MULTI-LEVEL DISCOUNTS ALLOWED IN GIFT TAX VALUATION

In a recent Tax Court gift tax valuation decision, the court (Swift) permitted the taxpayer to apply a 30% valuation discount for lack of control and marketability to a partnership interest held within a family limited partnership, and a successive 17.47% discount for lack of control and 22% discount for lack of marketability to gifted limited partnership interests in the FLP........ [More]

NEW FAIRNESS OPINION RULING ADDRESSES CONFLICTS

The SEC has approved a new rule addressing conflicts of interest by firms providing fairness opinions in connection with change of control transactions. Rule 2290, originally drafted by the NASD (now FINRA), took effect December 8, 2007........ [More]

DAUBERT CHALLENGES OF FINANCIAL EXPERTS UP BY 89%

In 1999, the US Supreme Court, in its Kumho Tire ruling, extended to non-scientific expert testimony the Daubert admissibility criteria. These criteria were designed to keep “junk science” out of the courtroom. Since then, the number of Daubert challenges to financial experts has increased by more than 89%....... [More]

JELKE DECISION SETS NEW VALUATION STANDARD

In Estate of Jelke v. Commissioner (T.C. Memo. 2005-131), the Tax Court circumscribed the amount that a taxpayer could deduct for a $51 million built-in capital gains tax liability in valuing the stock of Commercial Chemical Company, a C corporation which held appreciated assets. The Court allowed a deduction of only $21 million. The haircut was applied to the tax liability in order to reflect the fact that the built-in gain tax would be incurred at various dates in the future and therefore that it needed to be discounted to the present by an amount calculated to reflect the time value of money...... [More]

ESTATE OF JELKE REVERSAL IS A MAJOR WIN FOR TAXPAYERS

In Estate of Jelke (T.C. Memo. 2005-131), the Tax Court circumscribed the amount that a taxpayer could deduct for built-in capital gains when valuing the stock of a C corporation which holds appreciated assets. The haircut was applied to reflect the fact that the built-in gain tax would be incurred at some date in the future, and therefore needed to be discounted to the present by an amount to reflect the time value of money..... [More]

IRS EXTENDS § 409A COMPLIANCE DEADLINE

The IRS announced on September 10, 2007, that taxpayers will have until December 31, 2008 to bring documents into compliance with the deferred compensation regulations under Section 409A of the Internal Revenue Code..... [More]

REVISED PRIVATE EQUITY VALUATION GUIDELINES ISSUED

The Private Equity Industry Guidelines Group (PEIGG) recently issued a revised version of its U. S. Private Equity Valuation Guidelines. The revised Guidelines, issued in March 2007, provide guidance to private equity funds on how to value their portfolio investments..... [More]

FLP DISCOUNT NIXED BY PENNSYLVANIA COURT

The Commonwealth Court of Pennsylvania upheld a lower court decision which disallowed an inheritance tax valuation discount on a family limited partnership which had been accepted by the IRS. 2007 Pa. Commw. LEXIS 182, In Re The Estate of Helen H. Berry, Deceased Late of Venango County Pennsylvania, Appellant, No. 1485 C.D. 2006 (COMMONWEALTH COURT OF PENNSYLVANIA April 24, 2007)..... [More]

§ 409A OPTION VALUATION REGULATIONS ISSUED

A copy of the regulations, all 93 pages, can be found here.

On April 10, 2007, the Treasury Department and the IRS issued final regulations on the treatment of nonqualified deferred compensation plans under Section 409A of the Internal Revenue Code. Affected plans are required to comply with the documentation requirements established by these regulations by December 31, 2007..... [More]

DISCOUNTED STOCK OPTION COMPLIANCE DEADLINE APPROACHES

IRS Code § 409A imposes a tax penalty on holders of certain stock options if the exercise price of the option is less than the fair market value of the stock on the date the option was granted. Such options are referred to as “discounted stock options.” Added to the tax code as part of the American Jobs Creation Act of 2004, § 409A generally requires that amounts deferred under a nonqualified deferred compensation plan are includable in gross income..... [More]

IRS ISSUES DISCOUNT GUIDANCE FOR FAMILY LIMITED PARTNERSHIPS

In an action that was little-noted at the time, the IRS, on October 18, 2006, issued Appeals Settlement Guidelines for family limited partnerships and family limited liability corporations (FLPs). These guidelines deal with a number of issues that frequently arise in estate and gift tax audits of transfers of FLP interests..... [More]