What is an S Corporation worth? The IRS fight continues

When it comes to the valuation of non-controlling interests in pass-through entities (PTEs) such as a Subchapter S corporation, there have been ongoing disagreements between business valuators and the IRS. The issue is whether and to what extent to offset PTE earnings for income taxes (often termed “tax-affecting”). Doing so reduces the value under the …

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What’s my business worth? The age old question

Recently, this seems to be the number one question I receive from aging business owners that have begun to contemplate what to do next with their business. Business owners are beginning to realize they cannot work forever and are looking for options to liquidate their investment. So, what’s their business worth? What are a business …

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Is the value of your business about to increase 12.5%?

Recent discussions by the new administration regarding changing corporate and individual tax rates got me thinking about how different income tax rates can affect the value of a company. For example, I ran some numbers with the following assumptions. The current effective tax rate on a pass-through company’s earnings at the individual level is 38 …

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Hypothetical buyers and imaginary scenarios

Giustina (*) case dealt with the value of an approximate 41% limited partnership interest in a partnership that held timberland. Giustina Land & Timber Co. Limited Partnership (GLTC) owned more than 47,000 acres of timberland at the time of death of Natale Giustina. GLTC had operated continuously since its formation in 1990. Profits were generated …

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Proposed Regulations Could Eliminate Valuation Discounts

On August 2 Mark Mazur, the U.S. Treasury’s assistant secretary, announced that the IRS will implement new regulations that will effectively eliminate valuation discounts. Background In an effort to diminish perceived abuses related to valuation discounts associated with transfers of interests in family entities, the IRS enacted Section 2704 of the Internal Revenue Code (the …

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Tax Court Differs on Treatment of Built-In Capital Gains

When valuing a controlling or non-controlling interest in a C corporation that owns only marketable securities, a common method to apply is the net asset value method under the asset approach. Under this method, the fair market value of liabilities is subtracted from the fair market value of assets. Included in the liabilities is a …

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When 50% is Not Half

You own 50% of a closely-held (not publicly traded) company that has been determined to have a fair market value of $3 million. Your ownership interest is worth $1.5 million, right? Maybe, maybe not. The value of a 100% ownership interest in a business includes the value of “control” – that is, the owner has …

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Valuation Services as a Management Tool

Most clients come to us for business valuation services because of outside requirements. They need an independent appraisal for tax compliance, financial reporting, marital dissolution or estate and gift planning, among other reasons. But even if you don’t have any of these needs, you might want to obtain an appraisal. Why would you want an …

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Could New Section 2704 Regulations Eliminate Discounts Applicable to Transferred Interests in Family Owned Entities?

Section 2704(b) Internal Revenue Code Section 2704(b) provides that certain “applicable restrictions” that would typically justify the application of lack of control and/or lack of marketability discounts to transferred interests in closely-held family entities such as limited partnerships or limited liability companies are to be ignored for the purpose of valuation, if those interests are …

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