Prioritizing client education to empower decision makers throughout their transaction

Does McCord Matter? Did it Ever?

The Phone Call

The Tax Court’s decision addressing McCord v. Commissioner set off alarms that prompted an attorney, and client, to contact our firm to discuss its impact on calculating valuations. Certain it sounded a death-knell for the application for discounts, she advised me to read – and even re-read – the opinion while paying special attention to the discussion of marketability discounts and the court’s revised valuation analysis. She advocated conforming to the court’s self-crafted valuation methodology and urged our firm to follow its lead.

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IRS Rules Governing Deferred Compensation (Section 409A) Allow for Significant Penalties

Whether you are a CFO holding stock options or an employee looking forward to a year-end bonus, you need to be aware of the new provisions in Section 409A of the IRS code. Broadening the definition of deferred compensation, the rules now cover stock plans, option plans, stock appreciation rights (SARs), bonus arrangements, and more. Penalties for noncompliance are significant, making it essential that you are aware of how your compensation is valued and reported.

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Cash Held in Partnerships May be Subject to Significant Discounts

Often, cash and cash equivalents held by partnerships are considered by the IRS to be subject to no discounts or to only minimal discounts, because of the obvious liquidity. However, let’s take a look at the recently decided Tax Court case, Estate of Kelley v. Commissioner, T.C. Memo 2005-235, which considers the question of discounts applied to the interests of a family limited partnership held by the Estate. The partnership’s assets consisted solely of cash and certificates of deposit. In this case the overall discount allowed by the court was an amazing 32%! Why?

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Common Sense Analysis Paramount in Business Valuation

The court date has finally arrived and it’s your business valuation expert’s opportunity to provide testimony. You’re expecting a stellar presentation. His credentials are impressive and he’s cool under pressure, but does he understand the importance of applying a common sense analysis to the valuation issue? Can he separate the “art” of business valuation from the “science”? Let’s take a look at the important areas your expert should have researched before his day in court and ways he can help when testing an opposing expert.

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Valuations: Looking Behind the Curtain

Valuations professionals are often expected to know the value of every business to the penny; however, business appraisal is not an exact science, even as it follows the parameters of a standardized methodology. The analyst’s expertise and judgment are equally important in the process of analyzing value. Each valuation has a certain amount of wiggle room, which is valuable and necessary to the process. While it’s true that a valuation has an element of subjectivity, much of the benefit a client receives from a valuation is from that same subjectivity.

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Piercing the Armor – Conflicts of Interest in Fairness Opinions

Fairness opinions may be vulnerable to conflicts of interest if the firm that is providing the fairness opinion is also providing other services as well, such as merger and acquisition support. Because of the increased scrutiny from regulators and the financial investment communities, boards of directors are proceeding cautiously when considering if the value of the planned merger or acquisition is fair to shareholders.

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Conflict in Fairness Opinions – Not Just a Public Company Concern

“I have views on most matters, and I am as willing as a politician to change most of them.” -James Agate

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A Case Study: How Buy-Sell Agreements Affect Value and Marketability

I recently testified in a marital dissolution case in which there existed a 10-year-old buy-sell agreement among the owners of a privately held, family-owned company. The well intentioned drafters of the buy-sell agreement sought to provide for the following:

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Personal vs. Business Goodwill

“An ounce of prevention is worth a pound of cure.”

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David Jasmund

 

David Jasmund

Investment Banking | ESOP

Orlando Office

407-621-2111 (direct)

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Eric Zaleski

 

Eric Zaleski

Investment Banking | ESOP

Chicago Office

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Melissa Ritter

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Michael Rosendahl

 

Michael Rosendahl

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Will Stewart

Investment Banking | ESOP

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Woody Whitcomb

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poole_michael

 

Michael Poole

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Paul Vogt

Valuation

Atlanta Office

678-641-4760 (direct)

pvogt@pcecompanies.com

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Mackenzie Moran

 

Mackenzie Moran

Investment Banking

New York Office

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Isabel Carta

 

Isabel Carta

Investment Banking

Orlando Office

407-621-2149 (direct)

icarta@pcecompanies.com

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Philipp Seubert

 

Philipp Seubert

Investment Banking

New York Office

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pseubert@pcecompanies.com

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