March 7 , 2007 | | Issue 54-1

Pension Protection Act having a ‘chilling effect’ 

Warmer weather may be on the way in many parts of the country—but business appraisers may be feeling the “chilling effect” of the Pension Protection Act (PPA) passed last year, in particular the penalty provisions of IRC§6695A.  (See BVWire # 47-2).   A recent Wall Street Journal (Feb. 27, 2007) article says the “host of questions” regarding what kind of tax (income, estate and gift, etc.) and what kind of practitioners (CPAs, appraisers, etc.) are subject to the PPA is causing appraisers to turn away or trim the scope of tax-related engagements, at least until the IRS issues clarifying regulations later this year.  Another possible effect: “The cost of getting something appraised may well rise.” 

ABA issues new comments.  “It’s the uncertainty…that’s so troubling,” one attorney tells the WSJ.  “Appraisers often have to rely on underlying opinions…where does liability begin and end?”  For the latest comments and request to clarify §6695A by an American Bar Association (ABA) task force, sent last month to the IRS, click here.

IRS announces new director of OPR

As of March 1st, the Internal Revenue Service has a new Director for its Office of Professional Responsibility: Michael R. Chesman, who’s returned to the Service after a brief stint in the private sector.  In 2001, Chesman launched the IRS Office of Taxpayer Burden Reduction, which he oversaw until 2006.  For the related IRS announcement, click here.

Quantifying the company-specific risk premium

Historically, BV experts have relied on subjective assessments or “rules of thumb” regarding the appropriate company-specific risk premium (CSRP) to apply in their analyses of private entities.  But now, in a first among BV analysts, Peter Butler and Keith Pinkerton (both of Hooper Cornell, Boise) have explicitly quantified the CSRP for publicly traded comparable companies, for use as a reference point in selecting more appropriate, less subjective CSRPs for privately held companies.  Noted NYU Professor Aswath Damodaran approves the analysts’ “total beta” concept, “as I should, since it was a concoction of mine...”

To hear all three experts discuss and dissect this new CSRP methodology, be sure to register for BVR’s telephone conference tomorrow (March 8, 2007) by clicking here.

For a free copy of the author’s recent BVU article by Pinkerton and Butler, “Quantifying CSRP: A New, Empirical Framework with Practical Applications,” click here.
Half of BV firm revenues come from attorney referrals

Do you know that attorney clients and contacts likely account for 50% of your BV practice revenues?  Or that BV firms are seeing unprecedented growth: revenues last year were up more than 25%?

This revenue trend is likely to continue, as BV practices and professionals pursue such specialty niches as ESOP valuation, fair value appraisal, fairness opinions, and more.  To make sure your practice development, marketing, technology, billing and firm budgeting stay on track with current benchmarks, check out the just-released Business Valuation Firm Economics and Best Practices Survey, 2007 edition.  To order your copy, click here.

And then there were four:
Idaho decides marital goodwill in professional practices

In a case of first impression, the Idaho Supreme Court just considered the appropriate valuation of professional practice goodwill in marital dissolution cases.  In Stewart v. Stewart (January 26, 2007), the husband owned a dermatology practice, valued by the trial court at $130,000 in tangible assets and $211,000 in total “professional” goodwill.  The husband appealed, urging the court to adopt the current majority rule, currently on the books in 28 states, which distinguishes between enterprise and personal goodwill in divorce.  Despite a strong dissent, the Court declined to enter that “morass” and decided that professional goodwill in private practices (as in other marital businesses) was divisible property.

That leaves just four U.S. jurisdictions that have yet to consider the disposition of marital goodwill (four states hold that neither form of goodwill is marital property).  Appraisers and attorneys can expect challenges in these and also the fourteen states currently endorsing the minority rule.  For example, Kentucky and Ohio have already entertained appeals this year—and these case abstracts appear in Business Valuation Update™, and full text of the court opinions at BVLaw™.

Now available: updated BVR summary of state goodwill

And if you were wondering how we knew the current allocation of states in the marital goodwill countdown—it’s because we’ve just updated the state-by-state summary of case law considering the disposition of marital goodwill in divorce.  For a copy of this free download, go to and clink on the left hand link: Free Downloads.

Got MUM?

The Stewart expert apparently conceded on cross exam he had “no idea” what component of the doctor’s excess earnings may have been attributable to his personal skills and what was attributable to the practice.  “To my knowledge, I do not think there has been a technique or a formula devised yet that does that.”   And according to the concurring opinion, trying to distinguish between the various attributes “does not make a good deal of sense.”

But now there’s MUM: the Multiattribute Model, which purports to make a methodology of the “morass”—and has been ratified by at least one court.  (In re Marriage of Alexander, Ill. App., Sept. 7, 2006, abstracted in the BVU and available at BVLaw). 

Does MUM make sense?  Check out the new software, developed by David Wood, CPA/ABV, CVA and currently offered by ValuSource, by clicking here.

Your chance to lunch with the presiding ‘judge’

A unique CPE program co-sponsored by the NYC Chapter of the ASA next Tuesday, March 13th allows participants to “sit in” during prep sessions with plaintiff’s and defendant’s counsel, observe the mock matrimonial trial—including presentation of business valuations, and then “lunch” with the judge (in this case Jacqueline Silbermann of the New York State Supreme Court) to discuss her valuation decisions. Fee for the program is $175 for ASA members ($285 for non-members). Register by calling the New York City Bar Center for CLE at 212-382-6663, or click here.


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Copyright © 2007 by Business Valuation Resources, LLC
BVWire™ (ISSN 1933-9364) is published weekly by Business Valuation Resources, LLC

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