Discount on assets transferred shortly before death raises red flag

Family limited partnerships (FLPs) are popular tax-saving vehicles in estate planning because of the valuation discounts that are allowed. But, when they’re set up shortly before death, they will show up on the IRS’ radar when the estate tax return is filed. And, if the rules were not followed, there could be big tax penalties to pay.

New case: In a Tax Court case, a woman transferred $17 million to a limited partnership through her nephew (who had a durable power of attorney) in exchange for a 99.9941% limited partner interest. Soon after, she passed away, and her estate tax return included a discounted value of $10.8 million. The IRS contended that the full value of the assets should be included in her estate, per Sec. 2036(a) of the tax law, because the transfer was not a bona fide sale, and the woman retained both economic benefit and control over her assets. Plus, the agency hit the estate with a negligence-related penalty under Sec. 6662(a).

The estate argued that the transfer was a bona fide sale because the partnership was formed for asset management purposes and to help prevent elder abuse. The estate also argued against the negligence penalty because it said it relied on qualified professionals, including an appraisal firm and reputable accounting firm. But the court found these arguments to be unconvincing and unsupported by the facts.

The case is Estate of Anne Milner Fields v. Commissioner, T.C. Memo 2024-90, and a case digest and full opinion will be on the BVLaw platform.

How to beef up security when using AI tools

One of the big concerns about using ChatGPT or other AI tools is the confidentiality of client information when uploading files or documents. At the recent ASA Conference in Portland, Ore., the point was made that some tools allow users to opt out of having the information shared or made public. But is there any way to verify this? Not really, a panel noted.

What to do: At the AICPA Conference in Dallas, attendees were advised that, regardless of what the tool or app says about data security and sharing, users should get a security review from a “trusted technologist.” Somebody asked: Where do you find one? At large firms, their IT people will have someone or will know who to call. For others, a Google search on “IT security” or “[Microsoft] Azure cloud professional” should turn up some results.

The ASA session was The AI Revolution: Why It Matters to Appraisers & Application Strategies (Greg Endicott, Kevin Couillard, and Andrew Couillard). The AICPA session was Let’s Have a Chat: Applying ChatGPT and Other Large Language Models to the Practice of Forensic Accounting (Daniel Street and Joseph Wilck)

Harvey Weinstein scandal has impacted corporate returns

The Harvey Weinstein sexual abuse scandal energized the #MeToo movement and triggered changes in corporate cultures, which in turn has impacted capital markets, according to a new paper.

Excess returns: The authors find that firms with a nonsexist corporate culture (proxied by having women among the five highest-paid executives) earn excess returns of 1.3% relative to firms without female top executives. “These returns are driven by changes in investor preferences toward firms with a nonsexist culture,” says the paper’s abstract. “Institutional ownership increases in firms with a nonsexist culture after the Weinstein/#MeToo events, particularly for investors with larger holdings and investors with a lower ESG focus ex ante.”

The paper, “Sexism, Culture, and Firm Value: Evidence From the Harvey Weinstein Scandal and the #MeToo Movement,” is one of the recent papers of note mentioned in the new “Research Update” section in the December issue of Business Valuation Update.

New vendors emerged at the AICPA FVS conference

One of the perks of attending a conference in person is being able to chat with the various vendors in the exhibit hall. At the recent AICPA & CIMA Forensics & Valuation Services Conference in Dallas, there were seven exhibitors, including a few we haven’t seen set up before at this or other conferences. Here’s what we learned:

• S&P Global, which brings you CapIQ and other market intelligence, previewed a new AI tool it will roll out for users this month—a crowd was often at its booth watching a demo;

• Valid8 Financial, which forensic experts use to examine bank statements, has a new module for examining a general ledger;

• TagniFi, a cost-effective alternative to Bloomberg, CapIQ, and Pitchbook, will soon release some new updates and enhancements;

• The American Society of Appraisers (ASA) was touting its new courses in Valuation Review and Management (VRM) that will focus on compliance with the International Valuation Standards (IVS) (the courses will debut in 2025);

• Personiv is a newcomer to the BV conference circuit—it provides outsourced finance and accounting, primarily for back-office operations, which can free up the firm to redirect resources to practice-related tasks;

• Etheia Consulting is another newcomer—it has an AI tool that helps find hidden assets used primarily in family law contexts; and

• West Virginia University offers a B.S. in business administration with a concentration in valuation that meets the educational requirements for the NACVA exam for the CVA credential.

Next year’s conference will be in Aurora, Colo.

How will your staff bonuses compare to last year?

That’s the topic of this month’s “Two-Minute Practice Builder” survey. Will your 2024 bonuses be more or less than last year? What do you estimate for your average staff salary increase for 2025? Please take just a few minutes to give us your observations—click here to take a fast survey. The survey deadline is November 20, and we’ll share the results in the December 4 issue. Thanks for participating!

The Fall 2024 edition of EBVM is now available

The European Association of Certified Valuators and Analysts (EACVA) and the International Valuation Standards Council (IVSC) have released the latest edition of the European Business Valuation Magazine (EBVM). The publication is free of charge and is intended to be a European platform to discuss practice issues in business valuation. The Winter 2023 issue features these articles:

• “Framework for Start-Up Valuation” (Dr. Wiktor Patena and Wolfgang Kniest, CVA);

• “The System Approach and Its Use in Asset Valuation” (Roman Sustek, Ph.D.);

• “Data: Industry Betas and Multiples (for Eurozone Companies)” (Dr. Martin H. Schmidt and Dr. Andreas Tschöpel, CVA, CEFA, CIIA);

• “Data: Transaction Multiples (Central and Western Europe, Southern Europe)” (Professor Dr. Stefan O. Grbenic, StB, CVA);

• News from IVSC;

• News from EACVA; and

• “IVSC Members Introduce Themselves: European Valuation Institute (EVI).”

You can download the issue and sign up for future issues if you click here.

BV movers . . .

People: Kadry Gharraph, CPSM, has joined HKA in the firm’s growing Forensic Accounting and Commercial Damages (FACD) team as a director in the Dallas office; he has over 18 years of experience specializing in business and intellectual property valuations and financial modeling for various purposes, including strategic planning, mergers and acquisitions, and financial planning and reporting … Maryellen Galuchie, CPA, ABV, a managing director at Grant Thornton, is the recipient of the 2024 Business Valuation Volunteer of the Year Award from the AICPA; Kenneth Rugeti, CPA, CFF, ABV, a senior managing director with FTI Consulting, is the recipient of the 2024 Forensic & Litigation Services Volunteer of the Year Award from the AICPA.

Firms: Houlihan Lokey has acquired Prytania Solutions (PSL), a leading provider of technology-driven valuation and analytic services that is expected to enhance the capabilities and global reach of Houlihan Lokey’s Portfolio Valuation and Fund Advisory Services practice … Carmel, Ind.-based firm Blue & Co. LLC has merged with Mellen Smith and Pivoz of Detroit, adding more than 20 employees with expertise in federal, state, and multinational tax planning and compliance, business valuation, and consulting services … Forvis Mazars has acquired Orlando, Fla.-based MSL PA, adding approximately 120 professionals, including 14 partners and three new office locations in Orlando, Fort Lauderdale, and Tallahassee … Atlanta-based KNAV Advisory Inc. has combined with HLG Netherlands, after a five-year joint venture between the firms … Indianapolis-based Katz Sapper & Miller has acquired the New York City CPA firm Shanholt Glassman Klein Kramer & Co., a firm with nearly 60 employees and six partners.

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

CPE events

Explicate the ‘Personal’ in Goodwill, November 15, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Josh Shilts (Shilts CPA PLLC) and R. James Alerding (Alerding Consulting LLC). CPE credits: 2.0.

Recent developments have brought the analysis of enterprise versus personal goodwill to a new level. Hear about that as well as some case studies and practical applications of the methodology.

Excel: Tips and Tricks for BV Professionals—A Hands-On Workshop, November 19, 10:00 a.m.-1:45 p.m. PT/1:00 p.m.-4:45 p.m. ET. Featuring: James Herr (Alvarez & Marsal Valuation Services). CPE credits: 4.0.

Learn techniques, formulas, and approaches designed to improve overall efficiency when building and working with valuation models in Microsoft Excel.