The IRS challenged the salary of an S Corp owner. The IRS maintained the owner’s salary was unreasonably low, and that a portion of distributions should have been classified as salary, and should be subject to FICA tax. The 8th U.S. Circuit Court of Appeals heard the case and upheld the lower court’s decision that sided with the IRS. Here is a link to an article in the Journal of Accountancy with more information. See more from the Journal of Accountancy here.
IRS Challenges the Salary of an S Corp Owner
February 28th, 2012Considering the ESOP Repurchase Obligation and Its Effect on Fair Market Value
February 21st, 2012
Written by Anne R. Meltzer, CPA/ABV
Have you considered the ESOP Repurchase Obligation? This refers to the “put” right which obligates the company to purchase an employee’s shares. The majority of ESOP repurchases are due to employee terminations and retirements. Since both of these situations are fairly predictable, the repurchase obligation is also predictable and manageable.
The impact of the repurchase obligation on fair market value depends most strongly on the 1) percentage of stock owned by the ESOP, 2) distribution rules within the plan document and 3) the methods used to repurchase the shares. Read the rest of this entry »
Issues Related to the Use of Valuation Rebuttal Reports
February 13th, 2012
Written by Mark Norris
A valuation rebuttal report is a report that is used for litigation purposes whereby a critique is made of the valuation report of the opposing expert, and then a revised valuation conclusion is provided. The goals to be achieved with a rebuttal report include:
• Reduce fees to the client because a detailed appraisal report is not prepared;
• Communicate to the reader, potentially a “Trier of Fact” (Judge or Jury) that these are the areas that both experts agree on, and these are the areas where they do not agree; and
• As a result of the areas of disagreement, a revised value conclusion is provided. Read the rest of this entry »
Mark Norris Serves As Key Expert Witness
February 7th, 2012
MFS, Inc. v. DiLazaro was rated the 22nd top Pennsylvania verdict and the #1 civil rights Pennsylvania verdict in 2010. The U.S District Court, Eastern District of Pennsylvania awarded MFS, Inc. $6.5 million primarily representing economic damages and the total loss of the value of the business. Mark W. Norris was the expert testifying on behalf of MFS, Inc. regarding the damages incurred by the Company.
Mark Norris Named Outstanding Member
February 7th, 2012Mark W. Norris, CPA/ABV, CVA, CFFA, ASA was named Outstanding Member by the National Association of Certified Valuators and Analysts in the Associations fourth Quarter 2011 Association News Newsletter.
Mr. Norris is currently serving as a member on the Association’s Valuation Credentialing Board, after finishing his term as Chairman of that Board in May 2011.
Top 10 Errors in Valuation Reports
February 2nd, 2012Written by Jennifer Rosenberg
Do you review valuation reports? Keep these common errors in mind when you get the next one. Make sure your report does not have them.
- Failure to clearly identify and adhere to the applicable standard of value
- Reliance on Rules of Thumb as a primary valuation method
- Indiscriminate use of Price/Earnings Multiples
- Failure to make normalization adjustments when valuing a controlling interest
- Failure to match capitalization rate with earnings base
- Not adjusting for market compensation for the owner.
- Failure to apply tax rates correctly
- Failure to understand and apply the appropriate standards (USPAP, AICPA, IRS, etc.)
- Utilizing an inappropriate premise or standard of value based on the valuation –specific facts and circumstances
- Failing to consider the guideline public company method when valuing smaller companies
Please contact us if you have any questions about this topic.