Creative Cash Flow Analysis for Bankruptcy Assignment Earlier this year, the author received a business bankruptcy assignment which called for assessing the cash flow for a particular asset in a bankrupt estate and how the circumstances of the estate affected the value of that particular asset. As this assignment continued through testimony and the judge’s ruling, the author wanted to share his experience. While working as an economic expert, I receive numerous assignments in the areas of personal damages, commercial damages, and business bankruptcy. While the assignments for personal and commercial damages cover the waterfront for forensic economic analyses, they…
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A Transition Planning Tool Kit This is an abridged article published by the author. The original article is longer and contains forms referenced but not included here. The author has prepared a tool kit to assist sole practitioners and smaller partnerships with a method of having their practice sold or continued in the event of an untimely death or disability. This tool kit has been prepared to assist sole practitioners and smaller partnerships with a method of having their practice sold or continued in the tragic situation of an untimely death or disability. The forms can be used and filled…
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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 space, and even apartment buildings. At this point, the most frequent question asked by business owners is: “Should I reopen my business or not?” While being on the losing side, it may be a good time for business owners…
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Avoid Traps with a Timely Appraisal New basis-consistency requirements make defensible valuations of inherited property even more important. Informed taxpayers are aware that only the wealthiest individuals should have concerns about the federal estate and gift tax, for gifts given and decedents dying in 2018 through 2025. Thanks to the legislation known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, the basic exclusion amount is more than $11 million per individual ($22 million for married couples), indexed for inflation. Now, estate planners are spending less time and using fewer resources trying to avoid federal estate taxes for clients.…
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CPA financial planners name charitable giving, business structure and estate plans as the areas of clients’ financial plans they have had to adjust most frequently after passage of the law known as the Tax Cuts and Jobs Act. Planners can tap into their technical expertise to evaluate how different tax strategies would align with a client’s overall financial picture, said Robert Westley, CPA/PFS. Ultimately, the goal is to ensure that plans “support [clients’] life goals and to keep them and their family secure,” said Andrea Millar, CPA/PFS. To read the full article in the Journal of Accountancy, click: How Tax…
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Many of the biggest beneficiaries of President Donald Trump’s tax overhaul have not even been born yet. The new law doubles the amount that can be passed to heirs without worrying about estate and gift taxes, to about $22 million for a married couple. But the thresholds are in place only until 2025, and the ultra-rich are turning to a key tool—the dynasty trust—to secure the financial futures of their grandchildren, great-grandchildren, and beyond. To read the full article in FinancialPlanning, click: The Ultra Rich are Turning to This Key Tax-Cutting Tool.
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For “Intentionally Defective” Grantor Trusts (Part II of II) In this second and final part of this article, the author provides illustrations that showcase pitfalls to avoid when the power of substitution is exercised. Read Part I here.
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For “Intentionally Defective” Grantor Trusts (Part I of II) The power of substitution is held by the settlor of a grantor trust if this power is provided by the trust instrument. This power allows the settlor, at any time, to remove an asset or assets from the grantor trust in exchange for an asset or assets of equivalent value. Such a transfer can be problematic and vulnerable to challenge if the equivalent value is questionable. One such example is when a promissory note bearing a below-market interest rate is the substituted property. First, this discussion presents an analysis of the…
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What is Your Case Worth Today? What is the value of a contested estate? In this article, the author shares her insight and discusses two leading U.S. Tax Court cases in this area, Estate of Lennon and Estate of Foster.
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The IRS is Challenging the Appropriateness of Discounts when Preparing a Valuation The current regulations, Revenue-Ruling 93-12, allow for discounts when valuing a Family Limited Partnership (FLP). The proposal is expected to potentially limit the allowed discount and consequently raise the taxable portion of the trust or estate structures. This article reviews the current requirements for FLPs, their history, and the potential exposure to FLP’s in the near future.
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Tax Controversy Insights In matters argued before the U.S. Tax Court, valuation professionals are frequently asked to provide opinions related to the value of closely held businesses and of fractional ownership interests in closely held businesses. This discussion relates to a recent appeal of a U.S. Tax Court decision involving such valuation issues. The case in question is Natale B. Giustina v. Commissioner. In this case, the Tax Court’s selection of the method for valuing a fractional ownership interest in a closely held business was appealed to the United States Court of Appeals for the Ninth Circuit. The Appeals Court…
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Are you aware of the new reporting requirements required between an estate and anyone acquiring property from the decedent? Alistair M. Nevius, J.D., JofA’s editor-in-chief, explains the new reporting and statement requirements. To find out more on the JofA’s article, click: New law imposes immediate estate basis and reporting requirements.
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Guidance on How to Calculate the Built-in Capital Gains Tax?! Estate of Richmond is well known among experienced valuation professionals for at least two reasons. First, the U.S. Tax Court was critical of the experts’ lack of credentials and the fact that the estate submitted an unsigned, marked-up report with the 706. Second, the U.S. Tax Court did not allow a 100 percent BICG tax reduction. Rather, the Court provided guidance regarding the extent of the BICG deduction. The author, an experienced valuation advisor, shares his views on both of these issues.
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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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Fractional interest discounts allowed In Estate of Elkins v. Commissioner, the U.S. Tax Court sides with petitioners holding they were entitled to a ten percent discount from pro rata fair market value with respect to a decedent’s interest in various works of art. In Fancher v. Prudhome, the Louisiana Court of Appeals upholds a trial court’s determination that using the Income Approach to value a withdrawing member’s share in an LLC was not applicable since future cash flow could not be assumed and the withdrawing member provided the majority of the company’s business.
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The Tax Court Speaks Loudly and Firmly on the Responsibilities of Business Appraisers Hempstead & Co. has published “Estate of Gallagher is a Valuation Tutorial.” The article emphasizes the importance of providing the court with a clear and convincing explanation of the assumptions and arguments you have employed in carrying out a business appraisal. It discusses the recent Tax Court Memorandum opinion in the Estate of Gallagher v. Commissioner, (TC Memo. 2011-148). The court’s valuation was closest to the value on the return as filed.