Two cases on trapped-in gains tax—with opposite outcomes

In a California divorce case we recently covered, an appeals court disallowed a discount for possible future taxes because the taxes were neither immediate nor specific. But, in Nebraska, the state’s Supreme Court came to the opposite conclusion. Experts for both sides in that case allowed some amount for the potential future liability of tax for trapped-in gains. But the court never mentioned the issue of immediacy and certainty in allowing the estimated present value of potential future taxes on trapped-in gains.

Read some commentary on these two cases in a blog post by BVR’s legal editor, Jim Alerding. He points out that these two cases exemplify the need to know the law in the jurisdiction of your case.

The Nebraska case is Bohac v. Benes Serv. Co., 310 Neb. 722; 2022 Neb. LEXIS 5, and a case analysis and full opinion are available on the BVLaw platform.

How to find hidden assets in divorce

Parties to a divorce may not be totally forthcoming with assets they own, so the valuation expert often has to help ferret them out. One tactic is to ask for “everything,” meaning all documents related to anything that involves the divorcing parties as either beneficiaries or fiduciaries. This includes trusts, estate plans, and wills—including the wills of other individuals (such as the spouses’ parents) in order to see whether the spouse will inherit anything. Be as broad as possible in your request and be aware that you may not always get everything you ask for but you need to ask anyway. Tax returns, particularly trust and estate returns, can provide a wealth of information to valuation experts, but you have to know where to look!

Locating hidden assets is just one of the topics that will be covered at the National Divorce Conference BVR and the American Academy of Matrimonial Lawyers (AAML) will present in Las Vegas, September 18-20. Leading matrimonial attorneys and financial experts will give you critical insights in sessions covering financial, valuation, forensic, and legal issues surrounding this growing area of practice. The conference will be both online and on-site at the Venetian Resort, and will have more than 20 CPE/CLE credits available. Early-bird pricing is currently in effect, and you can register if you click here. We hope to see you at this unique event!

TAF calls for papers on the ‘art of valuation’

The Appraisal Foundation (TAF) has issued a call for qualified candidates to submit proposals for papers that will go into a book on the art of doing business valuation. Applicants can submit up to three topics for consideration along with titles and a three- or four-sentence description of the main theme of each topic. Paper topics cannot be articles on methods and techniques but rather on the power of thought, judgment, creativity, and other aspects of the “art” of business valuation. Examples of the types of content the TAF is looking for can be found if you click here. You can find an application if you click here. The application deadline is March 28. The authors selected will be notified by April 8.

ESOP companies more optimistic about recovering

Valuation experts assessing how a subject company will recover from the pandemic will be interested in a new study. Majority employee-owned companies with employee stock ownership plans (ESOPs) have been more resilient in responding to the pandemic than other companies, suggests the study. And they are much more optimistic about recovering. ESOPs are nearly six times more likely to anticipate their business would return to its previous level of performance than non-ESOPs. The study’s findings are similar to prior findings regarding the performance and behavior of employee-owned companies during the 2008-2010 recession. The study, “Employee-Owned Firms in the COVID-19 Pandemic,” is from Rutgers University and SSRS and is funded by the Employee Ownership Foundation, an affiliate of The ESOP Association.

Agenda set for NYSSCPA BV and litigation services conference May 16

Each year, BVWire attends the annual New York State Society of CPAs’ Business Valuation and Litigation Services Conference, and registration is now open for this year’s event, which will be webcast May 16. This full-day conference will feature many topics including an update on BV-related court cases, tax litigation involving valuation issues, SPAC warrant valuations, debt valuation, control premiums, exit planning, and more (eight CPE credits available). Click the link above to check out the full agenda.

BVRPro adds to its ASA BV Review archive

Subscribers to the BVResearch Pro platform can access issues of Business Valuation Review going back to 1982, and the Fall 2021 issue has just been added to the archive. This publication is the business valuation journal of the American Society of Appraisers. The Fall 2021 issue includes some tributes to Shannon Pratt, the new International Valuation Glossary—Business Valuation, and articles (one that addresses the volatility of financial metrics used in valuing contingent consideration and another that gives some critical commentary on pre-IPO studies). If you are not a subscriber to the BVResearch Pro platform, you can do a stand-alone subscription to the ASA’s Business Valuation Review if you click here.

Reminder: Take a survey on ESG and valuation

The International Valuation Standards Council (IVSC) would like to hear from business valuation providers, users, and investors on the issue of environmental, social, and governance (ESG). While the International Valuation Standards (IVS) implicitly require the consideration of ESG components within valuation, no explicit standards exist. “The IVSC’s ESG Working Group felt that it was important to carry out a survey of investors, firms and valuers to understand where they are on their journey in relation to the quantification of ESG components within their working practices,” says Alexander Aronsohn, IVSC technical standards director (tangible assets). To take the survey, click here.

Preview of the April 2022 issue of Business Valuation Update

Here’s what you’ll see:

• “Business Valuation Needs to Be a Recognized Career Path” (David Foster). Despite all the progress the business valuation profession has made, BV is still not understood or widely recognized as a career path. Most individuals who enter the profession continue to discover it by accident.

• “Proposed Rule 702 Change Targets Unqualified Experts” (BVR Editor). Too many experts who are not qualified are being allowed to testify in court. This has triggered proposed changes to strengthen Rule 702, which is the federal rule of evidence regarding testifying experts.

• “A Lesson in Healthcare Supply and Demand—and Market Power, Part 1” (Mark O. Dietrich, CPA/ABV). This is a follow-up to the author’s landmark research on the fair market value of physician compensation. The issue of insurance market structure and the related impact on the negotiating of provider contracts is addressed in Part 1 of this article. Physician distribution and the impact of local payment rates that determine compensation is addressed in Part 2.

• “A ‘Radical’ Market Data Approach to Startup Valuations” (BVR Editor). Michael Blake (Brady Ware & Co.) has issued a challenge to appraisers of early-stage companies: add rationality to valuing startups by relying more heavily on market inputs. The income approach is not always effective in prerevenue situations, so Blake turns to guideline public company and transaction method alternatives.

• “Reconciling the Results of Various Valuation Methodologies” (Gary Trugman, CPA/ABV, FASA, MVS). This is an excerpt from the author’s new sixth edition of Understanding Business Valuation. It illustrates the clear, simple way he explains key concepts and provides real-world examples.

• “Two BV Firms Collaborate to Serve Clients Better—and Boost Business” (BVR Editor). Solo and small business valuation practitioners can scale up their practices using an idea that two firms have discovered: collaboration. It allows them to take on engagements that they otherwise would have turned away and gives them access to each other’s knowledge, resources, and contacts.

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”; and

• BVLaw Case Update: The latest court cases that involve business valuation issues.

To stay current on business valuation, check out the April 2022 issue of Business Valuation Update.

BV movers . . .

People: At Mercer Capital, Owen T. Johnson, CPA/ABV, CBA, ASA, has rejoined the firm as a senior advisor, and Karolina Calhoun, CPA, ABV, CFF, was invited and admitted into the prestigious American Academy of Matrimonial Lawyers (AAML) Foundation Forensic & Business Valuation Division (there are fewer than 35 members nationwide).

Firms: Calgary-based MNP is adding Matthew Bakker Chartered Professional Accountant of Oshawa, Ontario, a firm that has been providing a wide range of professional services to organizations throughout Ontario’s Durham region for more than a decade … Chicago-based Baker Tilly has acquired UK-based technology consulting firm Vanilla, which specializes in sales, implementation, and support of enterprise resource planning (ERP) software … Tucson, Ariz.-based BeachFleischman PC has entered into a joint venture with Mexico-based business services and advisory firm Terán Rojas & Associates to provide inbound and outbound Mexico-U.S. cross-border business services.

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

CPE events

• Whatever Happened to Specific Company Risk? Accounting for Management Risk in Private Partnerships. March 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Dennis A. Webb (Primus Valuations). CPE credits: 2.0.

For almost 25 years, valuing fractional interests involving real estate has been the specialty of the webinar speaker, Dennis Webb. He is a real estate appraiser as well as a business valuation expert, and he will give some interesting insights about specific company risk in this context.

• The Long Arm of the Bankruptcy Court: Valuation in Fraudulent Transfer Matters. March 29, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Jeff L. Baliban (Citrin Cooperman). CPE credits: 2.0.

Under U.S. bankruptcy laws, payments and asset transfers companies make before insolvency can be later reversed or voided and pulled back for allocation to other creditors. While not precisely a lost profits or damages calculation, fraudulent transfer is an area where attorneys require significant input and expertise from financial valuation experts.