Two cases on trapped-in gains tax—with opposite outcomes
In a California divorce case we recently covered, an appeals court disallowed a discount for possible future taxes because the taxes were neither immediate nor specific.
Dettloff-Meyer v. Meyer
The husband in this divorce case appealed the circuit court ruling that relied on the purchase price of the business less than a year before the valuation date. The purchase was made from the wife’s parents at a price the parents determined of $500,000, most of which was goodwill. After an initial ruling from the circuit court accepting the value less debt of the husband’s expert, the wife asked for a reconsideration. The Circuit Court granted the reconsideration and found a value of the business of $45,230. The husband appealed the reconsidered decision of the circuit court. The appellate court determined that the circuit court’s use of the purchase price was not erroneous.
Wisconsin Appellate Court Affirms Purchase Price as Value of the Business in a Divorce Matter
The husband in this divorce case appealed the circuit court ruling that relied on the purchase price of the business less than a year before the valuation date. The purchase was made from the wife’s parents at a price the parents determined of $500,000, most of which was goodwill. After an initial ruling from the circuit court accepting the value less debt of the husband’s expert, the wife asked for a reconsideration. The Circuit Court granted the reconsideration and found a value of the business of $45,230. The husband appealed the reconsidered decision of the circuit court. The appellate court determined that the circuit court’s use of the purchase price was not erroneous.
New Case Points Up Opportunity for Buy-Sell Valuations
A recent court case illustrates that many buy-sell agreements do not adequately address the issue of valuation when an owner exits the firm. This represents an opportunity for valuation experts to review clients’ buy-sell agreements to identify potential problems, which could mean recurring business for the practice.
BV News and Trends February 2022
A monthly roundup of key developments of interest to business valuation experts.
Houlihan Lokey and ELFA issue private debt valuation guide
Houlihan Lokey and the European Leveraged Finance Association (ELFA) have published a report as part of ELFA’s Diligence Series called Technical Guide for Valuation of Private Debt Investments.
A valuation trial—on papers only?
Yes, but only in New York?
Appellate court KOs discount for trapped-in capital gains taxes
In a Louisiana case, a dissenting shareholder was withdrawing her shares in a company and the valuation of her interest was in dispute, so a trial was held.
BVLaw Review: The Top Valuation Cases of 2021
Here is our pick for the state and federal court decisions that enhanced our understanding of valuation issues as they arose in a litigation setting during 2021.
Details start to emerge about the Prince estate valuation
One of the tricky assets to value in the Prince estate was the rock star’s name and likeness.
Appeals court OKs one discount, KOs another in divorce matter
In a California divorce matter, the husband’s expert applied two discounts to the valuation of the wife’s one-half interest in his business: one discount for possible future taxes and one for a discount for lack of marketability (DLOM).
New case points up valuation perils in buy-sell agreements
From a valuation standpoint, the lack of a buy-sell agreement—or one with a valuation provision that’s poorly drafted—can result in costly litigation and a painful falling out between business partners and/or family members.
Quattro Parent LLC v. Rakib
In this surmised summary judgment as to damages a New York trial court awarded damages to the plaintiff in a breach of contract suit. The determination of damages was made without a trial but “on paper.” Additionally, the court used a subsequent sale of the stock to determine the damages and opine that the company was “worthless.”
New York Trial Court Determines Damages Without a Trial and Uses Subsequent Transaction to Determine the Amount
In this surmised summary judgment as to damages a New York trial court awarded damages to the plaintiff in a breach of contract suit. The determination of damages was made without a trial but “on paper.” Additionally, the court used a subsequent sale of the stock to determine the damages and opine that the company was “worthless.”
Non-Marketable Investment Company Evaluation: Free Resource for Your Next Valuation
When it comes to valuing minority interests in family investment entities such as family limited partnerships, it is apparent that the income approach should now be used alongside the traditional asset/market approach. Join creator William Frazier for a live “nuts and bolts” example of exactly how the nonmarketable investment company evaluation (NICE) method is used. With examples of FLPs with different asset makeups and financial characteristics, this event will arm you with a new tool ...
An Inside Look at the Landmark ESOP Valuation Case
For over a decade, the Department of Labor has not lost a major ESOP case on a valuation issue, but its winning streak ended with Walsh v. Bowers. The case involves many key valuation issues, and Ken Pia (Marcum LLP) and Ian Rusk (Rusk O’Brien Gido + Partners LLC), expert witnesses for the defense, give their insights.
BV News and Trends December 2021
A monthly roundup of key developments of interest to business valuation experts.
ShopRite, Inc. v. Gardiner
In determining the fair value of a minority interest in stock sold back to the companies in a shareholder oppression assertion, the Louisiana Court of Appeals rejected a discount for trapped-in capital gains tax since the companies had no intention of selling the properties owned. The appeals court also disallowed a reduction in fair value related to the value of affiliated accounts receivable, noting that there was no evidence that the receivables were uncollectible.
Louisiana Court of Appeals Disallows a Discount for Trapped-In Capital Gains Taxes and a Reduction in Receivables for Collectability
In determining the fair value of a minority interest in stock sold back to the companies in a shareholder oppression assertion, the Louisiana Court of Appeals rejected a discount for trapped-in capital gains tax since the companies had no intention of selling the properties owned. The appeals court also disallowed a reduction in fair value related to the value of affiliated accounts receivable, noting that there was no evidence that the receivables were uncollectible.
Harvey v. Harvey (In re Michael S.)
In this divorce case, on appeal, the California appellate court rejected a discount for taxes not immediate and specific and allowed a DLOM regarding the value of the wife’s one-half interest in the jointly owned business. The court also determined that “the [trial] court impliedly made the factual findings necessary to support its ruling regarding Cynthia’s breach of fiduciary duty claim.” Finally, the appeals court determined that the trial court had the authority to set its own terms for payment of the equalization amount to the wife.
In a Divorce Case, the California Court of Appeal Rejects Discount for Taxes Not Immediate and Specific But Allows a DLOM
In this divorce case, on appeal, the California appellate court rejected a discount for taxes not immediate and specific and allowed a DLOM regarding the value of the wife’s one-half interest in the jointly owned business. The court also determined that “the [trial] court impliedly made the factual findings necessary to support its ruling regarding Cynthia’s breach of fiduciary duty claim.” Finally, the appeals court determined that the trial court had the authority to set its own terms for payment of the equalization amount to the wife.
The Nelson Tax Court case ‘has it all’
An appellate court recently affirmed the Nelson Tax Court case, which “has it all” in terms of valuation issues, said Barry Sziklay (Friedman LLP) in his session at the New Jersey CPA Society’s Business Valuation and Litigation Services Conference.
Walsh v. Vinoskey
This case covered the appellate decisions regarding the well-publicized Vinoskey ESOP case. The appellate court affirmed the district court in deciding that the company owner had extensive knowledge about the company and its prior valuations, and thus it was plausible to infer that “something was off.” There was no clear error in the district court finding that the owner violated ERISA. The appellate court also allowed an offset to damages for the debt the owner forgave.
Court Affirms Violation of ERISA but Allows Offset of Debt Forgiveness in Determining Damages
This case covered the appellate decisions regarding the well-publicized Vinoskey ESOP case. The appellate court affirmed the district court in deciding that the company owner had extensive knowledge about the company and its prior valuations, and thus it was plausible to infer that “something was off.” There was no clear error in the district court finding that the owner violated ERISA. The appellate court also allowed an offset to damages for the debt the owner forgave.
Guttman v. Guttman
The one-third partner of a real estate partnership, Bruce Guttman (Bruce), sued for dissolution. The two majority partners initiated a statutory procedure to buy out Bruce. All three appraisals were very close to $38 million. Feeling the valuations to be too low, Bruce sought to withdraw his complaint without prejudice. The trial court, on a motion from the majority partners, vacated Bruce’s dismissal. The appellate court affirmed the trial court.