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Business Valuations

Family Business Changes of Ownership & Estate Planning

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By: Jeffrey D. Urbach, CVA, CPA/ABV/CFF

Business owners have been saving estate taxes by transferring assets in the form of FLPs (Family Limited Partnerships)

Family Business

or outright gifts of company stock to family members.
The tax savings are the result of discounts taken by business appraisers on the value of the gift.

The IRS is proposing to disallow these discounts as of Jan. 1, 2017.
Based on many published surveys, selling a non-controlling interest can result in a 30 to 40% (or more) total discount off the value of the company because of the combination of the following two discounts.
These discounts are commonly called Minority (or Control) Discounts and DLOM (Discounts for Lack of Marketability).
A simple example:
Company A is worth $10,000,000 and 100% of the shares are owned by Mr. Smith. Assume he wants to gift 1/3 of the company to his daughter. The appraiser valued the company at $10,000,000 and in her judgment, the gift would warrant a combined Marketability and Control discount of 40%.
On the face of it, a 1/3 interest of a $10,000,000 is $3.3 Million. After application of the 40% discount ($1.32 Million), the value of the gift becomes $1.98 Million. ($3.3 million less $1.32 Million, or $1.98 million).
In the end, Mr. Smith removes $3.3 of value from his taxable estate and pays a Gift Tax on $1.98 million, say roughly 40% or $790,000. The same 1/3 interest, if left in his estate would have incurred a tax of $1.3 Million ($3.3 Million times 40%).
The gift saved his family $510,000 ($1.3 Million less $790,000).
The new IRS proposals to disallow these discounts may take effect on January 1, 2017. You should consult with your estate attorney and other financial advisors ASAP and to have a strategy in place when and if this change occurs.

Jeff Urbach Appointed to Board of Directors of IACVA

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Jeffrey D. Urbach was recently appointed to the Board of Directors of the International Association of Consultants, Valuators, and Analysts, IACVA ( www.iacva.org ). IACVA will be hosting a welcome booth as part of the annual NACVA Conference in Washington in June.  IACVA is offering an all-day training for its members from China. Jeff will be speaking on the topic of preparing valuation reports for Court use to a special delegation from China of over 30 financial experts, most of whom, like Jeff, hold advanced credentials such as the CVA.

Jeff, a Certified Valuation Analyst, specializes in several areas including business valuation, gifting/retirement planning, and healthcare practices (financial management, benchmarking, and valuation of practice).

Gifts that Catch the IRS’s Attention

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A recent publication by the U.S. Government Accountability Office highlights the increasing IRS trend of auditing returns that include items likely to involve an appraiser. A primary focus is on gift and estate returns, which often include such items. IRS technical advisors identified several gifts as being likely to involve an appraiser, including:
• Retirement plans
• Personal residence
• Real estate, improved
• Real Estate partnerships
• Other limited partnerships
• Art
If you are considering gifting your business make sure to have a certified business valuator appraise it. You’ll be happy you did if the IRS should ever come knocking.

Jeffrey Urbach Awarded Certificate of Excellence from NACVA

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Congratulations to partner Jeffrey Urbach, who has earned a Certificate of Excellence by the National Association of Certified Valuators and Analysts (NACVA) as the 2011 Instructor of Exceptional Distinction. Jeff, a Certified Valuation Analyst, generously shares his expertise and wisdom as a regular lecturer for NACVA, greatly enriching all those privileged to hear him. Jeff is accredited in Business Valuation. His specialty is the business valuation of medical and dental practices, law offices and other professional practices.

Do You Know the Real Value of Your Business?

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You probably think you already know the value of your business. After all, who would know it better than the owner? The reality is, however, that there are several factors that impact the value that many business owners are unaware of. In addition, the emotional investment one has in his business may cause him to underestimate risks or overestimate cash flows. Why is it important to know the true value of your business? Here are a few compelling reasons. [Read more…] about Do You Know the Real Value of Your Business?

The Pros and Cons of a Prenuptial Agreement

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While no one enters a marriage expecting to split up, the unfortunate reality is that more than 1 in 2 marriages end in divorce. If you are a physician or business owner engaged to be married, odds are either a friend or family member has recommended you get a prenuptial agreement. Should you listen? Here’s a rundown of the pros and cons you ought to consider. [Read more…] about The Pros and Cons of a Prenuptial Agreement