methodology did not reflect arm’s-length norms because it overcompensated the supply point and undercompensated Coca-Cola. The IRS reallocated income between Coca-Cola and its supply points employing the comparable profits method (CPM) pursuant to Reg. Sec. 1.482-5. The IRS increased Coca-Cola’s taxable income by over $9 billion assessing over $3 billion in additional taxes!

2020’s Most Important Transfer Pricing Case—Coca-Cola

Coca-Cola had been applying a transfer pricing method called the 10-50-50 since it entered into a closing agreement with the IRS in 1986, covering the years 1987 to 1995. Coca-Cola had consistently followed that transfer pricing method; the IRS had audited Coca-Cola annually and “signed off” on that transfer pricing method for over a decade. Upon examination of Coca-Cola’s tax returns for 2007 to 2009, the IRS determined that Coca-Cola’s transfer pricing methodology did not reflect arm’s-length norms because it overcompensated the supply point and undercompensated Coca-Cola. The IRS reallocated income between Coca-Cola and its supply points employing the comparable profits method (CPM) pursuant to Reg. Sec. 1.482-5. The IRS increased Coca-Cola’s taxable income by over $9 billion assessing over $3 billion in additional taxes!

Appeals Court Upholds Insolvency Rulings in Transfer Liability Case

Appeals court upholds Tax Court’s transfer liability rulings; there was constructive fraud in that dividend payments to appellant were not compensation for services rendered but were part of a series of transfers leading to company’s insolvency.

Kardash v. Commissioner (III)

Appeals court upholds Tax Court’s transfer liability rulings; there was constructive fraud in that dividend payments to appellant were not compensation for services rendered but were part of a series of transfers leading to company’s insolvency.

Appeals Court Upholds Insolvency Rulings in Transfer Liability Case

Appeals court upholds Tax Court’s transfer liability rulings; there was constructive fraud in that dividend payments to appellant were not compensation for services rendered but were part of a series of transfers leading to company’s insolvency.

NAV Alone Fails to Capture Distributional Interest’s Fair Value

Appellate court affirms fair value determination of distributional interest in family farm based on multiprong valuation; company is not a holding company, and net asset valuation alone fails to capture fair value of dissociating members’ interest.

Schewe v. Schewe Farms

Appellate court affirms fair value determination of distributional interest in family farm based on multiprong valuation; company is not a holding company, and net asset valuation alone fails to capture fair value of dissociating members’ interest.

NAV Alone Fails to Capture Distributional Interest’s Fair Value

Appellate court affirms fair value determination of distributional interest in family farm based on multiprong valuation; company is not a holding company, and net asset valuation alone fails to capture fair value of dissociating members’ interest.

Tax Court Explains Valuation Method Behind Solvency Ruling

In transferee liability case, Tax Court reconsiders parts of its original solvency determination and clarifies that its analysis relies largely on IRS expert’s market multiple valuation, rather than the asset accumulation value the expert had recommended.

Kardash v. Commissioner (II)

In transferee liability case, Tax Court reconsiders parts of its original solvency determination and clarifies that its analysis relies largely on IRS expert’s market multiple valuation, rather than the asset accumulation value the expert had recommended.

Redemptions of ESOP Shares Were Deductible Dividends

The question of whether the distributions to plan participants are deductible dividends depends on who owned the convertible preferred stock when the redemptions took place.

Boise Cascade Corp. v. United States

Issue is whether distributions to ESOP plan participants are deductible dividends.

FMV introduces detailed Restricted Stock Study

Discounts for lack of marketability are frequently the largest money issue in disputed valuation cases. The FMV study has researched the most data points for each transaction and thus can deliver the ...

Estate of Newhouse v. Commissioner of Internal Revenue

The case addressed conflicting corporate law interpretations regarding the rights of shareholders of a closely held corporation, and analyzed the potential for litigation between shareholders, as a valuation factor, under the willing buyer / willing seller standard.

Mount v. Mount

One issue in this case was the source from which the husband received shares of stock.

Elliotts, Inc. v. Commissioner

Issue is whether part of the compensation paid Taxpayer's chief executive and sole shareholder constituted a dividend distribution and thus was not deductible under section 162(a)(1).

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