BVR Logo December 2, 2020 | Issue #219-1

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

Five things to know from the ASA fair
value conference

There was a vast attendance at the ASA’s Fair Value Virtual Conference, held November 18, with registrants from over 70 firms nationwide and six countries, including Australia, Bermuda, Mexico, Romania, Saudi Arabia, and Singapore. Top-notch speakers with substantial experience conducted sessions on very interesting and current topics—much of which are applicable in areas other than fair value for financial reporting. Here are some takeaways:

  • Two-thirds of attendees say they have seen an increase of fair value work since the onset of COVID-19, mostly in the area of impairments, but many say the increase comes from a combination of impairment work plus services related to stock-based compensation, portfolio updates, and long-lived assets;
  • You need to dig deeper into market data when assessing the impact of the pandemic; for instance, the consumer discretionary sector is doing much better than the overall market even though it contains hard-hit businesses such as movie theaters and cruise lines;
  • In today’s environment, cost of capital inputs need to be forward-looking; otherwise, you will likely end up with a rate that doesn’t make sense;
  • A poll of the audience reveals that 18% adjust the company-specific risk premium to reflect the incremental risk of the pandemic and another 18% rely on scenario analysis—almost half use a combination of those methods along with sensitivity analysis and Monte Carlo; and
  • Speaking of company-specific risk, guidance is in the works from The Appraisal Foundation on best practices—watch for a survey to be sent out soon.

Full coverage of the conference will be in the January issue of Business Valuation Update. Sessions included a current issues panel, the impact of recent court cases on the fair value of technology, an update on The Appraisal Foundation’s valuation advisory on best practices in the application of company-specific risk premia, a regulatory update, and much more.

In tax refund case, expert identifies only viable method to value stock in ‘severely distressed’ private company

The taxpayer sued the federal government for a refund, arguing she had overpaid income taxes on stock she had received as part of settling a lawsuit against her former employer. She initially relied on the value in the settlement agreement but later claimed this value was inflated. The court agreed, relying on extensive analysis from the taxpayer’s expert that laid bare the company’s dire financial situation around the valuation date and identified the only method that could generate a positive value for the stock.

Asserted stock price: The taxpayer had worked for the subject company. In October 2012, she sued for disability discrimination and wrongful termination. The company was a closely held corporation, and its stock was not publicly traded. While the lawsuit was pending, the taxpayer asked to see financial information for the company because it could affect the stock valuation, but the company did not respond to her discovery requests. By the time the taxpayer settled her suit with the company, in April 2014, she was unaware of the company’s negative financial condition. As part of the April 2014 settlement, the taxpayer received a payment of $1.5 million that was to be made in the form of 650,000 shares of GTC common stock. The settlement agreement said the per-share value of the stock was $2.38. In August 2014, the parties signed a written agreement, and, about two weeks later, the company issued the shares at $2.38 per share value. The taxpayer relied on the asserted value when filing her 2014 income tax return. She later filed an amended return that stated the fair market value of the stock was only $0.57 per share. After the Internal Revenue Service denied the claim for refund, the taxpayer filed a lawsuit against the U.S. government in federal district court.

Desperate for cash: Only the taxpayer offered expert testimony from an experienced accredited business valuator. The government’s witness was a valuation specialist from the IRS who, in 2016, had written a memo to the IRS agent reviewing the taxpayer’s amended return and, later, in 2018, wrote a second memo critiquing the taxpayer expert’s report. The court said it did not have enough information to qualify this witness as an expert. It also noted some inconsistencies in his statements. Essentially, the government’s position was that the stock value was $2.38 per share.

In contrast, the court said the taxpayer’s expert “performed a thorough and credible analysis” of the company’s common stock on the valuation date (date when the shares were issued to the taxpayer).

The expert’s review of the company’s business operations and financials showed that, in 2014, during settlement negotiations, the company was “cash strapped” and “desperately looking for cash.” A month before the parties reached a settlement, the company had negative equity of approximately $200 million and retained earnings of -$633 million, the expert said. Under the Altman Z-Score formula, which is a tool for predicting the probability of a company’s going into bankruptcy within two years, the expert determined the company was “severely distressed,” with a high likelihood that it would go under. He also explained that, of all the valuation methods he applied, only the market value approach allowed him to come up with a positive value for the stock. He considered transactions involving four similarly sized companies that were generally in the same industry to determine the fair market value for the subject company’s stock was $0.91 per share. He found a 25% minority interest discount and an 18% discount for marketability were appropriate, resulting in a value of $0.57 per share for the taxpayer’s stock on the valuation date.

The court fully adopted the taxpayer expert’s value determination and concluded the taxpayer was entitled to the claimed refund.

Hat tip to Robert Brackett (Crandall & Brackett Ltd.), who was the expert for the taxpayer, for alerting us to this case.

A digest of Lucero v. United States, 2020 U.S. Dist. LEXIS 199605; 2020 WL 6281591 (Oct. 27, 2020), and the court’s opinion will be available soon at BVLaw.

New CMS rules impact healthcare valuations

The Centers for Medicare & Medicaid Services (CMS) has released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute (the Stark Law). The new rule, effective Jan. 19, 2021, is designed to make it easier for hospitals and physicians to maintain compliance with the statute in the era of value-based care. The rules impact healthcare valuations and include guidance on how to determine whether the compensation being given to physicians is at fair market value. Tim Smith (TS Healthcare Consulting LLC) and Mark Dietrich (Mark O. Dietrich CPA, PC), who gave input to CMS during the development of the rules, will conduct a BVR webinar to discuss their impact on healthcare valuation—a date will be announced soon!

AICPA urges Congress to act on
PPP-related deductions

New guidance from the IRS says that, if a business “reasonably believes” that its Paycheck Protection Program (PPP) loan will be forgiven, the costs related to that loan are not deductible. This will pump up the tax bills of companies struggling to survive the ravages of the pandemic. The AICPA, along with many other associations and organizations, is asking Congress to address the issue with legislation, namely bipartisan legislation S.3612 and H.R.6821—the Small Business Expense Protection Acts of 2020, or H.R. 6754—the Protecting the Paycheck Protection Program Act—that will ensure the receipt and forgiveness of PPP assistance does not result in an unexpected and burdensome tax cost. “PPP recipients—particularly small businesses—cannot afford to be surprised with a tax bill next year on their PPP loan expenses and more than ever before need to be able to project how much cash they will have to cover their basic expenses,” says AICPA vice president of taxation Edward Karl in a release. “Members of Congress must act now and pass this legislation to ensure that struggling businesses and their owners can recover.”

D&P enhances infographic on cost of capital

Duff & Phelps has updated its infographic, “Cost of Capital in the Current Environment,” and has enhanced it with new data on the eurozone. The infographic illustrates macroeconomic trends and other financial market and economic indicators used in D&P’s global cost of capital research. “The economic turnaround in Q3 has resulted in an overall improvement in 2020 real GDP projections, but the year is still expected to end with record GDP declines, with the Eurozone being particularly hard hit,” the firm says.

EBITDA/sales ratio added to 2020-21 RMA eStatement Studies

Many valuation experts use the annual RMA Statement Studies for industry-specific financial benchmarks. The 2020-21 edition is now available in book form, an online subscription (called eStatements), or as single-industry downloads. New for 2020-21 is a line item for EBITDA under the income statement data plus one new ratio: EBITDA/sales. Note: These new metrics are only available in the eStatement Studies online subscription. For more information, click here.

ASA officially adopts new governance model

The American Society of Appraisers has formally adopted a new governance model, an “historic milestone,” the organization says in a release. The new model, which is policy-driven, is very different from the model it had been using, which was operations-driven. The new model enables the ASA’s board to focus on the “ends” (organizational vision and strategy) and leave the “means” (implementation and execution) to the CEO and staff.

Extra: In separate news, the ASA has added a nondiscrimination statement to the organization’s code of ethics.

CBV Institute launches new IVS course

More than 100 countries have adopted the International Valuation Standards (IVS), a global set of universal valuation standards developed by the International Valuation Standards Council (IVSC). The CBV Institute, Canada’s valuation professional organization (VPO), has launched an online course designed to educate practitioners on the standards and the requirements for IVS-compliant valuations. The three-hour course is based on the current version of IVS (effective Jan. 31, 2020). Successful course completion qualifies an individual with the Chartered Business Valuator designation to obtain the notation “IVS trained” on the CBV Institute and IVSC provider directories.

“Now more than ever, I believe it is crucial for valuation professionals around the world to have the ability to perform their work with consistently high competence using exceptionally high-quality standards. In an increasingly globalized world, the fabric of the valuation profession will be shaped by business needs anywhere and everywhere,” says Christine Sawchuk, president and CEO of the CBV Institute. “That is why the IVS are so important. Promulgated by one, independent, international voice, IVS reduce our international differences to serve the public interest. Closing the gap through consistency and transparency strengthens global market confidence in the valuation profession as a whole, which is a benefit to all VPOs.”

Registration in the course is open to valuation professionals and organizations worldwide who are interested in learning more about IVS through a rigorous CBV lens. For more information, click here.

IACVS BV conference December 7-8

The International Association of Certified Valuation Specialists (IACVS) will co-host a conference on the “Art and Science of Business Valuation,” December 7-8 (7 a.m.-10 a.m. EST). Nick Talbot, CEO of the International Valuation Standards Council, will give a keynote, and sessions include valuation challenges amid COVID-19, advanced financial instruments, mining industry valuations, DCF issues, intangibles, and several panel discussions. The conference’s other co-host is the Center for International Business Valuation (CfIBV) in collaboration with the International Conference on Interdisciplinary Research Studies (ICIRS). For more information and to register, click here.

BV movers . . .

People: Calvin P. Shannon, CPA, CVA, has been named equity partner at Bloomington, Minn.-based Boeckermann Grafstrom & Mayer; he has 20 years of experience with tax, audit, advisory, estate planning, and trust services as well as business valuation services and employee benefit plan audits.

Firms: New York City-based PKF O’Connor Davies will open an additional location in Newburgh, N.Y., as part of a larger expansion program in the area The Bonadio Group (Rochester, N.Y.) has launched Bonadio Strategic Advisory, a service designed to help businesses to mitigate the financial damage of COVID-19 and prepare for more efficient operations … Continuing its expansion in California’s Silicon Valley, Chicago-based Baker Tilly is adding Brown Adams Agbayani LLP of Mountain View, Calif., which specializes in complex tax strategies for private businesses and high-net-worth clients in the technology industry … Newport News, Va.-based PBMares LLP expands its footprint into North Carolina with the acquisition of the New Bern and Morehead City, N.C., offices of Chicago-based RSM US LLP; the deal adds 46 professionals to the firm … Willamette Management Associates has relocated its Portland, Ore., office to the 19th floor of the U.S. Bancorp Tower in the downtown area to accommodate the accelerated expansion of the firm’s regional practice; the firm’s other offices are in Chicago and Atlanta.

Please send your professional and firm news to us at

CPE events

Learn about new research and available data you may need to consider when determining whether the COVID-19 pandemic is impacting company valuations because of changes in risk.

Learn how physician compensation is analyzed in the context of valuation along with various factors that can influence it, both internally and externally, including the pandemic.

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) or Sylvia Golden, Esq. (Executive Legal Editor) at:


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