BVR Logo May 12, 2021 | Issue #224-2

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

Tax Court resists tax affecting in Michael Jackson case

Although the U.S. Tax Court recently handed the Michael Jackson estate a decisive victory regarding the estate’s tax liability, the court did not side with the estate on tax affecting, an issue that has preoccupied valuators, many of whom are proponents of the practice, for a long time.

Estate of Jones is distinguishable: Michael Jackson died in 2009. The tax dispute was over the fair market value of three contested assets at Jackson’s death: the value of Jackson’s image and likeness and the value of his interest in two music publishing assets. Each of the assets was held by a pass-through entity (PTE), “which means the Code imposes no tax on the income that these assets produce.” Rather, the income passes through to the owners, who pay tax on it at their individual rates. C corporations, on the other hand, are subject to entity-level taxes and investor-level taxes. Tax affecting seeks to reflect the tax implications to a hypothetical buyer.

At trial, the estate engaged four experts, two of whom collaborated on valuing the image and likeness asset. The Internal Revenue Service presented testimony from a single expert. As the court noted, all of the estate’s experts took tax affecting into account in their discounted cash flow analyses but all applied different tax rates. For example, the lead valuator of the image and likeness asset used a 35% rate based on the then-applicable corporate rate. For its part, the IRS objected to tax affecting.

The court noted that, “in the past, we’ve shied away from tax affecting because of these practical problems.” It noted that proponents of the practice have often pointed out that many potential buyers of PTEs, including S corporations, are C corps that would tax affect (at C corp rates) in calculating income to decide how much to pay for the asset. Opponents of the practice have claimed tax affecting produces an appraisal that gives no value to the benefit of S corp status.

Here, the estate’s experts argued that a C corp would be the only likely buyer for the assets. For example, in valuing Jackson’s image and likeness, the estate’s appraiser pointed out that any buyer would have to spend considerable money to rehabilitate the asset and defend its value. C corps historically have bought the image and likeness of other celebrities, he said. But the court said it was not convinced that a C corp was the more likely buyer. The same appraiser valued this asset at $3 million, which “is not a sum so large as to make it likely that only a C corporation would be able to buy it,” the court said. It noted there now exist many different (less restrictive) types of PTEs that have many of the same benefits as C corps when it comes to raising capital while avoiding double taxation. The court suggested the “gap between C corporations and other entities has narrowed over time.” The estate’s experts did not “persuasively explain” why those new PTEs wouldn’t be suitable buyers, the court said.

The court noted there seemed to be only one case where the Tax Court allowed tax affecting in a valuation, the 2019 Estate of Jones case. However, that case was distinguishable in that both parties’ experts agreed that a hypothetical buyer and seller would take into account the corporate structure. The parties only disagreed over how to account for this effect. Here, the estate’s experts themselves used inconsistent tax rates and they were met with opposing IRS testimony that, “at least on this very particular point,” was persuasive considering Tax Court precedent, the court said.

“This all leads us to find that tax affecting is inappropriate on the specific facts of the case,” the court said.

Stay tuned for more reporting on this important decision.

A digest of Estate of Michael J. Jackson v. Commissioner, T.C. Memo 2021-48 (May 3, 2021), as well as the court’s opinion will be available soon at BVLaw.

Valuers: The IRS is looking for you

Don’t worry—this is not about a valuation you did! The agency is looking to hire experienced business appraisers for six open positions in various locations across the U.S. According to the job posting, the salary ranges from $92,143 to $146,120 per year, and the positions have the title of financial analyst. Duties include preparing and reviewing appraisals of businesses and business interests, serving as an expert witness in court, meeting with taxpayers, and more. To get all the details, including job description, experience requirements, locations offered, how to apply, and more, click here.

Today! ASA Energy Valuation Conference streams live

A post-COVID-19 outlook for the energy sector, downstream refineries, upstream reserves, oil and gas valuations, and complex infrastructure assets are some of the topics on today’s agenda for the Houston Chapter of the American Society of Appraisers (ASA) Energy Valuation Conference. Today, May 12, BVR will present a live webcast of the full-day conference, now in its 11th year, which will feature nationally recognized speakers who are profession leaders. You can earn up to eight CPE credits.

Where acquirers often see value in
prerevenue firms

Typical early-stage companies are built around technology, and they often have not yet generated any revenues. To an acquirer, the value of these prerevenue companies often stems from a classic “build vs. buy” analysis, speakers said at the M&A Strategy Forum on April 30, hosted by the Transaction Advisors Institute. Other sessions discussed value in innovation-driven firms, COVID-19 impacts, regulatory environment, special purpose acquisition companies (SPACs), and more. Speakers included corporate development leaders, in-house M&A counsel, board members, and private equity investors. It was interesting to hear about M&A from their perspective and their views on valuations. You can read a recap of the conference in the upcoming June issue of Business Valuation Update. The next M&A Strategy Forum will be September 17 and will be online. Click here for the agenda.

Natural extension for a BV practice

The next logical step after valuing a business is advising business owners on ways to maximize that value. A training and credentialing program is available for valuation professionals who want to add this type of advisory service to their practices. The Certified Value Growth Advisor (CVGA) program is a five-day course that focuses on the fundamental best practices that drive value of any business. You will also learn how to build on those drivers to develop a short-term tactical plan and long-term strategic plan for the client’s business. The next CVGA program is scheduled for June 7-11 and will be in a virtual environment. For more details, click here.

TAF launches weekly podcast series

The Appraisal Foundation (TAF) has launched Appraiser Talk, a podcast that answers questions from every corner of the appraisal profession from consumers to appraisers and real estate to business valuation. A new podcast will be released each week. Each episode will answer a different question submitted by readers and listeners. The latest episode has Lisa Desmarais and Amy Timmerman discussing how the foundation is working to combat discrimination, develop new diversity initiatives, and build public trust in the appraisal profession. To listen, click here.

Next week is chock full of BV events

BVWire is saddling up and hitting the virtual trail next week for a batch of events that promise to be very informative. Here’s where we will be:

No time to get to all of them? Coverage of key takeaways from these events will appear in the Business Valuation Update (BVU) monthly newsletter.

IVSC publishes comments on valuation topics for agenda

The International Valuation Standards Council (IVSC), the global standard-setter for valuation practice and the valuation profession, issued an Agenda Consultation to solicit input to help set the agenda for the future development of the International Valuation Standards (IVS). Feedback was solicited about valuation topics that the IVSC should address as part of its current agenda as well as additional valuation topics that should be prioritized or added to the agenda. A total of 55 responses were received from every world region, with global or multinational organizations accounting for 24% of the responses received. The feedback and comments have been published, and you can download the original consultation and the comments if you click here.

BV movers . . .

People: William A. Johnston, ASA, IA/BV, will assume the role of CEO of Empire Valuation Consultants from co-founder Terry Griswold, who will step down as CEO later this year but will maintain full-time status at the firm; Johnston currently leads the firm’s financial reporting practice and is the office managing partner for the firm’s New York City office.

Firms: The existing shareholder group at New York City-based Empire Valuation Consultants transferred 100% of the firm’s shares to an employee stock ownership plan (ESOP); this new structure of employee ownership “will ensure the firm’s independence, preserve our culture, and position us to continue serving our valued clients at the highest level,” the firm says … Long Beach, Calif.-based Windes has joined Allinial Global, an association of independent accounting and consulting firms … Cincinnati-based Clark Schaefer Hackett has acquired strategic HR inc., which is also in Cincinnati; the firm provides human resources support to organizations that need additional HR resources or do not have their own HR department.

Please send your professional and firm news to us at

CPE events

New standards and new areas of discussion and guidance concerning business valuation will be discussed as well as an overview of all the standards.

This full-day event brings together pre-eminent energy valuation professionals and industry thought leaders on topics including the industry’s post-COVID-19 energy outlook as well as perspectives on business valuation, machinery and technical specialties, new accounting developments, appraisal review and management, real property, and more.

ASA 2021 International Conference

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


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