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Quarter 3, 2009 Contents
Quick Links to SC&H Group, LLC 2009 MSBA Conference We were excited to see everyone at the 2009 Annual MSBA Conference in Ocean City. If you didn't get a chance to meet us in person, please give us a call. We would be happy to discuss any valuation issues that your clients are contemplating. Congratulations to Scott Wilson from Miles & Stockbridge who was the winner of our $100 American Express Gift Certificate drawing. Valuation and Estate Planning in the Current Environment The challenging economic environment has negatively affected many owners of privately-held businesses over the last 12 months. However, it has also created a unique estate planning opportunity for business owners who may be subject to estate taxes in the future. Due to these economic conditions, the values of many privately-held businesses and other assets have declined significantly due to:
As a result of these temporary declines in the value, business owners can use a variety of techniques to pass stock and other income producing assets to their heirs at a fraction of the long term value of those assets. In combination with the observed declines in the value of many assets, the low interest rate environment further contributes to the attractiveness of certain estate planning vehicles such as:
Our experienced valuation and estate planning experts are available to discuss these opportunities with you and guide you through the process of setting up estate plans and properly valuing interests for estate planning purposes. For more information about our Business Valuation practice, email BVLS@SCandH.com or call (410) 403-1500 | (800) 832-3008.
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Welcome to Valuation Insights — a complimentary newsletter presented quarterly to our friends in the legal and consulting professions. We hope that you will find the topics, articles, and court case abstracts relevant, timely and informative. SC&H Group is a widely acclaimed CPA and management consulting firm serving a large client base ranging from emerging businesses to the largest Fortune 500 companies. The Group consists of specialized practices, each with dedicated professionals serving focused client needs. With offices in Maryland, Virginia, and Georgia, the firm’s services include business valuation, litigation support, comprehensive accounting, tax and business advisory services, management consulting and state and local tax services. SC&H has been recognized as the 57th largest Firm in the country by Accounting Today based on 2008 revenues. Our growth rate was the 4th fastest in the nation among Inside Public Accounting’s Top 100 Firms. We have also been named to the Inside Public Accounting Best of the Best list for ten consecutive years. Please contact us if you would like additional information on any of these topics or to discuss ways we may be of assistance to you in your client matters. Michael J. Young, CPA/ABV, CVA Nathan E. DiNatale, CPA/ABV, CVA, CFE Divorce Court Favors 'Minimal Use' of Discounts in FMV
Drumheller v. Drumheller, 2009 WL 565020 (Vt.) The two major disputes in the Drumhelle's divorce focused on valuation. The first related to the husband's 10% interest as CEO of a large printing company, which employed some 250 people. Also at issue was his one-third interest in the real estate partnership that owned the company's land and building. Click here for the full article
Tax Court Decision on Discounts and Embedded Taxes Hinges on Experts
Estate of Litchfield v. Comm’r, 2009 WL 211421 (U.S. Tax Court) The $26.4 million Litchfield estate consisted primarily of minority stock interests in two family owned companies, Litchfield Realty Co. (LRC) and Litchfield Securities Co. (LSC). The Internal Revenue Service (IRS) and the estate agreed on the net asset values (NAV) of the estate's interests. However, they aggressively disputed the discounts related to built-in capital gains taxes, lack of control, and lack of marketability. Click here for the full article
Court Frustrated by 'Hide the Ball' Tactics in Damages Discovery Kingsway Financial Services, Inc. v. PricewaterhouseCoopers LLP, 2008 WL 5336700 (S. D. N.Y.)
Polaroid Corp. v. Casselman, 213 F. Supp. 379, 381 (S.D.N.Y. 1962) Click here for the full article Financial Expert Ensures Proof of Reasonable Royalty In Unjust Enrichment Case Mass. Eye and Ear Infirmary v. QLT Phototherapeutics, Inc., 2009 WL 78064 (C.A. 1 (Mass.)) After a "spirited" trial on the merits, a jury found QLT Phototherapeutics (the defendant) liable for misusing the plaintiff's confidential research and proprietary materials in the development of a "blockbuster" pharmaceutical to treat age-related macular degeneration. The jury awarded the plaintiff a running royalty rate of 3.01% of the defendant's gross sales of the pharmaceutical, and the defendant appealed. Click here for the full article Expert's Conservative Assumptions Help Sustain Damages Award Russo v. Ballard Medical Products, 2008 WL 5247934 (C.A. 10 (Utah)) A medical inventor created a tracheal catheter that more than tripled the useful life of a prior design and marketed his innovation to Ballard Medical Products--the world's largest manufacturer of closed tracheal systems--under a two-year confidentiality agreement. Ballard agreed to pay a 3% royalty rate for licensing the new design, but it rejected the inventor's request for a guaranteed minimum annual payment of $50,000 and broke off their negotiations. Click here for the full article Court Considers Applying Attorney-Client Privilege to Expert Communications Sieger v. Zak, 2009 WL 562988 (N.Y.A.D. 2 Dept.) During this past year, the Judicial Conference's Advisory Committees on Appellate Rules, Bankruptcy Rules, Civil Rules, Criminal Rules, and Evidence Rules has been soliciting public comment on two proposed amendments to the Federal Rules of Civil Procedure (FRCP). Click here for the full article
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