The proper usage of company management-prepared projections when applying the Income Approach—Discounted Cash Flow Method—is an ongoing issue for any valuation analyst, especially as it relates to shareholder appraisal rights actions. The Delaware Chancery Court regularly provides guidance as to the proper usage of management projections when applying the Discounted Cash Flow Method within a dissenting shareholder appraisal rights action. This article highlights several historical and recent Delaware Chancery Court decisions, and it provides insights into the valuation analyst’s role in properly utilizing management projections when applying the Income Approach—Discounted Cash Flow Method—within a dissenting shareholder appraisal rights action.
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Phone fraud tops this year’s list of the biggest IRS tax scams of 2015, states Sally P. Schreiber, JD, senior editor of Journal of Accountancy, followed by phishing, identity theft, return preparer fraud, and hiding income offshore, rounding out the top five scams. The article delves into the many schemes, including suspicious e-mails, detecting identity theft, refund fraud, fake charities, and more, and includes details on identifying each of the dozen scams that will assist in providing taxpayer protection. To learn more about the top tax scams of 2015, click here. Image courtesy of Stuart Miles/FreeDigitalPhotos.net
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Thoughts from Experienced Litigation and Business Valuation Professionals Entering the Industry In this article, seasoned BV and litigation support professionals John DelGrego and Heidi Walker share why litigation can be invaluable to a BV professional. The co-authors also expound on the professional perils and high expectations placed by the Tax Court on expert witnesses. Expert witnesses must be objective, current on the law, and persuasive.
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In this article, Peter Rahe describes how he presents the subject of market multiples to attorneys. He also raises important questions about business valuation multiples.
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Corporations globally are faced with the complex problem of corruption, states Ravi Venkatesan in “Confronting Corruption” in McKinsey Quarterly. It takes many forms, and perpetrators are skilled in developing new ways to be corrupt and cover their tracks. In corporations, there are multiple types of corruption, including bribes, extortion, speed money, and employee fraud. The first steps into anti-corruption can be daunting and policies, controls, and culture together must be considered to fight and resolve the problem. To read the full article, click here.
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A Case Study An ESOP is one of many options available to business owners considering succession-planning options. There are substantial advantages, but there are also regulatory and cost considerations. A feasibility study may suggest whether the ESOP is an appropriate option. In this article, authors Kelly Finnell and Andrew Holmes share their views on when an ESOP is feasible using a case study.
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A Drop-Dead Plan for the Unprepared In this article, Edward Mendlowitz shares his views regarding the importance of having a buy-sell agreement. He proposes a “drop-dead plan” or method that, while imperfect, addresses how owners can arrive at an initial value that does not necessarily require a Conclusion of Value, especially if the owners are not related. Significantly, Mendlowitz stresses the importance of securing an agreement that addresses major life events to get the process started.
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A Note on ESOP Valuation[1] One of the most critical issues regarding valuation is the concept of adequate consideration. The ESOP trustee cannot pay more than “adequate consideration” for the stock it purchases.[2] In the context of an ESOP, ERISA defines adequate consideration as the stock’s “fair market value…as determined in good faith by the trustee…”[3] The proposed Department of Labor regulations define “fair market value” as the “price at which [the stock] would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under…
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Simple Steps to Save Hundreds of Thousands of Dollars By implementing just a few simple steps and procedures, business owners can catch or prevent financial fraud that can have devastating financial and personal consequences. In this article, Chris Hamilton outlines six simple steps business owners can put into practice today.
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Evolving Accounting Standards for CPAs Wiley author Joanne Flood reviews three significant Accounting Standards Updates (ASU). First, she reviews ASU 2014–08, issued in April 2014. This ASU focuses on Reporting [for] Discontinued Operations. This ASU changes the criteria for determining which disposals can be presented as discontinued operations. In the remaining portion of the article, she summarizes changes brought about by ASU 2014–10, Elimination of Certain Financial Reporting Requirements, including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, and ASU 2014–15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
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Business valuation (BV) liability claims are not as frequent compared to other litigation risks faced by practitioners. On the other hand, there are BV-related liability claims that exist, especially in cases where a valuation report was used to guide financial decisions by businesses, lending services, regulatory agencies, and others, according to Frank Vinluan, in the January 21 issue of FVS News. One of the best ways valuators can reduce their risk of a lawsuit starts with the engagement letter. Engagement letters can help limit a valuator’s exposure by clearly establishing the expectations of work to be performed, the purpose…
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Ninth Circuit Court of Appeals Reverses U.S. Tax Court On December 5, 2014, the Ninth Circuit Court of Appeals “reversed and remanded for recalculation of value” a Tax Court Memo decision in Estate of Natale B. Giustina, Deceased, v. Commissioner (No. 12-71747). The case involves the valuation of a 41.128 percent partnership interest in Giustina Land and Timber Company Limited Partnership and raises important questions regarding the proper underlying assumptions to use probability weighting.
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A Case Study, Part 2 of 2 In this second part of the article, Dr. Allyn Needham examines post-Till cases from the northern and western districts of Texas, highlights the problems encountered using the Formula Approach, and tests whether the Contract Approach may have provided a better approach and reduced the incidence of litigation where a cramdown is proposed. Ultimately, Dr. Needham proposes that despite the problems presented by the Formula Approach, the Contract Approach is not a panacea for Chapter 11 bankruptcy matters. Business valuators practicing in this area must understand case precedent and recognize the limits of the…
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Because of stock market volatility, taxpayers may want to convert to Roth individual retirement accounts. Taxpayers, after converting to the Roth, have until October 15 to undo it, as long as the conversion is set up correctly, says Robert Keebler, partner, Keebler & Associates LLP, in The Ultimate Estate Planner Blog. Image courtesy of Stuart Miles/FreeDigitalPhotos.net
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The American Institute of Certified Public Accountants (AICPA) has sent a letter urging Rep. Paul Ryan (R–Wis.), the new chair of the House Ways and Means Committee, to follow the AICPA’s principles of good tax policy to guide tax reform. The letter comes in response to the Tax Reform Act of 2014, a draft proposal put forth by the former Ways and Means chair Dave Camp (R–Mich.). The AICPA’s letter addresses 22 major items pertaining to the proposal, including income tax rate reform, employment tax modification, the repeal of the alternative minimum tax, plus taxpayer protections. To learn more about…
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A Case Study, Part 1 of 2 In the Till decision, the U.S. Supreme Court selected the Formula Approach to provide a straightforward, familiar, and objective method for determining the cramdown interest rate to be paid on secured claims in Chapter 13 cases, minimizing the need for potentially costly additional evidentiary proceedings. Many bankruptcy courts have found this decision instructive and directive for Chapter 11 matters. However, the application of the Formula Approach for determining the cramdown interest rate on secured claims in Chapter 11 matters has not made for a straightforward approach, nor has it eliminated sometimes lengthy and…
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Valuators Take Note Fair market value is key to compliance with both the Stark Law and the Anti-Kickback Statue. Solid, well-reasoned valuations can be essential in establishing compliant arrangements, and these must consider practice losses as applicable. In this article, Lynn Gordon, Esq., states that it is “prudent to have a valuation in place that supports compensation as fair market value,” especially if the practice area incurs losses. Gordon adds this is especially important in “high-stakes transactions likely to draw attention (e.g., transactions with significant inpatient care reimbursement such as cardiology and orthopedic surgery).” Gordon advises, “valuator[s] should work together…
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Federal Reserve officials have expressed growing optimism at the December meeting that the U.S. economy is steadily recovering. As the price of oil continues to fall and with payrolls growing, there is a good possibility that 2015 will experience higher economic growth than currently forecast. However, the weakness of the global economy and the anemic response of foreign governments could weigh on domestic growth. If variable loan rates increase and credit becomes more expensive and harder to get, how will it effect the engagements of BV professionals? Find out more from the New York Times’ coverage of the Federal Open…
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The Treasury Department and Health and Human Services announced last week that in the coming weeks it will introduce “consumer-friendly” resources for taxpayers to use to comply with the new healthcare rules. Starting this year, taxpayers are facing additional paperwork for this year’s filing, causing concern for taxpayers and their accountants. Tax filers will now have to report whether they had healthcare coverage in 2014 and if they received tax credits to help buy insurance. Those who didn’t have healthcare coverage will owe a fee. The joint agency announcement though hasn’t yet specified what the tools and resources will be,…
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Restrictions on Distributions and Impact on DLOM…Who Else Will Follow? In 2009 Nevada Senate Bill 350 was passed into law. This law authorized the creation of two new business entities: the Restricted LLC and Restricted LP. The bill also allowed for the conversion of existing entities into one of the above types. In this article, Eric J. Barr provides an overview of these two entities and raises questions regarding why someone might want to form such an entity and whether the IRS will respect the statutory restrictions given that under IRC 2704, the government retains the right to disregard certain…