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The Federal Estate Tax Exemption: High net worth individuals benefit from a Federal estate tax exemption, currently at $11.7 million. This exemption is in the cross hairs of the Biden administration. Will there be legislation in the near future that drastically reduces this exemption? If such legislation is enacted into law will it be retroactive to the beginning of the year? One can only guess. What many individuals may not realize is that even if nothing is done legislatively, the gift Federal gift tax exemption is set to “sunset” on December 31, 2025. On January 1, 2026 the exemption is scheduled to return […]

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Wouldn't it be great if we could become human lie detectors? Being able to tell if someone is lying to you is an important skill to have during an investigation. Groucho Marx, known as a master of quick wit, was quoted as saying, "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." However, individual personalities are complicated, and, when investigating an individual, the responses that are received may not be forthright and credible. Some people are skilled in deception; remember what our parents taught us-practice makes perfect!... More [+]

Data breaches and cyberattacks continue to receive a lot of media attention, while another technology-enabled crime — Automated Clearing House (ACH) fraud — is going relatively unnoticed. Your clients likely use the ACH network every day to make debit and credit purchases, and their account information may be more vulnerable than they realize. What It Is The surging popularity of the ACH is understandable. Consumers can use it to make electronic payments directly from their checking or savings accounts to other parties’ accounts, eliminating the need to pay bills with paper checks or physical credit cards. Likewise, companies use the […]

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What constitutes reasonable compensation and how it is treated for federal tax purposes are issues that arise for a wide range of organizations, including closely held C corporations, family businesses and S corporations. An IRS publication provides insight into how taxpayers can expect the agency to review compensation reported on tax returns – and possibly avoid an audit or tax court appearance. An Unofficial Position The guidance comes in the form of a “job aid” for IRS valuation analysts.  It is intended to assist the analysts in their examination of reasonable compensation and does not represent an official IRS position. […]

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When valuing a business or a business interest, application of the market approach requires an estimate of the subject company’s revenues, EBITDA (earnings before interest, taxes, depreciation and amortization) or other measures of economic benefit.  Similarly, the income approach requires a projection of net income or cash flow.  Often, for smaller companies, management does not or cannot prepare thoughtful, considered projections.  In these cases, it is up to the valuation expert, hopefully with management’s input, to do so. In those circumstances where management prepares projections, the valuation expert should not simply accept the projections without scrutiny.  Often the case is […]

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The typical real estate entity that we value is a partnership or corporation that owns real estate.  However, occasionally we are asked to value an undivided interest in real estate, i.e., a tenancy in common interest (“TIC”).  In a tenancy in common, all owners have equal rights (regardless of percent of ownership) to the use and access of the property.  It is extremely difficult to locate sales of other TIC interests to estimate a pricing multiple in order to value a subject interest.  Despite this obstacle, data from the real estate limited partnership secondary market may be useful in valuing […]

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Since business valuation is always a future-oriented exercise, projection of the subject company’s income statement, balance sheet and cash flows is foundational to the analysis.  Smaller companies typically do not have sophisticated financial staffs to prepare detailed projections, so it is left to the valuation analyst to interview key members of management regarding expectations for future operations.  This needs to be combined with an understanding of the subject company’s industry and the economic outlook prevailing at the valuation date.  Also affecting the analysis is the potential impact imposed on the company by capacity constraints, competition, technology and other possible limitations […]

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When valuing a going concern, the Income Approach is applied in most circumstances and the Market Approach is applied as often as available reliable data will allow.  This is true for both operating companies and asset-holding companies (i.e., real estate entities).  But consider an entity whose primary asset is real estate that does not generate any annual income.  This may be the case when undeveloped land is being held for possible future development, expansion, or for a time when the marketplace is stronger to present the property for sale. It may be possible to find market transactions of non-income producing […]

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In valuing a non-controlling interest, a valuation analyst may start with a control value and often reduces that amount by an estimate for the discount for lack of control. Yet, such a discount is not necessarily applicable in all valuations of non-controlling interests. All valuation discounts must be based on the facts and circumstances of the individual case; where the controlling owner is abusing his power to the severe detriment of the non-controlling owner(s) (i.e., large salary and perks, self-dealing, etc.), the discount for lack of control could be significant. However, if the controlling owner is operating the business “lean […]

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When complex financial issues are at stake, failure to hire an expert witness – whether due to limited funds or time – can prove disastrous in court. In a recent divorce case, the wife did not present expert evidence of the value of goodwill in her husband’s business, and she was disappointed by the court’s finding. No Goodwill Value In Reedy-Huffman v. Huffman, the husband was a licensed naturopathic physician with two practices in Alaska. The wife filed for divorce in February 2013. In June of that year, she filed a motion for interim attorneys’ fees of $10,000 “to complete […]

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