Judge Laro offers takeaways on litigating tax valuation cases

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A highlight at the 2015 AICPA forensic and valuation services conference in Las Vegas was “Valuation in Tax,” a panel in which several leading minds on taxation discussed hot topics in the valuation area. The star of the illustrious gathering was Judge David Laro. He offered thoughts on a range of issues, including tax affecting, USPAP, standard of value, discount for lack of marketability, concurrent witness testimony (aka “hot tubbing”), and more.

For example, in terms of the standard of value, Judge Laro reminded experts that one thing they can do to ensure their testimony is admissible is using the correct standard of value. It’s the fair market value, not the market value. In other words, the focus is on a hypothetical willing buyer and a hypothetical willing seller that engage in an arm’s-length transaction; the focus is not on actual sales data, he cautions. If an expert applies the wrong standard of value, he or she can be sure the Tax Court will disregard the valuation. Today’s Tax Court judges are very sophisticated when it comes to valuation, Judge Laro added.

To read more about his hot topics discussion, click here.

Business Appraisal Red Flags

On October 19, 2015, Theresa Melchiorre, chief counsel for the IRS, gave a presentation at the American Society of Appraisers’ 2015 BV Conference, entitled “Appraisers and their Responsibilities : An IRS Perspective.”  As part of the presentation, she discussed seven common reasons for auditing a business appraisal associated with a gift tax or estate tax return.

  1. The appraisal does not address the applicable Code and Regulations.
  2. The appraisal does not conform to generally accepted standards and procedures.
  3. The appraisal relies on unconventional analysis (i.e., not widely used or accepted).
  4. The analysis is not thorough, explained or consistent with the valuation conclusion.
  5. The conclusions are based on unsupported opinion and not facts.
  6. The assumptions made in the appraisal are not reasonable and supported by evidence.
  7. The appraisal is poorly written. It is not easy to follow, does not answer potential questions or does not lead to a reasonably supported value.

For many estate and gift tax attorneys (and their financial advisors), most of the following “red flags” will not be cause for surprise but should underscore the importance of issues that require continued professional oversight and appraisal expertise. Tax rules, regulations and compliance are constantly evolving. With South Park Advisors, you can be assured you’ll receive a professional business valuation that can withstand scrutiny and review.

Rob Snowden Appears on Chatting with the Experts

Paula Okonneh hosted Rob Snowden, managing director of South Park Advisors, on Chatting with the Experts, a show that interviews entrepreneurs about their successes and challenges. In the interview, Rob talks about what drove him to start South Park Advisors, his passion for business valuation and some of the latest research regarding the S-Corp/C-Corp valuation controversy.

You can listen to the podcast at Chatting with the Experts.

ESOP Legislative Update

Expansion of S ESOPs Recommended by Senate Finance Committee

Senate Finance Committee Tax Reform Working Group on Savings & Investment Releases Report on Findings

July 8, 2015 (Washington, DC) – The Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment released a report on their findings for reforming the tax system. Recommendations include the expansion of gain-deferral provisions of Code section 1042 for S ESOPs (employee stock ownership plans) and guaranteeing that small businesses with SBA certification do not lose their status when they become majority employee-owned companies.

“The ESOP Association and employee ownership community express strong support and appreciation that the major provisions in S. 1212, the Promotion and Expansion of Private Employee Ownership Act of 2015, are recommended for inclusion in reforms that will be considered by the Senate Finance Committee,” said ESOP Association President, J. Michael Keeling. “Including these provisions would open the door for the creation of more S corporations sponsoring employee ownership for average pay Americans.”

S. 1212 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of ESOPs in S corporations in America.

Page 13 of the memo from the Savings & Investment Working Group, which is co-chaired by Senator Michael Crapo (R-ID) and Senator Sherrod Brown (D-OH), states: “S Corporation Employee Stock Ownership Plans, or S-ESOPs, have a track record of providing retirement security for employee-owners of both small and large businesses. S. 1212, introduced by Senators Cardin and Roberts, contains several provisions to further encourage employee-ownership in S corporations, including extending the gain-deferral provisions of Code section 1042 to sales of employer stock to S-ESOPs, providing resources to small businesses contemplating making the transition to an ESOP, and ensuring that SBA-certified small businesses do not lose their status by becoming employee owned. The working group supports consideration of these bipartisan proposals; S. 1212 currently has 18 bipartisan cosponsors in addition to Senators Cardin and Roberts, including 9 Republicans, 7 Democrats, and two Independents.”

Keeling concluded, “It’s very encouraging to see continuous, bi-partisan support for expanding our capitalistic economic system. Our country’s founding fathers noted that broad-based ownership of productive assets is essential to a working democracy.”

In March 2015, The ESOP Association submitted comments on comprehensive tax reform to three of the Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment. The Association specifically stated how ESOPs are in accord with the seven principles outlined by Finance Committee Chair Orrin Hatch (R-UT) for comprehensive tax reform — Economic Growth, Fairness, Simplicity, Permanence, Competitiveness, Promoting Savings and Investments, and Revenue Neutrality. Read the full statement on The ESOP Association’s website: http://www.esopassociation.org/advocate/esop-bulletin.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

NCBA 36th Annual Estate Planning Program

Stop by for a visit!

South Park Advisors is pleased to announce its participation in the North Carolina Bar Association’s 36th Annual Estate Planning and Fiduciary Law Program to be held at the Kiawah Island Golf Resort from July 30 to August 1.

Please stop by for a visit and let us provide our perspective on the latest trends affecting business valuation in the estate planning arena.