Reasonable comp at center of dental practice dispute
In a Massachusetts divorce case, the wife argued that the normalization adjustments to her salary from her dental practice were based on unreliable data.
Kwak v. Bozarth
The Appeals Court of Massachusetts affirmed the trial court determination of the value of the wife’s dental practice. A large amount and growth of the revenues was from prosthodontics. The wife provided her own value without expert testimony, and the trial court found the methodology not appropriate. The husband’s expert determined the value based on a capitalization of earnings method, with adjustments for compensation to the owner and a 21% discount for goodwill. The appeals court affirmed the decision of the trial court, primarily accepting the valuation of the husband’s expert.
Massachusetts Trial Court Rejects Wife’s Nonexpert Value of Her Dental Practice—Appeals Court Affirms
The Appeals Court of Massachusetts affirmed the trial court determination of the value of the wife’s dental practice. A large amount and growth of the revenues was from prosthodontics. The wife provided her own value without expert testimony, and the trial court found the methodology not appropriate. The husband’s expert determined the value based on a capitalization of earnings method, with adjustments for compensation to the owner and a 21% discount for goodwill. The appeals court affirmed the decision of the trial court, primarily accepting the valuation of the husband’s expert.
Mekhaya v. Eastland Food Corp.
The plaintiff pleaded a statutory claim for shareholder oppression. In October 2018, Mekhaya was fired from his position at Eastland, where his salary of $400,000 per year included an implied dividend. The implied dividend was also included in the salaries of the other shareholders, all relatives of Mekhaya. The defendants filed a motion to dismiss, which the district court granted. The plaintiff appealed. He noted that, after his removal, they paid themselves excessively high salaries and refused to pay him dividends, thus frustrating his expectations as a shareholder. The Appellate Court of Maryland disagreed with the decision of the trial court.
Maryland Court of Appeals Reverses Dismissal of an Oppression Claim—Finds There Could Be Disguised Dividend Issue
The plantiff pleaded a statutory claim for shareholder oppression. In October 2018, Mekhaya was fired from his position at Eastland, where his salary of $400,000 per year included an implied dividend. The implied dividend was also included in the salaries of the other shareholders, all relatives of Mekhaya. The defendants filed a motion to dismiss, which the district court granted. The plaintiff appealed. He noted that, after his removal, they paid themselves excessively high salaries and refused to pay him dividends, thus frustrating his expectations as a shareholder. The Appellate Court of Maryland disagreed with the decision of the trial court.
Pinto v. Schinitsky
The Supreme Court of New York denied motions to dismiss assertions of excess compensation, payments to a consultant, and a salary paid to the defendant’s mother. The court also denied a Daubert motion to exclude the plaintiff’s expert on the reasonableness of compensation. The plaintiff’s expert, a CPA, was found to qualify even though reasonable compensation was not his competency for his practice.
New York Court Denies Claims in Three Damages Categories, Denies Daubert Motion to Exclude Experts
The Supreme Court of New York denied motions to dismiss assertions of excess compensation, payments to a consultant, and a salary paid to the defendant’s mother. The court also denied a Daubert motion to exclude the plaintiff’s expert on the reasonableness of compensation. The plaintiff’s expert, a CPA, was found to qualify even though reasonable compensation was not his competency for his practice.
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.
Agnelli v. Lennox Miami Corp.
In this lengthy opinion dealing with the fair value of a 12.5% interest the plaintiff held in a Florida hotel holding corporation, the U.S. District Court determined that discounts for minority interest and for marketability are not allowed. The court also determined damages for the breach of contract, or, in the alternative, breach of fiduciary duty, on the part of the plaintiff.
U.S. District Court Denies Use of Discounts in Determining the Fair Value of a Hotel Holding Corporation in a Dissolution Case
In this lengthy opinion dealing with the fair value of a 12.5% interest the plaintiff held in a Florida hotel holding corporation, the U.S. District Court determined that discounts for minority interest and for marketability are not allowed. The court also determined damages for the breach of contract, or, in the alternative, breach of fiduciary duty, on the part of the plaintiff.
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.