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 …

Keep Reading

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 …

Keep Reading

Number of AZ real estate appraisers could decrease

The number of Arizona real estate appraisers could decrease at a rate of 3% per year over the next decade. According to the Appraisal Institute, the pool of real estate appraisers in the United States is shrinking and aging. Sixty-two percent of appraisers are 51 and older while 24% are between 36 and 50. Only …

Keep Reading

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 …

Keep Reading

When should an appraisal of a non-cash charitable contribution be performed?

Taxpayers who make charitable contributions of non-cash property could be putting themselves in IRS penalty danger if the contribution is more than $5,000 and the property has not been appraised by a qualified appraiser who has issued a qualified appraisal report. A recent Tax Court case emphasizes the need for an appraisal report to be …

Keep Reading

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 …

Keep Reading

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 …

Keep Reading

Shareholder debt or equity, does it affect value?

Shareholders of a small business sometimes will infuse cash into their Companies when needed. This cash is often recorded as a loan to the business. The shareholder and the Company may or may not have documented the “loan” setting forth the terms including interest rate, payback period, etc. When developing an equity value of a …

Keep Reading

Can You Apply a Discount to a Promissory Note?

Hoffman v. Commissioner: Tax Court Accepts 12.5% Discount Rate Treasury Regulation 20.2031-4 states that the fair market value of promissory notes, secured or unsecured, is presumed to be the amount of unpaid principal, plus accrued interest at the date of valuation, unless the taxpayer provides sufficient evidence to the Internal Revenue Service which supports a …

Keep Reading

A Time to Reflect

We just rang in the New Year, 2015, and it is now a time for reflection on 2014. First and foremost, I wish to thank all the clients we served during the past year. Henry & Horne ’s Business Valuation and Litigation Support Services Group (H&H BV/LS Group) provided forensic, valuation and litigation services to …

Keep Reading