Winter 2021


Thought Leadership in Estate and Gift Transfer Tax Valuation Matters

Editor for This Issue: Michael L. Binz

Gift and Estate Tax Planning Thought Leadership

Thought Leadership Discussion:
Valuation Considerations for Gift and Estate Tax Planning and Compliance Purposes during Economic Uncertainty
Michael L. Binz
The valuation of a privately held business or business ownership interest becomes more complex during periods of economic uncertainty. This discussion summarizes observations from recent events affecting global economies, and it focuses on the implications for gift and estate tax valuations. Understanding the economic outlook at the specific valuation date establishes the context for valuation analysts and regulatory agencies to assess expectations regarding future performance of a privately held business or business interest. This discussion presents several factors that analysts may consider when estimating fair market value for gift and estate tax purposes during economic uncertainty. The current environment may provide an opportunity for the owners of private businesses and business interests to evaluate their wealth planning goals, strategies, and objectives in order to maximize future benefits.

Transfer Tax and Income Tax Thought Leadership

Due Diligence Interviews for Transfer Tax Valuation Purposes
Robert F. Reilly, CPA
Valuation analysts (“analysts”) are often retained by high net worth taxpayers—and their tax counsel—to perform valuations related to transfer tax (or income tax) planning, compliance, audit, or litigation purposes. These valuations often involve private companies, private business ownership interests, or private debt and equity securities. In such valuations, the analyst typically performs various due diligence analyses. This discussion focuses on one due diligence procedure: the valuation-related due diligence interviews related to the owners and managers of the private company.

Analyst Considerations in Applying a Discount for Lack of Control in Transfer Tax Valuations
Nathan P. Novak and Robert F. Reilly, CPA
Valuation analysts (“analysts”) often have to consider the issue of “level of value” in private company business and security valuations performed for either gift tax, estate tax, or generation-skipping transfer tax (collectively “transfer tax”) purposes or income tax purposes. The level of value issue relates to the considerations of (1) marketability (or the lack of marketability) and (2) ownership control (or the lack of ownership control) related to the subject business ownership interest. These considerations are often incorporated into the private company valuation through the analyst’s application of valuation adjustments. These valuation adjustments may be either valuation discounts (or value reductions) or valuation premiums (or value increases). This discussion focuses on analyst considerations with regard to applying a discount for lack of control in the valuation of a private company performed for either transfer tax or income tax purposes.

Best Practices Discussion:
Performing a Functional Analysis as Part of a Valuation, Damages, or Transfer Price Analysis
Robert P. Schweihs and Robert F. Reilly, CPA
A functional analysis can be performed with regard to any business, business ownership interest, security, or intangible asset. For any such type of business or property ownership interest, the functional analysis allows the analyst to identify (and document) (1) the functions performed, (2) the assets employed, and (3) the risks assumed. Many observers immediately associate a functional analysis with an intercompany transfer price analysis related to either tangible property or intangible property. Such transfer price analyses are often (although not always) developed for federal income tax purposes. However, as described in this discussion, a functional analysis is also relevant as part of a damages measurement analysis. And, the development of a functional analysis is also a best practices procedure with regard to a business or property valuation performed for either transfer tax purposes or income tax purposes. This discussion summarizes what an analyst needs to know about performing a functional analysis as one part of a valuation, damages, or transfer price analysis.

Trust and Estate Thought Leadership

Subsequent Events in Gift and Estate Tax Valuations
Ben R. Duffy and Weston C. Kirk
Subsequent events are sometimes considered in the development of a business valuation. This statement is true for business valuations that are developed retrospectively. Events which take place after the valuation date may require special consideration based on analysis-specific circumstances. This discussion provides guidance to understand how and when subsequent events may—or may not—be considered in a business valuation prepared for federal gift and estate tax planning, compliance, or litigation purposes.

What Tax Counsel Needs to Know about Working with a Valuation Specialist
Timothy J. Meinhart and Robert F. Reilly, CPA
Trust and estate counsel are often involved in the planning, compliance, and controversy matters on behalf of corporate, trust, or high net worth individual clients. These taxation matters could include both (1) gift tax, estate tax, and generation-skipping transfer tax (collectively, “transfer tax”) and (2) income tax matters. These transfer tax and income tax matters often involve the valuation of a private company, business ownership interest, security, or intangible asset. This discussion provides everything that trust and estate counsel need to know about selecting and working with a valuation specialist in such transfer tax or income tax matters.

Income Tax Thought Leadership

Compensating Private Company Key Employees with Stock-Based Compensation Grants
Michael L. Binz and Robert F. Reilly, CPA
Many private companies use stock-based compensation arrangements to recruit and retain qualified employees, particularly at the experienced hire and management levels. This discussion summarizes the various types of stock-based compensation plans available to the private company to attract and retain key employees. In particular, this discussion focuses on the income tax considerations (to both the employer company and to the key employee) related to such stock-based compensation arrangements.

Gift and Estate Tax Controversy Thought Leadership

Pierson M. Grieve v. Commissioner: Tax Court Rejects Theoretical Valuation Methodology
Chad M. Kirkland
This discussion considers the recent decision issued by the U.S. Tax Court in Pierson M. Grieve v. Commissioner of Internal Revenue. Specifically, this discussion describes (1) the main topics of this judicial decision, (2) the valuation issues of this judicial decision, and (3) the Tax Court’s judicial conclusion. In summary, the Tax Court rejected the novel valuation theory applied by the Internal Revenue Service’s valuation analyst in the case.