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Do you know what your business is worth? Our business valuation experts provide you with an objective, expert view of your company – while helping you understand the value drivers of your business. In addition to preparation for sale, knowing the actual value of your business is crucial for a number of reasons:
Your business balance sheets and financial statements are not enough to present the true value of your company. An accurate valuation requires a customized approach. Our Certified Valuation Analysts integrate basic valuation principles with the very latest developments in business valuation theory to arrive at the most comprehensive valuation possible. We can also help you comply with the complex requirements of the Statements of Financial Accounting Standards (SFAS) Nos. 141 and 142. These standards require companies to perform a valuation to determine the current fair value of intangible assets and goodwill acquired in a business combination or merger and to periodically test previously recorded goodwill and intangibles with indefinite lives for impairment. For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.
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Valuations Insights, Third Quarter, 2008 Finally, a Tax Court Considers a Good Facts Family Limited Partnership Estate of Mirowski v. Comm'r, T.C. Memo. 2008-74 March 26, 2008 After a recent string of "bad facts" cases dealing with family limited partnerships (FLPs) and limited liability companies (LLCs), the U.S. Tax Court delivered some relief to taxpayers with this new case. Mirowski also provides a potential "roadmap" for good planning, funding, and presenting an FLP or similar entity, such as a limited liability company, should it meet an IRS challenge under IRC §2036(a). Long-term planning, sudden death Mrs. Mirowski’s husband, a physician, helped develop a patented medical device in the 1960s, which became enormously profitable after his death in 1990. Continuing a long history of family and charitable giving, Mrs. Mirowski retained a majority (51.09%) interest in the patent and licensing agreements, but gifted the remaining interest into three irrevocable trusts for each of her daughters. In August 2001, and with the assistance of her financial advisors, she executed the Mirowski Family Ventures (MFV), a limited liability company, funding it within a week with more than $60 million in assets, including the 52% interest in medical patents. In early September, she gave each of her daughters’ trusts a 16% member interest in MFV, for a total of 48%. The MFV operating agreements designated Mrs. Mirowski as general manager, but a sale or other transfer of the company required approval of all members. Although she made no arrangements for how the daughters would pay the substantial gift tax liability that would result from their MFV membership, Mrs. Mirowski retained substantial personal assets (over $7.5 million) from which she could have provided payments. Four days after funding MFV, however—and quite suddenly, Mrs. Mirowski died from complications of her diabetes. Family management is key Mrs. Mirowski’s estate paid over $14.1 million in estate taxes—but on audit and pursuant to §2036, the IRS determined that the estate owed an additional $14.2 million in taxes, based on the inclusion of all Mrs. Mirowski’s transfers to MFV. The IRS tried to compare MFV to prior "bad facts" cases in which the Tax Court rejected an FLP or similar entity based on improper or belated funding, failure to observe partnership structure and management procedures, and other "badges" of non-business purpose. In these cases, the FLP often had little use beyond an estate planning (and tax avoidance) device. By contrast, the estate distinguished this case by its comparatively "good facts." For instance, even though Mrs. Mirowski died within days of funding MFV, her death was entirely unexpected. Although she realized that forming MFV could result in potential tax benefits, her primary motivations were: (1) joint management of the family's assets by her daughters and eventually her grandchildren; (2) pooling the assets to allow for investment opportunities that would not be available if she made separate gifts to each of her daughters or their trusts; (3) providing additional protection from potential creditors for the interests in the family's assets; and (4) providing for each of her daughters and ultimately her grandchildren on an equal basis. The Tax Court agreed with the estate, finding that MFV had "real and significant nontax business purposes" that met the §2036(a) criteria to apply the "bona fide sale" exception to the transfers. In fact, based on the record, the mother’s wish for her daughters to remain "closely knit and be jointly involved" in managing the family assets was the most significant nontax purpose and "standing alone," the court held, was sufficient to qualify for the §2036(a) exception. The IRS claimed that Mrs. Mirowski had failed to retain sufficient assets outside of MFV to support her own expenses as well as her daughters’ substantial gift tax liability. But the court found that she could have paid this expense from her retention of over $7.5 million in assets or from the anticipated MFV distributions. At no time before her death, the court said, did the members of MFV have any agreement, express or implied, to fund the liability with MFV assets. Finally, even though Mrs. Mirowski was the general manager of MFV, her powers and discretion were subject to the operating agreement—including its requirement of other members’ approval for major transactions. The court found no agreement, express or implied, that by her position she retained a right or interest into the respective 16% interests in MFV that she gave to her daughters’ trusts. |
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