Guidance on How to Calculate the Built-in Capital Gains Tax?! Estate of Richmond is well known among experienced valuation professionals for at least two reasons. First, the U.S. Tax Court was critical of the experts’ lack of credentials and the fact that the estate submitted an unsigned, marked-up report with the 706. Second, the U.S. Tax Court did not allow a 100 percent BICG tax reduction. Rather, the Court provided guidance regarding the extent of the BICG deduction. The author, an experienced valuation advisor, shares his views on both of these issues.
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Assessing Solvency, Fraudulent Transfers, and Liability When Distributions are Made to Minority Shareholders The recent U.S. Tax Court case of Kardash v Commissioner, T.C. Memo, 2015–51 provides guidance regarding transferee liability and underscores how valuations are used to determine when and if a subject company is insolvent. The case also summarizes a number of defenses used (and rejected) to counter a claim of transferee liability.
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At some point in a business valuation analyst’s career, an attorney or pro se party will call asking for a business valuation and perhaps even to retain your services. A good starting point is Business Valuation in Divorce: Case Law Compendium, 2nd ed. This edition is 584 pages long and provides a comprehensive court case digest that emphasizes similarities and differences in the treatment of goodwill (professional and personal), discounts, fair value, tax-affecting, and other significant issues. This is a must-have resource for those already practicing in this area and for those embarking in their valuation career.
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Fair value litigation and more The Delaware Chancery Court is considered one of the pre-eminent U.S. courts when it comes to business valuation and governance issues. This article reviews some recent court decisions pertinent to valuation practitioners and which will be discussed in more detail in NACVA’s Federal and State Case Law Update this fall.
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What This Means for Appraisers In a new twist involving litigation that impacts valuation analysts, on June 11, 2014, the Fifth Circuit Court of Appeals upheld the Tax Court’s valuation of a historic preservation façade conservation easement, but vacated the Tax Court’s imposition of a gross undervaluation penalty. The latest ruling, as Joe Brophy explains, raises a host of new issues.
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Proposed rule amendments for small businesses and additional exemptions under Section 3(b) of the Securities Act On December 18, 2013, the Securities and Exchange Commission released their long-awaited proposed rules on Regulation A+. The amendments to Regulation A were proposed pursuant to Title IV of the Jumpstart Our Business Startups Act of 2012. The proposed rules are intended to increase access to the capital markets for lower middle-market firms since Reg. A has been sparingly used; there were only 19 qualified Reg. A offerings between 2009 and 2012. While pre-revenue firms, start-ups and those in the early stages will not…
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A summary of recent federal court cases involving gross misstatement of valuation. This month’s federal court case summaries feature seven cases that highlight the recent U.S. Supreme Court decision involving gross misstatement of valuation. In addition, the summary features cases that delineate the consequences to valuation professionals who fail to comply with Tax Court pre-trial orders under Tax Ct. R. 91 and more.
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A help or hinderance? On July 1, 2013, FASB issued exposure drafts calling for public commentary on three proposals that address private company stakeholder concerns. Two proposals involve accounting for identifiable intangible assets and goodwill acquired in business combinations. In this article, Mark Zyla analyzes the proposed changes, including potential concerns, and their far-reaching impact on the industry, as well as private and (in 2014) public companies.
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Now, which approach should one use to value a business? The Delaware Chancery Court in Huff was asked to determine the fair value of shares. The case pitted well-known industry experts, Robert Reilly, of Willamette Management, against Jeffrey Cohen. Each presented different opinions as to fair value. The court decided that the merger price was the fair value. The opinion raises a number of questions including, implicitly, what is fair value, what role, if any, valuation professionals have in this type of case, and what are we, as valuation professionals, supposed to do in this type of statutory engagement?
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A summary of recent federal and state court cases involving final partner administrative adjustments, mergers, and matrimonial law This month we highlight four cases. The first is Rovakat, a federal appellate court decision where a claimed redemption was deemed a sale of stock. The In re MFW Shareholder Litigation case involves a motion for summary judgment where a majority of the minority shareholders approved a merger transaction; this was deemed a “cleansing device” that led to the dismissal of plaintiff’s leading claim, which involved an allegation of breach of fiduciary duty. In Matter of Central N.Y. Oil & Gas, the…
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Patent damages require thorough analysis and attention to detail This federal case update highlights patent cases where reports or testimony from damages experts were excluded and affirmed. Regardless of outcome, these cases have a similar theme; it appears that some damage experts should perform a more thorough analysis and pay more attention to detail than they currently do.
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Focus on shareholder disputes (slip opinions) Ruggiero v. Ruggiero is a New York Slip Opinion (cannot cite as authority) that is a classic battle of valuation experts. The opinion highlights how a New York State judge reached her decision and also provides an opportunity to deliberate and consider what can go wrong when a buy-sell agreement is either not in existence or is considered dated. Breidbart v. Wiesenthal, another New York State Slip Opinion (cannot cite as authority), addresses how a dissolved partnership interest in New York State is valued. Although the decision is unique to New York State and the…
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Updated guidance for taxpayers seeking equitable relief from section 66(c) or sec. 6015(f) of the Internal Revenue Code Revenue Procedure 2013-34 provides update guidance regarding the circumstances under which equitable relief will be granted. It supersedes Rev. Proc. 2003-61 and makes significant changes to when and how relief will be considered and granted.
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Failure to make capital contributions did not void the operating agreement or reduce the ownership interest of non-complying partners In Grove v Brown, the Delaware Court of Chancery, relying on the unambiguous terms of a limited liability company (LLC) operating agreement, found that a member’s failure to make an initial capital contribution to a LLC did not affect that member’s ownership interest. Further, the Court of Chancery, applying default fiduciary duties to the managing members found that two managing members breached their fiduciary duty of loyalty under the corporate opportunity doctrine.
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A closer look at real estate appraisal and government contracts A wife sells her portion of interest in a law firm in an arm’s length transaction and the timing and circumstances are questioned with regard to marital property. Adhering to cost accounting standards within government contracts and real estate valuation issues are reviewed in the latest Case Law Update.
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Sun Capital Partners court found that the private equity fund actively participated in the management of its portfolio company In a recent and significant ruling from the First Circuit, Sun Capital Partners III, L.P. et al. v. New England Teamsters & Trucking Industry Pension Fund, No. 12-2312, 2013 WL 3814985 (1st Cir. July 24, 2013,) the court has determined that private equity funds can be held liable for its bankrupt portfolio company’s withdrawal obligation, as imposed under the Employment Retirement Income Security Act (ERISA). As reported by The National Law Review, the ruling was made on the basis that a…
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In re Bachrach: the U.S. Bankruptcy Court comments on the discounted cash flow and experts’ reports The discounted cash flow analysis (DCF) has been a standard valuation and damages method for many years. However, a U.S. Bankruptcy Court recently suggested that the “striking” disparity between experts’ conclusions in a case before the court “lends credibility to the concept that the discounted cash flow method is subject to manipulation.”
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Fractional interest discounts allowed In Estate of Elkins v. Commissioner, the U.S. Tax Court sides with petitioners holding they were entitled to a ten percent discount from pro rata fair market value with respect to a decedent’s interest in various works of art. In Fancher v. Prudhome, the Louisiana Court of Appeals upholds a trial court’s determination that using the Income Approach to value a withdrawing member’s share in an LLC was not applicable since future cash flow could not be assumed and the withdrawing member provided the majority of the company’s business.
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California Sanctions Husband for Hidden Account. Wisconsin Finds ESOP Was Properly Governed In White v. Marshall & Isley Corporation, the U.S. District Court for the Eastern District of Wisconsin dismisses a case asserting that employee stock ownership plan (ESOP) fiduciaries violated their duty of prudence. In re: Simmons, tried in the Court of Appeals of California, found the husband subject to additional sanctions for his failure to disclose a separate property savings account. Find out more.
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U.S. Patent Law Changes from “First to Invent” to “First to File” Standard. Plus: New Discount on Filing Fees for Small Businesses and Inventors This spring, patent law in the United States moved from a first-to-invent to a first-to-file system. The new law—called the America Invents Act (AIA)—puts the U.S. in harmony with most patent systems around the world, but it’s also a big change for inventors and other patent holders. You may have heard about the law before: It passed last fall. But it only went into effect in March. Here’s RocketLawyer on the new set of…