book

Business Valuation and Federal Taxes: Procedure, Law and Perspective, 2nd Edition

by David Laro, Shannon P. Pratt

May 2011

Intermediate to advanced

482 pages

15h 56m

English

Wiley

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Origin of the BookAuthors Provide Own PerspectivesTopics Covered

SummaryIntroductionSources for Defining ValueDefinitions of ValuePremise of ValueConclusion
SummaryKey QuestionValuation DateSubsequent Events—ExceptionsConclusion
SummaryIntroductionProving Business ValueThe Expert AppraiserTypes of ExpertsVarious Roles of ExpertsBusiness Valuation Litigation WitnessesAdmissibility of Evidence Underlying Expert OpinionsLimitations to AdmissibilityReliability of the ExpertMinimum Thresholds for the Business Valuation ExpertSarbanes-Oxley Act of 2002Attorney Assistance to the ExpertQualified AppraiserConcerns about Expert TestimonyCourt-Appointed ExpertConclusionAppendix: Expert Credentials and Qualifications
SummaryStructure of the American Legal SystemTax LawTax LitigationConclusion
SummaryBurden of ProofWho Bears the Burden of Proof?Burden of Proof: Exceptions to the General Rule
SummaryIntroductionValuation PenaltiesPreparer and Appraiser PenaltiesGeneral PenaltiesDiscretionary Sanctions
SummaryIntroductionCorporationsGeneral PartnershipsLimited PartnershipsLimited Liability CompaniesSole ProprietorshipsTax ClassificationsValuation ConsiderationsEntity-Level DiscountsChoice of JurisdictionConclusion
IntroductionCase Law BackgroundS Corporation Minority Interest AppraisalsComparison of Minority Interest Theories—A Summary of the IssuesS Corporation Controlling Interest AppraisalsGeneral S Corporation Appraisal ConsiderationsConclusion
SummaryIntroductionConclusion
SummaryIntroductionCustoms Valuation Methods and ConceptsRelated-Party TransactionsConclusion
SummarySeparating Nonoperating Items from Operating ItemsAddressing Excess Assets and Asset DeficienciesHandling Contingent Assets and LiabilitiesAdjusting Cash-Basis Statements to Accrual-Basis StatementsNormalizing AdjustmentsControlling AdjustmentsConclusion
SummaryComparable Ratio AnalysisCommon Size StatementsTying the Financial Statement Analysis to the Value ConclusionConclusion
SummaryObjective of Economic and Industry AnalysisInternational Economic AnalysisNational Economic AnalysisRegional and Local Economic AnalysisIndustry AnalysisConclusionPartial Bibliography of Sources for Economic and Industry Analysis
SummarySite VisitsManagement InterviewsInterviews with Persons Outside the CompanyConclusion
Summary of Approaches, Methods, and ProceduresIntroduction to the Income ApproachNet Cash Flow: The Preferred Measure of Economic Benefit in the Income ApproachDiscounting versus CapitalizingRelationship between Discount Rate and Capitalization RateProjected Amounts of Expected ReturnsDeveloping Discount and Capitalization Rates for Equity ReturnsWeighted Average Cost of Capital (WACC)The Midyear ConventionThe Income Approach in the CourtsConclusionAppendix: An Illustration of the Income Approach to Valuation
SummaryThe Market ApproachRevenue Ruling 59-60 Emphasizes Market ApproachThe Guideline Public Company and the Guideline Transaction (Merger and Acquisition) MethodHow Many Guideline Companies?Selection of Guideline CompaniesDocumenting the Search for Guideline CompaniesChoosing Multiples Based on Objective Empirical EvidenceWhat Prices to Use in the Numerators of the Market Valuation MultiplesChoosing the Level of the Valuation MultipleSelecting Which Valuation Multiples to UseAssigning Weights to Various Market MultiplesSample Market Valuation Approach TablesOther Methods Classified under the Market ApproachConclusionAppendix: An Illustration of the Market Approach to Valuation
SummaryAdjusted Net Asset Value MethodExcess Earnings Method (The Formula Approach)Conclusion
SummaryTrapped-In Capital Gains DiscountKey Person DiscountPortfolio (Nonhomogeneous Assets) DiscountDiscount for Contingent LiabilitiesConclusion
SummaryMinority Discounts/Control PremiumsConclusion
Summary: General Introduction to Shareholder-Level Discounts and PremiumsDefinition of MarketabilityBenchmark for Marketability Is Cash in Three DaysInvestors Cherish Liquidity, Abhor IlliquidityDegrees of Marketability or Lack ThereofEmpirical Evidence to Quantify Discounts for Lack of Marketability: Restricted Stock StudiesEmpirical Evidence to Quantify Discounts for Lack of Marketability: Pre-IPO StudiesCriticisms of the Pre-IPO StudiesFactors Affecting the Magnitude of Discounts for Lack of MarketabilityUse of the Databases for Quantifying Discounts for Lack of MarketabilityDiscounts for Lack of Marketability for Controlling InterestsOption Pricing as Indicator of DLOMDiscounts for Lack of Marketability in the CourtsConclusionPartial Bibliography of Sources for Discounts for Lack of Marketability
SummaryVoting versus Nonvoting SharesBlockageDiscounts for Undivided Fractional Interests in PropertyConclusion
SummaryDefinitions of GoodwillTax ImplicationsIndications of Personal versus Enterprise GoodwillLandmark CasesExcerpt from Personal Goodwill Appraisal ReportConclusion
SummaryTheory and PracticeMathematical versus Subjective WeightingExamples of Weighting of ApproachesConclusion
SummaryIntroductionRev. Rul. 59-60Rev. Rul. 65-192Rev. Rul. 65-193Rev. Proc. 66-49Rev. Rul. 68-609Rev. Proc. 77-12Rev. Rul. 77-287Rev. Rul. 83-120Rev. Rul. 85-75Rev. Rul. 93-12Tax Advice Memorandum 9436005Rev. Proc. 2003-51Rev. Proc. 2007-41Rev. Rul. 2008-35
SummaryBusiness Valuation Report-Writing StandardsElements of the Business Valuation ReportOrganization of the ReportQualities of a Good Appraisal ReportConclusion
SummaryIntroduction and BackgroundGeneral Principles of Option ValuationSpecific Rules for Valuing OptionsConclusion
SummaryQualificationsFinancial Statement Adjustments and AnalysisEconomic and Industry DataSite Visits and InterviewsGeneral Questions about MethodologyDiscount and Capitalization Rates in the Income ApproachProjections Used in the Income ApproachAsset-Based ApproachEntity-Level DiscountsMinority Interest Discounts/Control PremiumsDiscounts for Lack of MarketabilityVoting/Nonvoting StockQuestions about Contradictory Prior Testimony
BooksArticles and PapersPeriodicalsMergers and Acquisitions DatabasesDiscount for Lack of Marketability Databases

Content preview from Business Valuation and Federal Taxes: Procedure, Law and Perspective, 2nd Edition

Table of Cases

ACM Partnership. v. Comm'r, 157 F.3d 231 (3d Cir. 1998), aff'g. in part and rev'g. in part, T.C. Memo 1997–115, 73 T.C.M. (CCH) 2189 (1997), 31

Adair v. Comm'r, T.C. Memo 1987–494, 326

Adams v. United States, 2001 U.S. Dist. LEXIS 13092 (N.D. Tex. 2001), 267, 276, 325

Adams, Estate of v. Comm'r, T.C. Memo 2002–80 (2002), 100, 103, 106, 269

Agro Science Co. v. Comm'r, T.C.Memo 1989–687, 58 T.C.M. (CCH) 1093 (1989), aff'd. 934 F.2d 573 (5th Cir. 1991), 47

Amerada Hess Corp. v. Comm'r, 517 F.2d 75 (3d Cir. 1975), 66

Anderson v. Comm'r, 62 F.3d 1266 (10th Cir. 1995), 65

Andrews, Estate of v. Comm'r, 79 T.C. 938 (1982), 316, 346, 382

Appeal of Charles P. Hewes, 2 B.T.A. 1279 (1925), 8

Auker, Estate of v. Comm'r, T.C. Memo 1998–185, 75 T.C.M. (CCH) 2321, 327

Avery v. Comm'r, 3 T.C. 963 (1944), 327, 384

Baird, Estate of v. Comm'r, 416 F.3d 442 (5th Cir. 2005), 331

Baird, Estate of v. Comm'r, T.C. Memo 2001–258, 82 T.C.M. (CCH) 666, 331

Bank One Corporation v. Comm'r, 120 T.C. 174 (2003), aff'd in part, vacated in part, JPMorgan Chase & Co. v. Comm'r, 458 F.3d 364 (7th Cir. 2006), 15, 46, 47, 422

Barge, Estate of v. Comm'r, T.C. Memo 1997–188, 73 T.C.M. (CCH) 2615, 332

Barnes v. Comm'r, T.C. Memo 1998–413, 76 T.C.M. (CCH) 881 (1998), 322

Barnes, Estate of v. Comm'r, T.C. Memo 1998–413, 76 T.C.M. (CCH) 881, 314

Baumer v. United States, 580 F.2d 863 (5th Cir. 1978), 424, 431

Baumgartner v. United States, 322 U.S. 665 (1944), 65

Bausch & Lomb, Inc. v. Comm'r, 92 T.C. 525 (1989), ...