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BV News and Trends March 2023

A monthly roundup of key developments of interest to business valuation experts.

BVResearch Pro adds another issue of the ASA’s BV Review

Among many other resources, the BVResearch Pro platform contains the full archive of the Business Valuation Review going back to 1982.

More courts KO DLOM when business won’t be sold

Keep an eye out for courts in more states deciding to eliminate a discount for lack of marketability (DLOM) depending on whether the business will be sold.

Most States Reject Discounts in Appraisals and Oppression Cases—But There Are Important Exceptions

This article discusses, on a state-by-state basis, the rejection and acceptance of discounts for minority interest and lack of marketability in appraisals and in oppression and voluntary withdrawal cases. Discounts for lack of marketability at the shareholder level are rejected in most jurisdictions, but some states, including California and New York, still permit them.

BV News and Trends November 2022

A monthly roundup of key developments of interest to business valuation experts.

Another big win for ESOP valuations vs. the DOL

Valuation experts have long maintained that the Department of Labor (DOL) has been playing by its own valuation rules in its aggressive enforcement of ESOPs—rules that are not consistent with accepted valuation standards. But a court has rejected the valuations the DOL did in a case alleging that an ESOP overvalued (and thus overpaid for) the stock of its sponsoring company.

Walsh v. Preston

In this ESOP ERISA case, the government (plaintiffs) (Secretary of Labor) alleged claims against the defendants, Robert N. Preston and TPP Holdings Inc. (and nominally against its ESOP) for: (1) breach of fiduciary duties; (2) engaging in prohibited transactions; and (3) co-liability of defendants. In a lengthy opinion, the court determined that the defendants did breach fiduciary duties and did engage in prohibited transactions. It further decided that there was no co-liability among the defendants, but it did not allow an offset of payments on debt of TPP Preston personally made. In determining FMV, the court did not allow a minority interest discount. In so doing, the resulting damages determined were minimal.

U.S. District Court Decides Some Issues for Government and Some for Defendants But Very Little in Damages in an ERISA ESOP Case

In this ESOP ERISA case, the government (plaintiffs) (Secretary of Labor) alleged claims against the defendants, Robert N. Preston and TPP Holdings Inc. (and nominally against its ESOP) for: (1) breach of fiduciary duties; (2) engaging in prohibited transactions; and (3) co-liability of defendants. In a lengthy opinion, the court determined that the defendants did breach fiduciary duties and did engage in prohibited transactions. It further decided that there was no co-liability among the defendants, but it did not allow an offset of payments on debt of TPP Preston personally made. In determining FMV, the court did not allow a minority interest discount. In so doing, the resulting damages determined were minimal.

Fair v. Fair

The primary issue in this appeal was the value of Surgical Imaging Specialists Inc. (SIS), a subchapter S corporation that the parties formed in 2002. Stephan Fair, the husband, was the sole registered shareholder of SIS. Darlene Fair, the wife, was listed on all tax returns as an equal owner. The trial court awarded all community property interest to the husband and eliminated 25% of SIS’ goodwill as personal goodwill. On appeal, the husband contended that the trial court undervalued the personal goodwill discount and failed to apply a discount for lack of marketability. The husband also appealed the separate property award of an IRA account and a reimbursement to the wife for additional salary payments made by SIS to the husband. The court of appeal affirmed the trial court value of SIS, remanded the issue of IRA gains, and affirmed the reimbursement for additional salary payments.

Appellate Court Rules on the Value of the Marital Business as to Personal Goodwill, Minority, Liquidity, and Marketability Discounts

The primary issue in this appeal was the value of Surgical Imaging Specialists Inc. (SIS), a subchapter S corporation that the parties formed in 2002. Stephan Fair, the husband, was the sole registered shareholder of SIS. Darlene Fair, the wife, was listed on all tax returns as an equal owner. The trial court awarded all community property interest to the husband and eliminated 25% of SIS’ goodwill as personal goodwill. On appeal, the husband contended that the trial court undervalued the personal goodwill discount and failed to apply a discount for lack of marketability. The husband also appealed the separate property award of an IRA account and a reimbursement to the wife for additional salary payments made by SIS to the husband. The court of appeal affirmed the trial court value of SIS, remanded the issue of IRA gains, and affirmed the reimbursement for additional salary payments.

No valuation adjustment for alleged acts of oppression

In a Connecticut case, four siblings were partners in a number of restaurant properties and one of the partners (who had a 25% interest) was ousted by the others.

BV News and Trends December 2021

A monthly roundup of key developments of interest to business valuation experts.

IRS sending agents to NACVA’s BV training

The IRS is sending 79 agents to business valuation training provided by the National Association of Certified Valuators and Analysts (NACVA), according to former IRS manager Michael Gregory (Michael Gregory Consulting LLC).

Global BV News and Trends September 2021

Business valuation news from a global perspective.

Discounts inappropriate under controlling agreement, appeals court finds

In a buyout dispute involving a limited liability company, the Oregon Court of Appeals recently overturned a trial court’s decision to apply discounts when valuing the departing member’s minority interest.

Indiana Supreme Court Issues Key Ruling on Discounts in Compelled Buybacks

Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale. In a freshly minted decision, the Indiana Supreme Court reversed the Court of Appeals, finding there was no blanket rule disallowing discounts in a compelled buyback. This is especially true where the parties exercised a shareholder agreement whose terms suggested the use of fair market value.

Indiana Supreme Court issues key ruling on discounts in compelled buybacks

Last year, in a compelled buyout, the Court of Appeals sided with the departing minority shareholder when it found discounts did not apply in a closed-market sale.

Indiana Supreme Court Rejects Blanket Rule Against Discounts in Compulsory, Closed-Market Share Buyback

High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.

Hartman v. BigInch Fabricators & Construction Holding Co., Inc. (Hartman II)

High court says there is no blanket rule against the use of discounts in a compulsory, closed-market buyback; parties’ freedom to contract right allowed for discounts under shareholder agreement that mandated buyback of plaintiff’s minority interest by company under fair market value standard.

In tax refund case, expert identifies only viable method to value stock in ‘severely distressed’ private company

The taxpayer sued the federal government for a refund, arguing she had overpaid income taxes on stock she had received as part of settling a lawsuit against her former employer.

Does COVID-19 alter the Companies Act, or the value of minority shares?

All business valuers accept the fact that minority shares hold discounted value.

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Lucero v. United States

In tax case, court approves refund, finding value of unlisted stock in distressed closely held company that taxpayer received as part of a settlement was less than stated in settlement agreement; taxpayer’s expert showed market value approach was only suitable method to calculate fair market value.

Court Adopts Taxpayer Expert’s Method to Value Unlisted Stock of ‘Severely Distressed’ Company

In tax case, court approves refund, finding value of unlisted stock in distressed closely held company that taxpayer received as part of a settlement was less than stated in settlement agreement; taxpayer’s expert showed market value approach was only suitable method to calculate fair market value.

Boesch v. Holeman (I)

In dispute over value of dissociated partner’s one-third interest in whiskey business, appeals court says trial court erred in adopting value determination that applied discount for lack of control; applicable partnership law requires value be based on sale of entire business as a going concern.

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