BVR Logo March 17, 2021 | Issue #222-3

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

Tax Court rejects claimed deduction for management fees

The U.S. Tax Court recently agreed with the Internal Revenue Service that management fees a corporation paid to its three shareholders over a three-year period were not deductible since none of the fees were paid “purely for services” and the petitioner failed to show the fees were “ordinary, necessary, and reasonable.” Rather, they represented disguised distributions, the court found.

Disparate shareholders: The petitioner operated an asphalt paving business and had three shareholders. The company’s president owned 20% of the stock, an S corporation held 40%, and a C corporation also owned 40%. The court noted that the determination of the deductibility of the management fees was to be determined on an individual shareholder basis.

Under the applicable regulations, a corporation may deduct ordinary and necessary expenses, including salaries and other compensation, incurred during the tax year for the purpose of conducting a business or trade. Management fees are only deductible if they are payments “purely for services.”

The evidence suggested that the claimed fees were disguised distributions to shareholders, the Tax Court found, noting the company never made distributions to shareholders. Further, the management fees were evenly distributed closely to the shareholders’ interest in the company. Also, the company had little or no taxable income after the payment and deduction of the management fees.

The court also pointed out the petitioner failed to provide evidence, documentary or otherwise, for the cost or value of any particular service. No witness could explain how the fees were determined or what service they related to. Services were not even performed by the shareholder companies but by individuals from other entities. “Petitioner has to connect the dots between the services performed and the management fees it paid. Petitioner failed to do so,” the court said.

The court also examined the fees paid to the individual shareholder, i.e., the president of the company. It noted the individual shareholder is an employee of the company and provides services on an ongoing basis. However, the total compensation paid to him in his role as president must be reasonable. Here, the court said, the payments were not for any services beyond his responsibilities as president. The IRS, the court said, provided persuasive expert testimony that the executive was already overcompensated by his salary and bonus alone.

This case was a clear win for the IRS and an epic fail on the part of the petitioner, which presented its case poorly. It’s as if the petitioner over the years dared the IRS to catch it if it could, and the IRS did.

A digest of Aspro, Inc. v. Comm’r, TC Memo 2021-8 (Jan. 21, 2021), and the court’s opinion will be available soon at BVLaw.

Goodwill impairments fell 10% in 2019:
D&P study

Total goodwill impairment declined to $71 billion in 2019, down 10% from $78.9 billion in 2018, according to the “2020 U.S. Goodwill Impairment Study” by Duff & Phelps. Although impairments dropped, this was the second highest level after the 2008 financial crisis, the study says. The study examines general and industry goodwill impairment (GWI) trends of more than 8,800 U.S. publicly traded companies through December 2019. The top three industries with the largest increase in GWI in 2019 were communication services, information technology, and consumer staples. This edition also gives a preview of the impact of the COVID-19 pandemic on goodwill impairments taken by U.S.-based public companies. “At the time of writing, the disclosed top 10 GWI events for 2020 reached a combined $54 billion, far surpassing the top 10 in 2019 (at $37.4 billion),” the study says.

Call for papers: New Stark regs and
healthcare valuation

Recent regulatory changes will have a significant impact on valuations in the healthcare sector, and BVR is developing content designed to help practitioners navigate the new rules.

The Centers for Medicare & Medicaid Services (CMS) released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute (the Stark Law). The new rule went into effect Jan. 19, 2021, and 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.

Call for papers: BVR is seeking proposals for papers on this topic that will be peer-reviewed. The papers can address any topic related to issues of fair market value, general market value, and commercial reasonableness under the new Stark regulations. Also, we would like to see proposals from experts in all valuation disciplines, including experts not only in business and compensation valuation, but in machinery and equipment (M&E) and real estate as well.

Please send an email with a summary of the topic of your proposed paper to

BVR is the publisher of several guides to healthcare valuation, including the BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements, 2nd edition (Mark Dietrich and Timothy Smith), and the BVR/AHLA Guide to Healthcare Industry Finance and Valuation, 4th edition (Mark Dietrich).

We look forward to hearing from you!

Comments due in April on two IVSC
exposure drafts

The International Valuation Standards Council (IVSC) has issued two exposure drafts with comment deadlines during April. One exposure draft is on a new standard for the valuation of financial instruments, which is part of the ongoing effort of the organization’s Financial Instruments Board. Comments are due by April 19. You can find the exposure draft if you click here, and you’ll also find a form for feedback. A second exposure draft is titled “Additional Technical Revisions 2021,” which proposes changes to the International Valuation Standards issued in 2019. Comments on this draft are due April 30, and you can find the document if you click here.

Eurozone private M&A soars despite COVID-19

Private equity acquisition prices in the eurozone soared to a new record, according to the free Q4 2020 Argos Index, confirming an overheated rebound to what now appears to be a business value “blip” caused by COVID-19. The Argos Index measures private midmarket-company valuations. What did private equity pay unlisted European SMEs during the fourth quarter? Deal volumes dropped, but the new record multiple climbed to 11.1x EBITDA. Conducted since 2006 by Epsilon Research for Argos Soditic, the index is calculated based on the information contained in the Epsilon Multiple Analysis Tool (EMAT), the database of European acquisition multiples and deal analysis reports (€1 million-to-€500 million deal value).

Preview of the April 2021 issue of Business Valuation Update

Here’s what you’ll see:

  • Do Not Use the Arithmetic Mean to Average Multiples” (Gilbert E. Matthews, CFA, Sutter Securities Inc.). Valuation professionals should not use the arithmetic mean of multiples. It is mathematically incorrect because it gives excessive weight to high multiples. A multiple is an inverted ratio with price in the numerator. Therefore, the harmonic mean should be used as the appropriate measure of central tendency.
  • What Business Appraisers Can Learn From the GameStop Saga” (Joseph W. Thompson, CFA, ASA, Griffing Group). The lesson for appraisers in this saga is to be aware of potential pricing issues when using guideline public companies in the Reddit orbit. In the short term, the underlying price may not be representative of its “fundamental value” during the volatile period.
  • 14 Ways to Detect Misrepresentations in Business Interruption Claims” (BVR Editor). Business interruption insurance claims are on the rise, and analysts need to be on the lookout for misrepresentations. Michael Haugen (JS Held) conducted a session on this at the recent AICPA FVS Conference, and it’s an area where valuation experts would do well to bolster their knowledge and skills in financial forensics. Haugen gives some tips on how to “sniff out” misrepresentations in these claims.
  • New BVR ‘Power Panel’ Series Offers Seasoned Insights on Timely Issues” (BVR Editor). The first in a series of “power panel” BVR webinars drew a huge audience and brought together highly experienced thought leaders in the profession to address current issues via questions from the audience. The panel, moderated by Jay E. Fishman (Financial Research Associates), consisted of Michelle F. Gallagher (Adamy Valuation), Ken Pia (Marcum), and Jeffrey S. Tarbell (Houlihan Lokey).

The issue also includes:

  • A full section of “BV News and Trends/Global BV News and Trends.”
  • Regular features: “Ask the Experts” and “Tip of the Month.”
  • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “ktMINE Royalty Rate Data,” “Economic Outlook for the Month,” and the “Cost of Capital Center.”
  • BVLaw Case Update: The latest court cases that involve business valuation issues.
To stay current on business valuation, check out the April 2021 issue of Business Valuation Update.

BV movers . . .

People: Louise Poole, CPA, CA, CBV, CFF, a partner in the valuation and litigation practice at Davis Martindale (London, Ontario) is the 2021 recipient of the Top CBV Under 40 award from the Chartered Business Valuators Institute (CBV Institute), Canada’s valuation professional organization (VPO) … Benjamin Schuver, CPA, MBA, a senior analyst at Brisbane Consulting Group LLC (Buffalo, N.Y.), has earned his accreditation in business valuation (ABV) from the AICPA; he has experience in the valuation of businesses, business interests, and intangible assets for purposes of financial reporting, transaction advisory, and tax planning and compliance, as well as the performance of various forensic accounting procedures … Andrew P. Ross, CPA, CFE, CVA, PFS, and Gabe H. Shurek, CPA/CFF, CFE, CVA, both partners at Woodbury, N.Y.-based Gettry Marcus, will assume co-leadership of the firm’s business valuation and litigation services group … Cliff Kinney, CPA, CVA, partner in Kinney & Associates PLLC, CPAs, of Oxford, Miss., has launched Kinney Valuation Services PLLC to provide business valuations for clients in Mississippi and the broader region.

Firms: Springfield, Mo.-based BKD LLP has acquired Indianapolis-based consulting firm Hamernik LLC, a firm known for assisting companies with strategic assessments, consultation, and business and management transitions … New York City-based Anchin Block & Anchin LLP has opened an office in Uniondale, N.Y., on Long Island.

Please send your professional and firm news to us at

CPE events

  • Valuing Enterprise Cash Flows. March 17, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Travis Harms (Mercer Capital) and Z. Christopher Mercer (Mercer Capital).

This is the second part of a three-part series presented by the authors of the new third edition of Business Valuation: An Integrated Theory. This session will examine how valuation analysts calculate enterprise cash flows for use in the income approach, how market participants assign and quantify risk in deriving the discount rates used in the income approach and address the guideline public company method in the context of the integrated theory. Webinar attendees get a special $30 discount on Business Valuation: An Integrated Theory, 3rd edition. Be on the lookout for coupon details.

  • Benefit of the Bargain Economic Damages. March 23, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Michael Pakter (Gould & Pakter Associates LLC). This is part of BVR’s special series based on The Comprehensive Guide to Economic Damages, 6th edition.

Determining benefit of the bargain economic damages is encountered less often but is an important skill for valuation experts to know for litigation. In this program, you will learn the essential elements of determining benefit of the bargain damages.

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


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