During this time of crisis, the numerator of the valuation equation needs much more attention than before, said a panel during yesterday’s free BVR webinar. While the effort should always have tipped in favor of cash flow and forecasts over the cost of capital, we’re hearing that some are now using an 80-20 mix, i.e., spending 80% of their time on the numerator and 20% on the denominator for valuations.

Stacy Preston Collins (Financial Research Associates), Michelle Gallagher (Adamy Valuations), Harold Martin (Keiter, Stephens, Hurst, Gary & Shreaves PC), and Gary Trugman (Trugman Valuation) presented the free 100-minute webinar, Extreme Uncertainty: How Valuation Experts Should Respond to Today’s Volatility and Risk. The panel answered many questions from the audience on topics including year-end 2019 valuations, what was known or knowable, the CARES Act, impact on the three valuation approaches, cost of capital, family law considerations, and more. A free replay of the webinar will be available shortly.

IRS discusses tax implications of COVID-19 legislation

In an excellent ABA webinar that summarized and analyzed the COVID-19-related legislation Congress passed to alleviate the economic harm on businesses and persons, IRS Chief Counsel Michael Desmond spoke to some of the efforts the agency is making to achieve implementation. Here are a few takeaways from this item-packed discussion.

The presentation took place on April 2 and also included leaders from the ABA Tax Section: Sheri Dillon, Jennifer Breen, Lisa Zarlenga, as well as Anne Gordon (Tax Counsel, U.S. Senate) and Sunita Lough (IRS deputy commissioner services and enforcement).

CARES Act: This legislation was signed into law on March 27 and includes relief for small and large business through loans, guarantees, and other investments. Of particular note are provisions to provide qualifying employers with a refundable payroll tax credit of up to $5,000 for each employee’s wages paid from March 13, 2020, through Dec. 31, 2020. To qualify, a governmental shutdown order must have fully or partially suspended an employer’s operations during the COVID-19 crisis or the employer must have experienced a drop in gross receipts by more than 50% compared to the same quarter in 2019.

Further, the legislation seeks to make available additional cash flow and ensure liquidity by temporarily repealing the 80% of taxable income limitation on using the net operating loss carryovers that the 2017 TCJA imposed. Specifically, for a taxable year beginning before Jan. 1, 2021, a taxpayer can fully offset taxable income in that year with NOLs from prior taxable years. Also, taxpayers may carry back NOLs arising in 2018, 2019, and 2020 to their prior five taxable years. (This is the Tax Code § 172 provision.) Speakers noted that, if you are thinking of carrying back five years to offset prior income and get a refund, you may also have to amend state tax filings.

A key question was how quickly taxpayers could monetize their losses and get refunds. Chief Counsel Desmond said this issue was top of the list and two sets of guidance were coming soon, one addressing substantive issues and one procedural issues.

IRS notices: IRS Notice 2020-18 provides for an extension of the federal income tax filing date from April 15, 2020 (whether due date or extension) to July 15, 2020. The extension is automatic. Taxpayers may defer any amount of federal income tax payments until July 15, 2020. Note that this notice does not address payments due for other quarters or fiscal year taxpayers. Taxpayers with a different filing or payment due date other than April 15 must abide by the original date as of now. This may create a situation where Q2 estimated income tax payments are due on June 15, 2020, while Q1 estimated income tax payments are postponed from April 15, 2020, to July 15, 2020. IRS Notice 2020-20 provides the most up-to-date guidance and augments the relief by including Gift Tax and Generation-Skipping Transfer Tax returns.

IRS representatives also noted that, in the spirit of the “People First Initiative,” the agency is trying to “help people and businesses during these uncertain times.” The agency “generally” will not start new audits but will work on refunds “where possible,” without in-person contact. For audits in the works, the IRS will continue the work, the idea being that most taxpayers want the audit over with. Also, IRS appeals will continue to work cases. Taxpayers are encouraged to promptly respond to requests for information in these cases.

Note that the IRS continues to process tax returns and to issue refunds and seeks “to help taxpayers through its self-serving tools.”

Harold Martin (Keiter) has the following additional comments regarding the appraisal discussed in last week’s BVWire article dealing with a valuation date of Dec. 31, 2019, and whether the impact of the coronavirus should be considered a subsequent event:

As I noted in the article, for valuations with an effective valuation date as of 12/31/19, I would agree with the position taken by the appraiser that the economic impact of the coronavirus should be considered a subsequent event and therefore, the event would have no impact on the valuation. The appraiser’s report should also include a discussion noting the subsequent event. However, there is an additional issue in this instance given the purpose of the valuation that requires that I clarify my initial comments. The appraiser noted that the purpose of the valuation was for an ESOP transaction. Further, the appraiser noted that the transaction had not yet closed as of the report date of March 11, 2020. As I noted in my comments in the prior article, the guidance from the U.S. Department of Labor’s Proposed Regulation relating to the Definition of Adequate Consideration requires that the “fair market value must be determined as of the date of the transaction involving that asset.” Given this guidance, the appraiser should consider preparing a valuation report with an effective valuation date as of the date of the transaction, or alternatively, prepare a bridge letter updating the previous value as of December 31, 2019, to the value as of the transaction date. Under either alternative, the more current valuation date would require consideration of the impact of the coronavirus pandemic as it would no longer be considered a subsequent event.

The American Society of Appraisers (ASA), CBV Institute, Global Association of Certified Valuators and Analysts (GACVA), National Association of Certified Valuators and Analysts (NACVA), and The Royal Institution of Chartered Surveyors (RICS) will jointly host a free virtual town hall on how the COVID-19 pandemic will impact business valuation analysts and appraisal. The event, titled “Impact of COVID-19 to Global Business Valuation and Appraisal,” will air April 8 from 1:00 p.m. to 2:30 p.m. ET. Register online at bit.ly/2wUq9uP. Presenting experts William A. Johnston, Stephen Cole, Jim Walling, Lari B. Masten, Leigh Miller, and Johnnie White will provide technical guidance, offer practical advice, and answer questions. Registrants are encouraged to submit COVID-19 questions or concerns to bit.ly/34mX47D for webinar discussion considerations.

A spotlight on pandemic-related market developments in China and Hong Kong, India, Spain, and the U.S. is available as a free webcast from Valuation Research Group. A recording and transcript are available if you click here. PJ Patel, co-CEO of VRC, moderated a panel with VRG experts Simon Chan, executive director, and Kevin Chan, senior director (VRG China); Rajeev Shah, managing director and CEO (VRG India); and Sandra Daza, managing director (VRG Spain).

We’re in more of a global economy today than during previous crises, but the coronavirus crisis will impact pockets around the world differently, points out a panel of global valuation experts in a free webinar the iiBV hosted. After one or two quarters of a plunging economy, certain locations will recover in a “V” shape, such as China. Not so for the U.S. and Europe, which will see more of a “U” shape recovery. And, within the locations, certain industries will bounce back more than others. Yes, this is a crisis unlike any other, but governments are reacting much faster than prior upheavals, with interest rate cuts and massive easing measures. But keep in mind that growth will occur from a lower base. And there’s one key question: Will consumer activity completely bounce back after this is all over? Watch out for the possibility of a fundamental change in consumer behavior long term.

The panel also discussed asset impairments, projections, cost of capital, and more. A recording of the webinar, iiBV’s Impact of COVID19—Global Perspectives, is now available. Moderated by Michael Badham, executive director of the International Institute of Business Valuers (iiBV), the panel consists of Yann Magnan, IVSC European Board chair (UK); Andre Toh, deputy chair of IVAS-Standards & Technical Committee (Singapore); Carla Nunes, Duff & Phelps (USA); and David Pearson, Leadenhall (Australia). The program was done in collaboration with the International Valuation Standards Council (IVSC), Singapore Accountancy Commission (SAC), Duff & Phelps, and Leadenhall.

BV movers . . .

People: Jessica Wiley, CPA, ABV, at Maloney & Kennedy in New Hampshire has joined the board of directors and will serve as treasurer of the Concord Coalition to End Homelessness … Richard Law, CFA, has joined Chicago-based Grant Thornton LLP as a managing director in the firm’s Corporate Value Consulting practice.

Firms: Calgary, Alberta-based MNP has acquired two firms, White + Abbott and Winsor Coombs, both located in the area of St. John’s, Newfoundland, and Labrador; the merger is effective June 1; MNP has more than 80 locations in Canada and is looking to add to its growing presence in the eastern part of the country … Two associations plan to merge on September 1: Miami-based Abacus Worldwide, which represents both law and accounting firms, and JHI of Hillside, N.J.; the combined association will be known as Abacus Worldwide and will focus on the key initiatives of business referrals, knowledge exchange, and practice management tools going forward.

Please send your professional and firm news to us at editor@bvresources.com.

CPE events

• Built for BV: The New Platform for Guideline Public Company Comps (Free Webinar) New Date: April 21, 10:00 a.m.-11:00 a.m. PT/1:00 p.m.-2:00 p.m. ET. Featuring: Adam Manson (Business Valuation Resources) and Oday Merhi (Business Valuation Resources)

Learn how to streamline your guideline public-company comparable searches and results by using a new platform that uses a structure similar to the DealStats platform.

• Valuing Distressed and Impaired Companies in the Time of Coronavirus April 22, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: R. James Alerding (Alerding Consulting LLC)

How to value a distressed or impaired business with a focus on the particular issues that need to be considered relating to the current pandemic.