BVR Logo July 21, 2021 | Issue #226-2

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

Tax reporting loophole shields
some cryptocurrency

Uncovering assets is a common challenge in many valuation and forensics engagements, and the challenge becomes even greater when cryptocurrency is involved. True, the IRS now requires taxpayers to disclose their cryptocurrency dealings. In fact, it put a question right near the top of the Form 1040: “At any time during 2020, did you receive, sell, or otherwise acquire any financial interest in any virtual currency?” The plain language of this question would lead you to believe that, if a taxpayer owns cryptocurrency, he or she needs to answer “yes,” but that is not the case.

Through the cracks: During a recent BVR webinar, a question from the audience was: Is tax reporting triggered if someone merely buys and holds cryptocurrency? The answer is “no,” say the speakers, Katerina Gaebel and Mark DiMichael, both with Citrin Cooperman. They pointed out that the IRS specifically addresses this in its FAQs on virtual currency transactions, which states: “If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.”

The bottom line is that you cannot completely rely on the Form 1040 to determine whether someone owns cryptocurrency. Nevertheless, tax forms do play an important role in uncovering cryptocurrency, but many more methodologies and tools need to be used. You can view a recording of the webinar, Cryptocurrency Fraud and Forensics: What Valuation Professionals Need to Know, if you click here (free to BVR Passport Pro holders).

Discounts inappropriate under controlling agreement, appeals court finds

In a buyout dispute involving a limited liability company, the Oregon Court of Appeals recently overturned a trial court’s decision to apply discounts when valuing the departing member’s minority interest. The controlling operating agreement required a valuation of the plaintiff’s proportional interest in the value of the entity’s assets, not a valuation of the plaintiff’s specific interest in the company, the appeals court found.

The plaintiff owned 25% interests in two LLCs, which separately owned and operated franchise hotels. Three fellow LLC members each owned equal shares in the remainder interests. The plaintiff felt unfairly treated by the other members and sued, alleging a number of claims, including minority oppression. The plaintiff also asked to have the LLCs buy out his two interests. The defendants filed counterclaims, asking for the right to expel the plaintiff from the companies.

‘Subtle but significant’ distinction: The trial court found that there was no oppression and that, under the entities’ operating agreements, the defendants had the right to expel the plaintiff. The court also found the operating agreements were controlling in terms of how to determine the compensation due to the plaintiff for his respective interests. Under the one agreement, the buyout price was to be determined “by multiplying the member’s percentage ownership interest by the fair market value of all LLC assets.” Under the second agreement, the buyout price was to be based on the company’s book value.

A valuation expert testified he was retained to determine the fair market value of the plaintiff’s 25% interest and that it was appropriate to apply a 10% discount for lack of control and a 20% discount for lack of marketability. The expert calculated that the fair market value of all of the company’s assets was $5.5 million and the value of the plaintiff’s undiscounted 25% interest was almost $1.4 million. The use of discounts reduced the value of the plaintiff’s interest by $385,000. The trial court adopted the expert’s value determination.

The plaintiff appealed, arguing, among other things, that, in the fair market value determination, the application of discounts was inappropriate.

The Court of Appeals agreed. It found that the operating agreement was controlling and the language as to how to value a departing member’s interest was unambiguous. The plaintiff was to be compensated “for his share in the fair market value of all the assets of the LLC, not for the fair market value of his share of the company,” the reviewing court emphasized. “The distinction is subtle but significant.” The court said the agreement did not provide a basis on which to justify discounts to reflect that the plaintiff’s ownership interest was a minority interest in a closely held company. Consequently, the trial court erred when it adopted this part of the expert’s value determination.

At the same time, the reviewing court dismissed the plaintiff’s challenge to the trial court’s determination of book value to compensate the plaintiff for his interest in the second LLC.

A digest of Patel v. Siddh Hospitality LLC, 312 Ore. App. 347 (June 16, 2021), and the court’s opinion will be available soon at BVLaw.

Interesting question on the Michael

There were three main valuation matters in the case of the Michael Jackson estate versus the IRS, and the estate prevailed in two of them (see our most recent coverage here). During a recent BVR webinar, former IRS official Michael Gregory (Michael Gregory Consulting) discussed the case, and an interesting question came up from the audience. Gregory pointed out that the valuation expert for the IRS lied on the witness stand but not about his work on the estate valuation—the lies were about other matters. The judge did not exclude the expert’s testimony, instead saying that he would “discount the credibility and weight” he gives to the expert’s opinion of value. Had the expert not lied, what would the outcome have been? Instead of the estate going two for three, would it have been one for three? Would the IRS have prevailed in the case?

When a witness lies on the stand, it can be a fatal blow. That is, judges may discount or disbelieve everything the witness says. That extreme did not happen in this case, Gregory points out, because the judge sided with the IRS in one of the three matters. As to whether the overall outcome would have been different had the expert not lied, “it very well could have,” Gregory says, but “you never know.”

Extra: You can hear the testifying valuation experts for the Jackson estate give their inside view of the case during an upcoming BVR webinar, Power Panel: Estate of Michael J. Jackson v. Commissioner, on July 27. Don’t miss this one!

Pro golfer values analyzed in Duff &
Phelps/Kroll study

Everyone who plays golf knows how confounding the game is. One day, you hit fairways and make putts, and, the next day, you’re in the rough and come down with a case of the “yips.” It even happens to pro golfers: One week, they’re on the leaderboard, and, the next week, they miss the cut. Wouldn’t it be great if the golf ball were made of crystal and you could see how you’ll do in the future?

New study: Using statistical analysis and mathematical modeling, Duff & Phelps/Kroll has estimated the present value of over 1,000 pro golfers’ potential earnings through age 50. The calculations account for three sources of income: tournament winnings, endorsement income, and projected earnings from the PGA Tour’s Player Impact Program. The study ranks the top 60 male professional golfers globally, as measured by their future career value (FCV). Rory McIlroy from Northern Ireland earned the No. 1 spot on the leaderboard, with $401 million in FCV, finds the study, “Measuring Their Shot: Study of Professional Golfers’ Future Career Value.”

It’s a fun and interesting study, and it explains the valuation and mathematical modeling principles used in the analysis. A 10% discount rate is used to calculate the present value of a player’s deferred income stream, which implies a low company-specific risk premium (or should we say a player-specific risk premium). Knowing how fickle the game is, some players would opt to take their FCV today and run to the 19th hole.

Reminder: Please take our DLOM survey

BVR is conducting a short survey that examines the methodologies and specific tools practitioners use to estimate DLOM. We’ve received a good number of responses so far but would love more, so, if you have not taken it yet, please do so by going to this direct link: It will take just three minutes, and all responses are anonymous. We’ve run this survey several times over the past 10 years, so it will be interesting to see what has changed over time. The survey results will be made freely available to everyone. Thanks for your participation!

CSRP working group needs input

The Appraisal Foundation’s Business Valuation Resources Panel’s Work Group on Company-Specific Risk Premia (CSRP) is seeking input via survey to understand how valuation practitioners address such premia within their valuations. While the Working Group’s focus is financial reporting, input from other practice areas is welcome and encouraged. Your input will help to prepare more formal guidance relating to the subjective area of cost of capital. All responses will be confidential. If you have not yet taken the survey, please do so by clicking here. Thank you in advance for participating!

Free replays available for IVSC webinar series

Over 3,000 attendees from around the world listened to the recent International Valuation Webinar Series from the International Valuation Standards Council (IVSC). If you missed a session, the entire series is available for replay if you click here. The series, sponsored by Duff & Phelps, A Kroll Business, consists of five panel discussions, assembling over 20 leading experts from around the world, on topics such as the post-pandemic economic environment and its impact on valuation, the treatment of operating leases, IBOR reform, valuing alternative investments, and more.

BV movers . . .

People: Renata Milczarek, CPA, CA, CFF, CF, CBV, and Catherine Tremblay, CPA, CA, CBV, ASA, CFF, have been appointed to the board of directors of the CBV Institute, Canada’s valuation professional organization (VPO) … Katerina Gaebel, CPA, CFE, has been honored with a “Forty Under 40” award from the New York State Society of CPAs (NYSSCPA); she is a senior in the forensics, litigation, and valuation services department at Citrin Cooperman, specializing in forensic investigations, cryptocurrency tracing, matrimonial disputes, shareholder disputes, economic damages, and employee embezzlement cases … Deanna Olton, CPA, has been promoted to partner at Conyers, Ga.-based Antares Group Inc.; she specializes in business consulting, financial analysis, business valuations, tax compliance, and people development.

Firms: Lexington, Ky.-based Dean Dorton has acquired Breakpoint Technology, a data analytics and technology collaboration practice based in Louisville; the deal adds nine new team members to the firm … Brentwood, Tenn.-based LBMC has launched a growth and innovation practice, which will focus on middle-market companies and private equity firms … San Ramon, Calif.-based Armanino LLP has opened its first East Coast office in New York City, at 14 Penn Plaza, near Penn Station and Madison Square Garden; the office will focus on business management and the entertainment industry.

Please send your professional and firm news to us at

CPE events

The webinar includes the basics of Monte Carlo simulation with a detailed discussion of the “assumptions” and “forecast, the analytics and output, and troubleshooting.”

A panel of experts who worked on the Estate of Michael of Jackson case discuss the complexities of large cases, celebrity valuations, and what valuation experts can take away from this thriller of a case. Bring your questions!

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


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