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Estate & Gift Tax Reporting

A comprehensive, well-supported business valuation is crucial when gifting interests in a company. Business interests must be valued for tax compliance purposes when transferred as a gift or as part of an estate. The recognized standard of value in estate and gift tax valuations is the “fair market value”. This is defined as the theoretical amount at which the property would change hands between a willing buyer and a seller, where both parties have reasonable knowledge of the relevant facts.

Employee Stock Options / 409A Valuation

Unlike public companies where value is set by the market, private companies use independent appraisers to assess their value. Issuing equity as compensation is a relatively simple process, but due to regulation in the IRC Section 409A created by the American Jobs Creation Act of 2004, employers are not permitted to issue options with an exercise price they simply pick. An IRS Section 409A valuation is an independent appraisal of the Fair Market Value (FMV) of a private company’s common stock that determines the “strike price” for equity. If your company is planning to offer options, you’ll need a 409A valuation.

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Fair Value Measurements

One of the primary purposes that valuation analysts value intangibles assets is for financial reporting of Business Combination or subsequent impairment testing. The FASB implemented Fair Value accounting for business combinations beginning with standards issued in 2001, subsequently revised and re-classified as ASC 820 Fair Value Measurement, ASC 805 Business Combinations and ASC 350 Intangibles.

Under ASC 805, Business Combinations are accounted for under the acquisition method which requires several key steps:

  • Identifier the acquirer
  • Determining the acquisition date
  • Recognizing and measuring the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree
  • Recognizing and measuring goodwill or a gain from a bargain purchase.

Fairness Opinion

A service that is very closely related to business valuation is the fairness opinion. A fairness opinion is frequently required when a transaction requires an independent firm to provide a level of assurance that the transaction is reasonable to all parties to the transaction. Fairness opinions are generally required when a business entity is involved in a merger, acquisition, ESOP transaction or when a public company goes private. Fairness opinions provide the parties with valuation information and opinions that indicate that proper business judgment was exercised in consummating the transaction.

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