Chapter 6Inputs to Modified Delaware MRI Model
Chapter 5 described the model used by the courts in Delaware Open MRI, which has been modified to incorporate factors not relevant to that case but that impact the model's utilization. The modified version of the Delaware Open MRI calculation requires the following inputs:
- Normalized pretax income
- Entity-level taxes on PTE income, that is, unincorporated business taxes and corporation income taxes on S corporation pretax income
- Income retained in the business not subject to distribution
- PTE owner's effective federal income taxes on pass-through income
- PTE owner's effective state and local income taxes on pass-through income
- Owner's effective federal and state dividend taxes on C corporation income available for distribution
With these six inputs, the effective combined federal and state C corporation income tax rate can be derived. This chapter describes the factors to be considered when determining each of these inputs.
Normalized Pretax Income
Normalized pretax income may differ from tax-reported or GAAP-reported pretax income insofar as normalized pretax income
- Eliminates nonrecurring or extraordinary items
- Removes errors in the calculation of reported income and expenses
- Reconciles the classification of similar transactions during different periods of time for comparison
- Adjusts for changes or inconsistencies in accounting and/or income tax methods
The purpose of such normalization adjustments is to convert reported pretax ...
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