News Blips

12.14.09 Announcement:
Valuation Analysts launches a new site. Take a look around…

Qtr.03.2009
News Story:
Tax Court Decision on Discounts….more

Qtr.02.2009
News Story:
Lost Profits Calculations Must Include Related Costs…more

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 BUSINESS VALUATION SERVICES
 
ESTATE PLANNING, ESTATE SETTLEMENT, AND GIFTING
Estate and gift taxes on the transfer of business interest to the next generation can be, and often are, as high as 55% of the value of the estate or gift. Comprehensive business valuations have become more important in recent years for a number of reasons. There has been increased scrutiny by the IRS of valuation discounts in recent yars. In addition, the IRS implemented rules on taxable gifts made after August 5, 1997 whereby the IRS may not revalue gifts for estate tax purposes after the statute of limitations (3 years) has expired, provided there is adequate disclosure. In December 1999, final regulations were issued by the IRS with respect to the gift tax return. In general, the regulations reinforce the principle that gift returns involving business interests must be accompanied by well-documented valuation reports for the statue of limitations to begin.
Furthermore, a reasonable estimate of the value of an individual's interest in a closely held business must be determined to allow estate planning professional's to properly structure the owner's estate and business succession plans.  
 
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MARITAL DISSOLUTIONS
In a marital dissolution (divorce), if one of the assets included in the marital estate is an interest in a closely held business, a valuation of the business will be necessary. Usually the business is not divided between the spouses. Instead, one spouse retains the interest in the business and the other spouse receives different assets of equal value. Marital dissolution laws differ from state to state and there is often little practical guidance relating to the appropriate standard of value; most of the guidance will be found in the case law in the relevant jurisdiction.

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BUY/ SELL AGREEMENTS
Many business owners know the importance of having buy / sell agreements in place for estate planning and business succession planning purposes. These agreements should address the purchase / sale price of the business interest in the event of the death, disability, divorce, or disinterest of one of the business owners. The provision for valuation is a critical element of the buy / sell agreement. Under current tax law, the parties have less flexibility than in the past with regard to structuring the "value" provision. This is particularly true when family members are involved. Accordingly, the language of any agreement should be carefully considered in order to maintain fairness, feasibility, and tax efficiency. Regardless of how the agreement is structured, a professional business valuation is a necessary component of the agreement.

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EMPLOYEE STOCK OWNERSHIP PLANS (ESOP's)
An ESOP is a plan by which the employees become beneficial owners of stock in their company. The income tax advantages of ESOPs, make the vehicle attractive to use in conjunction with a leveraged buyout. In recent years, many smaller companies have implemented ESOPs, as ownership success with employee involvement has become more widespread. For every year that a non-public company contributes its stock to an ESOP, it must obtain a valuation of its stock to support the income tax deduction for the amount of the company's stock contributed to the plan.

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MERGERS AND ACQUISITIONS AND PURCHASE PRICE ALLOCATIONS
When businesses are merged, acquired, or sold, a business valuation is often needed. In a merger situation, we may be asked to establish an "exchange value" of the companies involved.  In a sale or divestiture of a company or of an interest in a company, the seller may engage us to establish a range of values of the business that will assist the seller in negotiating a sales price.  Conversely, we may be engaged to perform a valuation of a company the client would like to acquire.  The lump-sum purchase price must be allocated among the various classes of tangible and intangible assets of the business.

How the business is valued and the transaction is structured can have a significant impact on the taxation of the sale to the buyer.  Business valuations are also needed to properly allocate retained earnings in corporate divisions such as spin-offs.

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DISSENTING STOCKHOLDER ACTIONS
In virtually all states, controlling stockholders have the right to effect mergers or sales of the company or to dispose of a major portion of the company's business or assets, often times under a supermajority definition. If a controlling stockholder wants to eliminate minority stockholders, they can (1) form a new corporation, (2) sell the stock of the old corporation to the new corporation, and (3) pay off the minority stockholders. If any minority stockholder believes the amount offered in the transaction is inadequate, he/she has the right to have his/her shares appraised and to be paid, in cash, the amount finally determined.

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GOODWILL/ INTANGIBLE ASSETS/ INTELLECTUAL PROPERTY
The two primary reasons to value specific intangible assets are (1) the allocation of the purchase price of an entity for tax purposes and (2) transfer of ownership of a specific intangible asset.
Some of the most common intangible assets include:
 
  • Beneficial Contacts - Sales contracts at above-market prices and purchase contracts at below-market prices
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  • Proprietary Lists - Customer, client or patient lists
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  • Patents
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  • Copyrights
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  • Trademarks and Brand Names
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  • Goodwill
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  • Subscription and Service Contracts
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  • Franchises and Territorial Agreements
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  • Software
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    CHARITABLE CONTRIBUTIONS
    If the claimed value of securities (which includes closely held business interests) donated is more than the allowable annual exclusion, the Tax Reform Act of 1984 requires that the value be supported by a "qualified appraisal" (business valuation) attached to the income tax return.  The 1993 Omnibus Budget Reconciliation Act added considerable documentation and substantiation requirements with regard to the charitable contribution of property.  IRS Form 8283 must be completed by all donors if the total value of the property donated is more than $5,000.

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    BANKRUPTCY OR REORGANIZATION OF A BUSINESS
    Closely held companies with two or more definable divisions may be split up or spun off into separate corporations. The reasons for doing this include estate tax considerations, family conflicts, or the sale of only part of the total business. Valuations are usually necessary for tax purposes, financial reporting, and, if applicable, equitable distribution of the assets among family members. In the liquidation of a corporation, the appraiser's allocation of the assets distributed to the stockholders may be required to substantiate subsequent depreciation and other deductions claimed.

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    DAMAGE CASES
    Damage situations usually require consultation with an expert and possibly a business valuation to establish the amount of damages. The most common damage cases include breach of contract, personal injury, condemnation, lost business opportunity, lost profits, antitrust, insurance claims, and wrongful termination.

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    FAIRNESS OPINIONS
    It is becoming increasingly common for boards of directors to retain an independent financial adviser to assist them in carrying out their fiduciary duty when a major decision that affects noncontrolling as well as controlling stockholders is pending. Our role can vary, but usually involves assistance in pricing and/or structuring a proposed transaction or reviewing and rendering an opinion on the fairness of a proposed transaction. Ultimately, if the adviser is satisfied and a transaction is imminent, we will issue a fairly brief letter to the effect that it is our opinion that the transaction is fair to the stockholders in question from a financial point of view. This advisory role of providing fairness opinions has become an increasing part of our valuation practice.

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    EXPERT TESTIMONY/ LITIGATION CONSULTING
    Valuation Analysts has built a reputation for providing attorneys with the highest-quality service in the areas of litigation support, expert witness testimony, and forensic accounting. Our extensive training and experience allows us to research, quantify, and present the financial impact of a legal dispute in a clear and concise manner that is both understandable and properly supported. We can support your legal research with solid financial facts and assist you in being more fully prepared for negotiations and trials. We are fully dedicated to providing attorneys with top-notch litigation support and work at your direction.

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