Valuation Discounts Considered in Gift and Estate Planning With a look forward to December 31, 2025, when the current lifetime exclusion levels for estate taxes are slated to sunset, wealth planners and their clients have much to discuss. Valuation and estate planning professionals have a key opportunity to strategize and develop the best plans for family businesses and high-net-worth individuals. With a lo ...

A Nuanced Approach to Asset Valuation Marketability refers to the ease with which an asset can be sold, and the DLOM accounts for the reduced liquidity of an asset that is not easily traded in the open market. In business valuation, the DLOM is a critical yet contentious adjustment. This article discusses the underlying issues presented in this type of valuation and uses an example to explain the incrementa ...

Consider the SLAT and GRAT in Gift Planning Understanding gift tax regulations is crucial for individuals and their advisors because it impacts estate planning strategies and can significantly affect the overall tax liability. Properly utilizing exemptions and understanding the rules surrounding gift taxation can help individuals minimize their tax burden and ensure a smooth transfer of assets to their inte ...

Use in Private-Business Valuation (Part II) This article in this continuing series explains the Implied Private Company Pricing Line (IPCPL), theory, evidence, and application of the IPCPL. How to Understand IPCPL Theory In the first article in this series (published in two parts 02/01/24 and 02/08/24), it was shown that the Implied Private Company Pricing Line (IPCPL) theory explains and predicts the relat ...

Alleged Best Practices to Whom? Peter J. Butler, CFA, ASA, MBA, founder of Valtrend, LLC and inventor of the Total Cost of Equity Calculator (TCOE), responds to comments made by Robert Reilly and Connor Thurman regarding best practices used to arrive at the company specific risk; the latter article did not discuss the TCOE and here he “key[s] in on Part III—the section which addresses empirical evidence in ...

(Part II of II) There are special tax considerations related to the transfer of S corporation stock at the time of the owner’s death. Therefore, owners of S corporation stock must be intentional with regard to the risks (and the tax costs) associated with an inadvertent termination of the subject entity’s S corporation status. S corporation owners—and analysts—should be aware that many states tax S corporat ...

(Part I of II) Analysts are quick to identify and quantify the implicit and explicit S status economic benefits in the S corporation business valuation. The objective of this discussion is to summarize the offsetting economic risks associated with an S corporation ownership interest. Analysts should be equally aware—and intentionally consider the risks as well as the benefits—of S corporation status in the ...

The two most widely approaches used by valuators to determine a discount for lack of marketability (DLOM) are restricted stock studies and IPO studies. The restricted stock studies compare transaction prices in restricted shares with contemporaneous trading prices for unrestricted shares. The pre-IPO studies, on the other hand, according to the author, lead to conclusions that are unsound in theory and in p ...

COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t On March 2, 2021, Jim Hitchner, Managing Member of Valuation Products and Services (VPS), made a follow-up presentation, COVID-19 and Business Valuation—One Year Later: What Worked and What Didn’t. This article summarizes the issues discussed during this follow-up webinar. A year has passed since the COVID-19 pandemic first impacted ...

A Business Valuation for a Controlling Interest CPAs are subject to multiple standards. Often, the standards prevent CPAs from exercising their judgment or applying common sense. The author describes this as “miss[ing] the boat.” This article illustrates this and provides an actual example where a group of valuators missed the boat. The purpose here is not to belittle, but to prompt CPAs to reflect on how t ...

(Part III of IV) This is the third of a four-part article that sets forth best practices for estimating the company-specific risk premium. This part of the discussion describes the various empirical data sources that analysts may consider as proxies—or benchmarks—or approximations—in developing the CSRP estimate. [su_pullquote align="right"]Resources: Best Practices for Estimating the Company-Specific Risk ...

An Opportunity for Gift and Estate Planning at Low Valuations The disruption brought about by COVID-19 created certain industry “winners” and “losers.” Many of those that emerged as losers are small and medium-sized privately held businesses such as restaurants, bakeries, gyms, hair salons and spas, and the corresponding real estate holding entities that leased to such businesses, held retail and office spa ...

Connecticut Appellate Court Affirms Trial Court’s Decision Not to Tax-Affect Earnings In a dispute over the buyout of the minority shares in a family business, the Connecticut appellate court addressed several important valuation issues. Notably, the appellate court upheld the trial court’s decision not to tax-affect the company’s earnings in determining the fair value of the shares, even though both the pl ...

Applicable to Real Estate Holding Companies (Part II of II) In this second of a two-part series published in QuickRead August 01, 2019, the author discusses valuation discounts applicable to real estate holding companies and the incremental adjustments in the valuation of partial, non-controlling interests. After discussing the application of a minority discount or discount for lack of control (DLOC) in the ...

Applicable to Real Estate Holding Companies (Part I of II) In this two-part series, the author discusses real estate holding companies and describes the use of minority discounts (also known as the discount for lack of control [DLOC]) in the valuation of partial, non-controlling interests in entities holding real estate as their primary and most valuable asset. Part II will address the use of the discount f ...

Ownership Interests in Privately Held Companies This article focuses on concepts and issues that are important for family law attorneys to understand when navigating cases that involve divorcing clients with ownership interests in privately-held entities. One of the first questions that arises is whether we need to retain a valuation expert? This is an important question, where experts can provide attorneys ...

Mike Gregory Discusses the Newly Released Five in One Book on Business Valuations and the IRS In this article, Michael Gregory provides some thoughts of how the official IRS rules of engagement are different from the unofficial rules of engagement and introduces how to work with the IRS. The 38 examples in the book provides additional insight. Mike Gregory recommends the book to all business valuation firms ...

A Discount for Controlling Interests This article examines studies and judicial decisions addressing the use of DLOMs where there are controlling, 100% ownership interests, followed by review of a recent client assignment that illustrates the importance of being well versed with the valuation theory in this area. ...

Book Review by Michael D. Pakter, CPA, CFF, CGMA, CFE, CVA, MAFF, CA, CIRA, CDBV In this article, Michael D. Pakter, writes a brief review of Michael Gregory’s latest book, Business Valuations and the IRS: Five Books in One. ...

Quantifying the Risk Adjustment Depending on the valuation assignment facts and circumstances, the valuation analyst (analyst) may encounter a unique valuation problem: a problem that is well outside the ordinary scope of typical valuation issues. Unique problems provide the analyst an opportunity to develop thought leadership solutions in a manner that (1) provides value to the client and (2) assists the r ...