Cases in Ohio, Delaware Assess Acquisition Share Value, Family Business In Iacampo v. Oliver Iacampo, the Ohio Court of Appeals rules on the appropriate use of experts in valuing a family business, the nature of passive income, and financial help from the wife’s parents. In Delaware, Gaerreald v. Just Care, Inc. turns on proper methods for determining share value, the value of an expert opinion, and deference to management projections.
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Fifth Circuit Disallows 40% Valuation Misjudgment Penalty, OKs 20% Negligence Penalty The Court of Appeals for the Fifth Circuit disallows a 40% valuation misjudgment penalty in Bemont Invs., LLC v. United States, but affirms a Texas Court’s 20% negligence penalty. Judge Goeke at the Tax Court draws distinctions on when charitable deductions are allowable in Dunlap v. Commissioner.
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A Credit Card Debt is Settled, But Tax on DOI Income Still Due Judge Ruwe at the Tax Court finds petitioners owe tax on income from a settled credit card debt in Shepherd v. Commissioner, and a U.S. Bankruptcy Court for the Western District of Pennsylvania rules on the valuation of a mortgagee’s creditor’s secured claim in Buena Vista Oceanside, LLC., v. Optimum Bank
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Great Testimony Doesn’t Proceed From Charisma Alone. It’s Mostly about Preparation. Here’s Why. Joe Epps, CPA/CFF/ABV, CFE, CVA, explains that great expert testimony proceeds from extensive preparation of testimony outlines and demonstration exhibits to a thorough review of relevant documents, including expert reports, deposition transcripts, and a full reading of other parties’ testimony.
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More: A Case in Texas Turns on a Husband and Wife with Differing Appraisals of a Business That’s Declined in Value Peter Agrapides gathers recent federal cases bearing on valuation and family law. In Georgia, a county issues bonds to finance a regional warehouse built by the corporation; the parties agree to use a certain valuation methodology, and since agreement is mentioned in the lease, the Georgia Court of Appeals finds full compliance with that methodology is in fact part of the lease.
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Plus: New Local Case Law in Los Angeles, San Francisco. Detail on Virginia Occupational License. Deloitte Tax Alerts notes new case law in Illinois and new local law in San Francisco and Los Angeles. Also: More on Virginia’s business, professional, and occupational license tax.
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Taxes on S-Corporations are Hotly Discussed by Legislators and May Change. Here’s the History, Standing Precedents, and Current Law. S Corporations have been much in the news lately, as we’ve noted on the QuickRead blog. In this piece, Peter Agrapides provides a comprehensive chronological account of valuation cases where the issue of tax affecting S-Corporations has taken center stage.
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In Berquist v. Commissioner, Judge Swift Finds a Company’s Pending Liquidation is Relevant and Foreseeable. The Tax Court valued closely-held stock in an anesthesiology practice donated to a hospital for charitable contribution purposes at its liquidation value since the anesthesiology practice would no longer exist after the physician-stockholders were consolidated into a newly-formed umbrella physician management company. The donors valued the practice at $401.79 per share under the going concern premise of value. The respondent determined a fair market value of $37.00 per share under the liquidation premise of value. The Judge cited one key factor that determined his ruling. …
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10 Years After Implementation, NYT Cites Lawyer, Former SEC Official, PCAOB Oversight Member, and Editor Who See SOX as a Positive Development. WSJ Sources Not So Sure. IBD Claims SOX Has “Devastated” IPO Market. The Times’ “Room for Debate” roundtable noted that last Sunday, July 24th, marked 10 years since the Sarbanes-Oxley accounting law was enacted, after the scandals at Enron, WorldCom and elsewhere. Many in the business world said complying with the law would be expensive and burdensome, and others called it ineffective. Indeed, since those crises other huge corporations have imploded, like Bear Stearns and Lehman Brothers. The…
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Shielding the Family Business The best part for valuators is that all of this requires a professional appraisal (detail below). The Wall Street Journal Tax Report‘s Laura Sanders reports that: Small-business owners often complain of feeling caught in the cross hairs of the tax code. For a change, here’s good news. The Tax Court has just blessed a new technique that owners of closely held businesses—and wealthy families—can use to pass assets to heirs with a minimum of taxes and complications. The ruling in the case, Wandry v. Commissioner,[T.C. Memo. 2012-88 (Mar. 26, 2012)], is stirring up excitement among experts. David Kautter, a director of American…
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The Supreme Court Has Long Distinguished the Taxing Power from the Regulatory Power Paul Moreno, professor of history at Hillsdale College, details the history on the Wall Street Journal opinion page: The first enumerated power that the Constitution grants to Congress is the “power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States.” The text indicates that the taxing power is not plenary, but can be used only for defined ends and objects—since a comma, not a semicolon, separated the clauses on means…
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In Palmerino v. Palmerino, the Massachusetts Court of Appealsconsidered whether a trial court erred in valuing the husband’s grocery store. The trial court’s approach had not included discounts—and went further to state that the income approach is preferable for valuation. Find out what the court decides! In Giaimo v. Vitale, the Supreme Court of New York considers the dissolution of a company called EGA Associates. The case involved the sale of 19 residential buildings in Manhattan, accusations of fraud during discovery hearings on fair value, and the applicability of proposed discounts for marketability and built-in capital gains.
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At issue in Gross v. Commissioner is whether the petitioner made an indirect gift of public company stock to her daughters, thus negating any discounts for lack of control or marketability. Judge Halpern at the Tax Court ruled that the step transaction was not applicable and that a 35% discount was justified. Find out why.
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Jennifer Smith at the WSJ Law Blog reports that A U.S. district court ruling on who can claim profits from a defunct law firm’s unfinished cases could mean trouble for firms who take on partners from the ailing New York firm Dewey & LeBoeuf LLP:
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Case Law—State: American Ethanol, Inc. v. Cordillera Fund, LP In American Ethanol, Inc. v. Cordillera Fund, LP, the Supreme Court of Nevada is required to weigh in on fair market value. A lower court had judged that stockholders were fairly paid some $1.75M (about $3 per share) for American Ethanol at the time of the merger. American Ethanol appealed, claiming it was worth more. Part of its argument was that its appraiser—an unaccredited one—couldn’t be expected to perform sophisticated calculations, such as a discount for lack of marketability. Find out what the Nevada Supreme Court determines and why!
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Roger Russell recaps the decision at Accounting Today. The Tax Court, in a recent summary opinion, ruled that an individual did not have cancellation of debt income in the year that a collection agency issued him a Form 1099-C and stopped its automated collection efforts. The IRS determined a deficiency in David Stewart’s 2008 income tax of $2,138, based on a Form 1099-C issued by the collection agency. The underlying debt was incurred on a credit card obligation in 1994, and was defaulted on in 1996. Maryland Bank National Association (MBNA) charged off the debt that same year. Find out case specifics…
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Payments an accounting firm characterized as consulting fees were really disguised dividends and should have been taxed as corporate income, the Seventh Circuit held on Thursday. The payments reduced the firm’s income to zero, and the court applied the “independent investor” test to recharacterize them as dividends paid to the firm’s owners. Alistair M. Nevius at the Journal of Accountancy, in the article Accounting firm payments to owners flunk independent investor test, reports: The Seventh Circuit held that an accounting and consulting firm organized as a C corporation could not deduct payments to related entities because they were dividends, not…
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You can’t avoid paying taxes on assets you sell after a bankruptcy. At least if you’re a farmer. Sally P. Schrieber at the Journal of Accountancy reports The U.S. Supreme Court ruled Monday that farmers who sold farm assets during a bankruptcy reorganization under Chapter 12 of the Bankruptcy Code were liable for the full amount of the capital gains tax that resulted from the sale (Hall, Sup. Ct. Dkt. No. 10-875 (U.S. 5/14/12), aff’g 617 F.3d 1161 (9th Cir. 2010)). In an opinion that affirmed a Ninth Circuit decision and resolved a split in the circuits, a divided Supreme Court (in an…
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If you’re still trying to figure out whether and how your practice should have a social media strategy, don’t worry—lots of other folks are too. This simple graphic should help you understand your choices: It’s really quite simple once you break it down. . . . and we know a lot of you have spent time as expert witnesses, or doing litigation preparedness work for your clients. But are you ready to go up against a firm like this?
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Estate of Natale B. Giustina v. Commissioner What happens when a case lands in the United States Tax Court where Form 706 found the fair market value of a business share at $12.6 million and the IRS estimates it’s worth $36 million? Find out, in Estate of Natale B. Giustina v. Commissioner! At issue was a 41 percent share in a closely held timber company. Meanwhile, in the Delaware Chancery Court, In re Answers Corp. Shareholders Litigation finds plaintiff shareholders arguing to enjoin the sale of the company because they believed it was of higher worth. The Court finds the…