To Cite or Not to Cite? Reviewed by Momizat on . Thoughts From the Field on Whether to Cite Legal Precedent in a Report Should a valuation analyst include legal citations in a report? Calculation engagement? I Thoughts From the Field on Whether to Cite Legal Precedent in a Report Should a valuation analyst include legal citations in a report? Calculation engagement? I Rating: 0
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To Cite or Not to Cite?

Thoughts From the Field on Whether to Cite Legal Precedent in a Report

Should a valuation analyst include legal citations in a report? Calculation engagement? In this article, Peter Agrapides, MBA, CVA, shares his thoughts on that question.

case-law-citationOne of the facets of business valuations I find most intriguing is that every engagement presents a unique set of challenges and circumstances.  Whether it is fluctuations in the economy or industry in which the subject company operates, changes in the regulatory environment, or valuation-specific issues—we, as analysts, are required to wear many different hats.  In one part of the valuation, we put on our economist hat and carefully analyze trends in the economy.  We then spend time studying the manner in which the industry operates, all in an effort to gain insight into how macro and microeconomic forces have affected the company in the past and, more importantly, to gauge what the future holds for the company.  Next, we put on our compensation expert hat in an effort to make one of the most crucial, and material, normalization adjustments.  It also seems as if more and more engagements require that we put on our legal hats.  Maybe the engagement requires the application of a specific type of discount, and the analyst must gain insight into how the matter has been viewed by actual market participants, as well as the judiciary.


By way of background, my foray into the valuation world began when I was in college and hired by the Business Valuation Research Institute (BVRI); predecessor to the Center for Economic and Industry Research (CEIR); predecessor to KeyValueData (KVD).  One of my responsibilities at BVRI was to locate, catalog, and summarize legal court case opinions.  At the time (around 1998), there were not many legal databases from which to choose.  Worse yet, the databases that were available were largely cost-prohibitive for the average valuation practitioner.  In a nutshell, the only online legal research offerings were Lexis-Nexis or Westlaw.


At the time, a great deal of my legal research efforts were spent in a library.  Yes, an actual brick and mortar building that holds nothing but books, journals, and magazines.  I would search legal journals by subject, locate particular cases, look them up in the proper court reporter, Shepardize the case to find similar cases, and make copies of the individual cases, only to retreat to my office to read and summarize the cases.  This manner of legal research, while cheap (the only capital outlay was feeding nickels—one now has to use quarters—to the copy machine), was very time consuming.


Times certainly have changed in the world of legal research.  A quick search of the Internet reveals several sources from which one can subscribe and procure legal court opinions.  There are also several valuation-specific databases available, such as the Federal and State Case Law Databases from KVD, and Business Valuation Resources’ BV Law.  A quick Google search will also reveal numerous blogs, articles, presentations, and the like—all dealing with valuation issues.  In short, it is currently much easier to locate specific cases than it was in my early days at BVRI.  The million dollar question that faces us now is, “What do I do with the cases when I have located them?”


There are two schools of thought on the issue.  The first holds to the idea that any cases should be disclosed so as to add credibility to the valuation report.  Practitioners that subscribe to this paradigm cite cases in the same manner as one would expect when reading a legal article.  The second school of thought does not cite the particular cases but includes, generally in an appendix to the valuation report, a comprehensive list of all resources the practitioner referenced in the preparation of their valuation report.


The overwhelming majority of valuation practitioners subscribe to the second school of thought, detailed above.  Ask any practitioner, and you will probably get an answer similar to, “I don’t cite case law because I’m not a lawyer.”  Now, as the profession has grown, there are practitioners that are both attorneys and credentialed valuation analysts … and they feel more at ease citing case precedent.  For those select few, this is not an issue since they practice law.  For the remainder of us, we must make the decision of whether or not to actually cite the case reference in our reports and have opposing counsel suggest that we are (illegally) practicing law.


Many in the valuation profession feel comfortable performing legal research, despite the fact that they are not licensed attorneys.  I felt comfortable performing legal research, I knew how to quickly screen a case to determine if it was going to be useful or not, as well as how to Shepardize[1] and cite a case.  However, what I also knew was that I am not a licensed practicing attorney.  While able to perform basic legal research, I lacked the formal knowledge of how the judiciary works.  For example, if one circuit court of appeal reverses a decision of, say, the United States Tax Court (the “Tax Court”), it does not necessarily mean that the Tax Court will follow the ruling of the particular Circuit Court of Appeal that reversed their ruling, especially if the issue is a matter of first impression for the Circuit Courts of Appeal as a whole.


Let me provide an example of the situation I am describing above.  Imagine you have been engaged to provide a Conclusion of Value as to a non-marketable minority interest in a company (a C corporation) that operates as a holding company, the portfolio of which is solely comprised of marketable securities.  While you have previously been engaged to appraise such an interest in a pass-through entity, this is the first engagement that requires you provide a Conclusion of Value for a C corporation holding company that holds appreciated assets.  You know the Tax Reform Act of 1986 makes asset distributions taxable, but you are not quite sure how to account for the built-in capital gains tax issue.


Searching KVD’s Federal Case Law database reveals several cases on the subject, some dating back to the early 1960s.  You notice in several of the earlier cases, no adjustment for the built-in capital gain was allowed unless the petitioner (taxpayer) could prove that an asset liquidation was imminent.  Such an impending asset liquidation meant the taxpayer was soon to be faced with a built-in capital gains tax liability.  More recent cases reveal the Tax Court’s proclivity to allow some sort of adjustment for the built-in capital gains tax liability.  In some cases the Tax Court accounts for the built-in capital gains tax liability using a present value of the tax liability, calculated based on the historical turnover of the subject company’s asset portfolio.  You then notice a couple of the most recent cases allow a dollar-for-dollar deduction of the built-in capital gains tax liability.  You also notice that the cases which allow a dollar-for-dollar deduction of the built-in capital gains tax liability actually reversed the Tax Court’s original rulings (both the United States Courts of Appeal for the Fifth and Eleventh Circuits reversed the Tax Court’s opinion).  “Eureka!”, you think, I’ve got it, I’ve found the answer for which I was searching.


Not so quickly, I say.  I will note that if you research this particular issue, you will notice a slight paradigm shift from case to case.  Anyone who studies the progression of case law on this issue will get the general feeling that the Tax Court is moving toward allowing a dollar-for-dollar reduction in the equity value of an entity by its built-in capital gains tax liability.  However, do not let the progression of the case decisions fool you into believing in its simplicity.  Imagine that your engagement takes place in Utah.  As such, if the valuation was audited and no settlement was reached and the case was tried in the Tax Court, it would be appealable to the United States Court of Appeals for the Tenth Circuit.  Remember, as sited above, only the United States Courts of Appeal for the Fifth and Eleventh Circuits have allowed a dollar-for-dollar deduction of the built in capital gains tax.  As such, the Tax Court will only allow a dollar-for-dollar reduction for the entire built-in capital gains tax liability if the taxpayer lives in a state where the case would be appealed out of the Tax Court to either the Fifth or Eleventh Circuit Courts of Appeal.


The example presented above adequately outlines the pitfalls that befall the untrained when attempting to cite case law in a valuation.  So, what is a valuation practitioner to do, given the significance that relevant court decisions have on a valuation?  The best advice one can take is to not be shy, go back to the attorney that referred the case to the analyst, and have them perform the requisite legal research for you.


Once you are sure you have the right cases for your valuation, you can easily incorporate them into your analysis.  Again, as noted above, it is not a good idea to cite the actual case.  Rather, the notable points of the case can be discussed after a rather generic intro, such as, “recent case law decisions state the following…”  The name and citations of each case utilized in the analysis can be cited in the “works cited” page.  As such, the analyst gets the benefit of using the most recent case law without drawing red flags from actually citing the case law.


A good valuation analyst knows they must wear many hats when performing a valuation analysis, but a great valuation analyst knows the limitations of their own knowledge.  They know when to seek professional help from an expert, be it a real property or equipment appraiser, or a lawyer.  It never hurts to run a set of specific cases by the referring attorney and ask if the cases are relevant, as well as if they can further research the specific issue for you so that you don’t miss any pertinent cases or decisions.

[1] Shepard’s Citations is a citator used in United States legal research that provides a list of all the authorities citing a particular case, statute, or other legal authority.  The verb Shepardizing refers to the process of consulting Shepard’s to see if a case has been overturned, reaffirmed, questioned, or cited by later cases.  Although the name is trademarked, it is also used informally by legal professionals to describe citators in general—for example, Westlaw’s similar tool called Key Cite.

Peter H. Agrapides, MBA, CVA, is with the Salt Lake City, Utah, and Las Vegas, Nevada, offices of Western Valuation Advisors. Mr. Agrapides’ practice focuses primarily on valuations for gift and estate tax reporting. Mr. Agrapides has experience valuing companies in a diverse array of industries. These engagements have ranged from small, family owned businesses to companies over $1 billion.
Mr. Agarapides can be reached at: (801) 273-1000 Ext. 2, or by e-mail at:

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