Steep IRS Penalties Deter Valuation Misstatements

Are valuations merely a good guess? According to the Internal Revenue Service, they better not be. When it comes to estate and gift taxes, the value of what’s being transferred is an integral part of the tax liability equation. To underscore the importance of using valid valuation numbers, the IRS has serious penalties and sanctions in place, which discourage significant overvaluation or undervaluation. And as of August 17, 2006, the IRS has tightened these restrictions even further.

How to Make the Most of Expert Witnesses
Divorce. Fraud. Business disputes. When issues of value end up in court, accountants often end up in court, too — as expert witnesses. Attorneys for both sides call on CPAs to offer their professional opinions about the value of whatever is in dispute.

When the Numbers Get Ugly —
Forensic Accounting May Uncover Hidden Earnings

When applying for a loan or courting an investor, a business owner generally wants to make his or her business look especially attractive. But there are times when a business owner might actually benefit from having the business appear to be less valuable than it really is.

Start Early When Planning to Sell

Five years. That’s the minimum amount of time a business owner needs to plan his or her exit from a company. Five years of intense planning will give most owners time to assess the state of the company and take the steps necessary to maximize its value.

How to Value Contingent Assets & Liabilities

To arrive at a proper valuation, business analysts gather thousands of data points about a subject company. Much of the relevant information is easy to find, but some crucial pieces are a challenge to uncover and assess. Contingent assets and liabilities fall into the latter category.

Excess Value:
Handling Assets Above and Beyond the Earnings Stream

Every business requires assets to generate income, but some companies have more assets than they need. Should these additional assets be included in the value of the company? As every valuation expert will tell you, “It depends.”

Discounts for Lack of Marketability — A New Approach

If it’s not liquid, what’s it really worth? That’s the question behind the concept of discounts for lack of marketability. A marketability discount applied to the estimated value of a business is designed to reflect the fact that shares in a privately held company are less liquid than in a publicly traded company. The less liquid the asset, the lower its value.

Buy-Sell Agreements:
What You Need to Know About Their Effect on Value

According to the Wharton School of the University of Pennsylvania, only about one-third of closely held businesses survive into the second generation. Lack of planning is often the reason for failure — and a good buy-sell agreement can make all the difference.

How to Get at the Heart of Healthcare Company Valuations

Healthcare company valuations often seem as complex as brain surgery. In many cases, the main challenge is pinning down revenue forecasts, which can be a moving target in healthcare.

Complex Rules Dictate Accounting for Intangible Assets

In the world of mergers and acquisitions, the Financial Accounting Standards Board’s (FASB) Statements of Financial Accounting Standards (SFAS) 141 and 142 certainly changed the landscape. Fair value measurement is in, pooling of interests is out…the purchase method is in, amortization is out…impairment testing is in… You get the picture.

Demystifying the Discount Rate

As business valuation experts, we talk a lot about discount rates. But what are they? And how do we arrive at them?

Gift vs. Estate Taxes:
Is It Always Better to Give …?

Maybe it’s true that it is better to give than to receive. But when to give is a question that tax and valuation experts often ponder. Should an asset be gifted during the owner’s lifetime to reduce the value of his or her estate? Or should the owner hold onto a particular asset and gift another one?

Selling A Business? Consider Personal Goodwill

As a business owner, it’s all about you. Or is it?

Litigation Outlook:
Estate Tax Rulings Underscore Importance of Expertise

Who’s winning in tax court? Michael Gregory, an IRS employee and valuation expert, recently conducted a study comparing the statistics of recent tax court rulings with those of a prior era. His findings suggest that the courts are now less likely to “split the difference” in litigation, and are instead leaning more toward a “one-side-wins” result.

Valuing Manufacturing Companies:
Valuation Measures That Make a Difference

Outsourcing…environmental concerns…trade agreements…fuel costs. These issues have affected every U.S. industry, but perhaps none so dramatically as manufacturing.

Marketability Discounts —Quantifying A Lack of Liquidity

According to business valuation guru Shannon Pratt, marketability discounts are often among the largest money issues in a disputed business valuation.

“C” to “S” — Plan Carefully to Avoid Built-In Gains

Thinking of changing corporate status from a C to an S corporation? Unlike a C corporation, an S corporation generally does not pay a federal corporate income tax. Instead, the taxable income of the corporation is reported on the returns of its individual stockholders.

The Ups & Downs of Construction Company Valuations

Construction contractors are accustomed to being at the mercy of the U.S. economy. The industry enjoyed strong growth in 2004, and new construction starts in 2005 look promising. But demand is highly cyclical, and revenues and expenses are uneven. Whether the company is a general building, highway or residential contractor, these valuation vagaries add to the challenge of appraising a construction company.

Litigation Outlook: Forensic Investigations in Divorce

Divorce isn’t pretty. But sometimes it’s downright ugly, with spouses hiding income, deflating business values or otherwise trying to diminish whatever could potentially be divided between them.

AICPA Rules Impact Business Valuation

Since Congress enacted the Sarbanes-Oxley Act in 2002, CPAs have been working under a new set of rules for audit clients. In order to avoid conflicts of interest and maintain independence, firms providing audit services are precluded from providing certain other services to their publicly held audit clients, including appraisal or valuation services.

Litigation Update —
Family Limited Partnerships Face New Challenges

Will Family Limited Partnerships (FLPs) survive? Recent Tax Court decisions show that the IRS has continued its intense scrutiny of FLPs and their discounts, with a big push to disqualify them under IRC 2036(a). 2004 brought some interesting decisions:

TrendWatch 2005:
A Look at Professional Service Firm Valuations

Professional service firms used to be “different.” Traditionally, they were run by the people with their names on the door. They often lacked the structured policies and procedures of other types of companies. They relied purely on their service expertise to distinguish themselves in the marketplace, with little advertising or marketing to help them along.

BV Experts & Attorneys: Partnerships in Action

CPAs and attorneys have long been allies, counting on each other for specific expertise to help their clients. As professional specialization deepens in both the legal and accounting professions, these informal partnerships have become more important than ever.

Professional valuators tackle each assignment with a blend of art and science…and sometimes solid detective work. The circumstances of the assignment will, of course, dictate the valuator’s approach. Depending on the nature of the assignment, and the type of value that is sought, the valuator may begin with a closer examination of historical financial information. In a divorce situation, tax returns sometimes point the way to more complete information. In a corporate situation, valuators need to carefully scrutinize any number of areas related to revenue.