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Quarter 4, 2009 Contents
Quick Links to SC&H Group ESOPs as a Liquidity Event The credit crunch and recession that the United States has endured during the past 12 to 18 months has created a difficult environment for owners of small and middle-market companies to sell their businesses. Although signs of economic recovery are on the horizon, the M&A markets remain sluggish. Despite the current market conditions, Employee Stock Ownership Plans (ESOPs) remain a viable strategy for business owners who desire either a full or partial liquidity event. An ESOP is a qualified retirement plan that primarily invests in the stock of the employer company. Thus, an ESOP can be used by a business owner to "create" an internal buyer of company stock. In addition, ESOPs can create substantial tax benefits for both the corporation and selling shareholder. As an ESOP-owned company, SC&H has the real world experience necessary to help our clients navigate the unique aspects of an ESOP. We rely on the specialized knowledge of our professionals to serve ESOP clients nationwide, assisting selling shareholders, plan sponsors and trustees in establishing and maintaining well designed ESOPs. Our services cover both the initial ESOP transaction as well as annual compliance issues and include all of the following:
If you are considering your options for a liquidity event, an ESOP may be the most beneficial vehicle to realize the highest level of after-tax proceeds. If you, or one of your clients, may benefit from considering an ESOP as an exit strategy, please contact one of our ESOP professionals by email at esopvaluation@scandh.com or call (410) 403-1500 or (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 this issues 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 Experts Duel Over Discounts in Minority Shareholder's Divorce
Wright v. Wright, 2009 WL 724153 (Ala. Civ. App.) At the center of this divorce: Whether valuation of the husband's 25% interest in an office products company (a subchapter S corporation) was subject to marketability and minority discounts. Click here for the full article
No Legitimate Business Purpose for FLP Precludes Analysis of Discounts
Estate of Jorgensen v. Commissioner, 2009 WL 7920771 (U.S. Tax Ct.) The Jorgensen estate could not persuade the U.S. Tax Court to find a single legitimate (non-tax) business purpose for its family limited partnership (FLP). Click here for the full article
Court Allows Art Collector's Estate Only 5% Fractional Interest Discount Stone v. United States, 2009 WL 766497 (C.A. 9 (Cal.)) The estate of a private art collector appealed the district court decision to grant only a 5% fractional interest discount for its undivided 50% interest in a nineteen-painting group of master works. Click here for the full article Damages for Lost Customer Accounts is Net Value of Lost Profits, not Fair Value NetQuote, Inc. v. Byrd, 2009 WL 902437(D. Colo.) Bloggers in both the insurance and technology sectors were buzzing about this "click fraud" case, not only for its core legal issue (is it possible for a computer to rely on false information?) but for the legal questions concerning damages, and how to measure the loss of client leads and accounts. Click here for the full article Fair Market Value Includes Only Reasonably Foreseeable Subsequent Events Alan Baer Revocable Trust v. U.S., Inc., 2009 WL 1451577(D. Neb.) The owner of stock in a private, closely held, telecommunications company died in 2002. He left his shares to 23 beneficiaries through a trust, contingent on the trustee selling the stock for a profit. The remainder of the shares—plus additional assets—were to go into a qualified residual interest trust (QTIP trust) for the spouse, and for which the estate claimed a marital deduction—based on an appraisal at the owner's death of the present value of the partnerships holding the stock, minus the contingent bequests of $41.5 million. Click here for the full article Bankruptcy Court Cannot Just 'Split the Difference' in Divergent Discount Rates United Air Lines, Inc. v. Regional Airports Improvement Corp., 2009 WL 1181852 (C. A. 7 (Ill)) In United Airlines' Chapter 11 reorganization, the bankruptcy court considered how much the airline owed lenders that financed the improvements to its gates at Los Angeles International Airport (LAX). The original 2004 loan amount was $60 million. According to its reorganization plan, United would have to pay the full, present value of the assets that served as security; i.e., the improved, leased space at the airport. Any excess would be unsecured debt, which the airline could write down. Click here for the full article
New FLP Case: Taxpayer's First Asset Transfer Merits Discount, But Not Second Estate of Miller v. Comm’r Internal Revenue, T.C. Memo 2009-119, 2009 WL 1472208 (U.S. Tax Ct.) In this case the first FLP asset transfer successfully escapes the pull of IRC Sec. 2036, but the second does not. Click here for the full article
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