October 18, 2006 | www.BVResources.com | Issue 49-3

Dallas case stirs more controversy on tax-affecting

A court opinion tells only one side of the valuation story (and sometimes it’s incomplete, or skewed by the “winning” attorney’s findings of fact). Dallas v. Commissioner is no exception (see BVWire #49-1). In its comments on tax-affecting, the Tax Court makes no distinction between the time of the valuation—which was 1999/2000, just a few months after its decision in Gross v. Commissioner—and the current evolution of economic principles that form the fair market valuation framework for analyzing S Corp interests.

“This economic framework begins with an understanding of the differences between the expectations of investors in the public markets and investors in S corporations,” says Nancy Fannon (Fannon Valuation Group), writing in the current issue of Financial Valuation and Litigation Expert (www.valuationproducts.com). Not understanding these differences and how they impact the application of rates of return from public markets to private S Corps “has a high likelihood of misstating the value of an S corporation—something that simply ‘not tax-affecting’ can’t adjust for.”

The current challenge: “Valuation analysts must learn the proper economic reasons for the proper application of this theory,” Fannon says. Look for her continued analysis in a forthcoming issue of Business Valuation Update™; and be sure to catch her session on S Corp valuations at the December AICPA conference in Austin. For more conference information, click here.

Don’t miss your chance to join in BVR’s benchmark survey

As promised, the first annual Business Valuation Firm Economics & Best Practices Survey 2007 Edition from Business Valuation Resources, LLC, is now ready for your participation. This comprehensive survey will benchmark BV practices in such key areas as compensation and benefits, hiring and promoting, niche specialization, technology and marketing budgets, hottest management topics—and much more.

Responding to the survey takes about as much time as a coffee break, and all data will be kept strictly confidential. Plus, participating firms receive summary results for free—and get $100 off the non-participant’s price ($149 versus $249) for the full results. But hurry: The special offer for BVWire subscribers is valid only through November 1, 2006. Make sure your BV practice is counted by clicking here.

Updated overview of IRS Territorial Engineers

A subscriber recently asked for a clarification on the comprehensive list of IRS Territory Engineers that first appeared in the June BVU; these are the managers who oversee more than thirty engineering teams nationwide.

The list of Territory Engineers shows the location of offices. If a state doesn’t appear on the list, it’s covered by the Engineer who oversees the nearby region. For instance, Rhode Island falls within the NY/NE division. Click here to go to the current directory for the entire “LMSB” (Large and Mid-Size Business Division), which serves corporations, subchapter S corporations, and partnerships with assets greater than $10 million. “These entities typically have large numbers of employees, deal with complicated issues involving tax law and accounting principles, and conduct their operations in an expanding global environment,” says the IRS website. Click on the “Field Specialists" link, and then scroll down to “Territory Managers—Engineering.”

The ‘best state-by-state summary’ of standards of value

The long-awaited Standards of Value: Theory and Application, by Jay Fishman, Shannon Pratt, and William Morrison (John Wiley & Sons) is due in bookstores in the next few weeks, and, in BVWire’s opinion is the best current authority on applying standards of value in four contexts: estate and gift valuation, shareholder dissent and oppression, divorce, and financial reporting.

“The divorce chapter has the best summary of state-by-state case law I have seen to date,” says Ron Seigneur, MBA, CVA, CPA/ABV (Seigneur Gustasfon Knight, LLP). “The chapter on shareholder dissent is equally impressive,” he says, with its research reaching back to 19th Century law and moving forward through landmark Supreme Court cases and the Model Business Corporation Act. This statutory fair value chapter has a similar state summary of case law and definitions, including the application of discounts in each state.

But don’t just take his word for it: Tune into the BVR Telephone Conference on “Standards of Value,” featuring all three expert-authors, and moderated by Ron Seigneur on October 24, 2006. To register, click here.

ASB answers FAQ on USPAP

For instance—has any advice been issued to help understand the new SCOPE OF WORK RULE and its use? That’s the ninth in the series of thirty most frequently asked questions, which the Appraisal Standards Board has issued in connection with the newly-revised Uniform Standards of Professional Appraisal Practice. Also available: a USPAP question-of-the-month: September’s focuses on trainee access to work files. To see the entire Q&A, click here. And—oh, the answer to #9: “Yes, the ASB issued two new Advisory Opinions: (1) AO-28 Scope of Work Decision, Performance, and Disclosure; and (2) AO-29, An Acceptable Scope of Work.

More sources for BV hires in a tight market

Touted as the “number 1” site devoted to jobs and resume listings in corporate finance, accounting, and commercial banking is: www.jobsinthemoney.com. We did a quick search for “business valuation” and found a number of available postings across the country.

Another source: www.auditnet.org, the Web portal and online community for internal auditors, providing free audit work programs, ICQ’s (Internal Control Questionnaires), checklists, monographs, work papers, and job opportunities at the Auditnet Career Center; there’s also a section dedicated to Sarbanes-Oxley, with links to articles and documentation.

‘Field Follies’: What’s your best BV story?

“I was locked in a bank vault in an empty building, with not a soul in sight. Panic set in. I did not have a cell phone with me and I tried yelling for help for about an hour with no results…”

The story gets better: To escape, the appraiser took off all but his skivvies, and after thirty minutes of prying the slats in the door, he finally slipped through—only to greet the owner on the other side. “Needless to say…the client never called again,” but the appraiser did get a good story out of the engagement.

This “Field Folly” appears in the current issue of The Communicator, the quarterly publication of FREA (Foundation of Real Estate Appraisers); www.communicatormagazine.com. More stories include the one about being mistaken for “the other woman;” and another about conducting a house appraisal—only to walk into a bedroom, and find more value than bargained-for. What's your best BV story “from the field”? Email the BVWire editor, and we may publish it here.

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