25
Date: Wednesday, July 25, 2018
Time:
10:00am-11:40am PT / 1:00pm-2:40pm ET
Format: A BVR Webinar

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Featuring  (click image for bio)

Mark J. Edwards
CPA/ABV, CFA
Grant Thornton, LLP

About This Program

What in business valuation does the Tax Cuts and Jobs Act impact? Everything—including fair value. Join Mark Edwards for a discussion on how NOL’s, goodwill and ASC 805 are all impacted by recent tax law changes. Understand the Base erosion anti-avoidance tax provisions and how expensing tangible property impacts your fair value assignments. Be confident in the changes you make for 2018 engagements with a thorough review of your income and market approaches.

Agenda

  • Describe how goodwill is impacted by the TCJA
  • Describe the difference in NOL limitations pre and post TCJA
  • Define BEAT
  • Describe how ASC 805 is impacted by the TCJA

Learning Objectives

    Provisions

    • Federal corporate income tax rate reduction from 35 percent to 21 percent
    • Interest deductibility limitation
      • Limited to 30 percent of EBITDA (30 percent of EBIT in FY2023 and after)
      • Non-deductible interest may be carried forward over 5 years
    • Expensing tangible properties
      • Full deduction application to new or used tangible assets
      • Phased out over 5 years starting 1/1/2023
      • Acquired tangible assets can be fully expensed in 2018
    • NOL Limitations
      • NOLs occurred in FY2018 or before offset 100% of taxable income
      • NOLs occurred after FY2018 offset up to 80% of taxable income and can be carried forward indefinitely (no carry back allowed)
    • Base erosion anti-avoidance tax (“BEAT”)
      • Compares actual federal tax with a 10% tax on EBT excluding intercompany payments (interests, management fees, etc.)
      • Greater of federal tax and BEAT is applied

    Application

    • Tax rate illustration
      • Common range was 35-40%
      • Now observing 21-27%
    • Interest deduction
      • Show table to illustrate transition
      • Does it really matter?
        • High leverage companies are most at risk
        • Private equity
    • Depreciation
      • Not applicable to land, but used equipment is fair game
      • Implied sale
        • 2018 expense existing tangible assets
          • Excludes real property
        • Bonus depreciation on capex
        • Table on fade out post-2023
      • Minority basis
        • Ensure your assumptions align to management’s intent
        • Bonus depreciation
    • NOL limitation
      • Table of 100% offset in 2018 and 80% after
      • Impact is the reduce the value of NOL balance
    • BEAT
      • Fairly rare application
      • Look for complex corporate structures

    Impact on Goodwill

    • Income approach
      • NOLs
        • Tax rate
        • Interest deduction
        • Amortization
        • Use limitation
      • Depreciation
        • Two forms of presentation
          • Addback Depreciation, Subtract Capex
          • No capex, no depreciation addback
        • How do you treat normalized capex/deprecation?
          • Most 5-year forecasts at this point end in 2022, last year of full bonus
          • Assume the delta is not significant
          • Forecast out capex and depreciation in totality (no cash flow impact shown in DCF)
          • Just capture delta between capex and depreciation beyond discrete period
      • Discount rate
        • Tax shield applied against cost of debt
        • Can we assume full use of tax shield?
        • Easiest to demonstrate how forecast interest compares to EBITDA/EBIT
        • If not, some net cash outflow may be reflected
    • Market approach
      • The approach provides far fewer inputs to directly reflect the impact of tax reform
      • Market is assumed to reflect benefits of tax reform
        • When did this occur?  No right answer
        • How do you differentiate frothy market from increases due to tax law change?  You can’t.
      • Make sure if you use an EBIT multiple that you reflect GAAP D&A

    Impact of ASC 805

    • Similar impacts to IRR as we discussed in the Income Approach for ASC 350
    • MPEEMs
      • Tax depreciation should be reflected in cash flows
      • Contributory charges
        • Need to reflect economic basis of fixed assets
        • Return of
          • Based on economic depreciation
        • Return on
          • Link through the economic depreciation for determining asset % of revenue
    • Deferred taxes
      • While we don’t pretend we understood all necessary changes to DTAs before, tax reform hasn’t made it easier
      • Communicate to our clients that what we’re presenting may further shift due to DTA/DTL changes

    International

    • Non-U.S. owner of a U.S. company
    • Look for BEAT

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Multi-User CPE Policy

Admission to this program includes one CPE certificate for one individual. Any additional listeners requesting CPE must pay a processing fee assessed at the completion of the online CE survey for this course.

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CPE Information

Prerequisites: Knowledge of Business Valuation
Program Level: Advanced
Preparation Required: None
Delivery Method: Group Internet-Based
Recommended CPE: 2 Credit Hours (Accounting Technical)


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