Should more BV experts use Revenue Ruling 77-287?

In the “Standard of Value: When Should Fair Value Replace Fair Market Value?” presentation at the NACVA/IBA 2009 Consultants Conference last month in Boston, Marc Bello of Edelstein & Company, asked attendees who used and referred to Revenue Ruling 59-60; many hands were raised. When asked who used and referred to Revenue Ruling 77-287, few attendees raised their hands. Quoting from Section 2. Nature of the Problem of 77-287 (which amplifies 59-60):

It frequently becomes necessary to establish the fair market value of stock that has not been registered for public trading when the issuing company has stock of the same class that is actively traded in one or more securities markets. The problem is to determine the difference in fair market value between the registered shares that are actively traded and the unregistered shares. This problem is often encountered in estate and gift tax cases. However, it is sometimes encountered when unregistered shares are issued in exchange for assets or the stock of an acquired company. 

Bello strongly encouraged appraisers to become familiar with 77-287 and, in the narrative portion of their valuation reports, to explain its content in relation to the subject appraisal. To drive his point home, Bello said, “You’ve got to look to authority and interpret that authority with facts and examples to determine the appropriate standard of value. Valuation reports are our direct testimony—be sure to put this in your report.” If you’re unfamiliar with 77-287, visit our Free Resources page to download this 5-page Revenue Ruling. Or, if you want the Ruling and more authoritative information, check out the newly published BVR’s Business Valuation Sourcebook table of contents here—or to order the Sourcebook, click here.

The five most common DLOM models, according to Laro

In response to last week’s BVWire™ item that quoted U.S. Tax Court Judge David Laro as having become “well-acquainted with the five models most commonly used to calculate marketability discounts,” a subscriber asked for more clarification regarding the models. His Honor was quick to respond, noting that at last year’s “Summit on Discounts for Lack of Marketability” (DLOM) held at the University of San Diego School of Law, some of the top valuation experts in the country discussed and debated the multiple techniques and models most commonly used to arrive at the lack of marketability discount.

“Courts, the government and the private community need to resolve these different techniques to produce a standard that can be respected,” Laro says, noting that the Summit will reconvene this year in October to resume the debate. “This year, with Jim Hitchner as the moderator, a distinguished panel will show how those models work [in real practice]. Among the different models and databases to be presented and applied will be these:

“The San Diego Summit has the virtue of bringing together high quality speakers in a neutral, academic-type environment and to give peer review to their examination of the lack of marketability discount,” Laro observes.  “Our goal is to bring resolution to the problem of the diverse techniques involved in calculating DLOM. The San Diego meeting is a dynamic approach to these issues. Valuators will want to be present to observe and participate in this leading discussion.” For more information on the October 9th Summit, including the panel of distinguished presenters and how to register, click here. On the same page, we’ve also posted a podcast of the highlights from last year’s summit, summarized by Brian Pearson, with commentary by Stuart Weiss.

Best deposition advice: Don’t eat the chocolate

A top Tennessee litigator, speaking at the recent NACVA/IBA conference, gave away his best-kept deposition tactic for tripping up the opposing party’s valuation expert. (He wanted to preserve his anonymity in the ‘Wire, however, to keep an array of arrows in his adversarial quiver). Before the deposition gets underway, he makes sure that there is a bowl of chocolate candy on the table, within easy reach of the expert witness. He then asks his paralegal to record when the witness starts reaching for the chocolate (and slip him a note), so that forty-five minutes later, after the expert’s blood sugar levels have spiked and then plummeted, “I can start going into the ‘power chapter’ of my deposition,” he says.
Most damage done after 6 p.m. While the expert witness is indulging in sweets, this same attorney makes sure to take spoonfuls of peanut butter, or another protein-packed snack during the breaks to keep his head clear, and then as the day winds down he starts moving in with more “power” questions. In fact, he has found that the most damaging parts of his depositions have taken place after six in the evening, when the witness’s blood sugar levels are low, along with any remaining resistance.

His advice: Even if experts can’t always stay away from the candy bowl during those day-long, draining depositions, they can work with their attorneys to establish clear time constraints. If you need or want to stop by the end of the business day, set this deadline up front (but don’t wait until 5:25 p.m. to mention a commitment at 5:30). Bring your confidence, your complete file—and your own power-packed snacks. Look for more tips (and tricks) from litigators in a forthcoming issue of the Business Valuation Update

Healthcare Valuation—A Topic Too Vast for Any One Panel

BVR kicked off the Teleconference Series on Healthcare Valuation with a panel discussion in January, led by Mark Dietrich, co-editor of BVR’s Guide to Healthcare Valuation. Part 1 of our series—covering such topics as anti-kickback statues, home healthcare centers, and ambulatory surgery centers—laid the foundation for an in-depth discussion on the valuation challenges unique to the largest segment of the U.S. Economy. On Tuesday, June 23 at 10:00 am PT/1:00 pm ET, Dietrich will return as a panelist along with Douglas Smith, Timothy Smith, and moderator Carol Carden, for Part 2 of BVR’s Teleconference Series on Healthcare Valuation. Among other topics, the panel will discuss physician compensation, diagnostic imaging center valuation, and medical practice valuation. Two CPE credits are available for this 100-minute presentation. For additional information, to register, or to learn about a $50 discount available to attendees of Part 1 of our series, click here.

New TAF board members needed; you answer the call

The Appraisal Foundation (TAF) is in the midst of its annual search for qualified candidates to serve on the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB).

There are up to two vacancies on the AQB with both incumbents eligible for re-appointment. The AQB is responsible for setting minimum qualification criteria for state licensure and certification of real estate appraisers and has established voluntary qualification criteria for personal property appraisers. Familiarity with appraiser qualifications is a pre-requisite of service on the AQB, and a minimum of ten years of appraisal experience is required. The AQB meets four times per year for approximately ten days in total. Individuals serving on the AQB are compensated for their time and are reimbursed for travel expenses. The individuals selected for the AQB positions will serve a term of up to three-years commencing January 1, 2010.

There are three vacancies on the ASB with two incumbents eligible for re-appointment. For the third vacancy on the ASB, the Board of Trustees is specifically interested in individuals with a background in the valuation of personal property. The ASB is charged with developing, interpreting and amending the Uniform Standards of Professional Appraisal Practice (USPAP). Familiarity with USPAP is a pre-requisite of service on the ASB, and a minimum of ten years of appraisal experience is required. The ASB meets five times per year for approximately fifteen days in total. Individuals serving on the ASB are compensated for their time and are reimbursed for travel expenses. The individuals selected for a position on the ASB will serve a term of up to three-years commencing January 1, 2010.
The Appraisal Foundation is interested in expanding the diversity of all Boards by considering applications from business leaders with an interest in valuation or involved in various appraisal disciplines such as business valuation or personal property. Application packages are available online for all of the positions outlined. Completed applications for these vacancies must be received by August 14, 2009. 

Data on women CPAs show gradual professional gains

Women CPAs have been making a slow but steady climb through the ranks of public accounting, reveals a recent survey from the Illinois CPA Society, through its Women's Executive Committee. According to the recently released 2009 Annual Survey on the Role of Women in CPA Firms, there has been just a slight increase in the number of women represented in firm/office management positions (up to 12.4% from 10% last year). There has also been gradual improvement in the overall number of women in executive positions from 10.6% in 2006 to 18.7% in 2009. And although the survey finds the number of women entering public accounting firms has decreased from 54% in 2003 to 49% in 2009, the rate at which women are being retained increased slightly (three percentage points) over the same period.

Still, the number of men far outweighs the number of women in partner/principal positions—men hold 82.4% of those positions, women 17.6%. These percentages are nearly identical to last year's finding of 82.8% for men and 17.2% for women, and varied little from year to year. The 2009 “Accounting Women” survey was distributed to 90 public accounting firms in Illinois with 15 or more professionals. It also gauges the effectiveness of initiatives and programs targeted to women with findings based on responses from individual women and the firms. The Society’s Women’s Executive Committee plans on taking a look at firms that have been successful at promoting women for ideas that other firms can emulate. It’s a sure bet that the surveyors’ recommendations are easily adaptable to the BV environment—particularly the information on the ways partners can change the culture and structure of the workplace to encourage women’s professional growth and gains.





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