Internal Revenue Code § 4958 imposes excise taxes on the excessive portion of compensation paid by a non-profit organization. Excise taxes must be paid by “disqualified persons” who receive unreasonable compensation as well as by the individuals who approve it. Despite the “excise tax” label, these taxes are generally considered to be a severe form of penalty. In considering whether compensation is unreasonable, it is important to determine whether any part of the compensation qualifies as a “fixed payment.” This article discusses the excise tax, when the “reasonableness” test relates back and what is considered a “fixed payment.” Internal Revenue…
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Show Your Workings! Many engagements to determine or rebut a lost wages claim include many elements established by the expert. This article focuses on the tax aspects of an award, specifically, how should the plaintiff receive a tax component award and, if so, how should this award be calculated. Many engagements to determine or rebut a lost wages claim (in an alleged wrongful termination, improper denial of promotion, wrongful death, or other such litigated dispute involving individuals) have the following elements established by the expert: Establishing the chronology of events; An assumption of the defendant’s liability; Analyzing lost earnings and/or…
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Three Experts Convene to Answer and Discuss Pressing BV Issues On March 1, 2022, Jim Hitchner hosted a webinar that featured Michelle Gallagher and Z. Christopher Mercer. While the respective speakers provided some questions in anticipation of the webinar, the audience sent questions and these were answered. The unscripted webinar provided attendees an opportunity to assess what was foremost in the mind of BV professionals. On March 1, 2022, Jim Hitchner hosted a webinar that featured Michelle Gallagher and Z. Christopher Mercer. While the respective speakers provided some questions in anticipation of the webinar, the audience sent questions and these…
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Following a Ransomware Attack As businesses continue to rely on computers and digital storage of important data, cyberattacks are a growing potential threat to these organizations—especially now, as businesses have transitioned their workforces to work remotely. There are many types of cyber threats, and the pandemic has driven a surge in ransomware attacks. Ransomware is malware specifically designed to disrupt, damage, or gain unauthorized access to a computer system. The threat actor employs encryption to hold a victim’s information at ransom. In this article, the author discusses what sets cyber BI claims apart from other BI claims. Introduction As businesses…
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Alternative Means to Effectively Gauge Business Operations and Assist Owners Three ratios that are widely used have validity because they are either used in business valuations, loan covenants, reports to stockholders in Form 10-Ks, used when financial statement analyses are performed, or have familiarity because they have become entrenched in the system. The author of this article considers reliance on these three ratios as “inadequate in advising clients that need effective information to operate their businesses” and perhaps do not help in isolation valuations drivers that assist managers in operating businesses. The author discusses other metrics that provide better insight.…
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Changes in the Methods of Dispute Resolution In this article, Steven I. Platt, a retired Maryland Circuit Court judge, founder of The Platt Group, Inc., and QuickRead’s newest editorial board member, shares with readers the changes he sees affecting civil court proceedings, rise of alternative dispute resolutions, and opportunities that are becoming available to credentialed business valuation and financial forensic professionals. Traditionally, our citizens have had their disputes (legal and factual) resolved by a judge or jury in a courtroom. There, the role of the “Expert” has historically focused on assisting the trier of fact, be it a judge or…
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Most of us want big results with our practices. We want to be sought after in our industry and have a line of prospects waiting to become clients. We want fees that reflect our value and not our time. The question is: What are we doing to make that happen—taking risks or doing the hard work? In this article, Rob Burkert discusses the consequences of each choice. Most of us want big results with our practices. We want to be sought after in our industry and have a line of prospects waiting to become clients. We want fees that reflect…
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Indications for 2022 After an understandable slowdown in 2020, due to the onset of the COVID-19 pandemic, merger and acquisition (M&A) activity in the healthcare industry accelerated in 2021, and the industry is expected to continue the high number of deals and high deal volume in 2022. This article will review the U.S. healthcare industry’s M&A activity in 2021 and discuss what these trends may mean for 2022. After an understandable slowdown in 2020, due to the onset of the COVID-19 pandemic,[1] merger and acquisition (M&A) activity in the healthcare industry accelerated in 2021, and the industry is expected to…
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Rising Levels of High Mental Readiness for an Exit Business owners often-times see exit planning as a complicated, overwhelming, and emotional process. Accordingly, few owners adequately prepare for this significant event. However, an exit plan is essential to help business owners manage the illiquid wealth in their businesses, particularly in turbulent times such as these marked by strife that is present in local and global economies, national and international politics, and market disruption. The International Exit Planning Association sees the present challenges as an opportunity to provide advice to these owners considering an exit. This article discusses the dynamics of…
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April 2022 Two cases from Delaware and New York provide guidance to financial forensics and valuation professionals on the fiduciary duties that managers and directors owe to enterprises. The first case, In re: Multiplan Corp. Stockholders Litigation, is a class action arising from allegedly inadequate disclosure of a merger between a publicly traded special purpose acquisition company (SPAC) and a privately held operating company. The second case, The People of the State of New York v. The National Rifle Association, et al., is a civil action brought by the state attorney general against a nonprofit corporation and certain of its…
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Assess the Extent of Real or Attributed Power and Consider the Source of Power to Develop a Negotiation Strategy Power, whether real or perceived, can influence negotiations, and comes from several sources: privilege, intimidation, withholding resources, etc. When preparing for a meeting with others to resolve a controversy or dispute, it is important to consider the power sources of all the participants. This article examines the source of power and extent of that power may help with developing a negotiation strategy. Power, whether real or perceived, can influence negotiations, and comes from several sources: privilege, intimidation, withholding resources, etc. When…
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What Forces Drive the Competition in the Industry? The author of this article shares his thoughts on the book, Competitive Strategy: Techniques for Analyzing Industries and Competitors. This was a book he had read sections of during his university days, but this time around, read it with a new vantage point considering his education and experiences since then; particularly in the business valuation field. He notes that Porter reminds the reader of an important question: “What forces drive the competition in the industry?” and observes in the litigation reports this question is often not addressed. This is a potential problem…
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It is Not Just for Divorce Anymore Personal and enterprise goodwill are not just relevant in marital dissolution cases; they are important considerations in bankruptcy, tax, business succession planning, execution of buy-sell agreements, and transactional matters. These other matters present practitioners with additional ways of differentiating their services. In this article, the author shares the importance and opportunity of recognizing the other ways goodwill becomes a factor and the opportunity this realization presents practitioners. Perhaps the title to this article may be a bit misleading since it implies that goodwill is only newly relevant in applications outside of family law.…
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RAND Corporation 2022 Study Published in JAMA A study conducted by the RAND Corporation and published in the January 2022 issue of the Journal of the American Medical Association (JAMA) seeking to determine whether health systems primarily incentivize volume or value in their physician compensation models found that almost all physicians are still compensated through a volume-based model that rewards productivity over the value of care provided. This article summarizes the results of the study. A study conducted by the RAND Corporation and published in the January 2022 issue of the Journal of the American Medical Association (JAMA) seeking to…
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Revisiting the Energy Capital Corp. v United States Case Causation It is important for the research and literature in our field to advance. Books, articles, and presentations help us improve and perfect the work we provide to the courts. It is also important that we review the history of our field to remind us “why we do things the way we do.” When reviewing the Energy Capital Corp. v United States case, financial experts will find several discussions regarding calculating lost profits that continue to provide a guide for other court opinions. This article will review three of those discussions:…
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Consider the Tax Consequences of Stock Awards, Stock Option Awards, and Partnership Profits Interests This discussion summarizes what analysts need to know about the taxation issues and the security valuation issues related to private company equity incentive compensation programs. It focuses on both the taxation aspects and the valuation aspects of implementing an equity incentive compensation plan at a private company. This discussion is not intended to provide legal, accounting, or taxation advice. The scope of this discussion is limited to stock awards, stock options, and partnership profits interests. Introduction Valuation analysts (analysts) often work with private companies (and particularly…
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A Review of Everett P. Harry, III and Jeffrey H. Kinrich’s 2022 Second Edition In 2017, Everett P. Harry, III and Jeffrey H. Kinrich released Lost Profits Damages: Principles, Methods, and Applications. Their purpose in publishing the book was to provide a comprehensive reference guide to cover important topics relevant to determination of lost profit damages. This book review discusses the second edition released in late January 2022. In 2017, Everett P. Harry, III and Jeffrey H. Kinrich released Lost Profits Damages: Principles, Methods, and Applications. They published this first edition to provide a comprehensive reference guide to cover important…
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Citation Omitted What makes the world of expert witness services so daunting at times is the fact that so much goes unsaid, untaught, or undefined. For example, the most recent international glossary used by valuation and appraisal professionals across the globe does not define what a conclusion or opinion is. Since saying the silent part out loud seems to be the popular thing to do, this tenth article of the Unimpeachable Neutrality series will attempt to cover the most pertinent unspoken rules of being a financial expert that you might not find issued, published, promulgated, or cited as authoritative. As…
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Into the Market-Based Valuation (Part II of II) This is the second of the two-part article regarding country risk. In this second part, the author discusses how to incorporate the risk into multiples. Read Part I here. Incorporating Country Risk into Multiples Having found the value of the country risk premium required, we can proceed with incorporating it into the market-based valuation. It is worth mentioning that the decisive feature for determining the difference in country risk is the area of activity, not the location of the corporate headquarters. Our goal is to determine what should be the multiple if…
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Part II of II This is the second of a two-part article (Read Part I here) that focuses on the situation where the target company is a private corporation, and the sellers are employee/shareholders. This discussion summarizes the taxation and valuation considerations related to a transaction where employee/shareholders are selling the private C corporation stock to a C corporation acquirer. Some of the taxation and valuation considerations also apply to the corporate acquirer’s purchase of the corporate subsidiary stock of a parent corporation seller. However, the principal focus of this discussion will be on valuation and taxation guidance related to…