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S Corporation: To Tax Affect or Not?



Whether valuators of businesses should “tax-affect” or “not tax-affect” an S corporation’s earnings is a controversial issue. The Internal Revenue Service is increasingly scrutinizing taxpayers and their business valuators fail to address the tax-affecting issue in valuations of S corporations. Any valuation of an S corporation (or other pass-through entity) should consider specific adjustments that recognize the tax differences between S corporations and C corporations. The Tax Courts nor the business valuation community have not recognized a “peer reviewed and tested S corporation valuation model” that addresses the tax attributes of...

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Asset Sale vs Stock Sale



Typically, buyers prefer asset sales, whereas sellers prefer stock sales. Buyers like the enhanced tax benefits of asset sales and the less exposure to corporate liabilities, and sellers like stock sales due to less income taxes. An asset sale is the purchase of an aggregation of individual assets. A stock sale is the purchase of the shares of a corporation. In an asset sale, the seller retains possession of the legal entity and the buyer purchases the individual assets of the company, such as equipment, fixtures, contracts, licenses, goodwill, and inventory....

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ARE YOU REALLY READY TO SELL YOUR BUSINESS…



…but you have inadvertently positioned yourself to be a one-person Deal Killer for, what could be, your most important deal in years? Your decision to sell your business to outsiders or to new partners may be motivated by a variety of reasons, including your age, business stagnation, boredom, a desire to sell at the peak, or a desire to move your residence. Or, you may have been approached by a competitor or investor desiring to acquir your position in the marketplace. Since your business is privately-held and the value of...

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Solvent or Insolvent



The issue of solvency, and insolvency, frequently arises in bankruptcy matters where a claim is made that one party (the debtor) made a transfer (while insolvent, or which transfer caused insolvency) with the intent to hinder, delay or defraud a creditor. Of course, the debtor typically claims that the transfer was made in good faith in the ordinary course of business for consideration of a reasonably equivalent value. At law, the solvency, or lack thereof, of the debtor is an economic question. Also in question is whether the transfer caused,...

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Hindsight Should Not Be the Best Sight



The courts, especially the Tax Courts, have frequently employed hindsight to help establish and adopt fair market values for businesses and assets. Hindsight evidence is facts and circumstances that only became known after the valuation date. In many cases, the courts have taken such actions because the business valuator (or real estate appraiser) brought to the court an inadequate report on fair market value. The court, faced with a void in reliable and credible valuation information, had to make a reckoning of value. The court reckonings were, sometimes, based on...

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