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J.L. Pierson & Co. LLC

ESTATE/GIFT TAX ISSUES
ESTATE & SUCCESSION PLANNING

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J.L. prepares business valuation reports involving operating businesses with revenues in the $1.0 to $250.0 million range, as well as Family Limited Partnerships holding a variety of assets and Professional Practices such as legal, accounting and tax. Most often the issues are estate/gift/generation skipping tax related. Click here to review a list of Trust/Estate engagements of the past 3 1/2 years only: 3 yr.List-T&E

Typical Case No. One

Significant estates we valued recently have included arrays of complex, interlocking interests in real estate holding vehicles, along with mortgage notes, low-basis real estate and other assets resulting from lifetimes of buying and selling property. Staying current with the latest U.S. Tax Court decisions helped us secure the most bullet-proof valuations for the client, i.e. the highest valuation discounts consistent with the desire not attract undue IRS scrutiny; if it does attract attention, we generally prevail on the merits.

Typical Case No. Two

A quasi-retired businessman with a profitable and asset rich light manufacturing business wished to pass its ownership, over time, to one of his sons, who had been responsible for modernizing it. At the request of his attorney, we valued a minority one third interest for gifting purposes. That interest was valued under the founder's lifetime exclusion due to the minority discount and thus shielded the gift from tax. Control continued with the founder. The corporate vehicle held not only a business, but also developable real estate wich we recommended be valued by a qualified professional. It was added, with the appropriate discounts, as a non-business related asset.

Typical Case No. Three

The owner of a most diverse portfolio of fractional real estate interests in one New England town wished to transfer assets to his children without a punitive gift tax. We reviewed his paperwork, and recommended that professional real estate appraisals be obtained for the files with weak value support. We then used Business Valuation standards to provide a range of discounts for minority and lack of marketability which we felt were prudent in light of the circumtances and tax court decisions. With these ranges, the investor's attorney created an ownership structure designed to meet his goals, i.e. transfer his property to his family without undue tax liability: the attorney recommended the transfer of key interests to a Family Limited Partnership [FLP] and limited interests therein were then gifted to trusts for the benefit of the next generation. This afforded us the opportunity to justify, based on market studies, several levels of discounts which the owners could avail themselves safely.

Typical Case No. Four

A multi-generational, highly profitable niche leasing business needed advice on how to continue the transfer of assets to the next generation without wasting assets, and while still providing for the founders. The business was valued to a control buyer, which was contrasted with minority values. This helped the family create a blue print to establish a tax-neutral program designed to reward third-generation managers of the firm for results.

Typical Case No. Five

A truck parts distributor, now run by the second generation, had grown very fast; over the years, the founder had gifted limited interests to his sons. Now that "roll-ups" and consolidators have started to change the industry, management grew concerned bout the value assigned in some cases years ago to the interests transfered. We were asked to value these interests retroactively to gift dates, based on company and industry data then available. Our conclusion that the valuation used years ago would be difficult to challenge and essentially stood.

Typical Case No.Six

A fairly wealthy man wanted to transfer, over a matter of years, a portfolio of big capitalization equity securities to his children and minimize the estate tax bite. He consulted with an attorney specializing in Trust and Estate matters, who recommended that a Limited Liability Company be formed to hold the portfolio. He would be the Managing Member of the LLC, and the operating agreement would provide that Managing Member be entitled to superior rights to those of regular Members. In such a manner, the LLC is an excellent vehicle for estate planning. He gifted regular membership interests to his children. For the purpose of filing the required gift returns, we valued the membership interests in the LLC. Significant valuation discounts were achieved without placing the client at undue risk of an IRS audit.

Typical Case No. Seven

Many family holding vehicles are still taxed as C corporations for a variety of historical reasons, and because of the tax on Unrealized Built-In Capital Gains [or "UNBIG" for short.] In such a case, we valued the interest using a discount for such taxes, based on the method sanctioned by several recent tax court cases. This was for a corporation holding retail properties which had been purchased during the depths of the depression of the nineteen thirties from the holder of defaulted mortgages.

INCOME TAX ISSUES

Typical Case No. Eight

A family-owned manufacturer of engineered products wanted to change its Federal income tax status from C to sub-chapter S. We were engaged to prepare a Fair Market Valuation of the business. This involved researching the stengths and weaknesses of the firm's business plan going forward in relation to a changing industry.

Other valuations for income tax purposes have included abandonment issues, casualty loss deductions, charitable giving as well as reasonableness of inter-company transfer prices and, of course, purchase price allocation studies.

SUCCESSION PLANNING ISSUES

Typical Case No. Nine:

A fair-sized business involved in manufacturing parts for the auto and other industries had made its long-time management team a significant investor in the firm. With the anticipated retirement of that team [and a new team in place] it was time to value their interest and pay it out over time. This assignment involved extensive due diligence in an industry dominated by public firms, as a result much information was readily available. A valuation of the business fair to both the original owners and the retiring managers was produced based on that due diligence.

Click here for an article in VALUE ADDED on the Davis tax court case [built-in capital gains in estate planning.]
Click here for an article in VALUE ADDED on the business purpose of FLPs.
Click here for an article in VALUE ADDED on the IRS v. the FLP.
Click here for articles in VALUE ADDED on both the Church case and the new disclosure requirements for gift appraisals.
Click here for an article in VALUE ADDED on observations made by U.S. Tax Court Judge Laro.
Click here for an article in VALUE ADDED on the J.C. Shepherd tax court case.
Click here for an article in VALUE ADDED on the appeal and remand of the Simplot tax court decision.
Click here for an article in VALUE ADDED on the appeal and remand of the Dunn tax court decision.
Here is the Outline of a Presentation made June 9, 2004 to The Tax Club of Hartford, Inc.
Click here for an article onthe new Appraiser Oversight Provisions of H.R. 6 and the 2006 USPAP.

DISCOUNTS: JLP&Co.LLC CALCULATES SUPPORTABLE VALUATION DISCOUNTS AS REQUESTED BY THE U.S. TAX COURT

Using a variety of sources, discounts can now be calculated with actual transaction support, such as most recently the PLURIS data base which can be used to support a specific Discount for Lack-of-Marketability. Ask us about it !


Sorry, this page will continue to be very much under construction for the foreseeable future.


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J.L. PIERSON & CO. LLC
Business Valuation : New York, New Jersey, Connecticut, etc. !

368 Heights Road #2392
Darien, CT 06820, U.S.A.
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