These include valuations of business interests for estate and gift taxes, taxable distributions, buy/sell agreements, issuance of management stock options, charitable contributions and S Corp. conversions.
HVA is careful to prepare a thorough, thoughtful analysis evidenced by a well-documented narrative report as the best means to withstand the scrutiny of the Internal Revenue Service or other regulatory agencies. HVA stands prepared to support its analysis upon audit or other challenge. In the vast majority of such situations, HVA has helped to bring the matter to a successful resolution.
In addition to providing a valuation opinion, HVA will analyze the feasibility of various estate and tax planning strategies, review draft documents and agreements and recommend structural changes to maximize the client's planning objectives.
When valuing minority interests in operating companies, real estate holding companies or investment companies, HVA relies upon several proprietary studies to quantify the appropriate level of discounts for both lack of control and lack of marketability. HVA believes that performing such studies in-house and having access to the underlying data gives HVA superior insights relative to the vast majority of its competitors who must rely on often outdated studies published by others for their empirical data.
On numerous occasions, HVA professionals have lectured and presented our methodology to various estate and tax planning groups. As a result of our proprietary knowledge and extensive experience, we specialize in large estates, particularly those that include a myriad of multi-tiered fractional interests in limited partnerships, general partnerships, limited liability companies, co-tenancies and Subchapter S corporations.
HVA consults with business owners and their advisors to structure customized purchase price provisions for buy/sell purposes. Depending on the needs of the particular client, the buy/sell purchase price can be determined using either an independent appraisal or a formula. Often, an independent appraisal is performed at the outset to establish the initial value and identify the company's specific "value drivers". A formula can then be implemented to track expected future changes in value as a function of changes in the company's value drivers.
HVA's experience in shareholder disputes has proved invaluable in helping clients structure buy/sell agreements that avoid the most common sources of disagreement between owners down the road. Also, HVA's knowledge of the relevant provisions of Chapter 14 of the Internal Revenue Code helps clients structure agreements that are compliant with the code.
The issuance of employee stock options has both income tax and financial reporting consequences that often require an independent valuation opinion. HVA is experienced in determining the value of these options using well-known option models like the Black-Scholes Model, as well as several other alternative option pricing models. HVA's knowledge of these models assist in the prevention of model biases to either overvalue or undervalue options under certain circumstances.
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Valuation of "Pass-Thru" Entities
The valuation of so-called "pass thru" entities-entities that pay no income tax but pass their income tax consequences on to owners-has received an extraordinary amount of attention in the estate and gift tax arena. Bouyed by recent Tax Court cases, the Internal Revenue Service has increasingly taken the position that Subchapter S corporations, partnerships and limited liability companies must be valued using methodologies that can result in indications of value that are substantially above the value of an otherwise identical tax paying entity. No clear consensus has emerged in the valuation community regarding the appropriate methodology for valuing pass-thru entities other than the near universal belief that the extreme position of the IRS is not economically justified.
In this environment, it is imperative that any valuation of a pass-thru entity specifically address the treatment of its tax status. At HVA, our substantial experience in the valuation of pass-thru entities has taught us that no single methodology can be applied to all situations. We treat the issue on a case by case basis using methodologies that make sense given the specific facts.