DAVID LARO – BUSINESS VALUATION & TAXES

Fair market valuations are required frequently by the law, as disputes over valuation issues fill the court’s docket. Approximately 243 sections of the Code and several thousand references in the Regulations explicitly require fair market value determination according to the authors. Taxpayers file an estimated 15 million tax returns each year. Valuation cases are ubiquitous because of that. Valuation is a highly sophisticated process. Valuators need guidance to do their jobs. The aim of the book is to give guidance to those who do valuations as well as those who are affected by them.

This text is unprecedented.

• Clear guidance and perspective on business valuation from two of the nation’s top authorities, Hon. David Laro and Dr Shannon Pratt.
• Insightful perspective and discussion on critical issues, procedures and law pertaining to business valuation.
• An overview of business valuation procedures
• Law and techniques of Fair Market Value Opinion from the Hon. David Laro and Dr. Shannon Pratt who express their unique and critical views.
• The business valuer with everything from the basics to the sophisticated. From definitions to valuing complex business interests, what you need to know about business valuation.
• Everything from empirical market evidence to credible expert business valuation testimony discussed and analyzed by the Hon. David Laro and Dr. Shannon Pratt.

TABLE OF CONTENTS

Forewords.

Preface.

Acknowledgments.

1. Standards of Business Valuation.

Summary.

There is an introduction.

There are sources for defining value.

There are definitions of value.

There is a premise of value.

Conclusion.

2. Subsequent Events.

Summary.

The question is key.

The valuation date.

There are exceptions to subsequent events.

Conclusion.

3. Business Valuation Experts.

Summary.

There is an introduction.

Showing business value.

The expert.

There are different types of experts.

There are various roles of experts.

There are witnesses in the business valuation litigation.

There is evidence that supports expert opinions.

There are limitations to admissibility.

The reliability of the expert.

There are minimum thresholds for the business valuation expert.

The Sarbanes-Oxley Act was enacted in 2002.

Attorney assistance to the expert.

Qualified person to appraise.

There are concerns about expert testimony.

A court-appointed expert.

Conclusion.

There are expert credentials and qualifications in this appendix.

4. Sources of Law and Choice of Courts.

Summary.

The American legal system has a structure.

Tax Law.

Tax litigation.

5. Burden of Proof in Valuation Controversies.

Summary.

There is a burden of proof.

The people who bear the burden of proof.

There are exceptions to the general rule.

6. Penalties and Sanctions.

Summary.

There is an introduction.

You need to know what you need to know.

Penalties for valuation.

Penalties that are general.

There are Discretionary Sanctions.

7. Valuation and Choice of Entity.

Summary.

There is an introduction.

Corporations.

There are limited liability companies.

General partnerships.

There are limited partnerships.

Sole proprietors.

There are some valuation considerations.

There is a choice of jurisdiction.

Conclusion.

8. Valuation of S Corporations and Other Pass-Through Tax Entities: Minority and Controlling Interests.

There is an introduction.

There is a case law background.

S Corporation appraisals of minority interests.

A Summary of the Issues is a comparison of minority interest theories.

S Corporation is controlling interest appraisals.

Summary.

There is a partial bibliography for S Corporation Valuation Issues.

9. Valuation of International Transactions.

Summary.

There is an introduction.

There is transfer pricing.

Customs valuation.

Conclusion.

10. Adjustments to Financial Statements.

Summary.

There is a separation between operating and nonoperating items.

Excess Assets and Asset Deficiencies are addressed.

Liabilities and Contingent Assets are handled.

Cash-Basis statements are adjusted to Accrual-Basis statements.

Adjustments are normalized.

There are controlling adjustments.

Conclusion.

11. Comparative Financial Statement Analysis.

Summary.

There is a comparable ratio analysis.

There are common size statements.

The value conclusion and the financial statement analysis are related.

Conclusion.

12. Economic and Industry Analysis.

Summary.

The objective is economic and industry analysis.

There is a national economic analysis.

There is a regional and local economic analysis.

Analysis of the industry.

Conclusion.

There is a partial list of sources for economic and industry analysis.

13. Site Visits and Interviews.

Summary.

There are site visits.

Interviews with management.

Interviews with people outside the company.

Conclusion.

14. The Income Approach.

There is a summary of approaches, methods and procedures.

The income approach is introduced.

Net cash flow is the preferred measure of economic benefit.

Capitalizing versus discounting.

There is a relationship between discount rate and capitalization rate.

Amounts of expected returns are projected.

The discount and capitalization rates for equity returns are being developed.

The WACC is the average cost of capital.

The convention was held in the midyear.

The courts have an income approach.

Conclusion.

There is an illustration of the income approach to valuation.

15. The Market Approach.

Summary.

The approach to the market.

Revenue Ruling 59-60 emphasizes the market approach.

The Guideline Publicly Traded Company is a publicly traded company.

How many companies do you recommend?

There is a selection of companies.

Documenting the search for companies.

Multiples are chosen based on objective evidence.

There are prices used in the numerators of the market valuation multiples.

The level of the valuation multiple is decided.

Selecting which valuation multiples to use.

Weights are assigned to various market multiples.

Tables with a sample market valuation approach.

There are other methods classified under the market approach.

Conclusion.

There is an illustration of the market approach to valuation.

16. The Asset-Based Approach.

Summary.

The adjusted net asset value method is used.

The formula approach to excess earnings.

Conclusion.

17. Entity-Level Discounts.

Summary.

There is a discount for trapped-in capital gains.

There is a key person discount.

The discount is for portfolio nonhomogeneous assets.

There is a discount for contingent liability.

Conclusion.

18. Discounts for Lack of Marketability.

There is a general introduction to shareholder-level discounts and premiums.

Marketability is defined.

Marketability is cash in three days.

Abhor illiquidity is what investors care about.

There are degrees of marketability.

There is empirical evidence to quantify discounts for lack of marketability.

There is empirical evidence that quantifies discounts for lack of marketability.

There are criticisms of the pre-IPO studies.

There are factors that affect the magnitude of discounts.

The Databases can be used to quantify discounts for lack of marketability.

There are discounts for lack of marketability in the courts.

Conclusion.

There is a partial list of sources for discounts.

19. Other Shareholder-Level Discounts.

Summary.

There are minority discounts and control premiums.

Voting versus nonvoting shares.

Blockage.

There are discounts for fractional interests in property.

Conclusion.

20. Weighting of Approaches.

Summary.

Theory and practice.

Subjective weighting and mathematical weighting.

There are examples of weighting approaches.

Conclusion.

21. Valuation of Options.

Summary.

There is an introduction and a background.

There are general principles of option valuation.

There are specific rules for determining options.

Conclusion.

22. IRS Positions.

Summary.

There is an introduction.

Rul. 59-60.

Rul. 65-192.

Rul. 65-193.

Proc. 66-47.

Rul. 69-609.

Proc. 77-12.

Rul. 77-289.

Rul. 83-110.

Rul. 85-75.

Rul. 93-12

Tax Advice Memorandum was signed in 1994.

Proc. 2003-50.

Conclusion.

23. Business Appraisal Reports.

Summary.

There are writing standards for a business valuation report.

The business valuation report has elements.

There is an organization of the report.

There are qualities of a good appraisal report.

Conclusion.

24. Questions to Ask Business Valuation Experts.

Summary.

There are qualifications.

There are financial statement adjustments and analysis.

There are economic and industry data.

Interviews and site visits.

There are questions about methodology.

Capitalization and discount rates are included in the income approach.

Projections are used in the income approach.

There is a market approach.

The approach is asset-based.

There are discounts at Entity-Level.

There are minority interest discounts and control premiums.

There are discounts for lack of marketability.

Voting stock.

There are questions aboutContradictory Prior Testimony.

The IRS Business Valuation Guidelines are in Appendix A.

Business valuation terms can be found in Appendix B.

Appendix C contains a list of books.

There is a table of cases.

Index .

AUTHOR INFORMATION

David Laro was appointed by President Bush to the United States Tax Court and became a federal judge in 1992. He practiced tax law in Michigan for twenty-four years. Judge Laro was chairman and CEO of a publicly traded international company and co founded a Michigan bank holding company. He is an associate professor of law at Georgetown University Law Center, a visiting professor at the University of San Diego Law School, and a lecturer at the Stanford Law School. He has written many articles on taxation.

Shannon P. Pratt is a member of the CM&AA. He is the Chairman and CEO of Shannon Pratt Valuations, Inc., a premier business valuation firm located in Portland Oregon. He has performed valuation engagements for M&A, ESOPs, gift and estate taxation, marital dissolution, shareholder oppression and dissent, and many other purposes. He has testified in a wide variety of federal and state courts, conducted numerous fairness and solvency opinions, and participated in many mediation proceedings. One of the most respected and successful authors in his field is Dr. Pratt. He is the author of several industry standards. The analysis and appraisal of closely held companies is Valuing a Business. It’s not like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it There are small businesses and professional practices. It’s not like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it The approach to assessing businesses. It’s not like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it The standards of value. It’s not like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it’s like it The Lawyer’s Business Valuation Handbook is about business valuations and taxes. And. The cost of capital.

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