This Newsletter discusses some important issues relating to Valuation - especially involving the tax valuation standard - The Hypothetical Party Fair Market Value Standard used in income, gift and estate tax valuation controversies. Essentially, the focus is on the importance of the lawyer and CPA being directly involved in valuation strategies and planning, including in selecting and working with business valuation appraisers. In addition, I am nearing the start of my 2015 Webcasts on estate and succession planning, which this year involve working with three(3) outstanding CPE providers on a variety of courses.
Valuation - a Core Concept in Estate and Succession Planning.
In spite of attempts, including via Federal Tax Regulations, to measure Fair Market Value objectively, the concept is the subject of much subjectivity, misunderstanding, manipulation and therefore clearly is identified as a compliance issue by IRS. Essentially, when dealing with gift and estate transfers of fractional interests in property (e.g. family-owned company stock, FLP and LLC interest, co-tenancy interests in real estate and even art objects), a proxy for FMV is needed, and is provided by expert testimony and reports of qualified business valuation appraisers. Because of the 1993 U.S. Supreme Court opinion in the Daubert case, Federal trial courts (including the U.S. Tax Court where only "bench trials"-i.e. no jury are conducted) are the "gatekeepers" of the relevance and reliability of expert testimony.
Does this mean that lawyers and CPAs are not to be involved, that is, should they sit idly by and allow appraisers to "do their thing" - NO, and far from it, as my remaining comments and citations will make clear. Further, one of my upcoming webcast courses is specifically on Valuation and will go into this area in detail.
I am going to reach way back here - prior to the Tax Court making available, beginning in 1995, its opinions online (www.ustaxcourt.gov). This relates to the interesting Northern CA sited case of Estate of Evelyn Wildman v. Commissioner of Internal Revenue, T.C. Memo. 1989-667 - a case involving decedent's co-tenancy interest in a family farm. Two appraisers were presented by the taxpayer (legal counsel was well-known San Jose, CA tax attorney Bud Ferrari), with a then young Curtis Kimball of Willamette Management Associates, Inc., appraisers, providing testimony to bolster the taxpayer's other appraiser. To eliminate any concern, Bud Ferrari ultimately was quite successful in the case as the court allowed a 40% overall co-tenancy real estate discount from FMV of the whole farm. But the issue here focuses us on why lawyers and other tax professionals must be involved - Here is what Tax Court Judge Joel Gerber stated in a footnote explaining why he rejected Mr. Kimball's report and testimony: "Although Mr. Kimball's report was received into evidence, it is of no assistance to our consideration of this case because the conclusions contained therein are either legal conclusions, which the parties agreed Mr. Kimball (not a lawyer) was incompetent to render, or the conclusions did not have relevance and comparability to the subject property so as to be of assistance in our factual consideration of this case."
Among the key points in Valuation are that it is both a factual and legal issue, the court as ultimate trier of fact has broad latitude in its determination of value, and the legal and financial assumptions or premises of value are quite important to be provided the appraiser, especially where legal opinions are called for - e.g. is the FLP or LLC a valid entity, were the interests transferred partnership interests or mere assignee interests, are certain special Code rules, e.g. IRC Sec. 2703, applicable and, if so, are restrictions on transfer to be considered.
Continuing Professional Education (CPE) - Webinars Available in Estate & Succession Planning
I am honored to be able to present webcasts or webinars for three(3) outstanding CPE providers who each make CPE available to lawyers and to CPAs. These providers are Clear Law Institute (www.clearlawinstitute.com), CPE Credit (www.cpecredit.com), and CPE Link (www.cpelink.com). The CPE Link webcasts begin in August and run through December, involving 4 separate estate and succession planning courses I have authored. The other two providers have a presentation schedule beginning in just a few weeks, and so I list the provider, dates and courses for your information and perhaps becoming a registrant for one or more of them:
Clear Law Institute -
June 11, 2015 - 1-1/2 hours - "Estate & Succession Planning for the 99%"
July 1, 2015 - 1-1/2 hours - "Entities, Valuation & Family Wealth Planning"
July 9, 2015 - 1-1/2 hours - "Valuation, Discount Strategies & Tax Savings"
CPE Credit -
May 8, 2015 - 2 hours - "Buy-Sell & Deferred Compensation Agreements"
May 11, 2015 - 2 hours - "Entities, Valuation & Family Wealth Planning"
May 27, 2015 - 3 hours - "Family Wealth & Business Succession Planning"
June 3, 2015 - 2 hours - "Valuation, Discount Strategies & Tax Savings"
You should note that each of these courses will be presented live by me, using power point slides to guide the presentation, and that each presentation is interactive, allowing participants to ask questions and make comments online. In addition, for each course, downloadable by participants, there is a detailed outline and other educational materials for review and use in advising clients.
I hope some of my readers will be online with me in these courses!
From the Wild & Scenic Clearwater Riever in the Idaho Central Panhandle - Owen Fiore, JD