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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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Cover
Title Page
Copyright
Dedication
Foreword to Second Edition
Foreword: Legal Practitioner's Perspective
Foreword: Law Professor's Perspective
Foreword: Business Appraiser's Perspective
Preface to the New Edition
Origin of the BookAuthors Provide Own PerspectivesTopics Covered
Acknowledgments

About the Authors
Chapter 1: Standards of Business Valuation
SummaryIntroductionSources for Defining ValueDefinitions of ValuePremise of ValueConclusion
Chapter 2: Subsequent Events
SummaryKey QuestionValuation DateSubsequent Events—ExceptionsConclusion
Chapter 3: Business Valuation Experts
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
Chapter 4: Sources of Law and Choice of Courts
SummaryStructure of the American Legal SystemTax LawTax LitigationConclusion
Chapter 5: Burden of Proof in Valuation Controversies
SummaryBurden of ProofWho Bears the Burden of Proof?Burden of Proof: Exceptions to the General Rule
Chapter 6: Penalties and Sanctions
SummaryIntroductionValuation PenaltiesPreparer and Appraiser PenaltiesGeneral PenaltiesDiscretionary Sanctions
Chapter 7: How the Form of Entity Affects Valuation
SummaryIntroductionCorporationsGeneral PartnershipsLimited PartnershipsLimited Liability CompaniesSole ProprietorshipsTax ClassificationsValuation ConsiderationsEntity-Level DiscountsChoice of JurisdictionConclusion
Chapter 8: Valuation of S Corporations and Other Pass-Through Tax Entities: Minority and Controlling Interests
IntroductionCase Law BackgroundS Corporation Minority Interest AppraisalsComparison of Minority Interest Theories—A Summary of the IssuesS Corporation Controlling Interest AppraisalsGeneral S Corporation Appraisal ConsiderationsConclusion
Chapter 9: Transfer Pricing
SummaryIntroductionConclusion
Chapter 10: Customs Valuation
SummaryIntroductionCustoms Valuation Methods and ConceptsRelated-Party TransactionsConclusion
Chapter 11: Adjustments to Financial Statements
SummarySeparating Nonoperating Items from Operating ItemsAddressing Excess Assets and Asset DeficienciesHandling Contingent Assets and LiabilitiesAdjusting Cash-Basis Statements to Accrual-Basis StatementsNormalizing AdjustmentsControlling AdjustmentsConclusion
Chapter 12: Comparative Financial Statement Analysis
SummaryComparable Ratio AnalysisCommon Size StatementsTying the Financial Statement Analysis to the Value ConclusionConclusion
Chapter 13: Economic and Industry Analysis
SummaryObjective of Economic and Industry AnalysisInternational Economic AnalysisNational Economic AnalysisRegional and Local Economic AnalysisIndustry AnalysisConclusionPartial Bibliography of Sources for Economic and Industry Analysis
Chapter 14: Site Visits and Interviews
SummarySite VisitsManagement InterviewsInterviews with Persons Outside the CompanyConclusion
Chapter 15: The Income Approach
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
Chapter 16: The Market Approach
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
Chapter 17: The Asset-Based Approach
SummaryAdjusted Net Asset Value MethodExcess Earnings Method (The Formula Approach)Conclusion
Chapter 18: Entity-Level Discounts
SummaryTrapped-In Capital Gains DiscountKey Person DiscountPortfolio (Nonhomogeneous Assets) DiscountDiscount for Contingent LiabilitiesConclusion
Chapter 19: Minority Discounts/Control Premiums
SummaryMinority Discounts/Control PremiumsConclusion
Chapter 20: Discounts for Lack of Marketability
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
Chapter 21: Other Shareholder-Level Discounts
SummaryVoting versus Nonvoting SharesBlockageDiscounts for Undivided Fractional Interests in PropertyConclusion
Chapter 22: Personal versus Enterprise Goodwill
SummaryDefinitions of GoodwillTax ImplicationsIndications of Personal versus Enterprise GoodwillLandmark CasesExcerpt from Personal Goodwill Appraisal ReportConclusion
Chapter 23: Weighting of Approaches
SummaryTheory and PracticeMathematical versus Subjective WeightingExamples of Weighting of ApproachesConclusion
Chapter 24: IRS Positions
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
Chapter 25: Business Appraisal Reports
SummaryBusiness Valuation Report-Writing StandardsElements of the Business Valuation ReportOrganization of the ReportQualities of a Good Appraisal ReportConclusion
Chapter 26: Valuation of Options
SummaryIntroduction and BackgroundGeneral Principles of Option ValuationSpecific Rules for Valuing OptionsConclusion
Chapter 27: Questions to Ask Business Valuation Experts
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
Appendix A: International Glossary of Business Valuation Terms
Appendix B: Bibliography
BooksArticles and PapersPeriodicalsMergers and Acquisitions DatabasesDiscount for Lack of Marketability Databases
Table of Cases
Index

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

Chapter 27

Questions to Ask Business Valuation Experts

Summary

This chapter consists of a partial list of questions that are useful to ask potential valuation experts. The questions are applicable in all types of valuation cases including family law, state dissenting stockholder or minority oppression actions, bankruptcy cases, ad valorem cases, and tax cases, regardless of the standard of value.

Qualifications

Are you employed? Where?

Please describe your employment history.

Please describe your educational background.

Did your work experience allow you to get involved in ?

Did you have occasion to focus on ?

Since you began your career, what work have you done in the area of ?

Do you have a copy of your resume?

Please describe any articles you have written that have been published.

Have you ever been recognized as an expert in any court on the subject of ?

Have you previously authored articles, presented opinions in any form, or offered any testimony that is contrary to the opinion you intend to give here?

What professional designations do you hold that relate to business valuation?

American Society of Appraisers
- FASA—Fellow of American Society of Appraisers
- ASA—Accredited Senior Appraiser
- AM—Accredited Member
- ARM—Appraisal Review and Management
Institute of Business Appraisers
- MCBA—Master Certified Business Appraiser
- CBA—Certified Business Appraiser
- BVAL—Business Valuator Accredited for Litigation
- FIBA—Fellow of the Institute of Business Appraisers
- AIBA—Accredited by ...

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

by David Laro, Shannon P. Pratt

Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.