A Valuation Perspective In this article, three U.S. Tax Court cases are discussed. Each case stems from the fallout which occurred after the discovery of the Madoff Ponzi scheme amounted to more than just lost investments for each of the investors. The end-effect is much more far-reaching and complex, as many investors have been forced to pay hefty legal bills in a battle to reduce their estate tax liabilit ...

Using the Empirical Method Business appraisers around the country have historically used comparisons to the averages found in restricted stock studies to determine a discount for lack of marketability in their valuations of a privately held, noncontrolling interest in a business. While the average discounts from restricted stock studies are useful and indicate that discounts for lack of marketability do occ ...

What NACVA is Doing to Protect Our Industry On August 4, 2016, the U.S. Treasury in lock-step with the Internal Revenue Service (IRS) published Proposed Treasury Regulation 163113-02 (hereafter, the “proposed regulations”) which intend to drastically alter the application of current Internal Revenue Code §2704, particularly as it applies to valuations of family owned businesses and family farms. The propose ...

A White Paper Detailing Use of the Pluris Database to Develop a DLOM (Part III of III) The Pluris DLOM methodology involves calculating two values: Restricted Stock Equivalent Discount (RSED) and Private Equity Discount Increment (PEDI). Does RSED represent an illiquid position that does not directly relate to the lack of marketability of a private held business? How reliable is the RSED DLOM? As for PEDI, ...

A White Paper Detailing Use of the Pluris Database to Develop a DLOM (Part II of III) In this second part, of a three-part series, Marc Vianello examines whether discounts reported in PLURIS DLOM Database are consistent with past changes in SEC Rule 144 required holding periods; How the PLURIS Restricted Stock Discounts Correlate with other reported Metrics; How to use PLURIS Database for Benchmarking; and ...

Appraisals from Real Estate, Machinery and Equipment to Business Valuation: Book Review by Michael D. Pakter The purpose of this book review is to introduce the reader to Shannon P. Pratt’s newest book, co-authored with John Lifflander. For those improbable few business valuation professionals who do not know who Dr. Pratt is, he is the Chairman and CEO of Shannon Pratt Business Valuation, Inc. and Publishe ...

The Tax Rules Were Never Friendlier, But Changes May be on the Way The biggest loophole in the tax code may soon be coming to an end—at least according to the messages sent by the Obama administration and its recent budget proposals. The American Taxpayer Relief Act of 2012 (ATRA) set a whole new tone for most estate plans when it took the dreaded estate tax off the table. However, it is no secret that the ...

A White Paper Detailing Use of the Pluris Database to Develop a DLOM (Part I of III) Business valuation practitioners continue to debate the merits of different databases to develop a discount for lack of marketability (DLOM).  In this first- of a three-part series, Marc Vianello discusses what the Pluris DLOM database is, explores how accurately Pluris transactions are reported, and discusses how the Pluri ...

Analysis of Unaudited Financial Statements—Who and How? There has been much discussion within the ESOP community about the “settlement” and its reverberations. As readers are likely aware, the settlement in question refers to the 2014 settlement agreement between GreatBanc Trust Company and the United States Department of Labor (DOL). The terms of the settlement include, among other things, an agreement con ...

Ways 16 through 30 (Part II of II) This is the second part of this two-part article where the author presents fifteen other structures owners may want to consider as part of a succession plan. Click here to read part one. ...

Ways 1 through 15 (Part I of II) This is the first of a two-part article, where Edward Mendlowitz shares fifteen of the thirty ways to structure a transfer of a business to a successor. Mendlowitz stresses that a succession plan is important and too often overlooked by business owner(s) involved in day-to-day operations. Capturing the value and having a strategy in place provides ongoing cash flow, a degree ...

in a Divorce Proceeding Not all is fair in love and war when it comes to the fight for business records within a matrimonial action. When one spouse is denied adequate discovery, his or her case can quickly begin to unravel. Usually, some records are available either because the spouse had some previous access or there was a partial document production. Business appraisers should consider all appropriate me ...

NACVA’s Silver Anniversary Conference NACVA and the CTI’s 2016 Annual Consultants’ Conference held this past June in San Diego, CA was a spectacular assembly of presenters, attendees, exhibitors, candidates, and staff. This one pulled out all the stops, featuring prestigious keynote speakers, engaging training sessions, an assortment of networking opportunities, and many more events to enjoy. It proved to b ...

Consideration for Closely Held Securities—DLOM Theoretical Models (Part II of II) This article summarizes the factors (and the empirical evidence) that the analyst may consider in the measurement of a discount for lack of marketability (DLOM) valuation adjustment associated with non-controlling securities of a closely held company. This security-level DLOM is different from the entity-level DLOM that is app ...

Consideration for Closely Held Securities, Part I of II Valuation analysts may be asked to value closely held company securities for various reasons. These reasons include transaction pricing, financial accounting, taxation planning and compliance, and litigation (related to both breach of contract and tort claims). Depending on: 1) the business valuation approaches and methods applied; and 2) the benchmark ...

Studies in the Closely Held Company Valuation (Part II of II) In the first part of this two-part discussion, the author identified six transaction risk factors attempting to sell a controlling (including 100 percent) interest in a closely held company. Those included: 1) an uncertain time horizon to complete the offering or sale; 2) “Make ready” accounting, legal, and other costs to prepare for and execute ...

Six Transaction Risks Owners Face Selling a Company that May Explain DLOM (Part I of II) In this first of a two-part article, Robert Reilly reviews the various models analysts use to estimate the DLOM and factors analysts consider in the DLOM selection. Valuation analysts often value closely held companies for transaction, taxation, financing, accounting, litigation, and other purposes. Depending on: 1) the ...

What About Subsequent Events—Lessons from the Valuation of Artwork? In the December 2015 Tax Court Memo Estate of Newberger v. Commissioner, the Tax Court considered post-date-of-death sales prices in the valuation of three separate pieces of artwork owned by the decedent. Considered in one instance was the sale of the actual piece of art itself, and in two other instances, the sale of other pieces of art c ...

The Case of Trademarks and Brands Since the adoption of fair value accounting governed by SFAS 141 (in 2001) and IFRS 3 (in 2004), hundreds of thousands of different intangible assets have been valued, audited, and reported in financial statements of public companies all over the world. After fifteen years of fair value accounting, the debate about the accuracy of such values and their relevance for readers ...

Nuances Valuing and Normalizing an Auto Dealership There are many reasons an auto dealership may require a business valuation; buy-sell agreements, shareholder disputes, employee stock ownership plans (ESOPs), and estate planning and gifting strategies. In many instances, there will be an opposing party that questions the validity of the final value, whether it be a dissenting stockholder or the Internal Re ...